EC History 1

History and development of Ecommerce

I. What is ecommerce?

II. Where did it come from?

III. What is happening now?

IV. Where is it going?

EC History 2

Goals:

1. Take a strategic look at the development of ecommerce,

2. Identify key characteristics of the social and technological infrastructure that is required to support it.

EC History 3

What is ecommerce?

It is:

sharing business information,

maintaining business relationships,

conducting business transactions,

by means of telecommunications networks

Zwass, 1996

http://www.cba.bgsu.edu/ijec/v1n1/p003full.html

EC History 4

Ecommerce ... covers a wide range of

commercial activities performed by means of

an electronic web that can connect trading

partners. It includes:

1. EDI,

2. Support for interpersonal communication,

3. The transfer of money,

4. The sharing of databases in the conduct of business.

Milosevic and Bond 1996,http://aleph.ac.upc.es/HMP/PAPER/096/html/096.html

EC History 5

Ecommerce refers to any commercial activity which is conducted in a paperless manner

It is enabled by a number of technologies including:

1. EDI,

2. Electronic mail,

3. Provision of electronic catalogues,

4. Electronic Funds Transfer (EFT), etc.

EC History 6

It also refers to the procedures, policies and strategies required to support the incorporation of electronic interaction into the business environment.

Information Policy Council (1997)

http://www.wa.gov.au/IPC/strategies/ecsexov/ecsexov7.html

EC History 7

Ecommerce is any form of business transaction in which the parties interact electronically rather than by physical exchanges or direct physical contact.

It is one of those rare cases where changing needs and new technologies come together to revolutionize the way in which business is conducted.

European Commission (1997)

http://www.ispo.cec/be/Ecommerce/whatis.htm

EC History 8

A working definition of ecommerce focuses on

The marketing and planning strategies,

Business and consumer behavior, and

Legal and regulatory policy issues related to the commercial development of the Internet.

EC History 9

It includes at least the following:

1. The exchange of goods and services across an

interactive digital network,

2. A computer-mediated and virtual market with new relationships among businesses and consumers,

3. A digital means of exchange (digital money, ecash, secure credit card transactions),

4. The increasing importance of digital information as a commodity.

EC History 10

And:

5. New business processes and technologies to

support digital transactions,

6. New business strategies and models to gain a

competitive edge in the digital marketplace,

7. Technologies to ensure privacy and protect intellectual property

8. A legislative and regulatory environment that supports ecommerce (domestic and international)

EC History 11

Ecommerce involves online activity supporting the “virtual value chain”

Inbound logistics

Production Processes

Outbound logistics

Marketing

Sales

Customer support

Internal

External

EC History 12

Ecommerce:

1. Directly connects buyers and sellers,

2. Supports fully digital information exchange

between producers, suppliers, sellers, buyers,

3. Allows global activity 24-7-365,

4. Allows interactivity and adaptation to customer

behaviors,

5. Encourages real time updating.

EC History 13http://www.stern.nyu.edu/%7Embloch/docs/roadtoec/ec.htm

Using a buyer-seller perspective, and a life-cycle model, ecommerce is present in all the phases of a commerce transaction:

EC History 14

It enables companies to:

1. Be more efficient and flexible in their internal

operations

2. Work more closely with their suppliers,

3. Be more responsive to the needs and expectations

of their customers,

4. Select the best suppliers regardless of their geographical location and

5. Sell to a global market.

EC History 15

Ecommerce can be divided into four distinct categories:

Business

Business

Consumer Administration

EC History 16

Business 2 business:

Using a network for ordering from suppliers, receiving invoices and making payments (EDI).

Business 2 consumer:

Electronic retailing, mostly on the web.

Business 2 administration:

Transactions such as the details of upcoming government procurements.

Consumer 2 administration:

Epayment of taxes, receiving govt. services.

EC History 17

CorporateISP/VAN

Dist

Manufacturing

SuppliersGovernment

Banks

Credit CardCompanies

Retail

Consumers

Internet ServiceProviders

EC History 18

Ecommerce creates a marketplace for digital products, including:

1. Software, text and image-based digitized objects,

2. Services that depend on information and data (electricity consumption etc),

These can be produced and delivered over the net

This changes traditional manufacturing and

distribution processes.

