Copyright 2002 Pearson Education, Inc.

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CHAPTER 1
The Revolution Is Just
Beginning
Created by, David Zolzer, Northwestern State UniversityLouisiana

Copyright 2002 Pearson Education, Inc.

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Learning Objectives

Define e-commerce and describe how it

differs from e-business
Identify the unique features of e-commerce
technology and their business significance
Describe the major types of e-commerce
Understand the visions and forces behind
the E-Commerce I era

Copyright 2002 Pearson Education, Inc.

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Learning Objectives

Understand the successes and failures of

E-Commerce I
Identify several factors that will define the
E-commerce II era
Describe the major themes underlying the
study of e-commerce
Identify the major academic disciplines
contributing to e-commerce research

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Amazon.com:
Before and After

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Amazon.com: Before and After

Most well-known e-commerce company

Conceived by Jeff Bezos in 1994
Opened in July 1995
Four compelling reasons to shop

Selection (1.1 million titles)

Convenience (anytime, anywhere)
Price (high discounts on bestsellers)
Service (automated order confirmation,
tracking, and shipping information)

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Amazon.com: Before and After

Revenues and Earnings
Revenues

Earnings

1996

$15.6 Million

($6.24 Million)

1997

$148 Million

($31 Million)

1998

$610 Million

($125 Million)

1999

$1.6 Billion

($720 Million)

2000

$2.7 Billion

($1.4 Billion)

Copyright 2002 Pearson Education, Inc.

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E-commerce vs. E-business

E-commerce involves

Digitally enabled commercial transactions

between organizations and individuals.
Digitally enabled transactions include all
transactions mediated by digital
technology
Commercial transactions involve the
exchange of value across organizational or
individual boundaries in return for
products or services

Copyright 2002 Pearson Education, Inc.

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E-commerce vs. E-business

E-business involves


Digital enablement of transactions
and processes within a firm, involving
information systems under the
control of the firm


E-business does not involve
commercial transactions across
organizational boundaries where
value is exchanged
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The Difference Between Ecommerce and E-Business

Page 8, Figure 1.1

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Unique of E-commerce Technology

and Their Business Significance
E-commerce:


is ubiquitous


has global reach


operates according to universal
standards


provides information richness


is interactive


increases information density


permits personalization
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Seven Unique Features of E-commerce

Technology and Their Business
Significance
Page 9, Table 1.1

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Changing Trade-Off Between

Richness and Reach
Page 11, Figure 1.2

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Major Types of E-Commerce

Market relationships

Business-to-Consumers (B2C)
Business-to-Business (B2B)
Consumer-to-Consumer (C2C)

Technology-based

Peer-to-Peer (P2P)
Mobile Commerce (M-commerce)

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Major Types of E-Commerce

Page 14, Table 1.2

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Business-to-Consumer Ecommerce

Most commonly discussed type

Online businesses attempt to
reach individual consumers
Consumers will spend $65 billion
in 2001.

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Business-to-Business E-commerce

Businesses focus on sell to other

businesses
Largest form of e-commerce
$700 billion in transactions in 2001
Primarily involved inter-business
exchanges at first
Other models have developed

e-distributors
infomediaries
B2B service providers

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Consumer-to-Consumer Ecommerce

Provide a way for consumers to

sell to each other
Estimated $5 billion market
Consumer:

prepares the product for market

places the product for auction or
sale
relies on market maker to provide
catalog, search engine, and
transaction clearing capabilitiesSlide 1-18

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Peer-to-Peer E-commerce

Enables Internet users to share

files and computer resources
Napster

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Mobile E-commerce

Wireless digital devices enable

transactions on the Web
Uses personal digital assistants
(PDAs) to connect
Used most widely in Japan and
Europe

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10

Growth of the Internet and the Web

Created in the late 1960s

About 350 million computers
worldwide to date
Links businesses, educational
institutions, government agencies,
and individuals
Provides services such as e-mail,
document transfer, newsgroups,
shopping, research, instant
messaging, music, video, and news

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Growth of the Internet and the Web

Internet hosts are growing at a

rate of 45% per year
Extraordinary growth -- time to
reach 30% US households

Radio - 38 years
Television - 17 years
Internet/Web - 8 years (1993)

