gale
e-commerce
sourcebook
TABLE OF CONTENTS
Introduction . . . vii
Preface and User’s Guide . . . .xiii
VOLUME 1 ‘‘How To’’ Topics in E-Commerce Accounting Practices in E-Commerce . . . 1
Advertising on Your Web Site . . . 2
Advertising Your Web Site . . . 4
Anticipating the Size of Your Market . . . 6
Application Service Providers . . . 8
Authoring Software . . . 9
Bandwidth Management . . . 10
Bricks-and-Clicks versus Pure Play E-Commerce . . 12
Business Planning for Online Enterprise . . . 13
Business-to-Business Exchange (B2B). . . 10
Business-to-Consumer (B2C) Exchange . . . 17
Business-to-Government (B2G) E-Commerce . . . 18
Call Center Services . . . 20
Consumer Privacy Issues . . . 21
Currency Issues in Electronic Commerce . . . 23
Customer Relationship Management . . . 25
Customer Touch Points. . . 27
Data Integrity . . . 28
Data Mining . . . 29
Data Warehousing . . . 31
Databases . . . 32
Day Trading . . . 33
Differentiation Techniques in E-Commerce . . . 35
Digital Authentication . . . 37
Disaster Planning . . . 38
E-Branding Strategies . . . 40
E-Commerce Business Models . . . 41
E-Commerce Education and Training . . . 43
E-Commerce Hardware Needs. . . 44
E-Commerce Incubators . . . 45
E-Commerce Standards . . . 46
Electronic Banking for Businesses . . . 48
Employee Retention. . . 49
Essential Reading in E-Commerce . . . 50
Establishing an Online Newsletter . . . 53
Free versus Subscription-Based Services. . . 55
Harvest and Exit Strategies . . . 56
Hiring Consultants . . . 57
Insurance Issues for Online Firms . . . 58
Intellectual Property Online . . . 60
Internet Job Creation . . . 61
Legacy Systems, Processes, and People . . . 63
Legal Considerations of E-Commerce . . . 64
Limitations of Online Enterprises . . . 65
M-Commerce . . . 66
Managing Change . . . 68
Managing and Evolving a Global Presence . . . 69
Managing Industry Life Cycles in E-Commerce. . . . 71
Managing Inventory. . . 72
Marketing Plans for Online Enterprises. . . 73
Merchant Accounts . . . 75
Mergers and Acquisitions . . . 76
Metatag Strategy and Design . . . 77
Multilingual Issues in E-Commerce . . . 79
Multimedia in E-Commerce . . . 81
Network Topologies in E-Commerce . . . 82
Ongoing Internet Marketing . . . 83
Online Auctions . . . 84
Online Content Management and Provision . . . 85
Online Freelancing. . . 87
Online Profiling . . . 88
Online Sources of Market Data. . . 90
Online Transactions . . . 91
TABLE OF CONTENTS Outsourcing Options . . . 94 P2P Exchange . . . 95 Package Management . . . 96 Payment Systems . . . 98 Performance Metrics . . . 99
Product Life Cycles in E-Commerce . . . 100
Product Management . . . 101
Programming Languages. . . 103
Project Management . . . 104
Proprietary Systems versus Out-of-Box Applications . . . 105
Return on Investment (ROI) Metrics for E-Commerce Services . . . 106
Securing Financing . . . 107
Security in E-Commerce Systems. . . 109
Servers . . . 111
Shared and Co-Sponsored Sites. . . 112
Shopping Cart Software . . . 113
Software Development Models . . . 114
Supply Chain Management . . . 116
Supply Logistics . . . 117
Transforming Business Strategies . . . 118
Using Print Media to Support Online Media . . . 120
Voice Commerce . . . 121
Web Portals . . . 123
Web Rings. . . 124
Web Site Design . . . 125
Web Site Interactivity . . . 126
Web Site Life Cycles and Maintenance. . . 128
Web Site Usability. . . 129
XML and Metadata . . . 130
Directory of E-Commerce Associations, Consultants, and Other Organizations Associations . . . 133
Computer Software . . . 172
Consultants . . . 325
VOLUME 2 Directory of E-Commerce Associations, Consultants, and Other Organizations (continued) Consultants (continued). . . 487
Educational Programs . . . 537
Government Regulatory Agencies. . . 660
Publications . . . 667
Trade Shows & Conventions . . . 689
Website Designers . . . 758
Website Hosting Companies . . . 871
Directory of Leading E-Commerce Companies . . . 891
Ranking by Revenue . . . 919
Ranking by Number of Employees. . . 921
INTRODUCTION
By the early 2000s, it seemed almost banal to assert that the Internet has effected revolutionary change, not only in the world of computers and communica-tions, but in the broader realms of human civilization, including areas of economics, culture, social relations, language, and politics. That fact served to reinforce how thoroughly entrenched the transformation has become in society and in the public mind. In extending its tentacles to ever further spheres of human interac-tion, the Internet itself was being transformed as well. At the outset of the 21st century, users of the Internet at all levels—from the average Web surfer to the technician, from activists to policy makers, from con-sumers to entrepreneurs—were in the process of defin-ing the Internet&rsquouo;s character and the place it would secure within society. A flexible technology and medium, the Internet was ultimately defined by its uses, which continue to develop and expand.
Thus, with business developments playing a crucial role in the Internet’s makeup, entrepreneurs were well positioned to play a key role in impacting, if not determining, the Internet’s future and, accordingly, many aspects of society at large. Those entrepreneurs engaging in e-commerce activities, in particular, were of special importance in the early years of the 2000s as the initial dot-com hype wore off and the e-commerce industry began to search out new paradigms for online commercial activity.
The literature on e-commerce—its opportunities for riches, its technical workings, its effects on culture and society, and its potential dangers—could fill miles of shelf space in our libraries. In particular, books seeking to instruct budding entrepreneurs in the art of conquering the dot-com jungle comprise a vast publishing niche in their own right. To date, however, the literature has lacked a single comprehensive refer-ence source designed to be of use to existing and aspiring entrepreneurs, students, researchers, and in-terested laypersons. Such a comprehensive source can
be found in the Gale E-Commerce Sourcebook, which consists not only of practical knowledge and instruc-tion, but also includes detailed directory data and re-source contact-information, allowing readers to follow through with their research in an efficient and prag-matic way. The Gale E-Commerce Sourcebook exists to fill this gap in the literature, answering in simple terms the many questions that arise in the course of establishing or running an e-commerce firm.
E-COMMERCE: HOW WE GOT HERE The Internet, born in the 1960s of Pentagon-funded experiments into cutting-edge military communica-tions, blossomed into a research and information-exchange medium of particular use to academics in the 1970s and 1980s, and finally into the backbone for email, the World Wide Web, and other popular communications in the 1990s. By the end of the 20th century, few people in the United States were com-pletely without access to the Internet, either at home or via libraries or commercial venues. Meanwhile, the Web itself, designed to universalize Internet usage, grew into a sweeping economic force as, it seemed, the entire commercial universe was rapidly whisked into cyberspace through the mid- and late 1990s, all the while transforming the manner in which business is conducted.
In this latter stage, businesses grew increasingly interested in these technologies for their own strate-gies, and looked to the Internet and the Web as a potentially vast new market, upon which one needed to capitalize quickly to establish a firm presence. Meanwhile, there arose a tremendous literature in business circles geared toward new business models centered on or incorporating Internet communications and technology.
