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Tech Industry

The e-commerce hypocrisy

I continue to be amazed at the large number of companies focused on e-commerce, specifically from a technology perspective.

"Got to find a reason why the money's all gone."
--Sublime, "What I Got"

I continue to be amazed at the large number of companies focused on e-commerce, specifically from a technology perspective.

There must be hundreds of firms that have built software and hardware targeted specifically at enabling the future of electronic business. These products include everything from Web catalogs to encryption tools to digital certificates to esoteric "e-commerce connectors." Moreover, company after company joins this or that consortium and announces the global technical standard that will finally allow for a proliferation of online sales. If only SET or OBI or OPS or OTP or (insert the three-letter acronym of your choice here) were available today, then we really would be surfing for dollars. Quite frankly, I think most of these standards are either efforts by technology providers to create monopoly-type technology or efforts by mainstream financial institutions to make sure they are not cut out of the action.

There is an interesting hypocrisy that exists among e-commerce soothsayers. If you tell them that tomorrow's friction-free society is really a long way off, they will counter that Dell and Cisco are doing billions of dollars in business over the Web. However, they fail to address the fact that they are doing it without the help of any of these arcane standards.

SET isn't needed to aid the customer, as credit cards and purchase orders already work just fine. Competitive pressures are motivating the creation of SET. Credit card companies and vendors assume most of the liability on Internet transactions (really everything above $50, but apparently this is frequently waived). In light of the success of online credit cards, SET will primarily help the company that assumes the liability--the stores, the banks, and the credit card companies. This was verified when MasterCard agreed to lower its transaction costs to retailers that would implement SET.

It is certainly not my point to play "Flail the technologist." And I do recognize that enabling technology can help grease the skids for electronic commerce. However, I am not convinced that technology-based bets are the best way to capitalize on Internet commerce. Instead, the companies that understand the context of every industry may be in a better position to "steal" transaction fees from said industry.

Before I explain the context of "context," let me first explain why technology guys will have a hard time collecting tolls on the information highway. Let's say you build a Web mall or some commerce service that helps companies put their wares on the Web. Now, let's say you try to price this on a percentage-of-sales basis. What type of companies will you attract? I would argue that confident companies would never use your service because they will forecast large numbers and consider your fees egregious. On the other hand, timid companies that are unsure of the future will be attracted to the low up-front costs. Good luck with this strategy.

I believe the home-run opportunities are in finding people who understand all aspects of a particular industry and are using the Internet as a channel to capitalize on that understanding. Specifically, I am referring to companies that build Web sites to aggregate buyers and sellers and then facilitate not only the decision-making process but also the back-end delivery of the product or service. Kevin Jones of Interactive Week calls these "Butterfly Businesses" because, if you draw a picture of a service that aggregates buyers and sellers, it typically involves two triangles pointing inward at the Web source (which structurally looks like a butterfly).

I struggle with this analogy because the word "butterfly" conjures up conflicting metaphors. I prefer to use the term "vortex" over "butterfly" because you are not just aggregating buyers and sellers, but also technology, content, and commerce. The trick is to be the facilitator for an entire business, and the key to delivering value in this market is domain expertise, or context.

Let me use an example to make my point. We have received several business plans over the past year for companies that think they can build a Web site that aggregates buyers and sellers in one industry and then later, once they have the matured technology, make the transition into another. In my opinion, this proposition is doomed from the outset because it presupposes that the most difficult challenge is aggregating the technology. As I said before, the true difficulty is not aggregating technology but aggregating "context." This is why I believe Nets Inc. failed.