Online Selling & Ecrm August 2002

Online Selling & eCRM August 2002

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Table of Contents 3 Methodology 5

The eMarketer Difference 6

The Beneﬁts of eMarketer’s Aggregation Approach 7

“Benchmarking” and Projections 7 I Introduction 9

A. Estimating the Number of Commercial Websites 10

B. Estimating the Number of Website Visitors 15

C. The Growing Importance of the Internet Channel 20 II B2C Websites 23

A. Website Capabilities 24

Website Budgeting and ROI 26

E-Commerce and General Website Capabilities 35

Managing Website Trafﬁc 43

B. Consumer Preferences 51 III B2B Websites 65

A. Website Capabilities 66

B. User Preferences 81 IV Online Customer Service & eCRM 87

A. Website Capabilities 88

B. User Preferences 105 Index of Charts 117

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August 2002

Welcome to eMarketer

Dear Reader:

Steve Butler Senior Analyst, eMarketer Welcome to eMarketer’s Online Selling and eCRM report.TM The information in this report has been [email protected] compiled to help readers understand the current trends and issues facing operators of both business- eMarketer, inc. 821 Broadway to-consumer and business-to-business commercial websites. New York, NY 10003 The Online Selling and eCRM reportTM examines the range of website capabilities that businesses have T: 212.677.6300 F: 212.777.1172 deployed, as well as those features that website operators expect to implement in the months ahead. The report also provides aggregated survey data of internet users’ preferences for various website features, with coverage of the divergent interests of B2C and B2B website visitors. The ﬁnal chapter of this report considers internet-based customer service, or eCRM, with information about the latest trends among website operators, as well as consumers’ opinions of online customer service to date. If you have any questions or comments concerning eMarketer or any of the material in this report, please call, fax or e-mail us.

Steve Butler Senior Analyst

Written by Steve Butler

Also contributing to this report: Reuse of information in this document, without prior authorization, Yael Marmon, researcher is prohibited. If you would like to license this report for your Andrew Raff, researcher organization, please contact David Iankelevich at Tracy Tang, researcher [email protected], or 212.763.6037. Allison Smith, senior editor David Berkowitz, editor James Ku, data entry and production Dana Hill, production artist

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Methodology 5 The eMarketer Difference 6 The Beneﬁts of eMarketer’s Aggregation Approach 7 “Benchmarking” and Projections 7

I Introduction 9

II B2C Websites 23

III B2B Websites 65

IV Online Customer Service & eCRM 87

Index of Charts 117

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Methodology eMarketer’s approach to market research is founded on a philosophy of Introduction aggregating data from as many different sources as possible. Why? Because B2C Websites there is no such thing as a perfect research study and no single research B2B Websites

Online Customer source can have all the answers. Moreover, a careful evaluation and Service & eCRM weighting of multiple sources will inevitably yield a more accurate picture Index of Charts than any single source could possibly provide.

The eMarketer Difference eMarketer does not conduct primary research. Neither a research ﬁrm nor a consultancy, eMarketer has no testing technique to defend, no research bias and no client contracts to protect. eMarketer prepares each market report using a four-step process of aggregating, ﬁltering, organizing and analyzing data from leading research sources worldwide.

Aggregate

Analyze Filter

Organize

Using the internet and accessing a library of electronically-filed research reports and studies, the eMarketer research team first aggregates publicly available e-business data from hundreds of global research and consultancy firms. This comparative source information is then filtered and organized into tables, charts and graphs. Finally, eMarketer analysts provide concise and insightful analysis of the facts and figures along with their own estimates and projections. As a result, each set of findings reflects the collected wisdom of numerous research firms and industry analysts.

“I think eMarketer reports are extremely useful and set the highest standards for high quality, objective compilation of often wildly disparate sources of data. I rely on eMarketer’s research reports as a solid and trusted source.” — Professor Donna L. Hoffman, Co-Director, eLab, Vanderbilt University

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Methodology The Beneﬁts of eMarketer’s Aggregation Introduction

B2C Websites Approach B2B Websites Objective: information is more objective than that provided by any single Online Customer Service & eCRM research source Index of Charts Comprehensive: gathered from the world’s leading research firms, consultancies and news organizations Authoritative: quoted in leading news publications, academic studies and government reports All in one place: easy to locate, evaluate and compare Readily accessible: so you can make quick, better-informed business decisions Above the hype: accurate projections that business people can use with confidence Time saving: there’s no faster way to find internet and e-business stats, online or off Money saving: more information, for less, than any other source in the world

“Benchmarking” and Projections Until recently, anyone trying to determine which researcher was most accurate in predicting the future of any particular aspect of the internet did not have a definitive source with which to do this. For instance, over 10 firms predicted e-commerce revenues for the fourth quarter 1998 online holiday shopping season, and yet no single source could be identified after the fact as having the “correct” number. In the Spring of 1999, however, the US Commerce Department finally began measuring e-commerce B2C activity so business people and others could have a benchmark with which they could compare and evaluate projections. eMarketer has adapted its methodology to recognize that certain government and other respected, impartial sources are beginning to provide reliable numbers that can be consistently tracked over time. Most of these established sources, however, only measure past results; typically, they do not make predictions.

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Methodology Today, eMarketer formulates its Essential E-Business Numbers by ﬁrst Introduction identifying the most established, reputable source for a given sector being B2C Websites measured and then adopting that organization’s ﬁgures as benchmarks for B2B Websites

Online Customer the historical/current period. For instance, eMarketer’s US internet user Service & eCRM figures will be based on a combination of the most recent data from the US Index of Charts Census Bureau and the International Telecommunication Union. Using this data as the benchmark for 2000 and 2001, eMarketer will make projections for subsequent years based on the following factors: a comparative analysis of user growth rates compiled from other research firms additional benchmark data from internet rating firms, e.g., Nielsen//NetRatings and Jupiter Media Metrix, which use panels to measure internet user activity on a weekly and monthly basis an analysis of broader economic, cultural and technological trends in the US Similarly, US e-commerce revenues are being “benchmarked” using historical data from the US Department of Commerce, and broadband household and penetration rate forecasts are being built off baseline data from the Organization for Economic Cooperation and Development (OECD). Through this benchmarking process, eMarketer will be holding itself – and our projections – accountable.

“When I need the latest trends and stats on e-business, I turn to eMarketer. eMarketer cuts through the hype and turns an overabundance of data into concise information that is sound and dependable.” — Mark Selleck, Business Unit Executive, DISU e-business Solutions, IBM

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Methodology 5 I Introduction 9 A. Estimating the Number of Commercial Websites 10 B. Estimating the Number of Website Visitors 15 C. The Growing Importance of the Internet Channel 20 I II B2C Websites 23 III B2B Websites 65

IV Online Customer Service & eCRM 87

Index of Charts 117

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Methodology A. Estimating the Number of Commercial Introduction

B2C Websites Websites B2B Websites As most people who are familiar with the phenomenal growth of the Online Customer Service & eCRM internet are well aware, there has been a dramatic increase in the number Index of Charts of websites during the past 10 years. And although they make up a signiﬁcant portion of the broader universe of registered internet domains, determining the exact number of active commercial websites has been difﬁcult to do. As a starting point, in July 2002, Telcordia Technologies counted 194 million internet hosts – individual computer devices that have an internet protocol (IP) address, and are therefore accessible via the internet. The vast majority of those addresses fall under the .net domain, with 65.3 million hosts registered under this top-level domain. A further 42.1 million IP addresses fall under the .com domain, followed by 8.6 million that are registered under the .edu domain. It should be noted, however, that a single internet service provider (ISP) can typically operate several thousands of internet hosts. AOL.com, for example, operates nearly 4.9 million hosts of its own, such as those at shop.aol.com or hometown.aol.com.

Number of Internet Hosts, by Top Level Domain, July 2002 (in millions)

.net 65.33

.com 42.17

.edu 8.62

.jp 8.36

.ca 3.22

.de 2.92

.it 2.91

.uk 2.90

Thanks to the growing popularity of the internet among average citizens, the registration of commercial and non-proﬁt organizations’ websites under the .com, .net and .org domains soared during the 1990’s, increasing from less than 10,000 such websites in 1993 to more than 8 million by 1999, according to data from Network Solutions.

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Methodology It is important to note, however, that the number of registered domain Introduction names does not accurately reﬂect the actual number of websites that are up B2C Websites and running, as many have closed, while several other registered domains B2B Websites

Online Customer remain dormant. Service & eCRM Index of Charts Cumulative Domain Name Registrations in the .Com, .Net and .Org Domains, 1993–1999 (in millions) 10

8.1

3.4

1.5 2 0.6 0.01 0.04 0.2

Among the best efforts to gauge the precise number of websites that are accessible via the internet, comparative estimates by the Online Computer Library Center (OCLC) and Alexa International place the number of websites at between 8.4 million and 10.0 million worldwide in 2001.

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Methodology In the case of Alexa International, this represents a four-fold increase in the Introduction number of websites during the past four years over Alexa’s initial estimate B2C Websites of 2.5 million websites in 1998. B2B Websites

Online Customer Service & eCRM Number of Websites Worldwide, 1998-2001 (in millons) Index of Charts 15

10.0

9 8.4 7.1 6.0 4.7 3.4 2.6 2.5 3

1998 1999 2000 2001 Online Computer Alexa International Library Center, Inc.

The OCLC estimates that 3.1 million, or 37%, of the 8.4 million websites that it has counted are accessible to the public, while 2.1 million websites have restricted access. A further 3.2 million websites, according to the OCLC, are in a transitional or unfinished state. Broken down by each website providers’ primary economic activity, the OCLC estimates that the largest percentage of public websites is operated by information providers. As for other commercial websites, approximately 990,000, or 11.8%, of public websites are classified as being operated by firms in the retail industry, while about 714,000 public websites come from businesses in the manufacturing industry.

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Methodology The OCLC’s annual study examined a random sample of just over 4.29 Introduction million IP addresses to arrive at its estimates. The estimates of each website B2C Websites operator’s role in the economy are in turn classiﬁed according to the North B2B Websites

Online Customer American Industrial Classiﬁcation System (NAICS). Service & eCRM Index of Charts Classification of Public Website Providers' Primary Economic Activity, October 2001 (as a % of public site providers)

Information 15.5%

Professional, scientific and technical services 14.2%

Other services (except public administration) 12.8%

Retail trade 11.8%

Manufacturing 8.5%

Educational services 6.6%

Arts, entertainment and recreation 4.7%

Accommodation and food services 2.8%

Real estate, rental and leasing 2.3%

Finance and insurance 2.1%

Others 9.6%

Unknown 9.1%

Of course, not all commercial websites have the ability to conduct transactions, as many businesses operate “brochure-ware” websites that provide information about their company’s products or services but do not actually sell goods or services online. As a means of approximating the number of websites with e-commerce capabilities, the OECD looks at the number of secure web servers that are in operation within each of its member countries. Secure web servers are necessary for the exchange of encrypted data, such as credit card information, and thereby provide a rough indication of the number of commercial websites that are able to conduct internet-based transactions. As of late-2001, the OECD estimates that the number of secure servers in the United States reached 315.3 servers per million inhabitants, up from 27.6 servers per million inhabitants in 1997. Based upon the US Census Bureau’s estimate of 287 million US citizens in 2002, there were approximately 90,554 secure servers being operated in the United States as of last year.

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Methodology Similarly, using OECD population data from 2000, eMarketer has calculated Introduction that there were roughly 7,940 secure servers being operated in the UK in B2C Websites 2001, compared with 1,960 in France and 6,450 in Germany. B2B Websites

Online Customer Service & eCRM Secure Servers per Million Inhabitants in the EU and Index of Charts US, 2000 & 2001 2000 2001 US 240.3 315.3 Luxembourg 101.7 157.2 Sweden 91.6 142.4 UK 74.0 133.0 Finland 66.3 127.6 Ireland 65.4 124.7 Austria 55.2 108.9 Denmark 54.3 98.3 Germany 45.8 78.5 Belgium 26.2 42.1 France 21.9 33.3 Spain 19.3 30.3 Italy 13.9 22.1 Portugal 11.6 19.2 Greece 8.3 16.7 Source: OECD, July 2001 037425 ©2002 eMarketer, Inc. www.eMarketer.com

And ﬁnally, it is worthwhile to note that despite its strong commercial roots in the United States, the internet has become increasingly relevant to a wider international audience over the past several years. According to IDC, nearly half of all websites are directed at non-English speakers, while 42.8% of websites provide multilingual content.

Website Language Availability Worldwide, 2001

Multilingual- Monolingual- excluding English English 4.0% 17.0%

Monolingual- non-English Multilingual- 40.2% including English 38.8%

Note: Base: business establishments with web access whose organizations currently have a website Source: International Data Corporation (IDC) eWorld 2001 Survey, 2001 036155 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology B. Estimating the Number of Website Introduction

B2C Websites Visitors B2B Websites According to eMarketer’s most recent estimates, the number of internet Online Customer Service & eCRM users is expected to reach 565 million people worldwide by the end of Index of Charts 2002, increasing by 13.6% over the 498 million people who regularly used the internet in 2001.

Internet Users Worldwide, by Region, 2000-2004 (in millions) 2000* 2001* 2002 2003 2004 CAGR 2000-2004 North America** 136.7 156.3 167.7 179.8 196.3 9.5% Europe 108.3 144.4 175.7 196.2 221.1 19.5% Asia-Pacific 115.9 165.0 181.5 205.0 235.8 19.4% Latin America 19.3 26.2 33.1 43.4 60.6 33.1% Africa 4.6 6.7 7.7 9.2 11.1 24.6% Total Worldwide 384.8 498.7 565.7 633.6 724.9 17.2% Note: *eMarketer's year 2000 and 2001 baselines are from the International Telecommunication Union's estimate of internet users aged 2 years and older, who have accessed the internet within the previous 30 days; **North America includes the US and Canada. Mexico is included in Latin America Source: eMarketer, May 2002 039599 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology It is estimated that the number of internet users in the United States will Introduction account for 27.0% of the worldwide total by the end of this year, reaching B2C Websites 152.8 million people, or 53.2% of all Americans. B2B Websites

Online Customer Service & eCRM Total US Internet Users and Internet Users Ages 14+, Index of Charts 2000-2004 (in millions)

2000* 124.0 112.6

2001* 142.8 129.6

2002 152.8 138.6

2003 162.0 147.0

2004 174.9 158.8

Total internet users Internet users ages 14+ Note: *eMarketer's year 2000 and 2001 baselines are from the International Telecommunication Union's estimate of internet users aged 2 years and older, who have accessed the internet within the previous 30 days; the age 14+ group represents roughly 90.75% of all US users according to the August 2000 US Department of Commerce survey Source: eMarketer, May 2002 039676 ©2002 eMarketer, Inc. www.eMarketer.com

Of course, not everyone who goes online is necessarily an online shopper, with many internet users preferring to use the internet primarily for communication or information purposes.

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Methodology Nonetheless, eMarketer estimates that approximately 52.4% of internet Introduction users in the United States will make an online purchase in 2002, compared B2C Websites with 79.0% of Americans who may be referred to as online shoppers – B2B Websites

Online Customer people who visit commercial websites, but do not necessarily conclude an Service & eCRM online transaction. Index of Charts US Consumer Online Buying and Shopping Grid, 2000-2004 (in millions and % penetration) 2000 2001 2002 2003 2004 INTERNET USERS* US population aged 221.3 223.2 225.6 228.0 230.5 14+ (US Census ) Total US internet users 124.0 142.8 152.8 162.0 174.9 Internet users aged 112.6 129.6 138.6 147.0 158.8 14+ Online penetration 50.9% 58.1% 61.4% 64.5% 68.9% among population aged 14+ SHOPPERS % Internet users aged 73.0% 77.0% 79.0% 81.0% 82.0% 14+ Shoppers aged 14+ 82.2 99.8 109.5 119.1 130.2 BUYERS % Internet users aged 47.0% 49.2% 52.4% 54.6% 60.7% 14+ Buyers aged 14+ 52.9 63.8 72.6 80.3 96.4 Average annual $769.06 $797.81 $1,032.68 $1,249.66 $1,307.17 purchase per online buyer Total US B2C $40,700 $50,900 $75,000 $100,300 $126,000 e-commerce revenues (incl. online travel)** Note: *eMarketer’s internet user figures are based on the ITU baseline data from 2000 and 2001; the age 14+ group represents roughly 90% of all users according to the August 2000 Department of Commerce Survey; **eMarketer benchmarks it’s B2C retail revenue figures against US Department of Commerce data, for which the last period measured was Q1 2002; the travel component was formulated based on aggregated data Source: eMarketer, May 2002; various, as noted, 2000 & 2001 039675 ©2002 eMarketer, Inc. www.eMarketer.com

For more information about internet users in other countries, please see eMarketer’s eGlobal Report

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Methodology As for the volume of trafﬁc supported by some of the internet’s busiest Introduction websites, mid-2002 data from comScore Media Metrix shows that B2C Websites commercial websites are among the top 10 categories of website visited by B2B Websites

Online Customer internet users in the United States. Service & eCRM As an entire category, websites representing a corporate presence on the Index of Charts internet saw visits from 54.4 million unique visitors during the last week of June 2002 alone. Online retailers in the United States had visits from 21.5 million people during that same week, compared with 18.9 million visitors to news and information websites, and 18.3 million visitors to entertainment websites.

