1.     Introduction

This paper reports on work-in-progress for an empirical study to determine the most important drivers, which determine the success of e-Business, or DotCom initiatives. Evidence for he empirical study was collected by means of a self completion questionnaire from two different groups of executives who were participants on management related courses.  The results from these questionnaires were analysed to obtain opinions concerning the relative importance of issues as well as similarities and differences. This report on the preliminary empirical study forms a part of a larger research initiative, which will continue with follow up questionnaires in order to complete a Delphi study as well as further in-depth interviews.

2.     Background

Success with e-Business[1] in the sense of having a profit generating operation appears to date to have eluded many organisations (Venkatraman 2000). We hear time and again about so-called highly successful companies that are making a loss, and we also hear about millionaires and billionaires whose wealth is based on owning loss-making organisations – some of these organisations make phenomenal losses indeed (Siegel 1999; Wilson and Brown 1999). One case in point is that of the on-line book vendor, Amazon.Com which since its launch in 1995 has not yet shown any profit and is currently believed by stock market analysts to be about to show another loss of some $700m in the current trading period (Wheatley 2000).

This loss-making phenomenon is quite interesting for a number of reasons. Firstly the vast majority of Dot.Com organisations are not making any profits and this so far does not appear to be a major concern to either their management or to their shareholders. Secondly, until quite recently the share price of these companies had been in rapid growth, despite their lack of profitability (Aczel 1999). These very high share prices and very high loss situations made the concept of the price earnings ratio look like some redundant notion whose validity had long since passed its sell by date. Of course, since the beginning of the current year most if not all these shares have fallen in price. But nonetheless, in terms of their performance these shares are still enormously overvalued. As the CEO of Amazon said recently when it was pointed out to him that the share price of his firm had fallen by 50% in the past six months, the share price is still nearly 20 times higher than it was three years ago[2]. Thirdly, it appears that these Dot.Coms often do not have a clear vision as to what are the drivers of business success or for that matter the major challenges, which they have to face if they are to be successful. Put simply, they seem not to fully understand the key business issues facing their type of business organisation.

An example of this type of lack of understanding may be seen in the recent collapse of Boo.Com (Cassy and O’Hara 2000).  The Boo.Com web site was known as not being especially satisfactory and not being easy to use. The site was so complex that only the most powerful PCs and the fastest telecommunications lines could provide a reasonable shopping experience. In consequence not enough people were prepared to battle with the site to purchase something[3]. Furthermore, the basic idea or business model of Boo.Com was indeed highly questionable. The idea of trying to sell hi-fashion or “hip” gear over the web is challenging. The key to web site success has to be in obtaining a large number of site shoppers and eventually buyers for relatively little cost, i.e. as efficiently and effectively as possible.

For this to succeed it is extremely important for the site to be able to aim at reasonably Internet or web savvy[4] target markets. If the target market isn’t web savvy then the cost of attracting shoppers and buyers just becomes unproductive in terms of unit cost[5]. Boo.Com tried to counteract the lack of Internet or web savvy shoppers by being able to take orders in 8 languages and payment in 18 currencies. LetsBuyIt.Com operates in 15 different languages. But alas, even with this phenomenal market reach, both these organisations were unable to obtain sufficient sales to begin to cover their expenses.  In the end, it was their inability to control their expenses that brought about their demise. With a market capitalisation of nearly one quarter of a billion pounds sterling last November and a working capital cash float of nearly £90 million at its disposal the company was only able to sustain itself for 18 months. After it closed, it was revealed by members of its staff that the management philosophy of its joint CEOs, Leander and Malsten, was the 3Cs – Champagne, Caviar and Concorde. This of course is a euphemism for unbridled extravagant expenditure with all sorts of expenses.

