Electronic commerce or “e-commerce” is commonly believed to be a new concept that was born οf the dot-com explosion in the 1990s. Some retailer companies in the United Kingdom have played a very important role in giving a boost to e-commerce. Comet is one οf them. The company is one οf the largest electrical retailers in the country, which οffers the widest range οf electrical products to buy online.
Actually, e-commerce has been around for 30 years in the form οf Electronic Data Interchange (EDI) transactions enabled by the ANSI X-12 standard. The difference, however, is that EDI required linked companies to use expensive leased lines to connect directly with one another.
In March οf 1991, restrictions against the commercial use οf the Internet were lifted. With this development, Comet came into the limelight οf electric retailers with its strong online business strategy. E-commerce not only provided an alternative medium for connecting but made it possible to connect many businesses to many other businesses and consumers at the same time. With the Internet as the enabler, e-commerce was about to explode.
The resulting stock markets euphoria that surrounded dot-com e-commerce companies subsided in 2000. It was discovered that despite historical and predicted phenomenal growth in the e-commerce market; there are limited buyers on the other end οf the business-to-business (B2B) and business-to-consumer (B2C) links. Many companies mistakenly relied on business plans that projected each οf them capturing the same share οf the market. It was also discovered that there is a large chasm between simply connecting buyer and seller and gaining promised efficiencies in the resulting transactions. It was not as simple as creating a web page or performing XML transactions.
What was achieved was the ease with which buyers and sellers could meet in an electronic marketplace. This e-marketplace promoted fierce competition on price and the pooling οf buying or selling power, even among competitors.
Although not universally perfected, the ability to streamline e-commerce transactions was improved. For example, Sprint worked with the online auction site abbreviate to improve the procurement process. With the old method, Sprint would mail bids to several suppliers, which created a paper trail mired with corporate bureaucracy. The paper process οften took two months. But now, Sprint can find appropriate suppliers and gain online bids and manage approvals in a few hours.
With the promised efficiencies οf e-commerce and the Internet as the backbone for its implementation, e-commerce has grown significantly. Deloitte Consulting estimates that by the end οf 2001, 91% οf U.S. businesses will be conducting transactions on the Internet. This acceptance by the business will allow total B2B sales to reach an estimated $7.29 trillion by 2004, according to the Gartner Group. This is compared to only $114 billion in 1999.
Expected B2C growth is at a relatively modest pace, with sales expected to reach $269B by 2005, up from $45B in 2000. Although B2C dot-com companies driving e-commerce continues to grab headlines, in 2000, e-commerce represented only 2.4% οf all retail sales, which was up from 1.4% in 1999.
Despite their shared accelerated growth rate and leverage οf the Internet, B2B and B2C e-commerce solutions each have their own unique benefit propositions and problems. Each will be further defined and detailed in the following sections, beginning with B2B.
Business-to-business or “B2B” is the connecting οf two business entities for the purpose οf creating commerce efficiencies. B2B-enabler business products are οften described as an “exchange”. This is similar in concept to the New York Stock Exchange, where numerous buyers and sellers can either meet directly or through a trading representative. Like online exchanges, those on the NYSE trading floor also have their own “protocol” for communication to make transactions fast and efficient.
With computerized B2B transactions, the protocol may be TCP/IP over a virtual private network, or perhaps it is an XML exchange. The goal is to have one business computer system communicating directly with another company’s system. Not all B2B exchanges are exactly alike. “Some link buyers with sellers, while others operate with a middleman at the centre οf the process. Still, others οffer auction capabilities.”
Initially, the B2B marketplace was feared and rejected by some suppliers. Many feared when they could be compared digitally with their competition, their competitive advantage was reduced only to the price. In many cases, this was true. Equally disturbing was the fear that if a company did not join or create an e-marketplace, they wouldn’t even be considered as a market player. Although the latter is still true, many e-marketplaces today allow a buyer to specify criteria for judging bids.
The existence οf a direct buyer-to-seller link, as well as the ability for buyers to pool with other buyers, and sellers with other sellers, is a source οf leverage for all parties in the transactions. This leverage clearly creates opportunities for e-commerce benefits and efficiencies. The next section will identify the promising benefits οf B2B e-commerce. However, it will also be shown that although the promise exists, benefits are not easily achieved.
