Companies should think beyond simply selling online if they want to make money from ecommerce now, according to the latest research from Giga Information Group.
Despite the low cost image of undertaking Internet-based commerce, only a tiny number of companies are generating enough revenue to cover the outlay involved in building a customer base, warned Erica Rugullies, a Giga analyst who spoke at a seminar in Menlo Park this week.
"Over the next year, less than five per cent of the companies that get involved in ecommerce on the Web will be profitable. Focus ecommerce efforts not on revenue generation, but on supplier management and customer relations," she said.
She noted that, while the average income from Web sites was about $100,000 per year, many were only making around $20,000, and only the top one per cent of sites were generating revenue over $1 million. In most cases, revenue is not even covering costs, she said.
Revenue opportunities were still limited by the lack of online users, and the security and privacy concerns of those that were. Although vendors often made the claim that Web operations were cheap and quick to set up, acquiring customers on the Web was very expensive for most companies if they did not already have an established brand, Rugullies warned.
"Internet commerce will not enter the mainstream until a critical mass of companies with major brand name recognition jump onto the Web and start selling online," she added.
But according to Giga?s research, putting customer service systems online can currently give companies a better return in cost saving terms than through sales - although a return on investment still takes an average of three years because the customer base has to get used to an Internet based system as opposed to traditional sales vehicles.
Internet based procurement was also another major cost saver, Rugullies said, cutting the number of employees required in purchasing departments and reducing the number of suppliers that customers needed to manage.
"Savings from supplier management and the use of on-contract buying dwarfs other possible cost savings," she claimed.
Steve Telleen, Giga?s managing director of ecommerce research, said that established companies also had to learn how to run an Internet business alongside their traditional one.
"For example, booksellers like Barnes and Noble can?t advertise in store on the online service because then they would be acting as agents and would have to charge sales tax on Internet sales," he said.
Representatives from Lockheed and Chevron told VNU Newswire that many of their operating companies had ecommerce programmes, but the challenge now was to implement those systems across the enterprise -a much greater problem that was bedevilled as much by political issues as technological ones.
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