Presentation on theme: "Electronic Commerce John Ure University of Hong Kong Workshop on"— Presentation transcript:
1Electronic Commerce John Ure University of Hong Kong Workshop on Strategic Electronic Commerce and ManagementElectronic Commerce Resource Centre/NECTECSiam City Hotel, Bangkok, May 2001John UreDirector of the Telecommunications Research ProjectUniversity of Hong Kong
2What is Electronic Commerce? E-commerce - any marketplace electronic transactionsE-business - electronic communications to re-engineer the internal and external value chains, everything from procurement to sales, from production to warehousing, from supply-chain management to customer relations management, from finances to human relations, etc
3Electronic Commerce by Sector E-commerce as e-tailing = B2CE-business as supply-chain/enterprise resource management/marketing = B2BE-Government as procurement = B2G and as electronic services delivery = G2CE-verything else? = P2P horizontal across the ISO layers
4OSI HierarchyOpen Systems Interconnection (OSI) of the International Standards Organization (ISO) designated a reference model in 1977.IBM produced its own propriety standard Systems Network Architecture (SNA) and a Systems Applications Architecture (SAA) to run on top of SNA.Technological change and development of client-server architecture combine to collapse the layers.
6When did EC start? Dates back as far as the telegraph Use of computer-networks (including digital telecom networks): dates from 1960s for distinct purposes, eg time-sharing mainframe CPU cycles; data transfer services; information services1970s-80s: electronic document interchange (EDI) using proprietary standards over Value -added networks (VANS); CAD over comms networks1990s: TCP/IP protocols and
75 broad areas of EC up to 1990sElectronic mail: mailboxes to receiver; gateway services to corporate serverEnhanced fax: point-to-pointEDI: docs formatting for computer-to-computerTransaction processing: payments authorizations, settlements, supporting credit, etc involving banksGroupWare: secure managed environment for , scheduling, teleconconferencing, etc
8EC from the 1990sA transition to fully integrated Internet-based MIS and IT systems at firm and industry levels (eg. Internet-based Enterprise Resource Management ERM) … but also on a progressive continuum involving 4 basic levels:a communications infrastructure to carry informationa marketplace of buyers, sellers and intermediariestransactions mechanisms to send, execute and settle ordersdeliverables - merchandise or services to be exchanged.
9EC into the 2000sMiddleware: within the firm electronic business is becoming an integrated ‘total business solution’ = e-platforms for middleware replacing distributed ERP systemsElectronic marketplaces: beyond the firm marketplaces for procurement and logistics - many specialist marketplaces, e.g. steel, pharmaceuticals, vehicles, etc.Trading platforms: these may be pure financial plays for brokering or may be part of the electronic marketplace for processing payments and authentication
10Enterprise resource planning (ERP) Larry Ellison (Oracle) on ERP in 1990s: “We blew it… We’ve learned from the Internet that you don’t put shared applications on the client and that you centralize complexity.”1990s: ERP software very popular - but based upon pre-Internet model! assumption that content and applications would be dispersed across discrete pockets of users within the enterprise charging model + high licensing fees
11ERP - the aftermath“IBM estimates that 70 % of all code written today consists of interfaces, protocols and other procedures to establish linkages among various systems.” The Economist, 26 June 1999Systems integration is big business: complexity of systems and architectures, standards, generations of equipment and software and upgrades, and shortage of IT skilled staff productivity of computers soon lost (PCs cost US$1-2,000, but recurrent costs can be US$8-12,000 pa!)
15Migration towards Net Economy CreateCommerceTradingCommunitiesBecome aPortalConnectYour Partnersand SuppliersIntranetPortalIntegrate inYourExistingAssetSet-up tradingcommunitiesLeverage verticalcontentSupplierPortalEstablisha webPresenceExtend services tosupply-chain partnersOptimize your supply-chain forfaster responsivenessPartnerPortalExtend existingsystemsSell product and services onlineEnable real-time transactionsYourbusinessCustomerPortalPublish your presencemarket product serviceSource: Servanova
16What is B2C?Business-to-consumer e-commerce is sometimes referred to as ‘etailing’ or electronic retailingBut the ‘B’ part could include any transactor, eg. another consumer, as in C2CMany electronic communities are C2C, and may involve payment in $ or in kind (eg, baby-sitting tokens) or simply barter
17E-marketing vs. E-tailing Creating a method of sales online - but the payment mechanism may be off line = e-marketing the most common early use of websites by B2CDelivery mechanisms for goods and services ordered online - eg. use of convenience stores such as 7-11 in Japan for payments and delivery pick-up
18Two Categories of Sites A site to be seenTwo Categories of SitesDestination sites: such as online storefronts, presence sites and content sites, which compete for consumer attentionTraffic control sites: such as malls, incentive sites and search agents, which function to direct consumers to Destination sites
19A site typology - 1 (Kalakota and Whinston, 1997, Readings in Electronic Commerce) 1. E-shops: online stores - revenues from transactions (eg Amazon.com)2. E-malls: cluster of e-shops - revenues from ‘rents’, ads and maybe transaction fees (eg AOL)3. E-auctions: revenues from selling the technology platform, transaction fees and adverting sales (eg. Priceline, E-Bay)
20A site typology - 2 (cf Kalakota and Whinston) 4. Search engines, portals and vortals: offer search and navigation tools - revenues from advertising, also personalized information, etailing, community services (eg webpage building, etc - eg. Yahoo)5. Virtual communities: non-commercial and commercial services (eg GeoCities)6. Content providers: offer entertainment, news, information - revenues from subscriptions, pay-per-download, membership (eg. CNN.com)7. Applications providers: next? “networked computer?”
