In-Depth

Competing in the Digital Economy: Convergence and Digitization

• By Mahesh S. Raisinghani
• 11/01/2000

The concept of a digital economy suggests a business future radically different from today, with new perspectives, drivers and lessons to be learned. The 21st century projections suggest order-of-magnitude increases in both business-to-business and business-to-consumer e-commerce. The U.S. e-commerce industry ranks as the world’s 18th largest economy, behind Switzerland and ahead of Argentina, according to the study conducted by the University of Texas’ Center for Research in Electronic Commerce. In the same study, researchers also found that the four sectors of the U.S. Internet economy -- infrastructure, applications/Web development, intermediaries (including portals, online brokerages, travel agents and advertising) and commerce -- generated an estimated $301.4 billion in revenue in 1998.

The qualitative and quantitative research methods used to make the projections of e-commerce activity, and the valuation of the information technology (IT) industry are predicted to become more rigorous, precise and useful over the next four to five years by the U.S. Census Bureau, the U.S. Bureau of Economic Analysis and several IT research organizations, such as the GartnerGroup and Forester Research. The impact of extraneous variables on e-commerce, such as mobile, wireless global e-commerce using satellite communication; interactive television as an alternative to Web sites and/or taxation of online transactions need to be considered. In addition, new metrics need to be derived for measuring the volume of e-commerce, and the tangible and intangible costs and benefits of e-commerce. The wide range of e-commerce revenue projections by various researchers from $800 million to over $1 trillion a year by 2002 is due to sampling errors and/or lack of a standard research methodology. In addition, disparities among private estimates result from differences in definitions, methods, data, model and sampling error, and product coverage. Variations also reflect the research needs of customers. While data used for estimates and forecasts are based on a combination of surveys and interviews, the survey questions and answers are not made public, sample sizes vary considerably across surveys, and little information is available on the respondents at www.ecommerce.gov/ede/chapter1.html.

Even though the elements measured (e.g., consumer transactions on the Web, business-to-business transactions, such as corporate procurement from catalogs or Web-based electronic data exchange (EDI) in the virtual supply chain, Web transactions that result in sales through other distribution channels, etc.) and the methods to measure these elements differ, there is no doubt that the e-commerce economy is on a significant rise.

The U.S. Department of Commerce predicts the volume of business-to-business e-commerce will increase from $8 billion in 1997 to $300 billion in 2002, and Jupiter Communications predicts the growth on the consumer side (including travel and tangible goods sold, but not financial services) to be from the current $7 billion to $41 billion by 2002 (Kindel, 1999). By the year 2003, worldwide e-commerce will approach $3.2 trillion, and represent nearly 5 percent of all global sales.

Beyond Web sites that merely advertise or inform, conducting business transactions on the Internet provides the means of capturing an enormously broad customer base unavailable in a storefront or mail order catalogue. There are three primary areas to consider in planning a transition to the e-commerce world. These three steps are 1) adapting or changing the present business model, 2) creating a personal sales experience, and 3) inventing a unique site that entices a customer to return and builds loyalty.

Every company’s business has existing processes that must be adapted or changed to build an e-commerce site. A business model for e-commerce shares many similar characteristics with a normal business, such as advertising and capacity planning. The e-commerce model differs in that targeted advertising is difficult in the Web, where "hits" on a Web site may be merely surfers landing accidentally on your site, or are merely curious. The Web also has the ability to overwhelm a company’s production capacity. Whereas only so many people can visit a retail storefront, a Web site allows virtually unlimited customers. A favorable review could generate enough business to outstrip the ability to deliver.

Advertising for a Web site can consist of traditional methods and, often times, this seems to be the most successful approach. Just as traditional print and electronic media are effective at generating customer interest for general businesses, so can they be effective at generating interest and name recognition for a Web-based business. After all, you are advertising your product, not the fact that you’re on the Web.

Order fulfillment, shipping and billing need careful consideration when moving a business to the Web. Customers now expect the additional level of service that can be provided by an e-mail notification of when an order shipped, and the package tracking information for whatever carrier was selected for delivery. The ability to accept and process orders 24 hours a day must exist, as there are no longer store hours; customers will want to shop at their leisure, and may be half-way across the world.

There is a natural reluctance to purchase from an unknown Web site. Shipping via well-recognized carriers that allow for confirmation and tracking of shipments removes the customer’s concern of hearing, "It’s in the mail." The carrier represents you when the product gets to the customer on time, arrives late or broken.

Unlike a store where the customer can examine a product for the feel of quality, the color, shape, or size, purchases from the Web are only examined after they are purchased and delivered. The reassurance that the customer will have the opportunity to return the product if it is not what they expected will help decrease the barriers to purchase.

Billing procedures must correspondingly be flexible. While credit card payment is the prevalent and preferred method of payment on the Internet, there is the possibility of capturing additional niche business by providing C.O.D. deliveries, or having the ability to provide credit.

One difficulty in conducting business on the Web is creating a personal connection with your customers. It is easy to do this when the customer is face to face with you in a store. It is possible to create a connection with the customer beyond just the business relationship by asking how their day is, chatting about local events, or discussing common interests.

By using technology to track shopping patterns and personal interests, the customer’s shopping experience may be customized to their needs and interests. While most companies use auto-generated e-mail for replies on order status, creating e-mails that differ in content or form to mask the appearance of a canned response, or even using staff to personally type e-mail responses can help foster a community climate.

Consumers will seek the comfort of familiar brands as a way to make their lives simpler and more efficient. Nothing replaces the assurance of the brand. However, one big difference will be in how a brand gets built in the networked economy. The age of brand building via mass communication is dead. When a firm is persistently connected to its customers, the number and frequency of touch points with customers goes up dramatically. The key insight is that every touch point is an act of branding.

Only two of the top 20 global brands today are also Internet brands, and these are Disney and Microsoft. Trust and loyalty do not automatically transfer from the world to the Internet, therefore brands don’t either. Only a few digital brands have successfully emerged so far, and their lead could be threatened by others, since the terrain is still being shaped. The technology will be subservient to the user’s emotional preferences and feelings. The challenge, though, is the Internet’s ability to manipulate where a user spends his or her time.

According to Daniel Roth, in his book "Five Myths That Could Kill E-Commerce", the next wave of Internet shoppers will be looking for more than just speed and convenience, they will be window shoppers who like to shop with friends, and have no problem returning what they’ve bought. For this type of shopper, the sites will need to be similar to a store in which people may go to browse, but might purchase on impulse. The convergence of content, communications and computing technologies will continue and the concept of information at any time, any place, anywhere will become the expected norm for global business. This convergence and digitization of e-business breaks the traditional barriers of traditional silos, redefines boundaries, provides global access and forces new relationships. As organizations struggle to find new rules for growth and success, the Internet will become the dominant paradigm and the core technology for creating digital communities that make business redefinition possible. The digital economy promises inorganic growth at unprecedented levels for those who act now! global business. This convergence and digitization of e-business breaks the traditional barriers of traditional silos, redefines boundaries, provides global access and forces new relationships. As organizations enter the new millennium and struggle to find new rules for growth and success, the Internet will become the dominant paradigm and the core technology for creating digital communities that make business redefinition possible. The digital economy promises inorganic growth at unprecedented levels for those who act now!

Mahesh S. Raisinghani, Ph.D. is a faculty member at the Graduate School of Management, University of Dallas, and serves as the Director of Research for the Center for Applied Information Technology. He is the author of E-Commerce: Opportunities and Challenges. He can be reached at [email protected].