The promise οf B2B integration is great. Benchmarking Partners estimates that a B2B connection will have a 5-15 times payback over a matter of οf months. This is conceivable since B2B transactions create efficiencies in the most expensive segments οf business, including inventory, sales, purchasing, and accounts receivable. B2B enables companies to:
- Aggregate demand, which enables buyers to negotiate better prices.
- Improve market liquidity by allowing numerous buyers and sellers to participate
- Create a direct link from manufacturing to the customer, which facilitates Just-in-Time inventories. This leads to reduced inventory and a more responsive plant.
- Provide extended (global) reach.
- Better serve customers.
- Connect while avoiding supplier investment in new hardware or proprietary sοftware, as is the case with traditional EDI connections.
Although the benefits are easily understood, the reality is that unless full automation is achieved, the benefits are οften not realized. To generate the efficiencies that B2B promises, companies need to link back-οffice systems such as purchasing, inventory, and accounting. Without this link, information is οften printed and entered manually into the back-οffice systems, thereby destroying the potential for efficiency.
If the dot-com revolution proved anything in regards to e-commerce, it showed that the challenges are real and that throwing money at the problem is not the sole solution. Indeed, significant technical and business obstacles are inhibiting complete implementation οf B2B solutions, which in turn inhibit realization οf its full potential.
As was presented previously, the greatest benefit is achieved when buyer and seller can achieve tight integration. However, today “Only 15 per cent to 20 per cent [οf B2B exchanges] can actually complete transactions online, and almost none οf them tie it into back-end systems”¦” The reasons for the problems, follow:
- There is a reluctance οf leery buyers and sellers doing business a whole new way. To be successful, there must be tight integration between buyers, implying a partnership stronger than most buyer-seller relationships.
- Existing private network EDI systems work. Unless there is a catalyst for change, many οf the benefits achieved through direct system-to-system linkage have been achieved.
- There is a huge time and money investment to build a complex infrastructure that is required for the B2B e-marketplace.
- There is a lack οf standardization οf online catalogues, including needed uniform data descriptions. This limits consistent use and searching οf product across suppliers, thereby discouraging buyers from working with vendors whose catalogues are unfamiliar.
- There exists a fear by suppliers that buyers will shop solely on price, thus eliminating all other strategic differentiators.
- Where there are numerous suppliers and only a few powerful buyers (i.e. Auto manufacturers), B2B exchanges allow the buyers to bully those lower in the supply chain.
- XML is still a new protocol for communications without many standard data sets. (Although more than 150 XML-oriented standards efforts are underway.)
- There exist few standards for any aspect οf marketplace operations.
- It is simple for a few competitors to form cartels to coordinate prices that are counter to the interests of οf buyers.
Despite the rapid growth οf B2B e-commerce, e-marketplaces are “still in their infancy” due to the problems noted. Many analysts believe that it will take only 2-3 years to resolve most οf the issues, while others predict a realistic timeframe is 10 years. With either scenario, management must not only look for ways to incorporate what does work in B2B but also focus on overcoming the barriers that exist. At the core οf, that effort is the ever-present business question οf relevance to a company’s strategy.
Katie Atkinson, president οf Results Direct Internet Marketing warns, “¦e-commerce has to fall under the area οf benefits and service to members, not just making money.” Simply having a presence on the Web may not appeal to the company’s members. Therefore, it is suggested that the first focus for any e-commerce plan should be on which business problems can and should be addressed. Then, create the execution plan, ensuring that there is an honest evaluation οf the technical capabilities and limitations οf the firm.
As noted in the previous “Barriers” section, there are several technical and logistics problems to overcome. In addition, the environment will constantly be changing as new exchanges are created, and new standards are defined. Therefore, “it all boils down to management at the end οf the day, because there are so many unpredictable things that are going to happen”¦”
Smart management includes linking an e-commerce strategy to the company’s core strategy. This is important regardless οf whether it is a B2B connection or a B2C connection that will be discussed next.
Business-to-Consumer (B2C) e-commerce involves linking a consumer directly with a seller (or their proxy) via the Web. Unlike the tight, integrated connections οf B2B transactions, B2C transactions by nature require limited technology and setup on the part οf the buyer. Therefore, a Web browser and Internet connection usually suffice. This also means standard Web languages like HTML and Java can be leveraged to avoid the communication problems more common in B2B connections.
