There has never been a better time to start a business, especially an e-business. The internet has dramatically reduced the cost of setting up, and especially of reaching customers. For about $1,000, you can buy a personal computer. A high-speed internet connection with enough space for a good website will cost around $40 a month. Marketing costs, provided you have something interesting to sell, could amount to bidding a few cents for a search-engine keyword. For a commission, sites such as eBay and Amazon will also list your wares. PayPal will look after credit-card payments, saving you the bother of establishing a merchant account. And firms such as UPS will deliver anywhere, and provide online tracking facilities for checking how far a parcel has got.
All over the world, people have begun businesses this way. They might be selling avatars (virtual personas for online gaming) in South Korea; tribal carvings in South Africa; model steam-engine parts in Germany; or classic Corvettes in California. Web publishing too can now more easily be supported by advertising. Some online companies will find and place ads on your website for you, and split the revenue. Google’s AdSense service, for instance, uses the search engine’s technology automatically to match the content of a website with appropriate text-based ads. The more popular a site becomes, the higher the income.
E-commerce could yet turn into one of the biggest business start-up schemes ever. In a recent study, eBay found some 430,000 people in America alone who now make a full-time living or earn a substantial secondary income from trading on its site. Every year eBay holds a big get-together for its army of online entrepreneurs. Google, too, knows plenty of people who have profited from ads placed on their website.
From Hobby to Business
During the height of the dotcom boom, websites put together by enthusiasts, hobbyists or collectors were seen as fringe activities with no profit potential. Yet such people often know their subject very well, and use the internet for what it is extremely good at: finding others with similar interests and passions. Many of them have discovered sufficient numbers of like-minded people to encourage them to set up small businesses—and sometimes not-so-small ones: eBay, started by Pierre Omidyar in the time-honoured fashion on a computer in his bedroom, began as a trading platform for collectibles.
High-speed internet connections boost online activity all round, as demonstrated by South Korea, where some two-thirds of households have broadband. A study by Forrester showed that in Europe subscribers with broadband use their computers to do more than twice as many things online as consumers with slower internet connections. They also tend to do different things, such as downloading more movies and music files. And they publish many more web pages.
The most commonly found ingredient in commercially successful websites, apart from original ideas, is careful analysis of how people use the site. That information can be used to develop additional services which make the site even more attractive to users. These dynamics are expressed in complex mathematical formulae which are increasingly seen as a strategic asset. The people in charge of the sums are beginning to be represented at board level. Amazon, for one, has appointed its first chief algorithms officer.
By growing organically, commercial websites tend to develop loyal followers. Orbitz’s Jeffrey Katz likens these groups of users to “cults of internet behaviour”. They may be eBayers, Yahoo! addicts or devotees of craigslist, a non-profit site providing networking, goods for sale, jobs and other links in different cities. Many people now organise their online lives around their favourite sites, in much the same way as people used to visit their favourite shops in the high street. As retailers have consolidated, giant out-of-town stores have put many of the smaller shops out of business and now threaten some department stores. “In the era of Wal-Mart, main street doesn’t exist any more,” says Google’s Sheryl Sandberg. But you can still find something like it online. Moreover, as she points out, small traders can still get into business from a PC in their bedroom.
But will retail power on the web eventually become consolidated too? So far, Barry Diller’s IAC is the closest thing to an internet conglomerate. Last year its net revenue was $6.3 billion. Already its various websites are able to sell such disparate things as a holiday to Miami, an introduction to a new girlfriend when you get there, an engagement ring, a wedding package, a new home and a mortgage to help the couple pay for it all.
So far, the group’s various sites still operate largely as independent companies. They include IAC’s online travel agents, such as expedia.com, hotels.com; electronic retailing (including the televised and website services of Home Shopping Network); Ticketmaster; local, entertainment and personal services (including match.com); and financial services (such as lendingtree.com). Mr Diller says he does not believe in forcing synergies. He is leaving his e-commerce businesses alone so they can concentrate on becoming market leaders in their different segments. Some of these, he says, are still at an early stage of development. “We do think there’s a stage two,” he adds. “Many of our properties very naturally relate to each other.” So will there be more cross-selling and combined branding? Perhaps, but only in good time, says Mr Diller.
Amazon, eBay and Yahoo!, in their own ways, are also building conglomerates where all sorts of goods and services can be found. In the process, they are starting to resemble each other. But it remains to be seen if anyone can build an online version of Wal-Mart that could ruthlessly drive down costs. Many hotels have already rebelled against large online reservation services by promoting their own sites. On the internet, it is easy for suppliers to start selling directly because they do not need a store to operate from.
