Dotcom

With all the hoopla, it is tough to sort out what's real and what's Internet hype. For companies, building a publishing-only Web site is the first step to becoming an e-business. Most businesses have already done this. That's fine as far as it goes; it's an extremely cost-efficient way to distribute basic information. However, the payoff for business starts with "self-service" Web sites where customers can do things like check the status of an account or trace a package online (like at FedEX). The real payoff begins with transaction-based Web sites that go beyond just buying and selling to create a dynamic and interactive flow of information.

An e-business is created when companies put their core processes online to improve service, cut costs, or boost revenue. For example, IBM helped Charles Schwab Web-enable their brokerage systems for online trading and customer service. Since opening, Schwab's Web service has generated over 1 million online accounts totaling over $50 billion in assets. E-business economics are compelling. According to management consultants, traditional bank transactions cost more than a dollar; the same transaction over the Web costs about 1tf. Issuing a paper airline ticket costs about $8; an e-ticket costs just $1. Customers love the convenience; management loves the lower costs.

Although a number of companies use the Web to further exploit long-standing competitive advantages, it is not clear that companies can use the Web to create durable competitive advantages. Hoping to stand out from the crowd, some Internet merchants devote as much as 70 percent of total revenues to advertising. "Get ahead and stay ahead" is the mantra at Amazon.com, a company trying to create a durable online marketing presence in books, electronics, computers, toys and games, health and beauty aids, DVDs, and much more. To date, Amazon.com has proven adept at quickly growing online revenues. It's a widely recognized online leader. However, even for Amazon.com, building online profits has proven elusive.

See: Nick Wingfield, "Amazon Posts Surprise Profit; Sales Rose 15% in 4th Quarter," The Wall Street Journal Online, January 23, 2002 (http://online.wsj.com).

Coca-Cola and Pepsi-Cola have well-deserved reputations for providing uniformly high-quality soft drinks. They have both invested millions of dollars in product development and quality control to ensure that consumers can depend upon the taste, smell, and feel of CocaCola and Pepsi-Cola products. Moreover, because the value of millions of dollars spent on brand-name advertising would be lost if product quality were to deteriorate, that brandname advertising is itself a type of quality assurance provided to customers of Coca-Cola and Pepsi-Cola. At Wal-Mart, Satisfaction Guaranteed, or your money back, is more than just a slogan. It is their business; it is what separates Wal-Mart from fly-by-night operators or low-quality discount stores. Similarly, customers of DaimlerChrysler depend upon that company's well-deserved reputation for producing high-quality cars, trucks, and minivans. Like any written guarantee or insurance policy, repeat transactions in the marketplace give consumers confidence that they will get what they pay for.

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