Firms are interested in electronic commerce because, quite simply, it can help increase
profits. All the advantages of electronic commerce for businesses can be summarized in one
statement: Electronic commerce can increase sales and decrease costs. Advertising done
well on the Web can get even a small firm’s promotional message out to potential customers
in every country in the world. A firm can use electronic commerce to reach small groups of
customers that are geographically scattered. The Web is particularly useful in creating virtual
communities that become ideal target markets for specific types of products or services.
A virtual community is a gathering of people who share a common interest, but instead of this
gathering occurring in the physical world, it takes place on the Internet
Just as electronic commerce increases sales opportunities for the seller, it increases purchasing
opportunities for the buyer. Businesses can use electronic commerce to identify
new suppliers and business partners. Negotiating price and delivery terms is easier in electronic
commerce because the Internet can help companies efficiently obtain competitive
bid information. Electronic commerce increases the speed and accuracy with which businesses
can exchange information, which reduces costs on both sides of transactions. Many
companies are reducing their costs of handling sales inquiries, providing price quotes, and
determining product availability by using electronic commerce in their sales support and
order-taking processes.
Electronic commerce provides buyers with a wider range of choices than traditional commerce
because buyers can consider many different products and services from a wider variety
of sellers. This wide variety is available for consumers to evaluate 24 hours a day, every day.
Some buyers prefer a great deal of information in deciding on a purchase; others prefer less.
Electronic commerce provides buyers with an easy way to customize the level of detail in the
information they obtain about a prospective purchase. Instead of waiting days for the mail to
bring a catalog or product specification sheet, or even minutes for a fax transmission, buyers
can have instant access to detailed information on the Web.
Some digital products, such as software, music and video files, or images, can even be delivered
through the Internet, which reduces the time buyers must wait to begin enjoying their
purchases. The ability to deliver digital products online is not just a cost-reduction opportunity.
It can increase sales, too. Intuit sells its TurboTax income tax preparation software online and
lets customers download the software immediately if they wish. Intuit sells a considerable
amount of TurboTax software late in the evening on April 14 each year.
The benefits of electronic commerce extend to the general welfare of society. Electronic
payments of tax refunds, public retirement, and welfare support cost less to issue and
arrive securely and quickly when transmitted over the Internet. Furthermore, electronic
payments can be easier to audit and monitor than payments made by check, providing protection
against fraud and theft losses. To the extent that electronic commerce enables people to telecommute, everyone benefits from the reduction in commuter-caused traffic and pollution. Electronic commerce can also make products and services available in remote areas. For example, distance education is making it possible for people to learn skills and earn degrees no matter where they live or which hours they have available for study.
Monday, July 9, 2012
Product/Process Suitability to Electronic Commerce
Some products, such as books or CDs, are good candidates for electronic commerce because
customers do not need to experience the physical characteristics of the particular item
before they buy it. Because one copy of a new book is identical to other copies, and because
the customer is not concerned about fit, freshness, or other such qualities, customers are
usually willing to order a title without examining the specific copy they will receive. The
advantages of electronic commerce, including the ability of one site to offer a wider selection
of titles than even the largest physical bookstore, can outweigh the advantages of a traditional
bookstore—for example, the customer’s ability to browse the pages of the books. In
later chapters, you will learn how to evaluate the advantages and disadvantages of using
electronic commerce for specific business processes.
customers do not need to experience the physical characteristics of the particular item
before they buy it. Because one copy of a new book is identical to other copies, and because
the customer is not concerned about fit, freshness, or other such qualities, customers are
usually willing to order a title without examining the specific copy they will receive. The
advantages of electronic commerce, including the ability of one site to offer a wider selection
of titles than even the largest physical bookstore, can outweigh the advantages of a traditional
bookstore—for example, the customer’s ability to browse the pages of the books. In
later chapters, you will learn how to evaluate the advantages and disadvantages of using
electronic commerce for specific business processes.
