Presentation on theme: "History and development of Ecommerce"— Presentation transcript:
1History and development of Ecommerce I. What is ecommerce?II. Where did it come from?III. What is happening now?IV. Where is it going?
2Goals:Take a strategic look at the development of ecommerce,Identify key characteristics of the social and technological infrastructure that is required to support it.
3What is ecommerce?It is:sharing business information,maintaining business relationships,conducting business transactions,by means of telecommunications networksZwass, 1996
4Ecommerce ... covers a wide range of commercial activities performed by means ofan electronic web that can connect tradingpartners. 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,
5Ecommerce 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.
6It 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
7Ecommerce 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)
8A working definition of ecommerce focuses on The marketing and planning strategies,Business and consumer behavior, andLegal and regulatory policy issues related to the commercial development of the Internet.
9It includes at least the following: The exchange of goods and services across aninteractive 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.
10And:5. New business processes and technologies tosupport digital transactions,New business strategies and models to gain acompetitive edge in the digital marketplace,7. Technologies to ensure privacy and protect intellectual property8. A legislative and regulatory environment that supports ecommerce (domestic and international)
11Ecommerce involves online activity supporting the “virtual value chain” Inbound logisticsProduction ProcessesOutbound logisticsMarketingSalesCustomer supportInternalExternal
12Ecommerce:1. Directly connects buyers and sellers,2. Supports fully digital information exchangebetween producers, suppliers, sellers, buyers,3. Allows global activity ,Allows interactivity and adaptation to customerbehaviors,5. Encourages real time updating.
13Using a buyer-seller perspective, and a life-cycle model, ecommerce is present in all the phases of acommerce transaction:
14It enables companies to: 1. Be more efficient and flexible in their internaloperations2. Work more closely with their suppliers,Be more responsive to the needs and expectationsof their customers,4. Select the best suppliers regardless of their geographical location and5. Sell to a global market.
15Ecommerce can be divided into four distinct categories: BusinessConsumerAdministrationBusiness
16Business 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.
18Ecommerce 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 netThis changes traditional manufacturing anddistribution processes.
19Areas of Electronic Commerce From Choi et al. (1997) The Economics of Electronic Commerce. p. 18
20Traditional 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
21Supplier opportunity Customer benefit Global presence Global choiceImproved competitiveness Quality of serviceMass customizing and Personalized productstargeting and servicesShorten or eradicate Rapid response tosupply chains needsSubstantial cost savings Substantial price reductionsNew business opportunities New products and services
22History and development of Ecommerce I What is ecommerce?II. Where did it come from?III. What is happening now?IV. Where is it going?
23II. Where did it come from? There were several precipitating conditions1. Business to business use of EDI,2. The continued decrease in the costs of computerhardware and software,3. The disappearance of the NSF prohibitingcommercial activities on the net,4. The rapid growth of the web (the third wave),5. The rise of the profitable ISP.
24Early forms of ecommerce involved electronic data interchange (EDI). EDI allows business-to-business exchange ofdigital transaction information,b. It is computer-to-computer communication ofbusiness information in standardized form,c. Trading partners establish computer-to-computer links for rapid information exchange.
25EDI 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.
26EDI 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.
27Definitions of EDIThe transmission of unambiguous business information in standard syntax between computers of independent organizationsThe interchange of standard formatted data between computer application systems of trading partners with minimal manual intervention
28And: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.
29An example of an EDI transaction for purchase, shipping, and payment taking place between computer systems:1. Buyer --> Purchase order --> Seller2. Seller --> Purchase order confirmation -->Buyer3. Seller --> Booking request --> Transport company4. Transport company --> Booking confirmation - -> Seller
30And:5. Seller --> Advance ship notice --> Buyer6. Transport company --> Status --> Seller7. Buyer --> Receipt advice --> Seller8. Seller --> Invoice --> Buyer9. Buyer --> Payment --> Seller
31Examples 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.
32Financial EDI:1. Primarily business to business payments,2. The electronic transfer of payments andremittance information between payer, payee, andtheir banks,3. Reduces the time for processing payments(especially checks) while improving reliability,4. Corporate accounts can be easily credited anddebited on schedule,It involves interbank electronic funds transfer(rapid, same day payments).
33Manufacturing 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.
34Benefits 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.
35Costs: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
36However, the use of EDI has been important in preparing businesses for ecommerce. They understand:The exchange of digital information over acomputer network,2. The exchange of goods and services among businesses and3. Electronic funds transfer for payments.
37Businesses 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.
38History and development of Ecommerce I. What is ecommerce?II. Where did it come from?III. Whats happening now?IV. Where is it going?
39III. 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.
40Social: 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 influx.
42Technical infrastructure The net allows a new level of connectivityLANs --> VANs --> WANs --> The netLANs: internal proprietary network (intranets)VANs: private value-added networksWANs: interconnected LANs (phone cable and satellite)(extranets)The net uses open standards (TCP/IP).
43Value-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:
44VANs 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, reliabilityThey are expensive to own or lease
45Virtual Private Network (VPN) This is a section of the net reserved for the data traffic of a specified business and its partnersThe data travels on the public network, but integrated security features make it invisible and inaccessible to other net usersIts major advantage is allowing the safe movement of data traffic from expensive private communication lines to the net
46VPNs 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.
47Software for collaborative work Multimedia data creation and delivery Technological drivers of ecommerceIntelligent devicesusingSoftware for collaborative worksupportingMultimedia data creation and deliveryoverAn open network
48Getting 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 cableWireless Satellite Wall plug
49Telecoms 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 cablecompanies who want to offer a range of services(banking, bill paying, eshopping).
50Telcos 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.
