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  1. 1. CHAPTER 1 The Revolution Is Just Beginning
  2. 2. Learning Objectives <ul><li>Define e-commerce and describe how it differs from e-business </li></ul><ul><li>Identify the unique features of e-commerce technology and their business significance </li></ul><ul><li>Describe the major types of e-commerce </li></ul><ul><li>Understand the visions and forces behind the E-Commerce I era </li></ul>
  3. 3. Learning Objectives <ul><li>Understand the successes and failures of E-Commerce I </li></ul><ul><li>Identify several factors that will define the E-commerce II era </li></ul><ul><li>Describe the major themes underlying the study of e-commerce </li></ul><ul><li>Identify the major academic disciplines contributing to e-commerce research </li></ul>
  4. 4. Before and After Before and After
  5. 5. Before and After <ul><li>Most well-known e-commerce company </li></ul><ul><li>Conceived by Jeff Bezos in 1994 </li></ul><ul><li>Opened in July 1995 </li></ul><ul><li>Four compelling reasons to shop </li></ul><ul><ul><li>Selection (1.1 million titles) </li></ul></ul><ul><ul><li>Convenience (anytime, anywhere) </li></ul></ul><ul><ul><li>Price (high discounts on bestsellers) </li></ul></ul><ul><ul><li>Service (automated order confirmation, tracking, and shipping information) </li></ul></ul>
  6. 6. Before and After ($1.4 Billion) $2.7 Billion 2000 ($720 Million) $1.6 Billion 1999 ($125 Million) $610 Million 1998 ($31 Million) $148 Million 1997 ($6.24 Million) $15.6 Million 1996 Earnings Revenues Revenues and Earnings
  7. 7. E-commerce vs. E-business <ul><li>E-commerce involves </li></ul><ul><li>Digitally enabled commercial transactions between organizations and individuals. </li></ul><ul><li>Digitally enabled transactions include all transactions mediated by digital technology </li></ul><ul><li>Commercial transactions involve the exchange of value across organizational or individual boundaries in return for products or services </li></ul>
  8. 8. E-commerce vs. E-business <ul><li>E-business involves </li></ul><ul><li>Digital enablement of transactions and processes within a firm, involving information systems under the control of the firm </li></ul><ul><li>E-business does not involve commercial transactions across organizational boundaries where value is exchanged </li></ul>
  9. 9. The Difference Between E-commerce and E-Business Page 8, Figure 1.1
  10. 10. Unique of E-commerce Technology and Their Business Significance <ul><li>E-commerce: </li></ul><ul><li>is ubiquitous </li></ul><ul><li>has global reach </li></ul><ul><li>operates according to universal standards </li></ul><ul><li>provides information richness </li></ul><ul><li>is interactive </li></ul><ul><li>increases information density </li></ul><ul><li>permits personalization </li></ul>
  11. 11. Seven Unique Features of E-commerce Technology and Their Business Significance Page 9, Table 1.1
  12. 12. Changing Trade-Off Between Richness and Reach Page 11, Figure 1.2
  13. 13. Major Types of E-Commerce <ul><li>Market relationships </li></ul><ul><ul><li>Business-to-Consumers (B2C) </li></ul></ul><ul><ul><li>Business-to-Business (B2B) </li></ul></ul><ul><ul><li>Consumer-to-Consumer (C2C) </li></ul></ul><ul><li>Technology-based </li></ul><ul><ul><li>Peer-to-Peer (P2P) </li></ul></ul><ul><ul><li>Mobile Commerce (M-commerce) </li></ul></ul>
  14. 14. Major Types of E-Commerce Page 14, Table 1.2
  15. 15. Business-to-Consumer E-commerce <ul><li>Most commonly discussed type </li></ul><ul><li>Online businesses attempt to reach individual consumers </li></ul><ul><li>Consumers will spend $65 billion in 2001. </li></ul>
  16. 16. Business-to-Business E-commerce <ul><li>Businesses focus on sell to other businesses </li></ul><ul><li>Largest form of e-commerce </li></ul><ul><li>$700 billion in transactions in 2001 </li></ul><ul><li>Primarily involved inter-business exchanges at first </li></ul><ul><li>Other models have developed </li></ul><ul><ul><li>e-distributors </li></ul></ul><ul><ul><li>infomediaries </li></ul></ul><ul><ul><li>B2B service providers </li></ul></ul>
