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December 7, 1998

Myths And Realities

Web commerce is changing the way a lot of companies do business, but it's not everything it's pumped up to be. We separate fact from fiction.

By Clinton Wilder

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ew IT trends have been hyped more than electronic commerce--and considering the industry's penchant for hyperbole, that's saying a lot. Stock valuations of E-commerce players defy fundamentals. Predictions of triple-digit market growth abound.

There's no question that the Internet has emerged as an enormous force for change over the past four years--in IT, in business relationships, and in the way millions of people receive and communicate information. But the resulting gold-rush atmosphere has produced the typical gold-rush side effects: exaggeration and oversimplification of the real issues.

It's time for a reality check. Following are the eight biggest myths about E-commerce, debunked by those best qualified to do so--IT and industry professionals trying to make E-commerce work for them.

MYTH NO. 1: It's Easy.
AKA: The Barriers To Entry Have Never Been Lower. Yes, putting up a Web site is easy. And putting up a Web site to handle commerce transactions is pretty easy, too. But add words like effective, scalable, and successful, and it gets a lot harder.

For large, established companies, the No. 1 challenge is integration. "A Web site is like an iceberg," says Delta Air Lines CIO Charles Feld, a longtime IT executive with stints at Frito-Lay and Burlington Northern. "What you see looks small and simple, but below it you have infrastructure integration issues with maybe 40 or 50 databases. So building a Web infrastructure can be a pretty serious risk for older companies." (For more on the technical intricacies of Web commerce sites, see story, "Mega Web Sites.")

The Compumotor division of manufacturer Parker Hannifin Corp. knows that all too well. Compumotor's extranet for handling orders for industrial automation system products went live last week--but not until after a one-year delay to deal with response time, server upgrade, and integration challenges. "Setting up E-commerce is not easy or fast," says Compumotor IS manager Bud Parer. "Performance and scalability are the biggest issues. This is the way we decided to run our business, so we weren't going to do it until we had acceptable response time and data that is absolutely accurate."

The extranet will handle orders for 12,500 products, warranty and nonwarranty repair-status queries, and many other transactions from 65 distributors, 35 factory reps, 20 direct customers, and 50 internal employees. To ensure performance, Compumotor upgraded its Hewlett-Packard server and moved part of its Oracle database to a Sun Microsystems UltraSparc server to share the load. The company devoted four worker-months to designing and integrating the extranet applications' Active Server pages, with 90% of the coding time spent on data availability and accuracy. "We didn't want to guesstimate anything," says Parer. "Our business depends on this."

For many companies, the business issues of E-commerce are no less daunting. Changes in business processes, customer and supplier relationships, data access, data ownership, distribution strategy, and marketing tactics underpin most Web-commerce efforts.

"The technology integration issues are huge, particularly at the back end, but we feel we're meeting those," says PG&E Corp. CIO John Keast. "The front end is a whole other challenge. What are customers going to use this energy-usage data for, and how do they want to receive it? It's a brave new world, where users have access to information they've never had before--and there's no standard for it."

For business-to-consumer online efforts, doing E-commerce well starts with driving traffic to your site. Many early sites did a good job harnessing Web technology, but those efforts languished because not enough shoppers came calling. "Many companies didn't realize that a Web site needs a compelling marketing program to go with it," says Sheldon Laube, chief technology officer of Web systems integrator US Web Inc.

US Web has worked with American Airlines and sports-equipment retailer REI Inc. on marketing tactics, such as American's weekly E-mails alerting customers to cheap weekend fares and REI's expansion of its Web presence with targeted links on outdoor-activity Web sites. And equally if not more important, the companies began to advertise their E-commerce capabilities in traditional media. "Let's face it: People still watch TV and read magazines," says Laube. "Building a site is just one piece of the puzzle."

MYTH NO. 2: It's cheap.
Perhaps E-commerce is cheap when compared with a full-blown enterprise resource planning implementation or the purchase of a mainframe. But for a number of reasons, a full-scale online commerce effort is never a low-cost proposition. Business-oriented commerce server software, such as Microsoft Site Server Commerce Edition, may start as low as $5,000, but that's just the first building block in a complex undertaking (see Myth No. 1). Companies spend an average of $750,000 just for the baseline technology, according to a Gartner Group survey of 100 commerce sites.

"It's not like what IBM says in their e-business ad campaign: Just extend what you already have," says Roy Satterthwaite, a research director at Gartner Group. "E-commerce applications are in their first generation, and they just don't do everything you need. Open Market's Transact is great for transactions, for example, but not for content. E-commerce always ends up costing much more than any one vendor's product."