E-Tail Gains Toehold Government, Big Business Lead Shift To Electronic Commerce
The business of buying and selling increasingly is moving online. And though the playing field remains relatively small for “electronic commerce,” some of the key players are titans of government and industry.
Who’s spending billions with a point and click?
Mainly the federal government, which has been mandated to streamline operations by making purchases through computer networks and relegate the big piles of printed requisition and purchase orders to the past.
“We’ve done over a million dollars in purchases since we started the program in December of 1994,” said Laurie Whelan, chief of the “streamlined acquisition flight” of the 92nd Contracting Squadron at Fairchild Air Force Base. “The average award amount is about $5,000, but one purchase I did last week was a $99,000 order for several hundred pairs of boots.”
All purchases above $2,500 - which means most of the orders moving through Whelan’s office - must be done by electronic commerce.
Who’s making money when those orders come through? People like Christopher Pratt, fleet sales manager at Knudtsen Chevrolet in Coeur d’Alene.
“In the last 120 days, I’ve done $120,000 in paperless transactions,” he said.
One recent sale was to the Western Area Power Administration. That federal agency posted a “request for quote” to online vendors, who filled out the price, make and model fields, typed in estimated delivery times and submitted their bids by computer.
“That reduced the paperwork to the point that the government saved thousands of dollars,” said Pratt, the successful bidder on two vehicles. “And it gave me a sale that was just under $60,000 - almost instantaneously.
“There are not that many people selling to the federal government,” he added. “And there really should be.”
The electronic connection between vendors like Pratt and purchasers like Whelan comes through a channel called a “value-added network.” Commonly known as VANs, these online pipelines establish secure links between buyer and seller.
The need for secure communications grew in the 1980s, when the airline and shipping industries sought greater efficiency through electronic commerce. Smaller VANs were created in the academic community and in corners of the retail sector. Early projections for astounding growth in “e-commerce” or “e-tail” didn’t pan out, however.
Enter the Internet and World Wide Web.
“With the advent of the Internet and the ability to secure transmissions, you’re now able to trade without the use of a VAN,” said Edwin Wilson, program manager at the Bremerton, Wash., regional office of the Electronic Commerce Resource Center. “The Internet is one big value-added network.”
The center was established by Congress in 1994 to assist business in the online evolution. Government had an ulterior motive: It saw the benefits of electronic commerce, but realized only a limited number of suppliers had the technology to link up.
“We were created to assist on the supplier side of that equation,” Wilson said.
When the Electronic Commerce Resource Center opened regional offices around the country three years ago, the courses concentrated on how to select and use a valued-added network, Wilson said. Within a year, growth in Internet use crowded out interest in traditional means of doing business online.
“Now we have one course on VANs and 20 on how to do business through the Internet,” Wilson said.
The Spokane Area Chamber of Commerce Business Information Center hosts an average of 30 people in quarterly electronic commerce resource center e-commerce workshops.
Nancy King, business information assistant for the center, said the participants are “a varied bunch of people.”
King said the November workshop, for example, attracted a government supplier, two manufacturing company representatives, a corporate head hunter, and staffers from a marketing firm, a cleaning company and a detective agency.
Retail activity - or “e-tailing” - on the Internet is expected to reach $5 billion this year, according to Forrester Research. That could push $8 billion in 1999 and is projected to reach $17.5 billion by 2001.
“The government has declared that, by the year 2000, virtually all of the funds transferred to the private sector will be done through electronic exchange,” Wilson said. “No paper will change hands.”
Buyers in the private sector are saying the same thing to government, according to Tom Arnold, director of the Idaho Department of Commerce. The state is working closely with organizers of the 2002 Winter Olympics to attract training and exhibition business from host Salt Lake City. There are business possibilities, Olympics officials said - and all are online.
“The organizers told us, ‘If you’re not on computer, you can’t play,”’ Arnold said. “The message was very clear.”
Idaho is now installing software so that it can do the majority of its purchasing electronically by the end of the decade, said Jan Cox, administrator of the state’s purchasing division.
Meanwhile, the commerce director has made some personal purchasing decisions by computer.
“I recently picked a doctor on the Internet,” Arnold said. “I located him, researched his credentials and then had a major shoulder replacement done.”
The Washington Department of Revenue has made that state the first in the nation to test a system that lets businesses file and pay their taxes over the Internet. Fred Kriga, department director, estimates as many as one-third of Washington’s 310,000 businesses will be filing on line by 1999.
“Through that project, we’ve learned what it takes to work with all the players involved in an electronic financial transaction,” said Todd Sander, deputy director of the Washington State Department of Information Services.
Although the menu of public-sector services is limited by access to technology, most business users are computerized and eager to embrace new efficiencies. Sander said Washington is working to put more business services, such as unemployment insurance payments, on the Internet.
“The vision for us is to have one electronic face we present to the business community,” he said. “That way, they won’t have to expend so much time and energy dealing with all the agencies involved.”
Michele Norman, a spokesperson for the Computer Systems Policy Project, said business has an opportunity to define not only the services it wants, but how it wants them delivered. The orders for government cooperation are coming directly from the White House.
“For the first time, in writing, an administration has said, ‘This is a situation where industry has to take the lead,”’ Norman said. “We jumped on that.”
Her policy group is lobbying for “tax neutrality” from states that otherwise might see e-commerce as a cash cow. As lobbyists press for government support on measures to ensure fair pricing and security for online transactions, they also ask lawmakers not to get in their way.
“The industry is confident that, left unfettered, the market will get where it needs to on its own,” Norman said. “Government action doesn’t move at the same pace as technology, so there’s a real risk that a policy put in place today will be problematic a year from now.”
In fast-moving electronic commerce, a year from now is forever and billions of dollars could be made in that time.
Dell Computers reports sales of $3 million a day on its Internet site. The online bookstore, Amazon.com, sold about $100 million from its site in 1997. Cisco, a networking equipment company, had projected sales of $2 billion using e-commerce over the past year.
A Goldman Sachs study showed 12 percent of U.S. companies ordered electronically in 1997. More than 52 percent said they will do so by 2000.
General Electric Co. has formed an Internet-based joint venture called TPN Register to move purchasing for all of its 12 business units - $5 billion spent annually - online in less than three years.
“If you can’t do electronic commerce, big business no longer wants to do business with you,” Pratt said. “It’s hard and it’s cold - but it’s true.”
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