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EVERYTHING YOU KNOW ABOUT E-BUSINESS IS WRONG

Posted on April 10, 2000

      Get ready to relearn everything you thought you knew about e-business. Over the next five years, global e-commerce will grow so quickly that the old rules for how to be successful online just won't apply.

      That's the message from Framingham, Mass.-based IDC (a CIO sister company), which predicts that e-commerce will grow from $130 billion in 1999 to $2.4 trillion in 2004. At IDC's March 2000 Directions conference in Boston, analysts outlined the differences between "eBusiness 1.0" (from 1995 to 1999) and "eBusiness 2.0" (from 2000 to 2004). The former era was marked by the rise of dotcoms like Amazon.com-consumer-oriented, high-growth companies with low or non-existent profit that gained much of their advantage by being first to the web. The latter will see the entrance of brick-and-mortar giants like Ford, General Motors, and Merrill Lynch into the e-business arena. Over the next five years, increasing online competition-and the sheer growth in the volume of online business-will lead investors to have higher expectations for revenues and profit, and customers to have much higher expectations for functionality and service.

      But take heart: according to IDC, it's not too late to succeed at eBusiness 2.0 and regain first-mover advantage. Frank Gens, senior vice president at IDC, says successful companies will share these six characteristics:

CEOs will hold the reins. Many brick-and-mortar companies started their websites as special projects run by marketing or IT departments. But in the future, e-business winners must have a CEO leading the company's internet strategy, even at brick-and-mortar companies. "If the CEO is not leading that enterprise, it is...hobbled from the beginning," Gens says. In IDC's survey of more than 600 internet strategists at leading-edge dotcoms and brick-and-mortar companies, roughly 48 percent said the CEO was responsible for the internet business strategy. Only about 22 percent said the CIO oversaw the internet business strategy (that figure was slightly higher at larger companies).

Online revenues will matter. Brick-and-mortar companies that are serious about e-business must set high goals for online revenues, Gens says. "If you don't demand a high enough revenue coming through this channel, you will never be able to justify the infrastructure." Internet executives from brick and mortar companies surveyed expect to achieve, on average, 27 percent of revenues from their online channels in 1999 and 36 percent in 2000.

Profitability will become cool. In the early days of e-business, being profitable was not cool; the strategy, exemplified by Amazon.com, was to spend heavily to increase marketshare, rather than manage for profitability and miss out on huge growth opportunities. But now, even Amazon.com itself is reporting a profit in its U.S. book sales. And IDC's survey of internet executives found that 27 percent said their online ventures were profitable in 1999, another 19 percent expect them to be profitable by 2000, and another 13 percent expect them to be profitable by 2001; 34 percent don't bother measuring profitability or don't know when they will be profitable (which may not bode well for their futures). Gens recommends that companies aim to turn a profit online within the next 6 to 12 months.

Clicks will be linked to mortar. Business has to be where the customers are-both online and on-land, Gens says. Any traditional-company CEO who decides to spin out a dotcom effort is like the captain of the Titanic deciding to launch the lifeboats. "Launch the [dotcom] on the lifeboats because the mothership is going down," Gens says. Going forward, brick and mortars should strive to develop an integrated click-and-mortar strategy; dotcoms must buy their way into a real-world presence. Here, the internet executives IDC surveyed are already ahead of the curve: Seventy-eight percent described their dotcom efforts as integrated with brick-and-mortar businesses. Only six percent were independent spinoffs; 16 percent were independent internal efforts (a good transition strategy, Gens says, but ultimately bricks should be integrated with clicks).

Indirect channels will be crucial partners. The web has always been thought of as the ultimate direct sales and marketing medium. But over the next five years, companies must also take advantage of indirect e-business channels, particularly in the business to business space, according to Gens. Business to business e-commerce makes up about 80 percent of the overall e-commerce market, and by 2004, 60 percent of B-to-B e-commerce will be done via electronic marketplaces. Gens predicts that even Dell Computer, pioneer of the direct-sales model, will do half of its business indirectly by 2004.

Global growth will mean going local. By 2004, 60 percent of e-commerce revenues will come from outside the U.S. Companies must respond by localizing their websites-that is, tailoring them to specific countries or regions. In the future, deciding not to localize a website "will be like firing half your sales force or closing your store for half the day," Gens says. Today, 55 percent of the internet executives IDC surveyed are doing nothing to localize their websites. But roughly 25 percent offer specialized content and content in local languages, 16 percent offer local service, 11 percent offer local prices and currencies, and 6 percent have local or regional warehouses.

Infrastructure will be ready to deliver content when, where, and how customers want. Security, speed, and ease of navigation were the most important characteristics for successful e-commerce sites during the eBusiness 1.0 era, Gens says. But over the next five years, personalization, service-orientation, back-end integration, and localization will become increasingly important. "If you're not going to personalize your website, you might as well send out catalogs," Gens says. Online leaders will also need to offer content for non-PC devices such as cellphones, handhelds, and other information appliances, as well as content that takes advantage of broadband access to the web, such as video and audio. Today, only nine percent of internet executives interviewed offer broadband content on their websites, while only seven percent offer content for internet appliances. But within the next 12 months, nearly 30 percent plan to offer broadband content, while 22 percent plan to offer content for internet appliances.

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