E-CommerceIntroduction
Dan
iel J
. McF
arla
nd, P
h.D
.
Definitions (no prevailing definitions)
• E-Commerce– Use of the Internet/Web to conduct business
transactions and support business processes
• E-Business– There is no standardized distinction between e-
commerce and e-business– However, some authors define E-business is an
objective and e-commerce as a means by which to accomplish the objective
Traditional Commerce
• A marketing paradox: – Customers are passive, often unwilling, targets of advertising
campaigns– Customers actively initiate most transactions
• With traditional commerce customers are largely:– Restricted to certain geographical and social boundaries – Have limited search capabilities
• Traditional commerce selling is conducted through well insulated channels
• Large information dissymmetry exists between buyer and seller
The Seven Features of E-Commerce
Ubiquity
Global Reach
Universal Standards
Media Richness
Interactivity
Information Density
Personalization/Customization
Ubiquity
• E-commerce is not bound by the traditional limits of time & location – Now able to non-verbally transact from: home, work,
school, cell phone, or PDA
– Now able to non-verbally transact to: small and large companies anywhere on the globe
– Now able to complete a transaction without having to coordinate buyer & seller schedules; a buyer may conduct business at anytime without regard to the seller’s normal operating hours
Benefits of Ubiquity
• Ubiquity promises to reduce the buyers transaction costs – The costs of participating in the market
• Travel time/expense
• Coordination effort
Global Reach
• E-commerce is not bound by the geographic, social, or cultural boundaries
• A merchant’s potential market exposure equals the world’s on-line population (over 400 million in 2001 and growing)
• Non-verbal transactions partially address language issues
• Always available transactions partially address time zone issues
Universal Standards
• Most traditional commerce technologies differ throughout the globe– TV– Radio– Telecommunications– Mobile Technologies
• E-Commerce is a global standard
Benefits of Universal Standards
• Universal standards promise to reduce:– Market entry costs
• The costs to bring goods to market
– Consumer search costs • The effort required to find suitable products• First time in history a consumer is able to easily
search for suppliers, prices, and delivery terms for a specific good throughout the world
• Reduces consumer/supplier information dissymmetry
Information Richness
• Richness is the complexity & content of the message– Rank-order of media
richness for communications:
• Face-to-face
• Telephone
• Letter (single addressee)
• Memo (multiple addressees)
• Flyer/bulletin
• Traditional trade-off with media is richness versus reach– Rank-order of media
richness for commerce• Face-to-face
• Internet
• Catalog
• Telephone
• Fax
Interactivity
• 2-way communications
• Transaction has the ability to change based on the interactions (multiple future states)
• With the exception of the telephone, traditional commerce traditions
Information Density
• Information density describes the entirety of available information (for all market participants)– Quantity– Quality
• Traditionally, information density was extremely costly – Print costs, face-to-face/telephone time, …– Storage and processing inadequacies– Recipient of information may not be a willing participant
(telemarketing)
• E-commerce can cheaply provide a massive amount of quality information in a non-invasive way
Personalization/Customization
• Personalization alters an otherwise generic (typically marketing) message to reflect the personal preferences and/or behaviors of each individual recipient
• Customization alters a product/service to reflect personal preferences and/or behaviors for each individual consumer
Types of E-Commerce
• Business-to-Consumer (B2C)
• Business-to-Business (B2B)
• Business-to-Employee (B2E)
• Consumer-to-Consumer (C2C)
• Peer-to-Peer (P2P)
• Mobile Commerce (M-Commerce)
B2C
• A business provides goods/services directly to consumers
• e.g., Amazon.com
B2B
• A business provides goods/services to another business
• e.g., eSteel.com
B2E
• A business provides internal information/resources to its employees
• e.g., internal job postings, production data, quality data, health plan information
C2C
• A forum whereby consumers may transact with other consumers (like a “yard sale”)
• e.g., eBay.com
P2P
• Consumers share files with each other directly without having to “meet” in a forum (as required by C2C)
• Similar to Napster.com and Kazaa.com without having to go through the host site
• e.g., Gnutella
M-Commerce
• Providing Internet accessibility and e-commerce capabilities to wireless devices such as cell phones & personal data assistants (PDA)
The Future of E-Commerce
• Understanding Internet Usage– Where do search engines look?
• Limiting factors for consumers– Costs– Complexity– Culture– Infrastructure
• That was then, this is now…
Internet Usage:A Spider’s Web?
• Early conceptualization of Internet usage– Everything is
interconnected
– A web site can get to any other web site in 19 clicks
Internet Usage: Bow Tie
1-way OUT44 Million
Nodes(Intranets,
traps)
1-way IN44 MillionNodes(Newbee pages not yet discovered)
SCC56 Million
Nodes
SCC: Strongly connected componentsFinding of Internet usage studies conducted by:IBM, Compaq, & AltaVista
Limiting Factors for Consumers
• Home PC penetration has stabilized at @48% of households– Expense: min $500 hardware, $20/month– Skills:
• Setup complexity• Operational complexity• Troubleshooting complexity
• Culture– The shopping experience is a social event
• Infrastructure– Many countries do not provide an adequate infrastructure to support
e-commerce (clean, reliable power and telecommunications)
That was then, this is now
• Early E-Commerce– Technology-driven
– Revenue growth emphasis
– VC financing
– Ungoverned
– Entrepreneurial
– Disintermediation
– “Perfect” markets
– Pure on-line strategies
– First mover advantages
• Future of E-Commerce– Business-driven
– Earning/Profit emphasis
– Traditional financing
– Regulation/governance
– Large, traditional firms
– Strengthen intermediaries
– Brands, network effects
– Mixed (clicks & bricks)
– Strategic follower strength
Predictions
• Annual e-commerce sales will grow 45% each year for at least the next 3 years
• E-commerce traffic is increasing at the rate of 60% annually
• Product/Service offerings & creativity will match the growth in e-commerce sales & traffic
• Top few sites will continue to garner the vast majority of audience share