| Looking back on the past ten years in e-commerce, | | | | how the perceptions of it have changed. Based on |
| it is clear that there have been a lot of changes in | | | | the phenomenon discussed already, e-commerce was |
| how e-commerce business models are perceived. | | | | an experimental terrain with lots of uncertainty. |
| New business models have emerged every year | | | | Businesses were still finding and testing better ways |
| following developments in Internet technologies and | | | | of doing things, adopting what worked and rejecting |
| telecommunications. The speed of the Internet has | | | | what didn't; and as always, trying to avoid mistakes |
| increased dramatically with the advent of broadband | | | | made by their competitors. For consumers, however, |
| and supporting hardware and software are more | | | | the positive feedback was slower than businesses |
| sophisticated. Businesses and entrepreneurs are more | | | | expected. Consumers approached the Internet with |
| familiar with trading online than they previously were; | | | | caution, but the opportunity for wide availability of |
| the online environment is a lot more open, enabling | | | | information changed their purchase behaviour. Many |
| businesses to predict consumer behaviour and | | | | would research their purchases online and then buy in |
| expectations. The successes and failures of | | | | some other way. |
| e-commerce, from pioneers and firms that have | | | | Andy Grove, then CEO of Intel, responded to a |
| participated throughout its progression, have played a | | | | question when asked about the return of investment |
| key role in making e-commerce what it is today. | | | | from his firm's Internet ventures he replied, "What |
| Today's e-commerce is driven by a wider availability | | | | return of investment? This is a Columbus in the new |
| of tools and realistic business strategies and models. | | | | world - what was his ROI?" |
| These emerged through innovations and have made | | | | Following Mr Grove's comment, it suggests that the |
| electronic commerce capable of sustaining and | | | | early years of e-commerce were perceived as an |
| developing further. | | | | opportunity where it was possible that those who |
| Technologists, businesses, entrepreneurs, | | | | ventured in e-commerce would not get a return on |
| governments and academics have all invested time, | | | | their investment. However what they discovered |
| money and other resources to test the boundaries | | | | was likely to generate huge revenues in future. |
| of what is possible in e-commerce. Fortunately, these | | | | As mentioned previously, a good example of a |
| investments have been worthwhile, resulting in a | | | | successful business model is Amazon.com, used as a |
| better technological infrastructure to support the | | | | case study by many companies around the world. |
| growth of e-commerce. | | | | Described in The Economist 1997 surveys as |
| In tracing the progression of e-commerce, it is | | | | "perhaps the best model for tomorrow success in |
| difficult to define exactly what changed the | | | | e-commerce", in the quote below Bezos reiterates |
| perception of e-commerce as a business model. | | | | the model behind Amazon's success and accurately |
| E-commerce experienced a very fast growth, | | | | predicts the expansion of his firm. |
| doubling annually, and became prevalent, impacting | | | | "The consequence is that we have two sets of |
| not just on businesses but on all aspect of our lives. | | | | customers: consumers looking for books and |
| Televisions are connected to the Internet; if you | | | | publishers looking for consumers. Readers find books |
| miss one of your favourite programs shown on the | | | | or books find readers. This is a generic model that |
| BBC, you can download it from their website; local | | | | could work in plenty of industries: anywhere with |
| government agencies are encouraging people to | | | | enough different products-and consumer tastes-to |
| make payments, for council tax, parking fines etc. via | | | | call for a big catalogue and a lot of advice. In future, |
| their websites; in fact, some consumers find online | | | | Amazon may expand into music and videos. Once |
| banking more convenient than using a local branch. | | | | you understand the model, the applications seem |
| Undoubtedly, the perceptions of e-commerce have | | | | almost limitless." |
| changed given the high number of people who are | | | | After the initial phase of discovering and |
| connected online, expanding the opportunities for | | | | experimenting e-commerce, the next period was the |
| businesses. | | | | 'bubble boom', which lasted until the late 2000s. This |
| To track the changes in perceptions that have | | | | phenomenon had a much greater impact on |
| occurred over the last ten years, I will look at events | | | | e-commerce. The indication that online ventures had |
| that have had a significant impact during that time, | | | | the potential to generate huge profits led the financial |
| such as the dot com boom and bust in late 1990s | | | | market to falsely valuing existing and new |
| and early 2000s and the recent arrival of social | | | | e-commerce firms. Financial experts argued that in |
| networking websites, which have shifted the power | | | | this new world of rapid technological change, old |
| to consumers who are targeted for advertising. I will | | | | methods of share valuation had become irrelevant; |
| also look at firms, which have invented business | | | | e-commerce models were not about making profits |
| models that have impacted radically on e-commerce, | | | | but rather acquiring market share. |
| such Amazon and e-Bay. Their business models are | | | | The bubble eventually burst in 2000; the extreme |
| perceived as successful by many of the other | | | | valuations for Internet firms vanished with it and |
| e-commerce firms and sectors that exist today. My | | | | many businesses ceased operation. The survivors |