  17. 17. Consumer-to-Consumer E-commerce <ul><li>Provide a way for consumers to sell to each other </li></ul><ul><li>Estimated $5 billion market </li></ul><ul><li>Consumer: </li></ul><ul><ul><li>prepares the product for market </li></ul></ul><ul><ul><li>places the product for auction or sale </li></ul></ul><ul><ul><li>relies on market maker to provide catalog, search engine, and transaction clearing capabilities </li></ul></ul>
  18. 18. Peer-to-Peer E-commerce <ul><li>Enables Internet users to share files and computer resources </li></ul><ul><li>Napster </li></ul>
  19. 19. Mobile E-commerce <ul><li>Wireless digital devices enable transactions on the Web </li></ul><ul><li>Uses personal digital assistants (PDAs) to connect </li></ul><ul><li>Used most widely in Japan and Europe </li></ul>
  20. 20. Growth of the Internet and the Web <ul><li>Created in the late 1960s </li></ul><ul><li>About 350 million computers worldwide to date </li></ul><ul><li>Links businesses, educational institutions, government agencies, and individuals </li></ul><ul><li>Provides services such as e-mail, document transfer, newsgroups, shopping, research, instant messaging, music, video, and news </li></ul>
  21. 21. Growth of the Internet and the Web <ul><li>Internet hosts are growing at a rate of 45% per year </li></ul><ul><li>Extraordinary growth -- time to reach 30% US households </li></ul><ul><ul><li>Radio - 38 years </li></ul></ul><ul><ul><li>Television - 17 years </li></ul></ul><ul><ul><li>Internet/Web - 8 years (1993) </li></ul></ul>
  22. 22. The Growth of the Internet Page 16, Figure 1.3
  23. 23. The Growth of Web Content Page 17, Figure 1.4
  24. 24. The Growth of B2C E-Commerce Page 20, Figure 1.5
  25. 25. The Growth of B2B E-Commerce Page 21, Figure 1.6
  26. 26. Origins and Growth of E-Commerce <ul><li>Baxter Healthcare </li></ul><ul><ul><li>Primitive form of B2B using telephone-based modem to permit hospitals to reorder supplies (early 1970s) </li></ul></ul><ul><ul><li>PC-based remote order entry system (1980s) </li></ul></ul><ul><li>Electronic Data Interchange (EDI) standards developed that permitted firms to exchange commercial documents and conduct digital commercial transactions across private networks (1980s) </li></ul>
  27. 27. Origins and Growth of E-Commerce <ul><li>French Minitel videotext system </li></ul><ul><ul><li>First B2C arena (1981) </li></ul></ul><ul><ul><li>15 million in use throughout France </li></ul></ul><ul><li>World Wide Web </li></ul><ul><ul><li>1993 first browsers </li></ul></ul><ul><ul><li>1995 first banner ads </li></ul></ul>
  28. 28. Technology and E-Commerce in Perspective <ul><li>Internet and the Web are just two of a long list of technologies that have greatly change commerce </li></ul><ul><ul><li>Other technologies spawned business models and strategies </li></ul></ul><ul><ul><li>Explosive early growth followed by retrenchment and then long-term successful exploitation of the technology </li></ul></ul>
  29. 29. Technology and E-Commerce in Perspective <ul><li>Although e-commerce has grown explosively, there is no guarantee it will continue to grow </li></ul><ul><ul><li>Confront own fundamental limitations </li></ul></ul><ul><ul><li>B2C only about 1% of overall retail market </li></ul></ul><ul><ul><li>With current growth rates, B2C will roughly equal the annual revenue of Wal-Mart in 2005 </li></ul></ul>
  30. 30. Limitations of the Growth of B2C E-Commerce Page 23, Table 1.3
  31. 31. Web Access Via Wireless Devices in the United States Page 24, Figure 1.7
  32. 32. E-Commerce I and II <ul><li>E-Commerce I </li></ul><ul><ul><li>Explosive growth starting in 1995 </li></ul></ul><ul><ul><li>Widespread of Web to advertise products </li></ul></ul><ul><ul><li>Ended in 2000 when began to collapse </li></ul></ul><ul><li>E-Commerce II </li></ul><ul><ul><li>Began in January 2001 </li></ul></ul><ul><ul><li>Reassessment of e-commerce companies </li></ul></ul>
  33. 33. E-Commerce I 1995-2000 <ul><li>For computer scientist and information technologists </li></ul><ul><ul><li>Vindication of a set of information technologies developed over 40 years </li></ul></ul><ul><ul><li>Extending from the early Internet to the PC and local area networks </li></ul></ul><ul><ul><li>The vision of universal communications </li></ul></ul>
