MYTH NO. 1: It's Easy. AKA: The Barriers To Entry Have Never Been Lower.

Yes, putting up a Web site is easy. And putting up a Web site to handle commerce transactions is pretty easy, too. But add words like effective, scalable, and successful, and it gets a lot harder. For large, established companies, the No. challenge is integration. !A Web site is like an iceberg,! says "elta Air #ines $%& $harles Feld, a longtime %' e(ecutive with stints at Frito)#ay and Burlington Northern. !What you see looks small and simple, but below it you have infrastructure integration issues with maybe *+ or ,+ databases. -o building a Web infrastructure can be a pretty serious risk for older companies.! .For more on the technical intricacies of Web commerce sites, see story, !/ega Web -ites.!0 'he $ompumotor division of manufacturer 1arker 2annifin $orp. knows that all too well. $ompumotor3s e(tranet for handling orders for industrial automation system products went live last week))but not until after a one)year delay to deal with response time, server upgrade, and integration challenges. !-etting up 4)commerce is not easy or fast,! says $ompumotor %- manager Bud 1arer. !1erformance and scalability are the biggest issues. 'his is the way we decided to run our business, so we weren3t going to do it until we had acceptable response time and data that is absolutely accurate.! 'he e(tranet will handle orders for 5,,++ products, warranty and nonwarranty repair)status 6ueries, and many other transactions from 7, distributors, 8, factory reps, 5+ direct customers, and ,+ internal employees. 'o ensure performance, $ompumotor upgraded its 2ewlett)1ackard server and moved part of its &racle database to a -un /icrosystems 9ltra-parc server to share the load. 'he company devoted four worker)months to designing and integrating the e(tranet applications3 Active -erver pages, with :+; of the coding time spent on data availability and accuracy. !We didn3t want to guesstimate anything,! says 1arer. !&ur business depends on this.! For many companies, the business issues of 4)commerce are no less daunting. $hanges in business processes, customer and supplier relationships, data access, data ownership, distribution strategy, and marketing tactics underpin most Web)commerce efforts.

!'he technology integration issues are huge, particularly at the back end, but we feel we3re meeting those,! says 1<=4 $orp. $%& >ohn ?east. !'he front end is a whole other challenge. What are customers going to use this energy)usage data for, and how do they want to receive it@ %t3s a brave new world, where users have access to information they3ve never had before))and there3s no standard for it.! For business)to)consumer online efforts, doing 4)commerce well starts with driving traffic to your site. /any early sites did a good Aob harnessing Web technology, but those efforts languished because not enough shoppers came calling. !/any companies didn3t realiBe that a Web site needs a compelling marketing program to go with it,! says -heldon #aube, chief technology officer of Web systems integrator 9- Web %nc. 9- Web has worked with American Airlines and sports)e6uipment retailer C4% %nc. on marketing tactics, such as American3s weekly 4) mails alerting customers to cheap weekend fares and C4%3s e(pansion of its Web presence with targeted links on outdoor)activity Web sites. And e6ually if not more important, the companies began to advertise their 4)commerce capabilities in traditional media. !#et3s face itD 1eople still watch 'E and read magaBines,! says #aube. !Building a site is Aust one piece of the puBBle.! MYTH NO. 2: It's chea . !erha s E"co##erce is chea when compared with a full)blown enterprise resource planning implementation or the purchase of a mainframe. But for a number of reasons, a full)scale online commerce effort is never a low)cost proposition. Business)oriented commerce server software, such as /icrosoft -ite -erver $ommerce 4dition, may start as low as F,,+++, but that3s Aust the first building block in a comple( undertaking .see /yth No. 0. $ompanies spend an average of FG,+,+++ Aust for the baseline technology, according to a <artner <roup survey of ++ commerce sites. !%t3s not like what %B/ says in their e)business ad campaignD >ust e(tend what you already have,! says Coy -atterthwaite, a research director at <artner <roup. !4)commerce applications are in their first generation, and they Aust don3t do everything you need. &pen