Top 10 US Internet Categories, Week Ending 30 June 2002 (in thousands of average daily unique visitors) Corporate presence 54,412 Services 47,249 Portals 43,350 ISPs 26,915 Retail 21,514 Promotional servers 19,457 News/Information 18,952 Search/Navigation 18,872 Entertainment 18,312 Directories/resources 17,030 Source: comScore Media Metrix, 2002 041692 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology Among the top 10 website properties online, the largest in the United States Introduction is AOL Time Warner, which saw 31.3 million daily unique visitors during B2C Websites the week ending June 30th. Most of the other leading online properties B2B Websites

Online Customer visited by American internet users were also operated by companies that Service & eCRM provide internet portal services, which typically have extensive news, Index of Charts information, and entertainment offerings as well. Compared to these leaders, the busiest retail website, Amazon.com, saw 30.1 million unique visitors during the entire month of December 2001 – the peak month for online shopping throughout the year.

Top 10 US Internet Properties, Week Ending 30 June 2002 (in thousands of average daily unique visitors) AOL Time Warner 31,311 MSN - Microsoft sites 25,449 Yahoo! sites 21,631 Gator Network 6,150 Google sites 5,780 eBay 5,866 AWS Technology 5,394 Excite Network 4,803 Terra Lycos 4,125 United Online, Inc. 3,248 Source: comScore Media Metrix, 2002 041691 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology C. The Growing Importance of the Internet Introduction

B2C Websites Channel B2B Websites In its comprehensive look at the state of commercial websites in the United Online Customer Service & eCRM States, the Direct Marketing Association (DMA) has found that the majority Index of Charts of businesses still believe that their website’s main purpose is to serve as a sales and marketing tool. As of late 2001, a substantial 85% of respondents to the DMA’s survey said that their website’s primary purpose is to provide information about the products or services that their company sells, while 44% of respondents also agreed that their website’s primary purpose is to make sales. It is worthwhile to note, however, that the proportion of websites with e- commerce capabilities increases considerably among consumer-facing websites, for which 64% of 149 respondents indicated that their company’s website was primarily sales-focused. By contrast, just 25% of the 298 business-to-business websites surveyed by the DMA said that they sold goods or services online.

Primary Purpose of US Companies’ Websites, 2001 (as a % of respondents)

Product/service information 85%

Lead generation 57%

Public relations/image 51%

Sales/e-commerce 44%

Advertising 38%

Customer service 33%

Interestingly, a significant number of businesses now have as many as five years’ worth of internet experience in 2002. The percent of companies that said they had had a website for five or more years doubled last year, increasing to 34% of respondents in 2001, up from 16% of respondents in 2000.

Length of Time that US Companies Have Had a Website, 2001 (as a % of respondents)

2+ 81%

5+ 34%

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Methodology And with a few years’ worth of online experience behind them, there is a Introduction greater conﬁdence among commercial website operators that their websites B2C Websites will soon be proﬁtable. Nearly 70% of the companies surveyed by the DMA B2B Websites

Online Customer expect to have proﬁtable online operations by the end of 2002, up from Service & eCRM just 14% of respondents in 2001. Index of Charts US Companies' Expected Timing of Profitability for their Website Operations, 2001 (as a % of respondents)

More than 2001 four years 14% 14% 2003 17%

2002 55%

Taken together, these survey results show that after as many as ﬁve years of online experimentation and website development, the internet is well on its way to becoming an important sales and marketing channel for many businesses. Businesses have furthermore gained a much better understanding of the role that their web presence shall play, not only as a new sales channel that compliments traditional, ofﬂine sales channels, but as an important communications channel through which they may better serve their customers as well.

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Methodology Indeed, as eMarketer has found through its analysis of the aggregated Introduction survey data in this report, the greatest value of many companies’ online B2C Websites presence lies not in their ability to conduct online transactions, but rather, B2B Websites

Online Customer in their ability to provide timely and convenient customer service, both Service & eCRM before and after a transaction is completed. Index of Charts The Internet's Impact on the Sales Cycle

Awareness/ Branding CRM Marketing and lead generation

Post-Sales Pre-purchase Support Information Gathering

Fulfillment Sales/ Purchase

Source: eMarketer, 2002 042169 ©2002 eMarketer, Inc. www.eMarketer.com Building upon their early achievements, the road ahead for many website operators will therefore see them add depth to those customer service capabilities that they now offer on their websites. Several companies are also setting out to raise the standards with which they serve their customers online. And ﬁnally, website operators are continuing the integration work that will link their online sales and customer service channels with traditional ofﬂine channels, with the oft-stated goal of obtaining a 360-degree view of their customers, while at the same time providing their clients with a seamless, multi-channel relationship with their company.

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Methodology 5

I Introduction 9 II B2C Websites 23 A. Website Capabilities 24 B. Consumer Preferences 51

III B2B Websites 65 IIIV Online Customer Service & eCRM 87 Index of Charts 117

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Methodology A. Website Capabilities Introduction B2C Websites By the time business-to-business e-commerce began to gather its initial B2B Websites momentum in the latter half of 1999, business-to-consumer e-commerce Online Customer Service & eCRM had already had a four- to ﬁve-year head start. Index of Charts As a result, business-to-consumer (B2C) websites typically have a few more years’ of e-commerce experience than most of their business-to- business (B2B) counterparts. According to a late-2001 study conducted by the e-tailing group and the Direct Marketing Association (DMA), it was found that 39% of the 214 consumer catalog companies that were surveyed had had an online catalog for ﬁve or more years. In a separate survey of B2C and B2B companies, the Direct Marketing Association found that 75% of B2C companies had operated a website for three or more years by late 2001, compared with 62% of B2B companies.

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Methodology As for the primary purpose of most B2C companies’ websites, the majority Introduction of businesses said that they were run as a means of providing information B2C Websites about their companies’ products and services. A signiﬁcant 64% of B2B Websites

Online Customer respondents said that these websites were also being run as a means of Service & eCRM generating sales, while a narrower 44% said that their B2C websites were Index of Charts for customer service.

Primary Purpose of US Companies' B2C Websites, 2001 (as a % of respondents)

Provide information about products and services 71%

Sales/e-commerce 64%

Customer service 44%

Lead generation 41%

Public relations/image enhancement 38%

Gather e-mail addresses (not for lead generation) 34%

Advertising 29%

Build online community 27%

Fund raising 14%

Conduct survey/market research 12%

Order fulfillment 11%

The majority of B2C websites in the DMA study expected to have proﬁtable online operations in 2002, with 71% of respondents forecasting proﬁtability by the end of this year.

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Methodology Website Budgeting and ROI Introduction In early 2002, Catalog Age magazine surveyed 357 of its subscribers, B2C Websites

B2B Websites ﬁnding that nearly 90% of all catalog companies operated an online Online Customer version of their print catalog, up from 60% of respondents in 1997. Broken Service & eCRM

Index of Charts down by their catalogs’ main clients, 80.6% of those companies that served business customers operated a website in 2001, compared with 92.6% of B2C companies. On average, catalog companies with annual sales of more than $50 million spent almost $200,000 per year on their website operations. Expenses include ongoing maintenance of website operations, stafﬁng, and online promotional activities. As a percent of their overall company spending, website budgets consumed approximately 6.6% of the largest catalogers’ entire budgets, but a much more burdensome 12.0% of smaller companies’ budgets.

Catalog Companies' Average Annual Spending* on Website Operations, by Company Size, 2002 Average annual % of company spending budget Sales of $50 million+ $198,924 6.6% Sales of $10 million - $49.9 million $125,103 6.6% Sales of $1 million - $9.9 million $44,215 8.5% Sales of less than $1 million $14,944 12.0% Note: *includes staffing, website maintenance and online promotions Source: Catalog Age, June 2002 041467 ©2002 eMarketer, Inc. www.eMarketer.com

When it comes to website stafﬁng needs, Catalog Age found that companies with sales of between $1 million and $10 million had an average of 1.2 employees running their website operations, while companies with sales of between $10 million and $50 million had an average of 1.6 full time employees. By comparison, more than half of the survey’s largest respondents had an average of ﬁve employees maintaining their companies’ websites.

Average Number of Employees Working Fulltime on Catalog Companies' Websites, 2001 & 2002

2001 3.6

2002 2.0

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Methodology Most online catalogers were found to rely upon in-house website design, Introduction with a growing number of survey respondents bringing their website B2C Websites design activity in-house in 2002. B2B Websites

Online Customer Large companies were more likely to have designed their websites Service & eCRM themselves, with 76% of large catalogers saying that they had kept their Index of Charts website design in-house, compared with just 59% of small catalog companies.

Percent of Online Catalog Operators that Use In-House Website Design, 2001 & 2002

2001 58.0%

2002 61.6%

Very few companies expected to reduce their website spending in 2002, as no more than 14.2% of large catalog companies had plans to cut their website budgets according to the Catalog Age survey. Indeed, eMarketer has found in survey after survey that website and e- commerce initiatives have remained at the top of most companies’ e-business spending priorities, despite the overall downturn in IT spending during the past two years.

Percent of Catalog Companies that Have Reduced Their Website Budgets, by Company Size, 2002 (as a % of respondents)

Sales of $50 million+ 14.2%

Sales of $10 million - $49.9 million 8.0%

Sales of $1 million - $9.9 million 6.6%

Sales of less than $1 million 8.7%

In its late-2001 survey, the Direct Marketing Association (DMA) took an even closer look at how online retailers broke down their website spending, finding that marketing and related promotional costs accounted for nearly half of most B2C companies’ budgets. Other areas that consume significant resources include operations and staffing, which on average accounted for 28.9% and 21.1% of most B2C companies’ website spending in 2001.

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Methodology It should be noted that the spending levels indicated below are average Introduction spending levels for each separate category, and therefore do not add to 100. B2C Websites B2B Websites Breakdown of US Companies' Spending on their B2C Online Customer Service & eCRM Websites, 2001

Index of Charts Marketing 37.0%

Operations 28.9%

Staffing 21.1%

Advertising 14.4%

New business development 11.9%

Merchandising 4.0%

Breaking out B2C companies’ website development budgets, respondents to the DMA study varied considerably in how much they expect to spend during 2002. Such differences may be accounted for by the dissimilar size of respondents’ online operations, as well as the varying complexity of each company’s planned development initiatives. Just over one-third of B2C companies expected to spend more than $500,000 on website development projects in 2002, while an additional 30% of respondents expected to spend between $100,000 and $500,000. On average, respondents to the DMA study planned to spend $231,842 developing their consumer-focused websites this year.

US B2C Companies' Forecast Website Development Budgets, 2002 (as a % of respondents)

Nothing 2%

$1 to $5,000 13%

$5,001 to $10,000 2%

$10,001 to $50,000 13%

$50,001 to $100,000 15%

$100,001 to $250,000 13%

$250,001 to $500,000 17%

$500,001 to $1,000,000 17%

$1,000,001 to $7,500,000 17%

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Methodology B2C website owners have further planned to spend a considerable amount Introduction of money promoting their websites in 2002, with 32% of respondents B2C Websites projecting promotional budgets of more than $500,000. B2B Websites

Online Customer On average, companies with B2C websites expect to spend $821,605 Service & eCRM to promote their websites in 2002, compared with an average of just Index of Charts $58,056 among their B2B counterparts. This is largely due to the fact that online retailers tend to sell more products online than companies that sell to other businesses.

US Companies' Anticipated 2002 Budgets for the Marketing and Promotion of their B2C Websites, 2001 (as a % of respondents)

Nothing 8%

$1 to $5,000 15%

$5,001 to $10,000 2%

$10,001 to $50,000 19%

$50,001 to $100,000 2%

$100,001 to $250,000 13%

$250,001 to $500,000 10%

$500,000 to $1,000,000 13%

$1,000,001 to $7,500,000 19%

In two mid-2001 studies that examine the cost and return on investment (ROI) of selling online, Forrester Research has broken down consumer products into three separate categories: convenience goods, researched goods and replenishment goods. Due to their relatively low cost and low complexity, Forrester deﬁnes convenience goods as items such as clothing and toys that are sold by companies like J. Crew and KBToys. Researched goods are more complex items, such as automobiles or consumer electronics, while replenishment goods are deﬁned as items that consumers regularly purchase, such as beauty or personal care products. According to Forrester Research, products that fall into each of these three categories should be viewed as distinct from one another when they are sold online. Because of these distinctions, online retailers need to consider how they build their websites to account for the different needs that internet shoppers have when they go to purchase each category of product.

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Methodology For example, convenience goods websites typically need to spend more on Introduction high-quality product displays, which in turn are more likely to drive online B2C Websites sales of clothing or gift purchases. B2B Websites

Online Customer More sophisticated convenience goods websites can expect to spend as Service & eCRM much as $40.9 million developing their online store, according to Forrester, Index of Charts as these websites will need to employ advanced customer analytics software, along with highly-tuned search capabilities. Landsend.com and SmarterKids.com are provided as examples of sophisticated websites within this category.

Monthly Traffic and Sales Capabilities for a Website Selling Convenience Products, by Type of Website, 2001 Basic Mainstream Sophisticated website website website Page views per month 5,000,000 10,000,000 50,000,000 Number of SKUs 1,000 10,000 50,000 Transactions per month 15,000 60,000 150,000 Peak sessions 100 500 2,500 Total upfront costs $3,100,000 $13,300,000 $40,900,000 Source: Forrester Research, comScore, July 2001 041213 ©2002 eMarketer, Inc. www.eMarketer.com

Due in part to the complex nature of researched goods such as home furnishings or automobiles, Forrester Research believes that companies selling these products will have to spend the most to develop their websites. Despite the fact that many researched goods are eventually purchased ofﬂine, consumers typically rely upon these products’ websites to learn about the products that they might want to buy. As a result, the need to maintain extensive website content, along with the use of conﬁguration technology for some products (consumer electronic goods in particular), is expected to run up the cost of building and operating such websites. Forrester estimates that researched products’ websites can cost between $3.5 million and $52.2 million to develop. Examples of sophisticated websites within this category include Outpost.com and Potterybarn.com.

Monthly Traffic and Sales Capabilities for a Website Selling Researched Products, by Type of Website, 2001 Basic Mainstream Sophisticated website website website Page views per month 5,000,000 10,000,000 100,000,000 Number of SKUs 500 5,000 25,000 Transactions per month 15,000 60,000 100,000 Peak sessions 100 500 2,500 Total upfront costs $3,500,000 $16,300,000 $52,200,000 Source: Forrester Research, comScore, July 2001 041214 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology Websites that sell replenishment goods are the least expensive to build Introduction according to Forrester Research, in part because they do not require rich B2C Websites product displays or extensive background information about the products B2B Websites

Online Customer they sell. These websites do, however, require fast and convenient Service & eCRM navigation capabilities, as consumers are expecting convenience when Index of Charts going online to purchase replenishment items. Forrester recommends that websites such as CVS.com should have personalized content as a means of making online shopping even more convenient for their customers, while at the same time providing internet retailers with the opportunity to cross- or up-sell other products to their regular visitors. Forrester lists lancome.com and drugstore.com as examples of sophisticated websites within this category. Companies can expect to spend between $3.2 million and $28.8 million to develop replenishment goods websites.

Monthly Traffic and Sales Capabilities for a Website Selling Replenishment Products, by Type of Website, 2001 Basic Mainstream Sophisticated website website website Page views per month 10,000,000 15,000,000 50,000,000 Number of SKUs 1,000 10,000 50,000 Transactions per month 15,000 60,000 100,000 Peak sessions 250 500 2,500 Total upfront costs $3,200,000 $10,500,000 $28,800,000 Source: Forrester Research, comScore, July 2001 041215 ©2002 eMarketer, Inc. www.eMarketer.com

For three more charts providing a further breakdown of the costs of building these websites, please see the eStatDatabase

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Methodology When it comes to measuring the success of their B2C websites, most online Introduction retailers clearly emphasize sales. According to the DMA’s survey, B2C Websites consumer-facing websites are also concerned with the number of leads B2B Websites

Online Customer generated by their websites, and the number of visits or hits they receive on Service & eCRM their websites as well. Index of Charts How US B2C Website Operators Measure the Success of their Online Media Initiatives, 2001 (on a scale of 1-9*) Sales generated 1.6 Leads generated 3.2 Hits on designated/unique urls 3.7 E-Mail addresses collected 4.4 "Hits" on home page 4.4 Cost per website customer 4.9 Cost per website visitor 5.8 Learning/education 6.3 Other measures 9.0 Note: n=67; *1=most effective, 9=least effective Source: Direct Marketing Association, April 2002 041671 ©2002 eMarketer, Inc. www.eMarketer.com

Confirming the DMA’s findings, Forrester Research estimates that online sales make up the greatest portion of a website’s ROI, with those websites that sell convenience and replenishment goods, for example, likely to see as much as 65% to 75% of their development costs returned through online sales. Savings from the use of e-mail marketing as a means of driving online sales are also expected to be substantial, lowering traditional marketing costs from as much $18 to an estimated $2 per sale, according to Forrester’s calculations. Forrester has gone on to emphasize two other important benefits of e-commerce operations as well. These include the impact of a company’s website upon offline sales, and the gains in operational efficiencies that come thanks to the automation of customer interactions. Re-directed offline sales are typically a small part of a website’s ROI according to Forrester, mostly because brick-and-mortar stores or catalog operations already have a strong influence on offline sales. As a result, Forrester estimates that about 5% of a website’s ROI may be attributed to offline sales, although researched goods’ websites may expect to obtain a higher ROI from re-directed offline sales of as much as 15%. Second on Forrester’s list are the savings achieved through operational efficiencies. The use of customer self-service features, coupled with higher profit margins from online sales of liquidated inventory, are estimated by Forrester to generate as much as 24% of a company’s entire ROI from its website operations.

