The E-tailer's Dilemma

The e-tailer's dilemma refers to the difficulty web- based retailers (or e-tailers) have experienced in achieving profitability. The problem centers on the need to increase effective (purchasing) visitors and on the increased costs associated with the electronic commerce infrastructure upgrades necessary to service these additional visitors. This may lead e-tailers into a cycle of achieving increased revenues that are merely offset by rising costs. There are ample examples where commonly employed metrics (unique visitors, page views, sales, etc.) suggest success while companies struggle to obtain profitability. This paper examines several aspects of this dilemma. The formalization of both the tangible and intangible aspects of an electronic commerce infrastructure is proposed. Next, an intuitive, utility-based model to help describe and interpret e-tail visitor dynamics is developed. Finally, a visitor function model of e-tail profitability incorporating necessary infrastructure improvements and visitor characteristics is developed.