Can E-commerce Truly Work?

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 investment and 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 profit and revenue goals?

Or are you viewing it more globally, where its purpose is simply 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.

Three-F Reality
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.

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.

Merging Channels
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 to execute.

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 and 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.

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

A company called TurnTo is trying to merge 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.

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?

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.

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