The corporate excitement around ecommerce has calmed dramatically since the heyday of the dot com era when businesses of all shapes and sizes grew drunk on the vision of the web as their primary customer ‘touchpoint'.
Today, enthusiasm is often muted, especially from those that hold the purse strings at traditional ‘bricks and mortar' retailers – their views tempered by the many failed promises of the business being transformed through an online presence.
Despite such misgivings, ecommerce is entering a new phase. The first generation of platforms, bought or built in the dot com rush, have become tired and inflexible. The pace of change on the Internet is unrelenting, and the technologies that were used to create many existing ecommerce sites are unable to take advantage of new functionality for enhancing the sales process or capabilities for refreshing web sites to meet rapidly changing business needs. Research house Gartner notes: "This market is entering a replacement/upgrade phase in which users wish to add new capabilities, and update and integrate their current ‘siloed' multichannel ecommerce projections."
Any technology replacement is going to be a tough sell for IT management – especially for those that recall the first, often experimental phase when small fortunes were poured into web site development. But an emerging catalogue of evidence supports the business case for revisiting ecommerce.
The recognition that outdated ecommerce platforms are limiting retailers' ability to meet business demands, integrate with third party systems and reduce the cost of maintaining customised code is triggering a surge in spending, according to IT industry analysts at AMR Research. "The antiquated standalone ecommerce platform of the 1990s is a barrier to success. By making smarter technology investments today, you will not only meet current challenges but you will be setting up a dynamic technology platform that acts as a hub for future investment," says AMR's Robert Garf.
Garf says that there is currently a window of opportunity for those businesses to invest in ecommerce technology – not least because ecommerce is progressively gaining momentum in overall retail spending.
The chief annual barometer of retail health – the Christmas period – showed major weakness in 2004 for the vast majority of British retailers. But while the crowds deserted the high streets and the out-of-town shopping centres, the tills at virtual retailers were ringing. According to the Internet Media Retail Group, UK online shopping surged 20% in December 2004 to £3 billion. Analyst group IDC estimates that the UK's online spending accounted for 7% of all retail sales. And it is expected to carry on rising.
Says Daniel Nabarro, chairman of online lingerie retailer Figleaves: "The high street doldrums were certainly not experienced by Figleaves over the Christmas period. We exceeded £2.5 million gross turnover in a month for the first time ever and our busiest day was 60% up on last year." It is not just high street retailers that have been witnessing the drift to online commerce. The travel sector has undergone a sea change in recent years. The explosion of ‘no frills' airlines reshaped the industry, making the web its primary sales channel.
But ecommerce's real change has been a fundamental rewriting of customer relationships, says Paul Coby, CIO at British Airways. The ability to offer extremely low prices kick-started the thinking about ecommerce, he says. But the real benefits have flowed from BA reengineering its business processes, making them more customer-centric. "This is revolutionary, and deliberately so. We absolutely see this as the differentiator," Coby says.
BA has taken ecommerce to heart – to the extent that its main advertising campaigns now focus on the activities customers undertake through its ba.com site. These include not only flight reservations but enhancements like online check-in, seat reservation and printing boarding cards at home. BA is also improving the integration with its holiday booking system, so that it can use its brand to drive sales of complete holiday packages. The ads are a confirmation that ecommerce development has come of age, Coby believes. "Seeing the adverts promoting the web site was a real boost for the IT department. It's recognition of some hard work done well."
But the ecommerce model is finally proving disruptive in less obvious quarters. Japanese automotive giant Honda now allows customers in the US to ‘build' the car they want to purchase. They can choose colours, customise the car's interior and select from a long list of options that includes everything from souped-up sound systems to chrome wheel nuts. Currently, that is as far as Honda goes; customers have to print off the specification of their ideal car, before presenting it to the local dealer. However, the automotive giant has plans to add the final stage of order fulfilment, and delivering the car to customers.
Others are leveraging their brand in different ways. John Lewis Direct is consistently recognised of one of the top ranking UK shopping sites, building on its reputation as a high street leader. But while a high street brand is important in building consumer confidence, it soon became apparent that John Lewis needed to be more sophisticated to attract online buyers, says Alison Lancaster, head of marketing and catalogues at John Lewis Direct. "One of the tactics we are allocating more resources to is search techniques, both organic and paid for, because we believe that the customer is more in control on the web." (See feature, ‘The vocal web'.) Those shining examples aside, there are plenty of organisations that have still to find a comfortable model for online commerce. Transactional capabilities are still missing from web sites such as Sony, Dulux, Wickes and Bhs. In some cases that comes down to a desire to avoid channel conflict, says Ian Davis, director of product strategy at ecommerce software maker ATG. "Retailers tend to get annoyed by the idea of losing business [to their suppliers]. If they're up in arms, those businesses often hold back on ecommerce plans."
But even where channel partners are more comfortable with competing against direct online sales, many businesses are still put off by the expense of delivering a transactional site, says Dan Wagner, CEO of ecommerce outsourcer, Venda. "The expense of developing the warehousing and delivery channel can be prohibitive. Adapting your systems to be able to deal with single consumers isn't easy."
However, there are indications that ecommerce is becoming more adaptable. While the process of redesigning business processes at BA took months of planning and considerable effort to foster buy-in from those outside of the IT department, the results were a more flexible IT infrastructure capable of delivering change. "We got into using web services and service-oriented architecture early. Now when the business wants to do something online, IT can be agile and responsive," says BA's Coby.
Moreover, ecommerce technologies no longer stand apart from core business applications and data. First-generation web sites suffered from an inability to connect to back-end systems – creating problems with keeping online catalogues and other files up-to-date and leading to tales of retailers selling high priced electronic goods for pennies.
But web content management has matured and back office systems such as SAP have improved their integration capabilities. This is helping drive a new wave of ecommerce enhancements forward, says ATG's Davis. Personalisation is a much-hyped technology, but is about to show its value: Better integration of data is improving the understanding of customer behaviour, and "that in turn allows businesses to deliver content that is specifically relevant to the individual customer," he says.
Since the notion of selling direct to customers using the Internet first emerged, technologists have been promising to find ways of enhancing customer interactions. But techniques such as behaviour modelling and personalisation are data hungry; if they are to make a tailored offer to a customer as they are browsing, then they need processing power to crunch the numbers in near real time (see feature, ‘On target').
"The nature of the [ecommerce] industry is moving. The improvements in web analytics, personalisation and ease of check-out are making web sites feel very much as if they have an experienced virtual sales person helping the customer. It's very much about improving customer service," says Gill Hide, head of retail at ecommerce services provider Conchango.
This appreciation of the pre-eminence of the customer is helping to shape the future of ecommerce. Slowly businesses are realising that ecommerce is not so much a cheap way of attracting lots of new customers, but a cost effective way of improving customer service. The latest developments promise much. Although still in its infancy, businesses are looking to add voice interaction to ecommerce sites using voice over IP technologies – a facility that they think will help them turn much browsing into sales.
This type of enhancement in ecommerce reflects the acceptance that the Internet is not a separate channel – the greatest benefits come from extending the physical business online. However, for web sites such as Tesco.com, John Lewis Direct and ba.com that not only entails taking the corporate brand values, and replicating them online, it also requires fundamental shifts in the way business processes are thought out, making them more customer focused. Quite simply, ecommerce is about providing another mechanism for customers to connect with business and one that is increasingly their mechanism of choice.