/arket3s 'ransact is great for transactions, for e(ample, but not for content. 4)commerce always ends up costing much more than any one vendor3s product.! And guess where the big)ticket systems integrators))%B/ <lobal -ervices, 4"-, $omputer -ciences, and the Big Five))are starting to aim their sights@ !Web software vendors get all the coverage, but the windfall beneficiaries of 4)commerce will be the integrators,! says -atterthwaite. !After they finish their year 5+++ and 4C1 engagements, they will throw their efforts into this.! And that3s not going to bring any price tags down. 'hen there are marketing costs and other non)%' infrastructure investments. AmaBon.com, the paragon of 4)commerce success, lost nearly F5, million on F ,8.G million in revenue in the third 6uarter, and marketing costs were a big reason. AmaBon3s marketing e(penses grew from F million in the first 6uarter to F57., million in the second 6uarter to F8G., million in the third))more than it spent on technology. 'he annual cost of a maAor licensing deal on a high)traffic portal runs well into eight figures, and AmaBon has several such deals. AmaBon3s third)6uarter infrastructure costs included more than F,,+,+++ to lease a book warehouse in the 9nited ?ingdom and the e(pense of e(panding its main warehouse in -eattle, which now costs more than F*,+,+++ a year. %s AmaBon gaining new customers from its marketing investments@ Absolutely. %ts revenue for the first nine months of ::H was F8,G. million, up 88G; from the year)ago period, and the company3s stock price is up about ,+++; since its initial offering in /ay ::G. But the company is losing money))lots of it))proving the point that 4) commerce isn3t cheap. MYTH NO. $: Everyone's %oin& it. Those 'ivin& in (i'icon )a''ey* -eattle, or /anhattan can find plenty of evidence to support this myth. And Aust about every company has a Web site. But brochureware isn3t commerce. "ig deeper among multibillion)dollar companies, even among some consumer)focused retailers, and you3ll find a different story. $ompanies on the sidelines of Web commerce include chains Best Buy, $ircuit $ity, and Fry3s 4lectronics. !Fry3s doesn3t even post a catalog,! notes Eern ?eenan, an analyst

with research firm ?eenan Eision. !%t goes along with their conservative management))using merchandising techni6ues from ,+ years ago, like heavy promotion of loss leaders in low)cost ad channels like local newspapers and radio. 'hey still work, and Fry3s sees no reason to go on the Web.! Fry3s doesn3t comment on its business strategies. With a few notable e(ceptions, such as <eneral 4lectric, Boeing, and the Big 'hree 9.-. automakers, most old)line manufacturers have yet to move into 4)commerce))and may not for 6uite a while. !%n some companies, you almost need the retirement of an entire generation of purchasing and sales staff members before it will happen,! says -am ?inney, co)founder and e(ecutive E1 of Free/arkets &nline %nc., a company that manages online bidding for industrial re6uests for 6uotes. !'his is not an overnight thing. 'here are some massive penetration barriers that will not fall for decades.! /any companies simply don3t see a compelling business reason to move to 4)commerce. /aytag $orp., for e(ample, finds that electronic data interchange with its suppliers and distributors works fine, and it3s playing the %nternet commerce card very carefully. !We all should be cautious. 'here are very few AmaBon.com opportunities out there,! says /aytag E1 of %' 4d WoAciechowski. !We have informational Web sites where we can engage the customer, and we see commerce as an option in the future. But it3s not strategic for us yet.! And even if /yth No. 8 were true, that doesn3t mean following the pack is a sound strategy. MYTH NO. +: It's ',crative. -es ite the on'ine sa'es s,ccess of a handful of 4)commerce poster children, for every "ell $omputer and $isco -ystems there are doBens of companies like Burlington $oat Factory. 'he company3s Web site sells less merchandise than Aust one of its 5,+ retail stores, says $%& /ike 1rince. !-o far, it Aust hasn3t been a maAor focus for us,! he says. 'hat3s because buyers are less likely to purchase !subAective! items such as coats and dresses over the Web than 1$s, routers, and

