Electronic Shopping: The Mall?s in Your Court

Should PC dealers join the Net set and enter the cyber mall? Andrew Charlesworth takes a look at the pluses and the pitfalls of e-commerce

There are two sides to the online shopping issue for PC dealers. First, is it worth setting up an online trading facility for the dealership? Second, is there the opportunity to sell the computers, software and services to enable customers to set up online trading systems?

The answer to the first question partly depends on what threat or opportunity one estimates electronic trading is to the current way of doing business. There has been a lot of talk about electronic shopping being the death of retail, and, if the whole world is going to buy electronically starting from next year, then yes, it is worth doing. But if it won?t happen for the next five years, the answer is probably, no, not yet; let others make the mistakes first.

The answer to the second question is yes. There is an opportunity for sales. There are enough online shopping and electronic commerce projects, even small experimental ones, to make business worth doing.

That also means there are two good reasons to answer yes to the first question, and for dealers to set up their own system. Setting up their own system will be invaluable experience when it comes to setting one up for a customer. It should make doing it easier and more profitable. And if customers have electronic trading systems, then it becomes worthwhile for their suppliers to have them. It?s the fax effect: in the mid 80s it became worthwhile owning a fax machine because everybody had one and there was someone to fax.

In any discussion about electronic commerce, you have to be clear what sort of commerce you are talking about. Electronic commerce is not just about cyber shopping, which has been hyped and flopped ahead of its time. Cyber shopping means selling to consumers and obeying the laws of retail. In retail, location is all and the Net can be a bleak location. Opening a shop on the Web can still be like putting it in the middle of an industrial wasteland ? nobody ever goes there, or not to shop anyway.

And until someone comes up with the Web-enabled matter transporter, there is still the problem of fulfilment. To actually get the physical goods to the consumer, cyber shop owners are dependent on Postman Pat, or his 90 equivalent, Delivery Van Dan.

In this respect, cyber shopping is exactly like mail order, but with a different front end. The only difference is you browse a virtual catalogue (and pay a telco for the pleasure of doing so) instead of a paper one.

The big supermarket chains know it?s going to happen ? eventually ? and most have set up some form of electronic shopping pilot, such as Sainsbury?s experiment with Hewlett Packard (PC Dealer, 5 and 12 March).

Where these giants lead, other retailers will follow, which presents a good sales opportunity for computer dealers who are brave enough to set up their own electronic trading system as a showcase and wise enough to invest in the skills to do it.

Revenues from internet shop-ping will be worth over #1 billion this year for the first time, a poll by National Opinion Polls suggests. About 12 per cent of the Web users who responded to the survey said they had used their credit cards at least once, doubling the number who did so in the previous year. Computer hardware and software accounts for about half of the value of online purchases, which perhaps suggests that computer dealers and retailers should be among the first to have electronic shopping systems.

Electronic shopping will become a major form of retail, but not immediately in Europe.

Having said that, there are some exceptions. Fortune City, which has now been open for business for about six months, is flourishing. It?s a hybrid site of film noir-style entertainment and cyber shopping. You can build your own ?house?, vote for the city mayor, and you can follow private dick Sam Spade (who bears a remarkable resemblance to Humphrey Bogart) during the course of his investigations. There are numerous locations around the city, such as bar, cinema, church, Sam?s office and so on. And there are lots of shops.

Fortune started selling software, usually titles which didn?t have big marketing budgets to get them shelf space, taking a modest #1,000 in its first week of operation. Now it has 30,000 members notching up four million hits a month. Last month it diversified into videos, music CDs and rock and pop concert tickets as well as its growing catalogue of software and computer peripherals.

?We pick the items we carry very carefully,? says Richard Jones, Fortune City MD. ?There are only certain types of products which translate well to selling on the Net. They have to be global products in the #20 to #30 price range that are easy to deliver. English is the global language in software and music.?

Failing to recognise that the internet is a global marketplace and failure to choose appropriate products are the reasons why early cyber malls like Barclays Square flopped. ?If you think it?s boring enough looking at an Argos catalogue in printed form, you should see the one on Barclays Square,? says Jones.

Fulfilment is a problem for Fortune City, which recently sacked its fulfilment contractor and took the service in-house. ?If you get it wrong the customer goes ballistic,? says Jones. ?They take it personally, and they are used to the speed of response on the internet.? Consequently, a proportion of the software ? utilities, for example, up to 7Mb in size ? is delivered over the wire.

Fortune City has succeeded because it offered more than just an electronic mail-order catalogue. People visit not just to shop, but to take part in interactive entertainment. In a conventional shop you can run in-store events ? promotions, competitions and so on ? to draw customers in the door. But you can?t run them all the time. In a themed cyber mall you can run them all the time.

Thus the benefits of electronic commerce come not from replicating on the Web what already exists in efficiently workable form elsewhere, but in finding new ways of doing business which the Web uniquely enables.

For example, Peter Piper Pizzas in the US uses Real Trade electronic shopping software from Victoria Real in the UK. Apart from allowing customers to order online, it enables Peter Piper to collect information about their customers and send offers to their customers without their competitors seeing it and having the chance to counter it.

The main opportunity for PC dealers ? both for building their own electronic commerce system and building systems for their customers ? lies immediately not in consumer-oriented cyber shopping but in business-to-business commerce.