3.     Business drivers

The apparent lack of knowledge of business drivers related to the Dot.Com or e-Business community, is curious as it is not difficult to understand how to make a profit and to do this is perhaps less daunting than is made out by many organisations and members of the “digirati”. There is of course no simple key to any profit generating operation. Multiple factors or drivers are involved but they do mostly relate to the organisation’s ability to have adequate sales at a sufficient price-cost ratio to pay all the costs and to leave behind a surplus. Thus, to achieve profit there are two issues to be resolved. The first is how to ensure adequate sales revenue and the second is how to effect those sales at a price that ensures a suitable surplus or profit appropriate to growth needs and to encourage stakeholder/investor confidence. Of course the revenue from the sales has to cover the very heavy advertising and promotion overheads that many of these e-Businesses appear to have run up (Watson et al 2000).

3.1     Extending an established business to an additional e-channel

In the case of already established businesses there is often little difficulty in extending the operation on to the web. It is simply a matter of offering another buying channel to the established clientele whereby they can buy more easily from the organisation. The primary concern here is to ensure that this extension of the business operation is conducted in a controlled, efficient and effective way and that the integration issues of maintaining an online database and transaction processing system are properly managed. However, having achieved this the next question then becomes, do the regular customers really want to do business with the organisation through the web? What is in it for the customer? Will the product be cheaper or better? Will there be more convenience etc? What can I learn from others by using the Web? Will more loyalty points be given for this type of business? Each customer is likely individually to apply the old five-finger rule – “what’s in it for me?” (Godin 1999; Siegel 1999; McWilliams 2000) But even when there is a clear reason for customers using the web, there is then the issue of how Internet savvy they are. If the customers and potential customers are not Internet savvy then the e-Business could fail.

These are the first two assessments to be made. What’s in it for your customers or clients and are your clients and potential clients Internet savvy? If the people who you want to be doing business with you are not Internet savvy then how do you get them to be? Give out detailed instruction by way of a booklet? Give them courses? Make a video for them? Provide demonstrations in supermarkets, at cinemas or at schools? Accessing the non-Internet savvy sector is a major challenge[6].

3.2     Acceptable fulfilment costs

The next question is how can the transaction be completed in such a way that there is not an unacceptable increase in cost to the vendor? With regards to the fulfilment cost[7], it’s easy enough for e-Businesses such as Amazon to pass over to the client the cost of fulfilment, as it is often customary for the purchaser to pay for postage and packaging on the delivery of books and similar items. However how does the supermarket or the department store do the same when it is not the custom to do so. The level of fee charged by the supermarket at present of £5 per purchase can hardly go much of the way to paying for the picking, packing and the delivery of a sizable order and the same £5 is far too much for the buyer to add to a small order. Of course, the notion of insisting on a minimum purchase of, say, £50 or perhaps even £100 could be helpful in this respect as there might be enough margin here to pay most of the costs of a delivery[8]. In the UK it seems that the way forward may well have to be in requiring a minimum order to provide web purchasing and subsequent delivery. This will of course depend upon the efficiency with which the retailer can operate the downstream side of the supply chain. Perhaps this is best outsourced. Perhaps more specialist fulfilment services will arise that can make money out of this by some sort of creative synergy such as the coupling of suppliers etc (Rushe 2000; Vowler 2000).

A whole new industry of fulfilment DotComs is starting to appear to take the burden away from the supplier. Freightwise.com is a trading exchange for transportation, allowing companies to choose the best route to get things delivered across states and countries and then inviting bids from transport suppliers for the work. Freightwise (www.freightwise.com) adds value to conventional route planning by offering order tracking using global positioning satellites. Sears Roebuck and Carrefour have joined with Oracle to set up Global NetXchange - a global business-to-business online exchange serving the retail industry. M-box (www.m-box.com) and Urbanfetch (www.urbanfetch.com) are just two examples of specialist logistics companies that have been set up to work on the logistics challenges. It is thought by some that it is probable that the fulfilment side may fall into place, provided that the web business produces adequate sales to make the whole initiative worthwhile. But this is a rather speculative view and has yet to be proven. Of course, it is worth pointing out that this whole logistics process need not be operational at the desired level from day one of the launch but there does need to be some sort of vision as to how delivery will eventually be made to work profitably. Traditional brand loyalty plays an important role here in the early days when there are teething problems and established clients are likely to be sympathetic and may even be helpful to development pains. The cost to the business of setting this business framework up need not be excessive, provided that the web site is not seen as a symbol of corporate pride, but rather as an efficient and effective business tool.

