E-BUSINESS SPECIAL REPORT
A New Starring Role for E-Commerce

The U.S. economy was not kind to offline retailers during the 2002 holiday season: They saw the smallest revenue gains in more than 30 years. But e-commerce, which tended to overpromise and underperform during the Internet bubble as many Web-only outfits stumbled over fulfillment and customer service hurdles, showed considerable strength in the same holiday period. Is online selling in the midst of a renaissance, and will it emerge with a new starring role as the economy recovers?

If e-commerce can be said to have reinvented itself, its new persona is far less flashy than the old one. Instead of being viewed as a profit center in its own right, it is now seen as a complement to catalog and brick-and-mortar sales channels -- just another slice of the overall enterprise business pie. While a few companies -- notably Amazon (Nasdaq: AMZN), eBay (Nasdaq: EBAY) and Expedia (Nasdaq: EXPE) -- have been successful in establishing Web-only brands, they are the exceptions that prove the rule.

"The role of e-commerce in companies has obviously gone through a wave of overexcitement and hype, and has come back to a more realistic assessment of what that role can be," Andrew Bartels, vice president and research leader at Giga Information Group, told the E-Commerce Times.

Take One, It's Complimentary

How has this shift happened? For starters, most business-to-consumer retailers have changed their mind about e-commerce. Whereas they once feared it, believing online sales would cannibalize their in-store core businesses, they now view it as a complement to overall business operations -- especially in terms of such issues as returns and customer service. "It's much easier to take back a computer you bought on Best Buy (NYSE: BBY) online if you've got a Best Buy store around the corner," Aberdeen Group senior vice president David Alschuler told the E-Commerce Times.

In short, retailers have learned how to leverage their brands on the Internet. In addition to offering in-store pickup and returns, many companies are offering more of their inventory online in an effort to reach people who do not live near one of their stores. By enabling companies to reach more customers in this way, e-commerce can significantly boost the bottom line.

Bottom-Line Data Mining

Companies also have gotten a lot better at mining e-commerce data to boost the overall business bottom line. For example, many companies can track online customer demographics, then use that data to determine whether or not they are attracting their target audience. They also can examine e-commerce demographics in the context of their overall customer base, and perhaps use the online channel to reach out to new types of customers or customize offerings for each user.

Sherwin-Williams (NYSE: SHW), for example, asks each visitor to its Web site to identify himself or herself as a member of one of three categories: do-it-yourselfers, contractors or decorators. The company then tailors its Web site to the customer's needs based on that answer. For example, if a customer says he is a DIY'er, the site will provide a paint estimator so that the customer can determine how much paint is needed for a project. "That kind of presale activity both helps the consumer and reinforces the brand relationship," Schehr said.

New Roles for E-Commerce

These integration efforts are likely to continue in the future. "You're getting to the point where consumers are more and more expecting Web sites to help them do their retail buying," GartnerG2 research director David Schehr told the E-Commerce Times. "They may not necessarily be looking for the click to order, but they're looking for ... store-locator information, to help plan a project."

Also, more companies will start to offer post-product support that, in effect, serves as brand enhancement for the next sale. Through all of these tactics, the Web will become an integral part of the "360 degrees of the sales cycle," Schehr said.

And as businesses increasingly embrace e-commerce, consumers' level of comfort and familiarity with online transactions also will keep rising steadily. With more consumers turning to the Internet to shop and interact with the same brands they see in the real world, the importance of the online channel will keep growing. This growth should prompt even more retailers to set up shop on the Web, perpetuating a cycle that will boost e-commerce revenue to record levels again and again in coming years.