Pick the B2C company most likely to succeed:
A recent study of technological advantages suggests eBay should win.
The study, from the
Center for Research in Electronic Commerce at the
University of Texas
, concludes that contrary to popular belief, investments in information technology do not necessarily add to an Internet company's productivity.
"E-tailers that are dealing with physical products are at a disadvantage compared to purely digital companies," said co-author Andrew B. Whinston.
The report, "Not all Dot Coms are Created Equal," found an important distinction between physical dot-coms like Amazon.com, which sells physical products on the Net, and digital dot-coms, such as eBay, which sells digital goods and services.
The study used four measures: revenue, revenue per employee, gross margin and gross margin per employee, to gauge the productivity contributions of investments in computer hardware, software and networking equipment. The surprising result of the study: IT spending did not contribute to productivity for physical dot-coms by any four measures. The opposite is true for digital dot-coms.
Though all dot-coms generate revenue and interact with customers over the Internet, physical dot-coms must invest in inventory, warehousing and a delivery system. In that sense, they are not unlike their off-line counterparts.
"A way to think of physical dot-coms is like online catalog companies," explained Whinston. "
But it's more efficient to be a catalog company online than to print and distribute a catalog."
So, a physical dot-com beats a catalog company, but that's not saying much. For physical dot-coms, expansion involves massive investments in the physical elements of their business, and is often labor-intensive. In contrast, a digital dot-com's complete business model is often reflected in its IT applications. A digital dot-com can expand just by increasing its Web presence.
The Internet still offers obvious advantages for physical dot-coms. It provides global reach, and digital-customer interface represents a cost savings over traditional retailers that must employ sales clerks. Still, even though physical dot-coms have digitized their customer relationships, their relationships with suppliers and others typically are not digital. To fully exploit the potential of the Internet, all partners must leverage the Internet, digitizing as much of their business processes as possible, Whinston said. For example, Whinston suggested Amazon would see an increase in productivity were it to invest in a digital-delivery system for books. Rather than order 50 more physical copies of a book from a supplier, and ship them through a third party to the end customer, which could take several weeks, they could almost instantly fulfill orders over the Internet, if books were in a digital format.
"Our guess is that they'll go into e-publishing. Book publishing could be much more creatively done by keeping it digital. Even in the toys area, you see more and more games downloaded digitally," said Whinston.
The report concluded that while digital dot-coms should invest marginal dollars in technology, physical dot-coms would benefit more by investing in labor. An important corollary to this conclusion is that digital dot-coms should have higher market capitalizations than physical dot-coms.