51They 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 servicesThis places them in direct competition with ISPs like AOL,
52ISPs 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 serviceGateways are physical entry points to the netPSI and Kiva are gateway ISPsFull service ISPs want to control content andservices to business, schools, libraries and thehomeAOL, Compuserve, Prodigy are full service.
53ISPs can be local, regional, or international Kiva is local, Panix is regionalPSI, UUNET (owned in part by Microsoft) and ANS (owned by AOL) are internationalThese are large public data networks which are not part of the telco infrastructureThey 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.
54ISPs are searching for ways to add value PSI has CLARINETUUNET has USENET archivesAOL offers chat rooms and shopping mallsOthers offer video conferencingMost offer access to the net, primarily through a web browser
55Economic: business drivers of ecommerce Product promotion and customization through the direct connection to consumersDeveloping and exploiting new sales channels (products, information, advertising, transactions)Reduced costs of business transactions through a public shared infrastructureReducing time to market for certain types of products.
56And:Improving customer relationships with intelligent systems for service and supportImproving marketing and targeted advertising through the collection of detailed customer informationNew corporate branding and image creationUsing the net for R&D and product developmentDeveloping of new business models based on characteristics of the new marketplace
57Ecommerce business activities: Internal messagingOnline publishing of corporate documentsOnline searching for documents, projects, informationInternal corporate information dissemination through an intranet
58And:Managing corporate finance and personnel systemsManufacturing logistics managementSupply chain management for inventory, warehousing, distributionOrdering processing management to suppliers and customersOrder tracking
59Current commercial uses of the net Commercial sitesStorefronts, virtual communities, multiple user gamingAdvertising: $ million in 1996Banner ads, targetted (ads and product/service updates), customized web ads, spam
60And:Commercial servicesPayment, product delivery, information collection, evaluation, and deliveryNon-digital product transactionsBooks, cars, and other tangible goodsDigital product transactionsPublications, freeware, shareware, demo software, reservations, financial services
61History and development of Ecommerce I. What is ecommerce?II. Where did it come from?III. What is happening now?IV. Where is it going?
62From $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 USGartner Goup, 19986.8 million households and 16 million people trade online (1998) million households and 33 million people by 2000This is ~1% of the economy ($8.5 trillion)Business to business ecommerce: from $15.6 billion (1998) to $175 billion in 2000
63Total ecommerce is estimated at $26 billion for 1997 According to OECD:Total ecommerce is estimated at $26 billion for 1997This 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 economiesIt 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.
65Ecommerce in US households: 1996-2002 Jupiter Communications. (1998)
66A potential reordering of the global economy Competitive advantage to companies that are successful early adopters of ecommerceThis will be true in nations with government economic and regulatory support for ecommerceNations with highly trained labor forces will benefit from distributed value chain
67Businesses 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 basedmarketing give them a 6% profit advantageRedesign business processes to take advantage of the rapid and real time information and data exchange on the netDevelop a secure and widely acceptable framework for digital business contracts
68Consumers will develop new behaviors and will: Routinely check prices globallyEngage in real-time negotiation with multiple sellers creating a more dynamic and fast moving marketplace for certain productsMake more considered purchasing decisions based on more informationPublicly share experiences with others about products, customer support, and companies
69There will be a shift towards an economy of attention Basic assumption: attention is an intrinsically scarce resourceInformation <--> Attention (a two way flow)There is competition for attentionCapturing attention can lead to actionThe problem is how to capture and keep itObtaining attention is a source of wealthPortal advertising costs bear this out
70The components of a virtual economy Virtual playersVirtual processesThe netVirtual products
71Virtual playersPeople, organizations, or automated agents with an online presenceVirtual productsDigitized objects/services: currency, text, multimedia, tickets, reservations, electric usage, pay- for-view, smart housesVirtual processesParticipants interact digitally, interactively,and in real time (online ordering/payment; JIT inventory control;customized advertising)
72Virtual intermediaries Provide essential services: certification, authentication, quality assurance, copyright clearance, distributionEducation brokers: bringing instructors and students together onlineMarket organizers: establish meeting places for buyers and sellers (auctions...)Personalized service providers: shoppers, information filtering, travel agent, financial services
73The evolution of the virtual firm Assumes that they exist in an environment where transaction costs are lowThey do not have to be based in a single geographic locationBusiness processes can be distributed globally and take place on the netThe value chain is digital
74Also:Products can be delivered through a digital web of business relationships with producers, financiers, distributors, consumersProducers, suppliers, warehouses, managers, administrator, subcontractors are all linked through an extranetMany functions can be easily outsourced (accounting, personnel management, training, public relations)
75Convergence in ecommerce Products, processes, and infrastructure all converge in the global digital marketplaceProduct: audio, video, still images, text are all in the same digital formatProcess: multiple uses from a virtual process make other processes redundantConsumer feedback is used for product change, marketing, sales, pricing, and service.
76Infrastructure: during the next few years, digital interactive services of all types are expected to convergeTelephone, cable, microwave, satellite are all moving into the same arena and losing their monopoliesTelevision, computers, radio, pagers, and cellular telephones are expected to share functionality and attributesYou can watch WebTV and TV on your computer or your TV
77Things to doOvercome the limitations and asymmetries of the infrastructureImplement hardware and software to fully exploit bandwidth, especially to the last mileProvide universal access at reasonable costProvide secure frameworks for business- to- business and -to-consumer transactionsIntegrate electronic payment into the buying process
78And:Develop a secure and reliable system for electronic banking: emoney exchange and transferDevelop a system for microtransactionsBuild a consumer marketplaceConvert browsers into buyersDevelop new approaches to web site design that encourage purchasingDevelop new business models for this CME