3.3     The new business on the web

With regards to new business on the web or the so-called pure play e-business there are several other issues involved in making a success of the operation.

The first and most important issue is how the new e-business establishes itself as being known as a provider of goods or services. The amount of advertising money spent by Yahoo, Amazon and Lastminute indicates how important these organisations feel advertising and promotions are to their survival (Wheatley 2000). There is little doubt that they need to keep the name of their organisation right up in front of the minds of their customers and potential customers and the cost of doing this is very considerable indeed. Various e-Business gurus have suggested that it costs about £500 to capture the attention of an e-Shopper to the extent that he or she will register with a site and that the very best sites have 10 percent of their registered shoppers buy from them. If this is correct, then it costs about £5,000 of advertising and promotion to obtain a sale. But not every site performs like the very best sites. Thus, if the conversion rate is not 10 percent, but is only 2 percent, then the cost of a sale becomes £25,000.  If the web site is selling an outfit that cost them £100 and they have marked it up 200% so that the price is £300 then they will make (if the client pays for all the packaging and delivery) £200 on each outfit sold. Assuming that once a client starts buying they buy once a month then on average it will take 125 months (more than 10 years) for the e-Business to recover the cost of finding the client[9].

What an impossible situation to be in and it is sometimes made worse by management’s desire to grow the business as quickly as possible. Fast growth always requires more cash than a slower growth path. In fact fast growth has been the downfall of many traditional businesses, known in business circles simply as overtrading, and this is generally regarded to be an unsatisfactory policy to pursue. A modest but steady growth path is a much safer strategy to follow, which will often be more cost effective, and is likely to be an important issue in obtaining support from the bank.

Other sources of business and e-business statistics concerning the cost of attracting e-Shoppers suggest that the situation may not be quite so bad[10], but nonetheless e-Businesses are spending much more than traditional organisations to bring in the sales.  Figure 1 shows the very much higher marketing expense ratios of e-Businesses compared with other types of business. Note the DotCom organisations are on average spending 119% of their revenue on marketing and this is clearly a major contributor to their profit problems.

Figure 1: Relative amounts spent on online and offline by different channels

(From an unpublished presentation at the UNICOM e-Business seminar in London at the Holborn Hotel, May 10^th, 2000)

3.4     Making e-Business succeed

The only way out of this dilemma is to be able to attract the attention of shoppers and clients at a much lower advertising cost and to have a much higher conversion to buyer rate. To do this the notion of Internet savvy becomes prominent. Internet savvy shoppers and clients do not need as much advertising pull as the average surfer. They know about the web and what it can do for them. So the trick is to either try to bring them to you or alternatively, much better is to offer whatever will get them to come to you. This, of course, is not an easy matter and no generic guidelines can be offered as every industry and organisation will need a specific Internet strategy to achieve this.

3.5     The Internet savvy e-Shopper

To capture the attention of an Internet savvy e-Shopper may not require £500 of marketing cost described above. Because of the orientation of such people the marketing figure for this is likely to be much smaller. Estimates for this amount are extremely difficult to establish, but it is probable that the cost of capturing the attention of an Internet savvy shopper might not even be as much as £100[11]. Furthermore the Internet savvy e-Shopper is probably not surfing the web without buying intent, but is actually looking for a particular good or service. Thus the conversion rate from e-Shopper to e-Buyer is likely to be better than the industry average. So if the conversion rate is the 10 percent previously suggested as a good rate then with a mark up of £200 per sale the e-Business is only looking at about 10 months to recover the marketing cost of getting the Internet savvy client. With the right sort of incentives there is no reason why the 10 percent could not be improved upon and perhaps the advertising and other marketing costs recovered over half that period. But it will take careful work and a considerable amount of market research to identify such a target market. Accesses to the target market will be improved if the DotCom can put in place an affiliate programme such as that used by Amazon, whereby authors in this case effectively pass leads over to the business and thus boost its sales.

