E-commerce in Oz

As more Australians embark on e-commerce ventures, a number of critical elements for success are often the ‘make or break' for most sites.

This month, we reveal why some sites succeed, why some fail and how some companies championed the online way of doing business.

Christmas marked an important turning point for online commerce. During 1998's hottest sales period, e-commerce broke out of its geeky, "freak show" niche and entered the mainstream. Mums, dads, grandparents and kids all shopped online. In fact, according to US-based Internet research specialists Jupiter Communications (www.jup.com), last Christmas more than 40 per cent of US homes equipped with a PC and modem made an Internet purchase. Total sales soared way past the forecasted $US2.3 billion to well over $4 billion.

Last year's action was mainly in the US. But by Christmas 1999, Australia's etailers will be ringing their virtual tills too. This is important for our economy. There's no hard data, but local researchers believe Australians who shopped online spent around one dollar locally for every five or six spent with US etailers. If nothing changes, this could develop into a major problem.

The good news is that Australian retailers are well placed to first service local customers and then play on the world stage. Long lead times for international shipment, an unfavourable currency exchange rate and a good old-fashioned desire to buy locally will help swing sales back to Australian etailers. Moreover, Australian etailers are rolling out world-class technologies and strategies that will allow many of them to compete internationally.

Secrets of success

So what makes a successful e-commerce site? Marc Phillips, the author of Australia's Most Successful Websites and Successful e-Commerce, said there are a number of factors. He said: "Functionality, speed-of-transaction are vital. Increasingly personalisation technology and affiliate programs are becoming important, while some type of portal tenancy deal to siphon traffic can be a major factor."

Phillips describes personalisation technology as the tools used to tailor a Web site for each individual user. For example, a CD etailer might track customers' purchases and, based on this information, present that customer with material about favoured artists or musical styles the moment he or she enters the site.

Affiliate programs are used to extend an etailer's reach. The giant US online book merchant Amazon.com (www.amazon.com) pays a commission to Web sites who refer book buyers to its site. This means revenue for the referring site owners, the credibility of a link with a major brand name and extra revenue for Amazon.

Getting a slot on the major portal sites, such as Yahoo! (www.yahoo. com.au) or OzEmail (www.ozemail. com.au) where Internet users start their browsing sessions, can quickly funnel users to an e-commerce site. Since research shows that consumers have difficulty finding relevant e-commerce sites, getting a spot on a portal could eventually prove to be a make-or-break issue.

Why some sites fail

The success factors mentioned above will lift a site above its rivals, but some sites never seem to fire at all. Take, for example, leading Sydney retailer David Jones. Two years ago the company embarked on an e-commerce venture, today that site is officially described as being "on hold". Woolworths (www.woolworths.com.au), the supermarket chain, has a lively interactive promotional site and offers its HomeShop online shopping service to customers in certain postcodes, but the service has yet to ignite. And while Harvey Norman can do no wrong as far as its investors are concerned, the company's earlier foray into e-commerce was disappointing.

All three examples are traditional retailers with a massive infrastructure investment and operating a mature business model. They face a nasty catch-22. If they don't go online, they could face eventual extinction. If they succeed online they'll cannibalise their existing business.

Speaking at an e-commerce conference is Sydney earlier this year; Greengrocer.com CEO Doug Carlson pointed out that traditional retailers run into problems with e-commerce when it doesn't mesh with their existing business models. He said that, for example, Woolworths is committed to its physical supermarkets and this acts as a constraint on its e-commerce activities. The costs of collecting and delivering groceries through its HomeShop service are significantly higher than those for competing e-commerce business built from the ground up, such as greengrocer.com.

Security

Historically, the biggest barrier to e-commerce has been security. Or, more accurately, consumer fears about the lack of security when shopping online. These fears are not without justification. There have been a number of well-documented cases involving hackers collecting credit card information as it travels the Net and then using the data to steal money. In reality consumers are more likely to be defrauded by unscrupulous or dishonest etailers than a third party.

