E-CommerceE-Commerce

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Module IntroductionModule Introduction

LecturersLecturers– Rhys Parry - rrpRhys Parry - rrp– Neil Taylor - nstNeil Taylor - nst

AssessmentAssessment– 50% Examination50% Examination– 50% Assignment50% Assignment

20 Credits20 Credits

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DiscussionDiscussion

What do we think about when we think of e-What do we think about when we think of e-commerce?commerce?

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The Internet is a worldwide network of computer networks The Internet is a worldwide network of computer networks

The worldwide web is one of the Internet’s most popular The worldwide web is one of the Internet’s most popular services providing access to billions of pagesservices providing access to billions of pages

From 1995 it has had growth rates of well over 100% p/a From 1995 it has had growth rates of well over 100% p/a More impressive is the spectacular growth predicted:More impressive is the spectacular growth predicted: analysts estimate that by 2015 the number of people accessing the analysts estimate that by 2015 the number of people accessing the

web will treble from 2005 figure of 1 billionweb will treble from 2005 figure of 1 billion it seems likely that all commerce will be e-Commerce by 2050 it seems likely that all commerce will be e-Commerce by 2050

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Unique featuresUnique features

Ubiquity – available everywhere Ubiquity – available everywhere Global Reach - across national boundaries Global Reach - across national boundaries Universal Standards – only one set of standards Universal Standards – only one set of standards Richness – video / audio / text Richness – video / audio / text Interactivity – user interaction Interactivity – user interaction Information Density – costs drop, quality rises Information Density – costs drop, quality rises Personalisation/Customisation - personal & group Personalisation/Customisation - personal & group

messages messages

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Ubiquity/ global reachUbiquity/ global reach

UbiquityUbiquity- market space is created - market space is created - technology available everywhere & all the time - technology available everywhere & all the time - shopping anywhere - shopping anywhere - shopping costs reduced - shopping costs reduced - customer convenience enhanced - customer convenience enhanced

Global Reach Global Reach - across cultural & national boundaries - across cultural & national boundaries - temporal and geographic differences removed - temporal and geographic differences removed - technology reaches around the world - technology reaches around the world - potentially billions of consumers - potentially billions of consumers - millions of businesses worldwide - millions of businesses worldwide

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Universal standards / RichnessUniversal standards / Richness

Universal Standards Universal Standards - one set of technical standards - one set of technical standards - Internet standards - Internet standards

Richness Richness - wealth of content and complexity - wealth of content and complexity - traditional markets v rich markets - traditional markets v rich markets - powerful commercial environment - powerful commercial environment

The Internet eliminates the trade off between The Internet eliminates the trade off between richness and reach. richness and reach.

Video, audio, and text messages are integrated in Video, audio, and text messages are integrated in marketing and consumption marketing and consumption

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Interactivity / Information densityInteractivity / Information density

Interactivity Interactivity user interaction can modify experienceuser interaction can modify experience consumer becomes co-participant in delivering goods to consumer becomes co-participant in delivering goods to

the marketthe market currently satellite TV can compete at a low level currently satellite TV can compete at a low level Information DensityInformation Density vastly increased total amount & quality of information vastly increased total amount & quality of information information processing costs drop dramatically information processing costs drop dramatically storage and communication costs drop likewisestorage and communication costs drop likewise prices and costs are more transparent prices and costs are more transparent price discrimination becomes standard.price discrimination becomes standard.

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Personalisation / CustomisationPersonalisation / Customisation

PersonalisationPersonalisation an individual’s interests and tastes are known an individual’s interests and tastes are known targeting is more precise targeting is more precise the rifle rather than the shotgun approachthe rifle rather than the shotgun approach marketing can send specific messages to individuals marketing can send specific messages to individuals

CustomisationCustomisation changing the product or service to fit the individual changing the product or service to fit the individual past purchases and behaviour used to shape the futurepast purchases and behaviour used to shape the future moving towards ‘demand pull’ moving towards ‘demand pull’ the consumer can select e.g. the type of news stories to seethe consumer can select e.g. the type of news stories to see however mass customisation is some years away.however mass customisation is some years away.

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The Internet - the perfect market?The Internet - the perfect market?

Requirements: for the customerRequirements: for the customer - price & product information become transparent- price & product information become transparent- available quickly and cheaply - available quickly and cheaply - available conveniently and securely- available conveniently and securely- ability to find the most competitive web site & best price - ability to find the most competitive web site & best price

Requirements: for the selling companyRequirements: for the selling company - assume the customer will know where to look for the best buy- assume the customer will know where to look for the best buy- keep the web site up to date with best price etc.- keep the web site up to date with best price etc.- constantly track the competition - constantly track the competition - reduce costly and wasteful advertising - reduce costly and wasteful advertising - lower transaction costs and translate into lower prices.- lower transaction costs and translate into lower prices.

