While e-commerce doesn't equal short-term profitability, it could pay off in other ways. Over the coming 12 to 18 months, the number of profitable online ventures will remain less than 5% of the total, says Giga Information Group senior electronic commerce analyst Erica Rugullies. But e-commerce still offers huge benefits in improved customer and supplier relations, and lower business costs.
The Internet is a relationship enabler, she says -- streamlining communications with customers and suppliers, reducing order-processing costs, and offering more-convenient billing for customers. Their first year offering customer service online, firms should expect no savings -- but perhaps cost increases -- because of dual phone-based and Web-based operations. By three years in they may see 10% to 40% savings in customer service expenses. But as more brand-name companies embrace the Internet, there will be less room for e-commerce startups. "While most Internet commerce ventures will not be profitable in the near term, embracing electronic commerce is imperative." Giga Information Group in an IT research firm