E-commerce

business. technology. society.

Chapter 1
The Revolution Is Just
Beginning
Uber: The New Face of E-commerce?
• Class Discussion
– Have you used Uber or any other on-demand service companies?
– What is the appeal of these companies for users and providers?
– Are there any negative consequences to the increased use of on-
demand services like Uber and Airbnb?
The First Thirty Seconds
• First 20 years of e-commerce
– Just the beginning
– Rapid growth and change

• Technologies evolve at exponential rates

– Disruptive business change
– New opportunities

• Why study e-commerce

– Understand opportunities and risks
– Analyze e-commerce ideas, models, issues
Introduction to E-commerce
• Use of Internet to transact business
– Includes Web, mobile browsers and apps

• More formally:
– Digitally enabled commercial transactions
between and among organizations and
individuals
The Difference Between E-commerce and E-
business
• E-business:
– Digital enabling of transactions and processes
within a firm, involving information systems
under firm’s control
– Does not include commercial transactions
involving an exchange of value across
organizational boundaries
The Difference Between E-commerce and E-
business

E-commerce primarily involves transactions that cross firm boundaries. E-business primarily involves
the application of digital technologies to business processes within the firm.
Technological Building Blocks Underlying
E-commerce
• Internet
• World Wide Web
– HTML
– Deep Web vs. “surface” Web

• Mobile platform
– Mobile apps
The mobile platform provides the ability to access the Internet from a variety
of mobile devices such as smartphones, tablets, and other ultra-lightweight
laptop computers via wireless networks or cell phone service.
Technological Building Blocks Underlying
E-commerce (Deep Web vs. “surface” Web)

Deep Web is reportedly 500 to 1,000 times greater than the surface Web. The deep Web
contains databases and other content that is not routinely indexed by search engines such
as Google
Technological Building Blocks Underlying
E-commerce (INTERNET ACCESS IN THE UNITED STATES, 2016)
 Over 80% of all
Internet users in the
United States (217
million people) go
online using both a
desktop/laptop and
mobile device.
 Almost 12% (31
million) only go
online by using a
mobile device.
 Just over 7% (19
million) use only a
desktop or laptop
computer to access
SOURCE: Based on data from eMarketer, Inc., 2016c. the Internet.
Insight on Technology: Will Apps Make the
Web Irrelevant?
• Class Discussion
– What are the advantages and disadvantages of
apps, compared with websites, for mobile
users?
– What are the benefits of apps for content
owners and creators?
– Will apps eventually make the Web irrelevant?
Why or why not?
Insight on Technology: Will Apps Make the
Web Irrelevant? Some Highlights
• In January 2014, for the first time ever, Americans used mobile apps
more than desktop computers to access the Internet.
• Consumers have gravitated to apps for several reasons:
– Smartphones and tablet computers enable users to use apps anywhere,
instead of being tethered to a desktop or having to lug a heavy laptop
around.
– Apps are often more convenient and boast more streamlined, elegant
interfaces than mobile web browsers.

• Apps are much more appealing to content creators and media

companies.
• Apps and the Web are going to come together, with HTML5 bringing
the best of the app experience to the Web, and with apps developing
new web-like capabilities.
Unique Features of E-commerce Technology
 E-commerce technologies
provide 8 unique features
that have impacted the
conduct of business.
 These unique
dimensions of e-
commerce technologies
suggest many new
possibilities for
marketing and selling—a
powerful set of
interactive, personalized,
and rich messages are
available for delivery to
segmented, targeted
audiences.
Unique Features of E-commerce Technology

1. Ubiquity:
– Available just about everywhere, at all times.
– Marketspace is virtual (migration from marketplace to
marketspace).
– Transaction costs reduced (the costs of participating in a market).
– Example: being able to surf the web on your mobile device while
riding a bus or train.

