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

• E-mail

• 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