chapter 1 what is electronic commerce

Chapter 1: What Is Electronic Commerce?
“It is impossible for ideas to compete in the marketplace if no forum for their presentation is provided or
available.”
—Thomas Mann (1875–1955)
Overview
Electronic commerce is doing business online. It is about using the power of digital information to understand the
needs and preferences of each customer and each partner to customize products and services for them, and
then to deliver the products and services as quickly as possible. Personalized, automated services offer
businesses the potential to increase revenues, lower costs, and establish and strengthen customer and partner
relationships. To achieve these benefits, many companies today engage in electronic commerce for direct
marketing, selling, and customer service; online banking and billing; secure distribution of information; value
chain trading; and corporate purchasing.
Although the benefits of electronic commerce systems are enticing, developing, deploying, and managing these
systems is not always easy. In addition to adopting new technology, many companies will need to reengineer
their business processes to maximize the benefits of electronic commerce.
An electronic commerce strategy should help deliver a technology platform, a portal for online services, and a
professional expertise that companies can leverage to adopt new ways of doing business. Platforms are the
foundation of any computer system. An e-commerce platform should be the foundation of technologies and
products that enable and support electronic commerce. With it, businesses can develop low-cost, high-value
commerce systems that are easy to grow as business grows. An e-commerce platform’s breadth should also be
unmatched, ranging from operating systems to application servers, to an application infrastructure and
development tools, and to a development system.
Portals are the crossroads of the Internet, where consumers gather and where businesses can connect with
them. Companies normally provide customers with a wide range of choices for professional implementation
services and tightly integrated software for commerce solutions. Independent software vendors (ISVs) have
created specialized commerce software components that extend the platform.
This chapter details introductory strategies and priorities for electronic commerce, which sets the stage for the
rest of the book. It also describes how the platform, portal, and partners are critical to solving business problems
in the four most common areas of electronic commerce: direct marketing, selling, and service; value chain
integration; corporate purchasing; and financial and information services.
E-Commerce: Doing Business on the Internet

Businesses communicate with customers and partners through channels. The Internet is one of the newest and,
for many purposes, best business communications channels. It is fast, reasonably reliable, inexpensive, and
universally accessible—it reaches virtually every business and more than 200 million consumers. Doing business
online is electronic commerce, and there are four main areas in which companies conduct business online today:
direct marketing, selling, and service; online banking and billing; secure distribution of information; and value
chain trading and corporate purchasing.
Direct Marketing, Selling, and Service
Today, more Web sites focus on direct marketing, selling, and service than on any other type of electronic
commerce. Direct selling was the earliest type of electronic commerce, and has proven to be a stepping-stone to
more complex commerce operations for many companies. Successes such as Amazon.com, Barnes & Noble,
Dell Computer, and the introduction of e-tickets by major airlines, have catalyzed the growth of this segment,
proving the reach and customer acceptance of the Internet. Across consumer-targeted commerce sites, there are
several keys to success:
 Marketing that creates site visibility and demand, targets customer segments with personalized offers,
and generates qualified sales leads through observation and analysis of customer behavior.
 Sales-enhancing site design that allows personalized content and adaptive selling processes that do
more than just list catalog items.
 Integrated sales-processing capabilities that provide secure credit card authorization and payment,
automated tax calculation, flexible fulfillment, and tight integration with existing backend systems, such
as inventory, billing, and distribution.
 Automated customer service features that generate responsive feedback to consumer inquiries, capture
and track information about consumer requests, and automatically provide customized services based
on personal needs and interests
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 This business-to-consumer (B2C) electronic commerce increases revenue by reaching the right
customers more often. Targeted and automated up-selling and cross-selling are the new fundamentals
of online retailing. Sites that most frequently provide the best and most appropriate products and
services are rewarded with stronger customer relationships, resulting in improved loyalty and increased
value.

Financial and Information Services
A broad range of financial and information services are performed over the Internet today, and sites that offer
them are enjoying rapid growth. These sites are popular because they help consumers, businesses of all sizes,
and financial institutions distribute some of their most important information over the Internet with greater
convenience and richness than is available using other channels. For example, you have:
 Online banking
 Online billing
 Secure information distribution
Online Banking
Consumers and small businesses can save time and money by doing their banking on the Internet. Paying bills,
making transfers between accounts, and trading stocks, bonds, and mutual funds can all be performed
electronically by using the Internet to connect consumers and small businesses with their financial institutions.
Online Billing
Companies that bill can achieve significant cost savings and marketing benefits through the use of Internet-based
bill-delivery and receiving systems. Today, consumers receive an average of 23 bills per month by mail from
retailers, credit card companies, and utilities.
Secure Information Distribution
To many businesses, information is their most valuable asset. Although the Internet can enable businesses to
reach huge new markets for that information, businesses must also safeguard that information to protect their
assets. Digital Rights Management provides protection for intellectual and information property, and is a key
technology for secure information distribution.
Maintenance, Repair, and Operations (MRO)
The Internet also offers tremendous time and cost savings for corporate purchasing of low-cost, high-volume
goods for maintenance, repair, and operations (MRO) activities. Typical MRO goods include office supplies (such
as pens and paper), office equipment and furniture, computers, and replacement parts. The Internet can
transform corporate purchasing from a labor- and paperwork-intensive process into a self-service application.
Company employees can order equipment on Web sites, company officials can automatically enforce purchase
approval and policies through automated business rules, and suppliers can keep their catalog information
centralized and up-to-date. Purchase order applications can then use the Internet to transfer the order to
suppliers. In response, suppliers can ship the requested goods and invoice the company over the Internet. In

addition to reduced administrative costs, Internet-based corporate purchasing can improve order-tracking
accuracy, better enforce purchasing policies, provide better customer and supplier service, reduce inventories,
and give companies more power in negotiating exclusive or volume-discount contracts. In other words, the
Internet and e-business have changed the way enterprises serve customers and compete with each other, and
have heightened awareness for competing supply chains (see sidebar, “Supply Chain Management”).
Supply Chain Management
Supply chain management (SCM) is changing as companies continue to look for ways to respond faster, improve
service for customers, and maximize sales while decreasing costs. SCM solutions must support highly
configurable products, such as computers and automobiles, global markets with local specifications, and widely
dispersed suppliers and partners. Yet most companies’ SCM solutions are linear, sequential, and designed for
controlled conditions. They rely on accurate forecasting of demand, but are disconnected from the actual
demand. Decisions are made centrally, and changes typically take days, weeks, or even months. However,
companies increasingly need to respond to changes in hours and minutes. Supply chains in this century must be
adaptive and provide greater visibility, velocity, flexibility, and responsiveness to enable enterprise value
networks to adapt to changes in supply and demand in real time.
Management Shift
As supply chain networks extend across organizational and geographic boundaries, companies must find ways to
manage the unmanageable. The future of supply chain management lies in the ability of the enterprise to
respond instantaneously to shifts in global supply and demand, and to major events that occur across extended
supply chain processes. The faster a supply network can adapt to these events, the more value that will be
created. For example, with Walldorf, Germany-based SAP® mySAP™ Supply Chain Management (mySAP(tm)
SCM), enterprise systems supplier SAP is delivering what it believes is the most adaptive supply chain
management solution available on the market. In addition, SAP is developing adaptive-agent technology and
repair-based optimization that is expected to enable the next generation of adaptive solutions and services.
Supply chain management is now the key to increasing and sustaining profitability. In fact, Stamford,
Connecticut-based Gartner Group recently predicted that 91 percent of leading companies that fail to leverage
supply chain management would forfeit their status as preferred vendors.
According to SAP, mySAP SCM has demonstrated bottom-line benefits for its users. For example, New York,
N.Y based Colgate-Palmolive increased forecast accuracy to 98 percent, reduced inventory by 13 percent, and
improved cash flow by 13 percent. The reason: mySAP SCM enables end-to-end integration of supply chain

