E-cash in the E-age

Last Christmas' online sales figures rocked commercial retailers. Although analysts had predicted a marked upsurge, the numbers radically exceeded forecasts and swept aside previous expectations. Now analyst firms are posting figures in the trillions as they chart the growth of e-commerce and the rise of online sales during the next five years.

But before multiple-zero bedazzlement sets in, let's take a realistic look at the online landscape. In 1998, only a small number of companies recorded online sales. The vast majority of retailers didn't have a Web site or the site was merely an advertising brochure with no option for e-commerce. The headline grabbers and revenue winners included Amazon.com, CDNow, eToys, ebay, L.L. Bean and J. Crew. While those online trailblazers led a minority of companies in electronic sales, it's important to note that those figures had nowhere to go but up.

Last year's successful holiday season will be remembered as the milestone that sealed e-commerce's fate (Figure 1). Arguments against online selling, such as "It will destroy our channel partnerships" and "It will harm our current brick-and-mortar facilities" were swept away by the lure of global lucre. Even bull-headed Merrill-Lynch recently reversed its position and is now frantically playing Web catch-up.

This year, the excuses are over. Aggressive companies have stepped up the pace and are creating entire departments devoted to garnering online revenues. And many more companies are hammering out the details of building a site that includes online transactions.

To meet the demand, carriers are bundling software and services and guiding customers toward online nirvana. There's a catch though: Setting up e-commerce on a Web site is not simple. It requires multiple steps and multiple partners, it's immensely time-consuming and there are hidden costs. For the small and medium-sized business customer, the process is often too complicated to even consider.

To take the hassle out of e-commerce, service providers recently have begun offering full-service packages with multiple options and tiers. They are aligning themselves with software makers, online transaction companies, online payment services and digital signature authorities to provide an e-commerce bundle that will appeal to the burgeoning mass of small and medium-sized business owners. With less than 8% of their current Web hosting customers offering online transactions, service providers are primed for the onslaught of e-commerce entrants.

Partner lineup

Storefront software, which can include catalog creation, shopping cart configuration, tax tables and offline credit card transactions, is the first item that service providers place on their shopping list. Breakthrough Software's ShopZone, Intershop's Intershop 3, Open Market's LiveCommerce and Mercantec's SoftCart are the commerce engines driving various service providers' offerings.

These commercial packages are designed to help businesses - without tremendous technical expertise - create an online store. Within these packages, wizards (clearly written instructions in pop-up format) help the merchant design the site using pre-configured templates, create a product catalog with photographs and set up offline transaction records within a secure environment.

All of these products are in their third or fourth release, and with each release, the manufacturers have added features that make online selling easier for the merchant. Mercantec, for example, will integrate with back-office accounting software, inventory, payment and fulfillment systems. For smaller shops, the ability to integrate online selling with popular accounting software, such as Quicken's Intuit, is advantageous, and in larger shops, SoftCart also is able to accept electronic data interchange messages.

Other automated features that have become standard Web fare now are available within the storefront software. These enhancements include order notification, sales tax and shipping calculations, product locators, traffic statistics that report customer behavior and e-mail blast capabilities that can notify customers of upcoming sales. With each revision, developers have moved closer to creating a more painless way to sell on the Internet.

Hassle-free e-commerce is exactly what service providers have been searching for. In the past, carriers would cobble together a package, but the onus was on the customer to ensure that all the pieces worked. And it required a sophisticated, technically savvy customer to get a site up and running.

Cash and carry

EarthLink, MindSpring and Verio are blazing the path for easy-to-build e-commerce sites. The companies already have created tiered packages aimed at their dial-up and hosting customer bases, and they have removed many of the hurdles involved in setting up online credit card transactions and merchant accounts. Each of the packages includes Web site hosting and domain registration services (Table 1).

"There were no small business e-commerce solutions," says Barry Friedman, director of business product management at EarthLink. "We talked to the software companies and told them we were looking for a one-stop shopping solution that didn't require a Web master, a banking account or a CyberCash agreement."

EarthLink created TotalCommerce - incorporating Breakthrough Software's ShopZone and Mercantec's SoftCart - to meet the needs of small and medium-sized businesses, as well as enterprises. Divided into three tiers, TotalCommerce includes Kiosk, Store and Superstore. Kiosk is designed for companies with fewer than 10 products and no online transaction requirement. Store and Superstore are designed for companies with larger product directories that want online transactions.

