E-Commerce E-Commerce

2 Module Introduction  Lecturers –Rhys Parry - rrp –Neil Taylor - nst  Assessment –50% Examination –50% Assignment  20 Credits

3 Discussion  What do we think about when we think of e- commerce?

4 The Internet is a worldwide network of computer networks The worldwide web is one of the Internet’s most popular services providing access to billions of pages From 1995 it has had growth rates of well over 100% p/a More impressive is the spectacular growth predicted:  analysts estimate that by 2015 the number of people accessing the web will treble from 2005 figure of 1 billion  it seems likely that all commerce will be e-Commerce by 2050

5 Unique features  Ubiquity – available everywhere  Global Reach - across national boundaries  Universal Standards – only one set of standards  Richness – video / audio / text  Interactivity – user interaction  Information Density – costs drop, quality rises  Personalisation/Customisation - personal & group messages

6 Ubiquity/ global reach  Ubiquity - market space is created - technology available everywhere & all the time - shopping anywhere - shopping costs reduced - customer convenience enhanced  Global Reach - across cultural & national boundaries - temporal and geographic differences removed - technology reaches around the world - potentially billions of consumers - millions of businesses worldwide

7 Universal standards / Richness  Universal Standards - one set of technical standards - Internet standards  Richness - wealth of content and complexity - traditional markets v rich markets - powerful commercial environment The Internet eliminates the trade off between richness and reach. richness and reach. Video, audio, and text messages are integrated in marketing and consumption marketing and consumption

8 Interactivity / Information density Interactivity  user interaction can modify experience  consumer becomes co-participant in delivering goods to the market  currently satellite TV can compete at a low level Information Density  vastly increased total amount & quality of information  information processing costs drop dramatically  storage and communication costs drop likewise  prices and costs are more transparent  price discrimination becomes standard.

9 Personalisation / Customisation Personalisation  an individual’s interests and tastes are known  targeting is more precise  the rifle rather than the shotgun approach  marketing can send specific messages to individuals Customisation  changing the product or service to fit the individual  past purchases and behaviour used to shape the future  moving towards ‘demand pull’  the consumer can select e.g. the type of news stories to see  however mass customisation is some years away.

10 The Internet - the perfect market? Requirements: for the customer - price & product information become transparent - available quickly and cheaply - available conveniently and securely - ability to find the most competitive web site & best price Requirements: for the selling company - assume the customer will know where to look for the best buy - keep the web site up to date with best price etc. - constantly track the competition - reduce costly and wasteful advertising - lower transaction costs and translate into lower prices.

11 E- Commerce - Types B2C Business to Consumer B2BBusiness to Business including B2G (which means Business to Government) C2CConsumer to Consumer e.g. eBay creates a market space for consumer to consumer P2PPeer to Peer, without the intervention of a market maker M-Commerce Mobile devices for transactions.

12 B2C – Business to Consumer On-line businesses sell to individuals e.g. Amazon  many different business models  exponential growth Potentially limiting factors  home penetration of PCs  still fairly expensive technology  complex software interface  cultural / social aspects of shopping  currently limited global use of PCs and cell phones BUT  broadband’s increasing penetration with an accompanying lowering of costs  traditional retailers adding own online capabilities  increased sales of mobile devices like smartphones, tablets etc.  growth estimated at > $1 trillion (2010)

13 B2B – Business to business On-line businesses sell to online businesses  currently largest form of E-Commerce  significant growth potential  originally simply inter-business exchanges  now other business models developed  growth was estimated at over $10 trillion by 2010.

14 C2C – Consumer to consumer Consumers selling to other consumers  consumer prepares item / product / service  then uses a market maker like eBay to provide a listing, perhaps a catalogue, perhaps a search engine etc.  items are then easily displayed, priced, discovered and paid for.