Concentrating on getting e-Shoppers to the site in the most cost effective way needs to be a priority of any new e-Business or DotCom venture, as the advertising and promotion budgets are often at the centre of what is currently producing the cash drains and the resultant losses. Furthermore, Internet savvy e-Shoppers often know other Internet savvy e-Shoppers and a strategy that encourages word of mouth can be very powerful.

4.     The empirical research

In order to explore the views of executives as to which were the most critical drivers of  e-Business success it was decided to undertake an empirical study.

The first step of this study was to discuss with three leading e-Business authorities what they considered to be the key drivers behind e-Business success. The views of these authorities, supported by the literature (Lloyd P & Boyla 1998; Zwass 1999; Twentyman 2000; McEachern 1998; Lawrence 2000; Evans and Wurster 1999;  de Kare-Silver 2000; Andrews 2000; Buckle 2000; Cohn 2000; Cortese and Stepanek 1998; Reedy, Schullo and Zimmerman  2000)    produced the list of e-Business drivers shown in Table 1.

Table 1: List of e-Business drivers

These 23 issues were used to develop a questionnaire, which is shown in Appendix A. Each issue was developed into a specific question. This questionnaire was administered to two different groups and the results were entered into a spreadsheet. The first level of analysis involved the calculation of mean scores for each question for each group. Then standard deviations were calculated for each question for each group.

The calculations of mean scores and the standard deviations for the top ranking eight issues are shown in Figure 2 and Figure 3 for Sample 1 and for Sample 2 respectively, sorted by their mean scores in descending order.

Figure 4 and Figure 5 show the original data ranked by their standard deviations. Only the top eight standard deviations are shown.

5.     Analysing the results

The first step in analysing the results was to take a high level overview of the evidence to see what is the general shape of the data.

5.1      High level overview

From simply reviewing the data it is immediately obvious that there is quite a high degree of variation in the opinions of the respondents who have contributed to this survey. The responses to the questions shown ranged from the maximum score of 10 to the minimum of 1. Of course, this is hardly surprising as the subject of e-Business and the drivers which determine its success is certainly a new one and as such there is not much firm evidence on which to base opinions. In fact, there are many conflicting views frequently enunciated in the media as to the factors driving e-Business success.

This survey is based on two samples of informants. The first group, which has been designated Sample 1, consisted of 14 European executives who are engaged in doctoral studies while the second group, which has been designated Sample 2, consisted of 34 executives who are engaged in studies for a master’s degree at a different University in London. Analysis of the responses of the two groups does appear to indicate similarity between the two groups across all questions. Both the Spearman Rank Correlation (0.92) and the Pearson Correlation Coefficient (0.92) are significant at the 1% level. Thus, these results from both groups appear to be in agreement.

Comparing the two samples in terms of their means, in all but 3 questions the scores of Sample 2 were higher. (See Appendix B, Sample 1 – the UK Sample and Appendix C, Sample 2 – the Continental Europe Sample)

However, for question 17, this difference was statistically significantly higher at the 2% level. Furthermore, Question 17 (e-Business will trigger new business strategies) was ranked highest by both groups. Thus, this seemed to be the most important issue.

In Sample 1 the mean scores were lower for Q22 and Q23, although not significantly so.

In general the high variability in the scores could be a reason for the relatively few significant differences being detected in the analysis.

The top ranked issues, the top one third, are all related to the strategic issues involved with e-Business opportunities. None of the operational issues are considered by this sample to be relatively important.

What is especially interesting however is the fact that 7 out of these eight top ranked issues are the same for both Sample 1 and Sample 2. This may be seen by quick comparison between Figure 2 and Figure 3. Although the two samples did not rank these issues in exactly the same order, there is only one different issue in each of the two listings of the top third of the issues. This issue was e-Business provides global marketing reach for the UK sample and Lack of qualified staff limit e-Business developments for the European sample. This difference might suggest that there is a higher degree of outward focus in the UK than in Continental Europe and that there are more suitably qualified staff in the UK than on the Continent. This suggests quite a high degree of consistency of opinion with regards the importance of these particular drivers. This is also confirmed by the high correlations reported above.

