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.