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Methodology Basing its estimates upon a ﬁctional multi-channel retailer with sales of Introduction between $750 million and $1.5 billion across all channels, Forrester B2C Websites Research has broken down its estimates of the ROI that retailers might B2B Websites

Online Customer expect to see from their online operations. Service & eCRM For example, Forrester predicts that the greatest ROI for an online Index of Charts vendor of convenience goods will come from new sales generated by its website operations. In addition to the 18% return that would be generated from sales into new domestic or foreign markets, Forrester predicts that such websites could also beneﬁt from cross- and up-sell features that would generate more sales per online customer. In total, 66% of the ROI for a “sophisticated” convenience goods website is estimated to come from online sales, with a further 24% expected to come from operational efﬁciencies that would be achieved through online sales.

Breakdown of Third-Year ROI for a "Sophisticated" Website Designed to Sell Convenience Goods, 2001 (as a % of total ROI) Online sales Sales into new markets 18% Merchandising tools that drive sales of additional items 16% Increased sales through a user friendly user interface 13% Growth in cross-channel customer base 10% Sales via affiliate programs 9% Operational Efficiencies Improved liquidation margins 10% Savings through use of e-mail marketing retention 10% Savings through customer self-service 4% Offline Sales Increased in-store sales 4% Other 6% Source: Forrester Research, August 2001 041212 ©2002 eMarketer, Inc. www.eMarketer.com

By comparison, Forrester predicts that 49% of the ROI from a “sophisticated” researched goods website would come from increased operational efﬁciencies, while 35% of the website’s ROI would be attributable to redirected ofﬂine sales. Just 16% of the ROI for a researched goods website would be generated by online sales.

“Shoppers are going into stores with printouts in hand. They’ve done their homework, educating themselves on-line and now they’re ready to make a purchase.” – Simon King, Vice-President, Broadvision

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Methodology First and foremost, Forrester sees websites for researched goods as a Introduction marketing tool, helping to drive ofﬂine sales by providing timely and B2C Websites convenient information to potential customers. Signiﬁcant operational B2B Websites

Online Customer savings, accounting for as much as 12% of a website’s ROI, may also be Service & eCRM achieved through customer-self service, which reduces the need for Index of Charts companies to rely upon customer service representatives or sales personnel to answer common customer questions. Forrester also notes that researched goods vendors can see signiﬁcant beneﬁts by driving more sales of liquidated inventory online, as consumers are less likely to be concerned with the shipping costs of goods that have been discounted.

Breakdown of Third-Year ROI for a "Sophisticated" Website Designed to Sell Researched Goods, 2001 (as a % of total ROI) Offline sales Increased in-store sales 35% Operational Efficiencies Improved liquidation margins 25% Savings through customer self-service 12% Savings through hands-free order taking 7% Savings through use of e-mail marketing retention 5% Online Sales Increased sales through a user-friendly user interface 3% Merchandising tools that drive sales of additional items 3% Sales via manufacturer referrals 3% Other 7% Source: Forrester Research, August 2001 041211 ©2002 eMarketer, Inc. www.eMarketer.com

For online vendors of replenishment goods, Forrester Research suggests that most retailers will only require a “basic” website, since customers need little additional information about the products they are buying. The greatest ROI for such websites is estimated to come from cross- channel customers - those customers who buy both online and at the retailer’s brick and mortar stores. These websites are also able to generate substantial ROI through their ability to cross- or up-sell goods to online customers through the use of effective merchandising tools.

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Methodology Overall, 74% of these websites’ ROI is projected to come from Introduction increased online sales, while 22% of their ROI is expected to come from B2C Websites operational efﬁciencies. B2B Websites

Online Customer Service & eCRM Breakdown of Third-Year ROI for a "Basic" Website Index of Charts Designed to Sell Replenishment Goods, 2001 (as a % of total ROI) Online sales Growth in cross-channel customer base 32% Merchandising tools that drive sales of additional items 18% New domestic sales 11% Sales via affiliate programs 9% Sales via manufacturer referrals 4% Operational Efficiencies Savings through use of e-mail marketing retention 12% Savings through hands-free order taking 10% Other 4% Source: Forrester Research, August 2001 041210 ©2002 eMarketer, Inc. www.eMarketer.com

E-Commerce and General Website Capabilities Turning to online retailers’ e-commerce capabilities, the DMA found that 71% of B2C websites were able to conclude ﬁnancial transactions online in 2001, compared to just 20% of their business-to-business counterparts.

Percent of US Companies' B2C Websites Able to Conduct Financial Transactions, 2001

Do not conduct financial transactions 29%

Able to conduct financial transactions 71%

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Methodology Online retailers offered an average of 50 items via their websites last year, Introduction while those companies that operated online retail catalogs sold an average B2C Websites of 125 items, according to the DMA study. B2B Websites

Online Customer By comparison, B2B website operators sold an average 10 items through Service & eCRM their websites and 275 items through their online catalogs. Companies with Index of Charts online catalogs often sold their goods through resellers’ websites, in addition to their own direct online channel. On the other hand, according to Shop.org, several of the largest internet retailers are now scaling back their online operations in a bid to become better focused and more proﬁtable. Wal-Mart, for example, is in the process of shifting its online sales toward high-end goods such as consumer electronics. Similarly, Federated Department Stores has taken steps to focus its website by reducing the volume of inventory that it sells via Macys.com. Shop.org reports that the Macys.com website will scale back its online inventory by one-third, to approximately 50,000 SKUs by the end of 2002.

E-Business Profile: Approximate Number of Product SKU's Available via Macys.com, 2001 & 2002

2001 75,000

2002 50,000

The DMA found that the average dollar value of B2C companies’ website transactions was $68 in 2001, while items sold through online catalogs were an average $60 per transaction.

Average Dollar Value* of US B2C Companies' Online Transactions, 2001

Via company website $68

Via online catalog $60

As for those website features that are available to visitors of B2C websites, the DMA found that it was most common for regular users to have to login to retailers’ websites, either to access information or conclude a transaction. E-newsletters were also likely to be found on most internet retailers’ websites.

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Methodology On the other hand, personalization features, online chat with customer Introduction service, and wireless-enabled versions of B2C websites were not used on B2C Websites more than 25% of retailers’ websites. B2B Websites

Online Customer Service & eCRM Website Features and Functions Offered on US B2C Index of Charts Websites, 2001 (as a % of respondents)

Subscriber/user login 81%

E-Newsletters 77%

Dynamic page creator 47%

Targeted ads 47%

Pop-up offers 38%

Recommendation engine 30%

Personalization platform 25%

Online chat with customer service 25%

Wireless PDA/PDA version 12%

WAP enabled (Wireless Application Protocol) 11%

Similarly, in another survey conducted by ActivMedia, it was found that very few internet retailers provided content for visitors who might access their websites via a personal digital assistant (PDA). Just 14% of online retailers provided streaming media content on their websites, and the same narrow percentage of B2C websites were XML-enabled.

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Methodology It is worthwhile to note, however, that although these capabilities are Introduction typical of what one might expect to ﬁnd on retailers’ websites in the near B2C Websites future, the majority of B2C websites are clearly focusing upon the B2B Websites

Online Customer development of more basic website features in 2002. Service & eCRM Index of Charts Technology Adoption by E-Commerce Websites, 2001

Shopping Cart Management Tools 60% 38%

Streaming Media 14% 17%

PDA access 2% 9%

XML* 14% 24%

Indeed, the Answerthink Group found in its late-2001 survey of 200 internet retailers that most respondents had spent the year increasing their ability to deliver detailed product information to their website visitors, while several had already deployed automated e-mail service by the end of 2000.

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Methodology Advanced web searches were also in the process of being deployed by Introduction several internet retailers toward the end of 2001, increasing from 59% of B2C Websites companies with this capability in 2000 to 73% of respondents in 2001. B2B Websites

Online Customer Service & eCRM US Retail Website Features, 2000 & 2001 (as a % of Index of Charts websites surveyed*)

Automated e-mail service 91% 81%

Detailed product information 88% 50%

Advanced searches 73% 59%

Because internet retailers typically focus upon improving their websites in time for each year’s holiday shopping season, the fourth quarter has become a benchmark period of sorts, for measuring the annual evolution of internet retailers’ technology capabilities. In a joint study by the Direct Marketing Association and the e-tailing group, it was discovered that during the course of 2001, internet retailers had made considerable progress in reducing the number of times that customers have to click through their websites before they could conclude their online purchase. On average, online customers had to click 8.76 times to complete a transaction on most internet retailers’ websites during the 2000 holiday season, compared to just 5.36 times in 2001.

Average Number of Clicks to Checkout on US Retail Websites during the Holiday Season, Q4 2000 & Q4 2001

Q4 2000 8.76

Q4 2001 5.36

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Methodology It was also found that several B2C websites had begun to provide Introduction personalization services to their customers in 2001, with 92% of the 100 retail B2C Websites websites surveyed by the e-tailing group having “my account” features. B2B Websites

Online Customer A further 91% of retail websites offered customers the chance to sign up Service & eCRM for e-mail or newsletter updates, while 78% of internet retailers let Index of Charts customers view their order history or track their shipping status.

US Retail Websites that Offer Personalized Features, Q4 2001 (as a % of websites reviewed*)

Offer some degree of personalized 'My Account' features 92%

E-Mail/newsletter updates 91%

Exclusive sales/offers 80%

Order history/status 78%

By contrast, online community features on B2C websites are much less popular among both internet users and online retailers. Just 18% of respondents to the e-tailing group’s study posted customer testimonials on their websites, while even fewer had interactive capabilities such as community bulletin boards or online chat.

US Retail Websites Offering Community Features, Q4 2001 (as a % of websites reviewed*)

Testimonials 18%

Bulletin boards 15%

Clubs 11%

Chat 10%

In an effort to keep up with the competition, most online retailers now offer their customers multiple shipping options at the time of purchase as well. This has largely come as a response to customers’ aversion to online shipping charges in general, which have been found in several studies to be the largest deterrent to making online purchases.

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Methodology By the end of 2001, 93% of B2C websites let their customers choose among Introduction more than one shipping option, up from just under three-quarters of B2C Websites internet retailers in 2000. B2B Websites

Online Customer Service & eCRM US Websites Offering Multiple Shipping Options, 2000 Index of Charts & 2001 (as a % of respondents)

2000 71%

2001 93%

Despite the perception that most internet retailers run their online shipping operations as a proﬁt center, survey results from the DMA show that 69% of B2C websites instead charge only so much as to cover their shipping costs. Nearly 20% of respondents to the DMA survey indicated that they set their shipping fees so as to be competitive with other online retailers, while 8% provide free shipping and handling in order to obtain business.

How US B2C Companies Price Their Delivery Charges for Online Sales, 2001 (as a % of respondents)

Cover expenses of outbound freight only 19%

Cover expenses of freight and shipping materials 24%

Cover expenses of freight, materials, and direct warehouse labor 26%

Charge relative to competition 19%

Charge as much as the market will bear 6%

Provide free shipping and handling year round 4%

Provide free shipping and handling during peak shopping periods 4%

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Methodology Shop.org and the Boston Consulting Group found that the average cost to Introduction fulﬁll online orders has increased slightly in 2001, rising from $11 per order B2C Websites in 2000 to $14 per order today. B2B Websites

Online Customer Service & eCRM US Internet Retailers' Average Fulfillment Cost per Index of Charts Order, 1999-2001

1999 $12

2000 $11

2001 $14

As an alternative to charging customers for shipping, Sears.com seems to have met with success through its online delivery strategy, through which customers are able to avoid shipping charges by picking up their online purchases at in-store pick up centers. During the 2001 holiday shopping season, Sears reported that 38% of its online shoppers decided to obtain their purchases this way. In the future, Sears estimates that as much as 50% of its online sales might be delivered through its brick and mortar stores. And if recent moves by Amazon.com are an indication of things to come, this coming holiday season may see increasingly tough competition among internet retailers’ shipping charges, as high-volume shippers will aggressively pursue business by taking advantage of their relative size and greater efﬁciency.

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Methodology Managing Website Trafﬁc Introduction When it comes to promoting their internet storefronts, online retailers have B2C Websites

B2B Websites become increasingly sophisticated in their use of both online and ofﬂine Online Customer channels to drive website trafﬁc. Service & eCRM

Index of Charts Due in part to lower advertising rates, and thanks to the lessons that they have learned over the past three years, customer acquisition costs for B2C website operators have come down substantially as well. For example, Shop.org and the Boston Consulting Group found that US internet retailers’ customer acquisition costs had fallen 63% between 1999 and 2001, from $38 per customer in 1999 to $14 per customer last year.

US Internet Retailers' Average Customer Acquisition Cost per New Customer, 1999-2001 45 $38

$29

$14

Among the most basic methods of promoting their websites, retailers and manufacturers typically include their website’s URL in their advertising across all media, and they are increasingly including it on most of their packaging.

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Methodology Online retailers and manufacturers are driving website trafﬁc through a Introduction combination of online promotion and direct mail marketing as well, B2C Websites according to the results of the DMA’s 2001 study. While online advertising B2B Websites

Online Customer and e-mail marketing provide the most rapid results for any promotional Service & eCRM campaign, internet retailers have found that traditional techniques such as Index of Charts direct mail marketing continue to be an effective means of gaining customers’ attention as well.

How US B2C Website Operators Drive Website Traffic, 2001 (as a % of respondents)

E-Mail marketing 67%

Direct mail 64%

Online advertising 55%

Search engine optimization 49%

Print ads 47%

Offline promotions 38%

Paid search engine placement 35%

Online promotions 28%

Sponsorship of e-newsletters 22%

Incentive programs 17%

Television ads 15%

Other 14%

In its late-2001 study, Catalog Age magazine found that on average, 52.5% of respondents to its survey said that they used website analysis tools to track the movements of their website visitors.

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Methodology Large online catalogers were much more likely to be using website analysis Introduction tools than their smaller counterparts, as many of the smaller companies B2C Websites said that they did not want to spend the extra money on analysis software, B2B Websites

Online Customer nor could they afford the extra man-hours required to analyze the data that Service & eCRM they might have collected. Index of Charts Percent of Catalog Companies Using Website Analysis Tools to Track Visitor Usage, by Company Size, 2002

Sales of $50 million+ 67.6%

Sales of $10 million - $49.9 million 55.8%

Sales of $1 million - $9.9 million 43.5%

Sales of less than $1 million 30.4%

The Direct Marketing Association found in its survey of online retailers that 88% of respondents were at the very least able to identify new visitors to their websites, while an additional 78% of website operators were able to identify repeat customers.

Percent of US B2C Websites that Use Applications to Identify Website Visitors, 2001

Able to identify new customers 88%

Able to identify repeat customers 78%

It was also discovered that a further 51% of companies were able to gather information about their website visitors, so that they could distinguish between their regular online and ofﬂine customers, or segment their online customers in some other way.

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Methodology Just over two-thirds of B2C website operators said that they were able to Introduction track their customers’ online purchase history, while 61% of respondents B2C Websites segmented their online customers by demographic group. B2B Websites

Online Customer Service & eCRM How US B2C Website Operators Segment their Online Index of Charts Customers, 2001 (as a % of respondents)

Purchase history 67%

Demographics (income, age) 61%

Location/zip code 59%

Lifestyle/hobbies/interests 53%

Estimated lifetime value 37%

Other 8%

eMarketer has also found that some of the more advanced internet retailers have begun to use customer loyalty programs to track their customers’ online and offline purchase patterns, thus providing them with a true 360- degree view of their most valued clients. This is typically accomplished through the use of incentive programs’ customer identification numbers, which clients must use with a plastic card for in-store purchases, or are required to enter when making online purchases. As for the traffic that is generated by their promotional activities, most B2C website operators in the DMA survey said that they receive less than 1,000 unique visitors to their websites on a daily basis.

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Methodology But while 46% of respondents had less than 1,000 unique visitors, another Introduction 28% of respondents had between 1,000 and 10,000 daily website visitors. B2C Websites Those websites with 40,000 or more daily visitors made up a signiﬁcant B2B Websites

Online Customer 16% of B2C companies as well. Service & eCRM Index of Charts Average Number of Daily Unique Visitors to US B2C Websites, 2001 (as a % of respondents)

Less than 100 19%

100 to 1,000 visitors 25%

1,000 to 3,000 visitors 14%

3,000 to 10,000 visitors 14%

10,000 to 20,000 visitors 8%

20,000 to 40,000 visitors 5%

40,000 visitors or more 16%

On average, most B2C website visitors viewed between 1 and 10 pages on respondents’ websites, with the greatest portion of visitors viewing between 6 and 10 pages. By comparison, 47% of B2B website visitors did not usually view more than 5 pages, while an additional 39% of B2B website visitors viewed between 6 and 10 pages.

Average Number of Page Views by Visitors to US B2C Websites, 2001 (as a % of respondents)

1 to 5 28%

6 to 10 44%

11 to 20 22%

21 to 50 3%

50 to 75 1%

76 to 100 1%

100+ 1%

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Methodology In terms of gauging the volume of trafﬁc among the largest retail websites, Introduction Amazon.com had just under 31 million visitors, or roughly 1 million B2C Websites visitors per day, during the month of December, 2001. B2B Websites

Online Customer Other leading websites such as barnesandnoble.com averaged more than Service & eCRM 336,000 visitors per day during the peak holiday shopping season, while Index of Charts BestBuy.com had an average of 254,000 visitors per day last December.

Top 10 Retail Websites, by Monthly Traffic, December 2001 (in thousands of visitors)

Amazon 30,957

eBay 28,316

American Greetings 22,946

Columbia House 11,262

BizRate.com 10,771

Barnes & Noble 10,437

CoolSavings.com 9,455

Hallmark 9,000

Sony Online 8,971

BestBuy.com 7,876

As for examples of the sales volume that some of the leading internet retailers typically see, J. Crew’s JCrew.com posted sales of $10.9 million in June 2002, up slightly from $10.0 million the year before. J.Crew’s online operations took in 16.6% of the company’s entire revenues in June 2002, an increase of 2% from June 2001.

