IT and global ecommerce: The shape of things to come Howard Rosenbaum School of Library and Information Science Center for Social Informatics Indiana University

IT and global ecommerce:

The shape of things to come

Howard Rosenbaum <[email protected]>

School of Library and Information Science

Center for Social Informatics

Indiana University

IT and global ecommerce: The shape of things to come

I. The shape of the “new” economy

• Internet indicators

II. Ecommerce trends

• Drivers of ecommerce

• Components of a virtual economy

III. What’s on the horizon?

• Technical trends

• Social trends

http://www.ucomics.com/tomtoles/viewtt.htm









The Internet Economy Indicators http://www.internetindicators.com/


Infrastructure layer

Applications infrastructure layer

Intermediary layer

Commerce layer

http://www.internetindicators.com/



Infrastructure layer

This layer includes the wires, boxes, and code that make up the physical structure of the net

Telecommunications companies: AT&T, Ameritech, SWBell

Internet Service Providers: AOL-Time Warner, Mindspring

Internet backbone carriers: Qwest, MCI, WorldCom

“Last mile” access companies: Insight Communications, Smithville Telephone Co

Manufacturers of end-user networking equipment: Cisco, Corning

This layer generated $142.8 billion in revenues in the first half of 2000, (11.2% growth between 1st and 2nd quarters)

1st quarter revenues grew 69.3% over 1st quarter 1999

2nd quarter revenues grew 57.4% over 2nd quarter 1999

Over 932,000 work in this layer (2000)

1st quarter employment grew almost 52% over 1st quarter 1999

2nd quarter growth was 37.7% over 2nd quarter 1999

This layer is the platform for growth for the remainder of the Internet economy

Applications infrastructure layer

This layer involves the companies producing the software products and services that enable Web transactions: Yahoo Store, Oracle, SAP, Microsoft

It includes transaction intermediaries: Paypal, Microsoft

It also includes consultants and service companies that design, build and maintain all types of web sites: Scient, Viant, Razorfish, IXL

The work occurring at this layer is a fundamental basis for e-commerce and other functionality on the Internet

Most of the activity on this and the previous layer is b-2-b

This layer grew 14.7% between the 1st and 2nd quarters of 2000, generating $72.8 billion in revenues.

1stQ revenues grew 62.3% over 1stQ 1999

2ndQ revenues increased by 51.9% over 2ndQ 1999

1stQ employment grew over 62 % over 1stQ 1999

2ndQ employment increased by 52% over 2ndQ 1999

Over 740,000 work in this layer (first half of 2000) growing just under 4% between the 1st and 2ndQ

This layer has the lowest revenue per employee at $52,554 for the second quarter of 2000.

This figure is affected by consulting activities

The businesses are predominantly Internet pure-play

They do not generate revenues directly from transactions (unlike layer #4 companies)

Revenues are generated through advertising, subscription fees, and commissions

Many companies are

pure Web content providers: ClickZ, Commercenet

market makers: VerticalNet, Ebay

market intermediaries: eSteel, Trip.com

This group of companies is likely to have a significant impact over time on the efficiency and performance of electronic markets

Intermediary layer

This layer grew 34.5% between the 1st and 2ndQ 2000, generating almost $64 billion in the first half of 2000

1stQ revenues grew 63.8% in relation to 1stQ 2000

2ndQ revenues increased 84.6% over 2ndQ 1999

Employs 468,689 (fewest individuals of any layers)

1stQ employment grew just 5.5% over 1stQ 1999

2ndQ employment growth was 3.2% over 2ndQ 1999

This layer has low growth rates because infrastructure investments and automated processes can be leveraged to produce revenue.

Travel booking services

Revenue per employee is the 2nd highest at $78,312 for 2ndQ

Companies in this layer conduct web-based commerce transactions

Some are pure play: Amazon, Egghead

It also includes bricks and clicks etailers: Barnes and Noble, Gateway

Some are OEMs: Dell

Companies may be engaged in B2B as well as B2C online sales

Many sell both to consumers and to businesses of all sizes

Commerce layer

This layer grew 11 % between the 1st/2ndQ 2000, generating over $127 billion in revenues in the first half of 2000.