planning, execution, networking, and coordination.
The Profits of Adaptive
Proponents of adaptive supply chain networks say that by sharing information about customer demand with all
partners simultaneously—rather than in the traditional, sequential fashion, with its inherent delays—network
partners can act more like a single entity to stay in-sync with customer needs.
The adaptive supply chain network puts the customer at the center of all activities in the supply chain, which
allows companies to improve overall costs and profits across the network, instead of just shifting costs to other
parts of the supply chain. Given the dynamics of today’s markets, manufacturers need to rethink their business
model on an almost continuous basis, keep redefining markets and pricing, serve ever-smaller customer niches,
and provide increasingly customized products.
Internal integration helps enterprises break down functional silos and share actionable information. The adaptive
supply chain network relies upon real-time integration of all supply chain systems, including networking, planning,
execution, coordination, and performance-management systems. But, it also requires integration across systems
that support a variety of functions beyond the traditional supply chain.
Customer relationship management (CRM) is about capturing customer requirements, building life-long customer
relationships and brand value, and influencing demand through promotions. This information must be fed back
into the supply chain network to improve planning. Although this flow of information generally does not occur
now, it represents the key to customer-segmentation strategies and effective demand management, which will
lead to increasing overall profitability. Customer feedback and trends must also drive product development to
ensure that products are designed according to customer requirements.
In addition, integration between a product life-cycle management (PLM) system and an SCM solution reduces
time-to-market for new products and ensures that engineering changes are seamlessly integrated back into
manufacturing. Last but not least, aligning a company’s business model with operational capability requires
engineering and sourcing products differently. To support mass customization and postponement strategies,
products tend to be designed in a modular fashion and sourced from fewer strategic suppliers. Close
collaboration with these suppliers on product design is essential to reduce time-to-market, increase product
quality, and ensure that products are designed for supply.
With that kind of integration, a superior understanding of the customer drives everything—CRM, product design,
supply chain operations, and even the value proposition of the entire network. In an adaptive supply chain
network, SCM, CRM, and PLM must all work together. That is the hallmark of a truly customer-centric

organization—and the key to profitability.
Competitive Advantage
Making adaptive supply chains a reality means fundamental changes in a company’s internal operations, starting
with the integration of processes and systems across organizational boundaries. Then, companies can leverage
the increased visibility within and across organizations to achieve change in their supply chain processes,
including functionality for the following.
Adaptive Planning
Today, most supply chain planning and scheduling systems rely primarily upon historical data collected from
enterprise resource planning (ERP) and legacy systems. However, as companies aim to create virtually
“inventory-less” supply chains, they require the ability to realign demand and supply almost continuously to
consider the latest demand situation and supply status. Adaptive planning replaces batch-oriented, period
planning with an event-driven, real-time response to demand signals and changing supply situations.
Dynamic Collaboration
Traditional supply chains rely mostly upon inventory and assets, but the adaptive supply chain network is
information-based—it uses shared data for planning and execution processes. By incorporating data garnered
from collaborative processes (such as vendor-managed inventory [VMI]; collaborative planning, forecasting, and
replenishment [CPFR]; collaborative supply management; and collaborative transportation management), these
networks replace inventory and capacity buffers (long used to make up for a lack of supply chain visibility) with
information.
Distributed Execution
Most execution systems are ill-prepared to support the emerging virtual supply network. Distributed execution
considers the distributed nature of processes in a world of outsourcing, in which multiple partners in the extended
network might manage a single process. Distributed execution allows the management of processes across
different ERP systems by supporting cross-system integration and collaboration.
Event-Driven Coordination
Today, even small disruptions in supply chains initiate a wave of e-mails, faxes, and phone calls just to keep
pace with the problem. Adaptive supply chain networks address the challenge of managing the virtual enterprise
through up-to-the minute monitoring and control of business processes and the rapid, intelligent resolution of
exceptions. Event-driven coordination complements adaptive planning by trying to solve supply chain exceptions
locally to support existing, optimized plans. The result? Faster response to market changes and instantaneous

adaptation to customer needs across the enterprise and the network.
Continuous Performance Management
Most executives would agree that consistent performance metrics are the key to steering the behavior of
individuals and reconciling conflicting goals across functional areas. However, key performance indicators (KPIs)
also play a major role in managing collaborative processes and in providing decision makers with actionable
information to increase the quality and speed of decisions.
Continuous performance management enables closed-loop learning processes by allowing the company to
measure the quality of processes constantly, and by feeding this information back into supply chain planning.
Besides addressing the need for consistent performance metrics, companies are increasingly complementing
supply chain KPIs with balanced scorecards to get a level view of the state of the organization, and to align
operational targets with strategic objectives across functional silos.
Combined, these elements enable companies to implement closed-loop learning processes across the supply
network. In business, the ability to adapt to change is increasingly important. For those who do it right, the
adaptive supply chain network will be an important competitive weapon. Those who don’t may well become the
dinosaurs of their industries
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Value Chain Integration
No other business model highlights the need for tight integration across suppliers, manufacturers (see sidebar,
“The Manufacturing E-Commerce Bottom Line”), and distributors quite like the value chain. Delays in inventory
tracking and management can ripple from the cash register all the way back to raw material production, creating
inventory shortages at any stage of the value chain. The resulting out-of-stock events can mean lost business.
The Internet promises to increase business efficiency by reducing reporting delays and increasing reporting
accuracy. Speed is clearly the business imperative for the value chain.
The Manufacturing E-Commerce Bottom Line
The economic downturn in the United States has played havoc with the country’s manufacturing and engineering
sectors for more than three years, leading to the longest continual month-over-month decline in industrial
production since World War II. But, if there is a bright spot in what economists are predicting for manufacturers in
2004, it is a trend toward increasing e-commerce revenues and initiatives within the industrial sectors.
The Federal Reserve recently reported that production in American factories fell 3.3 percent. The September 11

terrorist attacks created additional uncertainty in all markets, but particularly in manufacturing, where inventory
levels among retailers and suppliers were already high. Consumer spending for durable goods took a drop in the
wake of the attacks and as a result of the developing war on terrorism. Analysts also say they do not expect an
uptick in manufacturing production until consumers begin spending with confidence.
Still, companies like General Electric and General Motors were reporting increases in online sales and predicting
gains in e-commerce by the end of 2003. Officials at GE indicate they expect to increase the amount of online
revenue calendar-year-over-calendar-year from $9 billion to $24 billion.
Historically, online revenue figures in manufacturing, engineering, and supply sectors have been difficult to
determine, because most companies in those sectors do not separate online revenue from other income.
Economic statistics compiled by the U.S. Department of Commerce and others have consistently noted that
although e-commerce activities have continued to grow despite unfavorable economic conditions, determining
the exact portion of the national economy they represent is difficult.
A recent study by the National Association of Manufacturers (the leading industry group of industrial producers)
saw dramatic increases in the number of companies developing Web-based activities to reach both new
customers and suppliers. Despite the intense hype surrounding e-commerce, right now it’s still just a small
fraction of most business and manufacturing operations. But, nearly three quarters of the companies surveyed
reported they were developing e-commerce initiatives to grow their revenues, a harbinger of dramatic change
down the road. As capital spending rebounds, there should be a significant increase in networking and business-
to-business software investments.
In another recent study of e-business activities within the manufacturing sector (commissioned by Interbiz, a
division of Computer Associates International), a significant increase in focus was shown on e-commerce
activities in 2002 within manufacturing and related industrial areas. According to the survey, 56 percent of
manufacturing concerns indicated they were actively involved in e-commerce, with 89 percent reporting
effectiveness within their e-business strategies; 22 percent reported those activities as “highly effective.”
Unfortunately, speed can be costly. Today, approximately 60,000 businesses exchange business documents
such as orders and invoices with their trading partners through a standard communication and content protocol
called Electronic Data Interchange (EDI). Most EDI implementations use leased lines or value added networks
(VANs) that require significant integration for each trading partner. Network design, installation, and
administration can be costly in terms of hardware, software, and staff. In fact, these costs are the key reason that
EDI is most widely deployed only in larger companies.

