Business value of an e-commerce website : a case study analysis

Abstract

The internet has developed into an immense virtual 'marketspace', with an estimated two billion users. Firms have identified the potential of the internet and have developed e-based systems to operate within such a realm. Purpose- This case study analysis is primarily aimed at identifying the business value which is generated through the e-commerce website being analysed. The study also seeks to determine the financial and non-financial performance measures which are used to appraise the website's performance. It also seeks to identify whether companies consider the website as part of their strategic plans. Design- This dissertation was based on a case study analysis of a particular e-commerce website. A detailed analysis of the benefits and costs which are generated through the e-commerce website was undertaken. Subsequently, the value of the website was determined through the discounting of the expected future cash flows and the computation of the net present value. Interviews were also conducted with the online managers of two local firms within the same industry. Findings- The analysis determined that the website is expected to derive significant positive net cash flows, representing 67.56% of the total revenue generated, during its 3 year useful life. The case analysis also revealed that various performance indicators, both financial and non-financial, are utilised periodically to monitor the website's performance. It was also determined that the website and the online presence are an integral part of the case company's business plan. Conclusions- The case company must seek to promote direct online bookings, as this would result in higher returns per €1 spent, when compared to other distribution channels. The analysis determined that the business value of a website may be appraised through the analysis of the expected future cash flows. This enables effective comparison of the cost effectiveness of distribution channels. Implications- Companies should apply the valuation model on an annual basis to their IT investments. This exercise will aid decision makers during the budgeting process in more effectively allocating their limited financial resources. A year end assessment of the results and the computation of the variance will aid management in identifying the factors which led to divergent results.