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The Growth of the Internet

Page 16, Figure 1.3

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The Growth of Web Content

Page 17, Figure 1.4

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The Growth of B2C E-Commerce

Page 20, Figure 1.5

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The Growth of B2B E-Commerce

Page 21, Figure 1.6

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Origins and Growth of E-Commerce

Baxter Healthcare

Primitive form of B2B using telephone-based

modem to permit hospitals to reorder supplies
(early 1970s)
PC-based remote order entry system (1980s)

Electronic Data Interchange (EDI)

standards developed that permitted firms
to exchange commercial documents and
conduct digital commercial transactions
across private networks (1980s)

Copyright 2002 Pearson Education, Inc.

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Origins and Growth of E-Commerce

French Minitel videotext system

First B2C arena (1981)

15 million in use throughout France

World Wide Web

1993 first browsers

1995 first banner ads

Copyright 2002 Pearson Education, Inc.

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Technology and E-Commerce in

Perspective
Internet and the Web are just two of
a long list of technologies that have
greatly change commerce

Other technologies spawned

business models and strategies
Explosive early growth followed
by retrenchment and then longterm successful exploitation of the
technology

Copyright 2002 Pearson Education, Inc.

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Technology and E-Commerce in

Perspective
Although e-commerce has grown
explosively, there is no guarantee it
will continue to grow

Confront own fundamental

limitations
B2C only about 1% of overall retail
market
With current growth rates, B2C will
roughly equal the annual revenue
of Wal-Mart in 2005

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15

Limitations of the Growth of B2C

E-Commerce
Page 23, Table 1.3

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Web Access Via Wireless Devices

in the United States
Page 24, Figure 1.7

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16

E-Commerce I and II

E-Commerce I

Explosive growth starting in 1995

Widespread of Web to advertise
products
Ended in 2000 when dot.com began to
collapse

E-Commerce II

Began in January 2001

Reassessment of e-commerce
companies

Copyright 2002 Pearson Education, Inc.

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E-Commerce I 1995-2000

For computer scientist and

information technologists

Vindication of a set of information

technologies developed over 40
years
Extending from the early Internet to
the PC and local area networks
The vision of universal
communications

Copyright 2002 Pearson Education, Inc.

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E-Commerce I 1995-2000

For economists

Raised realistic prospect of perfect

Bertrand Market

where price, cost, and quality information is

equally distributed
where a nearly infinite set of suppliers
compete against one another
where customers have access to all revelant
market information worldwide

Merchants have equal direct access to

hundreds of millions of customers

Copyright 2002 Pearson Education, Inc.

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E-Commerce I 1995-2000
Disintermediation


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
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E-Commerce I 1995-2000
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
unfair competitive advantages are
eliminated

Copyright 2002 Pearson Education, Inc.

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E-Commerce I 1995-2000

First mover

a firm that is first to market in a

particular area and that moves
quickly to gather market share

Network effect

occurs where users receive value

from the fact that everyone else
uses the same tool or product

Copyright 2002 Pearson Education, Inc.

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Amounts Raised by Venture-Backed

Internet Companies in 1996-2000
Page 25, Table 1.4

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E-Commerce II 2001-2006

Crash in stock market values of Ecommerce I companies throughout 2000 is

an end to E-commerce I
Led to a sobering reassessment of the
prospects of e-commerce and the
methods of achieving business success.
E-commerce II begins in 2001 and ends
five year later -- the limit for making
technology and business projections

Copyright 2002 Pearson Education, Inc.

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E-Commerce II 2001-2006

Reasons for the end of E-Commerce I

run-up in technology stocks due to enormous information

technology capital expenditure of firms rebuilding their
internal business systems to withstand Y2K
telecommunications industry had built excess capacity in
high-speed fiber optic networks
1999 e-commerce Christmas season provided less sales
growth that anticipated and demonstrated e-commerce
was not easy (eToys.com)
valuations of dot.com and technology companies had
risen so high supporters were questioning whether
earnings could justify the prices of the shares.

Copyright 2002 Pearson Education, Inc.

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Insight on Business:
A Short History of dot.com IPOS

Between 1998 and 2000 venture capitalists

poured an estimated $120 billion into
approximately 12,450 dot.com start-up
ventures
Investment bankers took 1,262 of these
companies public in IPOS
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

Copyright 2002 Pearson Education, Inc.