E-Business Profile: Online Sales at JCrew.com, June 2001 & June 2002 (as a % of total company revenues)

June 2001 14.6%

June 2002 16.6%

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Methodology By comparison, Lands’ End posted online sales of $218.0 million last year, Introduction up from sales of $138.0 million in 2000. The company has since been B2C Websites purchased by Sears, due in part to the success of its online operations, B2B Websites

Online Customer which capitalized upon its longtime strengths in order fulﬁllment and Service & eCRM direct marketing as a catalog retailer. Index of Charts E-Business Profile: Sales via Landsend.com, 2000-2002 (in millions)

2000 $138.0

2001 $218.0

2002* $299.0

Note: *projected Source: Land’s End, 2002 042128 ©2002 eMarketer, Inc. www.eMarketer.com Landsend.com furthermore boasted a conversion rate of 14.7% among website visitors that wound up making an online purchase. This is signiﬁcantly higher than the average conversion rate among retail websites, which Shop.org estimates was 3.1% in 2001.

Order Conversion Rate among Online Buyers in the US, 1999-2001 (as a % of website visitors)

1999 1.8%

2000 2.2%

2001 3.1%

By many accounts, Amazon.com is the Wal-Mart of the internet, with online sales growing 13% in 2001 to reach $3.12 billion. More than one-quarter of Amazon’s sales came from outside of the United States last year, with the United Kingdom and Germany being its two largest foreign markets.

E-Business Profile: Amazon.com's Annual Sales, 2000 & 2001 (in billions)

2000 $2.76

2001 $3.12

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Methodology Amazon reportedly had 25 million customer accounts in 2001, growing Introduction from 20 million in 2000 and 14 million in 1999. B2C Websites It also ranked at the top of Retail Forward’s list of the top 50 retailers for B2B Websites

Online Customer 2001, with Amazon’s online sales accounting for 22% of all online sales Service & eCRM among the top 50 internet retailers. Index of Charts Top 10 US E-Retailers Ranked by Online Revenues, 2001 (in billions)

Amazon.com $3.12

Office Depot $1.60

Staples* $0.95

Gateway, Inc.* $0.76

Costco Wholesale* $0.45

Barnesandnoble.com $0.41

Buy.com* $0.40

QVC.com* $0.35

Spiegel Group $0.33

J.C. Penney $0.32

Note: To be considered for the Retail Forward Top 50 E-Retailers, the company has to generate 50% of sales from direct-to-consumer (DTC) retail operations; *estimated revenues Source: Retail Forward, July 2002 042278 ©2002 eMarketer, Inc. www.eMarketer.com

Retail Forward has also noted that 8 of the top 10 internet retailers were multi-channel retailers, up from 5 of the top 10 in 2000 and just 3 in 1999.

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Methodology B. Consumer Preferences Introduction B2C Websites When it comes to promoting their online storefronts, most online retailers are B2B Websites now using a mix of online and offline promotional techniques to generate Online Customer Service & eCRM traffic, ranging from e-mail marketing to direct mail and banner ads. Index of Charts From the perspective of online consumers, a growing number of internet users appear to have a clear destination in mind when they choose to visit a particular website. Survey data by WebSideStory shows that in early 2002, more internet users are arriving at websites through direct links or bookmarks than by surfing their way through numerous websites to reach their final destination.

How Internet Users Arrive at Websites, 6 February 2002 & 6 February 2001

6 February 2002 51.67% 46.07%

6 February 2001 47.92% 52.91%

Not surprisingly, thanks to their growing familiarity with the internet, online consumers are beginning to take a much more utilitarian approach to going online. Indeed, internet users are increasingly using the web as a convenient tool for quickly accomplishing any number of tasks, from getting caught up on the latest weather forecast, to purchasing movie tickets, or buying a friend’s birthday present. Many users are experimenting less online, and instead going directly to their favorite websites, where they know they will be able to get the product or information they need, whenever they want it. For those companies that operate consumer-facing websites, this means that it is necessary for them to continue to modify their company’s internet presence in order to meet the increasingly discerning needs of their website visitors. Among American internet users, ease of navigation is one of the more important features that they consider when deciding whether they might return to a particular website.

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Methodology Trust in the quality of a website’s information is also important to US Introduction internet users, as well as the frequency with which that information is B2C Websites updated, and the ease with which users can identify its source. B2B Websites

Online Customer Service & eCRM Most Important Website Features for US Internet Index of Charts Users, 2002 (as a % of respondents)

Site is easy to navigate and to find what you want 80%

Being able to trust the information on the site 80%

Being able to easily identify the sources of information on the site 68%

Knowing the site is updated frequently with new information 65%

Being able to find out the important facts about the site 50%

Knowing who owns the site 32%

What businesses and organizations financially support the site 24%

Site displays seals of approval from other groups 19%

Site displays awards and certificates from other groups 9%

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Methodology In taking the pulse of internet users’ satisfaction with the internet as it is Introduction today, research ﬁrm Taylor Nelson Sofres (TNS) found that most people said B2C Websites they were satisﬁed with the quality of content that they found online. B2B Websites

Online Customer Several internet users also indicated that they were happy with website Service & eCRM navigation features, as well as the depth of information that is available on Index of Charts the websites they visit.

Website Features that Internet Users Worldwide Are Happy or Satisfied with, 2001-2002 (as a % of respondents)

Quality of website content 72%

Site navigation 71%

User friendliness 69%

Exhaustiveness of content 68%

On the other hand, signiﬁcant numbers of internet users said that they were unhappy with the regularity with which website content was updated. About one-third of respondents to the TNS survey also said that they were either indifferent or dissatisﬁed with the quality of website search tools, along with the speed with which they are able to download online information. This latter point, however, should likely become less of a concern, as broadband adoption gains further momentum.

Website Features that Internet Users Worldwide Are Unsatisfied with or Indifferent Toward, 2001-2002 (as a % of respondents)

Regularity of content updates 37%

Ability to personalize the site 33%

Quality of search tools 32%

Download speed 32%

Looking more closely at those website design features that are most important to US consumers, Knowledge Systems & Research (KS&R) has found that after ease of navigation, internet users place a priority upon being able to download information from the websites they visit as quickly as possible. Consumers have also placed a high value upon the quality of the online content that they ﬁnd, which is closely related to the frequency with which that content is updated.

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Methodology Not surprisingly, most customers are not visiting commercial websites to be Introduction entertained, or to necessarily have fun. Nor are they overly concerned with a B2C Websites website’s aesthetics, although a minimum standard of quality should be B2B Websites

Online Customer adhered to. Rather, online consumers are primarily going to internet websites Service & eCRM for a speciﬁc need, and the more capable a website is at meeting those needs Index of Charts in a convenient and timely manner, the more successful it will be.

Most Important Website Design Features for US Online Consumers, 2001 (as a % of respondents)

Ease of use/navigation 78%

Fast download time 67%

Quality of content 60%

Regularly updated information 55%

Access to customer service 51%

Organization of content 45%

Search engine provided by the site 25%

Front page layout 24%

Quantity of content 23%

Aesthetics (look and feel of site) 22%

Fun 21%

Inclusion of animated graphics 8%

Respondents to KS&R’s survey were further asked to distinguish between those features of informational websites that they considered most important, compared to those of retail shopping websites.

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Methodology Not unexpectedly, ease of use, quality of content and rapid download Introduction times were among the most important features of user-friendly B2C Websites informational websites. B2B Websites

Online Customer Service & eCRM Key Characteristics of User-Friendly Informational Index of Charts Websites, 2001 (as a % of respondents)

Ease of use/navigation 81%

Quality of content 58%

Fast download time 53%

Organization of content 27%

Personalization of content 16%

Search engine provided on website 13%

Ability to access printer friendly files 13%

Provision of exclusive or proprietary information 9%

Layout of front page 9%

Fun 9%

Quantity of content 8%

Access to customer service 8%

Aesthetics (look and feel of website) 5%

By contrast, ease of order processing and security features were most important for users of online shopping websites. Consumers also indicated a preference for ease of navigation on shopping websites, while fun and website aesthetics were again at the bottom of their list.

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Methodology Interestingly, personalization features also ranked low among consumers, who Introduction did not seem to ﬁnd such additions to add to the usability of retail websites. B2C Websites

B2B Websites Key Characteristics of User-Friendly Shopping Online Customer Service & eCRM Websites, 2001 (as a % of respondents) Index of Charts Easy order processing 68%

Security features 65%

Ease of use/navigation 42%

Quantity of information on available products 28%

Variety of products available 27%

Access to customer service 22%

Fast download time 20%

Organization of product selections 13%

Personalized recommendations based on past purchases 7%

Search engine provided on the website 6%

Layout of front page 2%

Fun 2%

Aesthetics (look and feel of website) 2%

Among the main reasons that internet users say they will not make online purchases, there are some basic concerns that online retailers can address by making improvements to their websites. Besides adjusting their website’s navigability, adding customer service features and offering multiple shipping alternatives are two effective solutions that online retailers have used to encourage online purchases.

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Methodology Reducing the amount of rich media content is another way to make Introduction websites more user-friendly, since this in turn makes websites faster to B2C Websites download. Despite the fact that broadband use continues to grow, website B2B Websites

Online Customer operators need to be aware that many of their customers may continue to Service & eCRM access the internet through dial-up connections for quite some time. Index of Charts Main Reasons US Internet Users Do Not Buy Online, 2001 1 Poor/slow/non-existent customer service options 2 Privacy: fear or reluctance to disclose personal info and data 3 Higher total order prices than offline (including high shipping charges) 4 Security: potential for credit card fraud, hackers, etc. 5 Confusing site structure/cannot find product info 6 Not able to see/feel/test merchandise (where applicable) 7 General lack of trust in vendor 8 Inability to return goods 9 Site pages take too long to download 10 Out-of-stock merchandise Source: eMarketer, 2001 021000 ©2001 eMarketer, Inc. www.eMarketer.com

According to research conducted by Retail Forward, approximately one-third of online shoppers said that they no longer go to speciﬁc websites where they have had frustrating shopping experiences in the past. Among the leading frustrations cited by consumers are pop-up ads, banner ads and congested web pages that are cluttered with too much advertising or other images.

Most Common Frustrations of US Online Shoppers, 2001 (as a % of online shoppers) Pop-up boxes when visiting a site 52% Banner advertisements 50% Congested webpages (e.g., too many advertisements, images, or 35% information on webpages) Slow load times 26% Difficult to find a specific product 20% Source: Retail Forward, December 2001 036189 ©2002 eMarketer, Inc. www.eMarketer.com

Analysts at Retail Forward have noted, however, that customers are not so much turned away from making online purchases by website ads as they are by website navigational problems. Most shopping cart abandonment has therefore come as a result of navigational issues. Indeed, Knowledge Systems & Research has discovered that on average, consumers become frustrated after having to click more than 6 times on a website that they are visiting.

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Methodology The most common reaction at this point is for visitors to move to another Introduction website, while just 13% of the people that KS&R studied tried to use the B2C Websites website’s search feature to ﬁnd the information that they were after. B2B Websites

Online Customer Service & eCRM US Consumers' Most Likely Action Taken When Index of Charts Frustrated by Too Many Clicks on a Website, 2001 (as a % of respondents)

Move to another website 83%

Use search functionality on the website 13%

Call customer service 2%

Ask a friend/family member/colleague for assistance 1%

Quit search 1%

In contrast to Retail Forward’s ﬁndings concerning shopping cart abandonment, the Vividence Corporation found that most internet consumers abandon shopping carts because of the high shipping costs associated with making online purchases.

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Methodology Several consumers also claimed that they did not conclude their online Introduction transactions because they were either comparison shopping, or they had B2C Websites simply changed their minds about the products they were looking at. B2B Websites

Online Customer Service & eCRM US Online Consumers' Top Reasons for Shopping Cart Index of Charts Abandonment, 2001 (as a % of respondents)

High shipping prices 72%

Comparison shopping or browsing 61%

Changed mind 56%

Saving items for later purchase 51%

Total cost of items is too high 43%

Checkout process is too long 41%

Checkout requires too much personal information 35%

Site requires registration before purchase 34%

Site is unstable or unreliable 31%

Checkout process is confusing 27%

With 61% of respondents to the Vividence study indicating that they were comparison shopping or browsing online, it is also likely that many of these online shoppers ultimately prefer to conclude their transactions at online retailers’ brick and mortar stores. Further evidence of this was discovered in Shop.org’s annual survey of online retail sales, which interviewed more than 48,000 US shoppers during the month of March 2002. The study found that 73% of respondents said that they research some of their purchases online, before coming in to the store.

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Methodology Among those goods that internet users were most likely to research online Introduction were consumer electronics, clothing, personal computers and toys. B2C Websites B2B Websites Products that US Internet Users Research Online and Online Customer Service & eCRM Subsequently Buy at Retailers' Stores, 2002 (as a % of Index of Charts respondents)

Consumer electronics 38%

Clothing 23%

Personal computers 22%

Toys 17%

Home accents/housewares 13%

Major appliances 12%

Furniture 9%

Sporting goods 9%

A signiﬁcant 34% of respondents to the Shop.org study said that they shopped in all three retail channels – in-store, via catalog and online. A further 78% of online shoppers said that they made purchases both in the store and online. And it was found that online shoppers were also the biggest spenders, spending an average of $600 more than single-channel shoppers. A separate study conducted by Retail Forward found that a signiﬁcant portion of online retail sales are incremental, with 31% of respondents to its early 2002 study saying that their online purchases would not have been made if they had not made the purchase online. As for those website features that consumers say would induce them to make more online purchases, the ability to view products more closely was cited as the leading feature among respondents to PricewaterhouseCoopers’ survey of online shoppers. This supports the analysis of Forrester Research, which has recommended that enhanced viewing features are best suited for “convenience” goods, such as toys or clothing.

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Methodology More than one-third of online consumers said that information about Introduction product availability and product comparison guides would increase their B2C Websites likelihood of making online purchases. The study also found that consumer B2B Websites

Online Customer product reviews and the provision of a 1-800 customer service number Service & eCRM were helpful inducements for turning online shoppers into buyers. Index of Charts Features Likely to Increase Online Purchasing in the US, 2001 (as a % of shoppers indicating feature may increase purchasing)

"Close-up" product images 44%

Product availability 39%

Product comparison guides 34%

Search function 30%

1-800 Customer service number 25%

Consumer reviews/evaluations 24%

Catalog quick order 24%

Because a growing number of website operators would like to gather information about their online customers, internet users are increasingly being asked to provide personal information at the websites they visit. Most websites offer some kind of inducement in exchange for this information, ranging from product discounts to the chance to win free prizes. Knowledge Systems and Research discovered that most consumers are interested in receiving personalized or useful information in exchange for the personal information that they provide, while the assurance that their information will remain private is also important.

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Methodology KS&R found that the promise of improved online services was of low Introduction interest to most respondents to its survey, for which more people said that B2C Websites they expected nothing in return for their personal information. B2B Websites

Online Customer Service & eCRM US Consumers' Expectations of Website Operators in Index of Charts Exchange for the Provision of Personal Information, 2001 (as a % of respondents)

Useful/personalized information 29%

Security/privacy 23%

Discounts/free stuff/gifts 22%

Better services 12%

Nothing 17%

Taking a closer look at the proﬁle of those internet users who say that they value personalization features, a greater proportion of them appear to be comfortable with making online purchases, with 28% of them spending more than $2000 online in 2000, compared to 18% of people who did not value personalization.

Online Spending Habits of US Consumers Who Value Personalization Features, March 2001 (as a % of consumers surveyed)

Spent more than $2,000 online in 2000 28% 18%

Pay for online subscriptions 21% 11%

A further 21% of respondents who value personalization said that they were willing to pay for online subscriptions, compared to just 11% of people who did not want personalization. It is worthwhile to note the difference between personalization and customization, however. As Forrester Research explains it, customization requires a website user to actively select his or her own preferences, while personalization anticipates the needs or interests of a passive user, often relying upon past behavior to make recommendations.

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Methodology Examples of websites that have successfully implemented customization Introduction features include Dell.com, Amazon.com and Orbitz.com, each of which B2C Websites permits users to select or assemble products according to their needs. B2B Websites

Online Customer Amazon.com is frequently cited as an example of a successful adopter of Service & eCRM personalization features as well. Index of Charts There is some controversy over the effectiveness of customization, however, as several observers such as Professor Peter S. Fader of the Wharton School, feel that customization is more trouble than it is worth.

“…the promise of customization has been a near- complete bust. Many people don’t really want it, and companies have a hard time doing it.” – Peter S. Fader, Wharton School

This is especially true for online clothing vendors who have tried selling custom-designed clothes, or proponents of the concept of build-to-order cars. Professor Fader has gone on to note that since many people do not want a high level of customization, the expense of providing it does not actually meet most consumers’ needs. On the other hand, customization on informational websites has been much more successful, especially as it pertains to regular visitors of news and ﬁnancial websites, or subscribers to internet information services. My.Yahoo.com is an example of one of the more successful customization services that are offered by information portals. As for those internet users who make use of customized web pages, KS&R found that 54% of respondents to its survey said that they used customized websites, while the remaining 46% of respondents said that they did not.