Even walmart.com does not seem to be considered particularly threatening by most other e-businesses, perhaps because creating a virtual superstore is not in itself enough to make much of a difference. The real power of e-commerce is not just the ability to buy things online and have them delivered, but how it can change the way people live and work.
A New Life
“In 2001 it was unimaginable to think that by 2004 I would not have to leave home any more and, short of needing surgery, could get everything I want from a combination of e-mail and websites,” says Marian Salzman, chief strategy officer for Euro RSCG Worldwide, a big advertising agency. Based in New York, she believes more people will use the internet to work from home, either running their own businesses or teleworking for companies. For example, instead of outsourcing more call centres to India or other developing countries, companies might employ people in America or Europe who have good practical knowledge of products or services and can deal with inquiries from home.
However, not everyone has a computer at home, and some people may never get one. “The internet is wildly empowering for people who want to participate, but they are part of a digital elite,” says Ms Salzman. So the 24% of households in America that have no internet connection are missing out on many things, not least information on products and prices. Perhaps another generation, familiar with computers from school, will have to grow up before that changes.
Meanwhile, conducting business online will continue to get easier. Microsoft, for one, is working hard on all manner of B2B applications, including some that will allow its Office suite of programs to be closely integrated with e-commerce activities. This will help small and medium-sized businesses, many of which work together in “business ecosystems”, says Charles Fitzgerald, a senior Microsoft manager. In the future, he adds, groups of companies will increasingly use systems that pull together the information held in different parts of their organisation.
Consumers should expect something similar to happen. In the near future, an online shopping service could make recommendations on the basis of personal information, such as checking the diaries people keep on their computers (provided they have given their permission). For instance, a customer might get an e-mail reminding him that it is his mother-in-law’s birthday next week, along with a suggestion for a present, plus a note of what he sent last year. One click, and the present could be ordered and dispatched.
Microsoft is already building the necessary tools for such services into its next generation of software. Mr Fitzgerald stresses that the model would be “permission-based”: customers would first have to agree to give sites access to their personal information. If they think the services are useful, some of them may well do so. But others already feel that spam, computer viruses, fraud and the theft of personal data are making the internet a dangerous place, and that access to their computers needs to be restricted, not opened up.
A strong economic incentive may well persuade some people to part with more information about themselves, but any abuse would cause a huge backlash. Much irritation has already been caused by aggressive internet marketing, such as persistent pop-up ads, says Hal Varian, professor of information management at the University of California at Berkeley (and an adviser to Google). Nor, he adds, do people much like “bait-and-switch” tactics, used by some traders to make their prices look attractive in shopping-comparison searches. Having lured a customer to their site, the trader will try to switch the buyer to a more expensive item.
Of course, caveat emptor applies as much online as its does offline. But abuses on the internet are not confined to sharp practice: criminals also use the web for much nastier things. Reliable numbers are hard to come by, not least because people would rather not admit to having been defrauded, nor do websites welcome publicity about crime. But there is plenty of evidence that all sorts of scams flourish on the internet, from identity theft to phoney auctions and bogus requests for data. Companies have to work hard to stay ahead of criminals.
EBay’s Rajiv Dutta insists that the share of problem transactions on his company’s site is very low. Users are more likely to have their credit-card information stolen in a local shopping mall than on his website, he reckons. Still, eBay employs some 800 people around the world to police its auctions. Other sites also watch out for suspicious activity, most recently from criminal internet traders based in east European countries.
Last year, losses of some $200m were reported to America’s Federal Trade Commission. Nearly half the complaints involved online auctions. According to some analysts, 2003 was perhaps the worst year on the internet so far for criminal and obstructive activity, such as virus attacks. This has to be brought under control, or else consumers will retreat. Crime may yet prove the biggest threat to the development of e-commerce.
A Measured Response
It is the internet’s very openness that makes contact between buyers and sellers so easy and potentially so rewarding. And just as it would not have made sense to shut up the high street because it harboured some thieves and rogues, it would make no sense to combat cybercrime by stopping all internet commerce—even assuming it could be done. But better locks and security systems are urgently needed. And at least some of the problems are due to glaring errors and omissions by software companies and firms that build websites and manage internet connections.
For most people, most of the time, the internet is a great place in which to go exploring, to buy, to sell and to make a living. But a more secure environment would make it better still.