The cost of e-business

Everybody`s doing it so why can`t we? Not only is this the name of a record album, but it could also equally apply to the online business. Right now it is all about money: "Save money by going online", "make money by going online", "it`s cheaper online", "setup a Web business and be a millionaire overnight", "free stock brokers online" are some of the promises being bandied about. Ask the e-commerce vendors and they will say it is all about being a more profitable business if you embrace e-commerce, and for customers it is the lure of good deals. How real are these promises and should we start looking more at the cost of doing business over the Internet?

Before any business rushes out to get online it should look at the actual cost of doing business over the Internet.

There are really two perspectives on this, one from the consumer buying goods online and the other from the company using e-commerce either to trade or in the trade of direct and indirect goods. Both have been told how doing business on the Internet is of financial benefit, either by saving or making money.

Before any business rushes out to get online it should look at the actual cost of doing business over the Internet. So far "successful" online businesses like Amazon.com still can`t turn a profit, posting huge losses each year, and similar local e-commerce ventures say they expect it to take over three years to become profitable. That is also a simple case of an online sales business, when we get into business-to-business e-commerce it becomes far more complicated.

In the business-to-business area return on investment can be a matter of months or it can be years. It all depends on the project taken and on the investment made. This is one area where the "quick-and-dirty" approach will sometimes bear fruit faster and produce a staggering return on investment (ROI). In the case of Los Angeles County, its ROI was four months for a multi-million dollar corporate purchasing system.

The area that always seems to be the stumbling block is that of the back office systems. If you already run an automated business with enterprise resource planning, logistics and financial systems, then deploying e-commerce can be somewhat easier than the company that does everything manually. However, in both cases there will most likely be a case for process re-engineering and its associated costs. Before a company embraces e-commerce it needs to look at the logistics side of its business and ask the question: "Can we handle the process completely electronically or do we need to use manpower to solve the problem?" For example, take a large retailer that might want to sell online and seems to be a perfect candidate for an online sales site. Its Web site goes live; I buy from it, now what? How does the retailer get it from the warehouse or shelves to the shipping department and pack it somehow to be sent down the road to my house in four hours! The only way might be to deploy staff to do this and therefore costs go up.

This then brings us to the other side of the coin, the consumer. Right now we expect that buying online will be cheaper, and for the most part it is. We somehow expect that since the retailer had no physical store and no sales staff, that it must be cheaper. But we also insist that it should be more convenient, quicker, safer and better quality! All these given for a better price does not always add up. Sure, it does happen and almost all Web sites are offering a price discount off retail, sometimes over 40%, and they do deliver quickly and safely. However, when we turn to the mass market online shopping for groceries and FMCG, can we still expect this? The company still has to invest in a store, but in the online world a computer server and a warehouse represent the physical store. However, it still needs logistics people for shipping, a finance department for billing, a marketing group to get people to the site, and sales people to help you make that purchase online. It also has to invest in shipping, courier and Internet line costs.

If I can get my groceries delivered to my door within three hours of ordering them online, even if that costs me 5% more I will be willing to pay for the convenience. The same might apply for other items I buy. Already buying a movie ticket online cost you more than booking at the theatre, and shipping a book from the US can make it more expensive than if bought locally. So if all this applies to the broader online shopping market, why do we insist that it should be cheaper?

Don`t take all this the wrong way, I still think that as long as we are aware of the costs of doing business online, there is huge promise for financial gain. My question is: should we be looking more at the other benefits of trading online which will make more money in the long-term than short-term profits. Some companies look at this as they would any other business, and invest in it for long-term success; others get upset when they don`t immediately turn a huge profit. My advice is to do both, look for the short-term projects with good ROI, like corporate purchasing, while keeping the investment going in the longer-term projects, like online selling and value chain trading.

E-commerce can make everyone money, whether you are saving it or making it, it just needs a solid business proposition and patience.