Role of Merchandising
Retail merchants have years of traditional commerce experience in creating store environments
that help convince customers to buy. This combination of store design, layout,
and product display knowledge is called merchandising. In addition, many salespeople have
developed skills that allow them to identify customer needs and find products or services
that meet those needs.
The skills of merchandising and personal selling can be difficult to practice remotely.
However, companies must be able to transfer their merchandising skills to the Web for
their Web sites to be successful. Some products are easier to sell on the Internet than
others because the merchandising skills related to those products are easier to transfer
to the Web.
that help convince customers to buy. This combination of store design, layout,
and product display knowledge is called merchandising. In addition, many salespeople have
developed skills that allow them to identify customer needs and find products or services
that meet those needs.
The skills of merchandising and personal selling can be difficult to practice remotely.
However, companies must be able to transfer their merchandising skills to the Web for
their Web sites to be successful. Some products are easier to sell on the Internet than
others because the merchandising skills related to those products are easier to transfer
to the Web.
Focus on Specific Business Processes
The revenue model grouping of business processes, companies think of the
rest of their operations as specific business processes. Those processes include purchasing
raw materials or goods for resale, converting materials and labor into finished goods,
managing transportation and logistics, hiring and training employees, managing the
finances of the business, and many other activities.
An important function of this book is to help you learn how to identify those business
processes that firms can accomplish more effectively by using electronic commerce
technologies. In some cases, business processes use traditional commerce activities very
effectively, and technology cannot improve them. Products that buyers prefer to touch,
smell, or examine closely can be difficult to sell using electronic commerce. For example,
customers might be reluctant to buy items such as high-fashion clothing or antique jewelry
if they cannot closely examine the products before agreeing to
purchase them.
You learn how to use Internet technologies to improve existing business
processes and identify new business opportunities. An important aspect of electronic
commerce is that firms can use it to help them adapt to change. The business world
is changing more rapidly than ever before. Although much of this book is devoted to
explaining technologies/.
rest of their operations as specific business processes. Those processes include purchasing
raw materials or goods for resale, converting materials and labor into finished goods,
managing transportation and logistics, hiring and training employees, managing the
finances of the business, and many other activities.
An important function of this book is to help you learn how to identify those business
processes that firms can accomplish more effectively by using electronic commerce
technologies. In some cases, business processes use traditional commerce activities very
effectively, and technology cannot improve them. Products that buyers prefer to touch,
smell, or examine closely can be difficult to sell using electronic commerce. For example,
customers might be reluctant to buy items such as high-fashion clothing or antique jewelry
if they cannot closely examine the products before agreeing to
purchase them.
You learn how to use Internet technologies to improve existing business
processes and identify new business opportunities. An important aspect of electronic
commerce is that firms can use it to help them adapt to change. The business world
is changing more rapidly than ever before. Although much of this book is devoted to
explaining technologies/.
B U S I N E S S M O D E L S , R E V E N U E M O D E L S , A N D B U S I N E S S P R O C E S S E S
A business model is a set of processes that combine to yield a profit. In the first wave of
electronic commerce, many investors sought out start-up companies with appealing business
models. A good business model was expected to lead to rapid sales growth and market
dominance. The idea that the key to success was simply to copy the business model of
a successful dot-com business led the way to many business failures, some of them quite
dramatic.
In the wake of the dot-com debacle that ended the first wave of electronic commerce,
many business researchers analyzed the efficacy of the business model approach and
began to question the advisability of focusing great attention on a company’s business
model. One of the main critics, Harvard Business School professor Michael Porter, argued
that business models not only did not matter, they probably did not exist. (You can read
more about Porter’s criticisms of the business model approach in the articles cited in the
For Further Study and Research section at the end of this chapter.)
It has become clear to many companies that copying or adapting someone else’s business
model is neither an easy nor wise road map to success. Instead, companies should
examine the elements of their business; that is, they should identify business processes that
they can streamline, enhance, or replace with processes driven by Internet technologies.
