e-Brief for the Export Strategy-Maker

E-commerce is dominated by the Business-to-Consumer (B2C) sector

This was true perhaps over the last two to four years, as retailers both new and old opened catalogue stores on the web. The benefits to a B2C online store are significant, as an online store never closes, the catalogue is updated by the minute, the customer base is potentially as big as a country, perhaps the world, and the potential is there to "personalize" the shopping experience for each customer.

However, with the rapid development of the larger Digital Economy, and the growing integration into the supply chain of eBusiness and e-commerce practices, the Business-to-Business (B2B) sector has rapidly surpassed the B2C sector. Estimates vary, but by almost every measure the B2B sector is now two to four times as large as the B2C sector, and is growing fast.

Indeed, the rate of growth in the B2C sector, in percentage terms, is outpaced by the B2B sector, but also by the Internet Services and media/portal areas.

Thus, while B2C will continue to grow and evolve, its overall percentage of the pie chart will gradually diminish as the B2B sector emerges as the star of e-commerce.

The number of "hits" to a Web site is an accurate measure of its popularity

In an e-commerce context, given the millions of Web sites which now exist, it is important to draw visitors (potential clients) to the Web site to show commercial viability and attract advertising, collaborative ventures, additional capital, and good old-fashioned sales.

The means by which visits are measured is somewhat imprecise, as 'hits" can be interpreted to count unique visitors to the site (thus counting multiple visits from the same person as one unique hit), or the overall number of visitors (each visit is counted), or the number of page-requests (whereby one visit can spawn dozens, perhaps hundreds, of requests for parts of pages, each counted as a "hit").

Thus, a single e-commerce site over a given period of time can yield wildly divergent measures, depending on which firm performs the analysis and which methods and interpretations are used. This has, in turn, led to considerable confusion and, at times, intentional obfuscation regarding the interpretation of such measures.

Thus, while a high number of hits is generally good, such figures should be viewed with caution.

Furthermore, some sites generate high hit counts because they give something for free, such as the MP3 music sites. In such cases, there are high costs for servers and bandwidth, but not such good prospects for sustained economic activity.

Online advertising provides the cheapest means of attracting customers to an e-commerce catalogue site

This will vary from industry to industry, and may become true over time. However, experience to date suggests that e-commerce sites spend significantly more money acquiring customers via online advertising than through more traditional channels, such as through a brick-and-mortar store or by using its established databases of previous customers. Nordstrom, a multi-channel retailer, suggests that attracting customers to the Web site using online methods costs from 4 to 8 times as much as other methods. Figures for online acquisition are routinely cited in the range of $20 to $100 per customer.

Advertising is a major source of profitability for Web site

Not so clear. Many Web sites have identified online advertising as a significant component of their revenue model in the business plan. However, online advertising does not have the same status as more traditional print, radio, and television media. The effectiveness has not yet been established, and the basis for buying and selling online ad space is not yet mature.

For example, the number of visitors to a Web site is often imprecisely measured, the number of "exposures" of an ad is of dubious value, and the best result, a "click-through" from the ad to the promoted site, is typically a minuscule portion of the number of exposures.

An uproar over the accounting for online advertising erupted recently when it was discovered that a technique to pump up the numbers was in widespread use, whereby two sites would swap advertising banner ads and book the associated dollar value as revenue to their respective sites, while no actual cash was exchanged.

E-commerce "pure-play" e-tailers will put traditional retailers out of business

The battle for this one is not over yet. One of the strongest early justifications for large scale e-commerce operations was the belief that any online company could outperform traditional retail operations. The factors behind this belief were that a pure-play e-tailer was not constrained by the physical overhead of all of those fixed-location stores and the sales clerks that came with them, nor was their customer base constrained by physical proximity of people to the stores.

An online e-commerce e-tail operation, so the reasoning went, had an unlimited number of potential customers, free of any proximity restraints, and low overhead associated with highly efficient centralized warehousing. Combined with the substantial North American infrastructure for order fulfillment, it seemed a sure thing.

The wide acceptance of this thinking induced a certain euphoria in stock prices for companies involved in online retail, resulting in companies as yet unproven becoming far over-valued according to traditional measures. In the early stages of this euphoric period, it was not uncommon for a traditional retailer to attain significant stock price increases based solely on the announcement of the decision to build an e-commerce site!

Amazon.com, which started as a "pure-play", announced that it will take on a brick-and mortar component, thus moving from a pure-play to a multi-channel retailer. Interestingly, the Amazon stock price took a substantial hit as a result of the announcement, as it severely undermined the original justification for the over-valuation of the stock. Amazon.com has yet to turn a profit, and has suffered in the stock and debt markets, such that their financial future is imperilled, while that of some of the multi-channel retailers seems more promising. The Amazon case will serve as a case-study for this issue.

E-commerce can't work without door-to-door order fulfilment

A convergence of forces led to the rapid development of e-commerce in the developed nations, particularly in the United States: strong telephone and electric distribution systems; ubiquitous access to computers; a pervasive consumer culture; and comprehensive system for delivery of product to the customer.

It is difficult, but not impossible, for e-commerce to have practical use and take root in settings where some but not all of these factors are evident. Creative solutions are needed.

In the case of order fulfilment, the Latin American auction site MercadoLibre.com, which operates in nine countries, recognised this as a problem. They developed a feature by which customers could search the product database at the country level, the region, the city, and even down to the village level. Thus, customers could search based upon geographic proximity, and arrange for delivery directly between the buyer and seller!

It is surely not a model for all e-commerce applications, but it is working for MercadoLibre, which has become the largest auction site in Latin America.

Simply stated, the national export strategy-maker’s priority should be to ensure that:

• National policy creates and maintains a business environment which reinforces existing competitive advantages; and
• The mix of financial, technical and promotional services available to the private sector leads directly to the development of new areas of international competitiveness.

e-Competency and the acquisition of e-commerce capability have become key elements of international competitiveness. Together, they can result in the streamlining of export channels and the development of direct supplier-buyer relationships. They can make a significant contribution to the reduction of transaction costs. And they certainly lead to speedier and more flexible responses to new commercial opportunities.

Yet, when participating in inter-ministerial consultation on policies issues relating to the "digital economy", or when endeavouring to design suitable e-competency support programmes targeting the business sector, the export strategy-maker is likely to encounter concepts (and jargon) with which he has limited experience and familiarity. This "e-Brief for the Export Strategy-Maker" is intended to explain at least some of the complexities.

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