Can E-Commerce Truly Work? The Faith/Force Reality

Written by Evan Schuman
September 3rd, 2008

Over the last month, I’ve been struck by an unusually large number of reader E-mails that fundamentally question whether E-Commerce will ever truly work: Whether it will consistently make money, be profitable and be, well, worth all of the effort.

At a small nitpicky level, the question of whether E-Commerce will ultimately work for your chain comes down to how you’re defining "work." Are you envisioning it as a permanent independent business unit, with its own P&L and profit and revenue goals?

Or are you viewing it more globally, where it’s purpose is to make money, and if it does that by sharply increasing sales at brick and mortars or in call centers, that’s just fine. This is the "I don’t care how you make the company money, as long as you somehow make the company money" strategy.

But that’s all at the small level. The big picture is a lot easier: Will E-Commerce Work? You no longer have a choice. You’re thinking like this is an optional matter, such as whether you open a new store in Detroit or add a line of gloves. To be blunt, it’s not. E-Commerce is now mandatory, as dictated by the Three F Reality.

The first F is Faith. Your finance people can do all of the spreadsheet projections they want, marketing can host a dozen focus groups and research can pay as many analysts and consultants as they can afford. None of it matters. Some E-Commerce deployments will succeed and others will fail, and there are pretty much no accurate ways to project which will happen in your case.

Why? The proper way to do E-Commerce is in a true merged channel environment, where E-Commerce is just one avenue and it’s the glue between mobile, call centers, physical locations and even Second Life efforts.

That means that such integration will take quite a few years to fully form, and there’s no way to know what it will look like at that point or what the economy will be or what your customers then will want. That’s the Faith part. You must believe that it is the best shot for success your chain has and start moving all operations in that direction.

But Faith only goes so far. Therefore, the next F in our Three F Reality is Force. Your customers expect it, your competitors are doing it and the market will expect it. Ignore E-Commerce now and you risk everything you have five years down the road.

The demographics will also force it. Younger consumers are demanding E-Commerce, because it’s what they’ve grown up with. Their purchases start—and often end—online. Over the years, the percentage of Web-demanding customers will sharply increase. How sharply? That depends on your customer base. It will increase for all, but some may have a few years more before the inevitable kicks in.

But let’s examine why people are starting to doubt the E-Commerce viability. Merged channel strategies (which start with multi-channel and then move to cross-channel before they take the next plunge into the big time) are remarkably hard.

It’s not just that they are expensive (they are) and require a lot of hard work (they do). It’s that senior management is most likely really uncomfortable with the merged channel. It screws up compensation/incentive systems, as store managers can no longer be compensated solely based on what their store sells. They may make more money for the chain letting certain sales happen online, for example.

When execs get uncomfortable, it’s hard to know whether it’s the fear of the unknown or whether it’s a gut feeling that this is the wrong path. The instinct to change direction can be based on a sophisticated subconscious detection of a worrisome trend, or it might be the irrational fear of the unknown. Both deliver that same nagging doubt and it’s hard to tell the difference.

Indeed, some companies are trying to get creative with E-Commerce, but they run into the Catch-22/Chicken-and-Egg problem.

Creative attempt number one: A company called TurnTo next week will introduce its attempt at merging E-Commerce with social networks. The problem: With the typical E-Commerce site’s customer comment area, there’s little credibility, because you have no idea who the people really are.

What consumers typically do is play the odds, figuring that if 500 people have commented on the product and 400 said they were happy, it’s probably pretty good. Maybe. Then again, what if really crazy people with bad taste like it? There are certainly a lot of them. More cynically, maybe the vendor is stuffing the online ballot box with bogus favorable comments?

TurnTo’s idea is use a social networking trick. What if you could choose to only see comments from people in your network (that you presumably know or that a friend of yours knows)? That would likely boost the credibility.

The Chicken-and-Egg problem? How do you get the first thousand people to give up the contact information for all of their friends? Once it’s all set up, it’s a very cool idea. But how do you get over the initial hurdle?

Second creative approach: a giftcard exchange site called Leverage wanted to address Web advertising effectiveness. Its theory: Extreme relevance—at the right time—turns ads into desired information.

If you’re watching a favorite television show and an ad interrupts the action and talks about some car, it’s an interruption and an annoyance. But the next day, your car dies and you’re suddenly in the market. That very same commercial today might be of more interest than the show, but only to you and only right now.

Leverage invites consumers to create folders and to reveal personal information, such as "planning to vacation in Kauai next July." When that consumer decides two months from now that the family had better start planning their trip, they log into the folder and see tons of hotel discount offers, car rentals, restaurant deals, airline promotions, etc.

A very cool idea. But it has a similar Chicken-and-Egg problem: You can’t get those advertisers until you have the consumers doing it and you can’t get a lot of consumers to do it until you have the advertisers.

In short: E-Commerce is critical and essential and it can be done, but it will require creativity, persistence, time and a lot of faith that it will somehow work.

Oh, and that third F? Well, it’s what will likely happen to retailers that think E-Commerce can be ignored. (For those who must know, the third F is for Fiasco. What, you thought maybe farblondzshet?)


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