2. Global reach
– Transactions cross cultural and national boundaries.
– The potential market size for e-commerce merchants is roughly
equal to the size of the world’s online population.
Unique Features of E-commerce Technology
3. Universal standards:
– Standards that are shared by all nations around the world.
– lower market entry costs—the cost merchants must pay just to
bring their goods to market.
– Reduce search costs—the effort required to find suitable products.
– Price discovery becomes simpler, faster, and more accurate.
– Possible to easily find many of the suppliers, prices, and delivery
terms of a specific product anywhere in the world
4. Information richness
– Refers to the complexity and content of a message.
– Supports video, audio, and text messages.
– Are interactive and can adjust the message to individual users.
Unique Features of E-commerce Technology

5. Interactivity
– technology that allows for two-way communication between
merchant and consumer and among consumers.
– Interactivity allows an online merchant to engage a consumer in
ways similar to a face-to-face experience.
– Comment features, community forums, and social networks with
social sharing functionality such as Like and Share buttons all
enable consumers to actively interact with merchants and other
users.
– Example: using a chat window to interact with technical support
at a merchant’s website.
Unique Features of E-commerce Technology
6. Information density
– the total amount and quality of information available to all
market participants, consumers and merchants alike.
– information becomes more plentiful, less expensive, and of
higher quality.
– reduction in information asymmetry among market
participants (consumers and merchants).
– More Price transparency: the ease with which consumers can
find out the variety of prices in a market.
– More cost transparency: the ability of consumers to discover
the actual costs merchants pay for products.
– Allows for greater market segmentation and price
discrimination: selling the same goods, or nearly the same
goods, to different targeted groups at different prices.
Unique Features of E-commerce Technology
7. Personalization/customization
– personalization: merchants can target their marketing
messages to specific individuals by adjusting the message to a
person’s name, interests, and past purchases.
– customization—changing the delivered product or service
based on a user’s preferences or prior behavior.
– A result of increased information density.

8. Social technology
– much more social by allowing users to create and share content
with a worldwide community.
– E-commerce technologies provide a unique, many-to-many
model of mass communication.
Review Fig: 1.2, Page 64
Types of E-commerce
• Business-to-Consumer (B2C)
• Business-to-Business (B2B)
• Consumer-to-Consumer (C2C)
• Mobile e-commerce (M-commerce)
• Social e-commerce
• Local e-commerce
Figure 1.5: The Growth of B2C E-commerce
Worldwide
Figure 1.6: Room to grow of B2C E-commerce
Worldwide
The retail e-
commerce
market is still
just a small part
of the overall
global retail
market, but with
much room to
grow in the
future.
Figure 1.7: The Growth of B2B E-commerce
in the U.S.
 B2B e-commerce
in the United
States is about 10
times the size of
B2C e-commerce.
 In 2020, B2B e-
commerce is
projected to be
over $9 trillion.
(Note: Does not
include EDI
transactions.)
SOURCES: Based on
data from U.S. Census
Bureau, 2016; authors’
estimates.
Figure 1.8: The Growth of M-commerce in
the EU5

It is anticipated that retail m-commerce will continue to grow at double-digit rates over the next
five years as consumers become more and more accustomed to using mobile devices to purchase
products and services.
Social E-commerce
Social e-commerce is e-commerce that is enabled by
social networks and online social relationships.
The growth of social e-commerce is being driven by a
number of factors, including:
– social sign-on (signing onto websites using your Facebook or
other social network ID)
– network notification (the sharing of approval or disapproval of
products, services, and content),
– online collaborative shopping tools.
– social search (recommendations from online trusted friends), and
– the increasing prevalence of integrated social commerce tools
such as Buy buttons
Local E-commerce
 form of e-commerce that is focused on engaging the consumer
based on his or her current geographic location.
 Local merchants use a variety of online marketing techniques to
drive consumers to their stores.
Figure 1.8: The relative size of different
types of E-commerce in the US
 B2B e-commerce
dwarfs all other
forms of e-
commerce;
 mobile, social, and
local e-commerce,
although growing
rapidly, are still
relatively small in
comparison to
“traditional” e-
commerce.
E-commerce: A Brief History (1 of 4)
Precursors (before e-commerce)
– Baxter Healthcare modem-based system
– Order entry systems
– Electronic Data Interchange (EDI) standards
– French Minitel (videotext system that combined
a telephone with an 8-inch screen).
 more than 3 million had been deployed, with more than 13,000
different services available, including ticket agencies, travel
services, retail products, and online banking.
 continued in existence until December 31, 2006, when it was
finally discontinued by its owner, France Telecom.
E-commerce: A Brief History (2 of 4)
1995–2000: Invention
– Sale of simple retail goods
– Limited bandwidth and media
– Euphoric visions of (page 71-74)
 Friction-free commerce: a vision of commerce in which
information is equally distributed, transaction costs are low,
prices can be dynamically adjusted to reflect actual demand,
intermediaries decline, and unfair competitive advantages are
eliminated.
 First-mover advantages
– Dot-com crash of 2000
E-commerce: A Brief History (2 of 4)
1995–2000: Invention
 Internet and digital markets have changed the way
companies conduct business
 Information asymmetry reduced:
– refers to any disparity in relevant market information among parties in a
transaction.
– nearly perfect competitive market: where price, cost, and quality information are
equally distributed.