Moving forward, all companies will be able to take advantage of value chain integration through the low cost of
the Internet. Open standards for electronic document exchange will allow all companies to become Internet
trading partners and function as suppliers, consumers, or both in this business-to-business electronic commerce.
This integrated trading will tighten relationships between businesses while offering them greater choices in
supplier selection.
Issues in Implementing Electronic Commerce
Although it is simple to describe their benefits, it is not nearly as easy to develop and deploy commerce systems.
Companies can face significant implementation issues:
 Cost
 Value
 Security
 Leveraging existing systems
 Interoperability
Cost
Electronic commerce requires significant investments in new technologies that can touch many of a company’s
core business processes. As with all major business systems, electronic commerce systems require significant
investments in hardware, software, staffing, and training. Businesses need comprehensive solutions with greater
ease-of-use to help foster cost-effective deployment.
Value
Businesses want to know that their investments in electronic commerce systems will produce a return. Business
objectives such as lead generation, business-process automation, and cost reduction must be met. Systems
used to reach these goals need to be flexible enough to change when the business changes.
Security
The Internet provides universal access, but companies must protect their assets against accidental or malicious
misuse. System security, however, must not create prohibitive complexity or reduce flexibility. Customer
information also needs to be protected from internal and external misuse. Privacy systems should safeguard the
personal information critical to building sites that satisfy customer and business needs
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Leveraging Existing Systems

Most companies already use information technology (IT) to conduct business in non-Internet environments, such
as marketing, order management, billing, inventory, distribution, and customer service. The Internet represents
an alternative and complementary way to do business, but it is imperative that electronic commerce systems
integrate existing systems in a manner that avoids duplicating functionality and maintains usability, performance,
and reliability.
Interoperability
When systems from two or more businesses are able to exchange documents without manual intervention,
businesses achieve cost reduction, improved performance, and more dynamic value chains. Failing to address
any of these issues can spell failure for a system’s implementation effort. Therefore, your company’s commerce
strategy should be designed to address all of these issues to help customers achieve the benefits of electronic
commerce.
Your company’s vision for electronic commerce should also be to help businesses establish stronger
relationships with customers and industry partners. For example, a successful strategy for delivering this vision is
described by three workflow elements (platform, portal, and industry partners), each backed by comprehensive
technology, product, and service offerings.
From self-service portals to transaction processing, a successful workflow strategy can be the underlying engine
delivering state-based, processed-focused control services for e-business applications. Human labor is
expensive, and workflow technology allows e-businesses to supplement, and in some cases eliminate, reliance
on human supervision and intervention.
Workflow Technology
Creating e-business processes without a vision for workflow is shortsighted and expensive. Workflow addresses
business needs, streamlines transactions, and is the glue for process coordination and consistency.
Self-service applications are perfect examples of how workflow can be employed to automatically coordinate
requests and track fulfillment, thereby allowing corporations to relocate human resources to more difficult tasks.
E-business flexibility can be realized through workflow’s logic encapsulation that isolates the logic of the business
process from the Web server middleware and associated Web pages. Every Web page click is an opportunity to
invoke workflow-based interaction, guidance, and fulfillment.
E-businesses need workflow technology to react rapidly to process changes. For example, an instant change to
the workflow process can be accomplished with a simple change to the workflow map by a nonprogrammer, to
effect temporary or continuous changes in the business process, thus accommodating short-term business needs

or long-term process improvements. A workflow driven e-business will see immediate shifts that allow it to
process more efficiently under high volume circumstances.
The bottom line? Workflow design tools should be a core requirement for e-business applications. A detailed
discussion of workflow technology is presented in Chapter 2, “Types of E-Commerce Technology.”
Now, let’s take a look at the transformation of the scope of the Internet and the Web. The discussion centers
around the Session Initiation Protocol’s (SIP) effect on multimedia-enabled e-commerce.
[3]
Microsoft Corporation, “Electronic Commerce Explained,” ©2003 Microsoft Corporation. All rights reserved. The
Business Forum 9297 Burton Way, Suite 100, Beverly Hills, CA 90212, (August 2002): pp. 1–19.
[4]
Runge, Wolfgang and Renz, Alexander, “Adaptive Networks Broaden Relationships,” © Copyright 2003 SAP
AG. All rights reserved, SAP America Inc., Strategic Planning & Support Office, 3999 West Chester Pike,
Newtown Square, PA 19073,USA, [Advertising supplement in June, 2002 edition of MSI, Reed Business
Information, 2500 Clearwater Drive, Oak Brook, IL 60523 (June 2002)].
[6]
Vacca, John R., Net Privacy: A Guide to Developing & Implementing an Ironclad ebusiness Privacy Plan,
McGraw-Hill Trade, 2001.
The Scope of the Internet and the Web
The renaissance of the Internet age launched an entirely new set of communication technologies and methods.
As multiple technologies evolve and interoperate, so do complementary standards, such as those for multimedia
applications. The advancement of multimedia applications for the Web has resulted in a wave of new
technologies to enhance the Internet experience. From voice to video, the latest developments have resulted in
the requisite standards to allow for the full maturation of the technology.
Voice over IP (VoIP) has gained acceptance within the last few years, with older standards enabling the
technology. As more advanced standards mature and enhanced capabilities and features become available, the
adoption of VoIP has begun to take off. For example, H.323 is currently the dominant standard for initiating a
voice session. But, as more multimedia services, such as unified messaging, video conferencing, instant chat,
and presence, gain acceptance in an Internet Protocol (IP) environment, more robust standards are needed.
Hence, the creation of an HTTP-based protocol—Session Initiation Protocol (SIP).
SIP’s main functions are signaling and call control for IP-based communications. It defines the desired service for