A NEW ECONOMY? But coinciding as it did with the
INTRODUCTION
stocks defied gravity and traditional economic logic in the late 1990s, this transformation in the economic landscape gave rise to a new crop of literature pointing to the Internet, e-commerce, and information technol-ogies as hallmarks of a New Economy, a fundamen-tally new epoch in economic history in which the old rules—including the business cycle and traditional business models and wisdom—no longer applied. Such musings were fiercely debated, but the ideas were taken seriously enough to occupy huge quantities of space in the business press, economic journals, and political and popular discourse, while in the stock market the economic stalwarts appeared to shift from blue chips like IBM, General Motors, and General Electric to digital-age hot shots such as AOL, Ama-zon.com, and Yahoo!.
Meanwhile, flamboyant and brash entrepreneurs such as broadcast.com founder Mark Cuban and Buy.-com’s chief Scott Blum epitomized the business he-roes of the day, displacing the more staid and conser-vative leaders of yesteryear. Cuban, for his part, grew highly visible in the late 1990s as a prolific public speaker, extolling his vision of e-commerce as the medium that would consume commercial activity as we know it. Blum, meanwhile, overtly and proudly eschewed all traditional business sense, styling his company as a daring trailblazer in e-commerce. On the way, Blum built Buy.com into the second-largest online retailer, after Amazon.com. All the while, com-mentators enthusiastic about the emergent New Econ-omy held up these entrepreneurs’ business models as hallmarks of the future, chiding others to drop their antiquated Old Economy thinking and embrace the future in the making.
Lending some credence to such seemingly extreme views, stock valuations in the dot-com revolution were divorced from traditional bases, such as fundamentals, profits, and long-term growth strategies. Those in-sisting that this constituted a mere speculation bubble were regularly denounced as cranks clinging to the old mode of thinking. And, for a while, the market kept proving the enthusiasts right. For instance, analysts insisted in 1997 that Yahoo!’s stock was grossly over-valued, but an investor who had accepted that analysis and sold out would have missed out on a tremendous financial windfall, as Yahoo!’s stock continued its upward surge through the rest of the decade. When the Dow Jones Industrial Average broke the unimaginably high 10,000 barrier in March 1999, even skeptics began to wonder if the economy had indeed entered unprecedented territory, and whether information technology now guaranteed us more or less continual economic expansion.
THE DOT-COM BUSINESS MODEL. Through this
pe-riod, a dominant model among dot-com firms (espe-cially true for pure-plays) began to emerge, differing
markedly from any previous model and particularly novel given its tremendous success. In this model long-term plans for profitability, attention to the bot-tom line, and concern for internally funded growth and development were almost completely abandoned. The goal was to explode on the scene fueled by venture capital, make a lucrative initial public offering (IPO), watch the firm’s stock value catapult into the strato-sphere, and then liquidate or sell out to a larger firm. Frequently, this process was repeated several times by the same individuals, producing a class of ‘‘serial entrepreneurs.’’
As noted, investors failed to disappoint. Convinced they were sitting on top of the greatest financial gold-mine of the era, venture capitalists and others poured enormous sums into just about every company with a ‘‘.com’’ appended to its name. Thus, e-commerce firms stayed afloat overwhelmingly on investor dol-lars, which, during the boom years, proved to be an especially lucrative practice but one that planted the seeds of volatility. With few viable means of self-sustaining income, these companies were rendered almost entirely dependent on the whims of the stock market and the attractiveness of their firms in the venture capital markets, a market which, through this period, was in large part based on hype-driven trends and herd-like investment patterns.
With such copious flows of investment capital, dot-coms could afford to engage in highly unorthodox pricing strategies, undercutting their competitors by wide margins to draw in customers. But with little planning or organizational preparation to handle the business that came in, e-commerce firms were notori-ous for their dismal order-handling performance, and the complaints rolled in and were echoed in the press, leading to the first wave of a backlash that would culminate in the tech-market crash. Meanwhile, al-though these pricing strategies succeeded in winning customers from competitors, there was little actual money being made due to the low pricing for products and services, and thus such firms still failed to generate their own stable revenue streams, continuing their dependence on investment capital. Finally, since rapid growth and staking a claim to the emergent Internet market were seen as chief priorities, dot-coms sunk enormous quantities of capital into splashy advertising schemes to grab the public’s attention.
DOT-COMS GO BUST, AND E-COMMERCE
MA-TURES. Finally, in the first half of 2000, the New
Economy began to come apart at the seams as the tech market went bust and the cushion of investment capital was pulled out from under the dot-com crowd. E-commerce outfits folded up their tents by the doz-ens, resulting in a massive shakeout as startups scram-bled to make themselves attractive to acquisition or simply exited the market altogether. In the following
years, the stock markets continued to flounder, re-maining well below their boom-cycle peaks. While these events were certainly couched within a broader trend in the economy and in the technology sector in particular, the tremendous hype about the e-com-merce-driven New Economy and the novelty and brashness of the dot-com model produced a vicious backlash. E-commerce became the poster sector for late 1990s ‘‘irrational exuberance,’’ an apt term coined by Federal Reserve Board chairman Alan Greenspan.
Following the crash, both established, surviving dot-coms and brick-and-mortar firms hardly retreated from e-commerce. Amidst the wreckage, larger firms swallowed up smaller ones and integrated their In-ternet expertise and market footings into their own operations. But the practice of emerging hard and fast on an endless supply of investment dollars, with only cursory planning for the long term and little grounding in traditional business wisdom, was simply no longer an available option, as this strategy rested on e-com-merce’s novelty and hype, and investors’ attendant rush to capitalize on the trend.
As for the New Economy, the reality in the early 2000s points to a middle ground between the hyper-enthusiasts and the more vitriolic nay sayers. Techno-logical innovations, and the Internet in particular, have indeed produced substantial alterations in the produc-tive workings of the economy, and e-commerce has drastically transformed the ways in which business is conducted, but old laws, such as the importance of planning for sustainable profitability, remain firmly intact.
The Internet economy didn’t consume the Old Economy, nor did brick-and-mortars triumph over e-commerce. Rather, the early 2000s are marked by a growing synthesis between these two realms, to the point where it no longer makes sense to dwell on divisions between two types of economies: there is now simply the economy, driven in part by, but also transforming, the Internet and e-commerce. E-com-merce business models in the 21st century can no more afford to abandon traditional business thinking than brick-and-mortar firms can afford to ignore e-commerce.
THE INTERNET AND E-COMMERCE: LASTING CHANGES
Though the glory years may be over, and e-com-merce entrepreneurs must come to terms with a rougher reality in which meticulous planning and in-novative creativity are required for success, it is cru-cial to understand the ways that the Internet and e-commerce have transformed the economic and social
environment for the various actors with whom e-com-merce firms regularly come into contact. Compre-hending the relationship between e-commerce and these groups is a vital component of the entrepreneur’s arsenal of knowledge.
BUSINESSES. Among the many lasting changes to
the make-up of businesses as a result of e-commerce and its information-technology architecture was the organizational structure. Relative to their forebears, companies in the Internet age are diffusely organized, operating across vast, interlocking networks, often irrespective of geographical or international bound-aries. Inter- and intrafirm networking are now the norm, and this calls for more than simply ‘‘getting connected.’’ Rather, networks must be strategically and creatively designed to foster specific kinds of relationships and flows of information for optimal efficiency and competitive advantage.