EC History 19

The core ofecommerce

Ecommerceareas

Traditionalcommerce

Virtua

l pro

cess

es

Vir

tual

pro

du

cts

Virtual players

Physical process

Digital process

Physicalproduct

Digitalproduct

Physicalagent

Digitalagent

From Choi et al. (1997) The Economics of Electronic Commerce. p. 18

Areas of Electronic Commerce

EC History 20

Traditional commerce:

Physical product: a tangible, material object,

Physical process: interactions between buyers, sellers, producers,

Physical agent: People in a storefront.

Ecommerce:

Digital product: a digital object,

Digital process: interactions between buyers, sellers, producers online,

Digital agent: web storefront

EC History 21

Supplier opportunity Customer benefit

Global presence Global choiceImproved competitiveness Quality of serviceMass customizing and Personalized products targeting and servicesShorten or eradicate Rapid response tosupply chains needsSubstantial cost savings Substantial price

reductionsNew business opportunities New products and

services

http://www.ispo.cec.be/ecommerce/introduc.htm

EC History 22

History and development of Ecommerce

I What is ecommerce?

II. Where did it come from?

III. What is happening now?

IV. Where is it going?

EC History 23

II. Where did it come from?

There were several precipitating conditions

1. Business to business use of EDI,

2. The continued decrease in the costs of computer

hardware and software,

3. The disappearance of the NSF prohibiting

commercial activities on the net,

4. The rapid growth of the web (the third wave),

5. The rise of the profitable ISP.

EC History 24

Early forms of ecommerce involved electronic data interchange (EDI).

a. EDI allows business-to-business exchange of

digital transaction information,

b. It is computer-to-computer communication of

business information in standardized form,

c. Trading partners establish computer-to-computer links for rapid information exchange.

EC History 25

EDI reduces the time and distance involved in doing business (purchase orders, invoices, global procurement, outsourcing, etc)

It reduces transaction costs by improving speed and efficiency (as much as 5x faster),

It developed in the 1960s as a way to move documents quickly but didn’t come into wide use until the 1980s,

This was because of technology and the culture of business.

EC History 26

EDI is a form of structured document exchange.

a. It allows the exchange of a range of data types and document content between software applications running on remote computers,

b. It only specifies a formats for data/business information developed in a standards setting process,

c. The transmission of the data is handled by another means, such as email or point to point connections.

EC History 27

Definitions of EDI

The transmission of unambiguous business information in standard syntax between computers of independent organizations

The interchange of standard formatted data between computer application systems of trading partners with minimal manual intervention

EC History 28

And:

The electronic transfer, from computer to computer, of commercial and administrative data using an agreed standard to structure an EDI message,

The electronic transfer from one computer to another of computer processable data

using an agreed standard to structure the data.

EC History 29

An example of an EDI transaction for purchase, shipping, and payment taking place between computer systems:

1. Buyer --> Purchase order --> Seller

2. Seller --> Purchase order confirmation -->

Buyer

3. Seller --> Booking request --> Transport company

4. Transport company --> Booking confirmation --> Seller

EC History 30

And:

5. Seller --> Advance ship notice --> Buyer

6. Transport company --> Status --> Seller

7. Buyer --> Receipt advice --> Seller

8. Seller --> Invoice --> Buyer

9. Buyer --> Payment --> Seller

EC History 31

Examples of uses of EDI:

1. Improving business processes throughincreases in speed of data flow and efficiency,

2. Changing marketing, transportation, and distribution practices,

3. Improving international or cross border transactions,

4. Reducing the error rate in data entry and costs of doing business,

5. Electronic funds transfer, claims processing.

EC History 32

Financial EDI:

1. Primarily business to business payments,

2. The electronic transfer of payments and

remittance information between payer, payee, and

their banks,

3. Reduces the time for processing payments

(especially checks) while improving reliability,

4. Corporate accounts can be easily credited and

debited on schedule,

5. It involves interbank electronic funds transfer

(rapid, same day payments).

