Net earnings: E-commerce in 1997

As 1997 ends, Internet commerce experts are busy counting up how much consumers spent shopping on the Net. But the real e-commerce action this year came from businesses selling to each other.

Two of the three top e-commerce sites derived the bulk of their income from selling to business customers. "In 1997, the big news was Cisco, Dell, and Amazon.com. Period," said Jerry Michalski, managing editor of EDVenture Holdings' Release 1.0 industry newsletter. "They are credible, making lots of money, everyone wants to be them, and it seems to be a sustainable business model on the Web."

Cisco expected to ring up $3 billion in networking equipment sales from its Web site, while Dell books $3 million per day in PCs orders from its site. Bookseller Amazon.com, targeted at the consumer market, has yet to turn a profit. But the site has successfully weathered a furious Web onslaught from real-world book chain Barnes & Noble.

Alone, Cisco's $3 billion in sales outstripped online consumer spending for the entire year, according to estimates from Jupiter Communications and Forrester Research.

Automating routine purchases of office supplies, business services, and other nonproduction material by going online was the business-side sweet spot. But even that couldn't save ex-Lotus chief Jim Manzi's Nets Incorporated, a business-to-business e-commerce venture that went bankrupt in May.

But Sybase cofounder Mark Hoffman saw an opportunity so lush that he exited the database firm altogether to run Commerce One, which sells software to customize catalogs for specific companies, then collects a transaction fee. December deals with enterprise software giant SAP and Microsoft brightened Hoffman's holidays.

"E-commerce solutions are more tightly integrated and more complete in terms of end-to-end solutions," said Giga Information Group analyst Erica Rugullies.

SAP rival PeopleSoft boosted start-up Ariba Technologies, working the same corporate procurement market, where Giga guesstimates U.S. corporations spend $250 billion annually just processing the paperwork.

Start-up CrossRoute plowed the same procurement field, while Open Market bought Waypoint Software to boost its catalog capabilities, then snared Folio to enter the corporate publishing market.

Internet electronic data interchange (EDI), the way firms use forms to automate computer-to-computer transactions, produced both boom and consolidation. Harbinger bought EDI software developer Premenos, and Netscape bought out EDI partner GE Information Systems in the Actra joint venture.

A number of industry-specific business-to-business marketplaces also sprung up this year, signaling a niche trend others are likely to follow. Sites such as FastParts for electronic components and Instill for restaurant chains and food services target buyers of highly specialized information and merchandise. One software information site, Inquiry.com, which specialized in supplying computer-related information, died and was later resurrected.

Online auctions caught on, led by Onsale, eBay, and Internet Shopping Network's First Auction, as action moved from PC gear to consumer electronics and beyond.

"The securities trading industry got turned upside down because of the Internet," noted Zona Research's Vernon Keenan. Net upstart E*Trade sparred with eSchwab, the online arm of discount broker Charles Schwab, but a move by AmeriTrade to charge $8 for Internet trades sparked a price war that could cause casualties in '98.

Personal finance powerhouse Intuit continued its push to turn its Quicken.Com Web site into a one-stop finance shop for consumers.

In January, Microsoft and Intuit joined CheckFree in proposing an online banking standard called Open Financial Exchange (OFX), due to merge next year with bank-oriented Integrion Financial Network's Gold standard.

While Intuit mended fences with bankers, Microsoft incited them again in announcing MSFDC, a joint venture with First Data Corporation to present bills to consumers online--a business bankers want themselves.

Once again, the ETA is next year for the much-touted Secure Electronic Transactions (SET) protocol for secure online charge card purchases. Visa and MasterCard finalized the spec June 1, beginning a pilot testing phase. IBM and VeriFone, the payments firm acquired in April by Hewlett-Packard, are grabbing most of the early business.

Holiday sales on the Net could reach $1 billion, analysts figured, and all were made without SET software.

"SET is the same soap opera," opined Current Analysis researcher Scott Smith. "It hasn't progressed as fast as should have."

Nor did consumers use electronic cash, as e-cash firms First Virtual Holdings, Digicash, and CyberCash struggled, along with Digital Equipment's "millicent" scheme for payments under a penny.

Search engines stepped up as new Net middlemen. Yahoo redid its e-commerce deal with Visa, and Excite spent $35 million for NetBot's Jango shopping agent. Infoseek and Lycos also aided shoppers.

Internet advertising grew up in 1997, though the $1 billion or so spent in 1997 on ad banners remains dwarfed by spending in traditional media. "Beyond the banner" became the watch word for new ways to turn Net surfers into Net buyers.