January 19, 2001, 12:00 AM

Why A Big Spike In E-Commerce Transactions Isn't All Good News For Online Merchants

New research released today from Jupiter Communications shows that leading consumer commerce sites may process nearly 60,000 transactions a day during the upcoming holiday season, leading the way to an elevenfold increase in online commerce transactions between 1998 and 2003. However, research from Jupiter's new research practice, Commerce Infrastructure Strategies, shows that many sites have yet to make the infrastructure investments necessary to meet this growth and could experience site failures or an inability to deliver confirmed orders.

     ``Unfortunately, the window has closed for commerce sites to make any significant infrastructure adjustments before the holiday volume,'' says David Schatsky, an analyst with Jupiter's Commerce Infrastructure Strategies. ``Commerce sites must now focus on contingency plans, including increasing distribution, fulfillment and call center staffing; and preparing crisis plans for addressing issues that their company might face during an outage or product delivery problem.''

     The new Jupiter forecast indicates that US consumers will spend an estimated $6 billion online during the holiday season this year, deluging the busiest sites with an average of 58,000 transactions per day during November and December, compared with an average of 29,000 transactions per day in 1998. Last year, many commerce sites were not equipped to handle the volume and experienced failures, which left orders unfilled--and customers unfulfilled.

     Jupiter analysts believe that 1999 could be even more problematic. Even if Web sites remain up and running, online retail businesses could still face failure in inventory management, order processing, fulfillment and customer service, and be plagued with orders for out-of-stock items, unfilled orders, and ignored customer inquiries.

     ``Vendors and Internet commerce sites we've spoken with continue to view scalability as a matter of clever systems architecture and raw computing power,'' says Schatsky. ``But Internet commerce extends far beyond a Web site. Each additional transaction affects supply chains, call centers, and fulfillment operations. Web ventures must stop the launch-and-adjust development cycle. They must focus on the entire delivery chain if they want to avoid being crushed by, instead of profiting from, rising Internet commerce activity.''

     Jupiter research suggests that each additional transaction conducted on a Web site sets off a series of business processes that depend on people, systems, and partners extending beyond the Web unit. The failure to complete scalable integration with these off-line systems and processes will be a key driver of service problems. For example, a Jupiter executive survey of approximately 30 leading commerce Web sites shows that only 44 percent had completed real-time integration with off-line inventory management systems. Some sites still rely on human interaction to maintain inventory or to complete orders.

     Schatsky explained that if an Internet business unit can keep pace with such rapid growth, success in Internet commerce may overwhelm the less nimble segments of the business and the makeshift systems and processes that companies have relied on to enter the online market.

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