| essay will therefore discuss the occurrences of | | | | carried on as best they could, encouraged by the |
| events, businesses, innovations that have | | | | growing number of Internet users. The cost of |
| fundamentally changed the perception of | | | | communications continued to drop dramatically, |
| e-commerce, not just from a business perspective | | | | leading to more and more computers being linked |
| but also from a consumer perspective. To support | | | | together. Much more knowledge, stored as a |
| some of my arguments, I have reviewed surveys | | | | sequence of zeros and ones, could be sent |
| from The Economist dated 1997, 2000 and 2004 and | | | | anywhere in the world at negligible cost. The |
| consulted other recent and relevant literature written | | | | reduction in cost of communications and information |
| by industry experts, which helped to provide | | | | technology helped to globalise production and capital |
| accounts of events in e-commerce. | | | | markets. In turn, globalisation spurred competition and |
| Before examining the surveys, one of the most | | | | hence innovation, speeding up the diffusion of new |
| obvious observations about e-commerce is how the | | | | technology through trade and investment. |
| term 'electronic' is now used to prefix many different | | | | The value of online firms that survived the dotcom |
| activities that can take place online. Terms such as | | | | bust was rising again and some of these firms were |
| e-banking and e-gaming are now commonly used not | | | | starting to make real profits. The number of other |
| just by industries but also by consumers, who are | | | | businesses moving online increased dramatically; |
| becoming familiar with these terms and other aspects | | | | however the business world became much more |
| of e-commerce. This phenomenon can be interpreted | | | | cautious about the Internet's potential. Wild |
| as a sign of how e-commerce has developed, and | | | | predictions, made at the height of the boom-namely, |
| also that consumers are now much more aware of | | | | that vast parts of the world economy would move |
| the various e-commerce models than they previously | | | | into cyberspace-were, in one way or another, coming |
| were. | | | | true. |
| Ten years ago many consumers would have been | | | | One of the biggest commercial advantages the |
| very wary of using their credit cards online. | | | | Internet brought to commerce is the lowering of |
| Nowadays, the majority of consumers recognise the | | | | transaction costs, which usually translated directly into |
| convenience of having services, such as online | | | | lower prices for consumers. If the lowest prices could |
| banking, and being able to purchase goods online. This | | | | be found on the Internet and people like the service |
| combined with the fact that technologies and | | | | they get, why would they buy anywhere else? One |
| business models have matured enough to provide the | | | | reason may be convenience; another, concern about |
| security required for banks and their customers to | | | | fraud, which still poses the biggest threat to online |
| trade online has resulted in a greater confidence in | | | | trade. But as long as the Internet continues to deliver |
| e-commerce. | | | | low prices and product information quickly and |
| Two key questions are "how did it get to this and | | | | securely, e-commerce will continue to grow. |
| where is it going?" Ten years ago the number of | | | | Increasingly, companies are assuming that customers |
| online users was still doubling; firms were | | | | will know exactly where to look for the best buy. |
| experimenting with how money could be made online. | | | | E-commerce is getting closer to Adam Smith's theory |
| Given that e-commerce was seen as an easy market | | | | of a perfect market. |
| to enter, many entrepreneurs embraced the | | | | The advancement of innovation had merged offline |
| opportunity and the number of online companies that | | | | and online markets; the new business model |
| were started also increased. Large firms benefited | | | | integrates all selling channels combining traditional |
| from e-commerce, not just in terms of increased | | | | shops, printed catalogues, home-shopping channel on |
| revenue but conducting their businesses online made | | | | TV, a phone-in order service and an |
| them more efficient in their operations. An example | | | | e-commerce-enabled website. However, customers |
| of this is General Electric which was saved money by | | | | are encouraged to place their orders via the website. |
| buying up to $1 billion worth of goods from its | | | | For Internet users in general, search engines have |
| suppliers online, according to a survey in The | | | | revolutionised the way they use the Internet; they |
| Economist published in May 1997. | | | | have become the first point of entry to the Internet. |
| Although there are signs of a great deal of money | | | | Google, the best-known search engine, is now |
| being made online, not all firms enjoyed the success | | | | recognised as a verb: people say they have |
| of General Electric. Hard goods, traditionally sold | | | | "Googled" a product or a company. The search |
| through catalogues and retail stores, were selling | | | | engine market has also developed one of the most |
| poorly online, as consumers were not able to inspect | | | | effective forms of advertising on the Internet, and it |
| the goods before purchasing. Furthermore, the prices | | | | is already one of the most effective ways to reach |
| were not much lower than in bricks-and mortar | | | | consumers. |
| shops. Information goods, from software to news, | | | | The latest model of social networking websites has |
| seemed better suited to the online environment. | | | | become a staple in the Internet landscape as it allows |
| Despite the increase in number of websites, many | | | | people to put their lives online. A person's profile |