Figure 2:  Sample 1 UK sorted by mean scores

Figure 3: Sample 2 Continental Europeans sorted by mean scores

Figures 4 and 5 are listed in order of standard deviation. In Figure 4 the first issue, e-Business will trigger new business strategies - shows a high degree of variation vis-à-vis Figure 5. This suggests a less consistent vision among UK executives about the strategic importance of e-Business.

From Figure 5 it may be noted that there is a higher degree of agreement in opinion among this group. The first two issues have relatively low ranges (maximum minus minimum) and standard deviations.

The security issue is worth commenting on as it scores second place with both groups. Although this is regarded by many as a critical matter, it would not necessarily be seen by many executives as being strategic. However security is a pervasive issue in many areas related to information technology and therefore there is little doubt that it is perceived as an important matter.

Figure 4: Sample 1 UK sorted by STD

Figure 5: Sample 2 Continental European responses sorted by  STD

6.     Discussion

The current era of e-Business is a confusing one. This is partly because the field is so new that there has not been sufficient time for ideas and theories to establish themselves. Perhaps Charles Dickens’ picturesque imagery for the period, created by the French Revolution, is also a useful description of the current situation.

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light it was the season of darkness, it was the spring of hope, it was the winter of despair.

It may well be true to say that we are now in the best of times and the worst of times. It is the best of times because so much interest and so much money has been invested in e-Business. It is the worst of times because there has been so little real business success achieved to date. The recent closure of ZedZed.Com is yet another example for how this new e-Business medium is not really understood and how it can lead to heavy losses.

This research is the first step in a series of exploratory exercises to understand what drives the current momentum towards e-Business. The findings, whilst tentative, suggest executives perceive that e-Business is essentially a strategic issue. This is certainly in keeping with much of the Web publicity and the strong hype generated by many of the would-be opinion influencers, which we have irreverently referred to as the “digerati”. However, strategy is never enough to ensure success and the operational issues need to be given appropriate attention.

The findings suggest that the operational aspects of e-Business, while important appear to be relatively secondary to the strategic issues. This is perhaps due to the fact that e-Business has captured the imagination of executives and that this imagination is focused on how it will transform business practices at a relatively high level. An explanation of this high level attitude towards e-Business might be that executives have been caught up in the romance of transforming their business into “new economy” vehicles. However, whether there is in fact a “new economy” is an open question in its own right.

This possible finding may suggest several critical aspects about the current understanding and attitudes towards e-Business.

Firstly, e-Business has been largely driven by very high expectations from what is being increasingly referred to as the “digirati”. These people often base their opinions on a sample of one; they do not fully understand the real business issues and furthermore they sometimes have an axe to grind, or even a product to sell. The comments of Andy Grove of Intel who said that “If you are not in e-Business you will not be in business at all” demonstrates this point.

Secondly, in reality e-Business is, except for a relatively small number of cases, still largely unproven in the sense that not many firms have yet shown how to employ this technology successfully to earn profits. There is often the assumption that time will drag many e-Business to levels of success as a bigger proportion of the population become increasingly Internet Savvy. However, this has yet to be proven.

Thirdly, there is no obvious superior methodologies or frameworks to guide the way to business success, especially when it comes to using e-Business to enhance supply chain management. There is a considerable amount of work being conducted in this area but, except in as far as the Internet offers an easier and less expensive way into the facilities previously offered by EDI, there is not yet any real indication as to how this area of e-Business will deliver benefits.

Fourthly, many issues related to e-Law are unresolved. Many e-Business transactions are done without clear terms and conditions. Furthermore, the international jurisdiction of e-Disputes is not always clear.

7.     Summary and conclusions

It is at present difficult to study the issues driving e-Business success. This is no doubt partly due to the fact that to date there have not been all that many incidents of real tangible financial or economic success from this business sector.  In fact it has been argued that e-Business is not a distinct business sector in its own right nor does it represent a new economy but rather the application of novel electronic tools to old business principles. This is expressed well by Says Paul Romer, professor of economics at Stanford University’s business school (Wysocki 1999), when he says  “It isn’t so much that we have a new economy, as we have a new understanding of the importance of technology in the economy.”

