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Internet Commerce in the New Era of Accountability

E-commerce is an environment that requires hard work and application of sound business disciplines, such as measuring important processes and outcomes—what we call metrics. To understand how to take these important steps toward building online success, we need to change our view of e-commerce and put it in some old, and some new, contexts. The authors of "Ecommerce Metrics and Models" explain this philosophy in the introductory chapter of their book.
This chapter is from the book

"It was the best of times, it was the worst of times." Charles Dickens, A Tale of Two Cities

Imagine it is the summer of 1849. The setting is a saloon in a little California railroad town. As the business of a regular evening continues, a stranger with a wild-eyed gleam bursts through the doors and shouts: "There's gold in them thar' hills." In that electric moment, the realm of possibilities for everyone changed.

Fast-forward a century and a half. Substitute today and the new digital economy for the gold country in California. Just as the landscape for business changed at that instant in the 19th Century, here in the 21st Century we are seeing similar possibilities and challenges. Our wild-eyed stranger could be any of hundreds of entrepreneurs enamored with possibilities to strike it rich in the online world of e-commerce.

Ironically, in 1849 very few made their fortunes finding and extracting gold from the Sierra. In the Gold Rush, immigrants selling clothes, transportation, and banking services created businesses and most of the wealth, carrying such brand names as Levi's, Wells Fargo, and Bank of America.

Some 150 years later, the digital equivalent of those who sold picks and shovels, blue jeans, and other items to the miners are the ones who are reaping profits from the online Gold Rush of the last few years. We all know about the financial services side funding and supporting seedlings. Who are the modern-day equivalents of those who created the supporting infrastructure for gold mines throughout the West?

To take maximum advantage of the widening range of possibilities facing us despite bubbles bursting and shakeouts in the financial markets, we must understand that there are still numerous and potentially lucrative options available for conducting business on or through the Internet. Some are as visible as a mother lode vein of ore. Others are buried deep within the gold field and need hard work, diligence, intelligence, and a little luck in finding the right combination of resources to tap into the vast storehouse of riches available in the online world.

E-commerce, however, is not an automatic moneymaking machine. It is an environment that requires a strong sense of customer service. It also requires hard work and application of sound business disciplines, such as measuring important processes and outcomes—what we call metrics. To understand how to take these important steps toward building online success, we need to change our view of e-commerce and put it in some old, and some new, contexts.

From its early days, Internet-enabled commerce was a random collection of business thoughts and ideas, technologies, decisions, and partnerships. To be successful today, these random collections must morph from a series of loosely connected "atomized" units of business functionality into a more robust and seamless whole. These units must combine and operate cohesively to fulfill an entrepreneurial or corporate objective. In this introductory chapter, we trace a few of the more pertinent evolutionary traits of the In-ternet, and lay groundwork for the construction and analysis of e-commerce business models.

Evolving E-Commerce

For the Internet and electronic commerce, 2000 marked a watershed year. Activity online in page views was soaring. Victoria's Secret scored more than two million unique visits for its Web-cast fashion show live from Cannes, France. After a predictably slow start, NBCOlympics.com reached a high-water mark of almost 11 million visits on the day when Laura Wilkinson won the gold medal for platform diving, forcing a favorite from China to settle for silver.

Needless to say, the American presidential elections pushed site traffic to some of the highest levels for CNN, the television networks, and other general news sites, often eclipsing offline media statistics.

With the proliferation of sites, service businesses, and venture capital, online statistics were hitting us from all directions. "Numbers to Know" were part of the regular fare from the media that report on electronic commerce, coming from such diverse sourcs as market research firms, online tracking services, investment bankers, and even government agencies. With a little shareware on a server, even you can log trends at your site . . . and then use the statistics to justify someone placing a banner ad on your home page.

It was, indeed, the best of times. Page views for many merchants were increasing, purchases of all goods and services were strong, and new software and hardware arrived on the market at a rate that often outstripped an ability to install it.

There were also storm warnings, indicating that the worst of times were just around the corner. The stock market in March and April 2000 woke us up to an incipient meltdown that would strip billions of dollars in valuations from online companies.

Toward the end of 2000 and into 2001, the bloom was definitely off the Internet rose. Venture capital funding of e-commerce companies rocketed from $7 billion in 1998 and $32 billion in 1999, to $15 billion in the first quarter of 2000, but soon plummeted. NASDAQ values for IPOs of online companies turned sour, dragging down funding prospects for those in the queue. With the IPO market following NASDAQ, it wasn't long after when valuations of companies for mergers and acquisitions followed suit and dropped like a stone.

When IPOs dropped from an average of 30 deals in March 2000 to about 13 in May 2000, it was clear to all that the easy times for funding were gone. Even for the companies that did make it out, no longer was the explosive first day in the IPO a guaranteed success. This IPO shutout led many underwriters to postpone or withdraw registrations with the SEC.

By the start of 2001 major players were e-liquidators—vultures who swooped down on dead and dying dot coms, snatched up a morsel or two of intellectual property and customer lists, and brokered them off to survivors. More than 40 such firms operated at year-end, focusing on online ventures.

A respected trade magazine, The Industry Standard, was tracking online ventures going out of business! In early 2001, the publication's Web site listed more than 80 companies, many with high-profile names that ceased operations in 12 months.

With declining cash assets, a grouchy capital market, and regular headlines heralding an online apocalypse, Internet executives at last started to face reality. Companies

scrambled to cut down bloated marketing programs. Customer acquisition costs, which ranged from $70–$80 per customer in the U.S., were pared down, and the focus shifted in part to customer retention.

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