?Business to business is where the action is,? says Tom Patterson, chief strategist for electronic commerce at IBM. ?All the e-commerce ever done on the Web is equivalent to about 70 minutes of Visa transactions. There?s more to doing Web business than a Web server and a firewall. You need to be able to verify credit on the Web, collect VAT, do all the things you need for normal business.?

Business-to-business electronic commerce hasn?t happened on a global scale yet; there are only small pockets of mutual interest and the occasional company that has posted up its phone directory. But soon it will be the de facto way of doing business. When it does, it will be like fax in the early 80s ? one minute rare, next minute there.

Once upon a time, businesses interacted with each other by post. A manager raised a purchase order, a clerk typed it out, put it into an envelope and sent it off to the supplier by post. When a week went by and the goods didn?t arrive, the clerk phoned to chase the order, and finally the goods arrived with an invoice that was paid ? eventually ? by a cheque sent in the post.

Then came fax machines and the process was reduced to overnight. The managers and their clerks got downsized and everybody said how quickly business moves these days.

Before the end of the decade, in many cases before the end of the year, the manager will fill in an electronic order form which is instantly replicated to both companies? accounts, to the supplier?s stores, and maybe even to its manufacturing plant.

The goods arrive next day in a van and payment is added to a bill of credit to be transferred

electronically with payment for all the other invoices at the end of the month.

To the manager sitting at his desk, at home, or from any online computer, it looks as though he never left his own company?s network. But the order form resided on his supplier?s server.

The end game of electronic commerce is when all organisations can interact with all others from initial contact through to regular business transactions. You won?t need a business card with an email address on it for that initial contact, because the company?s email directory will be readily accessible to you online using standard directory search protocols.

So how do we get from the ragged implementation we know to the digital nirvana described? Unfortunately for the user companies concerned, electronic commerce isn?t a killer app which can be installed on its PCs, although to listen to some vendors, one would think that is all there is to it.

First, companies that want to trade in this wider digital business community ? and this includes the computer dealers themselves ? need to put their in-house systems in order. The facility to do electronic commerce (using commerce in its widest meaning) is the number one reason for having an extranet. An extranet enables an organisation to open portions of its network to customers and suppliers on an ad hoc or permanent basis, enabling business processes, such as information enquiries, transactions, ordering, fulfilment, payment etc, to transcend conventional company boundaries. An extranet is one of the two main reasons for having an intranet (the other being the empowerment of staff by facilitating open internal communications).

But fortunately for resellers, there is more to building an intranet than setting up a few Web servers and installing a browser on the desktops. Organisations need to ensure that their network infrastructure can cope with setting up an intranet, because it may well mean a significant increase in network traffic.

?Many vendors are coming from the top, saying ?we can build a great electronic commerce application?, but they can?t predict the network any more,? says Lalit Nathwani, director of network services and Unisys? global customer services division. ?They can?t predict the traffic demands created by the different usage of new users calling up new information from new Web servers.? Network infrastructure, warns Nathwani, is an ongoing investment and unless they are prepared to bite this budgetary bullet, there will be little progress made towards universal and acceptable electronic commerce.

?The IT industry isn?t helping its customers,? says Nathwani. ?The rise of the internet has helped business managers to realise that the network is important, but probably not enough. Lots of customers are coming to us to sort them out because they have let their users loose setting up Web servers but they haven?t set up the procedures and processes necessary to keep the network under control. Many companies don?t realise the investment that they need to make in developing their network infrastructure.?

The position will be compounded as, over the next few years, more resources will be devoted to solving the twin problems on the year 2000 date change and accounts systems changes resulting from European monetary union ? in whatever form it comes ? in 1999.

All the current research shows that 1997 is the year of the intranet, with companies committing to full roll-out or pilots of varying sizes before the end of the year.

Such large-scale deployment is bound to reveal the weaknesses and consequently there will be demand for network integration services as surely as demand for builders rises after stormy weather.

Get set for safe transactions

?The internet is not a secure place to do business? is a common objection to online commerce of any kind, but specifically that which involves consumers transmitting their credit card information over the Net.

But 56 and 128bit encryption key-length software has been licensed for export by the US Department of Commerce recently, replacing the 40bit weak encryption which was proved vulnerable to cracking in a few hours.

In the US, Congress is currently considering a bill which would enable internet users to choose which level of encryption security they want, rather than having an upper ceiling imposed by government. Similarly the Visa, Mastercard, Microsoft, Netscape and IBM secure transaction systems have been united under the SET (secure electronic transaction) protocol. It is in the interest of all parties who promote online shopping to promote SET and to raise consumer awareness and confidence in SET.

SET-compliance will be incorporated into vendors? e-commerce software later this summer, and in April the Bank of Ireland became the first of a network of 38 European banks to commit to starting SET payments in May. ?Soon you will see our mothers flocking to the Net to buy goods because they know that giving their credit card number to a SET vendor is safer than giving it to a waiter in a restaurant,? says Thomas Patterson, chief strategist for electronic commerce at IBM.

?I?m not holding my breath as far as SET is concerned,? says Richard Jones, Fortune City MD. ?There isn?t a problem with credit cards. People are using them on the Net, particularly in the US. What we?re waiting for is wider acceptance of the internet per se.?