Filing Information

May 2000
IDC #22220
Volume: 1
Tab: Users

Internet and eCommerce

Strategies
Bulletin
Ten Things You Need to Know About
Successful eCommerce Strategy
Analysts: Gigi Wang and Carol Glasheen

IDC Opinion
What do leading ecommerce sites behavior and plans tell us about
key strategies for online business success?
Key findings from an IDC survey of executives responsible for their
businesses ecommerce initiatives reveal:
x
x
x
x
x
x
x

There is a need for speed; companies are moving online very

quickly.
Online profitability will be the rule within 12 to 18 months.
A leapfrog opportunity exists in international ecommerce.
Aggressive use of infrastructure outsourcing/hosting is the rule.
Personalization will be mandatory within 6 to 12 months.
Broadband and appliance content development is a 2000 priority.
Security, speed, and site navigation remain key challenges.

Executive Summary
In one of the most comprehensive surveys undertaken among highlevel Internet executives, IDC honed in on the creation of successful
ecommerce strategies. Some of the more significant findings are as
follows:
x

Leaders are moving sales volume to the Web faster than you
think. The average company in IDCs Internet Executive ePanel
currently fulfills 40% of its products and services sales over the
Web. Business-to-consumer (B2C) businesses and those that sell
to both businesses and consumers (B2BC) are further along
than business-to-business (B2B) in shifting business to the Web.

The global online opportunity remains largely untapped. For

IDCs epanelists, international sales (outside the United States)
represented just 13% of their total Web sales, even though 38%
of worldwide Internet commerce opportunity in 1999 was
outside the United States.

Many leading online businesses are already more profitable

than you think. Among IDCs epanelists, more than one-quarter
(27%) have profitable Web-based operations today. Profitability
is more common among B2B and B2BC than it is with B2C
businesses.

Profitable Internet operations will be a growing majority

within the next 12 to 18 months. A total of 48% of IDC
epanelists expect their online businesses to be profitable in
2000. By 2001, that percentage will approach 60%.

A sizeable minority still dont run the online business as a real

business. More than one-fifth (21%) of respondents said that
they do not measure profitability of their Internet business.
These will be the leading candidates for failure in the coming
online business shakeout.

Internet executives believe that their profit margins for

Internet operations should be at least as high as profit
margins for conventional operations. IDC epanelists who
believe online margins will be better than offline margins
outnumber by more than three to one those who believe they
will be lower. This is particularly true for B2B and B2BC
businesses.

Outsourcing Web-site infrastructure is very common,

particularly for B2C businesses. Nearly half of respondents

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reported that a third party hosts their Web site. For B2C
businesses, almost 60% are using a Web hosting service. This is
over twice the rate of outsourcing of traditional IT systems. IDC
believes this is due to both a short-term skills crunch as well as
a long-term shift toward a business view of IT as an
information utility.
x

Personalization is the fastest-growing new capability being

built into Web sites this year. In 2000, the percentage of IDC
epanelists sites that offer personalization will more than
double, from 25% to 63%. This should be a strong wake-up call
to businesses that are not offering it.

Businesses are developing for broadband and appliances faster.

By the end of 2000, nearly 40% of IDCs epanelists expect to
have developed special content for visitors/customers with highspeed (broadband) Internet access. Almost 30% expect to have
developed special content for non-PC devices such as mobile
phones and Palm Pilots. IDC believes that early support of both
will give businesses opportunities to take market share.

Security, speed, and ease of navigation remain the three most

challenging issues for leading sites. Executives rate their sites
performance in providing services that are secure, fast, and easy
to navigate as the areas most lacking relative to their perceived
importance of those Web characteristics. These challenges are
leading many sites to under-invest in critical areas such as
improved online customer service, integration of the Web site
into core business systems, and content localization.

IDCs Internet Executive ePanel

In August 1999, IDC conducted a survey of 656 executives at
organizations that provide either B2B or B2C services via the Web.
Respondents were self-selected, that is they volunteered to
participate in the survey. Each executive participating in the survey
was invited to participate based on his or her strong knowledge of
and management role in the companys online business. Individuals
that did not meet either of these criteria were eliminated from
further interviewing. Hence, the survey is based on senior-level
individuals that are highly knowledgeable about the underlying
business issues in our survey. Nearly half of the individuals surveyed
(48%) were the CEO, COO, president, or owner of the company. The
remainder were most often from a technology area (CIO, CTO, MIS,
MIT) or a VP of marketing or sales, making this survey one of the
most comprehensive ever conducted among senior-level Internet
executives.