21How Big is B2C?Boston Consulting estimates Asia-Pacific EC revenues at US$2.8 billion in 1999 = 0.1% overall retail sales revenues (cf 1.2% in USA)Gartner Group estimate Japan = 54% ! Australia = 15%! Taiwan = 5.6%! South Korea = 4.8%! Only leaves 20% for rest of Asia-Pacific!
22Drivers and constraints Access, bandwidth and affordabilitySecurityCredit cards and paymentsComplementary issues (see below)Language difficulies and translation software
23Modelling Critical Mass for B2C Telecommunications Research Project modelled critical mass for Hong Kong to provide a more rational basis for forecasts and projectionsCan be used elsewhere!!
24The Model - AimAim = model critical mass for business-to-consumer (B2C) e-commerce or electronic retailing using the case of Hong Kong.Conclusion based on Dec data = critical mass could be reached by 2003Purpose = not a prediction, rather to provide a benchmark for a future better understanding of the process
25The Model - Forecasting Forecasting e-commerce runs up against many difficulties, including:a) definition of what is being measuredb) reliable sources of data over sufficient period of timec) appreciation of complementary factorsMost forecasting of EC currently done by marketeers and consultants, not economists - very little analysis of the significance of EC (despite fact everyone thinks it is important).
26The Model ItselfA. Assume online shopping is a household activity (ignore 3G, palm pilot, etc)B. Three parts to the model1. Percentage of households with computers (precondition to going online)2. Percentage of (1) online (precondition for online shopping)3. Percentage of (2) who are ‘frequent’ shoppers
27The Model - Critical Mass A critical mass when growth = self-sustainingEverett Rogers (1983) The Diffusion of Innovations established the accepted categories1) Innovators = first 2.5% market grows slowly2) Early adopters = second 13.5% faster growth3) Early majority = third 34% exponential growth4) Late majority = fourth 34% growth slows5) Laggards = last 16% market reaches saturation
28Hong Kong data - S-curve A family of S-curves nicely describe most the diffusion patterns (rates) of most new technologies and productsCritical mass associated with the 2nd deflection point (16%)The following slide illustrates the diffusion of computers among households in Hong KongThe data collected by the TRP with assistance from the Social Science Research Centre, HKU (>500 households)Finding = critical mass of households with computers already reached by 1998/9
29PCs Penetration Rate%Note: Assume an upper bound of 100%
30Hong Kong - Online Percentage of all households using Internet: 2000 (December): 50.4% (36.4% HKGSAR)1999 (September): 40.4% (45.4% finding by the Democratic Party, November 1999 telephone survey of 1,571 households)1998 (December): 26.2% (11.8% HKGSAR) 1996 (February): 4.4%1994 (December): 0.88%
31Hong Kong - Online Driver The following graph shows that 1998 is the cross-over between the percentage of households with computers and the percentage of those onlineThis means that from 1998 the number of households online (and potentially online shoppers) is driven by the number of households with computers
32PCs Online Penetration Rate %Note: Assume an upper bound of 100%
33Hong Kong - Transactors What percentage of frequent online shoppers in Hong Kong? A C Nielsen (translated by TRP) suggest the minimum numbers who ‘had ever purchased’ online (15-54 year olds) are:2000: 95,000 + households1998: 48,000 + households1997: 22,000 + householdsNOTE: ‘had ever purchased’ online does not imply ‘frequent’
34Hong Kong - Transactors TRP figure suggests 74,000 households in 2000, but only 7,000 households in 1998 (but used non-prompt questions! May underestimate, but can this explain the big difference?) = tenfold increase!A.C.Nielsen figures suggest slow down from 120% per annum to 40% per annum
35Hong Kong - Per familyUsing AC Nielsen data, TRP estimate ceiling of 2.3 family members use the Internet (NB. average family size 3.2)If Hong Kong population = 6.8 million, then critical mass (16%) = million individual transactors (/2.3) 473,000 householdsIf transactors double each year critical mass for B2C reached by 2003 (But this evidence is the weak link in the chain! No data of ‘frequent’)If transactors increase by 50% each year critical mass for B2C reached by 2004/5
36How Does Thailand Compare? compared withHong Kong ?
