E-commerce looks set to click back into place

Part one of a focus on online business finds adoption rising gradually from the ashes of the dotcom crash.

E-commerce has had enough bad publicity to put off even the most dedicated of its supporters.

Vendors nowadays prefer to talk about e-business or online retailing rather than refresh memories of the over-selling of products and services that went with the dotcom boom.

Europe's love affair with e-commerce fizzled out with the spectacular crash of fashion e-tailer Boo.com, which suffered more than £800m in losses.

In the US the crashing fortunes of 90 per cent of online start-ups and the loss of an estimated 500,000 dot-com jobs put paid to the e-commerce hype.

Enron personified the smoke-and-mirrors nature of much e-commerce business. In its heyday, Enron was the ultimate online trader, buying and selling products worth a staggering $880bn in just two years.

Every day EnronOnline handled an average 6,500 transactions, worth $2.5bn, and sold 2,100 financial products.

At the height of the boom the Financial Times awarded Enron a 'Boldest Successful Investment Decision' award.

In Europe, survivors such as Intershop live on to redefine the market. Intershop was a classic European internet success story. As a pioneer of e-commerce software it grew like mad, but is now a shadow of its old self.

John Griffith, former UK managing director, said: "What was a 'company' is now a 'department'. Staffing has fallen by the same 90 per cent or more as the share price. Break-even is at the rainbow's end."

So what went wrong with e-commerce? "Companies with poorly trained and inexperienced managers were suffering from mass hysteria stimulated by the media, analyst and finance communities," Griffith said.

"Managements demanded explosive growth, and because they got it for two or three straight years they figured this was a trend. As a result, exponential targets prevailed in the year that saw exponential failure."

However, now consulting director at integration specialist Compusys, Griffith believes e-commerce is moving back onto the agenda because it is cheaper to implement than ever before.

He cites the example of Boo.com's technology platform, which took millions to build but was sold for peanuts.

"E-commerce software vendors will give you the stuff to play with until you start to make money. There are deals out there like never before," he said.

According to Simon Welch, marketing manager at Sun distributor and channel development partner Clarity, hype has killed the concept of e-commerce, but not the requirement.

"It was largely hype and thin on actual delivery. Also, the infrastructure to deliver the promise was largely undelivered and, in many cases remains so today. But budgets have not shifted away from e-commerce projects; perhaps terminology has.

"Organisations are steering away from the dotcom hype but are still buying systems that deliver the same end result: a wired-up, connected, low-cost, multi-site, multi-platform, open environment."

Not only is technology available at bargain prices but bandwidth is, at last, plentiful.

Oftel has reported that broadband users number 1.4 million in the UK and are growing at a rate of 30,000 per week, with the average household spending nine hours a week online. A third of remaining internet users are considering a shift to broadband.

E-commerce software vendor Actinic believes the profitability of sites is better than many think. The company's recent SME e-commerce report, conducted by PFA Research, found that 71 per cent of sites are profitable, the same level as last year.

It found that more than half of SMEs are planning to invest in further development of their sites and that nearly half used boxed software.

But despite skills shortages, companies are increasingly using in-house staff for development, a finding that is less than encouraging for systems integrators.

Like many firms in the online storefront business, Actinic sells software that brings e-commerce to even the smallest business. The latest Actinic Catalogue software, version 6, which includes more flexible product presentation and ordering options, a better shopping cart and improved design, costs only £379.

The demand for catalogue software has given some resellers the possibility of selling dedicated hardware to meet the needs of a 24-hour e-commerce operation.

Neil Levine, chief technology officer at ISP Claranet, which resells for Actinic, said there is a shift towards running Linux servers.

"Most customers look at which application fulfils their requirements, and other decisions follow on from there," he said.

"We are definitely seeing an increased demand for Linux-based servers, principally driven by price, but customers are then realising there are significant security advantages too.

"Many viruses and Denial of Service attacks on mail and web servers are focused on Microsoft products."

The difficulty for resellers is knowing where to get involved in the e-commerce food chain.

Products required for e-commerce range from commerce servers to web store technology, business-to-business commerce tools, credit card handling systems, fraud prevention tools and billing tools.

The past five years have seen the arrival of numerous specialist web hosting and web design firms that offer services tailored to meet a broad range of e-commerce requirements.

According to IT services and consultancy firm Salmon, which worked on the redesign of Jungle.com, the difficulty of pinning down exact customer requirements have also led to problems of project overrun.

Salmon advocates contacts that share responsibility for overruns.

"Apart from outright failures, e-commerce projects have been plagued by suppliers and integrators running over time and over budget," said Sue Pratt, head of the e-commerce practice at Salmon.

"In the current downturn, with suppliers and integrators fighting over the few e-commerce projects available, there is a serious trend of underbidding.

"And because there are few contractual safeguards, the suppliers and integrators simply go over budget and over time, leaving the client to foot the bill or try to take them through the courts.

"Companies embarking on an e-commerce project should insist that their supplier shares the risk over the lifecycle of the project. If it goes over time, over budget or simply does not work, then the supplier feels it where it hurts most: in the pocket."

Such attitudes could be driving customers back to big-brand names that are seen as safe options. Since the dotcom fall-out, larger vendors have also strengthened their hand by integrating e-commerce products more closely with other products and services.

The dwindling value of dotcom shares has allowed IBM, Microsoft and Oracle to return to a cradle-to-grave strategy that emphasises the perceived security of their own products and services.

Simon Edwards, Microsoft's head of business solutions for the UK and Eire, believes the company's role is to help resellers develop their businesses.

"The aim is to offer solutions that speed up the supply chain and offer a better service to customers. We think in terms of web services and help resellers gain the skills they need to develop them," he said.

But even Microsoft is tinkering with the language of e-commerce. It has just announced an umbrella brand for its array of server software.

Windows Server System encompasses 12 server products including BizTalk Server, Commerce Server, Content Management Server and Sharepoint Portal Server.

Most were previously tied together under the .Net Enterprise Servers brand, but it seems .Net has mystified too many customers.

Research firm Analysys believes resellers need to re-educate customers to understand the importance of portals as windows to e-commerce.

Its recent report, The Fall and Rise of the Portal, redefines portals as 'online networking organisations'. The report claimed that many portals have disappeared because those behind them failed to understand their possibilities and limitations.

Analysys suggested that portals are successful only if the creators understand the needs of the target market so that critical mass can be reached quickly; engage members by enabling them to interact with the content; involve a local business champion; employ a sustainable business model with revenue from sources such as membership and events; and bring together content from other sources.

For many resellers the opportunities are most likely to be in supplying security wherever e-commerce links to critical parts of a firm's infrastructure.

E-commerce distributor Unipalm believes resellers can do well by targeting discrete aspects of the e-commerce process.

"Security has become more of an issue now that we have all seen where problems can occur. Companies are very sensitive about making sure that there are no weaknesses, and resellers are doing well meeting those objectives," said Mark Norman, Unipalm's managing director.

"We are also finding more interest in collaborative tools such as instant messaging because they allow customers to be managed more efficiently." According to Norman, e-commerce today is seen in terms of customer management.

"Firms know they have to have some kind of e-business and they have to use it to manage their customer base better. The motivation may be to save costs, increase profitability or just to keep up with competitors," he said.

E-commerce has morphed into something broader than was previously considered, yet with more modest aspirations.

It is also something of a double-edged sword, with larger resellers and distributors having to show by the example of their own sites how it can improve processes and customer management.

In a risk-averse environment, it is a case of taking slow steps towards these goals rather than giant leaps.