So Who’s Buying?
After years of false starts and unfulfilled promises, electronic commerce is entering a phase of vigorous growth. But the bulk of the new action is among corporations doing business with one another; most consumers are still waiting warily on the sidelines.
There are success stories, to be sure, and few dispute the inevitability of the Internet’s emerging as a major conduit from producers to consumers. But for now, there are doubts about the Net’s usefulness as a business tool.
What follows is a debate between two authorities on the Internet, one an academic expert, the other, an entrepreneur, who discuss the state of online commerce and debate its feasibility and future. Donna Hoffman is a professor at the Owen Graduate School of Management at Vanderbilt University in Nashville and co-director of Project 2000, a research center devoted to studying the commercialization of emerging media such as the Internet. Robert Pittman of America Online is chief executive of the company’s AOL Networks online service.
Pittman: Internet marketing has clearly arrived. If convenience is king for today’s consumers, then cyberspace is its castle, as savvy merchants and marketers make it easy for buyers to find what they want without going store to store or fighting crowds. The interactive medium provides value, as online merchants’ low overhead allows for discounts not available through traditional outlets. Plus, for merchants, cyberspace condenses the marketing phases of attracting attention, selling and closing the transaction into one step in one place.
Hoffman: But there remains a dearth of commercial activity between businesses and consumers on the Internet. This is because in general, there are still relatively few consumers online and relatively few offerings available for their online purchases, especially compared to the sophisticated retail world and direct-mail shopping. For example, in 1997, although over 45 million individuals in America over the age of 16 used the Web at least once, only 4.5 million ever purchased a product or service on the Web. And almost 123 million people--nearly 62% of the United States’ population--had no access to the Internet at all in 1997. Another 32 million individuals--15%--had access but didn’t use it.
Pittman: First of all, those who are concerned about the limited selection and availability of goods and services should look again. There are literally thousands of products available, ranging from postcards to sports cars, from real estate listings to Sing & Snore Ernies. There’s literally nothing a consumer can’t find on AOL or the Web.
Hoffman: But overall consumer online shopping revenues--which, in 1996, were estimated at $570 million--are still meager, despite the industry’s optimistic forecasts that such revenues will grow dramatically to $13.8 billion by 2002. In contrast, business-to-business estimates show us clearly where the real action is: The business-to-business market logged $8 billion in revenues for 1997, and industry analysts predict that they’ll soar to $327 billion by 2002.
Pittman: Granted, the industry is still in its infancy, but it’s growing explosively. It’s clear that consumers are becoming more comfortable with the medium. For example, although holiday retail sales were flat over last year, AOL’s sales doubled. Other Internet retailers saw big gains as well. This shows that the mainstream definitely is coming online to buy mainstream products such as apparel.
Hoffman: E-commerce is also plagued by another problem: The technology for secure payment mechanisms hasn’t yet matured. Although a variety of mechanisms--encryption, digital signatures, certificates of authentication, secure protocols, secure credit card and debit payment systems, and digital currency, for example--are now competing to protect business transactions, no single mechanism is emerging as a security standard. Online users are still greatly concerned about security, and this is inhibiting their consumer behavior.
Pittman: Again, it depends on the Internet source. All transactions on AOL and several other online services and Web sites are covered by security guarantees. Shoppers are recognizing that online sales are certainly safer than handing your credit card over to an 18-year-old waitress at a restaurant. They’re routinely buying big-ticket items ranging from $3,500 exercise equipment to 31-inch TVs. Some are even buying cars from dealers on the Web.
Hoffman: But the core reason that people have yet to shop online in large numbers, or even provide personal information to Web providers, is because of a fundamental lack of faith in the Web today. Consumers do not trust most Web providers enough to engage in “relationship exchanges” with them. This is due to the industry’s failure to respond satisfactorily to mounting consumer concerns about information privacy in electronically networked environments. And this is negatively impacting the further development of E-commerce efforts.
Pittman: It’s true that not every merchant can capitalize on the marketing potential of cyberspace--just like not everyone can have a storefront on Fifth Avenue. Putting up a lonely Web site on the vast Internet is like placing a billboard in your backyard. If there is no traffic, there will be no sales. The bottom line is that interactive marketing will work for those with the strong brands, the right location and the savvy to make it work. Americans are brand buyers--the same trusted names that succeed offline are prospering online, along with new ones like [bookseller] Amazon.com, who have invested effort and resources to build a brand name. In the coming years, Internet marketing is going to strengthen many a bottom line.
Hoffman: But until the Web is seen as “ready for prime time,” many consumers will remain unmoved by businesses’ appeals to go online. And many of those already online still won’t engage in transaction relationships. Ultimately, commercial Web providers will have to develop radical new business strategies for any long-term success. Difficult solutions are needed for developing the cooperative relationships between online firms and consumers. If they’re not attempted, society runs the risk of letting the Internet’s revolutionary opportunities slip away.
