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Electronic
Commerce, Catalog Shopping and The Internet
1999-2004
a market research report
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With the dizzying pace of e-commerce, it is not hyperbole to predict that in the near future, the majority of business transactions will be handled online. But for right now, one of the most direct ways to transform a traditional business into an e-business is to translate print catalogs to e-commerce catalogs.
While preparing this study, Insight expected to see print catalogs being displaced by online catalogs and a clear path to modeling the improved efficiencies associated with ecommerce. Instead, we found that the ecommerce catalog industry is being built on faith, not necessarily on numbers. Companies want to be selling on the Internet, period.
They aren’t comparing printing costs with web development and marketing costs, and their processes are not yet cost-efficient. They are banking on the future savings that will become apparent as the e-business matures with improved operations, order processing, and inventory control.
Insight’s analysis suggests that ecommerce catalogs are not about to replace print catalogs in either the consumer or business segments over the next five years. In fact, consumer catalog companies report that their web site actually promotes distribution of their print catalog. Catalog companies may not actualize gains by abandoning direct mail. Print and online catalogs can complement each other.
E-Commerce, Catalog Shopping, and the Internet forecasts overall consumer and business e-commerce trade, quantifies the portion of e-commerce catalog revenue, and projects the number of households and businesses that will be purchasing online. Five e-commerce case studies present e-commerce implementations in both the business-to-business and business-to-consumer categories. Chapters are devoted to print vs. electronic catalogs, e-commerce communications networks, and e-commerce suppliers.
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Report Excerpt
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Defining the Market
E-commerce as we define it in this study, is the online
financial transaction between a supplier and a buyer.
More specifically, we look at trends in e-commerce
catalog shopping in two market segments:
- Business-to-consumer, and
- Business-to-business.
E-commerce catalogs are catalogs available both in print
and electronically via the Internet or another electronic
network. One example of an e-commerce consumer catalog is
the L.L. Bean catalog which consumers can receive in
printed form, or they can access via the Internet. On the
business side, AMP which publishes a large industrial
catalog in hard copy now offers their catalog
electronically.
Insight’s research found that in our tiny corner of
e-commerce, the e-commerce catalog industry is being
built on faith, not the numbers. For example, there are
several good sources of data on print catalog costs and
volumes. But when it comes to comparing print to
e-commerce catalogs the helter-skelter approach to
marketing on the Internet makes it extremely difficult if
not impossible to find or collect e-commerce catalog
costs and compare them to print catalog costs. In
researching this study, Insight was unable to find any
benchmark costs for basic e-commerce services such as Web
site development and continuing operation costs, software
development, advertising and other items associated with
marketing products online. With all the IPO money flowing
into dot com companies, serious spending is going into
developing effective Internet marketing strategies, but
new companies, and even established players, do not want
to say how much or on what services they are buying.
Our caveats aside, there is an inherent cost saving logic
inherent in e-commerce catalogs that will not be denied.
The advantages of electronic catalogs over print in both
the business-to-business and business-to-consumer
segments include:
- Worldwide market exposure for all suppliers, even the
smallest firms;
- Flexibility by having around the clock advertising and
off-hours ordering capabilities which may provide a
competitive incentive to customers who need emergency
ordering capabilities;
- Greater accuracy in electronic order taking compared to
taking orders over the telephone;
- Real-time information is available to suppliers
including inventory levels and the most current price
schedules;
- New forms of electronic credit are less risky than
taking credit card charges over the telephone;
- Easier updating of information especially pricing. The
supplier does not have to re-issue an entire multi-page
catalog due to a minor change on one page;
- Minimizes support activities, potentially eliminating
new call center operations.
Moreover there are obvious savings in printing and
mailing costs when a catalog is published electronically.
Printing and postage costs can reach as high as 75
percent of the marketing budget of a catalog.