Production methods have evolved from the mass production techniques of the Fordist era to flexible production procedures organized across diffuse net-works, coordinated by highly integrated information technology incorporating all facets of the firm’s opera-tions, from supply logistics to inventories, from orders to shipping information. The earlier, Fordist model proved simply too rigid and costly for the diversified and rapidly changing market conditions of the e-com-merce era, and in its place are such developments as information technology-based supply chain manage-ment, just-in-time inventory, mass customization, and other innovations.
Also generally proven to be too rigid and antitheti-cal to the needs of e-commerce and Internet-based production are the scientific management theories of Frederick Winslow Taylor, known as Taylorism, which served as the dominant mode of business man-agement, particularly for large corporations with ex-tensive bureaucracies, through the 20th century. Char-acterized by highly regimented flows of information and authority, Taylorism broke down corporations into their components and designed each for optimal efficiency via elaborate systems of rules. In this way, control was concentrated in the hands of skilled pro-fessional managers and organized hierarchically. In the Internet age, with a premium on ‘‘knowledge workers’’ and creative innovation, firms are increas-ingly organized more horizontally, with diverse and interweaving flows of information for maximum knowledge sharing.
CONSUMERS. The experience of the customer was
among the most dramatically transformed components of the e-commerce era. Accustomed to simple pricing comparisons, 24-hour access, without respect to geog-raphy, and without ever having to leave their homes, customers are afforded incomparable convenience,
INTRODUCTION
and their expectations have been heightened accord-ingly. ‘‘The customer is always right’’ is an adage that has rarely carried such significance, as consumers grow familiar with the bevy of innovative customer-service schemes already in place. From easy access to account information to personalized shopping at their favorite Web sites, the demands of customers have never been as crucial to a firm’s operations; thus, any business’s successful e-commerce strategy must place a premium on getting to know customers and earning their trust.
WORKERS. The Internet economy offered workers
a markedly different environment than that in most traditional offices. Dot-coms lured many skilled knowledge-workers, who were looking to circumvent the standard corporate model, with flexible hours, a casual work environment, creative input, control over the work process, and cutting-edge business practices. One drawing card that proved unreliable over the long run, however, was the heavy reliance by e-commerce firms on stock options to attract new workers. When the economy tumbled and dot-coms went under, the lucrative gains expected from stock options often failed to materialize. Work in the e-commerce era is characterized by perpetual connectivity, knowledge of computer systems as a requirement, and completely overhauled and redesigned work processes—even for the most menial occupations—to incorporate informa-tion technology.
INVESTORS. Internet technologies served to usher in
a vast industry catering to investors of all stripes, from neophytes to professionals, from long-term specula-tors to day traders. Champions of online investing pointed to its low barriers to entry, technical ease of Internet trading, low commissions on trades, and greater investor control over portfolios as factors lead-ing to the democratization of securities markets. But while profound changes were afoot in the investment world, online investment also posed its challenges to the e-commerce industry and the economy as a whole. With so many new investors entering the market, com-panies have had to adjust to increasing volatility, thus posing challenges to projections of long-term cash flow.
PURPOSE OF THIS BOOK
The Gale E-Commerce Sourcebook is intended, first and foremost, to be a practical resource for entre-preneurs, researchers, high school and college busi-ness students, and lay readers with no special prior knowledge or training in business or information tech-nology. It serves as a guide through the workings of e-commerce, providing answers to the major questions facing anyone seeking to break into the field, and instructing readers how to launch, develop, grow, and
maintain an e-commerce enterprise. In addition, the book helps general readers understand and appreciate the broader commerce landscape, and instructs e-commerce entrepreneurs, including existing brick-and-mortar firms, how to transform their enterprises in order to make the foray into the e-commerce market. Wading into the murky waters of e-commerce liter-ature and media commentary can be a confusing pros-pect. From the excessive optimism of the late 1990s to the often-dismal tone of the early 2000s, there has been precious little opportunity to read consistently level-headed analysis of the ins and outs of e-com-merce for up-and-coming entrepreneurs. To be sure, there is good reason for healthy skepticism of some of the more dramatic claims about the Internet-based revolution, not the least of which was the massive e-commerce shakeout and the dramatic bust in the stock market, which discredited the hype and called into serious question the received wisdom of the Internet business models of the late 1990s. The Gale E-Com-merce Sourcebook seeks to strike a balance between the positioning of e-commerce as a panacea for eco-nomic growth on the one hand and the deriding of it as a fraudulent money pit on the other. E-commerce, while still developing, is clearly here to stay, and thus it presents itself as a practicality and an opportunity. Moreover, a common hallmark of the typical 1990s instructional tome on e-commerce, seeking to impart wisdom to the aspiring e-commerce titan, was its in-flated claims and promises, not to mention trendy jargon and irreverence for traditional business wisdom that some conflated with the very nature of innovation through its boom years. In place of hype, the Gale E-Commerce Sourcebook attempts to impart practical knowledge to the reader in clear, sober language grounded in tried-and-true business practices. Avoiding the superficial and faddish extremes of much popular literature on e-commerce, the Gale E-Com-merce Sourcebook hopes to aid readers in eluding the costly mistakes—and losses—that such thinking all too often produced.
For entrepreneurs just starting out in e-commerce, so many questions arise that it often seems difficult to know where to begin. In addition to all the general considerations of launching a business of any stripe, the e-commerce model spills a host of new questions into the entrepreneur’s lap, ranging from the technical considerations of doing business on the Internet to the qualifications of traditional business methods that the Internet model demands. The Gale E-Commerce Sourcebook answers a great many of these questions and provides suggested avenues for further inquiry.
WHITHER E-COMMERCE?
discriminating and competitive marketplace than that which surfaced in the 1990s. Because emerging entre-preneurs generally lack the economies of scale en-joyed by their more entrenched and established com-petitors, they need to be especially smart about where they direct their money in the early development stages, and they can no longer rely on an endless flow of investment capital to make up the difference. E-commerce entrepreneurs in the 2000s and beyond need to be simultaneously creative and rational, grounded in extensive knowledge of the workings of existing
market conditions, and wily enough to find their own niche within them or even to transform those condi-tions through innovation.
Obviously, a reference source such as this cannot teach the kind of creativity and ingenuity that will produce the next batch of e-commerce giants and mark the development of the Internet; that remains the spe-cial provenance of the entrepreneurial spirit. What the Gale E-Commerce Sourcebook does help to provide is the basic tools—knowledge, clarity, and informational resources. In short, the foundation upon which such creativity and development can be realized.
PREFACE AND USER’S GUIDE
PREFACE
In today’s rapidly evolving business landscape, more information on Internet commerce is essential for entrepreneurs establishing new enterprises. This first edition of the Gale E-Commerce Sourcebook (GECS) presents a comprehensive view of the topics and terms, organizations, and companies most relevant to the world of e-commerce. Designed to facilitate the start-up, development, and growth of e-commerce business, GECS combines instructional essays on a wide variety of e-commerce topics and directory list-ings of companies, services, and government agencies to provide readers with access to the most essential e-commerce information and resources. This two-vol-ume work is an invaluable tool for new and seasoned e-commerce entrepreneurs, students performing in-dustry research and analysis, and individuals inter-ested in understanding the volatile Internet industry more fully. GECS features:
T ‘‘How To’’ essays covering the 100 most com-monly asked questions relating to e-commerce, such as how to write business and marketing plans, secure financing, and evaluate candidates for de-signing a website.