the user, such as point-to-point calls, multipoint conferencing, text, voice, or video. Using the protocol, SIP
servers perform a routing service that puts the caller in contact with the called party, taking into account the
desired service and user preferences. Because SIP has its foundation in HTTP, it eases the integration of voice
with other Web services.
The Benefits of SIP
As the new voice-ready IP standard, SIP enables the initiation of an interactive Internet experience involving
multimedia elements, such as video, voice, chat, gaming, and virtual reality. The main advantages of SIP for the
VoIP market include enhanced scalability, easy implementation, and dramatically reduced call setup time.
Another key benefit of SIP for VoIP is the easy integration with many other IP services. Through SIP, service
providers can easily add services and applications for VoIP customers while minimizing interoperability issues.
SIP is flexible and extensible, easily supporting a wide array of endpoint devices and configurations. More
importantly, SIP runs over IP networks, regardless of the underlying networking technology—asynchronous
transfer mode (ATM).
By taking advantage of the Internet, SIP technology provides new service capabilities while supporting the use of
key services from the circuit-switched telephone network. IP-based communications can use SIP Uniform
Resource Locators (URLs) for addressing, similar to the World Wide Web, in which the form of the URL
resembles an e-mail address. The support of both telephony and Web-type addressing enables IP
communication to seamlessly bridge a telephone network and the Internet. Users on either network can reach
any point on the Public Switched Telephone Network (PSTN) or the Internet without giving up the existing
devices or advantages of either.
Enabling Multimedia E-Commerce with SIP
The emergence of SIP has opened up new doors of innovation, enabling the next generation of e-commerce
through the use of VoIP and multimedia applications. The simplicity of SIP technology is facilitating the spread of
VoIP around the world. SIP’s straightforward approach has encouraged developers of e-commerce applications
and telecommunications providers to implement it into their customer relationship management (CRM) systems.
Traditional voice call centers for customer support are migrating to Web support centers where the focus is
shifting from pure voice (800 numbers) to e-mail support, text chat, voice, and video with click-to-connect service.
The integration of these applications brings a fresh dimension of communication to customer-facing Web sites.
As customers experience the benefit of multiple touch points, enterprises are compelled to integrate these new
communication methods into their CRM systems. As the enabling protocol, SIP is well-suited to bring these

capabilities to the user.
Because support for instant messaging and presence is built into the SIP, a whole new level of customer
communications can take place. Presence lets users know the availability of other parties, and when coupled with
instant messaging and conferencing, allows for communications to happen in a spontaneous fashion. With these
added functionalities, the online consumer can experience a rich customer support environment.
Because SIP enables real-time voice and video to become viable applications on many e-commerce Web sites, it
enhances Internet call center productivity. With the click of a mouse, a customer can talk to or be in face-to-face
contact with a service representative. This level of customer service allows an immediate personal connection
with customers—one of the most critical aspects in CRM. The adoption of e-commerce will be bolstered further
as consumers begin to rely upon this type of online customer service.
SIP-based communications can be achieved with any device, fixed or mobile, such as laptops and Internet-ready
phones
[5]
. In addition, because SIP supports name mapping and redirection services, it is possible for users to
initiate and receive communications and services from any location, and for networks to identify users regardless
of location. This adds an additional level of usability from a CRM perspective. As e-commerce spreads to cell
phones and other handheld devices, this functionality will increase in importance.
Now, let’s look at how to use the Web to reach customers. Although customer experience includes intangible,
nonquantifiable aspects, it also includes a wide range of entirely measurable Web site elements.
Using the Web to Reach Customers
The rules are the same. To succeed in e-business, just as in brick-and-mortar, you need customers. And,
keeping customers is vastly cheaper than getting new ones. High rates of customer retention (and the referrals
that accompany happy consumers) can mean the difference between success and going back to the drawing
board.
The challenges that e-businesses face, however, in earning and retaining customers are different from those
confronted by traditional business. A shopper who drives to the bookstore is not likely to put down the book he
wants and drive to another location because of a line at the checkout stand. Someone looking for the biggest
selection of CDs cannot go to 20 stores in 6 states in half an hour to check their selection. And, once you have
received personal attention from someone at a store, helping you find exactly what you need, it isn’t hard to
decide where to go next time.

The options and flexibility of doing business online put much more control in the hands of the consumer, placing
a premium on the performance, effectiveness, and reliability of an organization’s Web site. There is no one to
apologize to Internet customers when the service goes down, or when an image is missing, or to explain what an
error message means. And, alternatives are just a click away.
For online consumers, the user experience is the most significant factor in customer retention. Customer
experience comprises a range of issues, including ease-of-use, dependability, speed, as well as less quantifiable
aspects of a Web site. As the Internet matures and evolves into a ubiquitous, if not preeminent, medium for
business, those companies best able to monitor their Web sites and ensure a positive, rewarding customer
experience will have an unparalleled advantage in the race to create and retain loyal customers.
The Shift to E-Business
There is no free lunch, though, and along with the benefits of doing business in the new economy comes a new
kind of customer, one with different expectations and standards by which companies are judged. Web sites must
offer a consistently positive customer experience to win over consumers. Inspiring loyalty is the biggest challenge
to e-businesses, and e-consumers are a tough group to win. Thus, the attraction of moving an established,
traditional business to the Internet (or of starting a new, pure-play Internet business) involves a variety of factors:
 Global reach
 Higher profile
 24 × 7 availability
 Targeted focus
 Cost savings
Global Reach
A small organization no longer has to be a local organization. Anyone with Web access (in a living room in
Chicago, in a log cabin in Alaska, or in a café in Bordeaux) can spend their time, and their money, at any online
business.
Higher Profile
A company can have a significant Web presence and profile, even with relatively modest depth and breadth to its
inventory. On the Internet, a small but very efficient company can have the profile of a much larger, deep-
pocketed competitor.
24 × 7 Availability
E-businesses do not have to close at the end of the day. Information and services can be available any time, any

day, allowing revenue to be earned without interruption.
Targeted Focus and Cost Savings
Companies do not have to be all things to all consumers. Through the Internet, individual customers can get
goods and services tailored to their needs. Significant savings from, among other things, streamlining inventory
and distribution channels are possible in effective e-businesses.
New Medium and New Expectations
Internet consumers expect e-business to be faster and more extensive, with more options and services, than
brick-and-mortar alternatives. They expect their experience online to be easy, as uncomplicated as buying a
newspaper or filling the car with gas. And, if they encounter any problems with the site, or have difficulty
understanding how it works, or are otherwise frustrated, they know they can go somewhere else, to another Web
site, and be there in no time.
Speed Wins
Speed is crucial for successful e-businesses. Consumers expect Web sites to be fast. A useful starting point is
the eight-second rule of thumb. The rule says that a significant number of users are unwilling to wait longer than
eight seconds for a page to load or an action to be executed, and as technology improves and speeds increase,
the time users will wait before leaving the site is likely to decrease. Many factors, from fundamental site
architecture to network traffic at certain times of the day, affect how fast a site will function. Vital for success in
any e-business is ongoing monitoring of the performance of its site, identifying cycles of usage and ranges of
performance, and making necessary modifications and upgrades to ensure speed.
There have been attempts to quantify the economic loss due to unacceptably slow Web page download speeds,
which is one aspect of e-business customer churn. It is estimated that as much as $473 million is lost per month
from customer bailout from impatience.
If It Isn’t Broken
Key to the user’s experience and level of comfort in e-business is consistency. Whereas a brick-and-mortar
business could not redesign the store every month, e-businesses can, and some do. The relative cost for
changing the look and feel of an e-business is low, and the appeal of adding new features is a strong temptation.
There is a fine line, however, between a “sticky” site, one that attracts new customers and urges old ones to
return, and a site that changes so often and in such ways that customers must relearn the site. Instead of
spending the extra time to deal with the hassle, they will go to the competition, the one that is fundamentally
consistent in its presentation and functionality, and they will stay there.