Insights Into the Online Business

High Sales Volume Through the Web
Of the 656 executives surveyed, 553 of their companies sell products
and/or services via the Web, either on a B2B or a B2C basis. Overall,
the average company represented in our survey sold 40% of its

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goods and services through the Web, indicating that our epanelists
are experienced Web marketers and represent a segment of Web
business more Internet-proficient than the mainstream. Companies
that market to both businesses and consumers via the Web are well
ahead of the B2B marketers but only slightly ahead of B2C
marketers in terms of the percentage of their business that is run
through the Web (see Figure 1).

Figure 1
Mean Revenue Share from Internet Sales, 1999 and 2000

Note: Results are based on respondents who sell over the Web.
Source: IDCs Internet Executive ePanel version 1.0, 2000

All categories of Internet executives anticipate that the percentage of

sales generated via the Internet will rise during 2000, achieving a
gain between 7% and 10% of total sales. At the end of 2000,
businesses that provide both B2B and B2C (B2BC) products and
services over the Web will still be well ahead of those providing only
B2B products and services, at least in terms of percentage of overall
sales generated via the Web.
Low Online Sales Outside the United States
Because the Internet allows companies to expand their global
presence, IDC examined the percentage of Internet sales revenue
generated from outside the United States. The percentage does not
differ significantly by business model (i.e., B2B, B2C, or both) and
accounts for 13% of Internet sales for the overall sample. This
percentage is relatively small; however, as most primary sites still
offer only limited language support and limit their cross-media
promotions to specific countries, this percentage is significant.

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Development of localized content for international markets

represents an excellent opportunity for businesses to lead the pack
in addressing non-U.S. online markets, as 38% of worldwide Internet
commerce opportunity in 1999 was outside the United States, and by
2003, that percentage will grow to around 60%.
Many Companies Are Profitable; Most Will Be Soon
When the dot-coms will actually achieve profitability is the most
significant issue for many companies and their investors. According
to IDCs survey of Internet executives, 27% of companies are
profitable today. Those companies providing B2BC products and
services are most likely to be profitable, while companies
participating in the B2C segment are least likely to be profitable (see
Table 1). More than one-fifth (21%) of respondents said that they do
not measure profitability of their Internet businesses.

Table 1
When Online Operations Will Be Profitable by Type of Web Selling
(% of Respondents)
Total

B2B

B2C

B2BC

Already profitable

27.3

29.3

22.2

32.8

2000*

46.7

49.5

41.2

54.9

2001*

59.1

65.5

52.3

67.6

2002*

63.2

68.7

63.4

71.9

2003*

64.4

69.2

65.0

73.9

After 2003*

66.4

70.3

66.6

76.6

Dont measure profitability

21.0

18.1

12.7

12.4

Dont know

12.4

11.7

20.6

11.0

N=

651

188

63

299

* Cumulative responses shown

Messages in the Data:

x The minority of operations are profitable today.
x By yearend 2001, almost 60% will be profitable a sea change.
x Online businesses in 2000 must be well on the way to building operating
models that are profitable.
x Businesses that are planning for profitability to begin in 2002 and
beyond, or do not know or measure profitability, are at great risk.
Source: IDCs Internet Executive ePanel version 1.0, 2000

Companies that sell to both businesses and consumers over the

Internet are not only most likely to be profitable already, they are
most likely to be in the profitable category in the future. These
companies are also the most likely to measure the profitability of
their Internet businesses. Within the next 12 to 18 months, the
percentage of Internet operations that will not be profitable will be
in the minority. What this finding suggests is that the criteria that
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venture capital companies place on those entities they select for

funding will change significantly over the course of the coming two
years. Instead of seeking business plans that embrace a new
technology or high market penetration, emphasis will shift to a
more conventional business model of profitability.
There is great optimism that profit margins for Internet operations
will be higher or at least the same as other operations (see Table 2).
In the B2C segment, the percentage of companies that anticipate
their profitability of Internet operations to be higher than other
operations is lower than other categories; still, more than half of
respondents believe that their Internet operations will provide profit
margins at least as high as other operations. This fact, when
combined with earlier expectations of profitability, provides strong
evidence that Internet operations performance indicators are
shifting. Whether this higher-margin vision turns out to be correct
is open to debate, but IDC believes that in most industries, the
online business will have a lower cost structure than traditional
channels, making it imperative to quickly develop the new
Internet-based business infrastructure.