T Extensive directory of over 4,700 organizations, associations, and agencies related to the e-com-merce industry, including computer software, trade shows and conventions, licensing and regula-tion, and management consultants.
T Profiles of the top 250 e-commerce companies worldwide, including financial statistics and de-scriptive information.
T Rankings by revenue and by number of employees of the e-commerce companies listed.
T General Index to organization names, personal names, and subject terms. Readers new to the world of Internet business will find a wealth of
basic information designed to answer their imme-diate questions and light their research path. Those already versed in the specifics of the industry will find overviews of the biggest players in e-com-merce for competitive positioning and in-depth market analysis.
USER’S GUIDE
Launching an e-commerce business brings to the entrepreneur a host of new questions and general con-siderations—from what types of business models are available for e-commerce enterprise to how to recruit and retain talent, and which network topologies to use. Gale E-Commerce Sourcebook (GECS) provides information in a variety of forms and presentations for comprehensive coverage and quick navigation through a bevy of e-commerce topics, companies, and informative listings. Organized in two volumes, this sourcebook is divided into three main sections:
T ‘‘How-To’’ Topics in E-Commerce
T Directory of E-Commerce Associations, Consul-tants, and Other Organizations
T Directory of Leading E-Commerce Companies
‘‘HOW-TO’’ TOPICS IN E-COMMERCE. Volume 1 begins
with instructional essays on over 90 key topics in the field of e-commerce and provides answers to the most common questions an entrepreneur or student will have, including how much business a site can expect and how users respond to advertising. Some of the key subjects include:
T Accounting Practices in E-Commerce T Data Warehousing
PREFACE
AND
USER’S
GUIDE
T Legal Considerations of E-Commerce T Online Content Management and Provision T Web Site Design
Obviously, such topics easily merit more informa-tion than could be addressed in a book of this size and nature, and thus each essay is accompanied by suggestions and resources for further reading. Essays are arranged alphabetically by topic, and all essays are listed in full for easy perusal within the table of contents page.
DIRECTORY OF E-COMMERCE ASSOCIATIONS,
CON-SULTANTS, AND OTHER ORGANIZATIONS. This
sec-ond section, spanning Volumes 1 and 2, provides coverage on over 4,700 organizations, agencies, and associations relevant to the e-commerce industry. En-tries contain organization name; contact information including contact name, address, and phone, toll-free and fax numbers; email and URL addresses; brief description of purpose and services; and descriptive data such as number of employees, date founded, publications, and awards. Entries are arranged alpha-betically within the following categories:
T Associations T Computer Software T Consultants
T Educational Programs
T Government Regulatory Agencies T Publications
T Trade Shows & Conventions T Web Site Designers
T Website Hosting Companies
DIRECTORY OF LEADING E-COMMERCE
COMPA-NIES. Despite the massive shakeout of so many
e-commerce firms, there were a number of highly suc-cessful companies who not only sustained the down-turn in the dot-com market but managed to flourish and mature, acting as forebears of the kinds of firms that will emerge in the 21st century. This final section is devoted to those examples, and is subdivided into two parts within Volume 2. The first half arranges companies alphabetically by company name, with each entry containing complete contact information including contact name, address, and phone, toll-free
and fax numbers; email and URL addresses; brief description of the type of business; and descriptive data such as annual revenue, number of employees, date founded, and major partners. The second half consists of rankings of these firms according to annual revenues and number of employees.
A General Index is also included at the end of Volume 2 to provide easy access to organization names, personal names, industries, and subject terms. It is important to note that references are to book numbers rather than to page numbers, and that each section begins with book number ‘‘1.’’ Each book number reference is preceded by a letter denoting a section of the book: ‘‘T’’ denotes a ‘‘How To’’ topic, ‘‘O’’ denotes a listing within the Organization section, and ‘‘C’’ refers the user to a listing within the Compa-nies section.
METHOD OF COMPILATION. Directory listings and
company profiles in GECS were obtained using a variety of means: Direct contact with the associations, organizations, companies, and agencies through tele-phone surveys, Internet research, or through materials provided by those listees; government resources; and data obtained from other relevant Gale directories.
ACKNOWLEDGMENTS. The editors gratefully
ac-knowledge the wise counsel and helpful suggestions of our advisors:
Stephen M. Hayes, Business Services Librarian, Thomas Mahaffey, Jr. Business Information Center, University Libraries of Notre Dame, University of Notre Dame, Notre Dame, Indiana.
Dr. Jerome Katz, Ph.D, Mary Louise Endowed Professor of Management at Saint Louis University, Missouri.
Brenda Reeb, Director, Management Library, Uni-versity of Rochester, Rochester, New York. COMMENTS AND SUGGESTIONS
Comments and suggestions regarding the Gale E-Commerce Sourcebook are invited and encouraged. Please contact:
Managing Editor, Business Product Gale Group
27500 Drake Rd.
Farmington Hills, MI 48331-3535 Telephone: 800-347-GALE [email protected]
‘‘How To’’ Topics in E-Commerce
This section provides information and answers tocommon questions related to e-commerce. Each essay concludes with suggestions for further information and resources.
❚ 1
ACCOUNTING PRACTICES IN E-COMMERCE
In the early days of e-commerce and through the thick of the dot-com boom, common wisdom held that the novelty of the new electronic business model, particularly as rendered over the Web, was enough to float a business. Thus companies put their efforts into creating the appearance of innovation, while some traditional business concerns were pushed to the back burner. This logic was fed by copious commentary in business journals that dot-coms heralded the death of the traditional business model. Only when the e-commerce bubble burst in the early 2000s did opinions begin to change in earnest, and e-commerce entrepre-neurs discovered that a novel business idea wasn’t enough—it had to be backed up by solid practices, and accounting mattered to businesses, customers, and investors alike.
So old-school bookkeeping practices are vitally important, but the process of selecting the best ac-counting practices for your firm depends on your spe-cific business needs. These practices have to arise organically out of the practices and operations your firm employs in general.
NEW CONSIDERATIONS FOR THE INFORMATION AGE
Some accounting considerations are fairly new in the e-commerce era, or at least take on new impor-tance. E-commerce firms, especially pure-play, on-line-only firms, create new forms of value that must be accounted for in some way. Firms delivering full-fledged e-commerce services are more likely to focus their accounting strategies around the product or ser-vice they’re offering, paying special attention to fac-tors like intellectual property and the firm’s unique business practices. Innovative practices may have in-nate value in a still-forming e-commerce market.
With the wealth of data at your firm’s virtual fin-gertips, it’s crucial to keep in mind that any informa-tion that can be transferred into useful knowledge has potential power to augment your financial situation. It’s important to not only harness such knowledge for your firm’s benefit, but to account for it as well. This doesn’t necessarily mean that the rules of the accounting game have changed; rather, established theories and methods of accounting have simply been intensified by the addition of new layers of detail. Accounting practices have to mirror the greater com-plexity and subtle detail of business the Information Age.
Determining when and how to account for particu-lar transactions can have a great impact on the com-pany’s cash flow, assets, and profits. Your firm must devise stable models for allocating costs. Choosing whether to expense a cost, classifying it as a simple expense incurred immediatedly, or to capitalize a cost, classifying it as an investment that can be amortized over time, is one factor e-commerce firms must con-sider. For instance, you need to determine how best to account for internal-use software—software your business develops or uses exclusively within the firm with no plans to profit from the software itself. In general, accounting organizations favor expensing certain stages of software development as they are incurred, as well as all costs surrounding the software use, such as training, data maintenance, interest pay-ments. However, certain direct development costs, usually the ones directly tied to writing and testing the software, are often capitalized as internal investments. Your company’s financial team will need to be famil-iar with published standards, such as those of the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB), in order to navigate through these complex decisions.