However, an evaluation of the issues raised in discussion with executives concerning the drivers of e-Business success highlights the fact that those executives are not yet focused on any real level of operational detail.  The business community is still looking at e-Business as a high level strategic issue without giving the operational detail adequate attention. In fact, it is said that one of the main problems is that some business professionals see e-Business as a strategy in its own right, rather than as a tool with which to implement a corporate strategy.

The surveys in this paper suggest that that both samples of informants have this high level strategic orientation to e-Business and that there is substantial agreement between the two groups.

No doubt as e-Business continues to struggle to achieve economic success and, as we see increasing numbers of e-Business failures, the views of business executives and investors will change towards these key issues.

References

• Aczel J, 1999, ‘Sharp Upturn for Internet Shares’, Internet Business, January p 26.

• Andrews, D, 2000, ‘The Back-office - Cutting the Gordian Knot?’, The British Journal of Administration Management, Jan/Feb.

• Buckle, A, 2000, ‘Customer is King in a David vs Goliath Battle’, The Financial Times, Jan 27, p 19.

• Cassy, J, and O’Hara, M, 2000,  ‘It all ends in tears at Boo’, Guardian, May 19,

• Cohn, L, 2000, ‘The Hottest Net Bet Yet?’ Business Week, January 17.

• Cortese, A. E., and Stepanek, M, 1998, ‘Goodbye to Fixed Pricing’, Business Week, May 4.

• de Kare-Silver, M, 2000, e-Shock 2000: The Electronic Shopping Revolution, MacMillan Business, Basingstoke.

• Evans, P, and Wurster, T, 1999, ‘Getting Real About Virtual Commerce’, Harvard Business Review, 77 (6), pp 84-94.

• Godin, S, 1999, Permission Marketing – Turning strangers into friends and friends into customers, Simon & Schuster, New York.

• Lawrence, A, 2000, ‘Trouble ahead: B2B exchanges’, Information Age, p26, London, June

• Lloyd, P, and Boyla, P, 1998, Web-Weaving: intranets, extranets and strategic alliances, Butterworth Heineman, Oxford,

• McEachern, T, 1998, Re-Wiring Business: Uniting Management and the Web, John Wiley and Sons, New York.

• McWilliams, G, 2000, ‘Building Stronger Brands through Online Communities’, Sloan Management Review, p 43-54, Vol. 41, No 3, Spring.

• Reedy, J, Schullo, S, Zimmerman, K, 2000 Electronic Marketing – Integrating Electronic Resources into the Marketing Process, Dryden Press, Fort Worth.

• Rushe, D, 2000, ‘Milkmen get Cream of Internet deliveries’, The Sunday Times, June 18,

• Siegel, D, 1999, Futurize Your Enterprise: Business Strategy in the Age of the e-Customer, John Wiley and Sons, New York.

• Twentyman, J, 2000, ‘The tortuous process of e-integration’, Information Age, London, June p26.

• Venkatraman, N, 2000, ‘Five Steps to a Dot-Com Strategy: How To Find Your Footing on the Web’, Sloan Management Review,, Vol. 41, No 3, Spring, pp 15-28.

• Vowler, J, 2000, ‘Are you delivering the e-goods?’, Computer Weekly, Thursday 22 June, p77,.

• Watson, R, Berthon, P, Pitt, L, 2000, Electronic Commerce, The Dryden Press, Forth Worth.

• Wheatley, M, 2000, ‘Boo doesn’t frighten Amazon’s true believer’, The Times, Thursday June 22, p4.

• Wilson, T, and Brown, M, 1999, ‘Millionaires who put success before money’, Internet Business, , Haymarket Publications, London, November p60.

• Wysocki, B. Jr., 1999, ‘The Outlook – Corporate Caveat: Dell or be Delled’, The Wall Street Journal Europe, Vol. Xvii, No. 68,  May 10^th, p1.

• Zwass, V, 1999, ‘Electronic Commerce: Structures and Issues’, International Journal of Electronic Commerce, 1(1), pp 3-23.