books, says 1rince. !When you buy a dress, you want to try it on, see how the fabric feels, check out the color,! he says. !'here3s something very special about that e(perience that you can3t get on the Web.! 'hat said, Burlington $oat Factory is revamping its site to feature more products. Also, the company is considering adding a gift registry that would let shoppers visit its stores, identify the specific articles they like, and then register them on the site so that relatives and others can buy gifts online according to those selections. But even if Burlington increased its online sales to e6ual the volume of + of its stores, !that would be significant for a chain our siBe))and a surprise,! 1rince says. 4ven by the most generous accounts, online retail sales remain only a tiny fraction of what3s sold in physical stores or through mail)order catalogs))even in the Web3s most popular product categories. &nline book sales will account for less than ,; of all 9.-. book sales this year, according to ?eenan Eision. &nline music sales@ #ess than 5;. 4ven online travel sales))which will reach F .H billion this year, leading all consumer products .e(cept %' products0 sold online))won3t even reach ; of the F*HH billion in total 9.-. travel spending. Web) based advertising revenue also remains minuscule compared with broadcast and print))Aust +.*; of ad agency bookings this year. What about business)to)business 4)commerce, which is proAected to leave business)to)consumer cybersales in the dust and soar into the trillions of dollars by 5++8@ 'hat mostly reflects the fact that business) to)business commerce in the offline world is orders of magnitude larger than sales to consumers. For most established companies, it3s still early in the 4)commerce game. %t3s easy to look at how AmaBon.com shook up the book industry in four years and fly into panic mode, fearing that your company could be put out of business tomorrow by a Web startup. But books .and music0 are the products best suited to online selling, and Web startups will always get a disproportionate share of attention simply because they3re Web startups. CememberD AmaBon won3t be turning a profit any time soon. !4)commerce is like the market in $hina for 9.-. companies,! says 9- Web3s #aube. !/ost probably aren3t making a profit there yet, but

they3re in $hina because of huge market potential. 'he returns will be a few years in coming. You have to have deep pockets and be willing to stay with it.! MYTH NO. .: The /e0 'eve's the 'ayin& 1ie'%. AKA: (tart, s 2an Instant'y 2o# ete &n 'he -ame Footing As #ong)4stablished $ompanies. With a few notable e(ceptions, such as AmaBon, 4)'rade, and online greeting)card maker Blue /ountain Arts, the biggest 4)commerce players are big, established companiesD $isco, "isney, "ell, /icrosoft, $harles -chwab. $ompanies that want to be successful at Web commerce need the marketing clout, brand identity, and scale to do back)end fulfillment and customer service))and above all, they need the capital .see /yth No. 50. 'hat3s why so many startups are either merging .like music retailers $"Now and N5?0 or are being bought by big physical)world competitors .note Ceel.com3s ac6uisition by 2ollywood Eideo0. A popular line on the conference circuit is, !&n the %nternet, no one knows you3re a dog.! But over time, another one)liner holds more weightD -iBe does matter. -iBe, in most cases, means brand power, trust, and consumer confidence. !%n theory, anyone can enter any market in 4)commerce,! says 1aul <affney, E1 of commercial sales at &ffice "epot. !But the %nternet hasn3t changed the way you earn credibility, not one iota. 'hat3s through actual performance. %t has leveled the playing field for e(changing information only. We3re the largest in our industry, so it3s a fundamental economic law that no one should be able to beat us on price.! Another aspect of the level playing field myth is the assertion that the %nternet gives small companies instant access to global markets. Access is one thingI leveraging it is 6uite another. !#arge physical) world companies have a huge advantage in overseas markets if they leverage their brands online, whether they3re Boeing, 4astman ?odak, or 1epsi,! says Candy /eyer, E1 of financial services and 4) commerce at $ompa6. Adds <artner3s -atterthwaite, !'here3s a low barrier to doing 4)commerce, but a very high barrier to becoming one

