ComputerLink articles by Brian Pitre

Treat Your E-Commerce Initiative As A Start-up Business

Over the last year, business has embraced the idea of Online e-commerce. As businesses enter this new medium, they find that the Internet is having a fundamental effect on the structure of competition.

There is little doubt about the Internet’s effect on competition and how it is changing the value proposition within your business. The intensity of competition causes prices to fall in market after market. As these prices fall, there are lower and even negative gross margins. How will your business respond to this competitive challenge?

If e-commerce is an important initiative within your business, consider the idea of treating it as a separate start-up venture. This can make a great deal of sense in creating your competitive position in the marketplace.

Look at what has happened with other companies that are ahead of you and your e-commerce initiative. Barnes and Noble spun out their electronic initiative as a separate company to effectively compete with Amazon.com. They intend a future initial public offering; however, the motivation goes far beyond the IPO. Barnes and Noble recognized early on that the e-commerce business model conflicts with their traditional business model for selling books. This is a great example of the difficulty and complexity of remaining competitive in the rapidly changing e-commerce marketplace.

Many other companies are jumping on the e-commerce bandwagon. Among the larger ventures are such notables as ZDNet Group from Ziff Davis, AltaVista from Compaq Computer, Playboy.com from Playboy Enterprises, and Snap.com from General Electric (NBC). Even industry giant Hewlett-Packard recently decided to spin off its test and measurement business so that their computer and imaging division could focus on e-commerce opportunities.

Since Internet e-commerce initiatives can compete with your established value proposition and business model, your organization may experience growing pains as it moves toward Online business. As more companies begin to develop their Web strategies, they are faced with competitive issues that they have never encountered or considered.

The differences in the two methods of conducting business can be a management nightmare. Making marketing decisions in new e-commerce start-up divisions should not be discouraged, because they affect or conflict with the existing traditional business. New e-commerce ventures need as much support from marketing and strategy as traditional businesses and will suffer without them. Often, the e-commerce initiative will force you to make decisions and take new directions, which can only be described as the "cyberspace cannibalism" of your traditional business. The key point here is that if you don’t re-invent your business, someone else will do it for you.

Are there new competitors entering your market yet? If not, there certainly will be in the near future. Look at what has already happened to airline ticketing, banking, and stock trading. The Internet has always been perceived as a place where opportunity abounds and marketing goods and services can be delivered worldwide by even the smallest of companies. However, along with this new worldwide market opportunity comes a world full of new competitors. Let’s not forget major e-commerce competitors such as Amazon.com. Just a year ago, Amazon was considered an Online bookstore — but now it sells audio CD’s, and videotapes. They have recently purchased drugstore.com and are about to become an Online pharmacy as well.

Computers and the Internet dramatically reduce barriers for entry into new markets. Furthermore, the Internet is blurring the boundaries that have historically existed between markets, because entry into new markets is easier than ever. Barnes and Noble did not see Amazon.com as a competitor before they entered their market.

Someone, somewhere out there is thinking about how to deliver your product or service for free over the Internet! This tactic was pioneered by Netscape and refined by Microsoft into a remarkable competitive strategy. Today we see the "give it away free" strategy everywhere. One of the latest is FreePC.com. They actually want to give away free personal computers and Internet connectivity. They intend to create product revenue by acting as an Internet portal with advertising. Does this mean that all PC manufacturers and Internet service providers will be forced into a similar strategy? Probably not, but it’s likely that you will not be able to effectively compete with your traditional business model. That’s why it’s smart to compete through your new start-up business.

By allowing your e-commerce initiative to become a start-up business within your organization, you’ll give it the flexibility to compete in the new medium and utilize the new rules effectively. If executed well, the new start-up can deliver on the promise of e-commerce. That promise includes increased customer loyalty, increased profitability, decreased time-to-market, extended reach to customers with targeted offers, reduced transaction costs, and reduced customer service costs. These objectives can only be met if your organization is allowed to pursue relentless innovation, unparalleled service, and an attitude of genuine helpfulness. But all of these must be delivered in new ways!

Treat your e-commerce initiative as a start-up business to enable it to compete on a new playing field with unbridled vigor. In this way your chances of success are dramatically increased in the new business medium.