So how successful have vendors been with e-commerce
catalog shopping thus far? Lands’ End, one of the
earliest consumer catalog marketers on the Internet, said
in their 1998 annual report, “Every e-commerce sale
has the potential to be a more profitable sale than
through the catalog given expected savings on selling
costs and order processing costs.” Yet the
transition from print catalog to e-commerce catalog can
be very difficult, as evident in Lands’ End latest
earnings release. While landsend.com generated $61
million in sales in 1998, three times over 1997 sales,
that amount still only accounts for 4.5 percent of
Lands’ End total 1998 sales. In 1999, landsend.com
accounted for approximately 10 percent of the
company’s sales. In the fourth quarter of 1999,
Lands’ End stock fell 33 percent after they
announced a warning of lower sales due to their decision
to send out fewer and thinner catalogs, and to shift more
of their customers from traditional mail-order to
purchasing items at the Lands’ End Web site. The
company wants a significant portion of their business to
come through the Internet over the next three to four
years, so they are making the hard decisions now.
However, Insight’s analysis suggests that e-commerce
catalogs are NOT about to replace print catalogs in
either the consumer or business segments over our
forecast period. In fact, a number of consumer catalog
companies have found that their Web site promotes
distribution of their print catalog since they more
easily reach new potential customers, and both new and
established customers only need to click to request a
copy of the company’s catalog in the mail. Thus, as
many customers will continue to cling to the print
catalog, these same customers are deep in the e-commerce
milieu, an environment that encourages them to shop
electronically. Companies may not realize the gains in
entirely displacing the printed catalog, but the savings
associated with order processing may be where the real
savings are buried.