of the leading choices.! %n business)to)business 4)commerce, the Web admittedly does open the door for small companies to bid on contracts and sell to large companies. 'his truism is usually posited in comparison to 4"%, whose prohibitive cost, infle(ible formats, and technical comple(ity locked small suppliers out of relationships with the Boeings and Wal) /arts of the world. 'here are cases where this ma(im holds true. "oing business with more small suppliers is a goal of #os Angeles $ounty3s ambitious Web)based procurement initiative, says procurement director $hrys Earnes. But the Web also makes it easier to do business with the largest suppliers and customers. -o 4)commerce is actually causing some companies3 purchasing departments to reduce their number of suppliers and buy more from the largest ones in order to get bigger discounts and better service. 'hat3s a stated goal of $hevron, one of the largest companies to launch Web)based procurement. $hevron is moving portions of its staggering F + billion a year in supplies and services procurement to the Web using software from Ariba 'echnologies. !We have 5++ global suppliers, and we want to channel as much business as we can to those companies to drive our costs down,! says >erry >acobson, manager of purchasing strategy at $hevron. %ndeed, the reduction or elimination of !maverick buying! from unauthoriBed suppliers is a goal of Web)based procurement initiatives at Bristol) /yers -6uibb, Ford, <4, and other companies. MYTH NO. 3: It 'ea%s to %isinter#e%iation. The theory was si# 'e: 'he Web provides an instant global sales channel to all producers of goods and services, so why use conventional distributors, resellers, and other middlemen when you can sell directly@ Well, it simply hasn3t happened, for three main reasonsD the actions of producers, the actions of distributors, and the rise of doBens of new intermediaries on the Web, giving rise to the second)generation buBBword !reintermediation.! 'he only trend partially validating this myth is the fact that some producers that always bypassed reseller channels, notably "ell, have

done very well selling on the Web. ."ell sells F + million worth of 1$s per day on its Web site))triple what it sold online last year.0 But most successful 4)commerce players are using the Web to enhance their e(isting distribution channels, not circumvent them. 4ven $isco, one of the most successful 4)commerce practitioners, makes G+; of its online sales to resellers, not end customers. &ther e(amples abound. $onsumers can3t buy a motorcycle on 2arley)"avidson3s Web site, but the manufacturer3s dealers can access a 2arley e(tranet whose features include a repair)parts information database and speedy processing of reimbursements for warranty repair work. <eneral /otors3 Buy1ower Web site lets customers configure and order cars online, but the sale is directed to a dealer in the customer3s area. 'he only companies that can buy direct from 1arker 2annifin3s $ompumotor unit are the very largest customers, such as Boeing and 9niversal %nstruments, that have already bought direct before. %n these cases and countless others, the goal is to aid the channel, not bypass it))at least for now/eanwhile, conventional distributors are embracing the Web. W.W. <rainger %nc., the largest business supplies distributor in the 9nited -tates with revenue of more than F* billion, is building an electronic catalog to let customers buy online directly from their -A1 CJ8 applications. %n the computer industry, "ell and <ateway aren3t the only companies that let customers configure and buy their 1$s onlineI No. distributor %ngram /icro is adding that capability to its e(tranet for resellers and retailers. Few companies have leveraged the Web earlier and more effectively than semiconductor and electronics distributor /arshall %ndustries, whose 4)commerce site helped boost sales 5*; in fiscal ::H. But perhaps most notable of all is the rise of new, usually industry) specific Web intermediaries. Almost every industry has oneD $hemde( for chemicals, /etal-ite for steel, pc&rder.com for computers, 1lasticsNet for plastics, %nstill $orp. for food services. Because the %nternet makes it easier to aggregate information and commerce capabilities for an entire business community, these new intermediaries are bringing buyers and sellers together online. !As long as you have an industry with a fragmentation of suppliers, you will always have middlemen,! says Eenky 2arinarayan, E1 of