1stQ revenues grew 66.7% over 1stQ 1999

2ndQ revenues were 57.8% higher than 2ndQ 1999

This layer has the highest employment of any of the layers, topping 1 million in the first half of 2000

Employment growth between 1st/2ndQ was just over 1%

1stQ employment grew 12.6% compared with 1stQ 1999

2ndQ employment growth was 8.2% over 2ndQ 1999

Revenue per employee for the 2ndQ was about $65,000

What this means: key findings from the 2000 Internet Indicators study

The internet economy as a whole added 612,375 jobs in the first half of 2000 and directly supports three million workers

It is projected to produce $830 billion in revenues in 2000, a 58%increase over 1999

“Dot coms” are a small part of the internet economy

Only 9.6%of the firms studied are "dot coms" with 95% or more of their revenue from the net

Employment in internet economy companies is growing much faster (10%) than the jobs in the overall economy (6.9%) http://www.internetindicators.com/keyfindings.html

Most internet economy jobs are not IT

http://www.internetindicators.com/keyfindings.html






Internet Economy Indicators Annual Employee Figures by Layer and Total Internet Economy

1998 1999 Growth

Layer 1 - Infrastructure 527,037 778,602 48%

Layer 2 - Application 513,125 681,568 33%

Layer 3 - Intermediaries 290,856 340,673 17%

Layer 4 - Internet Commerce 577,937 726,735 26%

The Internet Economy 1,819,716 2,476,122 36% (after removing overlap)

http://www.internetindicators.com/key_findings_june_00.html






Internet Economy Indicators

Annual Revenue and Growth Summary by Layer and Total Internet Economy (millions)

1998 1999 Growth

Layer 1 - Infrastructure $117,143 $197,853 68%

Layer 2 - Application $71,615 $101,304 41%

Layer 3 - Intermediary $63,629 $96,809 52%

Layer 4 - Internet Commerce $99,813 $171,473 72%

The Internet Economy $322,530 $523,923 62% (after removing overlap)






Ecommerce is expected to grow worldwide

Internet Economy companies generated almost one of every five dollars in revenue from the Internet

18.5% of the companies’ revenues were generated from the Web

17 million US households will be shopping online by the end of this year, with online retail sales expected to top USD 20.2 billion (Forrester Research)

56% of US companies will sell their products online this year, up from 24% in 1999. (NUA)

Small businesses who use the net have grown 46% faster than those that do not (American City Business Journals)

http://www.thestandard.com/powerpoint/101600met5_cou.ppt

http://www.thestandard.com/powerpoint/101600met5_cou.ppt

The internet has become an indispensable revenue stream

One in every five dollars in revenue is generated from the internet

The internet economy is highly productive

Revenue per employee increasing 11.5% through the first two quarters of 2000

The internet intermediary layer grew an impressive 34.5% between the first and second quarters of 2000

This layer generated almost $64 billion in revenues in the first half of the year.









• Social trends

II. What’s happening now?

Technical: The infrastructure necessary to support ecommerce is almost in place

The hardware and software is becoming morepowerful and is dropping in price

Economic: We are beginning to understand the economics of networking and ecommerce

There are many experiments underway, particularly in B-to-B and B-to-C ecommerce

Social: The net is redefining the marketplace

It is becoming interactive and information routinely flows both ways

The conventional distinction between buyer and seller is blurring on the web

People are not passive and see themselves as content providers (broadcasters)

Legal: The legal and regulatory environment is in flux

One current policy battle is over taxation and the definition of the “nexus” of business

Another is over privacy

Technological drivers of ecommerce

Intelligent devices

supporting

Multimedia data creation and delivery

using

Software for collaborative work

over

An open network

Getting the infrastructure into place: the last mile is a “pot of gold”

Telcos, ISPs, the cable company, and satellite/wireless services are competing to bring the net into the home

The pipes that carry data across the net are high pressure fire hoses

The line that goes into your home is a straw

Who will connect to the home and how will they do it?

Copper wire Fiber optics TV cable Wireless Satellite Wall plug

Industry Standard Metrics Report 3.15.00

The last mile is still a problem

Telecos want to use their infrastructure to provide net to the home

Much net traffic is carried over their pipes anyway

They want to become content and service providers, not merely conduits

They want to support a variety of applications (and have put in 95,000 miles of fiber in the last decade)

They correctly see competition from cable companies and ISPs who want to offer a range of services (banking, bill paying, eshopping)

Telcos are developing network architecture to remain players in development of net infrastructure

They own NAPs in Chicago, NYC, Washington DC, and San Francisco

They provide network access for those who want to get to the backbone (ISPs, local phone co.)