37Shopping Online Shopping Online Hong Kong Thailand (Urban)Shopping Online% of Internet Households: % 7.8% (??)% All Households: % 0.66% (??)NOTES: For Thailand (1) assumes all Internet users are accessing from home! (2) assumes Internet users are distributed evenly across households! (3) assumes all Internet users are urban!Source of Thai data: Merrill Lynch Thailand Internet 13/10/ 2000
39Complementary factors Technologies - e.g. 3G phones, cable TV/ PC-TV, falling prices, accepted standards, etc.Complementary goods and services - more content and more ‘plug-and-play’ devices (e.g. digital cameras, music centres), home networks, etcPolicies - government online, encouragement of the IT sector, data protection, payments securitySocio-economic - more women and older people, better distribution systems for good delivery, etc
40Conclusion - 1B2C is in its infancy, and recent dot.com failures (cash burn) of ‘etailers’ highlight the difficultiesB2B seems much larger, but this is(a) partly because much of it is existing business going online, and(b) by definition in National Accounts B2C is the retail margin (otherwise doubling counting) not the retail sum. (How many consultancy forecasts confuse the two?)
41Conclusion - 2B2C in the longer term will have the more radical effects because(a) its social impact is more direct and personal(b) B2C will be the tail that wags the B2B dog for many businessesThe model of critical mass can be applied to any economy, but the complementary factors need to be built in.
42B2B similar to B2CSimilar advantages: global reach and ability to offer inter-active customer services opportunities to track and lock-in customersSimilar disadvantages: need for skilled IT support staff, need for an efficient Just-in-Time delivery system, problems of payments and security issues,Larger trading volumes justify credit cards, bank transfers and Letters of Credit, etc.
43But different!B2B e-commerce = e-business: straddles the entire value chain from procurement, through design and production, to sales and distribution, customer care, etc.B2B in part involves transferring existing business relationships online and this reduces risk on investment in Web-technology and networksCustomer empowerment is more complex as every business is a customer of another business
44Various Estimates and Forecasts of the Size of the Global B2B Market Year B2B in US$ Source1998 US$43 billion Forrester Research1999 US$145 billion Gartner Group2000 US$403/843 billion Gartner Group/Forrester2001 US$953 billion Gartner Group2002 US$2.2 trillion Boston Consulting Gr2003 US$1.4/2 trillion Forrester/Boston CG2004 US$7 trillion Gartner Group(Revised US$5.95 trillion Gartner Group, 2001)
46Value Added Chains in the Shirt Industry Three VariantsCost perShirtPer centsavings1.ProducerWholesalerRetailerConsumer$ %$ %$ %2.ProducerWholesalerRetailerConsumer3.ProducerWholesalerRetailerConsumer
47Estimated cost of bank transfers: Business cost savings 1Estimated cost of bank transfers:By bank teller - US$1.27By ATM - 27¢By Internet - 1¢Note: these widely quoted figures were originally from a Booz Allen Hamilton study, but do they include the capital and recurrent costs of the back-end?
48Estimated non-labour industry cost savings: Business cost savings 2Estimated non-labour industry cost savings:EC can save between 10-20% of indirect labour costs (eg. telephone bills, furniture, electricity) which typically are between 30-60% on all non-labour costsBulk of these savings (up to 70%) come from electronic placing and processing of ordersSource: London Economics (on behalf of UK Internet company GroupTrade) cited by The Economist 27 May 2000, p.93
49Taxonomy of B2B1. E-businesses: altered relationships all the way along the value chain2. E-hubs or Infomediaries: electronic markets or exchanges
50E-businessesBusiness service models: e-procurement and online customer ordering through Extranets - eg. Cisco processed US$500m orders online in 1999Collaboration platforms: Big 3 US auto manufacturers (Covisint = GM, Ford, Chrysler) share common supply chain platform, built by CommerceOne but operated by themselvesVirtual communities: PetroChem.Net was world’s first in 1997 networking industry managers, regulators, lawmakers, journalists, etc
51Infomediaries (any-to-any) Vertical hubs: extensive industry-specific content spread across many buyers and sellers in the supply chainFunctional (horizontal) hubs: provide wide range of service functions across industries, where some level of standardization is requiredNetwork economies: (n2-n) = advantages in scale
53E-commerce business trends Middleware: e-business systems that integrate various front-end and back-end processesFat server- thin client: ‘applications on tap’ model whereby applications are for rentalCorporate or B2B portals: Corporate Yahoo!, Oracle, SAP, etc moving into this market - based upon Internet servers
54Including electronic markets Electronic markets: alliances between IT and telecom companies to provide E-commerce platforms (web-hosting, transactions software, etc) for industry sectors, of SMEs, or regions - Gartner Group estimate online trading exchanges will grow from 400 in 2000 to 10,000 by 2002E-commerce hubs: (a) large companies become the hubs and small companies the trusted spokes; (Note: the sub-contracting chains of Asia may be resistant) (b) HK Telecom, SingTel, etc aim to become Internet eXchanges or hubs for regional traffic
55Electronic markets Over 900 have emerged over past couple of years Different exchanges offer different range of services: catalogues, spot and forward pricing, ordering and transactions processing, bulk-buying and discounts, electronic databases, etcDangers of (a) collusion to create monopsony power to keep prices down; (b) use of dominance to price discriminate; (c) collusion on retail price maintenance (eg Justice Dept settled a case with big US airlines using the electronic airfare system ATP to undermine discounting)NB. MetalSite, an electronic market for steel, includes an anti-trust lawyer sitting in on its meetings
56Electronic markets - the future? Public exchanges = seeking an IPO - most have failed due to lack of liquidity to carry them throughConsortium exchanges = liquidity guaranteed, but how willing are partners to share information?Private exchanges = supply chain online -natural extensions of EDI networks?