Companies and investors do still use the idea of a revenue model, which is a specific collection
of business processes used to identify customers, market to those customers, and
generate sales to those customers. The revenue model idea is helpful for classifying revenue generating
activities for communication and analysis purposes. The details of revenue
models that are used on the Web.
electronic commerce, many investors sought out start-up companies with appealing business
models. A good business model was expected to lead to rapid sales growth and market
dominance. The idea that the key to success was simply to copy the business model of
a successful dot-com business led the way to many business failures, some of them quite
dramatic.
In the wake of the dot-com debacle that ended the first wave of electronic commerce,
many business researchers analyzed the efficacy of the business model approach and
began to question the advisability of focusing great attention on a company’s business
model. One of the main critics, Harvard Business School professor Michael Porter, argued
that business models not only did not matter, they probably did not exist. (You can read
more about Porter’s criticisms of the business model approach in the articles cited in the
For Further Study and Research section at the end of this chapter.)
It has become clear to many companies that copying or adapting someone else’s business
model is neither an easy nor wise road map to success. Instead, companies should
examine the elements of their business; that is, they should identify business processes that
they can streamline, enhance, or replace with processes driven by Internet technologies.
Companies and investors do still use the idea of a revenue model, which is a specific collection
of business processes used to identify customers, market to those customers, and
generate sales to those customers. The revenue model idea is helpful for classifying revenue generating
activities for communication and analysis purposes. The details of revenue
models that are used on the Web.
The SecondWave of Electronic Commerce
Economists Chris Freeman and Francisco Louçã describe four waves that occurred in the
Industrial Revolution in their book As Time Goes By (see the For Further Study and
Research section at the end of this chapter). Many researchers predict that electronic commerce
and the information revolution brought about by the Internet will go through similar
waves. Those researchers agree that the second wave of electronic commerce has
begun. This section outlines the defining characteristics of the first wave of electronic commerce
and describes how the second wave is different.
The first wave of electronic commerce was predominantly a U.S. phenomenon. Web
pages were primarily in English, particularly on commerce sites. The second wave is characterized
by its international scope, with sellers doing business in many countries and in
many languages. The problems of language translation and handling currency conversion
will need to be solved to allow efficient conduct of business in the second wave. You
will learn more about the issues that arise in global electronic commerce later in this chapter,
in Chapter 7, and in Chapter 11, which concerns online payment systems.
In the first wave, easy access to start-up capital led to an overemphasis on creating new
large enterprises to exploit electronic commerce opportunities. Investors were excited
about electronic commerce and wanted to participate, no matter how much it cost or how
bad the underlying ideas were. In the second wave, established companies are using their
own internal funds to finance gradual expansion of electronic commerce opportunities.
These measured and carefully considered investments are helping electronic commerce
grow more steadily, though more slowly.
The Internet technologies used in the first wave, especially in B2C commerce, were
slow and inexpensive. Most consumers connected to the Internet using dial-up modems.
The increase in broadband connections in homes is a key element in the B2C component
of the second wave. In 2004, the number of U.S. homes with broadband connections
began to increase rapidly. Most industry estimates showed that about 12 percent of U.S.
homes had broadband connections in early 2004. By late 2005, those estimates were ranging
between 25 and 30 percent. Many experts believe that increased use of home Internet
connections to transfer large audio and video files prompted the surge in broadband
connections. Although these connections are more expensive, they are more than 10
times faster than dial-up. This increased speed not only makes Internet use more efficient,
it can alter the way people use the Web.
Industrial Revolution in their book As Time Goes By (see the For Further Study and
Research section at the end of this chapter). Many researchers predict that electronic commerce
and the information revolution brought about by the Internet will go through similar
waves. Those researchers agree that the second wave of electronic commerce has
begun. This section outlines the defining characteristics of the first wave of electronic commerce
and describes how the second wave is different.
The first wave of electronic commerce was predominantly a U.S. phenomenon. Web
pages were primarily in English, particularly on commerce sites. The second wave is characterized
by its international scope, with sellers doing business in many countries and in
many languages. The problems of language translation and handling currency conversion
will need to be solved to allow efficient conduct of business in the second wave. You
will learn more about the issues that arise in global electronic commerce later in this chapter,
in Chapter 7, and in Chapter 11, which concerns online payment systems.
