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Business Advisor

The Difference Between E-Commerce and E-Business
BY BRIAN PITRE

What is the difference between e-commerce and e-business ?  Many magazine and newspaper articles use these terms interchangeably; however, I believe they are significantly different.  They both refer to conducting business on the Internet, but the key difference is in the level of commitment that a company elects for its business over the Internet.

Historically, many companies start on the Internet with a static Webpage or brochureware.  Then they become interactive by communicating and supporting their customers over the Internet.  Next, they attempt some form of transaction over the Internet that begins with an e-commerce initiative.  Ultimately, most companies will evolve by adopting e-commerce strategies to remain competitive in their current markets.  Interestingly, e-commerce was not a part of anyone’s strategic plan 3 years ago – not even Microsoft’s.  Today, in the best companies, the strategic plan is based on new models of business conducted over the Internet.

E-commerce is best defined or exemplified when a brick and mortar business decides to add an Internet based catalog of their products as an adjunct to their core business.  The business may not fully embrace the Internet as a force that is about to radically change the heart and soul of their current business, but they may be seeking to engage the Internet to test e-commerce and to learn more about it.  Brick-and-Mortar businesses become “Click-and-Mortar” businesses when they begin to process transactions or take orders over the Internet and supplement their existing ways of conducting business. 

The ability to adapt existing analog business models to the Web is many times difficult and tumultuous because they can interfere and compete with existing businesses methods.  Manufacturers provide a great example of the potential conflicts that can occur between an existing channel of distribution using distributors and dealers or a direct sales force and providing order taking over the Internet.  In these instances, distributors, dealers and direct sales forces feel threatened by the new Internet based implementation and justifiably so.

When existing businesses develop an e-commerce strategy it is 70% about adopting new business models and corporate cultural change and only 30% about technology. 

The longer a company waits to launch an e-commerce initiative the more difficult it becomes and the further ahead its competitors become.  The Gartner Group predicts “the Web has the ability to replace, rather than just supplement, traditional methods of business.”  This prediction seems to become more valid with every passing day.

In contrast, e-business  is when a company decides to fully embrace the opportunity of the Internet and completely transform their business models to take advantage of this new medium.  This will radically change their existing models of business and value proposition to their customers.

There are two primary ways to form an e-business strategy.  First, existing businesses may elect to engage e-business by forming a separate subsidiary of their current business.  Many times the process of transforming existing businesses to competitive e-business models is overwhelming and, in fact, impossible.  Barnes and Noble found that when competing with Amazon.com over the Internet, they were greatly disadvantaged by their existing brick and mortar business.  In order to compete on a level playing field, they had to spin off their e-business initiative and perform an IPO so that it could effectively compete with Amazon, as well as their own brick and mortar business. 

Not being constrained by a parent company and by spinning off a separate business is a great way to remain competitive on the Internet.  In fact, a new business must be able to compete with and cannibalize its existing business, if necessary – better to cannibalize yourself than leave it to your competitors.

The second type of e-businesses are the new “dot.coms” that are being funded by venture capitalists in an effort to capture the new ways of doing business over the Internet.  In e-business, dot.com competitors tend to work under significantly different cost models.  The newly emerging dot.com companies that are changing the rules in almost every market and industry can significantly impact existing methods of business and value propositions. 

The difference between e-commerce and e-business is dramatic.  If your company is involved in an e-commerce initiative, you should be on the lookout for the newly forming “dot.com’s” that enter your market.  These newly formed e-businesses pose the greatest risk to your existing business due to their different cost structures and value propositions, thus, not your normal competitors. 

Brian Pitre is President of Dockside Internet Services, Inc., an e-commerce development company. He can be reached at brian@dockside.net. - BP

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