 Menu costs, search and transaction costs reduced.

– national or regional prices in traditional retailing (what are called menu costs) that
one national price was the norm.
– merchants know much more about consumers and are able to use this information
more effectively than was ever true in the past.
– It is possible for merchants to know more about other merchants than was ever
true in the past.
 E-commerce: A Brief History (2 of 4)
1995–2000: Invention
 For merchants & Producers (friction-free commerce):
– direct access to hundreds of millions of customers.
– the cost of searching for customers would also fall, reducing the need for
wasteful advertising.
– advertisements could be personalized to the needs of every customer.
– producers could dynamically price their products to reflect actual demand,
ending the idea of one national price, or one suggested manufacturer’s list price.
– Allow for price discrimination: selling the same goods, or nearly the same
goods, to different targeted groups at different prices.
– The resulting intense competition, the decline of intermediaries, and the lower
transaction costs would eliminate product brands, and along with these, the
possibility of monopoly profits based on brands, geography, or special access to
factors of production.
– prices covered costs of production plus a fair, “market rate” of return on capital,
plus additional small payments for entrepreneurial effort (that would not last long).
– Unfair competitive advantages (which occur when one competitor has an
advantage others cannot purchase) would be reduced.
 E-commerce: A Brief History (2 of 4)
1995–2000: Invention
 For real-world entrepreneurs:
– The e-commerce marketspace represented access to millions of consumers
worldwide who used the Internet and a set of marketing communications
technologies (e-mail and web pages) that was universal, inexpensive, and
powerful.
– Allows better segmentation, targeting, and positioning.
– Extraordinary profits would go to first movers—those firms who were first to
market in a particular area and who moved quickly to gather market share.
– inhibit competitors (new entrants) by building in switching costs for their
customers through proprietary interface designs and features available only
at one site. The idea for entrepreneurs was to create near monopolies online
based on size, convenience, selection, and brand.
– creating a network effect that occurs where users receive value from the
fact that everyone else uses the same tool or product.
– The emphasis was on disrupting (destroying) traditional distribution
channels and disintermediating existing channels, using new pure online
companies who aimed to achieve impregnable first-mover advantages.
E-commerce: A Brief History (2 of 4)
1995–2000: Invention
 For Consumers:
– search costs—the cost of searching for prices, product descriptions,
payment settlement, and order fulfillment—would all fall drastically.
– Prices and even costs would be increasingly transparent to the consumer,
who could now know exactly and instantly the worldwide best price,
quality, and availability of most products (reduced information
asymmetry).

 For Distributors and Wholesalers:

– Disintermediation: displacement of market middlemen who traditionally
are intermediaries between producers and consumers by a new direct
relationship between producers and consumers.
E-commerce: A Brief History (2 of 4)
1995–2000: Invention
The Benefits of Disintermediation to the Consumer
E-commerce: A Brief History (3 of 4)
2001–2006: Consolidation
– Emphasis on business-driven approach: large traditional firms
learned how to use the Web to strengthen their market positions.
– Traditional large firms expand presence
– Start-up financing shrinks
– More complex products and services sold: such as travel and
financial services.
– Growth of search engine advertising: targeted to user queries, rich
media and video ads, and behavioral targeting of marketing
messages based on ad networks and auction markets.
– Business Web presences expand: included websites, e-mail, display,
and search engine campaigns; multiple websites for each product;
and the building of some limited community feedback facilities.
 E-commerce: A Brief History (4 of 4)
2007–Present: Reinvention (table 1.4; Pg. 75)
e-commerce has been transformed by the rapid growth of:
– Web 2.0 (a set of applications and technologies that enable user-generated
content, such as online social networks, blogs, video and photo sharing sites,
and wikis),
– widespread adoption of mobile devices such as smartphones and tablet
computers,
– the expansion of e-commerce to include local goods and services, and
– the emergence of an on-demand service economy enabled by millions of
apps on mobile devices and cloud computing.