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Market Segmentation
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- Business E-Commerce
Total Revenue
- Business E-Commerce
Catalog Revenue
- Business E-Commerce
Non-Catalog Industries
- US Business-to-Business
Trade
- Catalog Sales as a
Percent of Total Trade
- E-Commerce as a Percent
of Total Trade
- Growth Rate of
Households Online
- Number of Households
Making Online Purchases
- Catalog E-Commerce
Transaction per Household
- E-Commerce Participation
Rate
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Table of Contents
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Chapter I
EXECUTIVE SUMMARY
1.1 Searching for Data
1.2 Defining the Market
1.3 The Market Analysis
Chapter II
E-COMMERCE FUNDAMENTALS AND TECHNOLOGY
2.1 E-Commerce Basics
2.1.1 EDI Came First
2.1.2 Internet EDI
2.1.3 Extensible Markup Language
2.1.4 Commerce XML
2.1.5 Advantage of the Internet
2.1.6 Growth in the User Base
2.2 The E-Commerce Transaction
2.3 E-Commerce System Aspects
2.3.1 Commerce Server
2.3.2 Specialized Catalog Software
2.3.3 Database Creation
2.3.4 E-Commerce Middleware
2.4 Other E-Commerce Issues
Chapter III
CATALOG SHOPPING: PRINT VERSUS ELECTRONIC
3.1 Current Print Catalog Industry
3.1.1 Consumer Print Catalogs
3.1.2 Business Print Catalogs
3.1.3 Catalog Production
3.1.4 Business and Consumer Print Catalog Cost Analysis
3.2 E-Commerce Catalogs
3.2.1 Advantages of Selling Online
3.2.2 Electronic Catalog Standardization
3.2.3 The Personalized Catalog
3.2.4 Standardized Queries
3.2.5 Call Center Status or Customer Service
Chapter IV
ELECTRONIC MONEY AND SECURITY OF E-COMMERCE
4.1 Electronic Money Background
4.2 Checks on the Internet
4.3 Credit Cards
4.4 Electronic Cash
4.5 Smart Cards
4.5.1 The Electronic Purse and Wallet
4.6 Security for E-Commerce
4.6.1 Encryption
4.6.2 Pubic Key Infrastructure
4.6.3 PKI Standards
4.7 Secure Electronic Transactions
4.8 Electronic Cash Vendors
4.8.1 CyberCash, Inc.
4.8.2 Mondex
4.8.3 Visa USA
Chapter V
E-COMMERCE COMMUNICATION NETWORKS
5.1 Internet’s Role
5.2 Intranets/Extranets
5.2.1 Secured Intranet Access
5.2.2 Electronic Commerce Extranet Model
5.2.3 Specialized Applications
5.3 Virtual Private Network
5.4 Network Service Providers Offerings
Chapter VI
INDUSTRY SUPPLIERS
6.1 Overview
6.2 E-Commerce Catalog Software Vendors
6.2.1 Actinic Software LLC
6.2.2 Ariba Technologies Inc.
6.2.3 Commerce One, Inc.
6.2.4 Harbinger Corp.
6.2.5 Mercado Software, Inc.
6.2.6 Open Market, Inc.
6.2.7 Pandesic, Inc.
6.2.8 Saqqara Systems, Inc.
6.2.9 Other Specialized E-Commerce Companies
Chapter VII
E-COMMERCE CASE STUDIES
7.1 AMP, Inc.
7.2 Barnes & Noble, Inc.
7.3 Cisco Systems, Inc.
7.4 Multiple Zones International, Inc.
7.5 Texas Instruments, Inc.
Chapter VIII
MARKET FORECASTS
8.1 Scope of Study
8.2 E-Commerce Consumer Forecast
8.2.1 Changing Demographics
8.2.2 Purchasing Holiday Gifts Online
8.3 Business E-Commerce Market Statistics
8.3.1 Business-to-Business Commerce
8.3.2 Business-Oriented E-Commerce
8.3.3 Business-Oriented E-Commerce Catalog Revenues
Appendix
Glossary
Table of Figures
Chapter I
I-1 Total E-Commerce Catalog Industry Sales, 1999 and
2004 ($Billions)
I-2 US Business Catalog E-Commerce versus Total US
Business E-Commerce, 1999-2004 ($Billions)
Chapter II
II-1 E-Commerce from the Buyer’s Point of View
II-2 E-Commerce from the Supplier’s Point of View
II-3 E-Commerce Consumer Development
II-4 Buyer-Seller E-Commerce Processes
II-5 Product Discovery and Market Stimulation
II-6 Product Evaluation and Market Stimulation
II-7 Pricing Terms Negotiation
II-8 Purchasing and Sales
II-9 Consumption and Service
II-10 E-Commerce Block Diagram
II-11 Database Creation Costs for Large Business Catalog
Company
II-12 E-Commerce Middleware Fit: Customer-to-Legacy
System
II-13 E-Commerce Middleware Fit: Legacy
System-to-Customer
Chapter IV
IV-1 CyberCash’s Internet Credit Card Payment
Process
Chapter V
V-1 Secured Intranet Access Model of an Extranet
V-2 Specialized Applications Extranet
V-3 Dependent VPN Architecture
V-4 Independent VPN Architecture
Chapter VII
VII-1 Multiple Zone E-Commerce System
Chapter VIII
VIII-1 Households Online and Number of Households Making
Online Purchases, 1999-2004 (Millions)
VIII-2 Adults who Shop Regularly or Occasionally on the
Internet from Home, 1998 and 1999
VIII-3 E-Commerce Catalog Sales as Percent of Total
E-Commerce Sales, 1999-2004
VIII-4 US Business-to-Business Trade, 1998-2004
($Billions)
VIII-5 US Business-Orientated E-Commerce, 1998-2004
($Billions)
VIII-6 US Business E-Commerce Catalog Revenues, 1998-2004
($Billions)
Table of Tables
Chapter II
II-1 US Households Online, 1996-1999 (Millions)
II-2 US Organizations Online, 1999-2004
II-3 US Small Business E-Commerce Developments, 1997-2000
(Thousands)
II-4 Consumer Online Purchases by Category, 1996 and 1997
($Millions)
II-5 Most Popular E-Commerce Consumer Sites as of Nov.
28, 1999
II-6 Sites with Largest Percentage Gain as of Nov. 28,
1999
Chapter III
III-1 Direct Mail Budget, 1998
III-2 Number of Print Consumer Catalogs per Household per
Year, 1999, 2004
III-3 Print Catalog Advertising Expenditures as Percent
of Sales, 1998-2004 ($Billions)
III-4 Catalog Costs Relative to Sales Volume, 1999 and
2004
Chapter IV
IV-1 PKI Functions
IV-2 PKI Standards
Chapter VIII
VIII-1 Households Making Online Purchases & E-Catalog
Transaction Values, 1999-2004
VIII-2 Holiday Shopper Survey, November 16, 1999
VIII-3 Amount of Time Spent and Demographics of Online
Consumers, 1999
VIII-4 Total US E-Commerce Catalog Sales for the Consumer
Market, 1999-2004 (Millions)
VIII-5 Online Business Establishments and Firms, 1998
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Pricing Information
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Hard Copy Price
$ 799
Electronic Copy Price
(PDF
License Descriptions)
$ 939 Single-User Printable PDF
$ 1399 6-Seat Printable PDF
$ 2000 Unlimited Corporate-Wide Distribution
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