57A few examples of E-markets in Thailand? Point Asia Dotco; Samart Exchange; Shin Group; FoodMarketExchange.comE-Procurement Alliance Company established by Asia Freewill (affiliate of Charoen Pokphand Group) = CP, Siam Cement Group, TelecomAsia, United Communications Industry, Bangkok Bank, Siam Commercial Bank + Petroleum Authority of Thailand using the site Pantavanij.com - hope to save up to US$2 billion annually on indirect goods procurement auctions (software from CommerceOne)
58Bizarre range of estimates for e-commerce in Thailand? Department of Business Economics (Thailand) estimates E-commerce will > Bt25 billion (US$0.5 billion) for (The Nation, 15/3/2000)Arthur Andersen estimate B2B at Bt109.5 million (US$2.4 million) - (The Nation23/5/20001)Gartner Group estimates B2B in Thailand will takeoff in 2001, US$15 billion (?!) by 2004 (www.nua.ie/surveys)Thammasat University report estimated e-commerce in Thailand at around Bt40 million (US$0.9 million) and reaching Bt600 million (US$13 million) by 2004 (The Nation, 5/7/99)
59E-business and E-readiness in Thailand? McConnell International ‘Risk E-Business: Seizing the Opportunity of Global E-Readiness’ August 20001/2. India (4A + 1R) and South Korea (3A+2B)3/4. Malaysia (3A + 1B + 1R) and Taiwan (2A + 3B)5. China (3A + 2R)6/7. Thailand (1A + 4R) and Philippines (1A + 4R)8/9 Indonesia (5R) and Vietnam (5R)NB. A = majority conditions ok; B = improvements needed; R = substantial improvements needed
60E-business and E-readiness in Thailand? McConnell International ‘Risk E-Business: Seizing the Opportunity of Global E-Readiness’ August 2000Ease of connectivity = infrastructureGovernment E-leadership (= Thailand’s “A”)Information security and legal frameworkHuman capitalE-business climate
61E-business and E-readiness in Thailand? EIU Rankings (Business Asia 14/5/2001)Australia (2) Philippines (39)Singapore (7) Sri Lanka (43)Hong Kong (13) India (45)Taiwan (16) Thailand (46)Japan (18) China (49)New Zealand (20) Indonesia (54)South Korea (21) Vietnam (48)Malaysia (33) Pakistan (60)
62E-business and E-readiness Factors Hard Infrastructure = telecoms, cable TV, satellite, fixed wireless, mobile, digital terrestrial transmission (DTT), Ethernets, etcIT investment = penetration rates of computer devices and networksE-commerce service providers =vendors, systems integrators and IT management consultantse-business users and e-marketplaces, eg. FoodMarketExchange, E-Procurement Alliance Co (Asia Freewill consortium), Samart Exchange, etcISPs, content and applications service providers for SMEs and residentialFinancial infrastructure = banks, eg. Siam Commercial Bank, Bangkok Bank, Krung Thai Bank, and credit cards!Soft infrastructure = legal and regulatory framework trust
63A Challenge - coming to terms with the New Media Value Chain 1. Content conception = creative activity2. Content creation = from drawing board to realization3. Content packaging = make content marketable4. Content service provision = distributor of content5. Content transmission = distribution channel (licensed ‘multiplexer’ of interactive digital TV, telecoms network, WAP phone, WWW, etc)6. Content access device = PC, TV, cellphone, handheld computer, etc.7. Content consumer = private, public, business, consumer