Similarly, advertising costs can be expensed as incurred—at each step as the advertising program is developed—or when the advertisement actually hits the market. Less often, advertising costs may be amor-tized on the books, provided that the advertising meets certain characteristics of longer-term investments. The timing of the expense accounting may seem trivial, but it is hardly trivial. In financial statements that auditors, tax authorities, and investors need to make crucial decisions about your firm, the timing of such
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decisions becomes very important for assessing the actual state of your firm’s financial position at a given time.
Intellectual capital refers to the accumulated knowledge, expertise, and intangible assets in your firm. It comes from employees; equipment such as hardware, databases, and IT networks; and a host of other sources including patents, trademarks, and the scalability of existing hardware and software—any-thing that can be considered to add value in some vital way. Because the future value of intellectual capital is difficult to judge, it is likewise difficult to quantify intellectual capital for accounting purposes. Nonetheless, the increasing role of intellectual capital in assessing the value of businesses, particularly in the e-commerce markets, demands that your firm not let this asset go unaccounted for.
SOFTWARE
Software packages come in all varieties and soft-ware consultants are readily available to help you integrate those software applications with your com-pany’s specific ways of conducting business. While early electronic accounting applications consisted of basic spreadsheets, word processors, and databases, applications available in the e-commerce world har-ness all the power of modern information technology and telecommunications for almost unlimited options and tremendous power and efficiency.
Accounting applications are generally able to track all relevant accounting information, from basic ac-counts payable and receivable to intangible assets, and can augment their usefulness by managing inventory, cutting checks, devising regular reports and account-ing summaries, trackaccount-ing customer and vendor ac-counts, and integrating with other vital systems, such as supply chain management applications, data ware-houses, and internal networks and extranets. WHAT’S THE BOTTOM LINE?
The challenge for your company is to create a strategy that will put your firm in the strongest overall position both internally and in the eyes of outsiders. This includes staying within the bounds of accounting ethics, which means not overstating your firm’s finan-cial health by hiding, over- or understating any infor-mation vital to an outside observer. Such practices aren’t just important to outsiders. In order for you to make accurate assessments of your firm and sound strategic decisions, you need a clear accounting schedule.
FURTHER READING
Borthick, Sandy. ‘‘Call Accounting—for IP?’’ Business
Communications Review, August 2000, 14.
Honig, Susan A. ‘‘The Changing Landscape of Computerized Accounting Systems.’’ CPA Journal, May 1999, 14.
Kupiek, Eva. ‘‘Shifting Strategies: Challenging the Traditional Business Knowledge.’’ CMA Management, May 2000, 15.
Stout, William D., and Ronald E. Marden. ‘‘Accounting for Web Site Costs.’’ Ohio CPA Journal, January-March 2001, 34.
Weintraub, Doug. ‘‘Integration of People Application and Technology Critical for Forward Success.’’ Ohio CPA
Journal, July-September 2000, 38.
❚ 2
ADVERTISING YOUR WEB SITE
Online advertising is not a mature medium. As it evolves, unresolved questions about its effectiveness remain. While studies have shown that simple banner ads will drive people to try new products, low click-through rates have caused the use of banner ads to decline. Although banner ads offer the possibility of clicking through to another Web site, advertisers should not look at online advertising only as a direct response medium. Online advertising also offers the possibility of building brand awareness. Creating such awareness is not necessarily measured by click-through rates. Since people generally go online to perform some type of task, it is not surprising that they are often unwilling to click-through an online ad. However, that doesn’t mean that the ad was not effective in terms of creating awareness and possibly some future action.
OBJECTIVES OF ONLINE ADVERTISING Owners who want to advertise their Web sites need to determine whether their strategy is to drive sales or to create greater awareness of their site. An early-2002 study by AdRelevance based on interviews with marketing executives involved in online advertising found that 61 percent mentioned some aspect of brand-ing as their main online advertisbrand-ing strategy. Creatbrand-ing awareness ranked higher than direct response, driving traffic, and driving sales as a primary objective.
Other studies have shown that direct response and converting viewers to customers were more important to online advertisers than building brand awareness. A Nielsen/NetRatings study of new online advertising campaigns launched in the first quarter of 2001 found that nearly 90 percent were direct marketing cam-paigns and that only slightly more than 10 percent were branding campaigns.
These types of mixed results indicate the dual na-ture of online advertising. On the one hand, direct response ads allow for feedback and a direct connec-tion with the viewer, who can respond to an online ad with a single click. On the other hand, online advertising facilitates brand-building by spreading the word about a Web site. Advertisers may choose both objectives and assign a percentage of ads for sales and a percentage for brand-building. Ads that are de-signed to drive sales are measured differently than those intended to build brand awareness. Click-through and conversion rates are effective measures of ads designed to increase sales at a Web site. Brand-building ads, on the other hand, are measured by such factors as awareness, recall, and persuasion.
Ads that build brand or name awareness for a Web site are more successful if they also promote brand understanding. Name awareness alone is not sufficient to drive traffic to a Web site. Rather, successful brand-building ads offer multiple benefits to drive traffic. They explain overall brand positioning by spelling out the benefits of the site and how the site is able to deliver them. Recognizing that one of the principal motivations for searching the Web is to find informa-tion, successful ads for Web sites present information-based benefits available at the advertised site, such as a product search feature, relevant content, or quality of information.
WHERE TO ADVERTISE
Major Internet portals and other high-traffic sites account for a high percentage of Internet advertising. According to the Interactive Advertising Bureau (IAB), the top 25 sites in terms of traffic took in 88 percent of all online advertising revenue during the first half of 2001.
Web sites seeking to launch large advertising cam-paigns that would involve ads appearing on several sites may use the services of companies that specialize in online advertising and operate advertising net-works. Ad networks such as those operated by Dou-bleClick Inc., 24/7 Real Media Inc., and ValueClick Inc. serve as go-betweens between advertisers and Web site publishers. While the ad networks vary from agency to agency, they typically include higher traffic Web sites organized into categories. They also offer enhanced targeting capabilities that can deliver ad impressions to viewers based on their past actions.
AD PRICING MODELS
There are two basic models for pricing online ads, cost-per-impression and cost-per-performance. Cost-per-impression (also known as cost-per-view) means that advertisers are charged for the number of people who actually see the ad, based on traffic to the Web
sites where the ad appears. This model usually charges on a cost-per-thousand (CPM) basis. It is a model that is based on traditional advertising, where advertisers are charged according to the number of subscribers or size of audience.
The cost-per-performance model, on the other hand, offers advertisers the opportunity to pay on the basis of measurable results. Online ads may be measured in term of click (CPC), cost-per-action (CPA), cost-per-lead (CPL), or cost-per-acqui-sition (CPA). Cost-per-action pricing includes not only clicks but also sales and leads. Cost-per-lead pricing is often used in business-to-business ads, where the advertiser specifies how many leads it wants a specific promotion to generate and pays only for those that are delivered. Cost-per-acquisition is similar to CPL except that advertisers only pay when the user makes an actual purchase and is ‘‘acquired’’ as a customer.