In the first wave, easy access to start-up capital led to an overemphasis on creating new
large enterprises to exploit electronic commerce opportunities. Investors were excited
about electronic commerce and wanted to participate, no matter how much it cost or how
bad the underlying ideas were. In the second wave, established companies are using their
own internal funds to finance gradual expansion of electronic commerce opportunities.
These measured and carefully considered investments are helping electronic commerce
grow more steadily, though more slowly.
The Internet technologies used in the first wave, especially in B2C commerce, were
slow and inexpensive. Most consumers connected to the Internet using dial-up modems.
The increase in broadband connections in homes is a key element in the B2C component
of the second wave. In 2004, the number of U.S. homes with broadband connections
began to increase rapidly. Most industry estimates showed that about 12 percent of U.S.
homes had broadband connections in early 2004. By late 2005, those estimates were ranging
between 25 and 30 percent. Many experts believe that increased use of home Internet
connections to transfer large audio and video files prompted the surge in broadband
connections. Although these connections are more expensive, they are more than 10
times faster than dial-up. This increased speed not only makes Internet use more efficient,
it can alter the way people use the Web.
The Dot-Com Boom, Bust, and Rebirth
Internet-related businesses were started with
more than $100 billion of investors’ money. In an extended burst of optimism and what
many came to describe as irrational exuberance, investors feared that they might miss the
money-making opportunity of a lifetime. As more investors competed for a fixed number of
good ideas, the price of those ideas increased. Worse, a number of bad ideas were proposed
and funded. More than 5000 of these companies went out of business or were acquired
in the downturn that began in 2000. The media coverage of the “dot-com bust” was
extensive. However, between 2000 and 2003, more than $200 billion was invested in purchasing
electronic commerce businesses that were in trouble and starting new online ventures,
according to industry research firm WebMergers. This second wave of financial
investment has not been reported extensively in either the general or business media, but
it is fueling a rebirth of growth in online business activity.
After seeing so many news stories during the period from 2000 through 2002 proclaiming
the death of electronic commerce, many people are surprised to learn that the growth in online B2C sales had continued through that period, although at a slower pace than during
the boom years of the late 1990s. Thus, the “bust” that was so widely reported in
the media was really more of a slowdown than a true collapse. After four years of doubling
or tripling every year, growth in online sales slowed to an annual rate of 20 to 30
percent starting in 2001. Most experts expect this growth rate to continue through 2010.
One force driving the growth in online sales to consumers is the ever increasing number
of people who have access to the Internet.
more than $100 billion of investors’ money. In an extended burst of optimism and what
many came to describe as irrational exuberance, investors feared that they might miss the
money-making opportunity of a lifetime. As more investors competed for a fixed number of
good ideas, the price of those ideas increased. Worse, a number of bad ideas were proposed
and funded. More than 5000 of these companies went out of business or were acquired
in the downturn that began in 2000. The media coverage of the “dot-com bust” was
extensive. However, between 2000 and 2003, more than $200 billion was invested in purchasing
electronic commerce businesses that were in trouble and starting new online ventures,
according to industry research firm WebMergers. This second wave of financial
investment has not been reported extensively in either the general or business media, but
it is fueling a rebirth of growth in online business activity.
After seeing so many news stories during the period from 2000 through 2002 proclaiming
the death of electronic commerce, many people are surprised to learn that the growth in online B2C sales had continued through that period, although at a slower pace than during
the boom years of the late 1990s. Thus, the “bust” that was so widely reported in
the media was really more of a slowdown than a true collapse. After four years of doubling
or tripling every year, growth in online sales slowed to an annual rate of 20 to 30
percent starting in 2001. Most experts expect this growth rate to continue through 2010.
One force driving the growth in online sales to consumers is the ever increasing number
of people who have access to the Internet.
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