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E-Commerce To Generate $1.25 Trillion in Savings By 2002

The ever-evolving industry of e-commerce isn't just about making profits. A market research firm reports companies conducting business over the Internet are expected to realize nearly $1.25 trillion in savings by 2002.

Giga Information Group Inc.'s latest research also found worldwide businesses in industrial nations enjoyed e-commerce-driven cost savings of $17.6 billion in 1998. The majority of the total -- $15.2 billion -- occurred in the United States.

U.S. cost savings are projected to reach over $600 billion annually in 2002, as Web capabilities continue to contribute to reducing or eliminating costs associated with business practices.

"The Internet is more than just a new way to sell products and services, it's a way to efficiently run a business, resulting in significant cost savings that add to an organization's bottom line," said Andrew Bartels, a vice president for Giga.

According to the company, cost savings usually produce greater profit margins, as much as 60-80 percent, depending on implementation costs, rather than increases in sales revenue. With that in mind, Giga estimates that in 2002, U.S. businesses will see between $360 billion to $480 billion in profits from Internet-based cost savings alone. Businesses in other industrialized nations will garner similar results.

"Just as the telephone affected more than communications and jet airplanes affected more than travel, the Internet will continue to drive significant changes in business practices and processes, in addition to sales," Bartels said.

Besides offering an efficient, effective sales channel, the Internet can also provide greater potential to improve business processes, such as:

  • Order handling and processing: Web sites can be used by distributors and resellers to submit orders, verify prices, check order status, check payment and make inquiries. These partners in turn can lower their own costs.
  • Sell-side distribution: The Internet used as a communications channel can distribute marketing messages, sales collateral, incentives, training materials and promotions more efficiently.
  • Supply chain management and procurement: By using extranets to send orders and intranets to allow employees to generate orders, companies can see significant cost savings and increased productivity.
  • Routine employee transaction: Sites can be used to facilitate human resources processes, including benefits enrollment, job postings, promotions, etc. and employee business processes, such as travel arrangements, expense reporting and the purchase of supplies.
  • Marketing: The Internet can be used as a tool, effectively communicate a company's position and promote its products.
  • Customer service: Companies can use the Internet to build customer relationships.

"Internet sales are just the tip of the iceberg of economic value that companies can derive from e-commerce," Bartels said.

"Companies should consider e-commerce as more than a way to sell products or services, they should focus at least as much attention on the business efficiencies and cost-savings opportunities presented by the Internet and related technologies."