So What’s New About E-Commerce?

One of the interesting and disturbing aspects of e-commerce is the way it has been treated by just about everyone – pundit, investor, forecaster and entrepreneur – as though it were a totally new form of business.

While every other enterprise was trapped in the old world of business, it was in a new one, one without the same language or measurements as the others. Unfortunately, that was false. This is unfortunate because if true, it might explain some of the almost irrational decisions and comments.

Since e-commerce was treated as though it were entirely new, it created a set of terms to explain activities identical to what had been going on in remote shopping, especially cataloging, for years. However, for the new business to use old-business terms would have implied that it was not different, just an extension of what was being done by others in the non-Internet world.

Some examples:

E-Commerce Term Catalog Term

Hits Catalogs circulated

Visitors Response rate

Click-throughs Response rate

Conversion Response rate

Virtual inventory Drop shipping

E-mail marketing List rentals

Viral marketing Friend-get-a-friend

These e-commerce terms were bandied around as though they defined a new way of doing business. Yet, each is identical to terms and practices catalogers have used for years. The poor financial performance by e-commerce merchants may have caused them to create terms to describe something as simple as response rate, as though this would mask their problem that not enough money was flowing to the bottom line.

The latest term is viral marketing. This is the same old friend-get-a-friend program popular among catalogers 15 years ago. The difference is that while catalogers have dropped it, electronic technology allows a dot-com to do a better job of selling to the friend than a cataloger ever did, but it’s the same concept. However, viral marketing has a much better B-school ring than friend-get-a-friend.

Rules and financial measurements. It would be one thing if the dot-coms just used a new language to describe their activities because of ignorance. It would be sad if they felt a need to create new terms and couldn’t or wouldn’t use the older ones for fear it would damage their newness. However, when you look at the terms and their definitions, it appears that the change was not dictated by the new way of doing things on the Internet, but for the desire for newness.

This was also shown by the way the e-commerce pure players tried to redefine how to measure a company. Initially, that was creating a new metric of how many people came to their site as measured in hits, click-throughs or visitors. A comparable catalog measure would have been to measure a catalog’s success by how many catalogs it mailed. Or in retailing, declaring the success of a store by how many people walked through the door. If either of these industries had tried to sell success on those metrics, it would have been laughed out of every investor meeting. Why anyone in the investment community accepted the dot-com eyeball measurement is puzzling. It violates the basic tenets of business; the cash in the till is what counts, not how many people saw the ad.

Standard terminology also was redefined for the economic measures of a company. All of a sudden we were told to forget about the bottom line, that the measure that counted was revenue growth. This still is the argument used by some to explain why is a viable company, even with its negative cash flow. This disregard of the basic tenet of return on investment being the ultimate driver/decider can only be attributed to the almost gold rush mentality that existed until recently in the dot-com world.

What does this have to do with cataloging? For years, catalogers and the catalog industry have tried to become legitimate to investors, academia and the media, to be treated as a unique industry that is not just a subset of store retailing, but rather an industry with its own dynamics, drivers, values and peculiarities. This has taken many forms: The attempts of the Direct Marketing Association through its investor committee to educate the investment community; the Direct Marketing Educational Foundation’s Professor Institutes where they try to educate academia; and the patient explanations given by CEOs and chief financial officers of public catalogers to the investment community during their quarterly calls. All of them tried to explain the drivers and how to measure a catalog or direct marketing company. Unfortunately, the message fell on deaf ears. The majority in the investment community, academia and the media still know more about building a car than they do about cataloging, though it is a much simpler industry.

The easiest way for anyone outside an industry to understand it is to learn its language. Thus, the decision, conscious or by accident, to create a new language for e-commerce was unfortunate. The two forms of remote shopping are almost identical. One could argue that if the dot-coms had understood the drivers of remote shopping and used its language, there would have been less confusion among them as to what constitutes success. This may have saved some of the companies that recently went under because they spent all their money trying to build their brand image rather than on getting sales.

It would be nice to blame this language choice on some charlatan trying to scam the public. However, there is no one to blame. If anyone is to blame it might be catalogers. Had they not consistently left it to others to get the cataloging story out to the public, and their language into the halls of academia, this may not have happened. But it did, and now it is to the advantage of catalogers to adapt/adopt these Internet terms.

Why not call friend-get-a-friend viral marketing? Or rename drop shipping as vertical inventory? Since the investment community understands these terms, perhaps adoption by catalogers will make cataloging more attractive and hip.

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