Some firms still hesitate, but electronic commerce is the future of business
Electronic commerce is more than just ordering a book through amazon.com. “To me, electronic commerce is the automation of the buying and selling process through the Internet,” says Rick Saindon of Greenbrier & Russel, Inc., an information technology consulting firm.
As more businesses engage in electronic commerce, or e-commerce for short, others who will want to do business with those firms are also getting into the act.
“We’ve found in a number of cases, we start talking about the consumer to business (e-commerce), and they say, ‘Wait a minute. We have distributors, we have resellers, wholesalers,'” Saindon says. “And they get a little nervous when we begin to offer products directly from the manufacturer to the end-customers through them.”
In effect, many manufacturers are reluctant to cut off their wholesalers and distributors, key components of their sales force.
Reasons for hesitancy
Saindon listed several additional reasons why companies have hesitated to begin using e-commerce.
Formative years. Saindon readily admits that some of the companies that were pioneers of e-commerce as little as two years ago may have gotten burned by the high cost and relatively cumbersome operating platforms used. Few canned solutions were available, so most companies were forced to develop their own e-commerce systems. Because each system was highly proprietary, the individuals that developed them could command higher salaries elsewhere for having developed the system, leaving the original companies without skilled individuals to maintain their systems.
Not ready for mission critical. Issues such as reliability, availability and security had to be addressed before companies became confident that the system would work.
Evolution. Earlier proprietary e-commerce platforms were so complicated the cost of evolving the application to reflect changes in the business were not only very costly, but time consuming, Saindon says.
Support costs. If the company is selling to global markets, the site should be maintained 24 hours a day, seven days a week by professional technicians. “However, businesses that just sell in the United States can say, ‘We’re going to guarantee our e-commerce site is up from 6 a.m. to 8 p.m.,’ so that reduces some of that support burden,” Marc Blazich, Milwaukee branch manager for Greenbrier & Russel, says.
Internet connection costs. Saindon estimates that an e-commerce site going full tilt would need wider bandwidth, costing a business between $2,000-$2,700 per month.
The wrong people are making the decisions. “The people who are interested aren’t the managers of Information Services or Technology Group, it’s the CEOs and the (big picture) people,” Blazich says. “They’re the people that are more concerned about what their competitors are doing, more than the head of IT.”
“To the guy in IT,” Saindon adds, “it’s a whole new technology and another project and more burden and more support.”
Y2K. Companies are racing to get their systems Year 2000 compliant, which leaves little time to invest in the technology required for a good e-commerce site. But Saindon thinks that companies should position themselves with e-commerce technology as a cheap insurance policy against the potentially crippling effects of the Year 2000 bug. “In other words,” Saindon says, “the traditional business-to-business interfaces may break down in which case this new mechanism could be sitting on the shelf waiting for establishing a quick link where those traditional, existing links have broken (down).”
Reasons to jump in
Of course, there are reasons why companies are eager to try e-commerce as well.
Target marketing and advertising. The site can change its look depending on who is accessing it (through log-on information). If distributor A buys 10 items consistently, the site can display those items up front, versus distributor B who purchases items on a more random basis and may need a browsing feature on his Web site view. That also enables the business to target its advertising efforts depending on who is accessing the site.
Beating your competition to the Web. As time goes on, more and more companies will sense their competition moving to the Web, forcing them to set up a site as well.
Streamlining the business and customer service. “They (customers) want to be empowered,” Saindon says. “They want the opportunity to take control of the situation themselves. They don’t want to wait in a queue, waiting for the next available representative to talk to. They can go out and find it (information) when they want it.” It also reduces overhead costs in providing customer service because less staff is needed due to the self-service element of e-commerce.
Managing growth and reducing overhead. “As you grow a company traditionally, you don’t want linear growth in the overhead mechanisms that it takes to support that growth,” Saindon says. “You want non-linear so you can grow the company with something less in terms of the overhead costs. Electronic commerce is a way to apply technology as a way to do that.”
Reducing operational costs with fewer steps. Saindon uses Microsoft’s MS Market, an e-commerce procurement tool, as an example of the cost-savings of e-commerce. The industry standard for processing purchase orders (POs) is $104 per PO. The cost for processing POs with MS Market is $5 per PO. After Microsoft implemented MS Market, it re-allocated 27 people from its procurement department to other areas within the company. Microsoft processes 291,000 transactions per year, for a net savings of $28,809,000 using MS Market. “And they’re running this whole thing on one server and one sequel server,” Saindon says. “So it’s not a huge platform to handle this volume of transactions, but they’re saving a ton of money.”
Increased revenues. Electronic commerce reaches out to the global market and is available 24 hours a day, seven days a week.
Trickle down mandates from large customers. Companies like General Motors or Sam’s Club require vendors to use e-commerce.
Built-in controls. E-commerce sites can be customized down to the individuals ordering from them. So if individual A is only authorized to buy $1,000 at a time or buy certain items, that’s all the site will allow him to do.
At minimum, a company needs a couple of PCs, an Internet connection and about $4,200 for Microsoft’s Site Server, Commerce Edition 3.0. It would also need Windows NT and some other basic operating software to get up and running. (Other programs available require more hardware and are more expensive according to Saindon and Blazich.)
For companies that are still hesitant in investing in an e-commerce experiment, there are hosting services available where companies can “test drive” an e-commerce site for as little as $500 a month. An Internet connection is the only thing required of the company testing the service.
Saindon recommends the Microsoft product for several reasons including cost, ease of use, support software companies and the Microsoft’s track record in developing new technologies. “I’m banking on (Bill) Gates because over time he’s proved again and again that he has the staying power and the resources – whether or not he’s the best product doesn’t matter to me – he has the vision and the ability to win the game,” Saindon says. “I’m going to ride him as far as he’ll take me.”
