Business-to-Consumer (B E-Commerce (2C) - Growth And Growing Pains

GROWTH AND GROWING PAINS

Swift growth has been perhaps the most celebrated feature of e-commerce. According to the U.S. Census Bureau, online shopping grew from $7.7 billion in 1998 to $17.3 billion in 1999 to $28 billion in 2000. Those figures are lower than other estimates of online consumer spending because the Census Bureau typically does not include online travel services, financial brokers or dealers, or ticket sales agencies in its totals.

The 1998 holiday season represented the first "e-tail Christmas" for U.S. consumers. Online consumers spent an estimated $4 billion during the fourth quarter of 1998 for goods and services, including travel, and nearly $10 billion for the year, according to the Boston Consulting Group. For the first time, online retailer Amazon.com surpassed $1 billion in annual sales as a result of the 1998 holiday shopping season. Internet portal America Online generated $1.2 billion in sales in the 10-week holiday season alone.

The next year marked an even greater success for online retailers, with big gains over the previous year. Jupiter Communications (now Jupiter Media Metrix) estimated total holiday Internet sales at $7 billion, while PC Data Online reported online holiday sales of $5 billion. Other estimates of 1999 holiday sales online varied from $8 billion to $13 billion, but all agreed that the 1999 holidays posted a large gain over the 1998 holiday shopping season.

One of the biggest problems online shoppers have faced, particularly during a holiday rush, is late delivery of merchandise. In December 1999 the U.S. Federal Trade Commission (FTC) received numerous complaints about prominent e-tailers failing to deliver merchandise by promised delivery dates. As a result, seven top e-tailers, including Macys.com ,Toys-rus.com, and CDNow, were fined a total of $1.5 million. The FTC found that those e-tailers violated the agency's mail-and-telephone order rule that required an order to be shipped within 30 days. If delivery could not be made on time, the customer should've been told and given the option of agreeing to a new shipping date or canceling the order. In 2000 the FTC issued a delivery warning to more than 100 e-tailers reminding them of their obligation regarding shipment dates, consumer notification, and refunds.

A holiday season field-test of e-tailers conducted by Resource Marketing of Columbus, Ohio, reported in Fortune magazine, found it was easy to find and order products, but the service component was flawed. The company noted that shoppers could not even place an order 25 percent of the time; 20 percent of the packages arrived late or never; and 36 percent of the sites had busy or unhelpful customer service phone numbers. Another study released by Datamonitor estimated that poor customer service cost e-tailers $11 billion in lost sales during 2000, including incomplete purchases that could have been salvaged if better service were provided.