EC History 33

Manufacturing and retail procurement with EDI

With “just-in-time” and EDI, companies can reduce on-hand inventory,

Needs can be calculated daily based on production schedules and incoming orders,

Retailers use “quick response” systems to improve service and increase their product mix (at the “point-of-sale”),

Automatic ordering can take place wheninventory drops below a predetermined level.

EC History 34

Benefits of EDI:

1. Reduces errors in data entry and cost of processing orders (including postage),

2. Produces acknowledgment of receipt,

3. Rapid electronic payment,

4. Reduced paper systems,

5. Improved problem resolution and customer service,

6. New relationships among business partners.

EC History 35

Costs:

Large initial investment in proprietary hardware and software,

Changes in routine business practices,

Only machine-to-machine communication,

Investing in training and education,

Costs of maintenance and upgrading,

Adjusting to changing standards.

Actual use has fallen far short of expectations

EC History 36

However, the use of EDI has been important in preparing businesses for ecommerce.

They understand:

1. The exchange of digital information over a

computer network,

2. The exchange of goods and services among businesses and

3. Electronic funds transfer for payments.

EC History 37

Businesses also see that ecommerce can enhance some of the processes they are trying to redesign by:

Reducing costs,

Shortening product cycle times,

Providing more rapid customer response,

Improving customer support and service,

Focusing marketing efforts.

EC History 38

History and development of Ecommerce

I. What is ecommerce?

II. Where did it come from?

III. What’s happening now?

IV. Where is it going?

EC History 39

III. What is happening now?

Technical: The infrastructure necessary to support ecommerce is almost in place,

The hardware and software is becoming more powerful and is dropping in price,

Economic: We are beginning to understand the economics of networking and ecommerce,

There are many experiments underway, particularly in business-to-consumer ecommerce.

EC History 40

Social: The net is redefining the marketplace. It is becoming interactive and information can flow both ways.

The conventional distinction between buyer and seller is blurring on the web,

People are not passive and see themselves as content providers (PHPs).

Legal: The legal and regulatory environment is in

flux.

EC History 41

INTERNET

LAN

VPN

Intranet

Extranet

WAN

Technical infrastructure

VAN

EC History 42

Technical infrastructure

The net allows a new level of connectivity

LANs --> VANs --> WANs --> The net

LANs: internal proprietary network (intranets)

VANs: private value-added networks

WANs: interconnected LANs (phone cable and satellite)(extranets)

The net uses open standards (TCP/IP).

EC History 43

Value-added networks (VANs)

These are large public data networks providing long distance digital communications to business,

Instead of delivering EDI messages directly to each other, partners use VANs as “post offices” for holding and forwarding messages,

VANs typically do not run on TCP/IP protocols and use proprietary hardware and software.

Example: http://www.mobilein.com/push_to_talk.htm

EC History 44

VANs provides such services as:

Storing and forwarding messages,

Exchange of standard data formats,

Detecting and correcting errors,

Message encryption and decryption.

They offer tight security, reliability

They are expensive to own or lease

EC History 45

Virtual Private Network (VPN)

This is a section of the net reserved for the data traffic of a specified business and its partners

The data travels on the public network, but integrated security features make it

invisible and inaccessible to other net users

Its major advantage is allowing the safe movement of data traffic from expensive private communication lines to the net

EC History 46

VPNs offer the benefits of a private network within a shared network environment

They are reliable and secure environments in which corporations manage and exchange valuable data over public networks,

They deliver value-added services and provide users with predictable network costs,

One technique for doing this is to use an IP envelope wrapped around non-IP data at the gateway linking the VPN owner’s network to the net.

EC History 47

Technological drivers of ecommerce

Intelligent devices

supporting

Multimedia data creation and delivery

using

Software for collaborative work

over

An open network

EC History 48

Getting the infrastructure into place: the last mile is a “pot of gold”:

Telcos and ISPs are competing to bring the net into the home.

The pipes that carry data across the net are high pressure fire hoses.