MindSpring has similar packages that are based on Intershop's Intershop 3 and Mercantec's SoftCart. These packages also are divided into three tiers, beginning with an entry-level system that offers limited catalog entries and offline transactions. "The majority of our e-commerce inquiries come from our Web-hosting customers. They are companies with fewer than 25 employees. They've heard about the Internet, but they don't know what they should be doing," says Chris Atkins, director of hosting product management for MindSpring.

Verio, taking a different path from the dial-up leaders, has partnered with iMall and First Data to create VerioStore, which opened last June. In addition to storefront software from Mercantec, Verio will set up payment accounts for its merchant customers through First Data. And iMall will feature VerioStore customers' merchandise on its Stuff.com, a shopping portal.

"We designed this product line last year because we realized that our customers were not Web site developers," says Laura Zung, vice president of product management at Verio. "We wanted to give customers an integrated solution that included all the pieces."

Comparison shopping

Two items differentiate the tiered packages mentioned earlier: credit card processing and security. Both topics tend to bewilder first-time retailers and thwart final sales because customers don't understand the necessary procedures.

To use a credit card, every retailer - virtual and traditional brick-and-mortar - must have a Merchant Account, which enables merchants to accept and clear credit card transactions. Merchant Accounts are available from companies such as Cardservice International, Paymentech and First Data Merchant Services.

If merchants have an existing credit card procedure, they can capture orders and process them offline, using the same methods necessary to take orders within a traditional store. The general rule of thumb is that customers with fewer than 100 transactions per month should opt for offline transactions because of the higher costs associated with doing online transactions.

If merchants want to process orders in real time, or online, they will have to register for an account with an online-payment services company, such as Automated Transaction Services (ATS), CyberCash, PaymentNet or WorldPay. Application and processing for these accounts usually requires about two to three days, and Internet merchants must note that taking credit cards over the Web requires a "card not present" Merchant Account, which has higher rates than the typical retail account.

Each of these online payment companies accrues monthly fees that are additional expenses for a potential e-commerce merchant. For example, CyberCash has an activation fee, which is $500 to $1000, combined with a monthly service fee of $40 to $80 and/or transaction fees of 20cents to 60cents per transaction. If a merchant sells nothing from his Web site, he may still have to pay a minimum fee of $125. These extra fees tend to drive potential online merchants away, which is why EarthLink, MindSpring and Verio have created packages with set monthly fees that include these expenditures.

"If a retailer opts to get his own Merchant Account, he'll have additional fees debited to his account," says EarthLink's Friedman. "For example, if a statement fee runs $23 per month, then $10 is paid to the card service, and CyberCash collects $13. There is also another fee of 2.25% per transaction, which is again split between the card service and CyberCash.

"We're moving away from CyberCash because of the high cost. It requires that merchants have a minimum of $25 of discount fees."

In addition to online transaction differences, e-commerce offerings from various service providers also differ widely in regards to security. For transactions, service providers must have a secure sockets layer server. The server uses secure sockets layer, an encryption technology that scrambles credit card numbers and order information. To unscramble orders and credit card information, merchants must connect to the service provider's server and use its digital certificate.

Merchants also can opt to own their own digital certificates, which they can get from a certificate authority - a third party that verifies the identity of the merchants and their sites. These certificate authorities, such as VeriSign, issue a digital certificate or authentication certificate to online merchants, who then put it on their Web sites.

The digital certificate allows the merchant to encrypt and decrypt customers' confidential information using encryption tools. Merchants can purchase digital IDs from VeriSign that use public key encryption techniques, including public and private keys that allow customers and merchants to scramble and unscramble sensitive data.

Some carrier customers registering for VeriSign have experienced delays receiving their certificates. The procedure usually takes two to three weeks, but it can take longer depending on a merchant's records. To approve a merchant for a certificate, VeriSign has to prove the business is legitimate. The procedure entails comparing the merchant's information to InterNIC, where the Internet domain registration data is maintained, and to Dunn and Bradstreet's business report. Most problems arise because merchants haven't updated their InterNIC information, which forces VeriSign to make multiple follow-up calls to confirm that the business is what it claims to be.

Alternative boutiques

Of course, other carriers have e-commerce packages, but the picture painted by the Internet service providers of difficult-to-configure, cobbled-together parts is apropos. Granted, these higher-end offerings are meant for a more sophisticated user - an enterprise customer with a technical staff or Web master - but the low number of companies doing online transactions is directly due to the complexity of the packages.