No Experience Required
Many new e-business consumers are novices not only with online transactions, but also with the Internet in
general, and this complicates the issue of glitches and raises the ante for Web sites to function smoothly. A
computer neophyte is less likely to understand, or have patience with, technical difficulties. A recent survey
conducted by ICL, an e-business services company, indicates relatively high levels of stress and anxiety caused
by computer problems for “typical” users.
 Forty-nine percent found computer problems more stressful than being stuck or delayed on public
transportation.
 Seventy-nine percent found computer problems more stressful than having to spend a weekend with a
spouse’s parents.
 Twenty-three percent found computer problems more stressful than being left by a partner or spouse
[1]
.
No Web site runs perfectly 100 percent of the time, but those that are close to 100 percent (Web sites that
minimize outages and are able very quickly to detect and correct problems when they do occur) have a
significant advantage. Web sites that frustrate users scare them away; Web sites that consistently offer pleasant,
easy experiences keep their customers.
The Often Missing Piece
A less tangible but equally vital aspect to customer loyalty in e-business is trust. For consumers, participation in a
typical Internet business model requires divulging personal information for registration purposes, often including
sending credit card numbers to the site. Increasingly, customers are cautious when sending such information and
wary about sites that they suspect may not adequately guard the privacy of their demographic and financial
information. Web sites that have prolonged outages or frequent transaction failures break the chain of trust with
their consumers, pushing them to other providers that instill stronger confidence and, therefore, loyalty, in their
customers.
To be successful, an e-business has to be:
1. Sophisticated and fast
2. Easy and consistent
3. Extremely reliable
[1]

Without these, customers will click away, going to the sites that give consumers the interaction with e-business
that they expect and require.
Acquisition, Retention, and Referrals
Customer acquisition costs range wildly from one company to the next, but everyone understands that once a
company has acquired customers, the key to maximizing revenue is keeping them.
 It is 7 to 11 times cheaper to keep a current customer than to add a new one.
 A Xerox study showed that their totally satisfied customers were 7 times more likely to make additional
Xerox purchases in the subsequent 29 months than the merely satisfied.
 Companies can increase profits by almost 100% if 6% more of their customers were retained.
 Estimates show up to 91–96% of a brand’s profits come from loyal customers.
 A study by McKinsey & Co. calculates that an 11% increase in repeat customers translates to a 10.6%
increase in company value.
 Bain & Co./Mainspring research shows that online grocers must keep customers for 29 months just to
break even
[1]
.
The preceding are potentially frightening data to e-business, which lives, or dies, in a medium where jumping
from one Web site to another, changing brands and loyalties, is easier and faster than ever. In the realm of e-
business, high rates of retention are imperative for success and even survival.
Loyal customers are the best customers. People who are committed to Buick and who will not buy a car from any
other manufacturer are the ideal consumers for Buick. They do not require further acquisition expenses, they will
buy Buick cars for their children and recommend Buick to their friends, and they are statistically much more likely
to buy up, getting newer models loaded with optional equipment. The recent boom in online loyalty reward
programs demonstrates that e-business understands the lifetime value of loyal customers and is starting to shift
resources to retention efforts. Many of these incentives are financial, offering repeat buyers the opportunity to
earn points that can be redeemed for goods or services. Although low prices and points programs are a strong
draw initially for consumers, e-consumers will, as in traditional business, grant their loyalties ultimately to those
businesses that offer them the best experience, of which price is just one of several considerations. Low prices
are the carrot on the stick for acquisition, but user experience and customer service are the tools of retention.

Of special interest to e-business are customers gained through referrals from existing customers, as well as
customers lost due to negative reactions about a particular Web site. According to a recent Bain &
Co./Mainspring survey, online apparel customers referred 4 people after the initial purchase and 8 people after
11 purchases. The global reach of the Internet becomes a handicap when a consumer brings up a list of dozens
of online retailers in a given industry. E-business consumers are generally anxious for referrals from people they
trust to help guide them through the ever-growing sea of Web sites.
Standard barriers to following through on a referral are absent in e-business. If a friend recommends a music
store that is 45 minutes away, you might decide not to go because of the distance. Even a local store may not
tempt you if you know that the parking is a nightmare or if the skies just dropped two feet of snow outside your
window. When a friend recommends a Web site, you get cozy at your desk and go there.
Consumer trust, discussed earlier, is a unique challenge facing e-business. Going to a brick-and-mortar store
lends a sense of confidence and implicit trust that has to be earned in other ways in the context of the Internet
and of doing business through a computer screen. A referral from a trusted friend or colleague is invaluable to
establishing a relationship between consumers and e-businesses.
Referrals also provide an exception to the high cost of acquiring new customers. Every customer who is referred
to a company is “free,” or is at least a significant offset to the marketing and sales budgets for customer
acquisition. Though somewhat more difficult to measure, word-of-mouth advertising is extremely important and
can have a remarkable impact on a company’s bottom line.
Poor Performance and Failure
E-businesses tread a thinner line than traditional businesses in efforts to attract and keep consumers. Someone
who drives to a store will extend greater latitude to that shop (in terms of what the consumer likes or dislikes
about the store, its selection, its layout, its service) than to a Web site. Online consumers expect speed,
reliability, and broad selection. When they do not get it, they leave. All it takes to leave is typing a new Web
address or following a link. For e-business, there is no dress rehearsal and often no second chance.
Internet users are increasingly barraged by new sites, new services, all competing for their eyes and their dollars.
When consumers find a site they like, they add a bookmark and stop hunting. And when a site does not satisfy
consumers, they don’t return and they tell their friends not to go.
At issue for consumers is the tension between knowing they have more control with e-business and feeling
overwhelmed by the choices, and this tension can spell disaster for an e-business that does not adequately mind
its store. Often a single negative experience for a consumer means he or she will not return to that site to give

that company another chance. If someone tries to buy a puzzle online and the transaction fails, there are enough
other online toy retailers that this consumer need never return to the one that failed. A recent study of online
shopping by the Boston Consulting Group for a 12-month period reveals unsettling statistics for e-commerce
companies battling to attract and keep consumers.
 Consumers who are satisfied with their first-time online purchase spent, on average, $600 in 13
transactions; dissatisfied first-time purchasers spent $250 in 5 transactions.
 Five out of six e-consumers experienced a failed purchase; 29% of all online purchases failed.
 Twenty-four percent of online shoppers who experienced a failure stopped shopping at that site; 7%
also stopped shopping at that company’s brick-and-mortar store
[1]
.
In e-business, there are no humans to counter a negative experience. A failed transaction or a site crash is
extremely difficult to qualify or explain online, leaving the consumer alone at the computer to decide if it makes
more sense to try again or go elsewhere. The message is clear for any company that wants to succeed in the
Internet economy: make sure the site works extremely well, and when something goes wrong, which it inevitably
will, find out about it and fix it fast. When a popular Web service had a nearly-24-hour outage, the company’s
CEO recognized that such an event could be disastrous, even fatal, for the company, and she or he effectively
lived in the IT operations center during the crisis and the following weeks.
The new and rapidly expanding business of online securities trading offers a vivid example of the best and the
worst for e-businesses. Online trading has offered unprecedented access for thousands of users to securities
markets. The reach of brokerage houses has extended into demographic sectors that previously had neither the
time for nor the access to securities trading, while securities markets have extended their hours, with talk of 24-
hour trading on the horizon. Thousands of consumers place millions of trades at relatively low commission, filling
the coffers of online trading firms.
Moving the apparatus for trading to the desktop, however, has resulted in a wealth of information passing to the
customer, with a corresponding shift in power away from the brokerage company. With the Internet, customers
are more aware of stock prices, of transactions, and of failures. When a glitch prevents online traders from selling
stock or canceling orders when the price falls, those traders lose money and can very accurately identify how
much they have lost.
Most of the leading Internet brokerages have suffered outages, ranging from a few minutes to several hours, and