Table 2
How Profitability of Internet Operations Will Compare by Type of
Web Selling (% of Respondents)
Total

B2B

B2C

B2BC

44.1

49.5

39.7

50.0

Same margins

12.4

19.4

11.1

8.1

Lower margins

12.4

8.1

17.5

11.7

Don't know

19.8

15.1

12.7

15.8

Only selling through Web

11.3

8.1

19.0

14.4

N=

646

186

63

298

Higher margins

Messages in the Data:

x There is strong optimism that the Internet channel will be more profitable
than traditional channels. This optimism is a key element driving large
investments in Internet-based business operations.
x IDC believes that in most industries, whether Internet margins prove to
be greater in the long run or not, Internet-based operations will
nevertheless define a new lower cost structure for doing business.
Source: IDCs Internet Executive ePanel version 1.0, 2000

Affiliate Marketing Emerges as a Critical Marketing Tool

In order to better understand their marketing methods, IDCs
Internet Executive ePanel was asked what methods they use for
promoting their Web sites. Print advertising received the highest
level of response, but affiliate marketing was a strong second.
Successful negotiation of partnerships, alliances, and comarketing
arrangements is taking a more critical role than it has in the past. In
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addition, affiliate marketing is evolving to become more targeted

and appropriate as information about site visitors increases.
In the B2B sector, affiliate marketing received more responses than
print advertising, although findings were not statistically significant.
The strength of affiliate marketing in the B2B segment shows, in
IDCs view, a growing recognition of the importance of affiliate
networks in the B2B space. Many businesses have incorrectly
positioned affiliate marketing as a solely B2C tool.
There were some significant differences in the findings among the
different business models. For TV, print advertising, and radio the
three dominant mainstays of advertising B2C entities were more
likely to invest than their B2B or B2BC counterparts (see Figure 2).

Figure 2
Method of Promoting Web Site by Business Model

Source: IDCs Internet Executive ePanel version 1.0, 2000

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Insights Into the eCommerce Site

Heavy Dependence on Outsourcing/Hosting
A very high percentage (47%) of Internet executives reported that
their Web sites are hosted by a third party. This is most likely to be
the case in B2C companies (59%) and least likely in B2B companies
(39%). Companies that provide both B2C and B2B services are closer
to the B2C companies in terms of their likelihood to outsource; they
reported doing so 52% of the time, over twice the rate of
outsourcing of traditional IT systems. IDC believes this is due to
both a short-term skills crunch as well as a long-term shift toward a
business view of IT as an information utility.
Key Site Investments: Online Ordering, Personalization,
and Community/Membership
Overall, the most frequently reported activity currently available on
the Web is providing customer service/support (57% of companies
reported this activity). However, there are some wide variations
depending on the business model. In B2C companies, online
ordering ranks as the activity most frequently available on the Web,
while in the other types of companies it is customer service/support
(60% of both B2B and B2BC companies). B2C companies are more
likely to provide classified advertising and community features. The
availability of personalized Web pages is approximately equal in all
categories. Comparison shopping, while relatively uncommon as an
activity across all three business models, is almost twice as likely to
appear on B2C and B2BC sites as B2B sites. Auctions, which have
received so much media attention in terms of their potential ability
to drive down pricing for all types of goods and services, are the least
likely activity to appear on any type of site (see Table 3).
Involvement in all activities is anticipated to rise significantly during
the next 12 months. The greatest gain is anticipated for personalized
pages (gaining an additional 39% penetration, for a total penetration
at yearend 2000 of 63%). The relative ranking of those activities
most likely to appear on a Web site will remain approximately the
same during the coming year. Customer service/support will remain
the most penetrated service offered, with 88% of Web sites offering
this activity. As predicted by Internet executives, customer/member
registration will continue to take second place and online ordering
third. Personalized pages, now in fifth place, will increase in status
to fourth place, exchanging places with community features.
Likewise, comparative shopping, now in seventh place, will replace
classified advertising, currently in sixth place. Auctions, though
increasingly appearing on nearly one-fifth of Web sites (19%), will
still remain in a distant eighth place relative to other Web activities
reported.

