The Past, Present and Future of E-Commerce

What is E-Commerce?

E-Commerce can be defined as …

• The conduct of selling, buying, logistics, or other organization-management issues via the WEB.

OR

• Technology mediated exchanges between parties (individuals and/or organizations) as well as the electronically based intra- or interorganizational activities that facilitate such exchanges.

Growth of E-Commerce

1996$700M

$28.91B2000

$35.87B2001

$45.56B2002est

$743.8B

20021st Q

Size of E-Commerce

History of E-Commerce• Background

E-commerce actually began in the 1970s when larger corporations started creating private networks to share information with business partners and suppliers.

• This process, called Electronic Data Interchange (EDI), transmitted standardized data that streamlined the procurement process between businesses, so that paperwork and human intervention were nearly eliminated.

• EDI is still in place, and is so effective at reducing costs and improving efficiency that an estimated 95% of Fortune 1,000 companies use it.

History of E-Commerce

• The first documented Online sale in 1994 was what?

• Prodigy was running text ads and selling flowers in the early '80s

A CD

History of E-Commerce

• Early EC was pioneered by Internet companies that didn't (and still don't) perform traditional retail. Called Pure Plays.– such as Amazon.com and CDNow.

• More recently click and mortar stores have moved online– like Barnes and Noble, Best Buy, the Gap, and Wal-Mart

History of E-Commerce: Amazon.com

• Early in 1994, working for D.E. Shaw in New York City, Jeff Bezos, a restless, 30-year-old hedge fund manager began researching the commercial possibilities of the Net.

• A year later, Bezos drove west, raising venture funds for a new small online book shop (originally called Cadabra.com), to be launched from his garage in Bellevue, Wash.

• Running on a Website and a warehouse, by its third year Bezos's precocious Amazon.com toppled $150 million in annual sales — a milestone that Wal-Mart founder Sam Walton needed 12 years (and 78 stores) to reach.

EC Advantages/Disadvantages

• EC Advantages– Ability to reach new

markets– Reduces costs (for some

businesses)– Increased purchasing

opportunities– More efficient

(electronic payments, telecommuting, etc.)

• EC Disadvantages– Incompatibility for

certain industries– Limitations of the

medium– Costs!!!– Skills required– Cultural and legal issues

Business Model

• The method by which a firm builds and uses its resources to offer its customers better value than its competitors and to make money doing so!

Two major parts of the business model:

• Value Proposition

• Financial Model

Value Proposition

• The value your company adds that would make customers switch to you from their current provider.

Concepts involved in Value Proposition

• Choice of Segments

• Choice of Focal Customer Benefits

• Choice of Unique and Differentiating Capabilities

Value Proposition• Choice of Segments

– market size or growth– unmet customer needs– weak or no competition

• Choice of Focal Customer Benefits– One or two KEY benefits based on the marketing mix

variables– Ex: fast delivery, high quality products, customer

service, low-prices, unique product• Choice of Unique and Differentiating Capabilities

– Also known as : Core Competencies or Unique Resources

– Tangible assets (location), Intangible (Brand name) or corporate skills and capabilities (knowledge of customers)

Financial Models• There are four revenue models:

– Advertising (sell ads, site sponsorships, interstituals)

– Product sales (income from the sales of products, services, or information)

– Transaction (revenue from charging a fee or a taking a % of a transaction)

– Subscription (subscriber fees for magazines, information, services, …)

– Or a combination of these

Revenue Model - Advertising

Revenue Model – Product Sales

Revenue Model – Transaction

Revenue Model – Subscription

Bus. To Bus. EC

• Purchasing activities– Procurement can be a major activity– Business/Supplier Relationships– Purchasing commodities (MRO items)

• Delivering activities– Logistics, shipping, warehousing

• Support activities– HR, finance, benefits info.

Future of E-Commerce• eMarketer, an Internet technology (IT) research and

reporting firm, estimates that the dollar figure for e-commerce will rise from approximately – U.S. $18 billion in 1998 to – U.S. $294 billion in 2002. US – Or maybe $184 billion by 2004.(Forrester, Business 2.0 Jan 2000)

• In Europe, consumers' internet purchases will jump from:– US $2.9 billion in 1999 to – US $174 billion in 2005.

• Online business-to-business e-commerce is projected to speed past $1 trillion in annual revenue by 2003

Future Trends to Watch in E-Commerce

• Women take control. Women make or influence 80 percent of household sales in the United States, according to WomanTrend, despite the fact that they make up 51 percent of the population.

• The untapped get tapped. Two highly touted markets $509 million health and beauty, and $513 million grocery still lag behind expectations.

• More "click and mortar." Traditional retailers Circuit City, Crate and Barrel, Sears, Toys R Us, Wal-Mart, and Federated Department Stores missed the boat in 1995 and 1996, but rest assured they "get it" now, and are attempting re-entry, this time around with more money and smarts. Watch out.

Security Issues are Important

Security Issues are Important

Privacy Issues

Still a Long Way To Go

• Andersen Consulting and Forrester Research both show shopping cart abandonment rates of 25%.

• E-commerce still accounts for less than 1.5% of total retail sales

• Pure plays have struggled to maintain cash flow and have either:– Folded– Cut back– Been bought at cheap prices