TYPES OF ONLINE ADS
According to a December 2001 study by the Inter-active Advertising Bureau (IAB) and Pricewater-houseCoopers (PwC), banner ads accounted for 36 percent of U.S. online advertising revenue in the first three quarters of 2001. Sponsorships came in second with 27 percent, followed by classified ads (16 per-cent), slotting fees (8 perper-cent), keyword search (4 percent), interstitials (3 percent), e-mail (2 percent), rich media (2 percent), and referrals (2 percent).
While banner ads accounted for the highest per-centage of online advertising revenue, their use de-clined in 2001 compared to 2000. Web site publishers often participate in banner exchanges with other Web sites, but they need to be careful that their ads are reaching an appropriate audience. Banner ad ex-changes often result in less effective targeting.
New ad formats include floating ads and cursor ads. Floating ads appear on screen and can’t be closed or scrolled past. Since they don’t open another win-dow, software programs designed to suppress pop-up ads won’t find the floating ads. Such ads typically run for only a few days to avoid the risk of alienating users. Cursor ads involve attaching the advertiser’s logo to the user’s mouse arrow. Still other types of ads include sound effects, such as music and voiceovers, to gain attention. Known as rich media ads, they utilize JavaScript, dynamic HTML, and downloadable soft-ware to gain the user’s attention through interactivity, animation, and multimedia effects.
Pop-up ads, while they may gain attention, are meeting resistance from Internet users, who have learned to close them even before they are loaded. Users resent that pop-up ads take away control of their computer screen. They serve to interrupt users
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rather than engage them. However, pop-up ads and other interstitials were found to be effective in terms of ad recall.
Text-based ads offer small advertisers a chance to appear on sites that receive a lot of traffic, such as the popular search engine Google (www.google.com). Google’s AdWords program allows small advertisers to mount a campaign of text-based ads for less than $100. An AdWords campaign at Google might consist of several text-based ads that rotate against the same set of keywords. Google is able to determine which ads have the highest click-through rate and subse-quently can show those ads more fresubse-quently than ads with lower click-through rates.
ONLINE ADVERTISING STILL GROWING Advertising a Web site online is one of several ways to market and promote an e-commerce Web site. Online advertising was still evolving in 2002 as the industry sought to define and standardize performance measurements. Advertisers could choose from several different pricing models. While the largest online ad-vertisers spent millions of dollars to build their brands and drive traffic to their Web sites, advertising oppor-tunities also existed for small and medium-size e-commerce Web sites. During the first half of 2002, the number of unique online ads rose steadily, indicat-ing that online advertisindicat-ing was makindicat-ing a comeback from the decline in 2001.
FURTHER READING
Appelbaum, Ullrich. ‘‘Secrets of the World’s 10 Most Successful Advertising Campaigns for Dotcoms.’’
MarketingProfs.com, 20 February 2002. Available from
http://www.MarketingProfs.com.
Burt, Erin. ‘‘Made You Look.’’ Kiplinger’s Personal Finance
Magazine, April 2002, 30.
Calishain, Tara. ‘‘Less Is More: ASCII Might Trump Rich Media in the World of Online Advertising.’’ EContent, May 2002, 24.
Dugan, Sean. ‘‘Brought to You By: The New World of Online Advertising.’’ Computer User, March 2002, 34.
Hallerman, David. ‘‘Just Like Certs Mints.’’ eMarketer, 12 February 2002. Available from http://www.emarketer.com.
Hallerman, David. ‘‘Mind-Share over Matter: Interstitials, Pop-Ups, and Pop-Unders.’’ eMarketer, 20 February 2002. Available from http://www.emarketer.com.
Hallerman, David. ‘‘Online Ad Pricing: Count Heads or Count Results.’’ eMarketer, 5 March 2002. Available from http://www.emarketer.com.
Krol, Carol. ‘‘Online Advertising Tide Turning as Unique Ads Continue to Rise.’’ BtoB Online, 13 May 2002. Available from http://www.btobonline.com.
Rosner, Hillary. ‘‘Reality Check: Misconceptions about Online Advertising Abound.’’ Brandweek, 4 February 2002, IQ9.
❚ 3
ADVERTISING ON YOUR WEB SITE The principal reason that Web site publishers take advertising is to generate revenue. However, several factors in 2001 caused many content sites to turn to other models of revenue generation. For example, the Interactive Advertising Bureau (IAB) reported that the top 25 sites in terms of traffic took in 88 percent of all online advertising revenue during the first half of 2001. Another factor was the 18 percent decline in online advertising recorded during the first three quarters of 2001 compared to 2000. Among the new models considered for generating revenue were sub-scription services that made selected content available only to subscribers, syndication, co-branding, and e-commerce. Instead of looking for revenue from out-side advertisers, some content sites began putting up ads on their sites for products and services they could provide themselves.
TRENDS IN ONLINE ADVERTISING
A survey by the Association of National Advertis-ers found that 79 percent of all U.S. companies adver-tised online in 2000, up from 67 percent in 1999. Those companies spent an average of $2.4 million each on online advertising, with about half of them saying their primary goal was to develop and improve brand loyalty.
Overall, eMarketer estimated that $7.3 billion was spent on Internet advertising in the United States in 2001 and predicted that $8.1 billion would be spent in 2002. Most of that growth was expected to come from traditional advertisers. The top 10 companies spending the most on online advertising in 2001 were eBay ($45.1 million), General Motors Corp. ($42.3 million), Providian Corp. ($29.3 million), Ama-zon.com Inc. ($27.5 million), Barnes & Noble Inc. ($26.2 million), Bank One Corp. ($25.7 million), AOL Time Warner Inc. ($25.6 million), Classmates Online Inc. ($24.6 million), Vivendi Universal SA ($21.4 million), and Dell Computer Corp. ($21.1 million), according to a report from CMR.
POTENTIAL ADVERTISERS AND HOW TO REACH THEM
While online advertising revenue declined signifi-cantly in 2001, traditional advertisers spent more to advertise online in 2001 than they did in 2000. Ac-cording to the IAB, online ad sales declined 18 percent during the first three quarters of 2001 (to $1.8 billion) compared to the same period in 2000. Much of the loss in online advertising revenue in 2001 was a direct result of the dot-com shakeout.
However, traditional advertisers such as retailers and automobile manufacturers spent $4.6 billion on online advertising in 2001, compared to $2.7 billion in 2000, according to Forrester Research, which used a broader definition of online advertising than IAB. Forrester also reported that traditional advertisers ac-counted for 61 percent of online sales in 2001.
Sites that take advertising were trying to establish longer-term relationships with advertisers that had been getting 30-day contracts. Such longer-term rela-tionships employed payment models based on users acting on an ad rather than on a cost-per-thousand (CPM) impressions payment model. Performance-based models might be Performance-based on cost-per-clicks or on actual sales resulting from the ad.
Some sites that were affiliated with offline proper-ties in other media attempted to attract online advertis-ers by offering cross-platform packages. That is, on-line ads were offered as part of an overall package of advertising that might include print and outdoor media affiliated with the Web site owner.
AD NETWORKS ATTRACT LARGER ADVERTISERS
Web sites with enough traffic to qualify may con-sider becoming part of an ad network, such as Dou-bleClick Media, 24/7 Network, or ValueClick Inc. Each network has its own characteristics and qualifica-tions for joining. Double Click Media, operated by online ad agency DoubleClick Inc., is a collection of high-profile branded sites. DoubleClick uses its proprietary technology to deliver, target, and report on its customers’ campaigns. It also allows Web pub-lishers to outsource ad sales for their Web sites to the company’s ad sales force.