Frequency with Which US Users of Customized Webpages Update Their Specifications/Preferences, 2001 (as a % of respondents)

Once every two weeks or less 15%

Monthly 24%

Quarterly 30%

Bi-annualy 15%

Annually 9%

Never 7%

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Methodology About 30% of respondents to its survey said that they updated their Introduction customized web pages on a quarterly basis, with 15% of people making B2C Websites changes at least once every two weeks and 24% of respondents adjusting B2B Websites

Online Customer their customized pages once per month. Service & eCRM Younger internet users were also more likely to use customized web Index of Charts pages than older internet users. And ﬁnally, when it comes to paying for online content, the Pew Internet & American Life Project found that a narrow 12% of internet users are willing to pay for access to a website that they had previously used for free. On the other hand, 50% of the 233 respondents said that they had gone and found a free alternative, while 36% of internet users indicated that they had simply stopped getting free information online. Those internet users with less than one year of online experience were the most likely people to stop using the internet as a resource.

Action Taken by US Internet Users After Being Asked to Pay for Access to a Previously Free Website, 2001 (as a % of respondents)

Found a free alternative 50%

Completely stopped getting that information or service online 36%

Agreed to pay for access 12%

In total, 17% of the 1,351 internet users surveyed by the Pew Internet & American Life Project said that they had been asked to pay for access to a website that they had been using for free.

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Methodology 5

I Introduction 9

II B2C Websites 23 III B2B Websites 65 A. Website Capabilities 66 B. User Preferences 81

IV Online Customer Service & eCRM 87 IIIIndex of Charts 117

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Methodology A. Website Capabilities Introduction B2C Websites Compared to their consumer-facing counterparts, business-to-business B2B Websites websites continue to lag behind in their level of online customer service Online Customer Service & eCRM and sell-side capabilities. Index of Charts Although many B2B websites have made some strides in the past two years, most companies have taken a conservative approach to the development of their websites, thanks in part to the collapse of the internet bubble, the slowdown in IT spending, and uncertainty about the future of both public and private B2B exchanges. Indeed, while large corporate purchasing departments were implementing e-procurement applications during the dot-com boom, the common question by the end of 2000 had become, “Where are the suppliers?” Survey data in early 2001 showed that although as many as 60% of businesses were ready to buy via the internet, just 15% of suppliers were prepared to sell online. Even now, most businesses have made slow progress in the development of their online presence. While the majority of companies operate a home page and corporate intranet, there is still a relatively small percentage of companies that are able to conclude business-to-business transactions online. Besides the fact that sell-side e-commerce initiatives can be complicated to implement, many companies have furthermore prioritized buy-side over sell-side e-commerce projects, which typically provide a faster return on investment, in part because they are easier to implement.

Internet Capabilities Deployed by US Companies, 2001 (as a % of respondents)

Home page 98%

Intranet 95%

Links to other company websites 88%

E-Commerce 78%

Customer extranets 72%

Supplier extranets 59%

Interactive e-communities 40%

Wireless (m-commerce) capabilities 17%

According to the Direct Marketing Association’s (DMA) late-2001 study of US companies, 71% of business-to-consumer websites said they were able to process transactions online, compared to just 20% of business-to- business websites that could make the same claim.

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Methodology Another study of North American companies that was conducted in Introduction November of 2001 posted similar results, ﬁnding that about 55% of B2C Websites businesses’ websites were primarily designed to provide information, with B2B Websites

Online Customer just 17.1% of respondents saying that they had the ability to conduct Service & eCRM internet-based transactions. Index of Charts North American Companies' Website Operating Capabilities, 2000 & 2001 (as a % of respondents)

Do not Do not have a have a website website Transact 0.0% 1.2% 14.6% Transact Deliver 17.1% Deliver 6.6% 8.0% Interact 19.2% Interact Inform 19.2% Inform 59.6% 54.6%

The DMA has found that most B2B companies’ websites serve as brochure- ware, placing a greater emphasis upon providing information about products and services, generating sales leads, or acting as a platform for public relations or company advertising.

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Methodology Just 25% of respondents to the DMA study said that their B2B websites Introduction were primarily focused upon conducting online sales, underscoring the B2C Websites lower priority that B2B companies have assigned to developing the internet B2B Websites

Online Customer as a sales channel. Service & eCRM Index of Charts Primary Purpose of US Companies' B2B Websites, 2001 (as a % of respondents)

Provide information about products and services 96%

Lead generation 68%

Public relations/image enhancement 56%

Advertising 40%

Sales/e-commerce 25%

Customer service 22%

Gather e-mail addresses (not for lead generation) 22%

Human resources management 12%

Technical support 11%

Conduct survey/market research 10%

Build online community 10%

On the other hand, it is worthwhile to note that the nature of business-to- business trade is very different from that of consumer sales. For many products, relationships between businesses are typically more stable than those between consumers and retailers. And although some business-to-business products such as ofﬁce supplies or MRO goods may be readily sold online, many other business transactions require lengthy ofﬂine negotiations, the establishment of credit and payment terms, and the arrangement of delivery schedules.

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Methodology As a result, the development of websites for transactional purposes is less Introduction relevant to companies that sell to other businesses. Instead, several business- B2C Websites to-business trading partners have implemented more robust private B2B Websites

Online Customer exchanges or customer portals, which go beyond simple transaction Service & eCRM processing to provide established customers with other value-added services. Index of Charts And because private extranets require a great deal more time to plan and implement, it is understandable that B2B suppliers have not made as much progress selling online as their B2C counterparts. Many small businesses have adjusted their expectations for their website operations during the past several years as well, relying less upon the internet as a channel for generating sales into new markets, and instead using their websites to improve customer service. Indeed, Jupiter Media Metrix found in a mid-2001 survey that 71% of B2B suppliers said they had seen no growth in market share, thanks to their internet presence. Fulcrum Analytics also discovered that while 36% of small businesses believed that their websites would increase sales in 1998, just 19% of respondents to its survey expected that their websites would generate new sales via the internet in 2001. Instead, 27% of US small businesses said that they expect their online presence to help generate more ofﬂine sales.

Reasons Why US Small Businesses Have a Website, 1998 & 2001 (as a % of respondents)

Expand geographic territory 37% 34%

Increase sales (online and offline) 36% 46%

Keep up with competitors 12% 39%

Cut marketing costs 12% 26%

Improve customer service 2% 39%

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Methodology The Yankee Group has found that three-quarters of businesses use their Introduction corporate websites to post company announcements and related B2C Websites information. It has also discovered that 63% of corporate websites provide B2B Websites

Online Customer search capabilities for their products and services, and 55% offer some kind Service & eCRM of customer support or service. Index of Charts Once again, a relatively small 24% of the websites studied had online order processing capabilities.

Features Offered on Corporate Websites Worldwide, 2001 (as a % of respondents)

Corporate announcements 75%

Search capabilities for products and information 63%

Customer support and services 55%

Product demos 27%

Order processing 24%

Customize personal information 22%

Other 13%

Supply chain management 8%

Of the most common features that are used on B2B websites, the DMA found that 63% of the 130 companies it surveyed required users to login to gain full access to their websites.

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Methodology Online newsletters were another popular feature that was offered on several Introduction B2B websites, while few websites provided online chat for customer service B2C Websites or wireless capabilities. B2B Websites

Online Customer Service & eCRM Website Features and Functions Offered on US B2B Index of Charts Websites, 2001 (as a % of respondents)

Subscriber/user login 63%

E-Newsletters 61%

Dynamic page creator 42%

Personalization platform 29%

Targeted ads 27%

Pop-up offers 17%

Online chat with customer service 17%

Recommendation engine 14%

Wireless PDA/PDA version 14%

WAP enabled (Wireless Application Protocol) 13%

Of course, most businesses do not see their online presence as a static condition, with several companies continuously modifying their websites by slowly adding features and making changes over time. With 62% of B2B websites having three or more years’ of experience according to the DMA, there are several B2B ﬁrms that will likely develop next-generation websites within the next two years.

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Methodology These ﬁndings are supported by a separate November 2001 study of US Introduction small businesses that was conducted by Verizon Superpages.com, which B2C Websites found that 62% of the small companies that currently have a website plan B2B Websites

Online Customer to redesign their websites within the next year. Service & eCRM Index of Charts Primary Designers of US Small Business Websites, 2001 (as a % of respondents)

Internal resources 48%

Outside resources 43%

Don’t know 12%

The DMA found that B2B companies market an average of 10 items via their websites, but typically sold an average of 275 items through their online catalogs. Online catalogs are usually electronic versions of traditional paper catalogs, and are often made available through resellers or via private portals to large customers. Nonetheless, despite the ability of many B2B companies to market their products online, very few were able to conclude transactions via their websites as of late-2001.

Percent of US Companies' B2B Websites Able to Conduct Financial Transactions, 2001

Able to conduct financial transactions 20%

Do not conduct financial transactions 80%

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Methodology Among those B2B websites that are able to conduct online transactions, the Introduction average order size was $350 in 2001, which is signiﬁcantly higher than B2C Websites consumer websites’ average order size of $68. The average value of online B2B Websites

Online Customer catalog transactions was signiﬁcantly lower than website sales for B2B Service & eCRM companies, at $185. Index of Charts Average Dollar Value* of US B2B Companies' Online Transactions, 2001

Via company website $350

Via online catalog $185

In a sign that businesses are in the process of streamlining their internet operations, nearly three-quarters of B2B websites, at 74% of respondents to the DMA study, expected to have profitable online operations by the end of 2002, with 27% of the companies in the survey saying that they would have profitable operations by the end of 2001. Turning to the number of visitors that B2B websites typically handle, it should come as little surprise that website traffic on B2B websites is much lower than that seen on their B2C counterparts. While 81% of the consumer-facing websites surveyed by the DMA had web traffic exceeding 100 unique visitors on any given day in 2001, just 37% of business-to- business websites could make the same claim.

Average Number of Daily Unique Visitors to US B2B Websites, 2001 (as a % of respondents)

Less than 100 63%

100 to 1,000 visitors 20%

1,000 to 3,000 visitors 7%

3,000 to 10,000 visitors 4%

10,000 to 20,000 visitors 3%

20,000 to 40,000 visitors 1%

40,000 visitors or more 2%

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Methodology In its annual look at the cost of building and designing commercial Introduction websites, BtoB Magazine has found that the price tag can range from a low B2C Websites of $20,000 for a small project to as much as $675,000 for a large project. B2B Websites

Online Customer As part of its study, 20 different developers were asked to bid on three Service & eCRM separate projects that varied in size and complexity. Integration work was Index of Charts not included in these estimates. The small project was for a hypothetical law ﬁrm that required basic design work for a hosted website that would primarily serve as brochure ware. The mid-size project required a website to be designed for a ﬁctitious software developer that needed an e-commerce engine, secure hosting services, bulletin board and user registration system. The site was also required to provide customer access to a database for user support. Bids for the small project topped off at $100,000, while the high price for the mid-size project was $215,000. Median prices for the small and mid-sized projects were $65,000 and $125,000 respectively.

Website Development Costs for a Small and Midsize Project, 2001 Small project High price $100,000 Median price $65,000 Low price $20,000 Midsize project High price $215,000 Median price $125,000 Low price $40,000 Source: BtoB Magazine, 2001 027865 ©2001 eMarketer, Inc. www.eMarketer.com

The large project was for a hypothetical portal used in the restaurant industry, described as already having 25,000 registered users. This mid-size portal was said to be planning to move into a second-generation phase that would offer vendors the ability to manage and update their online catalogs.

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Methodology The portal also wanted to permit buyers to securely register and manage Introduction their own accounts, and store information on purchasing activity. An B2C Websites online industry-news service, content personalization, along with an B2B Websites

Online Customer e-mail list management and delivery system were also to be added features Service & eCRM of this new website. The high price for this large project came in at Index of Charts $675,000, while the lowest bid was $86,000.

Compared to previous years, BtoB Magazine found that median prices for website design stayed constant or declined, even though more complex features were added to the survey in 2001. Large projects actually dropped signiﬁcantly, from a median price of $608,000 in 2000 to just $250,000 in 2001. By comparison, midsize projects went up in price, from $119,500 in 2000 to $125,500 in 2001. As an explanation of these changes, BtoB Magazine notes that there was a spike in website development costs in 2000 when web developers were often turning away dot-coms and brick-and-mortar companies alike, due to excessive demand. Of course, the market for website development services has changed substantially since then.

Comparison of Median Prices for Website Development Projects, 1999-2001 September 1999 May 2000 May 2001 Large project $405,000 $608,000 $250,000 Midsize project $170,000 $119,500 $125,500 Small project $77,500 $113,500 $65,000 Source: BtoB Magazine, 2001 027867 ©2001 eMarketer, Inc. www.eMarketer.com

BtoB Magazine also found that as companies moved into next-generation websites, the cost to expand them was signiﬁcantly lower than their initial development cost. For example, although the mid-size project added signiﬁcantly more complex technology in the 2001 study, it resulted in only a very slight rise in price. Overall, demand for website development work was found to have substantially declined since May of 2000, while developers’ growing expertise has contributed to their ability to implement web design projects at a faster speed, thus reducing labor costs.

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Methodology When the DMA asked B2B website operators how much they expected to Introduction spend on website development in 2002, just 10% of respondents said that B2C Websites they had budgeted more than $500,000. Nearly half of B2B website B2B Websites

Online Customer operators, at 49% of respondents, said that they planned to spend between Service & eCRM $10,000 and $500,000 on their B2B websites this year, while 31% of Index of Charts respondents expected to spend no more than $5,000.

US B2B Companies' Forecast Website Development Budgets, 2002 (as a % of respondents)

Nothing 10%

$1 to $5,000 21%

$5,001 to $10,000 7%

$10,001 to $50,000 25%

$50,001 to $100,000 11%

$100,001 to $250,000 6%

$250,001 to $500,000 7%

$500,001 to $1,000,000 5%

$1,000,001 to $7,500,000 5%

The DMA also found that when businesses break down their website budgets, the greatest portion of their spending is typically directed toward marketing. The next highest expense is for a website’s ongoing operations, excluding stafﬁng, which accounted for an average 25.2% of B2B website operators’ spending in 2001. Stafﬁng costs averaged 19.2% of B2B companies’ website budgets, according to the DMA’s survey results.

Breakdown of US Companies' Spending on their B2B Websites, 2001

Marketing 37.4%

Operations 25.2%

Staffing 19.2%

Advertising 18.2%

New business development 16.9%

Merchandising 3.6%

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Methodology Although only one-quarter of B2B website operators in the DMA study said Introduction that the primary purpose of their website is to generate sales, most B2C Websites companies nevertheless evaluate the success of their online media B2B Websites

Online Customer initiatives by their impact upon sales. Service & eCRM Website operators have furthermore placed a high value upon the ability Index of Charts of their internet initiatives to produce sales leads, as well as their ability to acquire e-mail addresses, which may be added to in-house campaign lists.

How US B2B Website Operators Measure the Success of their Online Media Initiatives, 2001 (on a scale of 1-9*) Sales generated 2.3 Leads generated 2.4 E-Mail addresses collected 3.9 Hits on designated/unique urls 4.3 Cost per website visitor 5.0 "Hits" on home page 5.1 Cost per website customer 5.2 Learning/education 5.3 Other measures 6.2 Note: n=122; *1=most effective, 9=least effective Source: Direct Marketing Association, April 2002 041670 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology Not surprisingly, respondents to the Direct Marketing Association’s survey Introduction have considerable experience in using direct mail as part of their B2C Websites traditional promotional campaigns. B2B Websites

Online Customer As a result, several B2B website operators appear comfortable using both Service & eCRM online and offline direct marketing techniques to drive website traffic. The Index of Charts use of costlier search engine optimization, print ads and online advertising are employed as well, showing that most website operators have an impressive understanding of how multimedia promotional techniques may be combined to drive website traffic.

How US B2B Website Operators Drive Website Traffic, 2001 (as a % of respondents)

Direct mail 55%

E-Mail marketing 52%

Search engine optimization 37%

Print ads 36%

Online advertising 24%

Offline promotions 22%

Sponsorship of e-newsletters 17%

Paid search engine placement 17%

Online promotions 11%

Incentive programs 7%

Television ads 2%

Other 23%

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Methodology Among the most basic customer service features that can be found on B2B Introduction websites are e-mail customer service support and a toll-free number for B2C Websites telephone-based support. B2B Websites

Online Customer For those businesses that are developing next-generation websites, many Service & eCRM are adding customer self-service features such as the ability to check Index of Charts product inventory levels, and order status tracking. Business-to-business companies are ﬁnding that such features not only provide customers with a convenient, value-added service, but they are helping to reduce customer service costs as well.

Online Customer-Service Features Offered by B2B Websites, 2001

E-Mail customer support 96%

Toll-free phone number for customer support 67%

Text chat with online collaboration 4%

Turning to the adoption of more advanced customer analytics capabilities, the DMA found that of the 176 business-to-business websites that it surveyed, 82% of respondents were able to identify new customers that visited their website, but 64% were not able to distinguish between their online and ofﬂine customers, or segment their online customers in any way.

Percent of US B2B Websites that Use Applications to Identify Website Visitors, 2001

Able to identify new customers 82%

Able to identify repeat customers 64%

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Methodology Of those that were able to segment their customers, 56% did so by their Introduction purchase history. Another 55% of websites segmented visitors by their B2C Websites location, and 51% used customer demographics to distinguish between B2B Websites

Online Customer types of customers. Service & eCRM Index of Charts How US B2B Website Operators Segment their Online Customers, 2001 (as a % of respondents)

Purchase history 56%

Location/zip code 55%

Demographics (income, age) 51%

Estimated lifetime value 26%

Lifestyle/hobbies/interests 18%

Other 27%

eMarketer has found that the deployment of customer analysis tools has necessarily followed earlier implementations of online customer service capabilities. With many companies still deploying customer relationship management (CRM) systems during the course of 2001, customer analytics was listed by companies in most surveys as a priority for 2002 and beyond.