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E-Commerce I and E-Commerce II

Compared
Page 32, Table 1.5

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April 2001 NRF/Forrester Online

Retail Index
Page 33, Table 1.6

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Top 25 Properties of March 2001

(Combined Home and Work)
Page 34, Table 1.7

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Top 20 Web Retailers Among U.S.

Home Users (January, 2001)
Page 35, Table 1.8

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Understanding E-Commerce:
Organizing Themes

Technology: Infrastructure

Business: Basic Concepts

development and mastery of digital computing

and communications technology
new technologies present businesses and
entrepreneurs with new ways of organizing
production and transacting business

Society: Taming the Juggernaught

global nature of e-commerce poses public

policy issues of equity, equal access, content
regulation, and taxation

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The Internet and the Evolution of

Corporate Computing
Page 37,
Figure 1.8

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Disciplines Concerned with ECommerce

Page 39, Figure 1.9

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e-Business vs e-Commerce

E-Business:
E-Commerce:
marketing
selling
buying of products and
services on the Internet

Improving business
performance through low cost and
open connectivity:
New technologies in the value chain
Connecting value chains across businesses
in order to :
Improve service/reduce costs
Open new channels
Transform competitive landscapes

e-Business is more than selling and marketing online!

e-Business vs Business
ReAssess

Traditional:

Implement

ReAssess

E-Business:

Implement

Implementation
Planning

Implementation
Planning

Opportunity
Analysis

Opportunity
Analysis

Understand Business

Understand Electronic Business

Traditional business organization

develop step by step:

Definitions are clear

No change in the business and technology
environment

High time pressure

Continuous learning

Characteristics of an Electronic Business

journey:

Definitions of the future are fuzzy

Permanent and unpredictable change in the
business and technology environment

Time to market and speed are major competitive factors

Continuous learning & fast adaptation is required

E-Business is not a project - but rather a journey that requires vision and non-linear procedures

Experimentation and Learning

awareness

Short Strategy Formulation loops

Product
development

Being a
Supplier network
Customer network
Connected Enterprise
Procurement

Emerging e-Strategy

Marketing

Inbound
logistics

Outbound
logistics

Production

Sales
Customer
service

Continuous experimentation through specific Solutions

Prototyping

1997-1999 - e-Business Mania Strikes!

E-Business becomes a major economic force

Venture capital in abundance

Focus on new economy, new business models, growth
potential

NASDAQ hits 5,000

no attention to traditional fundamentals

bricks and mortar viewed as liability

Traditional businesses shake in their boots at the threat

of new non-traditional nimble bold competitors
Dot.Com start-ups in every field
Dot.Com multi-millionaires made over night

B2B and B2C - Huge Potential

The Projected US
Electronic Commerce
Market

The Projected Canadian

Electronic Commerce
Market

800

100
Business to Consumer

Business to Consumer

600
US $ Billion

Cdn $ Billion

80

Business to Business

60
40

Business to Business

400
200

20

0
2003

2002

Source: IDC

2001

2000

1999

1998

2003

2002

2001

2000

1999

1998

1997

1997

Source: IDC

Online Retail Sales - Likewise!

Growth of Online Retail Sales (US)

$25,000

$ US MM

$20,000
$15,000

Books & Music

Travel
Entertainment
Ticket Event Sale
PC Hardware & Software
Apparel & Footware
Financial Services

CAGR
42.9%

53.7%
44.9%
124.3%

$10,000

73.5%
83.4%

$5,000

63.0%

$0
1997

2001
Source: Forrestor

2000 - The Dot.Com Bubble Bursts!

The Demise of Dot Com Retailers. Weak financials, intense competition, and
investor flight will drive many of today's online retailers out of business in 2000.
Those that survive must refocus funding on building hard assets to achieve scale,
service, and speed.

Wall Street will run out of patience. Financial markets exasperated with non-existent
online profits will turn a deaf ear to persistent "investment mode" rhetoric and soundly
punish merchants who bleed red ink. Recent stock disasters like Value America and
eToys -- whose market caps as of January 11, 2000, are down $3.1 billion and $7.7
billion respectively from 1999 highs -- serve as bad omens for online stores that lack a
unique approach or technology.

