Presentation on theme: "Electronic Commerce Workshop on Strategic Electronic Commerce and Management Electronic Commerce Resource Centre/NECTEC Siam City Hotel, Bangkok, 23-25."— Presentation transcript:
Electronic Commerce Workshop on Strategic Electronic Commerce and Management Electronic Commerce Resource Centre/NECTEC Siam City Hotel, Bangkok, May 2001 John Ure Director of the Telecommunications Research Project University of Hong Kong
What is Electronic Commerce? E-commerce - any marketplace electronic transactions E-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
Electronic Commerce by Sector E-commerce as e-tailing = B2C E-business as supply-chain/enterprise resource management/marketing = B2B E-Government as procurement = B2G and as electronic services delivery = G2C E-verything else? = P2P horizontal across the ISO layers
OSI Hierarchy Open Systems Interconnection (OSI) of the International Standards Organization (ISO) designated a reference model in 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.
When 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 services 1970s-80s: electronic document interchange (EDI) using proprietary standards over Value -added networks (VANS); CAD over comms networks 1990s: TCP/IP protocols and
5 broad areas of EC up to 1990s Electronic mail: mailboxes to receiver; gateway services to corporate server Enhanced fax: point-to-point EDI: docs formatting for computer-to-computer Transaction processing: payments authorizations, settlements, supporting credit, etc involving banks GroupWare: secure managed environment for , scheduling, teleconconferencing, etc
EC from the 1990s A 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 information a marketplace of buyers, sellers and intermediaries transactions mechanisms to send, execute and settle orders deliverables - merchandise or services to be exchanged.
EC into the 2000s Middleware: within the firm electronic business is becoming an integrated total business solution = e-platforms for middleware replacing distributed ERP systems Electronic 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
Enterprise resource planning (ERP) Larry Ellison (Oracle) on ERP in 1990s: We blew it… Weve learned from the Internet that you dont 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
ERP - 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 1999 Systems 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!)
3rd Generation eBusiness End-to-end Integration, Personalization, Automation Marketing Brochureware Selling Transaction Generation 1 Generation 2 Generation Relationship Dynamic Business WebPresence Conductinge-commerce CustomerCentrice-business Back-ends runs independently Some links to back-end Fully Integrated Back-end Internet Business EDI Source: Intel
First Generation eBusiness Infrastructure Application device LAN WAN Application device Applications Database OldEpicenter Batch Mode Application Servers Data Center Source: Intel
New eBusiness Infrastructure Internet/Intranet Applications Infrastructure ApplicationsTA Based Intelligent Storage Proprietary New Epicenter increasingly increasingly open to customers Clients Front-end Mid-tier Back-end Source: Intel
Migration towards Net Economy Establish a web Presence Integrate in Your Existing Asset Connect Your Partners and Suppliers Create Commerce Trading Communities Become a Portal Intranet Portal Supplier Portal Partner Portal Customer Portal Publish your presence market product service Extend existing systems Sell product and services online Enable real-time transactions Extend services to supply-chain partners Optimize your supply-chain for faster responsiveness Set-up trading communities Leverage vertical content Your business Source: Servanova
What is B2C? Business-to-consumer e-commerce is sometimes referred to as etailing or electronic retailing But the B part could include any transactor, eg. another consumer, as in C2C Many electronic communities are C2C, and may involve payment in $ or in kind (eg, baby-sitting tokens) or simply barter
E-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 B2C Delivery mechanisms for goods and services ordered online - eg. use of convenience stores such as 7-11 in Japan for payments and delivery pick-up
A site to be seen Two Categories of Sites Destination sites: such as online storefronts, presence sites and content sites, which compete for consumer attention Traffic control sites: such as malls, incentive sites and search agents, which function to direct consumers to Destination sites
A 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)
A 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?
How 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!
Drivers and constraints Access, bandwidth and affordability Security Credit cards and payments Complementary issues (see below) Language difficulies and translation software
Modelling Critical Mass for B2C Telecommunications Research Project modelled critical mass for Hong Kong to provide a more rational basis for forecasts and projections Can be used elsewhere!!
The Model - Aim Aim = 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 2003 Purpose = not a prediction, rather to provide a benchmark for a future better understanding of the process
The Model - Forecasting Forecasting e-commerce runs up against many difficulties, including: a) definition of what is being measured b) reliable sources of data over sufficient period of time c) appreciation of complementary factors Most 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).
The Model Itself A. Assume online shopping is a household activity (ignore 3G, palm pilot, etc) B. Three parts to the model 1. 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
The Model - Critical Mass A critical mass when growth = self-sustaining Everett Rogers (1983) The Diffusion of Innovations established the accepted categories 1) Innovators = first 2.5% market grows slowly 2) Early adopters = second 13.5% faster growth 3) Early majority = third 34% exponential growth 4) Late majority = fourth 34% growth slows 5) Laggards = last 16% market reaches saturation
Hong Kong data - S-curve A family of S-curves nicely describe most the diffusion patterns (rates) of most new technologies and products Critical mass associated with the 2nd deflection point (16%) The following slide illustrates the diffusion of computers among households in Hong Kong The 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
PCs Penetration Rate % Note: Assume an upper bound of 100%
Hong 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%
Hong 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 online This means that from 1998 the number of households online (and potentially online shoppers) is driven by the number of households with computers
PCs Online Penetration Rate % Note: Assume an upper bound of 100%
Hong 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 + households –1998: 48,000 + households –1997: 22,000 + households NOTE: had ever purchased online does not imply frequent
Hong 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
Hong Kong - Per family Using 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 households If 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
How Does Thailand Compare? Thailand compared with Hong Kong ?