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Methodology B. User Preferences Introduction B2C Websites In their latest quarterly survey of US companies’ e-business activity, B2B Websites Forrester Research and the Institute for Supply Management (ISM) noted Online Customer Service & eCRM that American businesses’ use of the internet was continuing to see steady Index of Charts growth in 2002. Of the 331 manufacturing and service sector ﬁrms that were studied, more than 64% of respondents said that they purchased direct materials online during the second quarter of 2002, while an even larger 84% of US companies went online to purchase indirect goods, such as ofﬁce supplies or janitorial equipment.

Percent of US Companies Buying Direct Goods/Services via the Internet, Q1 & Q2 2002

Q1 2002 53.3%

Q2 2002 64.6%

Percent of US Companies Buying Indirect Goods/Services via the Internet, Q1 & Q2 2002

Q1 2002 78.1%

Q2 2002 84.2%

It is important to note, however, that most companies’ use of the internet remains at an early stage, with many businesses still only now beginning to move beyond the pilot stage of their online purchasing operations. This was conﬁrmed by the Forrester/ISM study, which found that although several US companies were doing some online procurement, most businesses were directing less than 10% of their overall purchasing activity via the internet. But while it will likely take several more years to migrate a larger portion of corporate purchasing online, many businesses have already embraced the internet as an information and communications channel. When it comes to staying on top of industry news, for example, business leaders rely upon the internet because of its convenience, as well as the ability for information providers to update news as it happens.

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Methodology NFO WorldGroup surveyed 516 business executives during the ﬁrst half of Introduction 2002, ﬁnding that nearly three-quarters of decision-makers regularly use B2C Websites internet websites to stay on top of industry news. B2B Websites

Online Customer Service & eCRM Information Sources Used by Business Leaders to Index of Charts Gain Information About their Industry's Sector, 2002 (as a % of respondents)

Business publications 87%

Websites on internet 71%

Conferences/exhibitions 54%

National newspapers 46%

General business magazines 42%

Direct mail 42%

Regional newspapers 37%

Other online info services 28%

Television 27%

Radio 20%

Others 10%

However, it is interesting to note that just 19% of business leaders said that they found the internet to be their most useful resource for selecting new suppliers, well-behind the 44% of respondents who named business publications. Similarly, while 58% of executives said that they used business publications to keep abreast of the latest product launches within their industry, just 8% used internet websites, behind general business publications and direct mail. Nonetheless, 79% of respondents to the NFO survey said that they found B2B websites to be useful, with a further 79% of executives saying that business publications and websites complement each other. As for those people who make buying decisions, although procurement professionals often play the most prominent role in making corporate purchasing decisions, there are several other stakeholders that often have some inﬂuence in how business spending decisions are made. Operators of business-to-business websites have therefore had to consider the interests of several people in addition to professional buyers, when designing their websites. And because most of these potential customers are primarily involved in the sourcing stage of the purchasing process, it has been necessary to develop the informational aspects of their websites as a priority.

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Methodology

Introduction Stakeholders at US Manufacturing Firms that

B2C Websites Participate in Sourcing Activities, 2002 (as a % of

B2B Websites respondents) Online Customer Extensive Some Service & eCRM participation participation Index of Charts Purchasing/procurement 83% 15% R&D/engineering 30% 54% Suppliers 24% 54% Production/manufacturing 21% 56% Marketing/sales 11% 51% Customers 9% 42% Distribution 9% 33% Source: IndustryWeek, 2002 041913 ©2002 eMarketer, Inc. www.eMarketer.com

Acceptance of the internet as a resource for sourcing activities occurred quickly among many purchasing professionals, but it is interesting to note that during the past two years, their use of suppliers’ websites for sourcing product has remained constant. Purchasing magazine has found that very few new purchasing professionals have joined their colleagues online during the past two years.

Percent of US Purchasing Professionals Using Suppliers' Websites for Sourcing, 2000 & 2002

2000 56%

2002 57%

By comparison, just 23% of respondents to the Purchasing study said that they were using supplier extranets, while 74% of respondents indicated that they were using supplier directories as part of their online sourcing activities.

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Methodology When Purchasing magazine asked its readers what features they wanted to Introduction see on a supplier’s website in 1999, most listed product information as their B2C Websites ﬁrst priority. Quick access to customer service or sales assistance was also B2B Websites

Online Customer high on their list, as most business users usually want the answers to any Service & eCRM questions they may have as fast as possible. Index of Charts What B2B Buyers Want to See on Suppliers' Websites, 1999

Product information 93%

Sales contacts 61%

Technical help 59%

Delivery information 55%

Order tracking 53%

Sales office locations 46%

E-Commerce capability 31%

Identify management 23%

Ability to interact 10%

In a survey released in early 2002, Thomas Register found in its Industrial Purchasing Barometer Study that 91% of business buyers had gone to a suppliers’ website for product information, instead of using the telephone to contact their suppliers. A further 90% of respondents to the survey expected to ﬁnd a full range of product information, from pictures of the products they were looking for, to shipping information, and even information about product guarantees. Many buyers went on to say that they would give preferential treatment to those suppliers who provided comprehensive online services, with 80% of respondents indicating that they would do so. Just over three-quarters of respondents, at 77% of business buyers, said that by providing detailed information online, suppliers show that they want their customers’ business. In May of 2001, similar results from Jupiter Media Metrix showed that 54% of business buyers would give preferential status to those suppliers who provided comprehensive customer service capabilities online. A further 28% of the 406 purchasing executives surveyed by Jupiter said that they would migrate a signiﬁcant portion of their business to suppliers who provided them with greater visibility into their supply chains, through online applications.

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Methodology Interestingly, most business buyers have said that the greater value of Introduction internet-based business-to-business interactions lies not in the actual B2C Websites transaction itself, but in the pre- and post-sale content that a website B2B Websites

Online Customer operator is able to provide. Service & eCRM Indeed, anecdotal information has shown that business buyers would Index of Charts much rather serve themselves online at their own convenience than have to place multiple calls to customer service representatives or chase down sales reps through a series of phone calls. This is especially true for minor queries that typically require minimal expertise from customer service representatives, such as checking a product’s speciﬁcations or tracking an order’s shipping status.

User Assessment of B2B Interactions, 2001

Value is in the transaction 29%

Value is in presale and postsale content 71%

When it comes to those features of online customer service that irritate business buyers, many of the same problems listed by consumers are applicable in the business world. First among the complaints is the excessive number of clicks that are required to get to a desired area of a B2B website. Online business buyers have also listed navigational problems as a leading complaint, along with too much self-serving content that does not help them to accomplish what they would like to do at their suppliers’ website.

Leading Complaints About B2B Websites, 2000

Too many clicks to get to desired area 78%

Confused by home page 65%

Distracted by self-serving content 61%

Got lost in the site 56%

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Methodology Motive Communications has found in its survey of 200 business buyers Introduction that 95% have abandoned the use of a particular website due to problems B2C Websites they have encountered while using it. B2B Websites

Online Customer Among the leading difﬁculties cited by respondents to the study were Service & eCRM problems associated with signing up for a service, researching a product Index of Charts and executing a transaction.

Leading Problems that US Business Buyers Have Encountered with Websites, 2001 (as a % of respondents)

Signing up for a service 85%

Researching a product 81%

Executing transactions 75%

Just over one-third of business buyers in the study, at 36% of respondents, said that they were dissatisﬁed with the online customer service that they received, with e-mail providing the least satisfactory results. Perhaps more so for business buyers than online consumers, time is of the essence when it comes to obtaining online customer service. Surveys indicate that at the moment a business buyer encounters a problem or needs an answer to a question, they appreciate the convenience of being able to pick up a phone, or the ability to receive an instant response from an online customer service rep, so that they can complete whatever task that they have set out to do.

Percent of US Business Buyers Listing Their Online Customer Service Experience as Satisfactory, by Service Channel, 2001

Online chat/instant messaging 32%

Telephone 22%

E-Mail 15%

For B2B website operators, it is important to remember that as with online consumers, business buyers are increasingly going online to accomplish speciﬁc tasks. The most successful websites are designed with this utilitarian perspective in mind. To the extent that a business website is able to anticipate the needs of its users, and not so much the sales-focused interests of its operator, the more satisﬁed customers will be, and the more likely they will return to interact in the future.

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Methodology 5

I Introduction 9

II B2C Websites 23

III B2B Websites 65 IV Online Customer Service & eCRM 87 A. Website Capabilities 88 B. User Preferences 105 IVIndex of Charts 117

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Methodology A. Website Capabilities Introduction B2C Websites According to its deﬁnition of the worldwide market for sell-side e- B2B Websites commerce software, AMR Research includes software that helps run Online Customer Service & eCRM websites, private extranets, and those applications that enable online Index of Charts customer service. With very few companies having implemented sell-side e-commerce systems prior to 1999, this market has tripled in size through 2002 to reach $9.0 billion, according to AMR Research. Sell-side e-commerce software sales are forecast to see continued strength during the next two years, growing to $14.0 billion by 2004, as businesses develop robust sell-side private exchanges that better serve their demand chain partners and online customers.

Estimated Worldwide Sell-Side E-Commerce Software Sales, 2000-2005 (in billions)

2000 $3.0

2001 $5.0

2002 $7.0

2003 $9.0

2004 $11.0

2005 $14.0

With online customer service capabilities expected to account for a signiﬁcant portion of next-generation websites’ new offerings, software industry analysts are predicting that the narrower electronic customer relationship management (eCRM) market will achieve sales of more than $10 billion by 2005.

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Methodology IDC estimates that eCRM software sales will nearly double between 2002 Introduction and 2004 to reach $9.51 billion within the next two years. B2C Websites B2B Websites Estimated Worldwide eCRM Software Sales, Online Customer Service & eCRM 1999-2004 (in billions)

Index of Charts 1999 $0.93

2000 $2.15

2001 $3.81

2002 $5.60

2003 $7.66

2004 $9.51

By comparison, UK-based research ﬁrm Ovum estimates that eCRM software sales will reach $10.39 billion by 2005, up from just $1.31 billion in sales during 2000.

Worldwide eCRM Software Revenues, 2000-2005 (in billions)

2000 $1.31

2001 $2.28

2002 $3.67

2003 $5.18

2004 $7.23

2005 $10.39

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Methodology In support of these growth forecasts, survey data from the Conference Introduction Board has found that about one-quarter of US companies have prioritized B2C Websites the deployment of customer extranets and e-commerce solutions in 2002. B2B Websites

Online Customer Service & eCRM Leading Internet Capabilities to be Deployed by US Index of Charts Companies, 2002 (as a % of respondents)

Wireless capabilities 54%

Supplier extranets 36%

Interactive e-communities 35%

Customer extranets 28%

E-Commerce capabilties 20%

Interestingly, wireless capabilities and interactive communities were also the least-likely internet initiatives to be deployed by 29% and 25% of respondents to the Conference Board’s survey, respectively. Despite the downturn in IT spending during the past year and a half, eMarketer has found that sell-side internet initiatives have remained a top priority for a large number of businesses. According to several IT spending surveys that eMarketer follows, websites and e-commerce projects have consistently been among the top ﬁve spending priorities for the majority of companies throughout this downturn. Looking forward to businesses’ website development priorities for 2003, the Conference Board has found that increasing the level of online customer service, followed by lowering online transaction costs are at the top of most US companies’ lists for next year. And as an indication that companies have become more in tune with their online customers’ needs, a further 23% of respondents plan to improve the ease of navigation on their websites in 2003.

Top Website Development Priorities for US Companies, 2003 (as a % of respondents)

Increased level of customer service 27%

Lower transaction costs 23%

Improved ease of navigation 23%

Higher levels of interaction/participation 21%

Improved customer retention 21%

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Methodology Without question, as the volume of internet e-commerce continues to trend Introduction upward, there will be a growing need for companies to provide online B2C Websites customer service to their consumer and business clients alike. B2B Websites

Online Customer As evidence of this future growth, Jupiter Media Metrix released a study Service & eCRM in early 2002, which found that approximately 870 million customer Index of Charts service contacts were handled via the internet in 2001. This ﬁgure accounted for less than 2% of all customer service interactions in the United States, according to Jupiter, which are forecast to reach 4.7 billion such interactions by 2006.

Percent of Customer Service Inquiries Handled via the Internet, 2001 & 2006

2001 2%

2006 10%

As a means of preparing for this surge in online customer interaction, Jupiter found that 26% of the companies it surveyed planned to spend $500,000 or more on customer relationship management (CRM) systems in 2002. Leading the way were companies in the financial services and retail industries, which had already spent $3 billion and $1.7 billion on CRM systems, respectively, in 2001. As part of its coverage of the market for eCRM solutions, the Yankee Group has broken down the five-year total cost of ownership (TCO) for two separate implementations of web-based customer self-service solutions. The first implementation is described as being for a stand-alone solution with minimal integration to other back-end ERP or multi-channel CRM systems. Such a solution would be capable of handling as many as 50,000 user sessions per day and could provide users with a limited amount of assisted service online.

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Methodology The initial up-front cost of this system is estimated to be $567,000, with Introduction ongoing annual maintenance costs of about $200,000 per year. The Yankee B2C Websites Group estimates the TCO for this solution would be a little more than $1.3 B2B Websites

Online Customer million over ﬁve years. Service & eCRM Index of Charts Breakdown of the Five Year Total Cost of Ownership for a Stand-Alone Web Self-Service Solution, 2002 Year 1 Year 2 Year 3 Year 4 Year 5 5-year TCO Software $200,000 $0 $0 $0 $0 $200,000 license Professional $100,000 $18,000 $18,000 $18,000 $18,000 $172,000 services for implementation Annual main- $36,000 $36,000 $36,000 $36,000 $36,000 $180,000 tenance fee Staff to main- $60,000 $30,000 $30,000 $30,000 $30,000 $180,000 tain knowledge content Hardware $30,000 $0 $10,000 $0 $10,000 $50,0000 IT infra- $85,000 $50,000 $50,000 $50,000 $50,000 $285,000 structure Data center/ $50,000 $50,000 $50,000 $50,000 $50,000 $250,000 IT support staff User training $6,000 $6,000 $6,000 $6,000 $6,000 $30,000 Total Cost $567,000 $190,000 $200,000 $190,000 $200,000 $1,347,000 Source: Yankee Group, June 2002 042281 ©2002 eMarketer, Inc. www.eMarketer.com

The second implementation is for a multi-channel web self-service solution that would also be able to handle 50,000 user sessions per day, but link to as many as 150 call center agents as well. In addition to customer self- service capabilities, this system would be able to provide assisted online services such as e-mail response and live chat. It would also be integrated with other ERP or CRM systems.

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Methodology The Yankee Group estimates that the TCO for this self-service solution is Introduction $2.67 million over ﬁve years, with implementation fees for the integration B2C Websites and customization of the system comprising the largest single cost. This B2B Websites

Online Customer eCRM solution is estimated to cost more than $1.3 million in its ﬁrst year, Service & eCRM and as much as $347,000 to maintain each year for the next four years. Index of Charts Breakdown of the Five Year Total Cost of Ownership for a Multi-Channel Web Self-Service Solution, 2002 Year 1 Year 2 Year 3 Year 4 Year 5 5-year TCO Software $300,000 $0 $0 $0 $0 $300,000 license Professional $600,000 $27,000 $27,000 $27,000 $27,000 $708,000 services for implementation Annual main- $54,000 $54,000 $54,000 $54,000 $54,000 $270,000 tenance fee Staff to main- $120,000 $90,000 $90,000 $90,000 $90,000 $480,000 tain knowledge content Hardware $40,000 $0 $20,000 $0 $20,000 $80,000 IT infrastruc- $85,000 $50,000 $50,000 $50,000 $50,000 $285,000 ture Data center/ $100,000 $100,000 $100,000 $100,000 $100,000 $500,000 IT support staff User training $30,000 $6,000 $6,000 $6,000 $6,000 $54,000 Total Cost $1,329,000 $327,000 $347,000 $327,000 $347,000 $2,677,000 Source: Yankee Group, June 2002 042283 ©2002 eMarketer, Inc. www.eMarketer.com

Despite the high initial cost of eCRM solutions, many analysts point out that the long-term return on investment for these systems can be substantial. Indeed, internet-based customer service has been found to be considerably less expensive than other service channels, especially when customers are given the opportunity to serve themselves.

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Methodology For example, Forrester Research estimates that live telephone-based Introduction customer interactions cost approximately $33 per contact, versus just B2C Websites $1.17 per customer contact via a web-based self-service solution. B2B Websites

Online Customer Service & eCRM Customer Service Costs in the US, by Channel, 2002 Index of Charts (per contact) 40

$33.00

$9.99 $7.80

$1.17

Similar comparative estimates from the Giga Information Group and McKinsey & Company put the cost of telephone-based customer service interactions at $10 and $7.50 respectively, while the Giga Information Group has estimated that web-based customer self-service costs as little as $0.50 per contact. McKinsey’s estimate for web-based self-service is even lower, at $0.18 per interaction. A third comparative estimate from Shop.org and the Boston Consulting Group indicates that the broader cost of online customer service in general has remained constant over the past three years, at about $2.50 per order.