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Table 3
Activities Currently Available on Web Site, 1999 and 2000
(% of Respondents)
Total

B2B

B2C

Both

Online ordering

43.8

35.1

71.4

55.6

Customer service/support

57.5

60.1

57.1

59.9

Customer/member registration

47.3

48.9

44.4

53.3

Personalized pages

24.5

26.1

27.0

25.8

9.9

6.9

12.7

12.3

1999

Competitors pricing/comparative shopping

Community features

27.1

20.2

34.9

27.5

Classified advertising

13.7

10.6

23.8

15.9

Auctions

4.4

3.7

4.8

6.0

N=

553

188

63

302

Online ordering

76.8

72.3

92.1

92.1

Customer service/support

87.7

87.8

87.3

93.7

Customer/member registration

79.7

78.2

81.0

87.4

2000

Personalized pages

63.1

59.0

61.9

70.9

Competitors pricing/comparative shopping

29.0

21.8

30.2

36.8

Community features

54.1

45.7

55.6

59.9

Classified advertising

27.1

19.1

31.7

35.8

Auctions

18.9

10.6

25.4

25.8

N=

553

188

63

302

Online ordering

33.0

37.2

20.7

36.5

Customer service/support

30.2

27.7

30.2

33.8

Customer/member registration

32.4

29.3

36.6

34.1

Personalized pages

38.6

32.9

34.9

45.1

Competitors pricing/comparative shopping

19.1

14.9

17.5

24.5

Community features

27.0

25.5

20.7

32.4

Classified advertising

13.4

8.5

7.9

19.9

Auctions

14.5

6.9

20.6

19.8

19992000 Growth*

Note: Multiple dichotomous table; responses reflect the percentage of respondents

selecting each option.
*Represents difference between 2000 and 1999 data rather than actual percentage
growth.
Source: IDCs Internet Executive ePanel version 1.0, 2000

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Leaders Developing Killer Apps for Broadband, Appliances

This Year
IDCs epanelists were also asked whether they have special content
or a special site aimed at visitors who have broadband Internet
access or who are accessing the Internet through non-PC devices
such as cell phones, Web TVs, palm computers/PDAs, or other
devices. Overall, Internet companies are more likely to have special
sites targeted for broadband access than for non-PC access, and
broadband will be a more important focus for companies throughout
2000. Even so, both broadband and non-PC access will experience
tremendous development activity in 2000 (see Figures 3 and 4).
While both the B2B and B2C segments are more concerned with
broadband development than wireless (at least during 2000), the
B2BC segment is nearly equal in its concern for both types of
development. The greatest amount of development for broadband
will take place in the B2C sector, where 35% of sites will incorporate
this functionality in 2000, but it is the B2BC sites that anticipate the
greatest development in the non-PC access area (29% of sites will
incorporate this functionality in 2000).

Figure 3
Plans to Implement Services/Sites for Broadband Access

Source: IDCs Internet Executive ePanel version 1.0, 2000

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Figure 4
Plans to Implement Services/Sites for Non-PC Access

Source: IDCs Internet Executive ePanel version 1.0, 2000

Pain Points: Security, Speed, Navigation; Slow Investment in Other

Key Areas
Finally, IDCs Internet Executive ePanel was asked to rate the
importance of certain characteristics for an Internet site and then
asked to rate their sites on each of these same characteristics. The
most important trait for a Web site is its security (see Table 4), where
80% of executives believe it is very important. Speed (fast) and
ease of navigation are tied for second place in perceived importance.
The features that rank lowest in Internet executives perceived
importance are having a site that is multimedia-rich (only 9% of
executives believe this characteristic is very important) and
entertaining (13%).
It is evident that when rating their companies implementation of
the same characteristics, executives are falling short of their own
perceived level of importance on virtually every Web-site
characteristic measured. In addition, it is apparent that companies
are not executing best on those traits that they necessarily rate as
most important. In particular, integration with the companys core
business systems is given higher priority in perceived importance
than it is on a self-rating. Service-oriented is the one area in which
companies outperform their level of perceived importance.