The revenge of the brick-and-mortars will begin. The narrowing of the playing field
in 2000 will rationalize but not resolve online retail competition. It will usher in a new
era characterized by a few large players that exploit deep customer relationships and a
presence across multiple channels to entrench themselves. To measure their success,
these firms will ditch new economy platitudes in favor of unfashionable old metrics
like margins, profits, and customer retention costs.
Forrester Research, 1999/2000

Valuations Plummet
Amazon.com - AMZN

Pets.com - IPET

Priceline.com - PCLN

eBay.com - eBay

Same Trend in Canada

1-year trend

Lessons Learned

Fundamentals important, bottom line important

Traditional bricks and mortar assets can
represent significant competitive strengths

logistics, inventory, distribution

choice in terms of customer access
strength and brand

e-Business becomes an element of overall

business strategy - not the total business strategy

e-Business still widely seen as a way of
transforming business operations and thinking

Bricks and Clicks - A Hybrid Model

Traditional

Pure Web - Dot.com

Bricks and Mortar

Clicks

Combines strengths
from traditional and
pure Web
approaches

Hybrid
Bricks and Clicks

Emergence of the Hybrid Strategy

Phases of e-Business Development

Four stage model in E-Business maturity relates business value to e-business leverage

Business Value

Convergence

Over 50% are in the channel

phase of
E-Business development
with a web presence but no
infrastructure tie-in.

Channel

Cross-Industry
Supplier/Customer
convergence

Just under 15% are in the

integration phase.
Connections to suppliers
and customers are fully EBusiness enabled.

Transformation
Industry transformation,
achieve competitive
advantage

Integration
Integrate with
customers
and suppliers

Brochureware
and buying /selling

E-Business Leverage
Source: PricewaterhouseCoopers

Phases of e-Business Development

The Journey Requires Investment

Significant multi-year investment predicted

The Journey Requires Investment

Significant multi-year investment predicted

The Benefits of e-Business

Generate additional Revenues

Reduce Costs (Integration and Collaboration)

Know more about your customers

Integrated channel management
Proactive and personalized offerings

Improve Image / Position Brand

Process efficiency
Reduce IT variety and -complexity
Synergies with other initiatives

Customer Retention (Added Services and Virtual Community)

New markets
New products
New customers

Applying innovative technologies

Leadership enterprise
Address younger customer segments

Not to miss the boat

Keeping options open

Acquire know-how
Focused investments

e-Business and Brand

Research from Mainspring

Online financial services customers are initially

motivated by price sensitivity, but that influence
declines as they realize the benefits of convenience
Brand is more important online than offline

When researching insurance purchases online, 56% of

customers went straight to name-brand sites as compared
with 32% for aggregation sites.
When initiating a purchase online, 60% went to namebrand sites as compared to 32% for aggregation sites.

Online Insurance

Growth of Internet-Enabled Insurance

(US)
1200
1000
Other
Auto
Homeowners
Life

800
US $
MM

600
400
200
0
1997

1998

1999

2000

2001

Source: Forrestor

Online Advice

When will you offer financial advice online?

Why will you offer financial advice online?

To improve our online
offering

Don't know

Customers want online advice

> 3 years

1 to 2 years

Enhance customer
relationships

< 1 year

Help customers make

decisions

Now

Competitive pressures
0

Source: Forrestor

10

20

30
%

40

50

60

0
Source: Forrestor

10

20

30

40

50

10

Online Advice vs Face to Face

Forrester: Few financial companies believe that online advice will
replace the human advisor. Except for a small group of low-end, selfdirected customers, consumers are expected to continue to seek
advice from financial advisors. More than half of our respondents
believe that online advice solutions will never be a compelling
alternative to working with one of their advisors, even as the
technology improves.

Almost half of financial institutions believe that online advice will enable
advisors to deliver additional value to their customers.

As automated advice vendors piece together the elements of the new
advice creation process,we believe that use of online advice will
surge.

Customers don t care about the data-entry and number-crunching
aspect of advising -- they pay for the conversation they have after the
analysis is done. These online solutions will enable our advisors to
spend more time with their customers. (Insurer)

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