Although the bundled packages described earlier lead to faster Web site development, the alternative offerings allow for customization and integration of legacy business systems. AT&T offers SecureBuy, which is powered by Open Market's LiveCommerce and Transact. The tools are built to integrate with a customer's legacy systems and business processes. AT&T has signed up Merchant Account partners and online payment help, but for aid in setting these up, the carrier leverages its Creative Alliance Program and Business Assist Program.

The Creative Alliance Program and Business Assist Program help merchants map a course through the online maze. AT&T hands customers to these partners to assist with e-commerce necessities such as business plans, design, configuration and integration.

"You can't just build a Web site and expect customers to come. You must have a plan in place that will drive customers to the site," says Phil Cruz, product manager for AT&T's SecureBuy.

Competing with AT&T SecureBuy is PSINet's PSIWeb eCommerce (Figure 2), which is based on Intershop 3's storefront software and two online payment systems - WorldPay and CyberCash. WorldPay allows PSINet's global merchants to present their accounts in multiple currencies. It allows transactions to be settled in 16 currencies and provides more than 150 currencies to process the transaction. The exchange rates used by WorldPay are downloaded from the National Westminister Bank every 24 hours. Worldpay has a 4.5% rate per transaction and includes an annual fee of about $198.

"WorldPay is at the forefront of providing multicurrency, real-time credit card transactions," says Leo Imperial, e-commerce product manager at PSINet. "We're beginning to get a lot of inquiries from customers interested in WorldPay, who recognize the opportunity in the international market."

A comparable package is available from Qwest Communications. Through its partnership with Microsoft, Qwest has built its e-commerce tools on Redding-made products. The technical specifications of Q.commerce Retail include Microsoft's Internet Information Server, Transaction Server and Site Server Commerce. Additional commerce features come from CyberCash, Tandata and Taxware. Tandata provides shipping tables, and Taxware helps merchants figure appropriate sales tax.

During the last year, Qwest has developed its in-house resources so it can provide retail customers with all the necessary hand holding. In addition to its bread-and-butter services - Internet connectivity and Web hosting - the company is striving to build a services arm. "Our focus it to help clients make money on the Internet," says Doug Mow, vice president of application services product management at Qwest. "We want to provide the critical factors, such as good copy, design and merchandising."

Underdogs

ISP divisions within the traditional voice carriers are still playing catch-up when it comes to e-commerce. While most offer hosting services, few have developed turnkey solutions that are on par with the dial-up leaders, and their e-commerce packages are nonexistent - or a confusing hodgepodge.

At Bell Atlantic, www.bigyellow.com, an online Yellow Pages Directory, is the company's main e-commerce offering. It is designed to bring merchants and customers together, not facilitate online commerce.

"Our customer research shows that there's not much demand for e-commerce sites," says Joe Kellagher, director of service delivery at Bell Atlantic. "Our customers want service add-ons. Later this year, we'll be adding pure e-commerce sites. But our goal is to put out a template and provide promotion that brings customers and merchants together."

A number of other carriers, such as Ameritech, GTE and Sprint, also are in the development stage and will be announcing similar packages soon.

"A lot of this e-commerce development has been an evolutionary process, and some of the hosting and dial-up providers have been pretty progressive," says Bill Tait, vice president of merchant services for Mercantec. "I see a similar trend with telcos. They are just now coming around to discuss their options with us, but they are moving aggressively into the e-commerce space."

E-coup

Two years ago, digital naysayers maintained that e-commerce was a fad destined to have the lifespan of the CB radio. Now, technology - e-commerce and the Internet - is driving economic growth. In late June, the U.S. Commerce Department released "The Emerging Digital Economy II," which revealed that IT industries contributed to more than one-third of the United States' economic growth.

One of the most significant findings for e-commerce trend watchers reveals that from 1993 to 1998, investments in computers and communications has accounted for more than half of the growth of business-equipment spending. This spending is the most prevalent force behind the nation's current investment boom.

Another recent study of the Internet economy, conducted by the University of Texas, concluded that e-commerce generated $301 billion in revenue and created 1.2 million jobs last year. Unlike those futuristic analyst reports, these statistics reveal that the nation already is astride a digital Secretariat and galloping at a breakneck pace into the electronic age.