How Much Is Too Much To Spend on E-Commerce?

A couple of years ago, money was no object when itcame to e-commerce. Companies spent lavishly ontechnology in their rush to establish a Webpresence. But the economic picture has changed significantly, and companies now are much more careful when it comes to such spending.

“The realization has sunk in that while B2C sales aregrowing and will continue to grow, they will not takeover the retail world,” Giga Information Group analystAndrew Bartels told the E-Commerce Times.

With the possible exception of travel and — to a certaindegree — books and music, online is still second best.”It has become clear that the online channel, in mostinstances, is never going to be the dominant channel,”Bartels said.

Spending Slows

According to a recent Forrester report,spending on e-commerce technology will decline from 2001 levels of 3.5percent of revenue, or $41 million, and will total just 3percent, or $29 million, in 2002.

According to Gartner Dataquest analyst Judith Rosall, worldwide spending on e-commerce software applicationsfell 30 percent in 2001.

“There is no question theeconomic downturn played a major factor in thepostponement of e-commerce software-relatedinitiatives among businesses,” Rosall told theE-Commerce Times.

Spending on e-commerce technology has “moved fromhyperdrive to a much more measured process,” Bartelssaid. The trick is to figure out how much must bespent — and in what areas — to keep a companycompetitive.

Investing Proportionally

Faced with the realization that e-commerce is not thebe-all or end-all of retail, companies have startedlooking more closely at their e-commerce budgets.

“The channel has not gone away, but now companies areinvesting in the channel commensurate with its value,”Bartels noted.

Rosall said e-commerce spending decisions are being driven more and more by expected return oninvestment.

“An early (four- to six-month) return on investment ofapproximately 10 to 22 percent would be an earlyindicator that a specific e-commerce softwareinitiative has significant potential to affect abusiness’ bottom line,” Rosall said.

Concentrate Spending

According to Rosall, companies should focustheir spending on improving customer satisfaction andloyalty, reducing sales and marketing costs, andmaking the process of online procurement and suppliermanagement more efficient.

Another area in which companies likely willconcentrate e-commerce spending is tracking.While online merchants have not taken over the retailworld in the way many thought they would, a growingnumber of consumers are using the Web to research productsbefore making a purchase. Some even usethe Web to find a product, then go to abrick-and-mortar outlet to make the purchase.

Companies need to do a better job of tracking how manyleads a site generates and whether those leads result in offline sales. “The real value lies notin the transaction but in the leads, but they arehaving a hard time tracking those,” Bartels said.

For companies that have both a brick-and-mortarpresence and a Web site, stores generally deliver90 to 95 percent of the sales and virtually all of the profits.Therefore, Bartels noted, the value of a Web site will be determined by how many leads it delivers to other sales channels. Internet companies that devote resourcesto developing good lead-tracking systems will be moresuccessful than those that do not.

From B2C to B2B

Another way in which e-commerce spending patterns willchange, according to Bartels, is in a movement awayfrom B2C (business-to-consumer) and toward B2B (business-to-business).

Giga Information Group has predicted that e-commerce spendingwill rebound by 2003 to the $1 billion level first reached in 2000, but only about $150 million of that sum will bedevoted to B2C e-commerce technology.

In the future, the lion’s share of e-commerce spending willfocus on B2B, on systems that can be used to sell online toboth consumers and corporations, and on companies thatuse Web sites to generate sales leads.

That said, there still will be a need for straight B2Ce-tailers, and those companies should spend money to make their sites as easy to use as possible.

“It is important forcompanies to cater to those consumers who don’t feelthe need to trek all the way to the store and areperfectly happy to buy something sight unseen,”Bartels said.