The 24/7 Network is operated by 24/7 Real Media Inc. It is a global online advertising network. As of mid-2002 it consisted of more than 600 high-profile Web sites and 3,000 small to medium-size Web sites in North America, South America, and Europe. The network offered a variety of value-added services to both advertisers and Web site publishers.
ValueClick Inc. specializes in performance-based pricing for its ad networks. It operated a comprehen-sive network as well as 15 targeted categories grouped
according to content. Small and medium-size Web sites may join the ValueClick network by completing an online application. Other products and services offered to participating Web site publishers include real-time statistical reporting, payment management, and the ability to categorize each page of its Web site, among others.
APPEALING TO SMALLER ADVERTISERS Text-based ads appeal to smaller advertisers and can be sold for as little as $10 a month. They load faster than graphic ads and are more difficult to block. Plain text ads are also easier to integrate into Web site design. By appealing to smaller advertisers, Web site owners can greatly increase the potential number of advertisers on their sites. Other benefits include decreasing their reliance on large advertisers and de-voting fewer resources to ad sales.
A site may generate advertising revenue by offer-ing its community of users the opportunity to advertise to other members of the community. A simple adver-tising program can be set up by the site’s Webmaster by purchasing an off-the-shelf banner ad system, tweaking it for text-based ads, and integrating it with an automated payment system such as PayPal.
Although the use of banner ads declined from 2000 to 2001, joining a banner exchange network may be useful for attracting smaller advertisers who couldn’t otherwise afford to advertise their Web site. Generally, banner exchanges offer less targeting capabilities than ad networks or direct placement of ads.
PUTTING PRINT ADS ONLINE
The use of online classified ads increased from 2000 to 2001. According to the IAB, the percentage of companies using online classified ads increased from 5 percent in the first half of 2000 to 15 percent in the first half of 2001. By 2002 online classified advertising had become a highly competitive area among print publishers. According to one newspaper’s Web publisher quoted in Editor & Publisher, ‘‘It’s instantly profitable.’’ Putting print classified ads on-line was only the first step in the print-to-Web phe-nomenon. Newspapers began putting other kinds of print ads, including retail display ads, inserts, and special sections, online. They trained their advertising sales representatives to offer the online ads as a bonus for advertising in print. Another advantage to the print publishers was that it didn’t take a lot of extra work to put the print ads online; much of the work was handled by vendors who hosted the service.
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MEASUREMENT, PERFORMANCE, AND REPORTING
Potential advertisers want verifiable performance measurements. As of early 2002 Web sites and ad networks were using different measurements to deter-mine click-through rates, number of unique visitors, and similar metrics. To deal with this problem, the Interactive Advertising Bureau and Pricewaterhouse-Coopers (PwC) proposed a set of guidelines to stan-dardize the measurement of online ads at the beginning of 2002.
However, Web sites opposed to strict standards of measurement pointed out that online advertising was still a young and evolving medium. Online ads may be incorporated into a site in so many different ways that it is difficult, if not impossible, to standardize the measurement of their effectiveness.
Online advertising can track a user’s actions and provide quantified sales. Click-through rates are a standard measurement of an ad’s effectiveness. Click-through refers to the number of people who actually click on an ad. Advertisers realize that click-through rates are not the only measurement of an ad’s perform-ance. They do not measure an ad’s effectiveness as part of a brand-building campaign. Ads that are de-signed to create brand awareness need not rely on click-through rates as a measure of effectiveness.
Online advertising is still an evolving medium. Web site publishers can attract advertisers in several ways, such as by joining an ad network or a banner exchange. An important factor is the ability to offer a relevant, well-defined audience to potential advertis-ers. Web sites that are not part of a network may come to the attention of potential advertisers through their own ads, search engine results, and other methods.
FURTHER READING
‘‘Advertising Online: That Was Then, What Now?’’
eMarketer, 17 October 2001. Available from http://
www.emarketer.com.
‘‘Business Description for DCLK DoubleClick Inc. from Multex.com,’’ 24 May 2002. Available from http:// yahoo.marketguide.com.
‘‘Business Description for TFSM 24/7 Real Media Inc. from Multex.com,’’ 24 May 2002. Available from http:// yahoo.marketguide.com.
‘‘Business Description for VCLK ValueClick Inc. from Multex.com,’’ 24 May 2002. Available from http:// yahoo.marketguide.com.
Calishain, Tara. ‘‘Less Is More: ASCII Might Trump Rich Media in the World of Online Advertising.’’ EContent, May 2002, 24.
Daniels, Alex. ‘‘Internet Hawks: The Online Advertising Market Never Lived up to the Hype, but Traditional Advertisers Could Be Its Savior.’’ Washington Techway, 18 March 2002, 20.
Davies, Phil. ‘‘Madison Avenue Freeze-Out: New Revenue Models Could Be the Saving Grace for Content Sites.’’
Computer User, March 2002, 26.
Dugan, Sean. ‘‘Brought to You By: The New World of Online Advertising.’’ Computer User, March 2002, 34.
‘‘Hey Big eAd Spenders in 2001.’’ eMarketer, 11 March 2002. Available from http://www.emarketer.com.
Rosner, Hillary. ‘‘Reality Check: Misconceptions about Online Advertising Abound.’’ Brandweek, 4 February 2002, IQ9.
Sullivan, Carl. ‘‘Web Display Ads a Dime a Dozen?’’
Editor & Publisher, 8 April 2002, 9.
Torres, Nichole L. ‘‘Calculating Clicks.’’ Entrepreneur, February 2002, 72.
❚ 4
ANTICIPATING THE SIZE OF YOUR MARKET
Knowing how many potential customers you have—and how much they’re willing to spend—is one of the most basic yet difficult problems businesses of all sorts face. Few businesses can know with cer-tainty how much potential demand exists for their products, yet having some idea can help maximize revenues and prevent spending money on developing a product that will never sell. Large companies readily spend tens of thousands of dollars on detailed market-ing studies to estimate potential demand, but even these methods aren’t foolproof. Since their marketing funds are often quite limited, small businesses in par-ticular have to be flexible in order to cope with incom-plete and sometimes inaccurate measures of market potential.
Before you can estimate your market’s size, you need to spend a little time defining exactly whom it includes. Many new businesses make the mistake of assuming almost anyone will buy their product. They take a product-centered approach, thinking, for exam-ple, ‘‘anyone who uses word-processing software will subscribe to my new online resume-building suite.’’ It’s extremely rare to have a product that appeals so widely. In this example it might make sense, instead, to focus on selling to students who use public Web terminals and need a centralized online tool to access their information from different locations. Failing to define the target market realistically can lead to over-blown sales forecasts and poorly focused marketing.
DEFINING YOUR MARKET
Most businesses find they have one or two well-defined primary markets for their products, and per-haps one or two secondary markets as well. Defining a target market carefully, also called segmenting the market, takes into account a range of demographic traits, or so-called firmographics if you’re selling to other businesses. Among consumers, marketers regu-larly consider the buyer’s age, gender, income, marital status, geographic location, method of Internet access, even ethnicity. For businesses, relevant characteristics include annual sales, number of employees, number of locations, major software platforms, and line of business. Target markets are also commonly defined according to an earlier buying history, such as people who own luxury cars or businesses that use temporary staffing agencies. This information helps identify who is a qualified and likely buyer. As a rule, the number of viable buyers is smaller than the targeted demographic groups participating in the market.