Customer Service Costs for Online Retailers in the US, 1999-2001 (cost per order)

1999 $2.40

2000 $2.50

2001 $2.50

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Methodology Because website operators are interested to learn how they can better serve Introduction their customers, Jupiter Media Metrix believes that companies will B2C Websites increasingly turn to analytical applications in order to help them better B2B Websites

Online Customer understand online customer behavior. Service & eCRM Among those customer tracking features that website operators were Index of Charts using at the end of 2001, nearly two-thirds of US B2C and B2B websites were monitoring the amount of time that visitors spent on their website in general and on individual pages. Most companies also tracked how their customers arrived at their website, along with visitors’ interest in various online promotions. Surprisingly, barely more than one-third of companies monitored shopping cart abandonment rates, which is critical for ﬁne-tuning most ﬁrms’ online sales strategies.

Customer Tracking Features Used by US Companies to Monitor Website Activity, 2001 (as a % of respondents)

Amount of time customers spend on primary website 63%

Amount of time customers spend on each area/page 62%

Information about customers' systems 57%

How customers arrive at company website 53%

Connection speed of website users 45%

Clickthroughs for store or company promotions 42%

Links to website from e-mail 40%

Shopping cart abandonment 37%

Click-throughs for promotions offered on other companies' websites 33%

Promotional source of orders 32%

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Methodology In an earlier study conducted by the Yankee Group, it was found that Introduction most companies’ eCRM initiatives had been somewhat disorganized in the B2C Websites years prior to 2001, but that since then, companies were taking a more B2B Websites

Online Customer organized approach to integrating and rolling out their online customer Service & eCRM service initiatives. Index of Charts

“Few retailers have integrated site, brick-and- mortar, and catalog operations – let alone established ways to track each channel’s impact on the others.” –Evie Black Dykema, Forrester Research

As of late 2001, the Direct Marketing Association (DMA) found that 75% of US B2C and B2B websites had at least partially integrated customer service capabilities between their online and telephone/fax operations. Nearly two-thirds of companies, at 62% of respondents, said that they had also been able to integrate product information across their CRM systems, while a signiﬁcant 55% of respondents said they had integrated online and ofﬂine order processing capabilities as well.

US Companies' Websites with Fully Integrated Customer Service Capabilities, by Feature, 2001 (as a % of respondents)

Customer service 75%

Product information 62%

Order processing 55%

Product exchange and returns for credit 21%

Real-time inventory status updates 18%

Consumer facing websites had a slight edge in their ability to offer integrated order processing, with 68% of B2C websites claiming integrated online and ofﬂine services. On the other hand, 75% of B2B websites had integrated their online customer service operations with their phone/fax operations, compared to 70% of B2C websites.

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Methodology Looking more closely at those customer service features that online Introduction retailers were able to offer website visitors as of the fourth quarter of 2001, B2C Websites the e-tailing group found that 99% of retail websites provided a toll-free B2B Websites

Online Customer customer service number. Service & eCRM A further 90% of retail websites displayed their company’s privacy policy Index of Charts online, and about three-quarters of retail websites posted the hours when their live customer service is available.

Customer Service Information Provided on US Retail Websites, 2001 (as a % of respondents)

Toll-free customer service phone number 99%

Customer service hours 74%

Guarantee information 62%

As a way of reducing online customer service costs, the e-tailing group found that the percent of retailers using automated customer response features to answer customer inquiries rose from 23% of online retailers at the end of 2000 to 38% of retailers by the fourth quarter of 2001. The use of automated response has likely impacted response times to customer e-mails as well, which decreased from an average 14.13 hours in 2000 to 12.63 hours in 2001.

E-Mail Response Rates and Auto Response Use among 50 US E-Tailers, Q4 2000 & Q2 2001 Q4 2000 Q2 2001 Average number of hours to respond to customer 14.13 12.63 e-mail Auto responses (% of sites) 23% 38% Source: the e-tailing group, 2001 031775 ©2001 eMarketer, Inc. www.eMarketer.com

In a similar study of online retailers’ response times to customer e-mail inquiries, Jupiter Media Metrix found that 46% of pure-play internet retailers responded to customer e-mails within 24 hours, compared to 50% of multi-channel retailers.

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Methodology But despite the fact that a greater portion of online retailers have developed Introduction minimum standards for e-mail response times compared to years past, it B2C Websites was still discovered that a substantial 40% of pure play internet retailers B2B Websites

Online Customer and 28% of multi-channel retailers did not have adequate resources to Service & eCRM properly respond to customer e-mails. Index of Charts US Retailers’ Response Time to Online Customer Service Inquiries, by Store Type, December 2001

Within 6 hours 33% 28%

6-24 hours 13% 22%

1-3 days 13% 22%

More than 3 days and no response at all 40% 28%

Among those retailers that are doing a good job at responding to customer correspondence, four of the top ﬁve companies in the e-tailing group’s 2002 study were traditional retailers with roots in ofﬂine sales.

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Methodology On average, online retail websites took more than 21 hours to respond to Introduction customer e-mail inquiries. B2C Websites

B2B Websites Time Taken to Answer Customer Service E-Mail by Online Customer Service & eCRM Selected US Online Merchants, 2002 (in Index of Charts hours:minutes) Nordstrom's 0:41 Bluelight.com 1:26 Land's End 2:03 KB Toys 3:22 Drugstore.com 3:42 Smith & Hawken 5:03 Amazon.com 6:46 CDNow 23:22 JC Penney 25:06 Sports Authority 25:07 Average of 100 sites shopped 21:08 Source: the e-tailing group, March 2002 040437 ©2002 eMarketer, Inc. www.eMarketer.com

The e-tailing group also found that 79% of the websites it e-mailed responded the first time that an e-mail was sent, while an additional 3% of websites responded after a second e-mail was sent. When it comes to confirming customer orders, a significant 98% of retailers sent out a post-order e-mail confirmation to their customers. And although fewer online retailers provided a shipping confirmation by e- mail, several online merchants added this feature during the course of 2001 as a means of improving their customer service.

US Retail Websites' Order Confirmation Features, Q4 2000 & Q4 2001 (as a % of websites surveyed*)

E-Mail shipping confirmation 54% 80%

Immediate shopping cart confirmation 84% 90%

Post order e-mail confirmation 92% 98%

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Methodology As for customer self-service capabilities, 79% of retail websites let Introduction customers track their order’s shipping status online, and 54% of internet B2C Websites retailers were able to offer information about real-time inventory status on B2B Websites

Online Customer their websites. Service & eCRM eMarketer expects that several B2C and B2B companies are in the process Index of Charts of adding these capabilities to their websites during the course of 2002.

Inventory and Shipping Information Provided by US Retail Websites, 2001

Shipping status 79%

Real-time inventory status 54%

Information about backordered/out of stock product 16%

When it comes to providing online shoppers with shipping alternatives, the e-tailing group found that 66% of the websites it surveyed offered free shipping during the 2001 holiday shopping season, typically at a threshold of $100 to $200 per order. A further 4% of websites provided free shipping, regardless of the order size. It is interesting to note that by providing internet shoppers with a minimum threshold for free shipping, retailers have discovered that this is an effective way to induce customers to increase the size of their orders. With Amazon.com recently lowering its free shipping threshold from $99 to $49, it is likely that other online retailers will follow suit this coming holiday season. If multi-channel retailers have a signiﬁcant advantage over pure play internet companies, it lies in their ability to integrate online and ofﬂine sales channels by permitting customers to return merchandise that has been purchased online at their brick-and-mortar stores. Some pure play internet retailers and catalog companies have countered this advantage by making the return process for their online customers as simple as possible. This is typically accomplished by sending prepaid return labels along with customer orders, or by making online return forms available via their website.

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Methodology However, as the e-tailing group has found, it appears that few online Introduction merchants care to make the return process as simple as it could be. B2C Websites

B2B Websites Product Return Capabilities Offered by US Retail Online Customer Service & eCRM Websites, 2001 (as a % of respondents) Index of Charts Ability to return merchandise to brick-and-mortar stores 65%

Prepaid return labels shipped with product 15%

Online return forms 4%

Thanks to the internet’s popularity as a shopping channel for gift-givers, many online retail websites had already made gift certificates and gift suggestions available via their websites by the 2000 holiday shopping season. By the 2001 season, 46% of online retailers had added a gift search feature to their websites as well. The e-tailing group also found that nearly half of the websites it surveyed offered both electronic or mail delivery of gift certificates, while 83% were able to send gift certificates to a third-party recipient by mail.

Percent of US Retail Websites that Provide Gift-Giving Features, 2000 & 2001

Gift certificates/cards 70% 72%

Gift suggestions 86% 85%

Gift search 14% 46%

Just over half of all online merchants, at 55% of the surveyed websites, provided gift-wrapping services, with 15% of those websites offering the service for free. Among those retailers that charge for gift wrapping, the average cost was $4.59 in 2001, up from $4.31 in 2000.

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Methodology As companies have endeavored to make improvements to their websites Introduction and streamline their online operations, the Conference Board has found B2C Websites that a signiﬁcant number of website operators have had success at lowering B2B Websites

Online Customer transaction costs. This has typically been accomplished through the Service & eCRM automation of order processing, or by better-integrating online operations Index of Charts with back ofﬁce systems. Other areas that online merchants have succeeded in improving include the depth of content on their websites, and the speed with which information on their websites may be downloaded. US companies have been successful at driving more customer visits and better-retaining those visitors that come to their websites as well.

Areas of Website Development in Which US Companies Have Had the Most Success, 2001 (as a % of respondents)

Lower transaction costs 35%

Improved depth of content 35%

Speedier download times 30%

More customer visits 30%

Improved customer retention 29%

Greater brand differentiation 26%

New products launched successfully 26%

As for those areas that have been more challenging, increasing the level of customer interaction was listed as being least successful among 47% of respondents to the Conference Board study. Indeed, as most consumer surveys have shown, online consumers are using the internet for utilitarian purposes, and are less interested in interacting with the brands or companies with which they simply want to transact.

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Methodology Acquiring new customers has also been difficult for a significant 35% of US Introduction website operators in 2002, although this is largely a result of the difficult B2C Websites economic climate that has persisted through the first half of this year, B2B Websites

Online Customer especially for operators of business-to-business websites. Service & eCRM Index of Charts Areas of Website Development in Which US Companies Have Had the Least Success, 2001 (as a % of respondents)

More customer interaction/participation 47%

Greater brand differentiation 39%

Increased customer acquisition 35%

Greater market share 35%

New products launched successfully 32%

And ﬁnally, in an effort to determine a benchmark for the highest standards in online customer service, the e-tailing group made purchases at 100 retail websites during the early months of 2002, and then rated each online retailer’s service according to ﬁve separate categories. It was found that on average, it took users 5.3 minutes to complete their online purchases, which were accomplished within less than 6 clicks in most instances. The average delivery time for goods purchased online was 3.8 days, while most customer service inquiries received a response within approximately 21 hours.

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Methodology For product refunds, online shoppers were able to get credit within an Introduction average of 11.9 days, with Drugstore.com providing the fastest credit, B2C Websites which arrived within just one day. B2B Websites

Online Customer Service & eCRM The 10 Best Merchants for Online Customer Service in Index of Charts the US, 2002 Time to # clicks # of Time taken # days shop to check business to answer to (in out days to e-mail receive minutes) receive (in hours: credit item minutes) Amazon.com 4 3 4 6:46 10 Bluelight.com 7 6 3 1:26 21 CDNow 7 6 4 23:22 14 Drugstore.com 4 4 4 3:42 1 JC Penney 6 6 5 25:06 15 KB Toys 5 6 5 3:22 16 Land’s End 4 5 3 2:03 6 Nordstrom’s 5 5 4 :41 4 Smith & Hawken 3 6 5 5:03 12 Sports Authority 4 5 4 25:07 10 Average of 100 5.3 5.36 3.8 21.08 11.9 sites shopped Source: the e-tailing group, March 2002 037994 ©2002 eMarketer, Inc. www.eMarketer.com

Standouts include Amazon.com, Drugstore.com, Land’s End and Nordstrom’s, all of which made their online customers’ shopping experience as convenient as possible, while at the same time providing a rapid resolution to any potential problems that their customers’ might have.

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Methodology B. User Preferences Introduction B2C Websites In a mid-2001 survey of 225 regular customers of Global 2000 companies, B2B Websites PricewaterhouseCoopers found that the vast majority of respondents Online Customer Service & eCRM typically used the telephone to obtain customer service assistance. A Index of Charts narrower 15.5% of respondents said that they used the internet for customer service, while a signiﬁcant 22.0% indicated that they used e-mail. Interestingly, of the eight alternate channels through which customers are able to contact the companies with which they do business, the majority indicated that they preferred the immediacy of telephone-based customer service, ahead of in-person contact, e-mail and the internet.

Customer Service Contact Methods Used by Global 2000 Customers, 2001 (as a % of respondents)

Telephone 87.9% 72.7%

In person 23.7% 12.5%

E-Mail 22.0% 6.5%

Internet 15.5% 6.4%

Mail 11.2% 0.9%

Fax 5.2% 0.0%

Mobile phone 7.8% 0.9%

PDA 0.4% 0.0%

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Methodology Just as customer service is important in the ofﬂine world, it is of equal, if Introduction not greater importance for people who buy online. As mentioned in the B2C Websites second chapter of this report, a single bad experience on a website may be B2B Websites

Online Customer enough to keep an internet user from ever returning, so it is important that Service & eCRM website operators bring the same high standards of customer service from Index of Charts their ofﬂine operations over to their online presence. In a study conducted in early 2002, Forrester Research found that customer service is the most important feature for high-end shoppers who visit luxury goods websites, followed by a money-back guarantee and a simple means of exchanging merchandise.

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Methodology Features common to other consumer surveys were prevalent in Forrester’s Introduction results as well, with online shoppers expecting that the websites they visit B2C Websites be easy to use, quick to navigate and have some variety in product B2B Websites

Online Customer selection and shipping options. Service & eCRM Index of Charts Most Important Online Features for Visitors to Luxury Goods Websites, 2002 (rated on a scale of 1 to 5*)

Good customer service 4.55

Money-back guarantee 4.48

Easy exchange of merchandise 4.46

Control over use of personal data 4.43

Website reliability 4.42

Ease of use 4.33

Wide product selection 3.99

Fast website 3.97

Information related to products/services sold 3.93

Wide range of shipping/delivery options 3.88

Brand name 3.65

Website personalization 3.55

Physical presence 3.49

Discounts or coupons 3.24

Personalized product recommendations 3.12

Recommendations to complement previous purchases 2.95

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Methodology “Free shipping continues to represent the best way Introduction for e-retailers to bolster average order size and B2C Websites

B2B Websites conversion rates,” Online Customer – Geoff Wissman, Retail Forward Service & eCRM

Index of Charts Indeed, Knowledge Systems and Research (KS&R) found in its 2001 survey of online shoppers that free shipping was the most likely inducement that would encourage them to participate in an online incentive program. Points programs, discounted pricing and free newsletters were listed as popular online incentives that internet users said they had accepted as well.

US Consumers' Participation in Online Incentive Programs, 2001 (as a % of respondents)

Free shipping 64%

Rewards programs (ability to earn points, etc.) 56%

Discounted pricing 48%

Free newsletters 48%

Drawings/Prizes/Give-Aways 47%

Faster speed of delivery 26%

Guaranteed delivery date 21%

Ability to return unwanted items to retail store 19%

Personalized information 13%

VIP customer service 9%

Other 3%

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Methodology Despite the fact that a growing number of internet users now have as many Introduction as ﬁve years of online shopping experience, shipping charges continue to B2C Websites negate the beneﬁts that consumers feel they receive from the convenience B2B Websites

Online Customer of being able to shop online. Service & eCRM Retail Forward has found in its mid-2002 survey that 70% of internet Index of Charts users would shop online more if they did not have to pay shipping and handling charges for the goods that they purchase. A further 56% of respondents said that an offer of free shipping has induced them to make an online purchase. Other popular incentives that would encourage more online purchases include lower prices and improved product selection.

Percent of US Consumers that Are Much More Likely to be Induced to Make an Online Purchase, by Incentive, 2001

Free shipping 69%

Discounted pricing 67%

Improved product selection 55%

Ability to return unwanted items to retail store 49%

Guaranteed delivery date 48%

Faster speed of delivery 44%

VIP customer service 37%

Drawings/Prizes/Give-Aways 29%

Rewards programs (ability to earn points, etc.) 25%

Personalized information 20%

Free newsletters 11%

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Methodology But beyond the interests of online bargain-hunters, perhaps the greatest Introduction driver of online sales will come from the eventual realization of the true B2C Websites vision of multi-channel retailing, through which consumers will be able to B2B Websites

Online Customer shop for and purchase products online but take delivery or return items to Service & eCRM retailers’ brick-and-mortar stores. Index of Charts Such a vision would eliminate much of the inconvenience that shoppers face in the checkout line when they shop in-store, while at the same time maximizing the beneﬁts of shopping online through the elimination of shipping charges. Although the eventual vision of multi-channel retailing still has some way to go, many consumers appear to be happy with the progress that has been made so far.

US Consumers' Satisfaction with US Multichannel Retailers' Coordination between Channels, 2001 (as a % of respondents)

Somewhat/very satisfied 45%

Neutral 31%

Somewhat/very dissatisfied 7%

Not applicable 17%

As for other customer service features at the disposal of online retailers, live chat and purchase recommendations were surprisingly found to decrease online consumers’ interest in buying from retail websites. It should be noted that these results were part of a study that focused upon online buyers of consumer electronic goods, and may therefore be less applicable to the broader consumer population.