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Table 4
Perceived Importance of Web Site Characteristics and Self-Ratings
on Execution (Mean Score)
Type of Web Business
Total

B2B

B2C

B2BC

4.4

4.4

4.2

4.4

Importance of Characteristic (Rank)

Fast (2.5)
Secure (1)

4.5

4.4

4.5

4.6

Integrated with the companys core

business systems (4)

3.8

3.7

3.7

3.9

Easy to navigate (2.5)

4.4

4.3

4.4

4.5

Entertaining (9)

3.1

2.9

3.2

3.2

Interactive (5)

3.6

3.3

3.4

3.8

Personalized (7)

3.4

3.2

3.2

3.5

Service-oriented (6)

4.1

4.0

4.2

4.3

Localized (8)

3.3

3.2

3.1

3.4

Multimedia-rich (10)

2.6

2.4

2.6

2.7

N=

390

131

50

209

Fast (2)

3.9

3.8

3.8

3.9

Secure (1)

4.2

3.9

4.3

4.3

Integrated with the companys core

business systems (5)

3.2

3.0

3.1

3.3

Easy to navigate (3)

3.7

3.5

3.6

3.8

Entertaining (7.5)

2.6

2.3

2.7

2.6

Interactive (6)

3.0

2.8

2.9

3.1

Personalized (7.5)

2.6

2.5

2.4

2.7

Service-oriented (4)

3.5

3.2

3.4

3.7

Localized (9)

2.4

2.2

2.2

2.6

Multimedia-rich (10)

2.3

2.0

2.2

2.5

N=

386

129

50

207

How Well They Are Executing

Characteristic (Rank)

Notes:
Importance scores are based on a scale from 1 to 5, with 1 being not important
and 5 being very important.
Execution scores are based on a scale from 1 to 5, with 1 being executing very
poorly and 5 being executing very well.
Source: IDCs Internet Executive ePanel version 1.0, 2000

The biggest gaps in ratings of perceived importance versus selfratings occur in speed (fast) and ease of use (easy to navigate).
This is troubling in that these are rated very high (tying for second
place) by Internet executives and, along with security, would be the
most highly rated factors by users (see Figure 5). Indeed, IDC

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believes these challenges are leading many sites to under-invest in

critical areas such as improved online customer service, integration
of the Web site into core business systems, and content localization.
Figure 5
Perceived Importance of Web Site Traits Versus Self-Rating on the Same Activities

N = 390
Source: IDCs Internet Executive ePanel version 1.0, 2000

Conclusion
When it comes to making incremental investments in your Web site,
it is quite likely that most of the investments you make are
necessary to maintain your marketplace position. As the percentage
of business coming in through the Internet increases, both for your
business and for your industry, how that investment is spent
becomes more critical to monitor. Investments to help target
appliance and broadband users are now viewed as essential, not as a
luxury. A critical aspect of competitive intelligence today stems from
assessing the Internet capabilities of your competitors and matching
or exceeding those capabilities in your own business. Without this
crucial analysis, you are likely to miss out on the emerging and most
rapidgrowth portions of the Internet economy. With that in mind,
take the following investment recommendations into account for
site development:
x

A IDC

Consider investing ahead of the pack in localizing your site(s)

for the large high-growth markets outside the United States,
notably the United Kingdom, Germany, France, and Japan.
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Increase focus and investment on personalization, community

features, and better online service (including live support).

Dont forget the basics: Security and ease of navigation remain

highly (self-)criticized areas.

Strategize this year for supporting new key Internet

infrastructure capabilities, including broadband, appliances, and
wireless access.

It is virtually impossible in todays fast-paced economy for any single

business to rely solely on in-house expertise. In order to maintain a
level of development that exceeds that of the competition, consider
outsourcing those portions of your development effort in which you
lack expertise, such as wireless applications protocol (WAP). Skills
shortages are also a factor in your ability to quickly bring new
applications online and migrate to new technologies. For these
reasons, you should remain open to outsourcing IT infrastructure
and others portions of the online business. Consider using thirdparty services companies to address shortcomings in security,
scalability, and ease of navigation, allowing you to increase focus on
the next wave of Web site requirements: integration with core
business systems, improved customer service capabilities,
personalization, and localization.
Nevertheless, some of the most significant considerations are those
that dont involve technology:

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Build your online business on a model that offers sustained

profitability. If it is not profitable within the next 12 to 24
months, you are likely to be an online loser in your market.

Recognize that as the percentage of business that comes over

the Internet increases in your industry, lowering your cost
structure the overall profitability of your business will
depend on the size and financial health of your Internet
business.

Maintain a separate P&L for your Internet business. Without it,

you cannot track your progress. Although basic, it remains one
of the most forgotten lessons by Internet executives.

Recognize that you cannot go it alone. Increasingly,

channel/affiliate marketing is the critical means of attracting
new customers and gaining market share.

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Document #: 22220
Publication Date: May 2000
Published Under Services: Internet and eCommerce
Strategies; Consumer eCommerce: Core; Online Financial
Services: Core

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