The Real E-Commerce

The mainstream media are fixated on retail electronic commerce as the emblem of its success or failure. If that’s the case, electronic commerce is going to look like a failure for a long time. Though growing faster than in-store sales, online is still just 2 percent of retail buying. But an excellent study based on US census data shows that b-to-b online commerce, mostly in services and manufacturing, has seen steady, even dramatic growth, without the kind of post-bubble crash that retail suffered. Most of the online processes adopted by services companies and manufacturers have been basic–online catalogs and procurement are near the top of the list–and bigger companies tend to do it more than smaller ones. All this progress has been overshadowed by the bust of the most overhyped b-to-b segment: electronic marketplaces (okay, so we bought into the hype at first, too–but we got cynical earlier than most). The study authors offer a great nugget of wisdom that we all should have seen; marketplaces never made much sense as a way to make the traditional supply chain more efficient. “The limited success of these applications can be attributed to the fact that online exchanges did not dramatically alter the existing way firms manage their supply chains. Firms value obtaining the right combination of products at the right time, and coordinating complex production activities is easier with a dedicated, traditional supply chain. The cost savings offered by online exchanges were simply not enough to convince firms to sacrifice other aspects of production, such as timeliness and access to preferred brands.”