the costs to these businesses go far beyond the defection of angry customers. Online brokerages are having to
compensate customers for losses suffered when trades could not be executed because of outages, and these
payments are stretching into the millions of dollars for each of several leading online brokerages. Not only does
an outage scare off otherwise potentially loyal customers, it forces the brokerage to write checks to unhappy
customers on their way out the door.
A final significant problem facing e-businesses (at least those that are publicly traded) is the response on Wall
Street to reports of prolonged service failures or customer dissatisfaction. In a market where a company that
reports earnings slightly below projections can see the price of its stock tumble, word of a serious disruption of
service can be crushing as investors (many of them trading online) flee and unload their stock in that company.
The price paid by e-business (in lost revenue from dissatisfied customers as well as payments made for
consumer losses) from inadequate performance and significant site outages is potentially crippling, especially for
pure-play Internet companies that have no other customer base or business medium to depend on. No Web site
is perfect, however, and glitches are a reality in any online application. The key for e-business is to establish
performance benchmarks to attract and keep customers and to minimize technical problems that make sites
unavailable or prevent them from meeting necessary standards. No e-business will be successful without
adequate and appropriate tools to monitor performance of its Web site and alert site operators immediately about
slowdowns and failures of service.
Ensuring the Customer Experience
Given the economic repercussions of a company’s inability to build and retain a base of satisfied, loyal
customers, the need for effective site-monitoring applications is paramount, and a site monitor must be
sophisticated enough to measure more than uptime. According to Forrester Research, only 27% of site managers
look beyond uptime to specific network performance standards, and even fewer monitor transaction success
rates. It is these more complex data, however (not simply whether a page is available) that give important insight
into the user experience and associated rates of retention and referral.
Service-level agreements (SLAs) that provide real value stipulate more than simply what percent of time a site
will be up, and monitoring applications gives internal operators and hosting facilities the tools they need to
measure other important parameters. Identifying whether a slowdown is from an application failure or from a
network bottleneck is advantageous to IT personnel trying to fix the problem. Additionally, effective use of
monitoring software can identify not only real-time glitches, but also design shortcomings. Thorough reports from
monitors might show, for example, a system weakness that is responsible for transactional failures. The more

quickly and accurately a problem and its cause are identified, the faster it can be fixed.
Monitoring software also gives companies the data they need to make projections about future site usage and
the improvements required to accommodate increased activity. Successful e-businesses can see their usage
double in as little as three to six months. Understanding growth and anticipating future needs can mean the
difference between recognizing the need and getting that extra server now, or waiting until increased traffic
crashes the system.
Features and services like these (what Forrester Research calls “Transaction Management Services”) are
provided through effective, sophisticated monitoring software. It is this integrated Web quality monitoring that
Forrester sees as the next step to managing the total quality of Web-based business. If, as they predict, e-
commerce reaches global hypergrowth by 2003, it will be those companies with effective monitoring systems
already in place that are able to survive and succeed.
With the preceding in mind, how do industry-leading executives perceive the use of e-commerce technology in
their companies? What are the business benefits provided by transaction management systems? Should your
company build and maintain its own transaction management system, or buy electronic trading network services?
This next part of the chapter answers these questions and further discusses the costs, benefits, and perceptions
of technologies that enable interenterprise information exchange, or what is described as the transaction
management market (TMM).
[1]
“E-Business Customer Retention,” © Copyright 2003 Mercury Interactive Corporation, Mercury Interactive
Corporation, Building A, 1325 Borregas Avenue, Sunnyvale, CA 94089, 2003.
Benefits of the E-Commerce Market
The letter “e” lost much of its language-domineering swagger with the fall of the dot-com economy. Technology
marketers, journalists, and analysts now cringe at “e”-inspired products and concepts. Venture capitalists hide
their money-stuffed mattresses when Silicon Valley experts drop by with business plans. Yet, electronic
commerce veterans in some of the largest companies in the United States, companies such as Ford, Cisco, Wal-
Mart, Procter and Gamble, McKesson, and Compaq, see opportunity in the midst of e-commerce turmoil.
Increasing Interest in Interfacing Technologies
Transaction management market (TMM) technologies automate machine-to-machine information exchange
between organizations. The share of IT budget dedicated to solutions that interface with customers, suppliers,
and service providers is increasing. This trend is evidenced by continued demand for CRM, order management,

demand forecasting, sourcing, and procurement solutions despite difficult economic conditions. And, Web
services market hype provides an almost deafening statement about the value of interfacing technologies.
Therefore, as economic conditions improve and as eXtensible Markup Language (XML) standards begin to
reduce intersystems integration costs, there will be an increased demand for transaction management
technologies.
Nevertheless, although interfacing technology demand is consistent across most industry segments, the business
conditions generating interest vary considerably. Ever-tightening electronic relationships between consumer
packaged goods (CPG) manufacturers and larger retailers are driven by the need to accurately track and forecast
demand for billions of fast-moving products through a low-margin, geographically dispersed network. High-tech
manufacturers continue to invest in interfacing technologies to regain some of the control relinquished with
business process outsourcing contracts. Cash-strapped wholesalers invest in any technology, including TMM
solutions, that can reduce the order to cash cycle. Despite differing business concerns, interest in technologies
that improve interbusiness process efficiency is high.
Demand Analysis
TMM technology interest is strong, but demand is constrained. Interest is driven by a number of market dynamics
including:
Transaction management systems meet many of the investment conditions that gain significance in a slow-
growth economy.
 The technology provides a clear and calculable return on investment (ROI), is amenable to incremental
deployment, and helps control costs.
 TMM investment is becoming more compelling as innovative deployments enabling VMI, After Tax Profit
(ATP), contract manufacturing, and demand planning gain attention and generate competitive pressure.
 Machine-to-machine communication costs are falling as process standards from organizations like
RossettaNet, OAG, and CIDX develop, and as technology standards like J2EE, SOAP, AS1/AS2, and
WSDL gain popularity
[2]
.
However, strong market forces continue to inhibit new TMM investment. Important inhibitors include:
Economic uncertainty continues to limit capital resource availability and risk tolerance.
 Standards are immature. Lack of standards correlates to high incremental e-commerce deployment

cost.
 The entry cost for innovative, multienterprise solutions remains high. Entry costs are driven by change
management and experience development needs, not by technology product costs.
 Web services and XML marketing hype generates interest and uncertainty in near equal doses.
 E-marketplace failures continue to haunt many large organizations and inhibit TMM investment
[2]
.
Drivers of Change
Several important technology developments are driving change in the TMM market. First and foremost is the
emergence of the Internet as an effective, low-cost means of transporting mission-critical business information
between systems. Although the Internet alone does not provide the network quality of service (QoS) demanded
for mission-critical data communications, software and service providers have built solutions on top of this nearly
free transport network. Data transport cost declines have fundamentally altered the way companies interact.
The second major force of change in the TMM market is the emergence of new technology standards, such as
Java™, XML, and Web services. Overcoming communication barriers, which come in many forms, is often
expensive. Java, XML, and other technology standards remove a number of machine-to-machine communication
barriers and reduce partner integration costs.
Falling integration costs will affect the TMM market in two ways: first, the addressable market for TMM solutions
will continue to expand as solution price points fall into ranges acceptable to small and midsized businesses.
Second, reducing the cost and complexity involved in deploying and maintaining a TMM system will release
corporate resources to other higher-value automation efforts. Many experienced users that bought TMM
solutions to control order processing costs have since evolved their systems to manage a demand forecasting
process, complex pricing data, and Just-in-Time (JIT) inventory strategies.
TMM Business Benefits
TMM solutions provide organizations with the ability to effectively process heavy order volumes and with the
ability to better manage very close, codependent partner relations. Most TMM deployments address one or both
of these business objectives.
Now, let’s look at how companies can use TMM technology to process millions of orders a week with just a few
support staff. Others may move a few files a day, but the information in those files affects millions of dollars of
production costs. For example (according to a recent study by the Yankee Group), Figure 1.1 summarizes values

