A Net Without E-Commerce?

Problems facing e-commerce seem to turn up as often as eggs on Easter Sunday.

Just since August, for example, 84 percent of Internet users surveyed by the Pew Internet & American Life Project expressed fear that Web sites will obtain personal information without their knowledge. The U.S. government’s Internet Fraud Complaint Center said that it has received 1,000 complaints per week since its May launch. A Gartner Group analysis of online customer service concluded that “e-tailers are annoying Web customers at a time when brand loyalty is the Holy Grail.”

After a while, it is hard not to take that huffing and puffing seriously. Without any guarantee that these problems can be solved, one might wonder if e-commerce is a house at risk of being blown down.

However, while analysts agree that e-commerce will suffer its share of chips and cracks, they do not foresee a scenario where the industry itself would be at risk of collapse.

Name That Problem

The main challenges facing e-commerce are simpler to name than they are to solve. Companies need to assuage concerns about customer service, user privacy and security. New technology needs to be integrated efficiently. An effective balance between inadequate and inordinate marketing must be achieved.

“All of the components are essential to success in terms of retail,” Gartner Group research director Robert Labatt told the E-Commerce Times. “Failure in one of the components will reduce the probability of success.”

The bottom line, ultimately, is the bottom line. Internet businesses need to become profitable.

“It’s all pretty obvious Business 101 stuff,” Labatt said, “all activities that must be addressed, and addressed in a world-class way.”

Or else?

Consequences of Failure

The more inefficiency, lethargy or resistance to solving fundamental problems that e-commerce shows, the more the industry risks being branded a loser by investors.

“I think the real domino effect in a pre-profit environment,” Labatt said, “is that venture capitalists will stop funding and that will cause companies to have to fold, and we’ve seen that.”

However, Internet businesses do not seem to operate in such lock step that every single one will crumble in the face of industry hurdles. In other words, inadequate business practices do not spread like a virus; the shortcomings of one company are not likely to infect another company, and ultimately, the investor market will sift the good from the bad.

Industry Weathers Mistakes

The experience of online advertising agency DoubleClick provides an example. In June 1999, DoubleClick announced its plan to acquire Abacus Direct Corp., in a $1.7 billion (US$) deal that would give DoubleClick the ability to link anonymous individual shopping habits with personal information. The online world rebelled with an outcry and extensive legal action.

“I don’t think [the privacy issue] is life threatening to any companies unless they make a serious blunder,” IDC analyst Barry Parr told the E-Commerce Times. “The thing that DoubleClick tried to do was sort of an example of a worst-case scenario for a company and they simply canceled the project and went on with business.”

Though this incident had serious implications for DoubleClick’s future, it ultimately constituted little more than a flesh wound for e-commerce as a whole. Any ensuing wound in the same area would no doubt become more painful to e-commerce, but also more likely bring about healing action.

“It’s my own hope that the industry has not waited too long, that there’s still an opportunity so that the issue can be resolved on the basis of what the best ideas are, instead of the issue being politicized,” Federal Trade Commissioner Mozelle Thompson told the E-Commerce Times. “I still think that opportunity is out there, but as time clicks on, the public is going to put greater and greater pressure on everyone to provide a solution.”

Government Could Bring Discipline

Government regulation is a possible consequence of inadequate e-commerce problem solving, whether in the area of privacy protection, security protection or customer service. Observers do not seem to see government involvement generating any kind of doomsday scenario for e-commerce.

“No one wants more regulation, but regulation is seldom life-threatening for any legitimate business,” Parr said.

In fact, attitudes toward government regulation may be growing more receptive. At a Washington D.C. global privacy summit last week, a moderator asked audience members to raise their hands if they thought government regulation in the privacy arena would be helpful. According to Thompson, about 90 percent did.

“That, I thought, represented a significant change from professionals in this area, from what may have occurred a year ago,” Thompson said. “I’ve seen movement in this area.”

Impact on Overall Economy Minor

Concern over the future of e-commerce could come as easily from outside the industry as within. In recent years, the entire U.S. economy, particularly the financial markets, have appeared as dependent upon the fortunes of e-commerce as any other sector.

Though individual investors will obviously remain concerned with the performances of specific Internet businesses, e-commerce remains a minority presence in the overall economic world. According to Labatt, business-to-consumer (B2C) e-commerce represents less than 10 percent of the overall economy.

“For the most part, consumers can go to alternate channels to purchase the same product,” Labatt said. “Consumer convenience will be lost but it’s not likely that overall consumer spending will shrink as a result.”

IDC analyst Parr concurs. “There are very few things happening in the e-commerce sphere that couldn’t be substituted the other way,” he said.

This Glass is Half

There you have it: a statement that can be interpreted positively or negatively. The moment we find out that e-commerce is relatively safe, we also find out that it is relatively dispensable.

For years to come, good news and bad news will likely co-exist in the e-commerce world. The inclination to react emotionally to either type of news is hard to resist, but ultimately, it appears individual failures will dot a larger, more successful landscape.

“While there’s been a bit of a shakeout, it’s yielded a bit of maturity as to how to use creativity to really address real market problems, and I think that that is something we should be optimistic about,” Thompson said.