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E- Commerce - TypesE- Commerce - Types

B2C Business to Consumer B2C Business to Consumer B2BB2B Business to Business including B2G (which means Business to Business including B2G (which means

Business to Government) Business to Government) C2CC2C Consumer to Consumer e.g. eBay creates a market Consumer to Consumer e.g. eBay creates a market

space for consumer to consumer space for consumer to consumer P2PP2P Peer to Peer , without the intervention of a market Peer to Peer , without the intervention of a market

makermakerM-Commerce Mobile devices for transactions.M-Commerce Mobile devices for transactions.

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B2C – Business to ConsumerB2C – Business to Consumer

On-line businesses sell to individuals e.g. AmazonOn-line businesses sell to individuals e.g. Amazon many different business models many different business models exponential growthexponential growth Potentially limiting factorsPotentially limiting factors

home penetration of PCs home penetration of PCs still fairly expensive technology still fairly expensive technology complex software interface complex software interface cultural / social aspects of shopping cultural / social aspects of shopping currently limited global use of PCs and cell phonescurrently limited global use of PCs and cell phonesBUT BUT broadband’s increasing penetration with an accompanying lowering of costs broadband’s increasing penetration with an accompanying lowering of costs

traditional retailers adding own online capabilitiestraditional retailers adding own online capabilities increased sales of mobile devices like smartphones , tablets etc. increased sales of mobile devices like smartphones , tablets etc. growth estimated at > $1 trillion (2010)growth estimated at > $1 trillion (2010)

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B2B – Business to businessB2B – Business to business

On-line businesses sell to online businessesOn-line businesses sell to online businesses

currently largest form of E-Commerce currently largest form of E-Commerce significant growth potential significant growth potential originally simply inter-business exchanges originally simply inter-business exchanges now other business models developed now other business models developed growth was estimated at over $10 trillion by 2010. growth was estimated at over $10 trillion by 2010.

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C2C – Consumer to consumerC2C – Consumer to consumer

Consumers selling to other consumers Consumers selling to other consumers consumer prepares item / product / service consumer prepares item / product / service then uses a market maker like eBay to then uses a market maker like eBay to

provide a listing, perhaps a catalogue, provide a listing, perhaps a catalogue, perhaps a search engine etc. perhaps a search engine etc.

items are then easily displayed, priced, items are then easily displayed, priced, discovered and paid for. discovered and paid for.

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P2P – Peer to peerP2P – Peer to peer

Enables users to share files and computer resources Enables users to share files and computer resources directly directly

the software needs no intermediary the software needs no intermediary copyright problems have arisen and many court copyright problems have arisen and many court

cases brought cases brought music was one of the early movers but has music was one of the early movers but has

evolved, particularly after the Napster problems evolved, particularly after the Napster problems

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M-CommerceM-Commerce

Uses wireless digital devices to carry out Uses wireless digital devices to carry out transactions transactions

major advantage is that it provides access to major advantage is that it provides access to anyone, anytime and anywhere; anyone, anytime and anywhere;

Huge uptake world wide;Huge uptake world wide; new technology is again creating an exponential in new technology is again creating an exponential in

the use of these devices for accessing the the use of these devices for accessing the Internet.Internet.

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E-Commerce I and IIE-Commerce I and II

E-commerce I distinguished by explosive growth E-commerce I distinguished by explosive growth 1995-20001995-2000

hyper-growth with the dotcom IPOs from 1998 to 2000hyper-growth with the dotcom IPOs from 1998 to 2000 E-Commerce ended in 2000 with the collapse of dotcom stocksE-Commerce ended in 2000 with the collapse of dotcom stocks

E-commerce II from 2001 to nowE-commerce II from 2001 to now

sober reassessment at the beginning of the period sober reassessment at the beginning of the period 2004 showing rapid increase in Internet trading 2004 showing rapid increase in Internet trading recovery of interest in dotcoms but only with revenue modelsrecovery of interest in dotcoms but only with revenue models Salesforce.com and Google show that IPOs are again viableSalesforce.com and Google show that IPOs are again viable

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E-Commerce IE-Commerce I

Euphoric period of USA commercial historyEuphoric period of USA commercial history thousands of dotcoms formed thousands of dotcoms formed overall venture capital pourted out $125billion overall venture capital pourted out $125billion $110 billion was raised in 1999 & 2000 alone $110 billion was raised in 1999 & 2000 alone The perfect market concept was first mooted The perfect market concept was first mooted IT technologies developed over 40 years and more recently, IT technologies developed over 40 years and more recently,

communications, made it all possiblecommunications, made it all possible

Effects on commerce : Effects on commerce : disintermediationdisintermediation friction free commerce friction free commerce first mover advantage first mover advantage network effect network effect

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E-Commerce – effects on E-Commerce – effects on commerce (I)commerce (I)

Disintermediation - displacement of market middlemenDisintermediation - displacement of market middlemen intermediates add costs but little value intermediates add costs but little value direct relationship created between makers of products and services, and direct relationship created between makers of products and services, and

customers customers Friction-free commerce Friction-free commerce information equally distributed information equally distributed transaction costs low transaction costs low prices dynamically adjusted to real demand prices dynamically adjusted to real demand unfair competitive advantage eliminated unfair competitive advantage eliminated First moverFirst mover a firm first to market with a service or product moves quickly to gain market a firm first to market with a service or product moves quickly to gain market

share share builds brand name recognition early builds brand name recognition early creates proprietary interfaces to inhibit competitors.creates proprietary interfaces to inhibit competitors.