  34. 34. E-Commerce I 1995-2000 <ul><li>For economists </li></ul><ul><ul><li>Raised realistic prospect of perfect Bertrand Market </li></ul></ul><ul><ul><ul><li>where price, cost, and quality information is equally distributed </li></ul></ul></ul><ul><ul><ul><li>where a nearly infinite set of suppliers compete against one another </li></ul></ul></ul><ul><ul><ul><li>where customers have access to all revelant market information worldwide </li></ul></ul></ul><ul><ul><li>Merchants have equal direct access to hundreds of millions of customers </li></ul></ul>
  35. 35. E-Commerce I 1995-2000 <ul><li>Disintermediation </li></ul><ul><li>displacement of market middlemen who traditionally are intermediaries between producers and consumers by a new direct relationship between manufacturers and content originators with their customers </li></ul>
  36. 36. E-Commerce I 1995-2000 <ul><li>Friction-free commerce </li></ul><ul><ul><li>a vision of commerce in which </li></ul></ul><ul><ul><ul><li>information is equally distributed </li></ul></ul></ul><ul><ul><ul><li>transaction costs are low </li></ul></ul></ul><ul><ul><ul><li>prices can be dynamically adjusted to reflect actual demand </li></ul></ul></ul><ul><ul><ul><li>intermediaries decline </li></ul></ul></ul><ul><ul><ul><li>unfair competitive advantages are eliminated </li></ul></ul></ul>
  37. 37. E-Commerce I 1995-2000 <ul><li>First mover </li></ul><ul><ul><li>a firm that is first to market in a particular area and that moves quickly to gather market share </li></ul></ul><ul><li>Network effect </li></ul><ul><ul><li>occurs where users receive value from the fact that everyone else uses the same tool or product </li></ul></ul>
  38. 38. Amounts Raised by Venture-Backed Internet Companies in 1996-2000 Page 25, Table 1.4
  39. 39. E-Commerce II 2001-2006 <ul><li>Crash in stock market values of E-commerce I companies throughout 2000 is an end to E-commerce I </li></ul><ul><li>Led to a sobering reassessment of the prospects of e-commerce and the methods of achieving business success. </li></ul><ul><li>E-commerce II begins in 2001 and ends five year later -- the limit for making technology and business projections </li></ul>
  40. 40. E-Commerce II 2001-2006 <ul><li>Reasons for the end of E-Commerce I </li></ul><ul><ul><li>run-up in technology stocks due to enormous information technology capital expenditure of firms rebuilding their internal business systems to withstand Y2K </li></ul></ul><ul><ul><li>telecommunications industry had built excess capacity in high-speed fiber optic networks </li></ul></ul><ul><ul><li>1999 e-commerce Christmas season provided less sales growth that anticipated and demonstrated e-commerce was not easy ( </li></ul></ul><ul><ul><li>valuations of and technology companies had risen so high supporters were questioning whether earnings could justify the prices of the shares. </li></ul></ul>
  41. 41. Insight on Business: A Short History of IPOS <ul><li>Between 1998 and 2000 venture capitalists poured an estimated $120 billion into approximately 12,450 start-up ventures </li></ul><ul><li>Investment bankers took 1,262 of these companies public in IPOS </li></ul><ul><li>IPO shares were targeted to open around $15 per share, and it was not uncommon for them to be trading at $45 a share or more later the same trading day </li></ul>
  42. 42. E-Commerce I and E-Commerce II Compared Page 32, Table 1.5
  43. 43. April 2001 NRF/Forrester Online Retail Index Page 33, Table 1.6
  44. 44. Top 25 Properties of March 2001 (Combined Home and Work) Page 34, Table 1.7
  45. 45. Top 20 Web Retailers Among U.S. Home Users (January, 2001) Page 35, Table 1.8
  46. 46. Understanding E-Commerce: Organizing Themes <ul><li>Technology: Infrastructure </li></ul><ul><ul><li>development and mastery of digital computing and communications technology </li></ul></ul><ul><li>Business: Basic Concepts </li></ul><ul><ul><li>new technologies present businesses and entrepreneurs with new ways of organizing production and transacting business </li></ul></ul><ul><li>Society: Taming the Juggernaught </li></ul><ul><ul><li>global nature of e-commerce poses public policy issues of equity, equal access, content regulation, and taxation </li></ul></ul>
  47. 47. The Internet and the Evolution of Corporate Computing Page 37, Figure 1.8
  48. 48. Disciplines Concerned with E-Commerce Page 39, Figure 1.9