E-Commerce Definition and Solutions

Get an overview of e-commerce from the experts

Compiled by Susannah Patton

• What is B2C e-commerce?
• What is the difference between B2C and B2B e-commerce?
• Why was there so much hype surrounding B2C e-commerce when it got its start in the late 1990s?
• How should companies organize their B2C initiative?
• What are the major challenges of B2C e-commerce?
• What is channel conflict and how can I avoid it?
• Can B2C e-commerce be profitable?
• Do I need a privacy policy for my B2C initiative?
• Do I have to worry about Internet taxation?

What is B2C e-commerce?

While the term e-commerce refers to all online transactions, B2C stands for “business-to-consumer” and applies to any business or organization that sells its products or services to consumers over the Internet for its own use. When most people think of B2C e-commerce, they think of Amazon.com, the online bookseller that launched its site in 1995 and quickly took on the nation’s major retailers. In addition to online retailers, B2C has grown to include services such as online banking, travel services, online auctions, health information and real estate sites. Peer-to-peer sites such as Craigslist also fall under the B2C category.

B2C e-commerce went through some tough times, particularly after the technology-heavy Nasdaq crumbled in 2000. In the ensuing dotcom carnage, hundreds of e-commerce sites shut their virtual doors and some experts predicted years of struggle for online retail ventures. Since then, however, shoppers have continued to flock to the web in increasing numbers. In fact, North American consumers love e-commerce so much that despite growing fears about identity theft, they spent $172 billion shopping online in 2005, up from $38.8 billion in 2000. And the future looks rosy for e-commerce. By 2010, consumers are expected to spend $329 billion each year online, according to Forrester Research. What’s more, the percentage of U.S. households shopping online is expected to grow from 39 percent this year to 48 percent in 2010.

For a long time, however, companies have had a hard time making their websites dynamic and engaging enough for consumers to want to spend time on the site and actually spend their money there. That’s getting easier as more and more Americans are connecting to the Internet via broadband. With more customers using broadband, companies can take greater advantage of newer, flashier technologies that were not possible with dialup connections.

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In short, although online commerce still represents less than six percent of all retail sales, its growth and future prospects show that it has finally become as established and mainstream as a trip to the local mall.

What is the difference between B2C and B2B e-commerce?

For one thing, the customers are different — B2B (business-to-business) customers are other companies while B2C customers are individuals. Overall, B2B transactions are more complex and have higher security needs. Beyond that, there are two big distinctions:

• Negotiation

  Selling to another business involves haggling over prices, delivery and product specifications. Not so with most consumer sales. That makes it easier for retailers to put a catalog online, and it’s why the first B2B applications were for buying finished goods or commodities that are simple to describe and price.

• Integration

  Retailers don’t have to integrate with their customers’ systems. Companies selling to other businesses, however, need to make sure they can communicate without human intervention.

• What is B2C e-commerce?
• What is the difference between B2C and B2B e-commerce?
• Why was there so much hype surrounding B2C e-commerce when it got its start in the late 1990s?
• How should companies organize their B2C initiative?
• What are the major challenges of B2C e-commerce?
• What is channel conflict and how can I avoid it?
• Can B2C e-commerce be profitable?
• Do I need a privacy policy for my B2C initiative?
• Do I have to worry about Internet taxation?

Why was there so much hype surrounding B2C e-commerce when it got its start in the late 1990s?

Mainly because the stock prices of some of the early pure plays went through the roof. In the late 90s, dotcoms like Amazon.com and eBay — which were quickly gaining in size and market capitalization — posed a threat to traditional brick and mortar businesses. In many ways, these dotcoms seemed to be rewriting the rules of business — they had the customers without the expenses of maintaining physical stores, little inventory, unlimited access to capital and little concern about actual earnings. The idea was to get big fast and worry about profits later. By late 1999, Amazon had a market capitalization of close to $25 billion, eclipsing some of the largest and most established companies in America.

Retail giants such as Kmart and Wal-Mart — hoping to cash in on the dotcom frenzy — spun off separate companies to run their e-commerce operations. But many never made it to the initial public offering after the Nasdaq started to tumble in the spring of 2000. Almost as quickly as the dotcom phenomenon took over, the hype over B2C e-commerce dissipated along with the crumbling Nasdaq. Funding for Internet ventures started to dry up and major companies started to reel in their spinoffs, bringing e-commerce initiatives back under the corporate fold.

Companies that spun off their e-commerce operations as separate businesses were at a disadvantage when “multi-channel” commerce became popular in 2002. Those that kept their web operations in house, such as Sears, Office Depot and Circuit City, had a much easier time integrating their web sites with the rest of their brick and mortar operations and systems. These companies were able, for example, to check local-store inventory via the web and could allow their customers to buy online and pick up and return at a store. Multi-channel commerce continues to be an important initiative today.

