E-entrepreneurs make their mark – electronic commerce

E-entrepreneurs make their mark – electronic commerce – Internet Edge

Chris Bucholtz

Integrated solutions prove just as important to electronic commerce as they do to telecom operations

For many corporate netizens, the idea of Internet commerce must seem like a license to print money All you need to do is open an electronic storefront in the form of a snappy Web site, create some clever content, make sure you can process credit card orders, and you’re on your way Right?

Well, not exactly. Doing business on the Internet involves some complex technological and cultural challenges. Customers have to get used to a whole new way of shopping, and merchants must develop Web-friendly ways of presenting goods and services. Behind the scenes, a sophisticated combination of servers and customer care, security and billing applications must work in perfect synchronization to avoid turning an opportunity into a marketing disaster.

“The irony of this industry is the killer apps of Internet commerce are not the things consumers see on their screens or buy with their credit cards over their computers,” said Randall Whiting, president and chief executive officer of Commerce Vet, an industry association focused on promoting and building e-commerce solutions. “Mediation is the important thing. People are very focused on selling, but the flip side is where we need to look. We have to understand what is valued by the customer to provide services that will make these buying processes easier.”

This latter issue presents an opportunity for the Internet service providers that host commerce sites. If they choose the right system, ISPs have the potential to attract large, lucrative accounts. If an ISP chooses the wrong system and costs customers potential on-line sales, the company could be stuck providing $19.95 basic access for a long time to come.

“That decision shouldn’t be a technology decision,” says John Little, president and CEO of Portal Information Network. “That’s a business decision, like which cash register to buy It’s a technology-based environment, but the decisions have to be based on sound, business-based criteria.”

This feet-on-the-ground concept of business first, flash second isn’t what one usually hears about on-line commerce. Usually, it’s the story of a vendor such as Amazon.com, which bills itself as “the World’s Biggest Bookstore,” or a retailer such as L.L. Bean that turns the new technology to its advantage.

But the real story may be companies such as Cupertino, Calif.-based Portal, which makes money by providing the underlying tools used to complete on-line transactions. Portal’s product is Intranet, a system that includes customer management, billing, registration and authentication, and customer demographics tools. Whether the product is a book or a hiking boot, Portal profits, Little says.

“We’ll be involved regardless of what direction Internet commerce takes,” he says. “We don’t do the products or services ourselves. There are 100,000 people out there who are convinced they have the idea for the next killer service to sell over the Web. There aren’t nearly as many who are offering integrated solutions to implement those ideas.”

Infranet, which is designed to scale to meet the needs of even very large customers, has been adopted by Sprint, Oz-Email and numerous other major players. Another company offering a behind-the-scenes platform for larger companies is Cambridge, Mass.-based Open Market. It markets its Transact software as a complete back-office infrastructure for secure business-to-consumer and business-to-business Internet commerce.

Again, the suite of tools provides for secure payment, complete order management and on-line customer service. In addition to these feature similarities, the two systems are designed to provide features familiar to the telecom world: scalability, flexibility and high performance.

Smaller retail companies hoping to make a buck off electronic commerce are being targeted by no less a power than Intel. The company recently partnered with SAP America Inc. to form Pandesic LLC, a subsidiary that will develop a full-featured, low-cost, Internet-based e-commerce solution.

The partnership hopes to quickly leap into the e-commerce back-office marketplace by combining SAP’s expertise in business processing software and Intel’s specialized skill in logistics management.

“The electronic commerce market segment represents a significant growth opportunity, and we believe that Intel architecture-based servers and PCs are the best platforms to do business via the Internet,” says Craig R. Barrett, Intel president and chief operating officer.

“Intel and SAP excel at business process expertise, global presence and logistical know-how. The combination of these capabilities gives Pandesic Co. the potential to make a significant impact on e-commerce,” he says.

To capitalize on an eager crop of e-entrepreneurs, Portal and Open Market and Pandesic are focused on providing a complete suite at a relatively low price point.

“Right now, the whole Internet is a pilot project,” says Little. “All these attempts to use the Internet to sell things are an experiment. It’s important that we make it affordable for these experiments to take place.”

If customer and transaction management systems are easy to roll out and involve an off-the-shelf product and a little integration, Little says, more companies are likely to take a flyer on an on-line offering. “Out of every 100, 97 will fail, one or two will do OK, and one will be a home run. And that’s just fine, with this medium being as young as it is.”

The secret to hitting that home run may rest in the match between the medium and the product. While many sites position the Internet as little more than a glorified mail-order catalog, it may very well be a mixture of services that vaults e-commerce to the lucrative future many foresee.

“There are two distinct directions things are going in,” Little says. “Electronic retail is not much different from mail order, and there are lots of companies playing in that space, including Microsoft with e-Shop and Oracle with Apollo. But instead of stuff, services could very well be the big draw for many consumers.”

Consumers are accustomed to shopping in a non-virtual world, and the Internet lacks the feel of that experience. But for services like online gaming, software sales and other technology-driven products, the Internet is a natural.

“You enter into a situation of content vs. context,” says Richard K. Crone, vice president and general manager of CyberCash’s PayNow Secure Electronic Check Service. “The content draws people to the site, and it makes much more sense if the content matches closely with the context.”

Crone’s vision of Internet commerce differs from that of the Web retailers. His years as a consultant at KPMG Peat Marwick’s financial services consulting practice has him convinced that, once the concept of Internet commerce is expanded to include electronic payments, the Internet can be a money maker even if nothing is sold directly over the Web.

“For companies like telecommunications carriers, the bill is their one touch point to the customer,” he says. “It’s an opportunity to reinforce brand identity and sell additional products. And if a telecom or a utility or a credit card company can encourage customers to pay through a Web site, they have the opportunity to control that touch point, build customer loyalty and simplify the administration of billing.”

