Electronic Commerce: Trend Shows Rapid Growth in Online Shopping by Consumers and Businesses

REDMOND, Wash., December 7, 1998 — Believe it or not, there are still a few places on earth where there are no Starbucks stores. You won’t find one on the entire continent of Antarctica, for example, and the company has yet to make major inroads in Africa. Even in the U.S., there are still 18 states where you can’t satisfy your craving for a Starbucks double tall latte because there simply are no Starbucks stores to be found.

Until recently, there was one other place where you couldn’t find Starbucks: on the Web.

While plenty of companies began scrambling a year ago or even earlier to establish a foothold in cyberspace, Starbucks decided to sit back and wait for the time when the realities of electronic commerce begin to catch up with the hype.

That time turned out to be this year’s holiday shopping season. On October 5, the company unveiled an impressive new Web site, loaded with just about everything anyone could think of related to Starbucks and coffee, from a company history, to a guide to “latte lingo,” to tips on how to brew up a great cup of coffee at home. There’s also an online retail store. And while you can’t buy hot coffee drinks there, there isn’t much else that Starbucks sells in its more than 1,300 stores that you won’t find, including a wide range of gifts and gift baskets designed specifically for holiday giving.

Starbucks isn’t alone in picking the 1998 holiday season to venture into cyberspace. Some of the best known brands in America have chosen this holiday season to begin selling goods via the Internet, including Levi Strauss, which opened its virtual doors in November, and Staples, which also unveiled its online store this Fall. Others, like the Gap, JC Penney, and Martha Stewart Living have recently gone live with significantly expanded sites.

This holiday season also welcomes hundreds of hip, new Internet-only retailers – Bluefly.com, a designer outlet; SmarterKids.com, offering educational books, software, and games; and Cooking.com, an online reference for culinary needs, to name just a few.

All these online retailers are helping consumers look to the Web as a viable alternative to a trip to the mall in once unimaginable numbers. During the first half of 1998, 20 million people made an online purchase. According to a recent survey by Visa in early November, nearly half of its cardholders plan to do at least some holiday shopping online; 43 percent of the computer users interviewed in a survey conducted by Dell Computer and Louis Harris & Associates said they plan to shop this holiday season on the Internet, compared to just 10 percent last year. All told, online shoppers are expected to spend some $2.3 billion this holiday season, according to the research and marketing firm Jupiter Communications, a total that will exceed the $2 billion or so spent online during all of 1997.

“Some people say we were late to the game,” says Heidi Wells, the project manager for Starbucks online. “I think that this was exactly the right time to enter-online sales are growing by leaps and bounds as more and more people come online. We’re very excited about what’s happening.”

Others are excited, too. Many observers are saying that the 1998 holiday season may well be remembered as the time that online commerce came of age. “Now we’ve reached critical mass in the number of consumers with Web access and critical mass in the number of merchants who are selling online,” says Jonathan Weinstein, Microsoft’s lead product manager for commerce. “Things are really starting to take off now.”

“What you’re seeing now is what happened with the explosion of catalog shopping back in the late 1970s and early 1980s-a very fundamental change in American shopping patterns,” Jupiter Communications senior analyst Nicole Vanderbilt recently told the Chicago Tribune.

A retail revolution powered by Microsoft Technology

While the explosive growth in online commerce is due partly to the increase in the number of people with Internet access, it is also tied to significant advances in the technology used to design, build, manage, and maintain commerce Web sites. For many of the leading retailers, it is not just the size of the electronic commerce market that makes this the right time to launch themselves into cyberspace: it is only now, they feel, that the technology required to sell products on the Web has become both sufficiently reliable and affordable.

That’s why some of the largest and most visible companies on the Web rely on chosen Microsoft technologies to create their electronic commerce systems. In addition to Starbucks, Levi’s, Staples, JC Penney and the Gap, leading brands like Barnes & Noble, Eddie Bauer, and Office Depot have all chosen a combination of Microsoft Windows NT Server, Microsoft Site Server Commerce Edition, Microsoft SQL Server, and other Microsoft applications and tools.

“These companies are treating their online stores as a critical extension of their business,” says Randy Bainbridge, a managing consultant for Microsoft Consulting Services. Bainbridge heads a team of Microsoft consultants who work primarily with the Gap and Levi Strauss. “A year and a half ago some of the benefits weren’t there,” he says. “But there have been dramatic improvements, especially with the release of Site Server 3.0 Commerce Edition. Now these retailers are confident they can put these mission critical applications in front of customers.”

These products come packed with features that let companies take full advantage of the power of online commerce. Office Depot uses the Microsoft Index Services, a part of the Microsoft Windows NT Option Pack, to make it easier for customers to search through the company’s extensive online catalog, which runs to more than 7,000 products. Dell, which sells more than $10 million worth of computer products through its Web site every day, uses Microsoft Site Server Commerce Edition features such as Analysis and Personalization to understand not only which pages users visit, but why. That helps the company adjust product offerings to meet customer needs more precisely.

