By Gord Delamont
London Business Magazine - June 1999

It's hard to believe the Web barely existed six years ago. In a word, growth has been phenomenal. The audience for radio took four decades to reach 50 million. In less than four years, Internet users reached twice that number. The number of subscribers to Hotmail - the free Web-based e-mail service, reached 12 million within 18 months of its launch. By autumn 1998, Hotmail had more than 34 million subscribers - and was signing up new ones at the rate of 150,000 a day. This made it the fastest-growing company in history. Henry Ford, eat your heart out.

As the Web began to spread, so did the buzz about how it is going to make a whole lot of people very rich, very fast. So far, that has not happened. But the buzz is still there. It rises and falls like the roar of distant surf as some new demographic or technological milestone flashes past and disappears in the rearview mirror. The number of Web users worldwide has passed the 120 million mark, the number of Web sites is 600,000-plus. The investment by business to create an online presence tops $280 billion.

So are we there yet ?

Not quite. But as the Web's importance as a business tool grows, it stimulates creativity and chums up opportunity. An e-commerce - the digital way in which products are marketed and businesses, customers and suppliers interact - is here now, with many companies trying to make a buck off the Web.

Beyond this common ambition, however, different companies have different reasons for going online. Some have put new twists on old businesses, some are using a Web presence to beef up commerce in the material world, and others only become possible because of the Web.

Take, for instance, Balloons To Go (balloonstogo.com). As a unique Wharncliffe Road retailer, the business is definitely a niche marketer. Which is exactly why the 20 year old company took flight in cyberspace. "The Web allowed us to get the word out to a very large population base," says owner Dale Brewster.

Convinced an e-commerce site would boost local trade by providing distant consumers with a gateway to the London market, Brewster has been taking orders for balloon bouquets and specialty products online for the past 18 months. "If you lived in California and had a relative in hospital in London, it's and easy and convenient way to reach that person," she explains. What's surprised Brewster, though, is the volume of international business generated by the site. Her very first online transaction, in fact, was a balloon imprinting order bound for England.

"I was absolutely beside myself I was so thrilled," she recalls. "Here was this guy who found my site and placed the order because, even with shipping costs added on, it was a better price than he could get in England. Orders have come in from all over. We've processed orders from the Philippines, Australia and lots from the U.S."

But like the general business community at large, retailing sites that extend the reach of storefront businesses like Balloons To Go are but one part of the burgeoning e-commerce landscape. For a growing number of companies, making the Web "the primary way of doing it" is the goal of their business future. Case in point, London-based Connectivity Plus. The computer networking firm, in partnership with Canada's largest computer distributor, Ingram Micro, has developed www.directdial.com, one of the country's first virtual superstores.

Boasting in excess of 45,000 computer products for purchase, directdial.com is one of a new breed of true e-businesses - no bricks, no inventory, no physical presence whatsoever. All of the products offered on the site, says Greg Bruzas, vice president of sales and marketing at Connectivity Plus, flow directly out of Ingram's two distribution facilities in Toronto and Vancouver.

"We don't hold any inventory here, the distributor holds it for us," notes Bruzas. "We ship directly to the corporation or end user from one of two warehouses. We're also in the process of setting up U.S. accounts with Ingram so we can ship directly from U.S. warehouses to American customers that are buying."

Aside from eradicating most of the overhead associated with running a conventional retail business, Bruzas says one of directdial.com's biggest cost advantages lies in the area of inventory management. "It allows us very little handling cost and very little holding cost," he stresses. "As price drops happen - and they're happening every single day in this business - we don't absorb them because we don't hold the inventory."

The big question, of course, is whether e-commerce sites like directdial.com and balloonstogo.com are making money. Asked if the Web is paying off, Bruzas wouldn't say. But given the newness of the business and the development costs incurred with as site as large and complex as directdial.com, it's understandably too early to tell.

As for Brewster ? Well, so far, online sales have accounted for only a "small portion" of Balloons To Go's sales. Still, she's far from downcast. "Sure, I've made some money off of it, but it's been almost two years," she says. "As a percentage of sales, it's still pretty low. But those are sales that otherwise wouldn't be there and they've steadily gaining. It's also important to remember how much things have changed in the last 18 months. It's amazing the number of people that now have access to the Net."

Without question, the Web's numbers are growing. But the biggest problem for any Web retailer is getting the connected-at-large to buy. An what stops many of them is security. People have been reluctant to give credit card information of the Web, because they believe criminal element will intercept them.

"People always think there's going to be some guy on the top of the telephone pole with two little alligator clips, monitoring a line and stealing credit card information," notes Bruzas. "The reality is credit card encryption makes the process very safe - much safer that handing your card over to a retailer in person. But educating the world is going to take some time."

Credit card anxiety is fading - and its disappearance will be hastened by the assortment of new ways of paying online. E-cheques, which customers sign digitally and then send by e-mail, are convenient and cheap to process. Electronic wallets are another means of payment that will debut shortly, led by IBM's Consumer Wallet.

But what is also holding back some sales is the fact that many online vendors are relatively unknown to consumers. One of the biggest challenges for any company pursuing e-commerce, stresses Brewster, is letting consumers know the site is out there.