By reducing churn and making billing management easier, a company’s on-line efforts could pay for themselves. And through the use of CyberCash or another accepted electronic transaction process, funds could move directly into the company’s account without wasting time in the mail, giving businesses prompt access to their funds.

“If you can get your customers to begin paying electronically, you don’t have to sell a thing to start making money,” Crone says. “You will have immediately cut the cost of billing in half, since you don’t have to send a statement. And your cash handling will be automatically approved.”

This system will depend on the adoption of “electronic checking,” a process being developed by CyberCash and rival company CheckFree. The technology will let consumers pay bills electronically and have those “checks” appear on their monthly statements, just as conventional checks appear now.

“You might think that credit cards would be fine, and some service providers do permit the use of cards as a courtesy,” Crone says. “But with a credit card purchase, 3% to 6% of the charge goes to the credit card company, and that’s the approximate equivalent of the profit margins these companies are operating at. They’re giving their profits away just to avoid churn.”

This ability to go directly from the Internet to the customer’s account is useful in other ways. Analysts estimate that 60% to 90% of on-line bill payments eventually end up as paper checks during processing and require five days to clear the bank before the biller sees his money. According to Forrester Research, 1.1 million households in the U.S. use the Internet for banking, and of those, fewer than 50% use on-line payment systems.

As the number of households banking on-line increases to an estimated 2 million by 1998, a sensible means of paying bills on-line will become critical.

The advent of the electronic check will help build momentum for on-line payments, says Karen Epper, an analyst at Cambridge, Mass.-based Forrester. “The immediacy of being able to pay your bill on-line will drive real growth in this area,” she says.

Telecommunications is in a unique position to promote this Internet use, since regulations mandate that carriers give their customers the ability to pay their bills in person to avoid loss of service.

“Instead of running down to the payment office, how many people with PCs would rather stay at home and access a Web site?” says Crone.

“The first year, it may be used one month out of 12 by the average customer. But once the ease of payment is discovered, people will quickly begin using the Internet and stop wasting postage stamps,” he predicts.

RELATED ARTICLE: Ah, to be young

There’s something to be said for the spirit and courage of youth. Take 4-year-old Net2000 Group, Vienna, Va., which quickly embraced the Internet by creating a corporate World Wide Web site in 1994, just one year after the telecom service provider and consultancy opened its doors. The company built an on-line electronic office that is both informative and interactive.

“Initially, we did give a corporate overview and a number of white papers that were of interest to a select marketplace,” says Peter Callowhill, a principal at Net2000 Group. But the company also set up a rudimentary feature that enabled clients to request a Bell Atlantic service.

As an agent for Bell Atlantic–becoming the regional giant’s No. 1 agent by its second year of business–Net2000 Group has a vested interest in ensuring that potential customers understand the breadth of Bell Atlantic services. The company advises small to medium-sized businesses, such as food provider Sutton Place Gourmet in Washington, on the telecommunications services available to them and implements the strategy best suited to each customer.

For example, Net2000 moved Sutton Place beyond mail and fax-based communications to a multisite virtual private network that uses ISDN with Centrex.

As Bell Atlantic has grown, swallowing up Nynex and more than doubling its area of influence, so has Net2000 Group. Its ranks have swelled from four to 50 in four years.

Consequently, the company has evolved its Internet strategy to accommodate a growing user base with increasingly complex needs. With three significant facelifts behind it, the Net2000 Web site is about to undergo its biggest change ever–from electronic office to electronic business, encompassing electronic commerce along the way, says Chris Bennett, director of local services.

The latest home page iteration has hot links to the company’s strategic partners-equipment providers, long-distance carriers and systems integrators.

Net2000 Group plans to offer clients a way to access information such as billing that requires stringent security. The company then will place the bulk of its business operations on-line.

“Everything that goes on in the business–developing products, customer card, outbound sales and marketing–will form a virtual value chain,” Bennett says. The purchasing information and a data warehouse will be included. Customers will be able to access billing data or see how an ISDN interface is configured by using a password and other security clearances.

In the future, Bennett sees more emphasis on push-and-pull marketing and greater use of artificial intelligence to understand customers and to anticipate their needs. Ultimately, “it will give clients great customer service,” he says.

RELATED ARTICLE: E-commerce innovations

What’s good for the customer is often good for the vendor. GTE Corp., Needham, Mass., known for its recent emergence as a national carrier, is proving itself a pioneer in e-commerce as well.

Through its Cybertrust program, GTE is taking aim at secure on-line shopping by forging relationships with banks and credit card companies. GTE provides the digital certificates that identify merchants and cardholders.

“Clearly, the Internet is great for information sharing,” says Barbara Boczek, financial market manager for GTE, noting that Cybertrust exploits the Internet’s ability to process transactions.

GTE recently started a pilot program with Mellon Bank, the U.S. Treasury’s Bureau of Public Debt, and the Defense Reutilization and Marketing Services, in which people can buy U.S. savings bonds and government surplus merchandise.

Mellon Bank’s name will appear on the certificates, which MasterCard will issue. The certificates provide the Internet gateway that processes the transactions. Concentric Networks provides Internet access and customized browsers that use IBM digital wallets. But GTE doesn’t offer the e-commerce option to only its customer base–it’s turned the initiative into a tool for its own business.

GTE’s carrier customers such as AT&T, MCI and Sprint must pay fees to the local exchange carriers to carry their traffic. Often, that detailed data is complex and difficult to keep up with.

Through the access customer gateway, called the Garrison Project, carriers can access use and fee information over the Internet in a secure environment. Protection comes from the Secure Electronic Transaction protocol, which uses encryption and digital identification to secure transactions on the Internet and other networks.

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