“It’s gotten to the point where these products are more and more comprehensive,” says Dave Dix, Dell’s global Internet public relations manager. “With all the additional features and functionality, we don’t have to deal as much with custom software.”

The richness of features was part of the reason that Starbucks went with Microsoft, according to Heidi Wells. “We evaluated a lot of commerce software packages then went with Microsoft products because they came with features we needed right out of the box,” she explains. “We also looked at who else was on the Web using Microsoft technology-the fact that companies like the Gap and Eddie Bauer rely on Microsoft also helped us make our decision.”

Microsoft’s historic support for open, non-proprietary computer architecture is another important reason that so many high-profile companies are going online with Microsoft technologies. Open standards have made the Windows platform extremely flexible-from the operating system to the Microsoft Internet browser to desktop applications such as Microsoft Office and back-end products like Microsoft BackOffice, Microsoft provides a tightly integrated foundation of applications that make it possible for a company to manage information more efficiently than ever before.

The flexibility of Microsoft’s commerce platform also allows retailers to build online stores that reflect the way the companies do business in the physical world. At the Gap Web site, for example, the “instant style” section serves as a sort of virtual dressing room where you can mix and match shirts, pants, and shoes to see how different combinations look. “Commerce solutions based on the Windows platform are configurable and customizable so that companies can create their own competitive advantage,” says Bainbridge.

Microsoft’s support for open standards has helped give rise to an entire industry of software technology companies and consulting firms that focus on helping companies create competitive advantage on the Web. Working closely with the best of these outfits, Microsoft has developed a network of partner companies that understand how electronic commerce works.

One of those partners is Organic, a San Francisco-based Web development company. It was Organic, working in concert with Microsoft Consulting Services, that built the Starbucks Web site. “The teamwork between Starbucks, Organic, and Microsoft during the development of the site was critical,” says Debbi Gillotti, Starbucks CIO. “Microsoft provided extensive support that enabled Organic to deliver a site that exceeded our expectations. Microsoft and Organic also worked as a team to share knowledge and utilize the extensive resources available from the various product groups within Microsoft.”

Electronic commerce: more than just retail

While online holiday shopping has generated the most buzz recently, according to Microsoft’s Jonathan Weinstein, retail sales are just one part of the electronic commerce picture. Business-to-consumer transactions are predicted to climb from around $7 billion this year to nearly $40 billion in 2002, but that may be just a drop in the bucket compared business-to-business electronic commerce, which may total some $300 billion in 2002.

Weinstein believes that companies will benefit not only from using the Web as a direct marketing and selling tool with retail customers, but also from increasing efficiency and lowering costs by using the Web as a tool for value chain integration and procurement.

One organization that is already seeing the value of electronic commerce is Los Angeles County. The largest local government in the United States, L.A. County government encompasses everything from police and fire departments to road operations, hospitals, and dozens of other departments and services. Combined, these groups spend more than $650 million each year. Until recently, all of that purchasing was done with catalogs and paper forms. Comparison shopping was impossible, the county missed opportunities for volume discounts, and it racked up huge inventory and warehousing costs. The reliance on paperwork often resulted in long delays in fulfillment of orders.

To streamline operations and reduce procurement costs, L.A. County built its own electronic commerce system. Using technologies from Microsoft and Commerce One, a Microsoft partner, the county developed an online procurement system that lets county employees interactively compare prices, check availability, and place orders-all through a single, easy-to-use interface. There have already been huge benefits: orders are filled more quickly and comparison shopping yields savings of up to 5 percent in some categories, saving the county millions of dollars. In addition, L.A. County was able to close down its central warehouse, saving the county an additional $6 million each year.

‘Tis the season

Business-to-business electronic commerce may ultimately prove to have more impact than business-to-consumer retail sales. But it is the latter that is capturing everyone’s attention. With more and more of the leading brands and retailers setting up shop in cyberspace as the holidays approach, and more and more shoppers turning to the Web for their gift purchases, it seems clear that electronic commerce is ready for prime time.

Starbucks is just one of the companies that is confident that they chose the right time to make the leap into electronic commerce. “The holiday season is our biggest time of year,” says Heidi Wells. “From an electronic commerce perspective, this holiday season is very important, but it is just the beginning. We believe that by offering our customers more convenient ways to buy our products and share the Starbucks experience on their own terms, at the end of the day we will be building stronger customer loyalty.”

Related Posts

E-Business Just Got Smarter

Commerce Server 2000 provides the power and breadth to deliver next generation e-business solutions with better service and more personalization.