E-commerce shakeout

Experts say pricing and service will determine online survival

By -- Industrial Distribution, 7/1/2000

Until recently the word "e-commerce" was a magic mantra that virtually guaranteed profitability. As a result, self-anointed "e"-trepreneurs barely old enough to vote only had to launch a Web-based business to see venture capital firms fighting for the right to finance the start-up.

By the same token, companies that were light years away from profitability saw their initial public offering being bid up to stratospheric heights only days after the company went public.

In fact, almost from its inception the Internet has been viewed as a cash cow that would automatically create a new generation of e-commerce millionaires.

But with increasing frequency and volume, research firms, financial analysts and industry experts are warning that the ball, barely begun, may already be over for many companies doing business on the Net.

In recent months both Gartner Group and Forrester Research have forecast that as many as 90 percent of all dot-coms will be out of business by the year 2002.

Forrester Research unequivocally predicted that, "The combination of weak financials, increasing competitive pressures, and investor flight will drive most of today's Dot Com retailers out of business by 2001."

And according to a recent story by the Associated Press, the San Diego-based law firm of Luce, Forward, Hamilton & Scripps is starting to receive numerous calls each week from Web retailers, vendors, venture capital firms and lenders "who want to be represented if these businesses crumble." The story also quoted Mark Doll, a consultant for startup companies at Ernst & Young, saying, "There are 30,000 e-tailers out there, and probably 25,000 will have to go away."

As investors heed these storm warnings, the stock market has reacted with predictable panic, causing the technology-driven NASDAQ to lose nearly five percent of its total value in a single day.

To date, the majority of the dire warnings about an Internet blood bath have focused on business-to-consumer dot-coms such as the spectacular flame-out of the fashion retailer boo.com. But analysts emphasize that business-to-business e-commerce is equally vulnerable to the same pitfalls torpedoing many online retailers.

They emphasize that thanks to the nationwide and international nature of the World Wide Web there is no compelling reason why customers will support numerous companies offering identical product lines. They see a Darwinian evolutionary process reducing the large number of competing companies to just a handful of the "fittest" who offer the best prices and superior service. What this means for distributors is that merely having a presence on the Web is no guarantee of success or even survival.

Unlike traditional person-to-person transactions, successfully conducting a Web business requires enhanced communication to compensate for the impersonal nature of the medium. It is essential to keep customers apprised of the status of an order from the time it is received until it has left the warehouse. An initial acknowledgement of the order spelling out the exact specifications and quantities to be shipped, together with a shipping date, are essential. And if at any point a substitution must be made or an item thought to be in inventory is on backorder, it's essential to notify the customer immediately.

But before your ISP files for bankruptcy, send your comments and/or suggestions to harper.d@att.net.