Ecommerce: Knowing the Rules

Ecommerce is the thing, I'm sure you know that. And no matter what business magazine you read, I'm sure you've received a special issue devoted to ecommerce, each with its driving principles, or new rules, etc. These magazines have attempted to apply rules to ecommerce, an industry which they claim has defied all conventional ones.

You've seen some of these articles a while back in Business 2.0, Red Herring, Fast Company, possibly even Wired (but I wouldn't know because I don't read it) And now the larger, more popular (and more conventional) magazines are catching on as well: The Economist, Business Week, and Forbes being just a few that I have read. Even Bill Gates hopped on with his book Business at the Speed of Drool (oops, I mean Thought).

So what really are the rules?

Business 2.0, a fledgling magazine I'm quite fond of, debuted last August with its premiere issue entitled "New Rules, business has changed forever." They were kind enough to leave us with not just one, but two sets of rules to go by. 10 Driving Principles of the New Economy, and 10 Rules that Still Apply. It's a great magazine, too bad their rules fall short.

10 Driving Principles of the New Economy

1. Matter...It matters less.

What they are really trying to say here is wrong: "the value of a company is to be found not in its tangible assets, but in intangibles: people, ideas, and the strategic aggregation of key information-driven assets." Entrepeneurs and VC's must eat this up, which is why they say, it matters less, not that it doesn't matter at all. Bottom line is, ultimately, the product or the service matters and NOT the idea or the people behind it.

2. Space...Distance has vanished. The world is your customer - and your competitor.

Wrong again. While you may not have to be in the same state or even country as your customer, there is still a level of "closeness" that you must have to your customers. Trust is the most important concept to ensure to your customers. Without it, your customers will feel neglected and go elsewhere.

3. Time...It's collapsing. Instant interactivity is critical, and is breeding accelerated change.

Well, they're right on this one

4. People...They're the crown jewels...and they know it.

Yes, which is why most ecommerce sites put a lot of money and resources into customer service.

5. Growth...It's accelerated by the network.

Wrong. Growth is supported by the network. Corporate growth is accelerated by necessity, which might in fact be the network, but more likely is necessary to stay in front of the competition.

6. Value...It rises exponentially with market share.

This couldn't be more true. But value is determined in some unique ways: through brand building and corporate partnerships, not necessarily by revenue. While market share can only be determined by revenues.

7. Efficiency...The middleman lives. "Infomediaries" replace intermediaries.

It was once thought that the web would eliminate the need for the middleman. In fact, due to the sea of information, they are necessary to deliver quality info as their premium service.

8. Markets...Buyers are gaining dramatic new power -- and sellers new opportunity.

The buyers power is unquestioned, but the sellers opportunity is merely possibility and not a guarantee.

9. Transactions...It's a one-on-one game.

Only in some models. Few companies build, sell, and ship their product themselves. Often 3 or more companies are involved. That's why Fedex and UPS market themselves as ecommerce companies for their role.

10. Impulse...Every product is available everywhere. The gap between desire and purchase has closed.

The problem here, and what they fail to mention, is that the impulse has changed. Not in their "desire and purchase" method, but in the vendor method. If your price seems too high, they'll go elsewhere. The impulse buy is being replaced by the smart buy (price comparison shopping). The result: an impulsive buy is a foolish buy.

10 Rules that Still Apply

1. Customers matter
2. One day, revenue needs to exceed cost
3. Trust is the basis of business relationships
4. There are only 24 hours in a day
5. There will always be value in brands
6. There will always be competition
7. People are self interested, so are companies.
8. People need a powerful incentive to change their behavior
9. Sex sells.
10. No one really wants a relationship with a phone company!

I'd value this more than the 10 driving principles. Reality is, the method might change, but some things don't.

Business Week offers us "What every CEO should know about electronic business" (Read: "What every non-technically inclined CEO should read to learn how to jump on the ecommerce bandwagon") Note the use of the term electronic business. Apparently Business Week readers are too stodgy for the terms ecommerce or even ebusiness. Perhaps they wouldn't know what those terms are!

1. Reengineer your company
2. Throw out the old business model
3. The buyer always wins
4. Hold your customer's hand
5. Go ahead, farm out those jobs
6. No web site is an island
7. Create an online sense of community
8. Follow the money
9. A web of nerds? Don't believe it.
10. Log on, Boss.

What they're saying here should be common sense to anyone who's anyone. If you're a business, you need to be on the web, establish a web presence, provide better service using technology, value and help your customer, outsource as needed, market through traditional media, let customers "make" your business, look to venture capitalists, know your customers demographics, and get the CEO off the golf course and onto the web.

Then the Economist has its feature, The Net Imperative, which was actually one of the few I really liked. Absent is the top ten, the idiots guide to ecommerce, the ecommerce how-to. Instead The Economist provides solid writing on how ecommerce differs from bricks and mortar, in-the-box businesses, what the main ideas are behind it, and how it works for the big boys like Oracle, Cisco, Dell, and E*Trade to name a few.

The appear ready for what they have termed the next stage of ebusiness development: hyper-growth. "Nobody can afford to be complacent. Recent experience suggests it takes little more than two years for a start-up to formulate an innovative business idea, establish a web presence, and begin to dominate its chosen sector."