"You have to make sure your site is promoted," she says. "I know I've received a lot of hits just because I list it in the phone book - both here and in Kitchener." The domain name is also a big factor. "When I first put up the site, it was balloonstogo.on.ca because the .com domain was unavailable. Eventually it came up, at a cost of $70 (U.S.) for two years, and what a big difference it made. As soon as I went to .com, I noticed a big increase in traffic. Everybody punches in .com first."

Strategic linking, adds Brewster, is another important marketing tool. "Balloon.com is the site of a major American balloon company," she explains. "It has a link directory, and having my site listed on that page brings a lot of people to the site."

Bruzas agrees. "As one of the first superstores sites in Canada, we benefit greatly from having companies like Microsoft, Compaq and Hewlett Packard pointing people to the site, particularly from a U.S. perspective. Typically we're seeing a lot of sales coming out of New York, Vermont, the Minneapolis-St. Paul area and Buffalo. People are ordering because of the exchange rate. It's cheaper to buy goods from us that from a U.S. superstore.

Which brings up an interesting point. Given the Web's inherent access to the U.S. market, and the leg up many Canadian sellers enjoy thanks to our lowly dollar, it's surprising to note that Canadians, as a whole, are falling behind Americans in the race to build online commerce. The reason, however, is as clear as mud. Some Web experts blame higher costs. Others point to the cost of high-speed, high-bandwidth Internet access necessary for many types of electronic business. Still others say it's just that consumers here have been less receptive.

For his part, Bruzas believes the biggest hurdle for the domestic e-commerce marketplace is the banks. "The (Canadian) banks are so far behind the U.S. banks," he says. "Getting a bank to do the transaction processing on the back end - to accept the credit cards and deposit the money inside your bank account - while at the same time going off to the actual John Doe that's buying and approving his credit information so you can ship to his location, is a major obstacle out there. Right now, most of them require security deposits of up to six months of projected sales coming off the site. That's a lot of coin for a small business to lay down."

There are alternatives, however. Connectivity Plus, for one, utilizes Oakville's InternetSecure Inc., which supplies technical services for companies wanting to offer secure credit card transactions. "We use them as our payment gateway," explains Bruzas. "It's a mid-level layer that's been certified by all the Canadian chartered banks, and it requires only a $2,000 or $3,000 security deposit. You can leave your merchant account with your existing banks and InternetSecure processes through the mid-layer, authorizing and verifying everything so your deposits go automatically to your credit card account."

But while many entrepreneurs wag a finger at Canada's regulatory environment, Martin Byrnc, project director at Communicopia Inc. of Toronto, a firm specializing in designing interactive sites for Canadian financial services firms, suggests that Canadian online entrepreneurs have to deal with skills and viability issues that Americans don't.

"There is a lag just because there's a certain amount of resources and a lot of really hot skills and hot development shops are still in America and they end up being the testing ground for the big, expensive ideas, where the mentality of a lot of organizations up here is to play it safe and let someone do the groundbreaking first and see what the results are," he says.

For instance, Amazon.com and BarnesandNoble.com established the market for bookselling over the Internet. As soon as that line of business had proven itself, Canadian sites - bookshelf.ca and chaptersglobe.com - quickly moved in to repatriate the estimated $8-millon (U.S.) Canadians were spending annually to buy books from the U.S. online retailers.

"I think the lag is actually an international lag to play it safe. Firms up here don't have as much capital to throw around on first-attempt ventures on the Internet," says Byrnc. "Canadian corporations are taking a smarter approach which seems a little slower but they're really making sure that when they do finally get to market with a full range of consumer services, that they are going to be thorough, secure and robust and well-though-out from the user's perspective."

Many Canadian Internet experts believe that based on historical patterns, there is an 18-24 month gap between the time an online or new media trend catches on in the United States and the time it shows up on the Canadian market. For instance, total spending by Canadian firms on Internet-based advertising in 1998 is, after adjusting for the size of the two countries' populations, about the same as the amount American companies spent in 1996.

Regardless, the trend is toward faster growth in e-commerce. And while the business-to-consumer sector will continue to grow at an astonishing rate, much of the latest e-commerce buzz revolves around business-to-business applications.

"The business-to-business marketplace is the real major area of growth in electronic commerce," says Bruzas. "A typical example is the Eaton's site (www.eatons.com). As a consumer, you can go to the site and purchase a box spring and mattress off the Web. But behind the scenes is a business-to-business application, so the mattress companies that supply Eaton's have a direct connection. They can check the inventory sold, and Eaton's can send purchase orders for restock electronically over their community. That's something most consumers don't see, and that's really where all the major happenings are taking place in electronic commerce. It's actually a lot easier to set up because there is no credit card verification and security stuff a business-to-consumer site requires."

Indeed, for many companies running a consumer-focused e-commerce site today, it's a lot like owning an immature race horse. It looks like a winner, but so far all it's done is racking up feed and stabling costs. The costs savings to be had from e-commerce business applications on the other hand, appear to be a sure thing.

"If you can give a business a self-service type application where all it needs is a Web browser and a password to log on to the particular account, what a great thing to do," sums up Bruzas. "When you take a look at the savings in time and transactions, the potential is huge."