Shopping Online Hong Kong Thailand (Urban) Shopping Online % of Internet Households: 6.9%7.8% (??) % All Households: 3.5%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
% B2C Online Shopping in Thailand?
Complementary 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, etc Policies - government online, encouragement of the IT sector, data protection, payments security Socio-economic - more women and older people, better distribution systems for good delivery, etc
Conclusion - 1 B2C is in its infancy, and recent dot.com failures (cash burn) of etailers highlight the difficulties B2B 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?)
Conclusion - 2 B2C 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 businesses The model of critical mass can be applied to any economy, but the complementary factors need to be built in.
B2B similar to B2C Similar advantages: global reach and ability to offer inter-active customer services opportunities to track and lock-in customers Similar 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.
But 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 networks Customer empowerment is more complex as every business is a customer of another business
Various Estimates and Forecasts of the Size of the Global B2B Market YearB2B in US$Source 1998US$43 billionForrester Research 1999US$145 billion Gartner Group 2000US$403/843 billion Gartner Group/Forrester 2001US$953 billionGartner Group 2002US$2.2 trillionBoston Consulting Gr 2003US$1.4/2 trillionForrester/Boston CG 2004US$7 trillionGartner Group (RevisedUS$5.95 trillion Gartner Group, 2001)
Value Added Chains in the Shirt Industry 1. ProducerWholesalerRetailerConsumer 2. ProducerWholesalerRetailerConsumer 3. ProducerWholesalerRetailerConsumer Cost per Shirt Per cent savings $52.720% $ % $ % Three Variants
Business cost savings 1 Estimated cost of bank transfers: By bank teller - US$1.27 By 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?
Business cost savings 2 Estimated 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 costs Bulk of these savings (up to 70%) come from electronic placing and processing of orders Source: London Economics (on behalf of UK Internet company GroupTrade) cited by The Economist 27 May 2000, p.93
Taxonomy of B2B 1. E-businesses: altered relationships all the way along the value chain 2. E-hubs or Infomediaries: electronic markets or exchanges
E-businesses Business service models: e-procurement and online customer ordering through Extranets - eg. Cisco processed US$500m orders online in 1999 Collaboration platforms: Big 3 US auto manufacturers (Covisint = GM, Ford, Chrysler) share common supply chain platform, built by CommerceOne but operated by themselves Virtual communities: PetroChem.Net was worlds first in 1997 networking industry managers, regulators, lawmakers, journalists, etc
Infomediaries (any-to-any) Vertical hubs: extensive industry-specific content spread across many buyers and sellers in the supply chain Functional (horizontal) hubs: provide wide range of service functions across industries, where some level of standardization is required Network economies: (n 2 -n) = advantages in scale
E-commerce business trends Middleware: e-business systems that integrate various front-end and back-end processes Fat server- thin client: applications on tap model whereby applications are for rental Corporate or B2B portals: Corporate Yahoo!, Oracle, SAP, etc moving into this market - based upon Internet servers
Including 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 2002 E-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
Electronic 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, etc Dangers 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
Electronic markets - the future? Public exchanges = seeking an IPO - most have failed due to lack of liquidity to carry them through Consortium exchanges = liquidity guaranteed, but how willing are partners to share information? Private exchanges = supply chain online - natural extensions of EDI networks?
A few examples of E-markets in Thailand? Point Asia Dotco; Samart Exchange; Shin Group; FoodMarketExchange.com E-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)
Bizarre 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)
E-business and E-readiness in Thailand? McConnell International Risk E-Business: Seizing the Opportunity of Global E-Readiness August /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
E-business and E-readiness in Thailand? McConnell International Risk E-Business: Seizing the Opportunity of Global E-Readiness August 2000 Ease of connectivity = infrastructure Government E-leadership (= Thailands A) Information security and legal framework Human capital E-business climate
E-business and E-readiness in Thailand? EIU Rankings (Business Asia 14/5/2001) Australia 8.29 (2) Philippines 3.98 (39) Singapore 7.87 (7) Sri Lanka 3.82 (43) Hong Kong 7.45 (13) India 3.79 (45) Taiwan 7.22 (16) Thailand 3.75 (46) Japan 7.18 (18) China 3.36 (49) New Zealand 7.00 (20) Indonesia 3.16 (54) South Korea 6.97 (21) Vietnam 2.76 (48) Malaysia 4.83 (33) Pakistan 2.66 (60)
E-business and E-readiness Factors Hard Infrastructure = telecoms, cable TV, satellite, fixed wireless, mobile, digital terrestrial transmission (DTT), Ethernets, etc IT investment = penetration rates of computer devices and networks E-commerce service providers = –vendors, systems integrators and IT management consultants –e-business users and e-marketplaces, eg. FoodMarketExchange, E- Procurement Alliance Co (Asia Freewill consortium), Samart Exchange, etc –ISPs, content and applications service providers for SMEs and residential Financial infrastructure = banks, eg. Siam Commercial Bank, Bangkok Bank, Krung Thai Bank, and credit cards! Soft infrastructure = legal and regulatory framework trust
A Challenge - coming to terms with the New Media Value Chain 1. Content conception = creative activity 2. Content creation = from drawing board to realization 3. Content packaging = make content marketable 4. Content service provision = distributor of content 5. 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