that are delivered by TMM technologies
[2]
.
Figure 1.1: The value transaction management technology rate for an organization by category.
Processing Heavy Order Volumes
TMM solutions can quickly and accurately process thousands, even millions, of orders a week. Consumer
packaged goods manufacturers, apparel manufacturers, retailers, wholesalers, and companies in similar
industries manage high order volumes for fast-moving, made-to-stock products. In industries such as
pharmaceuticals, health products, and electronic components, where both order volumes and per-SKU prices are
high, fast and accurate order processing is essential to staying in business. Companies facing these conditions
leverage TMM technology to scale business without scaling operational costs.
Combining on-site translation software with electronic trading network service has proven a very effective means
of managing order volume growth without scaling order processing head count. By working with a network
service provider, transaction volume growth (and related corporate expansion) is not encumbered by technology
skill and staff development needs.
It is difficult to compare manual and automated order processing costs. The comparison would be interesting, but
is not necessary. In a high-growth, heavy order volume industry, TMM technology is not a cost-savings option,
but a business requirement. Therefore, despite TMM’s mission-critical nature in heavy order volume industries,
many companies use innovative forecasting, direct shipment, and customer service capabilities, as the most
significant advantage to their organization’s gains from TMM service usage today.
Managing Codependent Relationships and Complex Products
In industries with less demanding order volumes, but more complicated products and relationships, transaction
management systems are used for equally valuable but very different business reasons. In the high-tech,
automotive, and chemicals manufacturing industries, products are complex, highly engineered, and often
expensive. Companies in these industries are highly dependent on partners to produce high-value, high-complex
products. In these industries and others, dependencies are becoming stronger and products are becoming more
complex. TMM systems support codependent relationships, allowing companies to play an effective role in
complex production processes.
Companies using TMM technology to manage codependent relations move complex products through the supply
chain, and require robust process management capabilities and timely access to information. Developing a JIT

inventory management program demands near-real-time information exchange and complex business rules
management. Providing a single available-to-promise date for a solution bundle, including multiple vendor
products, requires similar functional capabilities.
Best Practices
Today, companies are extending, or planning to extend, their TMM systems into interesting new business
automation scenarios. Several of these best-practice examples are described next.
Speed and Competitive Advantage
Speeding business process and improving customer service to gain competitive advantage is not cheap. A
company could spend nearly $5 million annually to support its machine-to-machine order processing system. But,
business benefits and competitive distinction greatly outweigh the costs of the system.
For example, in the food-and-beverage industry, paper and mail are slow. Money makes money. Anything that
slows down money or products costs money. Companies usually tackle banking communications first to speed
the processing of thousands of small monthly order volumes. Most companies usually tackle logistics
management challenges next, which is followed by an incremental deployment with a supplier connectivity
solution. In addition, most companies claim to have achieved a positive ROI in less than 12 months after going
live with the banking stage of their implementation.
Managing Outsourced Business Relationships
Most high-tech companies shift their business strategies as the economy begins to slow. With cost control
pressures mounting and shareholders demanding improved returns, the companies choose to outsource
production and certain support services to contract manufacturers (CMs). To support the outsourcing strategy,
the firms identify and implement TMM technology. The solution manages the mission-critical information flowing
between a company and its new CM partners. A system could cost less than $400,000 to deploy (including
hardware, software, and services). Ongoing costs run approximately $230,000 annually.
It is difficult to measure the value a solution provides a company, but, an outsourcing business strategy would not
be possible without the TMM solution. Because of difficult economic conditions and financial turmoil in the
industry it services, firms have limited visibility into future demand. Companies expect demand to increase as the
economy recovers. Their new CM relationships should allow them to react rapidly to changing demand and avoid
losing sales through lack of production capability.
Expansion Strategy Support
Companies are using TMM technology to support complex operational strategies, as displayed in Figure 1.2

[2]
.
The role of TMM technology will continue to expand as costs fall, as standards develop, and as innovative best-
practice use cases emerge from the fog of the current recession.
Figure 1.2: The role of the TMM solution in the organization.
The Service Provider Advantage
Value added network (VAN) service charges have gained an onerous reputation since the emergence of the
Internet as a corporate communications tool. The idea of charging per-transaction fees to move data across a
network (which is how VAN service charges accrue) riles free-spirited Internet enthusiasts. But the Internet’s
greatest strength (ubiquity) is also its fatal flaw.
The last thing a company wants is ubiquitous access to its data traffic, nor are companies interested in the lack of
control inherent in a ubiquitously managed network. Absent the addition of robust technology, the Internet is
insecure, unreliable, and unworthy of mission-critical corporate data. VAN service providers offer subscription-
based technology services that meet corporate data communication needs. VANs ensure that data gets from
point A to point B securely, reliably, and with an audit trail. Companies pay usage-based subscription charges for
access to VAN bandwidth.
Accessing network QoS functionality from a third party also helps separate business objectives from technology
plumbing. Companies interested in deepening partner collaboration or automating more complex business
processes are faced with a myriad of business challenges. One-time partners become next-project competitors.
Partners are contracted to ship to a production plan, regardless of the status provided by a real-time system.
Processes, which vary by both company and division, need to be reviewed and aligned. Obstacles abound in a
value chain integration scenario. VAN and electronic trading network service providers remove the interenterprise
communication obstacle, allowing staff to focus on business, not technology problems.
TMM Costs
It is expensive to build and maintain a TMM system. The business benefits can be impressive.
Ongoing costs are more easily captured and measured. The average annual cost to operate a TMM solution is a
hefty $2.05 million. Average annual VAN cost is approximately $650,000 per year, and the average annual
internal operational cost (business and IT support and management labor) totals $2.5 million. These figures
capture the bulk of ongoing costs associated with operating a TMM solution. Software maintenance costs, which
were difficult to capture, are not usually included in this costs assessment.