business strategy at >unglee $orp., a content aggregator ac6uired earlier this year by AmaBon.com. Adds $hemde( president "avid 1erry, !%f you have only three or four suppliers, you certainly don3t need an electronic marketplace. But most industries have a lot more than that.! MYTH NO. 4: It #eans the en% o1 #ass #ar5etin&. Once a&ain* the theory is si# 'e eno,&h: 'he Web is the first communications channel that enables cost)effective one)to)one marketing on a huge scale. /arketing to a !segment of one! has long been the goal of database marketing, data mining, and telemarketing, but Web technology enables marketing of unprecedented e(actitude and low cost. But how do companies get people to come to their Web sites in the first place@ $ustomiBation and personaliBation are fine for customer retention but not so good for customer ac6uisition. !%n the global world of the %nternet, what counts is brand,! says $ompa63s /eyer. 'hat3s why Yahoo posted billboards at -an "iego3s Kualcomm -tadium during the World -eries, and why Web shopping site Buy.com kicked off a F5, million mass marketing campaign with ads on /onday Night Football last month. $an consumers click on a stadium billboard or 'E ad to purchase something, which is what the !mass marketing is dead! pundits claim all ads should let buyers do@ &f course not. Buy.com founder and $4& -cott Blum knows that it will take conventional marketing channels such as /onday Night Football, as well as low)priced merchandise online, to achieve his company3s goal to leapfrog AmaBon.com. !We want to be a household name,! says Blum, and that won3t happen with only targeted Web banner ads. Witness the proliferation of mass)media ads for Web sites during the current holiday shopping season. /ass marketing is also a necessity for the captains of online industry. "ell isn3t the largest online 1$ seller only because of e(ecutionI it also heavily markets its direct)selling approach))on prime)time 'E and elsewhere. !%n theory, an %nternet)only computer company should have surpassed "ell by now,! says 9- Web3s #aube. !But there is no 31$s.com,3 at least not one that3s been very successful. %n 4)

commerce, branding and mass marketing are more important than ever.! 9ltimately, that3s Aust common sense))at least for those who understand there3s more to 4)commerce than click)throughs. !You can3t Aust build it, because they will not come,! says $liff $onneighton, $4& of %coms %nc., which has developed commerce sites for 2oughton)/ifflin, 2asbro, FuAitsu, and other companies. !'iger 4lectronics doesn3t e(pect people to find Furby.com, so they run 'E ads. 'he Net is like 'E with + million channels. You can3t Aust hope that someone surfs by.! MYTH NO. 6: It 'ea%s to ro%,ct co##o%i7ation. (o#e %isci 'es o1 this %o&#a point to 1riceline.com, the site where consumers set the price they want to pay, then let airlines and other suppliers compete to meet that price. $ertainly, it3s an innovative model that wouldn3t be possible without the Web. &nline auction sites such as &n-ale and eBay have also been successful and have their place for some types of products. But price isn3t the No. selling point for most companies online. AmaBon.com and "ell have the most online customers in their industries, and they don3t always offer the lowest prices. 'hat3s because customers also want brands and service they trust. And they3re figuring out that searching the Web to save a few bucks can be no less aggravating than driving all over town for a bargain. &nline shopping agents, or !bots,! such as 4(cite 1roduct Finder and /y-imon, have their fans, but they can still be frustrating and ineffectual .see story, !$all Your Agent For &nline -hopping!0. !%n 4)commerce, the 6uality of the participant is more important than ever,! says &ffice "epot E1 <affney. !1rice information alone is very imperfect information. %t tells you nothing about reliability, product availability, merchant behavior, or returns and e(changes policies. You might be able to lure online customers with the lowest price, but it doesn3t mean you keep them.! 4ven in commodity industries, price is only one factor in 4)commerce strategies. !<as and electricity are commodities that we sell online, but there are differentiating things we can do in the 4)commerce

space,! says 1<=43s ?east. !We3re developing billing information and the ability for a buyer to customiBe their bill online. &ur role is to differentiate the commodity by providing other things around it that add value.! 4)commerce is anything but a myth. %t3s a maAor trend that3s reshaping businesses and the %' that runs them. But there3s a common theme that runs through each of the myth dissections aboveD 4)commerce, in almost all cases, doesn3t change some fundamental rules of business. "oing business on the Web successfully takes capital, innovative leadership and e(ecution, marketing savvy, perseverance, and the intelligent application of %'. As the %nternet continues to speed the pace of change in the coming years, many aspects of business will be altered and transformed))but those guiding principles will always remain.