| were being used as information brochures rather than | | | | becomes a representation of who they are in the |
| for conducting transactions. Setting up a website | | | | offline world. Social networks are blurring online and |
| would have cost a lot more in the late 1990s than it | | | | offline worlds, evolving into social destinations that |
| would now especially if transaction functionalities | | | | are driving directions of the web affecting industries, |
| were required. Research by Forrester, a | | | | such as advertising, music and politics. The evolution |
| Massachusetts consultancy firm suggested "their main | | | | of social networking is kick-starting a broad global |
| reasons for setting up web sites were to market | | | | shift to how people, content and culture interact on |
| wares and help customers." This suggestion can be | | | | the web. |
| supported also by saying that there were less | | | | What has been shown throughout my discussion is |
| financial risks in setting up a website to support a | | | | that electronic commerce is more than just another |
| business (for example, to increase its brand | | | | way of sustaining or enhancing existing business |
| awareness) than to set up a website that was an | | | | practices. E-commerce is a paradigm shift, it is a |
| integral part of a business in those early days. | | | | "disruptive" innovation that has and still is radically |
| Making money was not the only concern; there were | | | | changing the traditional way of doing business. |
| security concerns from consumers who feared that | | | | E-commerce firms operate under totally different |
| hackers could get hold of their card details and use | | | | business principles and work rules in the digital |
| them. A poll by USA Today conducted in 1997 | | | | economy. The growth in Internet based businesses |
| highlighted that 95% of Americans would not give | | | | has triggered the need to better understand the |
| out their credit card details online. An Internet | | | | characteristics of special business models adopted by |
| currency, known as digital cash, was invented as a | | | | successful organisations. Businesses must be ready to |
| more appealing alternative to using card details online. | | | | change, adopt and adapt at short notice, if |
| It was to be used not just for purchasing but also to | | | | necessary, in order to continue being successful. |
| facilitate micro transactions for information goods, | | | | Flexibility is very important in e-commerce; as we've |
| such as news articles. However, it was rejected by | | | | seen, there is no simple direction and almost no such |
| consumers and failed to take off. Consumers were | | | | thing as an established business or revenue model for |
| more familiar with payment systems of the 'physical' | | | | companies, even within the same industry. |
| world such as credit cards and subscriptions and | | | | Business models however seem to play an important |
| these were eventually adapted to the online world. | | | | role in success and failure of Internet based |
| Business models were also start to take shape and | | | | companies. The reason many firms failed during the |
| one of the most popular models was "virtual malls", | | | | dot com bust is primarily due to the rash, impractical |
| but it encountered problems as it did not meet the | | | | business models that they employed. However, |
| consumers' expectations and as a result, it failed. The | | | | failures and successes in the early days of |
| reasons for its failure were due to inadequacies of | | | | e-commerce have been the reference for success in |
| the websites, software bugs, baffling interfaces and | | | | future. |
| a limited selection of products, which led to | | | | But firms operating today have an advantage; they |
| dissatisfied customers. Many early entrants spent | | | | have strategies and can draw on past experience in |
| large amounts of money implementing online systems | | | | order to minimise the risks associated with |
| but ended up losing money and were forced to shut | | | | experimenting and operating in uncertainty. |
| down. | | | | As predicted in The Economist's 1997 survey |
| However, profits were not to be made in consumer | | | | "...lessons have been for the firms that lost millions |
| shopping but rather in business-to-business | | | | identifying dead ends in electronic commerce, their |
| transactions, mirroring the physical world where | | | | bloodstained maps will be the guides to tomorrow's |
| business transactions are worth about ten times as | | | | online marketplace." |
| much as consumer sales. The reason being that the | | | | The arrival of social networking sites, the power of |
| majority of business transactions were already done | | | | search engines and the idea that the current internet |
| at a distance, whether by fax, telephone, post, or | | | | is driven by consumer-generated content - blogs, |
| private electronic links; therefore moving this process | | | | online forums, etc. - have again interfered with |
| online made it cheaper, faster and easier. | | | | existing practices. This phenomenon has again upset |
| Jeff Bezos, a former financial analyst founder of | | | | existing e-commerce models, however businesses |
| Amazon.com, knew nothing about books when | | | | are responding much quicker. Personalisation, |
| started his venture, he simply understood the power | | | | membership, blogs, video sharing are all common |
| of electronic commerce: "He picked books because | | | | features of many of today's e-commerce websites |
| of the existing margins and distribution patterns | | | | and are being adopted exponentially. The current |
| seemed favourable to an online business". | | | | phenomenon of e-commerce has become more |
| The early days of the last decade of e-commerce | | | | portable, more personal and more collaborative. |
| appear to be very important in terms of reviewing | | | | |