The Downside of E-Commerce

"What are the negatives or 'cons' of e-commerce?" - Meiron Cornish

E-commerce has a lot going for it. From the customer's standpoint convenience, broad selection, fewer sales taxes, and the ability to do easy price-comparisons are prominent. From the merchant's point-of-view, e-commerce opens up a vast national and, in some instances, international marketplace. The ability to drop-ship items from the manufacturer or distributor minimizes the capital investment that physical shopowners must put into inventory, and smaller e-tailers can often operate out of a home office, saving the high cost of leased commercial space.

But there are negatives for both the shopper and the merchant that must be overcome if e-commerce is to succeed. From the shopper's standpoint, fears about credit card fraud, spamming, and identity theft make some hesitant to buy online. Shipping costs sometimes cause the final price to be as much or more than they would have paid for the item locally (if it were available). Browsing bookshelves, sizing up the product, and feeling and trying on apparel aren't possible in online stores (though e-tailers are finding virtual approaches to meet some of these shopper needs). Immediacy is lacking; customers may have to wait days or weeks to receive tangible goods purchased online. And customer service can be difficult since phone lines are often backed up for hours -- if you can find a phone number -- and concerns expressed via e-mail are too often ignored or processed extremely slowly. Product returns may require several time-consuming steps (but can't be much worse than the department store after Christmas!)

Merchants, too, struggle with the downside of e-commerce. Credit card fraud is present in an average of 1% to 3% of transactions, and merchants always bear the loss of so-called "authorized" credit card purchases, in addition to incurring chargeback penalties. Since you can't ask for an ID or signature, it is more difficult to verify the purchaser's identity (though credit card passwords and card verification codes [CVV2, CVC2, and CID] are helping). Merchants find it difficult to provide effective customer service since communication with drop-shippers about problem orders can be difficult or delayed. In addition to merchant credit card fees and discount rates, merchants sometimes have to pay a percentage of the sale to the e-commerce software or marketplace hosts (such as eBay, Amazon, or Yahoo! Store). Effective advertising is often expensive (though this is also true of local stores). Looming on the horizon is the administrative horror of having to collect and remit sales taxes for dozens of state governments.

E-commerce brings significant challenges that merchants must overcome for their customers and themselves if they would earn a meaningful profit from online sales. Am I down on e-commerce? Not at all -- only realistic. Every business marketplace has built-in problems to overcome. But e-commerce offers huge promise for savvy small business people who dream of reaching the world. Count me in!