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History and development of Ecommerce

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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?

2 Goals: Take a strategic look at the development of ecommerce, Identify key characteristics of the social and technological infrastructure that is required to support it.

3 What is ecommerce? It is: sharing business information, maintaining business relationships, conducting business transactions, by means of telecommunications networks Zwass, 1996

4 Ecommerce ... covers a wide range of
commercial activities performed by means of an electronic web that can connect trading partners. It includes: EDI, Support for interpersonal communication, 3. The transfer of money, The sharing of databases in the conduct of business. Milosevic and Bond 1996,

5 Ecommerce refers to any commercial activity which is conducted in a paperless manner
It is enabled by a number of technologies including: EDI, Electronic mail, Provision of electronic catalogues, Electronic Funds Transfer (EFT), etc.

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) .html

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)

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.

9 It includes at least the following:
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.

10 And: 5. New business processes and technologies to support digital transactions, 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)

11 Ecommerce involves online activity supporting the “virtual value chain”
Inbound logistics Production Processes Outbound logistics Marketing Sales Customer support Internal External

12 Ecommerce: 1. Directly connects buyers and sellers, 2. Supports fully digital information exchange between producers, suppliers, sellers, buyers, 3. Allows global activity , Allows interactivity and adaptation to customer behaviors, 5. Encourages real time updating.

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

14 It enables companies to:
1. Be more efficient and flexible in their internal operations 2. Work more closely with their suppliers, 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.

15 Ecommerce can be divided into four distinct categories:
Business Consumer Administration Business

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.

17 Retail Corporate ISP/VAN Credit Card Companies Dist Consumers Banks Manufacturing Internet Service Providers Government Suppliers

18 Ecommerce creates a marketplace for digital products, including:
Software, text and image-based digitized objects, 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.

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

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

21 Supplier opportunity Customer benefit
Global presence Global choice Improved competitiveness Quality of service Mass customizing and Personalized products targeting and services Shorten or eradicate Rapid response to supply chains needs Substantial cost savings Substantial price reductions New business opportunities New products and services

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?

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.

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

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.

26 EDI is a form of structured document exchange.
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 or point to point connections.

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

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.

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

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

31 Examples of uses of EDI:
Improving business processes through increases 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.

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, It involves interbank electronic funds transfer (rapid, same day payments).

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 when inventory drops below a predetermined level.

34 Benefits of EDI: 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.

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

36 However, the use of EDI has been important in preparing businesses for ecommerce.
They understand: 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.

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.

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?

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.

40 Social: The net is redefining the marketplace
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.

41 Technical infrastructure
WAN LAN Intranet VAN INTERNET Extranet VPN Technical infrastructure

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).

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:

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

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

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.

47 Software for collaborative work Multimedia data creation and delivery
Technological drivers of ecommerce Intelligent devices using Software for collaborative work supporting Multimedia data creation and delivery over An open network

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

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).

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.

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,

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.

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.

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

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.

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

57 Ecommerce business activities:
Internal messaging Online publishing of corporate documents Online searching for documents, projects, information Internal corporate information dissemination through an intranet

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

59 Current commercial uses of the net
Commercial sites Storefronts, virtual communities, multiple user gaming Advertising: $ million in 1996 Banner ads, targetted (ads and product/service updates), customized web ads, spam

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

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?

62 From $6.1 billion (1998) to $20 billion in sales by 2000 in the US
IV. Where is it going?: From $6.1 billion (1998) to $20 billion in sales by in the US Gartner Goup, 1998 6.8 million households and 16 million people trade online (1998) million households and 33 million people by 2000 This is ~1% of the economy ($8.5 trillion) Business to business ecommerce: from $15.6 billion (1998) to $175 billion in 2000

63 Total ecommerce is estimated at $26 billion for 1997
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 (near term) and $1 trillion in (future) If this forecast realised, OECD-wide ecommerce will be the equivalent of 15% of the total retail sales of seven OECD countries.

64 Levels of ecommerce

65 Ecommerce in US households: 1996-2002
Jupiter Communications. (1998)

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

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

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

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

70 The components of a virtual economy
Virtual players Virtual processes The net Virtual products

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)

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

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

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)

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.

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

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

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

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