January 19, 1998 Last year's legacy: I-commerce growth, and lessons learned Last year, a parade of I-commerce pundits (including yours truly) offered a variety of predictions regarding the quantity of Internet sales that were going to happen in 1997 and beyond. Some of these projections were truly mind-boggling: Take, for instance, ActivMedia's assertion that Internet commerce would amount to nearly $25 billion in 1997, and would be a trillion dollar business by the year 2001. That's almost an order of magnitude larger than anyone else's projections. (To be fair, ActivMedia counted any transaction where the Internet played a role, however small. That's a much broader definition of I-commerce than most analysts used.) But now that 1997 is over and the dust is beginning to settle, it's a good time to take a look at what really happened, and to see what lessons we can learn. Some hard numbers According to a recently-released study (the Simba/Electronic Advertising and Marketplace Report), the combined sales of 52 leading I-commerce vendors added up to $7.03 billion in 1997. For many of the companies surveyed, 1997 sales more than doubled their 1996 levels. For example, Digital Equipment Corp.'s online sales rose from $230 million in 1996 to $950 million in 1997. Internet bookseller Amazon.com sold only $16.6 million worth of books in 1996, but that grew to $121.7 million in 1997. According to Simba editor and analyst Matt Kinsman, business-to-business transactions (led by computer industry heavyweights such as Cisco, Dell, and Digital) accounted for the lion's share of the year's Internet commerce -- over $6 billion of the total. "Business-to-business far outweighs business-to-consumer on the Web at this point," Kinsman told me. The hottest consumer markets? Books, music, computers, travel, flowers and gifts, and online auctions. Surprisingly, clothing sold quite well online, especially on AOL, where apparel was the biggest hit of the 1997 holiday season. Though Internet clothing sales are not as big overall as in the other markets, they're growing quite quickly. Expect the online clothing market to really take off as consumer bandwidth increases, enabling customers to download more detailed product image files. You can find Simba online at http://www.simbanet.com. Real-world examples What do these abstract market growth numbers mean to real, live Internet commerce ventures? To find out, I talked to Matt Hyde, Online Store Manager at REI, a longtime retailer of outdoor sports and camping goods. What I found at http://www.rei.com was a reasonably well-organized online catalog. Hyde told me that the Web site now contains 35,000 separate SKUs, representing all the variations of about 7,000 products. He wouldn't tell me what the Web store's revenues were, but he did say that they are on par with those of a medium-size physical store. Compared to a physical store, the Web site's startup costs are high, but the incremental costs of maintaining it and adding products or inventory to it are low. Staffing the virtual store? Compared to a physical store, "We have way less employees online," Hyde told me, "but they're much more expensive." The investment seems to be paying off. REI's Web site saw its December revenue (which includes the peak of the holiday shopping season) increase 13-fold from 1996 to 1997. Hyde says they expect the site to be profitable soon, although he wouldn't say exactly how long it would take to pay off the investment they've already made. What lessons has he learned? For starters, getting various groups within the company to work together on the store is "50 percent of my job," Hyde told me. Expect the same in your own company. "Electronic commerce impacts every aspect of your business," Hyde said. To make it work, you need to bring marketing, merchandising, IT, shipping, legal, and financial people together, and you need to manage their expectations and resolve their differences. He's also learned that he can never rest on his laurels. "Online commerce is moving very quickly, and people are making better and better sites," Hyde said. Just keeping up means constantly improving the store. If you've started an I-commerce site, you probably already know that your competitors can move just as fast as you can. Constant innovation is the name of the game online. But with solid 1997 revenues, and every expectation of continued growth in 1998, you can be sure than more businesses than ever will be jumping into that game. What are your 1998 I-commerce game plans? Dylan Tweney edits InfoWorld's I-Commerce section online and in print. Write to him at dylan@infoworld.com. Missed a column? It's easy to catch up -- just click here.