 Entertainment content develops as source of revenues

 Transformation of marketing
– increasing use of social networks, word-of-mouth, viral marketing, and much more
powerful data repositories and analytic tools for truly personal marketing.
Figure 1.10: Periods in the Development of
E-commerce
Digital Goods

• Goods that can be delivered over a digital network

• Cost of producing first unit is almost entire cost of
product
• Costs of delivery over the Internet very low
• Marketing costs remain the same; pricing highly
variable
• Industries with digital goods are undergoing
revolutionary changes (publishers, record labels,
etc.)
Insight on Business: Start-up Boot Camp
• Class Discussion
– Why do you think investors today are still interested in
investing in start-ups?
– What are the benefits of investing in a company that is
a graduate of a Y Combinator boot camp?
– Is an incubator the best solution for start-ups to find
funding? Why or why not?
Assessing E-commerce (1 of 2)
• Stunning technological success
• Early years a mixed business success
– Few early dot-coms have survived
– Online sales growing rapidly
– Thousands of firms have failed, and those few that have survived
dominate the market.
– The idea of thousands of suppliers competing on price has been
replaced by a market dominated by giant firms.
– Consumers use the Web as a powerful source of information
about products they often actually purchase through other
channels, such as at a traditional store.
Assessing E-commerce (1 of 2)
• Many early visions not fulfilled
– Price dispersion: Prices are sometimes lower online, but the low
prices are sometimes a function of entrepreneurs selling products
below their costs. In some cases, online prices are higher, as
consumers are willing to pay a small premium for the convenience of
buying online.
– The concept of one world, one market, one price has not occurred
in reality as entrepreneurs discover new ways to differentiate their
products and services.
– Merchants have adjusted to the competitive Internet environment by
engaging in “hit-and-run pricing” or changing prices every day or
hour (using “flash pricing” or “flash sales”) so competitors never
know what they are charging (neither do customers); by making their
prices hard to discover and sowing confusion among consumers.
Assessing E-commerce (1 of 2)
• Many early visions not fulfilled
– brands remain very important in e-commerce—consumers trust some
firms more than others to deliver a high-quality product on time and
they are willing to pay for it.
– The “perfect competition” model of extreme market efficiency has not
come to pass.
– e-commerce has created many opportunities for middlemen to
aggregate content, products, and services and thereby introduce
themselves as the “new” intermediaries.
Assessing E-commerce (2 of 2)
• Other surprises
– First-mover advantage appears to have succeeded only for a
very small group of companies, albeit some of them extremely
well-known, such as Google, Facebook, Amazon, and others.
– Fast-follower advantages: firms with the right complement of
financial, marketing, legal, and production assets needed to
develop mature markets, and this has proved true for e-commerce
as well.
– Start-up costs (not lower than traditional physical in some cases).
– Impact of mobile platform: understanding of personal behavior
than even Google has achieved.
– Emergence of on-demand e-commerce: enables people to use
their mobile devices to order up everything from taxis, to
groceries, to laundry service.
Understanding E-commerce: Organizing
Themes
• Technology:
– Development and mastery of digital computing and
communications technology

• Business:
– New technologies present businesses with new ways
of organizing production and transacting business

• Society:
– Intellectual property, individual privacy, public welfare
policy
Major Trends in E-commerce
• Business trends include:
– All forms of e-commerce show very strong growth

• Technology trends include:

– Mobile platform has made mobile e-commerce reality

• Societal trends include:

– Increased online social interaction and sharing
Figure 1.11:
The Internet
and the
Evolution of
Corporate
Computing
Insight on Society: Facebook and the Age of
Privacy
• Class discussion:
– Why are social network sites interested in collecting
user information?
– What types of privacy invasion are described in the
case? Which is the most privacy-invading, and why?
– Is e-commerce any different than traditional markets
with respect to privacy? Don’t merchants always want
to know their customer?
– How do you protect your privacy on the Web?
Academic Disciplines Concerned with
Technology
• Technical
– Computer science, management science,
information systems
• Behavioral
– Information systems research, economics,
marketing, management, finance/accounting,
sociology