The line that goes into your home is a straw.

Who will connect to the home and how will they do it?

Copper wire Fiber optics TV cable

Wireless Satellite Wall plug

EC History 49

Telecoms want to use their infrastructure to provide net to the home

Much net traffic is carried over their pipes anyway.

They want to become content and service providers, not merely conduits.

They want to support a variety of applications

(and have put in 95,000 miles of fiber in the last decade).

They correctly see competition from cable

companies who want to offer a range of services

(banking, bill paying, eshopping).

EC History 50

Telcos are developing network architecture

They are building Network Access Points (NAPs) in Chicago, NYC, Washington DC, and San Francisco and providing switching equipment.

They want to maintain their position as players in development of net infrastructure.

EC History 51

They are looking to get into the provision of network access for those who want to get to the backbone (ISPs, local phone co.)

Also, they want to provide net access services to individuals and organizations,

This places them in direct competition with ISPs.

They are waiting to be allowed to provide content and services

This places them in direct competition with ISPs like AOL,

EC History 52

ISPs are maintaining their foothold in the home

Estimates vary, but ~15 million people have accounts with ISPs (out of ~21.6 million who own modems)

ISPs can be gateways or full service

Gateways are physical entry points to the net

PSI and Kiva are gateway ISPs

Full service ISPs want to control content and

services to business, schools, libraries and the

home

AOL, Compuserve, Prodigy are full service.

EC History 53

ISPs can be local, regional, or international

Kiva is local, Panix is regional

PSI, UUNET (owned in part by Microsoft) and ANS (owned by AOL) are international

These are large public data networks which are not part of the telco infrastructure

They compete on speed, reliability and access and points of presence (PoPs)

They connect to the Internet through one of the (NAPs) or through a CIX router.

EC History 54

ISPs are searching for ways to add value

PSI has CLARINET

UUNET has USENET archives

AOL offers chat rooms and shopping malls

Others offer video conferencing

Most offer access to the net, primarily through a web browser

EC History 55

Economic: business drivers of ecommerce

Product promotion and customization through the direct connection to consumers

Developing and exploiting new sales channels (products, information, advertising, transactions)

Reduced costs of business transactions through a public shared infrastructure

Reducing time to market for certain types of products.

EC History 56

And:

Improving customer relationships with intelligent systems for service and support

Improving marketing and targeted advertising through the collection of detailed customer information

New corporate branding and image creation

Using the net for R&D and product development

Developing of new business models based on characteristics of the new marketplace

EC History 57

Ecommerce business activities:

Internal email messaging

Online publishing of corporate documents

Online searching for documents, projects, information

Internal corporate information dissemination through an intranet

EC History 58

And:

Managing corporate finance and personnel systems

Manufacturing logistics management

Supply chain management for inventory, warehousing, distribution

Ordering processing management to suppliers and customers

Order tracking

EC History 59

Current commercial uses of the net

Commercial sites

Storefronts, virtual communities, multiple user gaming

Advertising: $150-200 million in 1996

Banner ads, targetted email (ads and product/service updates), customized web ads, spam

EC History 60

And:

Commercial services

Payment, product delivery, information collection, evaluation, and delivery

Non-digital product transactions

Books, cars, and other tangible goods

Digital product transactions

Publications, freeware, shareware, demo software, reservations, financial services

EC History 61

History and development of Ecommerce

I. What is ecommerce?

II. Where did it come from?

III. What is happening now?

IV. Where is it going?

EC History 62

IV. Where is it going?:

From $6.1 billion (1998) to $20 billion in sales by 2000 in the USGartner Goup, 1998

6.8 million households and 16 million people trade online (1998) - 15.2 million households and 33 million people by 2000

http://www.jup.com/digest/980116/stat.shtml

This is ~1% of the economy ($8.5 trillion)

Business to business ecommerce: from $15.6 billion (1998) to $175 billion in 2000

EC History 63

According to OECD:

Total ecommerce is estimated at $26 billion for 1997

This the equivalent of 37% of US mail order shopping, 3% of US credit/debit cards purchases, and 0.5% of the retail sales of the seven OECD economies

