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E-commerce is now the latest buzzword in retail service

In case you haven't had your intellectual exercise for the day, here's a small quiz for you: What's the latest technology buzzword in the retail and service industries? Is it Egad, E. coli, Emotional Emu Emulsion, or E-commerce? Tough one, huh? If you picked anything but "e-commerce," don't waste your time applying to any MBA programs.

Whether you refer to it as e-commerce or in some other way, the concept of business conducted via the Internet is one that gets a lot of play in both trade journals and the popular press. If you were to judge the phenomenon solely on the basis of visibility in the media, you would think that all those folks with computers now just stay at home to shop and conduct their banking and other financial business.

It is definitely the case that a significant amount of commerce, in terms of dollars expended, takes place through on-line transactions. And it is true that the volume of e-commerce will undoubtedly increase during the coming years, especially in selected areas. For instance, online sales of packaged software are projected to increase to $5.9 billion by 2001. According to a report recently released by the International Data Corporation, not only will on-line sales of software burgeon over the next few years, but one subset of the market, sales of site licenses for businesses, will be conducted 100 percent via the Internet by 2008.

We can also expect to see a tremendous amount of growth in on-line financial services, though perhaps not from the consumer end of things, which is normally the lens through which we view the Internet. As a matter of fact, the hot growth area now is in the realm of the relationship between business and banking. The percentage of banks that allow small businesses to access their accounts via the web was a mere five percent last year. That percentage will have risen to 18 percent by the end of this year, and is projected to be 65 percent by the end of next year.

It is necessary, however, to step back for a moment and try to gain a realistic perspective on the state of e-commerce today and on some of the problems it faces in the future. A report released in September by the Organization for Economic Cooperation and Development reveals total revenue from e-commerce world-wide was about $26 billion last year. Now, that sounds like a lot of money to me (but I'm easily impressed by zeros), and it is a lot of money. However, it represents only 0.5 percent of retail sales for the seven largest national economies monitored by the OECD. Many industry analysts believe that there is no other area of technological change that presents such a discrepancy between the actual phenomenon and what policy makers, the business community, and the public believe to be the case.

The fact that the U.S. is not immune to the vagaries of the global economy is now abundantly clear to us after the events of the last few months, and that may not bode well for e-commerce. Even in Europe, not to mention the rest of the world, the outlook for e-commerce could be described as dismal due to constraints such as language barriers, multiple currencies, heavy taxation, expensive phone calls, and low bandwidth in the telecommunications infrastructure. The OECD estimates that approximately 80 percent of global on-line sales originate in the United States, and that situation is unlikely to change anytime soon.

Next month we'll take a look at some of the things that business and government can do to encourage e-commerce.