As the $2 million per year in operational costs indicate, TMM systems are expensive to run. When considered as
a percentage of IT budget or total revenue, the figures are much less daunting. When considering the business
strategies TMM systems support, operational costs are well within acceptable ROI and total cost of ownership
(TCO) calculation boundaries.
Finally, let’s look at possible roadblocks to e-commerce. Is e-commerce alive and well and feeling fine? Recently,
e-commerce has been associated with some fairly humiliating phrases: “dot gone” and “dot bomb” being just two
of them. At times, e-commerce has become almost worthy of a snicker when the term comes up in conversation,
and lately it’s hard to open a newspaper without reading about “pink slip parties,” which former dot-com
employees attend to network, write resumes (which they didn’t need during the venture capital boom), learn that
flip-flops and cutoff jeans are not appropriate work attire in the real world and, finally, come to accept that the
fairy-tale employment they have experienced in recent years has disappeared as spectacularly as Cinderella’s
royal ball accessories at midnight.
Roadblocks to E-Commerce
From the sounds of the media, you would think that e-commerce was a landscape of post-Armageddon. That
must be why eBay experienced a 260% growth in 2002.
Want to know a secret? Total e-commerce sales have been predicted to grow somewhere in the area of 60% in
2003. A study by the National Association of Purchasing Management and Forrester Research indicates that
business-to-business e-commerce is still in its infancy, with nearly unlimited potential to grow. A recent survey
conducted by both organizations revealed that 95 percent of companies polled indicated they would be moving
forward to implement e-procurement sometime in 2003. This growth is modest compared to what’s happening
offshore. Boston Consulting Group recently reported that Asian e-commerce continues to triple annually.
With the preceding in mind, e-business has taken a major hit to the collective solar plexus. Amazon seems to be
hanging on moderately well, though probably not flourishing. It is generally acknowledged that the implosion of
many players on the e-commerce stage, most notably the ones headed by 24-year-old CEOs, has enabled the
companies left standing to reap more profits due to Web-enabled natural selection.
Old Dogs Have Learned New Tricks
Research firm McKinsey & Company recently unearthed a fascinating statistic: 86 percent of the most successful
e-tailers are online channels of existing, established brick-and-mortar companies. Someone a long time ago put
forth the radical theory that a company needs a business plan to survive in the long-term. Web-based companies
slapped together on a Saturday afternoon in someone’s home office are not likely to have as sound business

plans as a company such as Eddie Bauer that has been around for generations. In 1998, the retail giants were
laughed at for their hesitant and puny efforts to join the e-commerce party. Today, they are the ones left standing.
It’s obvious that there’s a lesson to be learned from that.
Here’s another interesting trend. In the days of yore (1999 to 2000), many Internet-savvy consumers indicated
that when it came to shopping for larger ticket items, such as audio, video, and computers, they would do their
research online before heading down to a large electronics superstore such as Circuit City to make a purchase.
Today, many people have taken to wandering the aisles of the large electronics stores to see and touch items,
and then return home to make their purchases from online electronics e-tailers. Why not? Online return policies
have improved about 2,000 percent since the early days of e-commerce and in many instances, there is no sales
tax on items purchased from e-tailers. Not to mention the fact that buying online enables you to spend the time
you would have dedicated to getting to the mall on some vital task such as sleeping late or reminding yourself
what your family looks like.
Trying Not to Antagonize Your Customers Helps Immensely
E-commerce companies that continue to grow seem to be the ones that better understand CRM and what it
means to their firms. There’s no question, purchasing over the Internet is as popular as ever and will continue to
grow. What many e-tailers didn’t foresee is that the Internet business model enables customers to be fantastically
fickle, and all it takes is one misstep to lose a customer forever. Good self-service is worth its weight in
diamonds, but it should never entirely replace human interaction. As a result, it becomes fairly safe to conclude
that the e-businesses still standing today are the ones that screwed up CRM the least.
The survivors have another thing in common: easily navigable Web sites. Remember some of the disastrous
Web sites that first appeared in 1997 and 1998? The designers sacrificed ease-of-use for art and profundity, with
the result that many potential buyers arrived on the site, admiringly commented, “Ooooh, pretty” and logged off to
find a site that was easier to use. Part and parcel of ease-of-use is a friendly and comprehensive search engine,
and this is another element you will find on the sites of the little e-tailers who could. Search engines driven by
natural language processing are rapidly gaining in popularity as they allow shoppers to pose questions in much
the same manner they would to a live store representative. For instance, compare brands of digital cameras in
the mid-price range. Not only do searches conducted with natural language processing help the customer, but
the technology can also help the e-tailer understand what its customers want and how they want it.
Privacy, Please
Yet another element that has helped some e-tailers remain strong is the issue of privacy. Many companies with

Web channels have had some decisions to make recently: collect customer data and e-mail addresses and sell
the information for a price to boost sagging profits, or prominently reassure customers that their information is
private and will remain so in the future? The former choice represents a short-term fix and the latter choice is the
ticket to the long-term payoff. Many companies that sold customer data from the get-go or made a decision later
to sell information seemed to think that their activities would not be noticed, or that the average consumer
wouldn’t care if they received a few extra spams brought on by the sale of their personal information. This was a
serious miscalculation. In a crowded information age of little free time and space to breathe, most consumers are
becoming rabidly protective of the little privacy they have. More importantly, e-tailers and Web marketers that
chose to collect information from children not only earned the ire of parents, they began to draw fire from federal
and state regulators.
Finally, the vast majority of companies that made a go at succeeding in e-commerce only to fail a year or two
later are like kids who begin playing with a complex toy and give up in a huff when they can’t operate the toy
based on the fact that they didn’t read the instructions. All’s well and it ends well. The toy becomes available to
the kid who values it and knows how to use it.
[2]
“E-Business Evolution: Transaction Management Costs, Benefits, and Market Development,” © Copyright 2002
Yankee Group, Yankee Group, 31 St. James Avenue, Boston, Massachusetts 02116 [Sterling Commerce, 4600
Lakehurst Court, Dublin, OH 43016-2000, USA], 2002
Summary
In a remarkably short time, the Internet has grown from a quirky playground into a vital, sophisticated medium for
business, and as the Web evolves further, the threshold for conducting successful business online will move
increasingly higher. Online consumers are flooding to the Internet, and they come with very high expectations
and a degree of control that they did not have with traditional brick-and-mortar companies. Businesses, too, are
rushing to join the Internet revolution, and new, viable competitors are emerging in all industries.
The enticement of doing business online must be tempered by the understanding that when the dust settles, a
significant percentage of e-businesses will have failed. The ones that succeed will be those that are able to
deliver a satisfying and consistent customer experience online, building brand loyalty and guaranteeing high rates
of customer retention.
Although customer experience includes intangible, nonquantifiable aspects, it also includes a wide range of
entirely measurable Web site elements. It is necessary for any organization wanting to succeed in e-business to

define a broad spectrum of performance parameters, establishing benchmarks for speed, reliability, availability,
and accuracy, and to monitor all of those parameters. Nothing works perfectly all the time, and the spoils will go
to those e-businesses that constantly and efficiently monitor their Web sites, immediately identifying any glitches
that do occur and fixing them promptly.
Moving forward, all businesses will be affected by the global move to electronic commerce. Business operations
will change, and new processes will be created. Companies that start learning in this new environment today will
be leaders in the future.
Furthermore, as future technologies are developed, the SIP will continue to play a pivotal role in the adoption of
multimedia e-commerce. SIP’s simplicity, easy integration, and extensive interoperability ensure its longevity as
the preferred multimedia platform.
In fact, SIP pundits speculate that it will pave the way for carriers to roll out the innovative voice services only
possible with IP. These services most likely will include Web integration to simplify follow-me services, call
conferencing, and ways for users to speak with a live agent just by clicking a Web site button.
Although the road ahead looks clear, there are potential obstacles to the wide-scale adoption of multimedia e-
commerce. Users will need new or upgraded equipment to take advantage of SIP technology. Incorporation of
SIP into operating systems and in preconfigured PCs will take some time. Some movement is being seen in this
area, however, with Microsoft® and a number of the third generation (3G) wireless associations adopting SIP as
the protocol of choice .
[7]

Note
Third generation (3G) is an International Telecommunication Union (ITU) specification for the third
generation (analog cellular was the first generation, and digital Personal Communications Service [PCS]
was the second) of mobile communications technology.
With the help of SIP, Voice over IP (VoIP) e-commerce has the potential to change the habits of users by
enhancing the way they conduct business communication and transactions over the Internet. As SIP facilitates
and completes the integration of communications on the Web, much innovation lies ahead.