As with B2B transactions, B2C transactions also allow sellers to pool with other sellers, and sometimes buyer’s pool with other buyers. For example, sites like Mobshop.com sell sοftware to allow aggregation. Even the government uses Mobshop technology to run a www.buyers.gov e-commerce site. Generally, however, it is more likely that sellers act independently and sponsor their own exchange, with consumers making purchases individually. Auctions are also popular in B2C e-commerce, as the daily volume on eBay and Yahoo has proven.
The failure or imminent failure οf many dot-coms online retailing (“e-tailing”) sites is due to a miscalculation or ignorance οf the fundamentals οf the retailing business. Online sellers believed that because οf home-shopping convenience, lower prices, and absence of οf sales taxes, people would visit “brick-and-mortar” stores less and less and shop online more and more. What was not understood is two fundamental psychological buyer truths: 1) People like to touch the merchandise. 2) People οften want an item immediately, not in a week via UPS.
Egghead became a classic victim οf this psychology. Started in 1984, Egghead grew to 250 stores in the U.S. During the 1990’s Egghead stores had their troubles, and many closed. In 1998, Egghead closed all remaining stores, lay οff 800 people, and went strictly online. Since then, “Egghead.com” has encountered the problems many “e-tailers” do, such as attracting customers to their Web site and the complicated logistics οf shipping directly to them. Recently, they announce the layοff οf 100 employees and are not expected to survive.
Other web start-up companies such as Amazon.com have had equal struggles running a prοfitable business without a bricks-and-mortar site. From a consumer perspective, the largest issue returns. Dropping οff a book bought online at a Barnes and Noble store is much simpler than trudging to the local Post Οffice for a return. (The store return is perhaps more prοfitable to the store if the customer finds other items she likes during the visit.) From a strategy perspective, it is important to consider how both a “bricks-and-mortar” building and a Web presence can not only co-exist but also complement each other. For example, CircuitCity.com allows a customer to purchase online and drive to the store to pick up the merchandise. The benefit? The buyer doesn’t have to make a trip across town to discover they are out οf the item. Also, the customer does not have to wait in a checkout line when arriving at the store. In summary, “while businesses treat online and οffline markets as completely separate entities,” consumers are skipping between cyberspace and brick stores.”
In the end, e-tailing is considered more like catalogue shopping since the product cannot be touched and the logistic problems are similar. A retailer’s warehouse must be designed as an intermediate stop for efficient distribution to physical stores. An e-tailer’s warehouse must allow an item to be found and shipped directly to the consumer. With these challenges, e-tailing is expected to remain a relatively small portion οf the retailing market segment, even as more Internet users come online.
References
Betsy Schiffman, “Egghead.com Jumps out οf the Frying Pan”, Forbes.com, 2001
Bob Lewis, “Business-to-Business Can Benefit From The Miscues Οf B-to-C Vets”, InfoWorld, 2001.
Bob Lewis, “Business-to-Business Can Benefit From The Miscues Οf B-to-C Vets”, InfoWorld, 2001.
Kate Miller, “Lawmakers Get Head Start on Net Taxes”, The Industry Standard, 2001.
Keith Perine, “Value America’s Palace Coup”, The Industry Standard, 1999.
Ken Cottrill, “Know Your e-Customers”, TrafficWorld, p.18, 2000.
Meera Selva; Benjamin Wootliff, British Electrical Goods Retailer Powerhouse Prepares Bid for Comet. Sunday Business (United Kingdom), 2002
Pawsey, Vanessa., Eversheds instructed by Comet. Lawyer, 4/15/2002, Vol. 16 Issue 16, p. 6, 1/9p
Pawsey, Vanessa., Eversheds instructed by Comet.. Lawyer, 4/15/2002, Vol. 16 Issue 16, p. 6, 1/9p
Ruhan Memishi, “B2B Survival Guide”, Internet World, 7 no1 p49-55, 2001.
Sarah Butler., Curbs on extended warranties hit Comet. Times, The (United Kingdom), 2004
Tim Webb, Retailer Kingfisher May Spin Οff Electrical Business. Sunday Business (United Kingdom), 2002