The Lure of E-commerce

Its all about the potential for profit.

The following list summarizes what might be called the "lure of e-commerce":

• Lower transaction costs - if an e-commerce site is implemented well, the web can significantly lower both order-taking costs up front and customer service costs after the sale by automating processes.

• Larger purchases per transaction - Amazon offers a feature that no normal store offers. When you read the description of a book, you also can see "what other people who ordered this book also purchased." That is, you can see the related books that people are actually buying. Because of features like these it is common for people to buy more books that they might buy at a normal bookstore.

• Integration into the business cycle - A Web site that is well-integrated into the business cycle can offer customers more information than previously available. For example, if Dell tracks each computer through the manufacturing and shipping process, customers can see exactly where their order is at any time. This is what FedEx did when they introduced on-line package tracking - FedEx made far more information available to the customer.

• People can shop in different ways. Traditional mail order companies introduced the concept of shopping from home in your pajamas, and e-commerce offers this same luxury. New features that web sites offer include:

  • The ability to build an order over several days

  • The ability to configure products and see actual prices

  • The ability to easily build complicated custom orders

  • The ability to compare prices between multiple vendors easily

  • The ability to search large catalogs easily

• Larger catalogs - A company can build a catalog on the web that would never fit in an ordinary mailbox. For example, Amazon sells millions of books. Imagine trying to fit all of the information available in Amazon's database into a paper catalog!

• Improved customer interactions - With automated tools it is possible to interact with a customer in richer ways at virtually no cost. For example, the customer might get an email when the order is confirmed, when the order is shipped and after the order arrives. A happy customer is more likely to purchase something else from the company.

It is these sorts of advantages that create the buzz that surrounds e-commerce right now.

There is one final point for e-commerce that needs to be made. E-commerce allows people to create completely new business models. In a mail order company there is a high cost to printing and mailing catalogs that often end up in the trash. There is also a high cost in staffing the order-taking department that answers the phone. In e-commerce both the catalog distribution cost and the order taking cost fall toward zero. That means that it may be possible to offer products at a lower price, or to offer products that could not be offered before because of the change in cost dynamics.

However, it is important to point out that the impact of e-commerce only goes so far. Mail order sales channels offer many of these same advantages, but that does not stop your town from having a mall. The mall has social and entertainment aspects that attract people, and at the mall you can touch the product and take delivery instantly. E-commerce cannot offer any of these features. The mall is not going to go away anytime soon...

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