Despite this, security remains important. Perhaps the best-known name in Internet security is Baltimore. In January, Baltimore Technologies merged with Zergo. The new operation does business in over 40 countries worldwide and its customers include some of the world's leading financial, e-commerce and telecommunications companies. Specifically, Baltimore's products include a range of Public Key Infrastructure (PKI) systems, cryptographic toolkits, security applications and hardware cryptographic devices.

Most of Baltimore's work focuses on digital certificates. Digital certificates are confidential, there is sender verification, built-in non-repudiation (that is, customers can't claim they didn't send the certificate) and they are tamper-proof to the highest commercial standards.

Baltimore products are the only ones on the E3 evaluated products list at ITSEC (Information Technology Security Evaluation Criteria), meaning that they are at the highest commercial security level. This is why the Australian Tax Office is a client along with banks and clearing houses.

Baltimore Asia-Pacific CEO John Palfreyman sees more organisations in the future using digital certificates to enable EDI networks over the Web. Future servers and software from Baltimore merger will feature privilege levels built into the certificates like NT user privileges. So, for example, a bank CEO will have access to more documents than a bank teller will. Baltimore's experience in matching security needs to real-life operations forms the key to its business. Its philosophy is to share knowledge of proven security practices with clients and to work with them to provide practical solutions.

Testing

By their very nature, e-commerce sites are complex systems integrating front-end and back-end processing. They are also mission-critical. Hence the need for sophisticated automated testing tools to verify that a site works as expected. Gabrielle Cichero of application testing specialist Mercury Interactive says there are two reasons why sites need formal testing.

"One reason is to test a site's functionality. For example, in a travel e-commerce site, customers might fill in forms to book a trip. You need to know that the chain of events triggered by this form works as expected. Does it generate a sensible itinerary? Does it then give the customer the correct quote for the booking? Does every possible combination of input deliver a plausible result?

"Then, you need to test the form still works when you update the data tables behind the front end. Functionality testing should also include testing of security features."

The other reason for testing is performance. Going back to the success factors mentioned by Marc Phillips, transaction speed is important. Customers might wait five seconds for an e-commerce transaction to complete, but they won't wait five minutes. In fact, Cichero said, "they'll go elsewhere".

Performance testing needs to take scalability into account. Many e-commerce sites lie dormant, or tick over at a steady rate, for most of the time and then experience huge, maybe sudden, bursts of activity. Their ability to perform at peak load is critical.

Cichero said Mercury Interactive's WinRunner is designed to test functionality while the company's LoadRunner software tests performance.

Case Study: ETrade Australia

www.etrade.com.au

ETrade Australia is an online share-trading and order placement operation allowing Australian investors to place orders on the Australian Stock Exchange (ASX). In addition to its trading features, it gives subscribers quotes, financial news, charts and a number of financial management and analytical tools. ETrade's portfolio management tools mean investors always know the value of the portfolio and account balance. ETrade is the only broker accredited by the ASX for online automated processing. In recent months, the company has floated and is now, itself, one of the ASX's star performers.

Kerry Roxburgh, CEO of ETrade Australia, said: "Local small investors had difficulty trading. ETrade offers great relief for these people. Now our subscribers go right across the range from small investors to large professional investors."

Mr Roxburgh said ETrade is currently about the 60th most popular site in Australia in terms of the number of hits. However, this raw measure is not the most significant from his point of view. He said that perhaps a better way of looking at performance is to note that less than a year after it was launched, it now accounts for around 1.7 per cent of the 35,000 trades that take place each day on the ASX.

ETrade Australia IT manager Harry Brigdon manages a local team of seven technical staff, while a further 36 full-time employees and a number of contractors make up the full ETrade Australia team. But it doesn't stop there. ETrade Australia licenses its brand and technology from a US organisation with the same name. In fact, the Web site is physically hosted in the US, with back-office operations here in Australia. In the US there are around 1000 employees.

As you'd expect in a share treading system, security is important. A Netscape secure server held in the US serves the US site. It is capable of 128-bit encryption, however US export policy means Australia users have that are crippled to 40-bit encryption. Instructions taken online are passed back to Sydney using two private frame relay lines routed through Hawaii. The site was created using Netscape's Kiva Dynamic HTML/Java language. Confidential client information is held behind a Cisco Pix firewall, so if hackers reach the Web site they could still not get the trading passwords needed to make transactions.