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E-Commerce – effects on E-Commerce – effects on commerce (II)commerce (II)

Network effect Network effect all participants receive value because all use : all participants receive value because all use :

– same common operating system same common operating system – same telephone system same telephone system – same software application etc.same software application etc.

value increases as more people adopt them value increases as more people adopt them

Metcalfe’s Law postulates that the value of a Metcalfe’s Law postulates that the value of a network grows by the square of the number of network grows by the square of the number of participants.participants.

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E-Commerce I: crash (I)E-Commerce I: crash (I)

i.i. IT build up to Y2K was massive, corporate systems were IT build up to Y2K was massive, corporate systems were

rebuiltrebuilt– after 2000 IT spending dropped dramaticallyafter 2000 IT spending dropped dramatically– tech stocks suffered – dot.coms were battered tech stocks suffered – dot.coms were battered

ii.ii. telecomm firms had significant excess capacity telecomm firms had significant excess capacity – earnings precipitated and many smaller firms went bankrupt earnings precipitated and many smaller firms went bankrupt – some $25 billions of debt will never be repaid some $25 billions of debt will never be repaid

iii.iii. sales growth was less than anticipated showing that e-sales growth was less than anticipated showing that e-commerce was not easy commerce was not easy – many dot.com retailers could not make timely deliveriesmany dot.com retailers could not make timely deliveries– this hurt credibility and thus reduced usage this hurt credibility and thus reduced usage

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E-Commerce I: crash (II)E-Commerce I: crash (II)

iv.iv. the valuations of dot.coms had risen very high the valuations of dot.coms had risen very high and many questioned whether the earning of and many questioned whether the earning of these companies could grow fast enough to these companies could grow fast enough to justify their share prices justify their share prices – some dotcoms had stock values 400 times earnings some dotcoms had stock values 400 times earnings

(traditional companies have some 10 to 15 times)! (traditional companies have some 10 to 15 times)! – most dotcoms had no earningsmost dotcoms had no earnings– revenue growth, yes – profits, no – losses, yes!revenue growth, yes – profits, no – losses, yes!

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Dotcoms in E-Commerce IDotcoms in E-Commerce I

technology built e-commerce; technology built e-commerce; venture capital made it run;venture capital made it run; between 1998 and 2000 $120 billion was invested in about between 1998 and 2000 $120 billion was invested in about

12,500 dotcom start-up ventures;12,500 dotcom start-up ventures; investment bankers took some 1,260 of these in IPOs;investment bankers took some 1,260 of these in IPOs; there was an insatiable market for IPOs;there was an insatiable market for IPOs; many dotcoms were unsuitable with poor (or no) business many dotcoms were unsuitable with poor (or no) business

plans.plans.

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E-Commerce I - a few statisticsE-Commerce I - a few statistics

it was a technological success; it was a technological success; over $60 billion in B2C revenues; over $60 billion in B2C revenues; 100 million on-line customers in the USA;100 million on-line customers in the USA; another 100 million worldwide by 2000;another 100 million worldwide by 2000; business was a mixed success;business was a mixed success; only10% of dotcoms formed since 1995 survived; only10% of dotcoms formed since 1995 survived; only a tiny percentage was profitable;only a tiny percentage was profitable; B2C revenues were $60 billion in 2000B2C revenues were $60 billion in 2000

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E-Commerce IIE-Commerce II

Main factors defining the futureMain factors defining the future the technology affects all commercial activity; the technology affects all commercial activity; prices are rising to cover real costs;prices are rising to cover real costs; investors getting a reasonable return; investors getting a reasonable return; margins more like normal retailers; margins more like normal retailers; traditional companies e.g. Fortune 500 play a growing and dominant traditional companies e.g. Fortune 500 play a growing and dominant

role in B2C and B2B;role in B2C and B2B; numbers of pure on-line companies declining;numbers of pure on-line companies declining; clicks and bricks strategies adopted;clicks and bricks strategies adopted; regulatory activity will increase;regulatory activity will increase; business-driven not technology-driven. business-driven not technology-driven.

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E-Commerce I and II - comparisonE-Commerce I and II - comparison

E-commerce IE-commerce I technology driventechnology driven revenue growth emphasisrevenue growth emphasis venture capital fundingventure capital funding ungovernedungoverned entrepreneurialentrepreneurial disintermediationdisintermediation pure on-line strategiespure on-line strategies first mover advantagesfirst mover advantages

E-Commerce IIE-Commerce II business driven business driven earnings & profits emphasisearnings & profits emphasis traditional financing traditional financing stronger regulation stronger regulation large traditional firmslarge traditional firms strengthening intermediaries strengthening intermediaries mixed clicks & bricks strategies mixed clicks & bricks strategies fast follower strength fast follower strength