It is predicted to reach $330 billion in 2001-02

(near term) and $1 trillion in 2003-05 (future)

If this forecast realised, OECD-wide ecommerce will be the equivalent of 15% of the total retail sales of seven OECD countries.

http://www.oecd.org/subject/e_commerce/ebooks/part3e.pdf

EC History 64

http://www.ispo.cec.be/ecommerce/introduc.htm

Levels of ecommerce

EC History 65

Jupiter Communications. (1998)

http://www.jup.com/digest/980116/stat.shtml

Ecommerce in US households: 1996-2002

EC History 66

A potential reordering of the global economy

Competitive advantage to companies that are successful early adopters of ecommerce

This will be true in nations with government economic and regulatory support for ecommerce

Nations with highly trained labor forces will benefit from distributed value chain

EC History 67

Businesses have to place ecommerce in a larger context than traditional commerce

How can they exploit the digital product marketplace?

Dell claims that the efficiencies of web based

marketing give them a 6% profit advantage

Redesign business processes to take advantage of the rapid and real time information and data exchange on the net

Develop a secure and widely acceptable framework for digital business contracts

EC History 68

Consumers will develop new behaviors and will:

Routinely check prices globally

Engage in real-time negotiation with multiple sellers creating a more dynamic and fast moving marketplace for certain products

Make more considered purchasing decisions based on more information

Publicly share experiences with others about products, customer support, and companies

EC History 69

There will be a shift towards an economy of attention

Basic assumption: attention is an intrinsically scarce resource

Information <--> Attention (a two way flow)

There is competition for attention

Capturing attention can lead to action

The problem is how to capture and keep it

Obtaining attention is a source of wealth

Portal advertising costs bear this out

EC History 70

The components of a virtual economy

Virtual players

Virtual processes

Virtual products

The net

EC History 71

Virtual players

People, organizations, or automated agents with an online presence

Virtual products

Digitized objects/services: currency, text, multimedia, tickets, reservations, electric usage, pay-for-view, smart houses

Virtual processes

Participants interact digitally, interactively,

and in real time (online ordering/payment; JIT inventory control;

customized advertising)

EC History 72

Virtual intermediaries

Provide essential services: certification, authentication, quality assurance, copyright clearance, distribution

Education brokers: bringing instructors and students together online

Market organizers: establish meeting places for buyers and sellers (auctions...)

Personalized service providers: shoppers, information filtering, travel agent, financial services

EC History 73

The evolution of the virtual firm

Assumes that they exist in an environment where transaction costs are low

They do not have to be based in a single geographic location

Business processes can be distributed globally and take place on the net

The value chain is digital

EC History 74

Also:

Products can be delivered through a digital web of business relationships with producers, financiers, distributors, consumers

Producers, suppliers, warehouses, managers, administrator, subcontractors are all linked through an extranet

Many functions can be easily outsourced (accounting, personnel management, training, public relations)

EC History 75

Convergence in ecommerce

Products, processes, and infrastructure all converge in the global digital marketplace

Product: audio, video, still images, text are all in the same digital format

Process: multiple uses from a virtual process make other processes redundant

Consumer feedback is used for product change, marketing, sales, pricing, and service.

EC History 76

Infrastructure: during the next few years, digital interactive services of all types are expected to converge

Telephone, cable, microwave, satellite are all moving into the same arena and losing their monopolies

Television, computers, radio, pagers, and cellular telephones are expected to share functionality and attributes

You can watch WebTV and TV on your computer or your TV

EC History 77

Things to do

Overcome the limitations and asymmetries of the infrastructure

Implement hardware and software to fully exploit bandwidth, especially to the last mile

Provide universal access at reasonable cost

Provide secure frameworks for business- to-business and -to-consumer transactions

Integrate electronic payment into the buying process

EC History 78

And:

Develop a secure and reliable system for electronic banking: emoney exchange and transfer

Develop a system for microtransactions

Build a consumer marketplace

Convert browsers into buyers

Develop new approaches to web site design that encourage purchasing

Develop new business models for this CME