Also, they want to provide net access services to individuals and organizations

This places them in direct competition with ISPs

They are waiting to be allowed to provide content and services

This places them in direct competition with AOL

ISPs are maintaining their foothold in the home

Estimates vary, but ~20 million people have accounts with ISPs (out of ~32.6 million who own modems)

ISPs can be “gateways” or “full service”

Gateways are physical entry points to the net

PSI, UUNet, and Kiva are gateway ISPs

Full service ISPs provide content and services to business, schools, libraries and homes

AOL, Compuserve, Prodigy are full service ISPs

ISPs can be local, regional, or international

Kiva is local, Panix is regional

PSI, UUNET (owned in part by Microsoft) and ANS (owned by AOL) are international

These are large public data networks which are not part of the telco infrastructure

They compete on speed, reliability and access and points of presence (PoPs)

They connect to the Internet through the NAPs or through a CIX router

Economic: business drivers of ecommerce

Product promotion and customization through the direct connection to consumers

Developing and exploiting new sales channels (products, information, advertising, transactions)

Reduced costs of business transactions through a public shared infrastructure

Reducing time to market for certain types of products

Improving customer relationships with intelligent systems for service and support

And:

Improving marketing and targeted advertising through the collection of detailed customer information

New corporate branding and image creation

Using the net for R&D and product development Developing of new business models based on characteristics of the new marketplace

Ecommerce business activities:

Internal email messaging

Online publishing of corporate documents

Online searching for documents, projects, information

Managing corporate finance and personnel systems

Manufacturing logistics management

Supply chain management for inventory, warehousing, distribution

Ordering processing management to suppliers and customers

Order tracking









• Social trends

IV. Where is it going?:

Ecommerce will generate $3.2 trillion globally by 2003 (5% of global sales revenue) (Forrester Research, 1998)

Business-to-business ecommerce generates 2-3X the revenues of business-to-consumer ecommerce

Global B2B ecommerce will reach $8.5 trillion in 2005

This market was worth $433 billion (2000) and will be worth $919 billion (2001), $1.9 trillion (2002), $3.6 trillion (2003), $6 trillion (2004). (Gartner Group, 2001)

Mid sized companies using online procurement can reduce purchasing costs by over 70%, saving almost $2 million annually (Aberdeen Group, 2001)

B2B sales may have accounted for 90 percent of all ecommerce activity in the US in 1999 (US Census Bureau, 2001)

US mobile phone users will spend more time on the wireless Web than making phone calls by 2010

The average user will spend 75 hrs/yr browsing the Web in 2010, up from 1.6 hrs/yr (2001), and 11.4 hours (2004) (Meyers Research, 2001)

Sales of Internet appliances were disappointing last year but will grow from $219 million (2000) to $1.3 billion (2005) (Cahners In-Stat, 2001)

25% of US Internet users have purchased groceries online but only 11% have done so in the past 3 months (Gomez Research. 2001)

1/3 of US citizens will file taxes over the net in 2001

The IRS expects 35.3 million people to file taxes online (a 20% increase over 2000) (Gartner Group, 2001)

Total online retail sales for 2000 in the US were $28 billion, up from $17.3 billion (1999) and $7.7 billion (1998) (US Census Bureau, 2001)

The worldwide corporate elearning market will exceed t$23 billion by 2004 (IDC, 2001)

Almost 95% of US local governments either have a website or plan to have one in place within a year (International City/Council Management Association , 2001)

Most physicians connect to the Internet on a daily basis and 42% work in practices that have websites (Harris Interactive, 2001)

The number of US companies billing online will triple to 26% (2002) and increase to 35% (2004) (Gartner Group, 2001)

Show me the money


Show me where the money is


The future of B-to-B


The future of B-to-C


Jupiter Communications. (1998) http://www.jup.com/digest/980116/stat.shtml

Ecommerce in US households: 1996-2002

http://www.jup.com/digest/980116/stat.shtml

A potential reordering of the global economy

Competitive advantage to companies that are successful early adopters of ecommerce

This will be true in nations with government economic and regulatory support for ecommerce

Nations with highly trained labor forces will benefit from distributed value chain

Businesses have to place ecommerce in a larger context than traditional commerce

How can they exploit the digital product marketplace?