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Methodology Nonetheless, the study does call in to question the need for excessive Introduction technology “gimmicks,” when it comes to providing online customer B2C Websites service. As other surveys point out, consumers are far more concerned with B2B Websites

Online Customer getting a timely resolution to their customer service needs. Service & eCRM Index of Charts US Consumers' Opinions Regarding Special Online Retail Features, May 2002 (as a % of respondents*)

Live chat 29% 44%

Purchase recommendations 28% 33%

When US consumers do encounter problems with a website they are using, most respondents to KS&R’s study said that they prefer to communicate about such problems via e-mail. However, a signiﬁcant 40% of online consumers indicated that they preferred the immediacy of telephone-based customer service – a preference that will only grow as more internet users sign up for broadband internet access, and are able to telephone customer service while remaining online.

US Consumers' Preferred Means of Communicating About an Online Problem, 2001 (as a % of respondents)

E-Mail 58%

Telephone 40%

In-person location (i.e., retail store) 2%

Note: n=1,149 Source: Knowledge Systems & Research, 2001 041597 ©2002 eMarketer, Inc. www.eMarketer.com In an earlier study from 2000, Cyber Dialogue found that toll-free customer service was rated as the most helpful by online shoppers, followed by online chat capabilities.

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Methodology As the results of this study seem to confirm, internet users prefer to have an Introduction immediate response to any questions or difficulties that they may B2C Websites encounter while online, and are less satisfied when they are required to B2B Websites

Online Customer wait for a reply by e-mail, even if it comes within a few hours. Service & eCRM Index of Charts Customer Service Formats Preferred by US Online Shoppers, 2000 Format Extremely Very Somewhat Not Not helpful helpful helpful helpful sure Toll-free call to live 55% 28% 10% 6% 1% service person "Speak to me" button 31% 32% 21% 14% 2% to speak to service person online Frequently asked 23% 35% 26% 14% 2% questions page on site "Call-me" button to 23% 30% 26% 19% 2% have service person call back within 24 hours Source: Cyber Dialogue, 2000 031781 ©2001 eMarketer, Inc. www.eMarketer.com

However, the jury appears to still be out on consumers’ interest in using online chat capabilities, as conflicting survey data show that some online shoppers find it to be helpful, while others do not find online chat to be useful at all. For example, in a more recent study, Forrester Research found that although 20% of internet shoppers had made use of online chat service in 2002, just 10% of respondents indicated that they wanted to use such capabilities for future customer service interactions.

Percent of Online Shoppers Who Have Used Interactive Chat for Customer Service, 1999 & 2002

Have tried 2% 20%

Want to use 3% 10%

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Methodology Interestingly, more people today are familiar with online chat through their Introduction use of instant messaging, but fewer seem to want to use it for commercial B2C Websites interactions. It appears that the interest in online chat among survey B2B Websites

Online Customer respondents in 1999 may have been attributable to its novelty at the time. Service & eCRM Regardless of whether they are seeking customer service by telephone or Index of Charts through self-service features on a website, it appears that just over half of American consumers have a threshold of no more than five minutes before they become frustrated with the level of service. For website operators, this confirms the need for simple and clear website navigation capabilities, along with the use of content that does not significantly add to download times as users move from page to page. Web pages that provide self-service features should therefore be free of excessive rich media content or unnecessary advertising, and be designed to maximize convenience for the user.

US Consumer Experience with Customer Service, 2001 (as a % of respondents)

Wait on hold no more than 5 minutes before rating customer service "poor" 54%

Spend no more than 5 minutes navigating a vendor, biller, or bank website before calling customer service 50%

Knowledge Systems and Research has conﬁrmed the need for timely responses to customer inquiries, ﬁnding that slow response times to online queries is considered to be a problem by 75% of internet users.

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Methodology Internet users have also complained of standard form replies, which in Introduction most instances do not resolve their speciﬁc needs. Not posting a telephone B2C Websites number for customer service is at least somewhat of a problem for 69% of B2B Websites

Online Customer respondents to KS&R’s study, while 70% of internet users said that a lack of Service & eCRM coordination among website operators’ online and ofﬂine divisions is a Index of Charts frustration as well.

US Consumers' Assessment of Website Customer Service Capabilities, 2001 (as a % of respondents)

Form reply is only option given 27% 44% 29%

No phone number is listed 31% 44% 25%

Lack of coordination between different company departments 30% 46% 24%

Slow response time 25% 54% 21%

Once again, time is of the essence for internet users who look favorably upon online retailers that are able to resolve any problem they may have as quickly as possible.

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Methodology Interestingly, other customer service actions such as refunds or free Introduction shipping are preferred by far fewer consumers, who place a higher value B2C Websites upon efﬁcient customer service. B2B Websites

Online Customer Service & eCRM Most Important Action that Website Operators Can Index of Charts Take to Resolve a Customer Service Problem, 2001 (as a % of respondents)

Quickly resolve the problem 72%

Provide a full refund 16%

Provide free shipping 5%

Provide coupons for further purchases 4%

Other 4%

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Online Selling & eCRM

Methodology 5

I Introduction 9

II B2C Websites 23

III B2B Websites 65

IV Online Customer Service & eCRM 87 Index of Charts 117

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Index of Charts Methodology 5 The eMarketer Difference 6 The Benefits of eMarketer’s Aggregation Approach 7 “Benchmarking” and Projections 7 I Introduction 9 Number of Internet Hosts, by Top Level Domain 10 A. Estimating the Number of Commercial Websites 10 Cumulative Domain Name Registrations in the .Com, .Net and .Org Domains 11 Number of Websites Worldwide 12 Classification of Public Website Providers’ Primary Economic Activity 13 Secure Servers per Million Inhabitants in the EU and US 14 Website Language Availability Worldwide 14 B. Estimating the Number of Website Visitors 15 Internet Users Worldwide, by Region 15 Total US Internet Users and Internet Users Ages 14+ 16 US Consumer Online Buying and Shopping Grid 17 Top 10 US Internet Categories 18 Top 10 US Internet Properties 19 C. The Growing Importance of the Internet Channel 20 Primary Purpose of US Companies’ Websites 20 Length of Time that US Companies Have Had a Website 20 US Companies’ Expected Timing of Profitability for their Website Operations 21 The Internet’s Impact on the Sales Cycle 22 II B2C Websites 23 A. Website Capabilities 24 Primary Purpose of US Companies’ B2C Websites 25 Catalog Companies’ Average Annual Spending* on Website Operations, by Company Size 26 Average Number of Employees Working Fulltime on Catalog Companies’ Websites 26 Percent of Online Catalog Operators that Use In-House Website Design 27 Percent of Catalog Companies that Have Reduced Their Website Budgets, by Company Size 27 Breakdown of US Companies’ Spending on their B2C Websites 28 US B2C Companies’ Forecast Website Development Budgets 28 US Companies’ Anticipated 2002 Budgets for the Marketing and Promotion of their B2C Websites 29 Monthly Traffic and Sales Capabilities for a Website Selling Convenience Products, by Type of Website 30 Monthly Traffic and Sales Capabilities for a Website Selling Researched Products, by Type of Website 30 Monthly Traffic and Sales Capabilities for a Website Selling Replenishment Products, by Type of Website 31

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Index of Charts How US B2C Website Operators Measure the Success of their Online Media Initiatives 32 Breakdown of Third-Year ROI for a “Sophisticated” Website Designed to Sell Convenience Goods 33 Breakdown of Third-Year ROI for a “Sophisticated” Website Designed to Sell Researched Goods 34 Breakdown of Third-Year ROI for a “Basic” Website Designed to Sell Replenishment Goods 35 Percent of US Companies’ B2C Websites Able to Conduct Financial Transactions 35 E-Business Profile: Approximate Number of Product SKU’s Available via Macys.com 36 Average Dollar Value* of US B2C Companies’ Online Transactions 36 Website Features and Functions Offered on US B2C Websites 37 Technology Adoption by E-Commerce Websites 38 Average Number of Clicks to Checkout on US Retail Websites during the Holiday Season 39 US Retail Website Features 39 US Retail Websites that Offer Personalized Features 40 US Retail Websites Offering Community Features 40 US Websites Offering Multiple Shipping Options 41 How US B2C Companies Price Their Delivery Charges for Online Sales 41 US Internet Retailers’ Average Fulfillment Cost per Order 42 US Internet Retailers’ Average Customer Acquisition Cost per New Customer 43 How US B2C Website Operators Drive Website Traffic44 Percent of Catalog Companies Using Website Analysis Tools to Track Visitor Usage, by Company Size 45 Percent of US B2C Websites that Use Applications to Identify Website Visitors 45 How US B2C Website Operators Segment their Online Customers 46 Average Number of Page Views by Visitors to US B2C Websites 47 Average Number of Daily Unique Visitors to US B2C Websites 47 Top 10 Retail Websites, by Monthly Traffic48 E-Business Profile: Online Sales at JCrew.com 48 E-Business Profile: Sales via Landsend.com 49 Order Conversion Rate among Online Buyers in the US 49 E-Business Profile: Amazon.com’s Annual Sales 49 Top 10 US E-Retailers Ranked by Online Revenues 50 B. Consumer Preferences 51 How Internet Users Arrive at Websites 51 Most Important Website Features for US Internet Users 52 Website Features that Internet Users Worldwide Are Happy or Satisfied with 53

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Index of Charts Website Features that Internet Users Worldwide Are Unsatisfied with or Indifferent Toward 53 Most Important Website Design Features for US Online Consumers 54 Key Characteristics of User-Friendly Informational Websites 55 Key Characteristics of User-Friendly Shopping Websites 56 Main Reasons US Internet Users Do Not Buy Online 57 Most Common Frustrations of US Online Shoppers 57 US Consumers’ Most Likely Action Taken When Frustrated by Too Many Clicks on a Website 58 US Online Consumers’ Top Reasons for Shopping Cart Abandonment 59 Products that US Internet Users Research Online and Subsequently Buy at Retailers’ Stores 60 Features Likely to Increase Online Purchasing in the US 61 US Consumers’ Expectations of Website Operators in Exchange for the Provision of Personal Information 62 Online Spending Habits of US Consumers Who Value Personalization Features 62 Frequency with Which US Users of Customized Webpages Update Their Specifications/Preferences 63 Action Taken by US Internet Users After Being Asked to Pay for Access to a Previously Free Website 64 III B2B Websites 65 A. Website Capabilities 66 Internet Capabilities Deployed by US Companies 66 North American Companies’ Website Operating Capabilities 67 Primary Purpose of US Companies’ B2B Websites 68 Reasons Why US Small Businesses Have a Website 69 Features Offered on Corporate Websites Worldwide 70 Website Features and Functions Offered on US B2B Websites 71 Primary Designers of US Small Business Websites 72 Percent of US Companies’ B2B Websites Able to Conduct Financial Transactions 72 Average Dollar Value* of US B2B Companies’ Online Transactions 73 Average Number of Daily Unique Visitors to US B2B Websites 73 Website Development Costs for a Small and Midsize Project 74 Website Development Costs for a Large Project 75 Comparison of Median Prices for Website Development Projects 75 US B2B Companies’ Forecast Website Development Budgets 76 Breakdown of US Companies’ Spending on their B2B Websites 76 How US B2B Website Operators Measure the Success of their Online Media Initiatives 77 How US B2B Website Operators Drive Website Traffic78 Percent of US B2B Websites that Use Applications to Identify Website Visitors 79 Online Customer-Service Features Offered by B2B Websites 79 How US B2B Website Operators Segment their Online Customers 80

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Index of Charts B. User Preferences 81 Percent of US Companies Buying Direct Goods/Services via the Internet 81 Percent of US Companies Buying Indirect Goods/Services via the Internet 81 Information Sources Used by Business Leaders to Gain Information About their Industry’s Sector 82 Stakeholders at US Manufacturing Firms that Participate in Sourcing Activities 83 Percent of US Purchasing Professionals Using Suppliers’ Websites for Sourcing 83 What B2B Buyers Want to See on Suppliers’ Websites 84 User Assessment of B2B Interactions 85 Leading Complaints About B2B Websites 85 Leading Problems that US Business Buyers Have Encountered with Websites 86 Percent of US Business Buyers Listing Their Online Customer Service Experience as Satisfactory, by Service Channel 86 IV Online Customer Service & eCRM 87 A. Website Capabilities 88 Estimated Worldwide Sell-Side E-Commerce Software Sales 88 Estimated Worldwide eCRM Software Sales 89 Worldwide eCRM Software Revenues 89 Top Website Development Priorities for US Companies 90 Leading Internet Capabilities to be Deployed by US Companies 90 Percent of Customer Service Inquiries Handled via the Internet 91 Breakdown of the Five Year Total Cost of Ownership for a Stand-Alone Web Self-Service Solution 92 Breakdown of the Five Year Total Cost of Ownership for a Multi-Channel Web Self-Service Solution 93 Customer Service Costs in the US, by Channel 94 Customer Service Costs for Online Retailers in the US 94 Customer Tracking Features Used by US Companies to Monitor Website Activity 95 US Companies’ Websites with Fully Integrated Customer Service Capabilities, by Feature 96 Customer Service Information Provided on US Retail Websites 97 E-Mail Response Rates and Auto Response Use among 50 US E-Tailers 97 US Retailers’ Response Time to Online Customer Service Inquiries, by Store Type 98 Time Taken to Answer Customer Service E-Mail by Selected US Online Merchants 99 US Retail Websites’ Order Conﬁrmation Features 99 Inventory and Shipping Information Provided by US Retail Websites 100 Product Return Capabilities Offered by US Retail Websites 101 Percent of US Retail Websites that Provide Gift-Giving Features 101

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Index of Charts Areas of Website Development in Which US Companies Have Had the Most Success 102 Areas of Website Development in Which US Companies Have Had the Least Success 103 The 10 Best Merchants for Online Customer Service in the US 104 B. User Preferences 105 Customer Service Contact Methods Used by Global 2000 Customers 105 Most Important Online Features for Visitors to Luxury Goods Websites 107 US Consumers’ Participation in Online Incentive Programs 108 Percent of US Consumers that Are Much More Likely to be Induced to Make an Online Purchase, by Incentive 109 US Consumers’ Satisfaction with US Multichannel Retailers’ Coordination between Channels 110 US Consumers’ Opinions Regarding Special Online Retail Features 111 US Consumers’ Preferred Means of Communicating About an Online Problem 111 Customer Service Formats Preferred by US Online Shoppers 112 Percent of Online Shoppers Who Have Used Interactive Chat for Customer Service 112 US Consumer Experience with Customer Service 113 US Consumers’ Assessment of Website Customer Service Capabilities 114 Most Important Action that Website Operators Can Take to Resolve a Customer Service Problem 115 Index of Charts 117

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Also Available from eMarketer Asia Online: Demographics, Infrastructure, Usage Patterns and eCommerce Trends Economy & infrastructure Internet users & demographics eCommerce, E-Finance & E-Advertising Country profiles ASPs Market size & growth Industry leaders Usage patterns Customer satisfaction Brazil Online: Demographics, Usage Patterns and E-Commerce Trends Economy & infrastructure Internet users & demographics E-Commerce, E-Finance & E-Advertising Broadband Users by access method (dial-up, fiber, DSL, cable, satellite, wireless) Residential and business usage Access revenues User demographics Country profiles CRM Market size & growth Leading vendors Budgeting & implementation eBanking Online banking around the world (US, Europe, Asia) Mobile banking Electronic bill presentment and payment eCanada Economy & infrastructure Internet users & demographics E-Commerce, E-Finance & E-Advertising eCommerce: B2B E-Commerce: B2B revenues around the world, country by country E-Commerce: B2B by industry Internet penetration among businesses Online marketplaces, auctions and exchanges eCommerce: B2C E-Commerce: B2C revenues worldwide Top B2C categories Online shoppers, buying frequency and size of transactions E-Consumer attitudes and behaviors

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North America Online User demographics worldwide Age, gender and race Income, education and occupation Usage patterns eGlobal Internet infrastructure, by region Users and usage, by region E-Demographics, by region E-Commerce, by region eHealth Consumer demographics and attitudes Healthcare personnel, demographics and usage B2C spending B2B spending eInvesting Online brokerages Online mutual funds Online asset management Online investment advice eMail Marketing E-Mail marketing revenues worldwide E-Mail users and user demographics Permission, opt-in and opt-out E-Mail marketing techniques and strategies ePoland Economy & infrastructure Internet users & demographics E-Commerce, E-Finance & E-Advertising ePrivacy & Security Consumer attitudes & behavior toward online privacy Online fraud Credit card security Corporate security (hacking and denial-of-service attacks) Virus attacks Europe Online Economy & infrastructure Internet users & demographics E-Commerce, E-Finance & E-Advertising Country proﬁles eWireless Mobile Internet use around the world, country by country M-Commerce M-Finance M-Advertising

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Interactive Television User forecast Revenue forecast Business attitudes & behavior User attitudes & behavior Japan Online: Demographics, Usage Patterns and E-Commerce Trends Economy & infrastructure Internet users & demographics E-Commerce, E-Finance & E-Advertising Latin America Online: Demographics, Infrastructure, Usage Patterns and E-Commerce Trends Economy & infrastructure Internet users & demographics E-Commerce, E-Finance & E-Advertising Country profiles Marketing Online to Kids & Teens Demographics Advertising & marketing E-Commerce Special considerations Online Advertising: Statistics, Strategies, Tools and Trends eAdvertising revenues worldwide Spending by ad format (banner ads, sponsorships, e-mail, etc.) Spending by industry category Measurements and standards (click-through rates, CPMs, ROI) Online Marketing Viral marketing Direct marketing vs. Branding Search engine optimization Affiliate programs Classifieds Coupons For more information, or to order a copy, contact eMarketer at: Phone: 212.677.6300 Fax: 212.777.1172 eMail: [email protected] Web: www.emarketer.com For media inquiries: Terry Chabrowe, [email protected] For inquiries about this report or other eMarketer reports: Nick Fainelli, New Business Development, [email protected]

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