The Many Faces of Electronic Commerce

• 08/12/1998

Back in his office in the early morning hours, the owner checks his restaurant supply Web site. Are dishes in inventory? Can they be delivered tomorrow morning? In the middle of the night, the owner places an electronic order, secure in the knowledge that the dishes are in stock and can be delivered tomorrow. Electronic commerce makes the next day's opening possible.

What Is Electronic Commerce?
Electronic commerce involves using the Internet both as a channel to sell products or services and as a means to exchange transactions between business partners. To some organizations, online commerce is simply another sales channel, such as catalog or telephone sales. Although selling on the Internet can be viewed as simply a new channel to extend the reach of existing brick-and- mortar stores, that perspective sells the technology short. The power of electronic commerce allows a small company to compete in a global marketplace that would be unavailable in the world of catalogs and phone calls. The very nature of the Internet means it is possible to conduct business during the regular business day or at all hours of the night.

It's easy to simply view electronic commerce as a way to sell merchandise to consumers, but perhaps the most important development has been in business-to-business electronic commerce. Unlike their business-to-consumer brethren, these business-to-business sites take advantage of the existing relationships between businesses by allowing online ordering and product information requests. Most new business sites go much further: integrating back-end processing, such as order and shipment tracking and inventory management, with traditional electronic commerce functions.

Where Did It Come From?
A form of electronic commerce, Electronic Data Interchange (EDI), has been around for decades. Used by industrial and manufacturing enterprises, EDI provides a secure method of coding and exchanging standardized business forms. The exchange usually takes place over leased private lines called value-added networks (VAN). VANs provide a secure path to exchange information between companies. Many manufacturing sectors continue to use EDI because they feel it is more secure and reliable than the Internet. According to the Gartner Group, an information industry consulting group headquartered in Cambridge, Mass., the value of EDI business-to-business activity is still more than 10 times larger than all the business-to-business commerce done on the Internet. That will soon change, according to Gartner: Within 2 years the two will nearly be equal at more than $450 billion annually.

Replacing costly EDI systems is just one electronic commerce success. A study from Zona Research (Redwood City, Calif.) suggests that electronic commerce adoption is coming in three waves. The first wave, in the period from 1994 to 1997, saw enterprises attempting to save money by simply publishing information on the Web. The second wave, in 1998 and 1999, will see businesses trying to find revenue through online sales, as well as will see jobs and activities that are created from developing online transactions. The final wave, starting at the beginning of the next century, will have entire forums where people will be able to buy and sell goods and services freely on the Internet.

Small-Business Success
If the splashy successes of huge online stores such as Amazon.com or Cisco Systems Inc. are well-known, it's important to remember that more than 80 percent of the Web sites on the Internet are small-business sites. Of these, fewer than 20 percent do any electronic commerce at all. The enormous investment needed to power these successful sites scares off many small businesses from attempting to implement electronic commerce applications.

Specialty Ventures (Chicago) is an example of a small-business success, with eight traditional stores in Midwestern shopping malls. Last year Specialty Ventures decided to publish information about the products it offered on the Web. At that time, the company implemented a simple electronic commerce application that would allow Web site visitors to look through a catalog of available products and purchase them.

Today, for even small businesses, this simplistic view of electronic commerce isn't enough. According to Robert Sieger, manager of product development at Westmont, Ill.-based BIT Software, "the shopping cart application from only a couple of years ago isn't enough anymore. What's needed now is big-business solutions for small business." BIT Software creates plug-and-play e-commerce sites for small businesses. Sieger says that now small business wants the front-office tasks of order taking and provisioning to be connected to the back-office tasks of inventory control and customer contact.

In the case of Specialty Ventures, the original Web site provided information about goods that could be ordered through the mail and by telephone. When Specialty Ventures simply added the ability to accept credit cards at its Web site, the company saw its sales double. That's not enough for Specialty Ventures: The sales can now be linked to existing databases that the small business uses. "If a company uses Intuit's QuickBooks or PeachTree's accounting software for tracking inventory and sales, the electronic commerce front end must connect seamlessly to the company’s existing databases," says BIT Software's Sieger.

When Business Talks to Business
Not everyone is convinced that business-to-consumer electronic commerce will be the dominant model for the future of business on the Internet. After all, is there any way for electronic commerce sites to replace the shopping experience? Some companies have found that the business-to-business electronic commerce model can generate immediate, tangible benefits for customers and savings of millions of dollars for the company that implements it.