15 P2P – Peer to peer Enables users to share files and computer resources directly  the software needs no intermediary  copyright problems have arisen and many court cases brought  music was one of the early movers but has evolved, particularly after the Napster problems

16 M-Commerce Uses wireless digital devices to carry out transactions  major advantage is that it provides access to anyone, anytime and anywhere;  Huge uptake world wide;  new technology is again creating an exponential in the use of these devices for accessing the Internet.

17 E-Commerce I and II E-commerce I distinguished by explosive growth  hyper-growth with the dotcom IPOs from 1998 to 2000  E-Commerce ended in 2000 with the collapse of dotcom stocks E-commerce II from 2001 to now  sober reassessment at the beginning of the period  2004 showing rapid increase in Internet trading  recovery of interest in dotcoms but only with revenue models  Salesforce.com and Google show that IPOs are again viable

18 E-Commerce I Euphoric period of USA commercial history  thousands of dotcoms formed  overall venture capital pourted out $125billion  $110 billion was raised in 1999 & 2000 alone  The perfect market concept was first mooted  IT technologies developed over 40 years and more recently, communications, made it all possible Effects on commerce :  disintermediation  friction free commerce  first mover advantage  network effect

19 E-Commerce – effects on commerce (I) Disintermediation - displacement of market middlemen  intermediates add costs but little value  direct relationship created between makers of products and services, and customers Friction-free commerce  information equally distributed  transaction costs low  prices dynamically adjusted to real demand  unfair competitive advantage eliminated First mover  a firm first to market with a service or product moves quickly to gain market share  builds brand name recognition early  creates proprietary interfaces to inhibit competitors.

20 E-Commerce – effects on commerce (II) Network effect  all participants receive value because all use : –same common operating system –same telephone system –same software application etc.  value increases as more people adopt them Metcalfe’s Law postulates that the value of a network grows by the square of the number of participants.

21 E-Commerce I: crash (I) i.IT build up to Y2K was massive, corporate systems were rebuilt –after 2000 IT spending dropped dramatically –tech stocks suffered – dot.coms were battered ii.telecomm firms had significant excess capacity –earnings precipitated and many smaller firms went bankrupt –some $25 billions of debt will never be repaid iii.sales growth was less than anticipated showing that e- commerce was not easy –many dot.com retailers could not make timely deliveries –this hurt credibility and thus reduced usage

22 E-Commerce I: crash (II) iv.the valuations of dot.coms had risen very high and many questioned whether the earning of these companies could grow fast enough to justify their share prices –some dotcoms had stock values 400 times earnings (traditional companies have some 10 to 15 times)! –most dotcoms had no earnings –revenue growth, yes – profits, no – losses, yes!

23 Dotcoms in E-Commerce I  technology built e-commerce;  venture capital made it run;  between 1998 and 2000 $120 billion was invested in about 12,500 dotcom start-up ventures;  investment bankers took some 1,260 of these in IPOs;  there was an insatiable market for IPOs;  many dotcoms were unsuitable with poor (or no) business plans.

24 E-Commerce I - a few statistics  it was a technological success;  over $60 billion in B2C revenues;  100 million on-line customers in the USA;  another 100 million worldwide by 2000;  business was a mixed success;  only10% of dotcoms formed since 1995 survived;  only a tiny percentage was profitable;  B2C revenues were $60 billion in 2000

25 E-Commerce II Main factors defining the future  the technology affects all commercial activity;  prices are rising to cover real costs;  investors getting a reasonable return;  margins more like normal retailers;  traditional companies e.g. Fortune 500 play a growing and dominant role in B2C and B2B;  numbers of pure on-line companies declining;  clicks and bricks strategies adopted;  regulatory activity will increase;  business-driven not technology-driven.

26 E-Commerce I and II - comparison E-commerce I  technology driven  revenue growth emphasis  venture capital funding  ungoverned  entrepreneurial  disintermediation  pure on-line strategies  first mover advantages E-Commerce II  business driven  earnings & profits emphasis  traditional financing  stronger regulation  large traditional firms  strengthening intermediaries  mixed clicks & bricks strategies  fast follower strength