Once the target market is defined, you can begin to collect information about its size. If it is an established market, meaning that other firms already offer a simi-lar product or service, published research may be available. This is also the case if it is a predictable demographic group that many marketers target, say, women over age 50 who use the Internet. A search of newspaper, business press, and trade journal data-bases at a library or directly over the Web can reveal whether such information has been published in the past. Trade journals, periodicals devoted to a particular industry or profession, can be an especially rich source of information. The same is true of trade associations, which often compile and release statistics for the bene-fit of their members. If your competitors include pub-licly traded companies, occasionally investment re-ports on the individual companies or the industry as a whole will contain estimates of market size. Some-times even a competitor’s financial disclosures will include estimates of the total market size, or at least their share of it. If you can’t find statistics that relate directly to the market you intend to go after, you may be able to find related numbers which can serve as a platform for making other estimates.
Aside from finding second-hand estimates pub-lished in newspapers or trade press, you could also look for marketing research firms that sell standard-ized, syndicated reports covering your target market or a similar one. These kinds of reports often supply the underlying statistics used in the press. Most indus-tries have at least one research house that produces ongoing reports and sells them to companies in the industry along with industry analysts and the press. Many times research firms disclose some of their basic findings for free in press releases or summary sheets available on their Web sites. General e-commerce
studies are produced by research firms like Forrester Research, International Data Corporation, Jupiter Me-dia Metrix, NetRatings, and the Yankee Group. Some of these and a good number of others also conduct customized studies to answer specific marketing ques-tions that aren’t addressed in their standard reports.
ACTING ON MARKET ASSUMPTIONS E-commerce firms can also gauge market size from the ground up, estimating what a given marketing campaign or series of campaigns will yield. Tests or previous experience, for instance, may reveal that a direct e-mail campaign gets a 1.5 percent response, and that you typically end up selling to one out of every four potential customers who respond to direct marketing. By combining this information with other available statistics, such as the total number of busi-nesses in your target market, you can arrive at a crude estimate of the total volume of business available via direct marketing. The calculations might work like this: you assume that the 1.5 percent represents the interested or qualified market out of, say, a total of 20,000 businesses you target. This would amount to a market of 300 qualified and interested businesses you will reach if you contact all 20,000. Multiply the 300 by your average completed sale, let’s say $10,000, and you arrive at a reachable market estimate of $3 million dollars out of a theoretical (and probably unre-alistic) target market of $200 million (20,000 times $10,000). Your sales forecast would probably be one-quarter of $3 million, or $750,000, based on the histor-ical rate of converting one in four interested prospects into full-fledged sales.
This example is simplistic and would not be suit-able for many needs. Each step of the estimate is subject to error, and the sum of the potential errors could be very great indeed. In practice, the number of businesses that respond to direct marketing may not be a good indicator of the whole market at all. For one thing, a different e-mail message or a different list of recipients might alter the response rate greatly. Even with the ideal list and messaging, it may well be that the qualified market is better defined by another attribute, not simply those businesses having enough interest to respond to your marketing letter. This method also would not take into account important issues like repeat sales (do customers need your ser-vices again if they’ve already bought in the past?), competitor activity (are your competitors gaining mar-ket share and leaving you a dwindling portion?), and changes in market size (is the total market growing or shrinking?).
Still, market estimates made from reliable, relevant past experiences have advantages over some ‘‘top-down’’ estimates, which may purport a huge potential
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market that never materializes. Some large-scale esti-mates are based on a theory which can’t be fully realized because, for example, potential customers may find substitutes or work-arounds that prevent them from ever entering the market for your products. Statistics about the online world, especially, can be subject to errors in counting unique visitors and ob-taining accurate visitor demographics. Similarly, broadly defined market studies may not arrive at an effective definition of who is a likely buyer just by using general demographic traits and statistics, and may overestimate as a result. Of course, any given method can underestimate the market as well, a phe-nomenon seen in the early expansion of the Internet in the 1990s.
When you analyze a general study’s implications for your business, you should also look for assump-tions in the study that vary widely from your firm’s experience. For example, if you have established lines of business in other areas, through cross-selling you may be able to reach buyers who are not generally considered part of the market. But by the same token, you may have greater difficulty reaching the recog-nized market.
The bottom line is that market estimates are by nature open to interpretation and change. They are useful for planning and have many implications for your e-commerce strategy, but should not be taken as literal or fixed. More than likely, the market itself is changing over time, as is your position in it.
FURTHER READING
Grossnickle, Joshua, and Oliver Raskin. Handbook of Online
Marketing Research. New York: McGraw-Hill, 2000.
❚ 5
APPLICATION SERVICE PROVIDERS Until the late 1990s, it was rare to hear the term ‘‘ASP’’ (pronounced A-S-P, short for application ser-vice provider) in business circles. Today the term has made its way into the vocabulary of commerce and e-commerce. According to information technology consultancy IDC, ASPs will grow into a $20 billion industry by 2006, up from $26 million in 1999.
ASPs are third-party software hosts, independent firms that deploy, manage, and provide access to com-puter applications from their centralized location(s) and servers through a rental-like arrangement. Clients access the applications most commonly via the Web. In their article, ‘‘Application Service Providers: The Next Horizon in Software,’’ Marc Osten and Michael
Stein compare using an ASP to the voicemail service offered by most telephone companies. The technology itself is located at the phone company’s offices, on its equipment. The phone company is responsible for its management and maintenance, but you—and thou-sands of others—pay a monthly fee to access its capa-bilities. To callers who hear your personal greeting and leave a message that only you can retrieve, it’s a seamless process; the technology functions as if it were your own.
ASPs have grown rapidly in the past few years due to the increasing presence of the Internet and faster, cheaper bandwidth. Their popularity may also be due to the realization that they can provide access, particularly for small and medium-sized businesses, to applications that would otherwise be out of financial and technological reach. Using an ASP, a small com-pany can access sophisticated accounting software, for example, that it wouldn’t be able to afford to license or have the staff to install and manage.
Another benefit of using an ASP is the speed of implementation. A firm can sign up with one or more ASPs (different ASPs host different applications) and within days or weeks have access to the application. If the firm were buying its own licenses and installing the software on site (or at multiple sites), it could take anywhere from weeks to months, depending on the complexity of the application, networking needs, and staffing. For a budget-conscious business or a firm with a small or overburdened IT (information technol-ogy) staff, ASPs can function as an off-site IT depart-ment of sorts.
Today, ASPs offer just about any type of applica-tion a business might need, including accounting and e-commerce, human resources, database management, customer relationship management (CRM), project management and office productivity, enterprise re-source planning (ERP), and sales force automation (SFA).
Typically ASPs charge a monthly subscription fee based on the number of users at the client’s company. Some charge quarterly or annually, and some may charge based on the number of transactions or fre-quency of usage. There may be additional up-front set up fees or charges for training and customization.
When deciding whether to work with an ASP, consider which applications you’ll need. Evaluate your existing hardware and software, whether you have high-speed Internet access (you’ll need to get it, if not), your IT staffing, and the cost of the applications if you were to license them yourself. Contact various ASPs to gather information. Depending on the appli-cation you’re considering, you might want to find an ASP that specializes in your industry, such as healthcare or e-commerce, or you might want to find an ASP that specializes in a functional area, such as