Investors need two passwords to trade. A login and password gets them into account information and prices. But if a user wants to transact, he or she must provide a second trading password. Brigdon said: "This works well for individuals who can share a certain level of their privileges with partners or other family members."

Brigdon said: "the biggest challenge was creating a fully-automated model. We're the only online broker that has straight-through processing with the ASX. The task was to integrate the back office with the front end using a series of business rules. It's all written in Visual Basic and C."

Case Study: Harris Technology

www.ht.com.au

Based in North Sydney, Harris Technology is one of Australia's best known and most successful computer retailers. For five consecutive years the company has been listed in the Price Waterhouse/BRW Top 100 fastest growing private companies. CEO Ron Harris said this financial year the company will turn over around $45 million. In March of this year, Coles Myer purchased Harris Technology.

Harris Technology was one of the first Australian computer retailers to implement an e-commerce site. Mr Harris said around 12 per cent of HT business is transacted online, mainly to Australian and foreign consumers. In March of this year the site took 900 online orders worth some $572,000.

At the time of writing, Harris Technology isn't automatically processing online transactions online. Most customers are businesses with trading accounts. They order online and pay using a 28-day line of credit. Other customers get a phone call following their e-mail orders asking for credit card details. Three full-time staff are employed to handle these calls and deal with e-mail. Harris said this system was developed for customer service reasons. "Most people are still relatively new to the Net and they like the human contact."

However, by the time this magazine is printed Harris Technology will have rolled out an automatic payment system. Harris said: "All the work has been finished and we are currently testing the system. When it's completed we will continue to allow people to use our call-back service if they choose."

The Harris Technology site is built around Microsoft Products: Back Office, Internet Information Server and Windows NT Server. Both the Web server and the database were written using FoxPro. Behind the front end is a live database that can be updated in real time while the site is active.

Harris has suffered from hacker attacks. However, to date there have been no known security breaches, and only 10 hours of downtime in three years. Staff spend an hour a week maintaining the hardware and two or three hours each week tweaking the applications.

Harris is a partner in Quids, the company that developed the system behind the Harris Technology site. He said that Coles Myer has taken an option to buy a 30 per cent stake in that company. He expects the new parent company will eventually draw on the expertise already gained at Harris Technology.

Challenge

As if putting the right combination of security, reliability, performance and business model in place were not enough, Australia's etailers have to cross another bridge before they reach take-off point. Today about one-third of all Internet users actually make purchases online, while a further third use the Internet to gather information before making an offline purchase. The remaining third shows no interest in buying online at present.

Convincing the two-thirds of Internet users who don't shop online to part with their cash may be the hardest task of all. The biggest spoils of e-commerce will go to those etailers who can drag potential customers over that barrier.

However, the early signs are that Australians might prove to be more enthusiastic e-commerce consumers than Americans. If that turns out to be the case, it means there might be even more incentive for our etailers to get e-commerce right and maybe teach the Americans a lesson or two. Web Watch, page 26: E-Comm Picks and Pans Australia and Singapore strike a dealElectronic commerce featured as one of the top ten initiatives in a lucrative agreement between the Australian and Singapore Governments, estimated to be worth up to $50 million. The technology-focused memorandum of understanding signed between the two countries earlier this year, will see both governments cooperating to combine their skills, expertise and technology to assist companies to streamline their supply chains, reduce costs and improve access to new markets by linking buyers and sellers into real time trading communities.

Other initiatives listed in the agreement include:

* information exchange on resolving the millenium issues* the enabling of physical connectivity* accelerating commercial and industry exchange* the encouraging of trade and investment in information and communications * and cultivating research and development.

On the e-commerce front, local company Baltimore Ltd has struck a deal with Singapore-based Lyrech International to provide secure business to business e-commerce solutions on a global basis combining both Baltimore's Public Key Infrastructure products and Lyrech's e-commerce software solutions.

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