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  1. 1. E-Commerce Introduction Daniel J. McFarland, Ph.D.
  2. 2. Definitions (no prevailing definitions) <ul><li>E-Commerce </li></ul><ul><ul><li>Use of the Internet/Web to conduct business transactions and support business processes </li></ul></ul><ul><li>E-Business </li></ul><ul><ul><li>There is no standardized distinction between e-commerce and e-business </li></ul></ul><ul><ul><li>However, some authors define E-business is an objective and e-commerce as a means by which to accomplish the objective </li></ul></ul>
  3. 3. Traditional Commerce <ul><li>A marketing paradox: </li></ul><ul><ul><li>Customers are passive, often unwilling, targets of advertising campaigns </li></ul></ul><ul><ul><li>Customers actively initiate most transactions </li></ul></ul><ul><li>With traditional commerce customers are largely: </li></ul><ul><ul><li>Restricted to certain geographical and social boundaries </li></ul></ul><ul><ul><li>Have limited search capabilities </li></ul></ul><ul><li>Traditional commerce selling is conducted through well insulated channels </li></ul><ul><li>Large information dissymmetry exists between buyer and seller </li></ul>
  4. 4. The Seven Features of E-Commerce <ul><li> Ubiquity </li></ul><ul><li> Global Reach </li></ul><ul><li> Universal Standards </li></ul><ul><li> Media Richness </li></ul><ul><li> Interactivity </li></ul><ul><li> Information Density </li></ul><ul><li> Personalization/Customization </li></ul>
  5. 5.  Ubiquity <ul><li>E-commerce is not bound by the traditional limits of time & location </li></ul><ul><ul><li>Now able to non-verbally transact from : home, work, school, cell phone, or PDA </li></ul></ul><ul><ul><li>Now able to non-verbally transact to : small and large companies anywhere on the globe </li></ul></ul><ul><ul><li>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 </li></ul></ul>
  6. 6. Benefits of Ubiquity <ul><li>Ubiquity promises to reduce the buyers transaction costs </li></ul><ul><ul><li>The costs of participating in the market </li></ul></ul><ul><ul><ul><li>Travel time/expense </li></ul></ul></ul><ul><ul><ul><li>Coordination effort </li></ul></ul></ul>
  7. 7.  Global Reach <ul><li>E-commerce is not bound by the geographic, social, or cultural boundaries </li></ul><ul><li>A merchant’s potential market exposure equals the world’s on-line population (over 400 million in 2001 and growing) </li></ul><ul><li>Non-verbal transactions partially address language issues </li></ul><ul><li>Always available transactions partially address time zone issues </li></ul>
  8. 8.  Universal Standards <ul><li>Most traditional commerce technologies differ throughout the globe </li></ul><ul><ul><li>TV </li></ul></ul><ul><ul><li>Radio </li></ul></ul><ul><ul><li>Telecommunications </li></ul></ul><ul><ul><li>Mobile Technologies </li></ul></ul><ul><li>E-Commerce is a global standard </li></ul>
  9. 9. Benefits of Universal Standards <ul><li>Universal standards promise to reduce: </li></ul><ul><ul><li>Market entry costs </li></ul></ul><ul><ul><ul><li>The costs to bring goods to market </li></ul></ul></ul><ul><ul><li>Consumer search costs </li></ul></ul><ul><ul><ul><li>The effort required to find suitable products </li></ul></ul></ul><ul><ul><ul><li>First time in history a consumer is able to easily search for suppliers, prices, and delivery terms for a specific good throughout the world </li></ul></ul></ul><ul><ul><ul><li>Reduces consumer/supplier information dissymmetry </li></ul></ul></ul>
  10. 10.  Information Richness <ul><li>Richness is the complexity & content of the message </li></ul><ul><ul><li>Rank-order of media richness for communications: </li></ul></ul><ul><ul><ul><li>Face-to-face </li></ul></ul></ul><ul><ul><ul><li>Telephone </li></ul></ul></ul><ul><ul><ul><li>E-mail </li></ul></ul></ul><ul><ul><ul><li>Letter (single addressee) </li></ul></ul></ul><ul><ul><ul><li>Memo (multiple addressees) </li></ul></ul></ul><ul><ul><ul><li>Flyer/bulletin </li></ul></ul></ul><ul><li>Traditional trade-off with media is richness versus reach </li></ul><ul><ul><li>Rank-order of media richness for commerce </li></ul></ul><ul><ul><ul><li>Face-to-face </li></ul></ul></ul><ul><ul><ul><li>Internet </li></ul></ul></ul><ul><ul><ul><li>Catalog </li></ul></ul></ul><ul><ul><ul><li>Telephone </li></ul></ul></ul><ul><ul><ul><li>Fax </li></ul></ul></ul>
  11. 11.  Interactivity <ul><li>2-way communications </li></ul><ul><li>Transaction has the ability to change based on the interactions (multiple future states) </li></ul><ul><li>With the exception of the telephone, traditional commerce traditions </li></ul>