The Economist however, recognizes that a cautious approach to ecommerce should be taken. It points out that while many companies and websites may create a buzz, their final outcome may be. If they'll find their niche on the web or whether they'll fade out as fast as they came. The Economist refuses to get caught up in the hype.

Inc Magazine, recently published "The Classic Bootstrapper," featuring some not-so-useful rules for companies that prefer to bootstrap. These 7 rules are more common sense than anything else:

1. Defy adversity
2. Know an opportunity when you see it.
3. Look for freebies everywhere
4. Carpe diem
5. Draft your family and your friends.
6. Think of cash as king.
7. Remain true to your humble beginnings.

Never could a set of rules be worse for an Internet or tech startup, now if you make and sell candles or something, this method might work for you. But to succeed in ecommerce, put everything aside (except those 10 rules that still apply) and get to work:

• Develop the technology
• Create a brand
• Market the brand, the product, and yourself
• Prepare for loss
• Consult your 3 F's for money (friends, family, and fools).

These are in no way, rules, merely some steps in the process of developing your ebusiness.

One thing remains true, look for freebies. But on the Internet, free often means junk.

Forget about the Rules

None of those rules will help you, no matter how many of those articles you read. To understand ecommerce, you have to get down to the nitty gritty. You can't be afraid to get your uniform dirty or your hair messed up.

Ecommerce is the application of technology through a strategy (the implementation). Each company on the net has its own strategy for success, and there are many ways to go about it. What strategy will work the best depends on your industry and your consumer market.

Lets look at PC's:

Dell, gives the customer the power, allowing you to specify what you want and then Dell custom-builds the PC for you.
Revenue Scheme: Direct Sales.

FreePC gives you a PC for free while asking you to divulge all kinds of personal information.
Revenue Scheme: Receives thousands of dollars of advertizing money, which could lead to even more money if you bite on the ads.

ISP's, give you a free PC and charge you in advance for several years of Internet access.
Revenue Scheme: Get their money up-front and provide a low maintenance service.

Any or all of these strategies can work. The key is deciding what works best for you and your customers. Now these are sales-only strategies. How about some more strategies.

Buy.com - gives you discount rates on items and compensates for the loss in sales through advertising.

Priceline.com - allows you to set the price you want on a ticket, car, mortgage. Seeks the item and sells to you. BUT: only if they can turn a profit on it. Otherwise you have to reset your price.

eBay - takes a percentage cut of auction sales.

These are some really ingenious ideas. Each very risky and each moderately successful. To date, only eBay is posting profits.

So what really works?

These articles will have you believe that anyone can sell anything on the Internet. Don't be dazzled by any rules or principles. What really makes success will be the holistic approach that is not always made clear. Remember those 10 Rules that Still Apply? If you don't, you should read them again. Let's examine those rules in more detail and see how they work in an ecommerce model. The companies that adopt these models will be the real ecommerce success stories.

10 Rules that Still Apply

1. Customers matter

Example: Dell Computers. Dell custom builds its computers for the customer. This works great for both the customer and Dell. The customer gets exactly what they want, and Dell doesn't "lose" money while they're computers sit on shelves waiting to be taken home like those of Dell's competitors.

2. One day, revenue needs to exceed cost

Fact is, most sites aren't posting any revenues. This is expected by most all ecommerce sites. They are prepared to take a loss now, while establishing their brand. As the number of online consumers grows, so too will their market. If they've anchored themselves as the Amazon.com of whatever, chances are they'll receive more interest than Ma-and-Pa.com selling the same thing.

3. Trust is the basis of business relationships

The customer, whether an individual or another company, has to trust your technology and your security. If you neglect either, they're likely to be scared away. This is not achieved by a privacy policy or a 100% guarantee, it's earned by putting your money where your mouth is, by handling problems in a fast and easy manner. It's about being accessible to the customer when it's the middle of the night and something goes wrong.

4. There are only 24 hours in a day

But every site is "open" for all of them. So if your customer likes to go food shopping at 4am, all the power to them. Likewise, the customer who shops at 4am is just as important as the customer who shops at noon.

5. There will always be value in brands

See #2. Advertising is the key to getting the brand out there. Without a physical store to display your goods or a demo to show off your services, associations between products/services and companies must be achieved by other means. Brand establishment is even more important on the Internet to create and maintain these associations

6. There will always be competition

For every Amazon.com, there will be a WalMart, a Target, a Kmart. The key is to watch your competitor closely and if possible stay ahead of them. If they can't find it at CDNow, they'll look for it at Tower or Virgin.

7. People are self interested, so are companies.

People want fast service and quality products at a low price. Companies want to make money, while offering their services, and at the same time beat out the competition.

8. People need a powerful incentive to change their behavior

That powerful incentive most often is one of 2 things, a better product or a lower cost. If you can provide both, that's all the better. Some sites, like Buy.com provide a lower cost, others, like Dell provide a better product.

9. Sex sells.

News Flash: Some of the best Internet technologies and ideas have come from pornography sites: Video content and ad banners. In a way, Porn is the perfect business: you're customers can feel guilty for purchasing it and you can make them pay for it through their wallet.

10. No one really wants a relationship with a phone company!

If anyone does, email me at hackworth@newstrolls.com.