Dell claims that the efficiencies of web based marketing give them a 6% profit advantage

Redesign business processes to take advantage of the rapid and real time information and data exchange on the net

Develop a secure and widely acceptable framework for digital business contracts

Consumers will develop new behaviors and will:

Routinely check prices globally

Engage in real-time negotiation with multiple sellers creating a more dynamic and fast moving marketplace for certain products

Make more considered purchasing decisions based on more and better information

Publicly share experiences with others about products, customer support, and companies

There will be a shift towards an “economy of attention”

Basic assumption: attention is an intrinsically scarce resource

Information <--> Attention (a two way flow)

There is competition for attention

Capturing attention can lead to action

The problem is how to capture and keep it

Obtaining attention is a source of wealth

Portal advertising costs bear this out

The components of a virtual economy

Virtual players

Virtual processes

Virtual products

The net

Virtual players

People, organizations, or automated agents with an online presence

Virtual products

Digitized objects/services: currency, text, multimedia, tickets, reservations, electric usage, pay-for-view, smart houses

Virtual processes

Participants interact digitally, interactively, and in real time (online ordering/payment; JIT inventory control; customized advertising)

Virtual intermediaries

Provide essential services: certification, authentication, quality assurance, copyright clearance, distribution

Education brokers: bringing instructors and students together online

Market organizers: establish meeting places for buyers and sellers (auctions...)

Personalized service providers: shoppers, information filtering, travel agent, financial services

The evolution of the virtual firm

Assumes that they exist in an environment where transaction costs are low

They do not have to be based in a single geographic location

Business processes can be distributed globally and take place on the net

The value chain is digital

Also:

Products can be delivered through a digital web of business relationships with producers, financiers, distributors, consumers

Producers, suppliers, warehouses, managers, administrator, subcontractors are all linked through an extranet

Many functions can be easily outsourced (accounting, personnel management, training, public relations)

Convergence in ecommerce

Products, processes, and infrastructure all converge in the global digital marketplace

Product: audio, video, still images, text are all in the same digital format

Process: multiple uses from a virtual process make other processes redundant

Consumer feedback is used for product change, marketing, sales, pricing, and service

Infrastructure: during the next few years, digital interactive services of all types are expected to converge

Telephone, cable, microwave, satellite are all moving into the same arena and losing their monopolies

Television, computers, radio, pagers, and cellular telephones are expected to share functionality and attributes

You can watch WebTV and TV on your computer

Mcommerce

300 million people use mobile telephones globally

This outstrips the number using PCs

This is estimated to grow to one billion by 2003

Mobile phones will be as common as television sets

Drivers of mcommerce

The fast transfer of data on mobile networks

Standard protocols delivering Internet-like services on smaller screens

The personal nature of mobile telephones

By 2004, the annual value of business transacted over mobile networks may reach $13 billion

This will by ~7 % of all e-commerce transactions

Technical underpinnings

Growth depends on "true third-generation networks”

Two problems are network speed and data streaming

Current technologies are too slow

The UMTS (Universal Mobile Telephone System) standard will raise data transfer rate to 2 megabits per second

This is one-fifth of the bandwidth available on the standard Ethernet in today’s offices

GPRS (General Packet Radio System) will allow packet switching

Protocols to enable mcommerce

WAP (Wireless Application Protoco) and iMode

These take into account the constraints of wireless communications

Limited bandwidth and end-system processing

A constrained user interface

Each platform defines a standard markup language that permits an application’s user interface to be specified independently of the end device

The delivery of these services is independent of the underlying networking technology

Applications based on these protocols can be used on different networks

Wireless access allows mobile interactive services to be more personalized than traditional Internet applications

Mobile telephones are carried by their owners everywhere and kept switched on most of the time

In Europe mobile users aren’t charged for incoming calls

There is access to wireless services wherever there is a network presence

People can keep tabs on time-critical information

They can receive news, stock market reports, auction notifications or urgent messages

Personalization is also enhanced by tracking and identification capabilities of the technology

Wireless-network operators - at least those using the GSM standard - are uniquely able to determine the identity of a user

Most mobile telephones are not usually shared, and have a personal-identification number to protect the owner

This means that the telephone itself can be used as a means of identification

This allows easy verification for purchasing

Also, operators can detect a user’s exact location, enabling a whole range of new applications

This also raises interesting privacy concerns

Things to do

Overcome the limitations and asymmetries of the infrastructure

Implement hardware and software to fully exploit bandwidth, especially to the last mile

Provide “universal access” at reasonable cost

Provide secure frameworks for B-to-B and B-toC transactions

Integrate electronic payment into the buying process

And:

Develop a secure and reliable system for electronic banking: emoney exchange and transfer

Develop a system for microtransactions

Build a consumer marketplace

Convert browsers into buyers

Develop new approaches to web site design that encourage purchasing

Develop new business models for this CME

Documents

IT and global ecommerce: The shape of things to come Howard Rosenbaum School of Library and Information Science Center for Social Informatics Indiana University