  12. 12.  Information Density <ul><li>Information density describes the entirety of available information (for all market participants) </li></ul><ul><ul><li>Quantity </li></ul></ul><ul><ul><li>Quality </li></ul></ul><ul><li>Traditionally, information density was extremely costly </li></ul><ul><ul><li>Print costs, face-to-face/telephone time, … </li></ul></ul><ul><ul><li>Storage and processing inadequacies </li></ul></ul><ul><ul><li>Recipient of information may not be a willing participant (telemarketing) </li></ul></ul><ul><li>E-commerce can cheaply provide a massive amount of quality information in a non-invasive way </li></ul>
  13. 13.  Personalization/Customization <ul><li>Personalization alters an otherwise generic (typically marketing) message to reflect the personal preferences and/or behaviors of each individual recipient </li></ul><ul><li>Customization alters a product/service to reflect personal preferences and/or behaviors for each individual consumer </li></ul>
  14. 14. Types of E-Commerce <ul><li>Business-to-Consumer (B2C) </li></ul><ul><li>Business-to-Business (B2B) </li></ul><ul><li>Business-to-Employee (B2E) </li></ul><ul><li>Consumer-to-Consumer (C2C) </li></ul><ul><li>Peer-to-Peer (P2P) </li></ul><ul><li>Mobile Commerce (M-Commerce) </li></ul>
  15. 15. B2C <ul><li>A business provides goods/services directly to consumers </li></ul><ul><li>e.g., Amazon.com </li></ul>
  16. 16. B2B <ul><li>A business provides goods/services to another business </li></ul><ul><li>e.g., eSteel.com </li></ul>
  17. 17. B2E <ul><li>A business provides internal information/resources to its employees </li></ul><ul><li>e.g., internal job postings, production data, quality data, health plan information </li></ul>
  18. 18. C2C <ul><li>A forum whereby consumers may transact with other consumers (like a “yard sale”) </li></ul><ul><li>e.g., eBay.com </li></ul>
  19. 19. P2P <ul><li>Consumers share files with each other directly without having to “meet” in a forum (as required by C2C) </li></ul><ul><li>Similar to Napster.com and Kazaa.com without having to go through the host site </li></ul><ul><li>e.g., Gnutella </li></ul>
  20. 20. M-Commerce <ul><li>Providing Internet accessibility and e-commerce capabilities to wireless devices such as cell phones & personal data assistants (PDA) </li></ul>
  21. 21. The Future of E-Commerce <ul><li>Understanding Internet Usage </li></ul><ul><ul><li>Where do search engines look? </li></ul></ul><ul><li>Limiting factors for consumers </li></ul><ul><ul><li>Costs </li></ul></ul><ul><ul><li>Complexity </li></ul></ul><ul><ul><li>Culture </li></ul></ul><ul><ul><li>Infrastructure </li></ul></ul><ul><li>That was then, this is now… </li></ul>
  22. 22. Internet Usage: A Spider’s Web? <ul><li>Early conceptualization of Internet usage </li></ul><ul><ul><li>Everything is interconnected </li></ul></ul><ul><ul><li>A web site can get to any other web site in 19 clicks </li></ul></ul>
  23. 23. Internet Usage: Bow Tie SCC: Strongly connected components Finding of Internet usage studies conducted by: IBM, Compaq, & AltaVista 1-way OUT 44 Million Nodes (Intranets, traps) 1-way IN 44 Million Nodes (Newbee pages not yet discovered) SCC 56 Million Nodes
  24. 24. Limiting Factors for Consumers <ul><li>Home PC penetration has stabilized at @48% of households </li></ul><ul><ul><li>Expense: min $500 hardware, $20/month </li></ul></ul><ul><ul><li>Skills: </li></ul></ul><ul><ul><ul><li>Setup complexity </li></ul></ul></ul><ul><ul><ul><li>Operational complexity </li></ul></ul></ul><ul><ul><ul><li>Troubleshooting complexity </li></ul></ul></ul><ul><li>Culture </li></ul><ul><ul><li>The shopping experience is a social event </li></ul></ul><ul><li>Infrastructure </li></ul><ul><ul><li>Many countries do not provide an adequate infrastructure to support e-commerce (clean, reliable power and telecommunications) </li></ul></ul>
  25. 25. That was then, this is now <ul><li>Early E-Commerce </li></ul><ul><ul><li>Technology-driven </li></ul></ul><ul><ul><li>Revenue growth emphasis </li></ul></ul><ul><ul><li>VC financing </li></ul></ul><ul><ul><li>Ungoverned </li></ul></ul><ul><ul><li>Entrepreneurial </li></ul></ul><ul><ul><li>Disintermediation </li></ul></ul><ul><ul><li>“ Perfect” markets </li></ul></ul><ul><ul><li>Pure on-line strategies </li></ul></ul><ul><ul><li>First mover advantages </li></ul></ul><ul><li>Future of E-Commerce </li></ul><ul><ul><li>Business-driven </li></ul></ul><ul><ul><li>Earning/Profit emphasis </li></ul></ul><ul><ul><li>Traditional financing </li></ul></ul><ul><ul><li>Regulation/governance </li></ul></ul><ul><ul><li>Large, traditional firms </li></ul></ul><ul><ul><li>Strengthen intermediaries </li></ul></ul><ul><ul><li>Brands, network effects </li></ul></ul><ul><ul><li>Mixed (clicks & bricks) </li></ul></ul><ul><ul><li>Strategic follower strength </li></ul></ul>
  26. 26. Predictions <ul><li>Annual e-commerce sales will grow 45% each year for at least the next 3 years </li></ul><ul><li>E-commerce traffic is increasing at the rate of 60% annually </li></ul><ul><li>Product/Service offerings & creativity will match the growth in e-commerce sales & traffic </li></ul><ul><li>Top few sites will continue to garner the vast majority of audience share </li></ul>