When Beamscope Canada (Toronto) first considered providing its customers with access to its corporate data 4 years ago, it did so using dedicated PC-to-PC connections. Beamscope, a home office and computer supply marketing and distribution company, sells to retailers and resellers throughout Canada. "We wanted to offload calls that were coming into our offices that were simply order taking and shipment tracking," says Beamscope's CEO Larry Wasser. "It was important to us to free up salespeople to actually do their job rather than doing clerical tasks like order entry."

With its initial, simple electronic commerce service, Beamscope was able to be open to its customers 24 hours a day and thus let the actual timing of business suit the customer. "We track our call center all the time," says Wasser, "and what we found was a vastly lower number of calls asking about inventory, about new product release information and about where customer orders stood in the fulfillment pipeline.

"That was enough of a success for us that we decided to make tangible investments in an Internet-based commerce system," continues Wasser. "There was no need to use discounts or other incentives to get our customers to use the system; the value of system is obvious to our customers. They got better service and better prices." For Beamscope the cost of a typical order has plummeted from $20 to 50 cents.

Is it a success? Beamscope's head count has stayed the same in the years while the electronic commerce solution has been deployed. Now, with the same number of staff as when it started, the company has doubled its sales. "It's allowed us to grow without adding people," says Wasser, "and remove the clerical functions that take the most time from key sales staff." Will electronic commerce eventually replace Beamscope's salesforce? "Probably not," admits Wasser. "At the end of the day there still needs to be a human dialog between the company and the customer. It's important that the tools of electronic commerce make it possible for sales staff to concentrate on those contacts and not on clerical and repetitive functions."

Electric Commerce for a Business Sector
The business-to-business model links a single enterprise with all its customers to provide more efficient service and better prices. What if an entire industry, from the smallest parts supplier to the shipper of the finished goods, were linked together in a common mesh of electronic commerce? If a single business sector shared a common set of electronic tools and networks, the cumulative benefit of electronic commerce would be enormous. That's exactly what's happening today in the auto industry.

The automobile industry has long been an extensive user of EDI. EDI's reliance on special, complex protocols and VANs has meant that an expensive layer of network tools must be provided to every company using EDI. According to Bob Moscowitz, who worked on the problem as a technical support specialist for Chrysler and is now senior technical director at the International Computer Security Association (Carlisle, Pa.), the daily networking costs were staggering: "Even in 1995 we sent more than 5 million transaction sets -- that's 56 GB of data -- over 9.6-Kbps lines every month. The auto industry realized that things were getting worse and costing the industry billions."

The auto industry collectively focused on improving its communications. In one project, limited only to the parts supply chain for car seats, the industry improved communications between suppliers so that the process of building a seat was shortened from about 4 weeks to less than a week. According to Moscowitz, "the savings amounted to $70 a car, which translates to a $1 billion per-year savings."

Buoyed by individual successes, the auto industry established a common electronic commerce architecture for all companies. Built on existing Internet standards rather than the more complex requirements for EDI, the new network is currently being implemented. Called the Automotive Network eXchange (ANX), the new network is designed to bring all automotive trading partners into a single, secure network for electronic commerce and data transfer, replacing the complex, redundant and costly multiple connections that currently exist throughout the automotive supply chain.

The initial implementation is focusing on "productive parts," the products in the supply chain that actually go into the final product. According to Moscowitz, "there are more than 8,000 companies involved in the productive parts side of automobile manufacture."

The effect of electronic commerce meshes such as the ANX may be felt outside the boundaries of the original industry. The steel industry, a major participant in the ANX electronic commerce network, serves other sectors such as household appliances. According to Moscowitz, "once the steel industry starts participating in the ANX, they will want other manufacturers like Amana and Westinghouse to participate as well. You can easily imagine the domino effect as the suppliers of parts to those companies join in a common electronic commerce network."

Future Shock
Whether business-to-consumer, business-to-business or a mesh of businesses connected together, electronic commerce is moving from early adoption to mainstream as the effects of electronic commerce are quantified. The tools for electronic commerce, once the province of those corporations with deep pockets, are now available to any enterprise. The power of electronic commerce means that, like the restaurant owner, many of us will soon come to depend on the responsiveness of businesses and customers linked together electronically.

Mark McFadden is a consultant and is communications director for the Commercial Internet eXchange (Washington). Contact him at [email protected].