Amazon and eBay still dominate online retailing. But the fastest growing sites are now traditional merchants that have become more serious about their Internet operations. According to the research firm ComScore networks, traditional retailers had a surprisingly strong showing over the 2005 holiday season. In fact, Wal-Mart was the third most popular site, trailing Amazon and eBay, ComScore said. Target, Best Buy and Circuit City were close behind.

How should companies organize their B2C initiative?

In the early days, e-commerce initiatives were often led by groups that were separate from the main IT department. The extreme example of this kind of separation was the spinoff model, in which stand-alone Web units were created thousands of miles from company headquarters with entirely new staffs. In these cases, IT leaders at the home office often had little to do with the B2C projects. Increasingly, e-business departments are coming back under the corporate umbrella and CIOs are often in charge.

• What is B2C e-commerce?
• What is the difference between B2C and B2B e-commerce?
• Why was there so much hype surrounding B2C e-commerce when it got its start in the late 1990s?
• How should companies organize their B2C initiative?
• What are the major challenges of B2C e-commerce?
• What is channel conflict and how can I avoid it?
• Can B2C e-commerce be profitable?
• Do I need a privacy policy for my B2C initiative?
• Do I have to worry about Internet taxation?

What are the major challenges of B2C e-commerce?

• Focus on personalization: A wide array of software is available to help e-commerce sites create unique boutiques that target specific customers. For example, American Airlines has personalized its website so that business fliers view it as a business airline and leisure travelers see it as a vacation site. Amazon, which built its own personalization and customer relationship management (CRM) systems, is well known for its ability to recognize customers’ individual preferences.
• Create an easy-to-use customer service application. Providing just an e-mail address can be frustrating to customers with questions. Live chat or, at the very least, a phone number will help.
• Focus on making your site easy to use.
• Fulfillment — E-commerce has increased the focus on customer satisfaction and delivery fulfillment. One cautionary tale is Toys “R” Us’ holiday debacle in 1999, when fulfillment problems caused some Christmas orders to de delivered late. Since then, companies have spent billions to improve their logistical systems in order to guarantee on-time delivery. Providing instant gratification for customers still isn’t easy, but successful B2C e-commerce operations are finding that fulfillment headaches can be eased with increased focus and investment in supply chain and logistical technologies.

What is channel conflict and how can I avoid it?

Channel conflict, or disintermediation, occurs when a manufacturer or service provider bypasses a reseller or salesperson and starts selling directly to the customer. Some sectors, including the PC and automobile industries, are particularly vulnerable, as are service industries such as insurance and travel. Levis, for example, pulled its website after its resellers protested. And in the fall of 1999, General Motors tried to buy back 700 franchises and sell cars direct -mostly to build out a possible Internet channel. But the plan backfired, upsetting dealers and prompting discussions with GM.

Now, some that struggled with channel conflict are finding ways to approach e-commerce without upsetting their salespeople. For example, big car companies and manufacturers such as Maytag are setting up websites that allow customers to decide what they want before being redirected to a local dealer. Companies that started in the brick-and-mortar world now realize that the web is a viable sales channel. They need to devote resources to it as part of their branding and commerce.

• What is B2C e-commerce?
• What is the difference between B2C and B2B e-commerce?
• Why was there so much hype surrounding B2C e-commerce when it got its start in the late 1990s?
• How should companies organize their B2C initiative?
• What are the major challenges of B2C e-commerce?
• What is channel conflict and how can I avoid it?
• Can B2C e-commerce be profitable?
• Do I need a privacy policy for my B2C initiative?
• Do I have to worry about Internet taxation?

Can B2C e-commerce be profitable?

E-commerce sites are finally generating a return. Amazon.com reported its first profit in 2002, proving to the world that online retailing could, in fact, make money. Amazon went on to post a profit for the full year in 2003. E-commerce sites are now regularly reporting profits although competition remains stiff.

Do I need a privacy policy for my B2C initiative?

Yes. According to a survey done by the Privacy Leadership Initiative, 82 percent of consumers were paying attention to online privacy statements in April 2001, and that number was rising. Customers may not read the fine print, but they are reassured by the presence of a privacy statement. If you’re not sure where to begin, visit the online arm of the Better Business Bureau or the non-profit group TRUSTe. Both organizations offer privacy seal programs. Even if you choose not to join, you can learn about the kinds of precautions you should take and how to explain them to your customers. Once you establish a privacy policy, though, make sure you follow it, or you’ll be putting your company at risk for lawsuits and bad press.

Do I have to worry about Internet taxation?

The Internet Tax Freedom Act of 1998 put a three-year moratorium on Internet taxation and was renewed and extended in 2004. Since its passage, Internet sales have been handled in the same way as catalog and telephone sales — if the retailer has a store in the purchaser’s state, a sales tax is supposed to be added to the bill. The Supreme Court has ruled that companies cannot be required to collect taxes in states where they have no physical presence.

Senior Writer Susannah Patton can be reached at spatton@cio.com.