E-commerce

business. technology. society.

Kenneth C. Laudon
Carol Guercio Traver

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 Chapter 1
The Revolution Is Just Beginning

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Learning Objectives
 Define e-commerce and describe how it differs from e-business
 Identify the unique features of e-commerce technology and
discuss their business significance
 Describe the major types of e-commerce
 Understand the visions and forces behind the E-commerce I era
 Understand the successes and failures of E-commerce I
 Identify several factors that will define the E-commerce II era
 Identify the major themes underlying the study of e-commerce
 Identify the major academic disciplines contributing to e-
commerce research

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Amazon.com:Tuned-Up and
Profitable
 Story of Amazon in many ways mirrors story of e-
commerce itself
 Amazon offers consumers four compelling reasons to
shop: selection, convenience, price and service
 Founded in 1995, went public in 1997
 From 1997-2000, revenues increased from $148
million to $2.7 billion but so did losses, to $1.4 billion
 In 2001-2002, new focus on cost-cutting and
achieving profitability leads to first quarterly profits
ever in 2002

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E-commerce Developments
and Themes-2003
 Contrary to expectations, e-commerce is rebounding and
the e-commerce revolution is still just beginning
 More and more people and businesses are using the
Internet to conduct commerce
 The e-commerce channel is deepening as more and more
products and services come online
 Broadband and wireless Internet access are growing
 E-commerce business models are being refined to
achieve higher levels of profitability
 At societal level, there is continued conflict over
copyrights, content regulation, taxation, privacy, and
Internet fraud and abuse.

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E-commerce Defined
 E-commerce involves digitally enabled
commercial transactions between and among
organizations and individuals
 Digitally enabled transactions include all
transactions mediated by digital technology
 Commercial transactions involve the
exchange of value across organizational or
individual boundaries in return for products or
services

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E-commerce vs. E-business
 Debate among consultants and academics
about meanings and limitations of terms e-
commerce and e-business
 We use the term e-business to refer primarily
to the digital enablement of transactions and
processes within a firm, involving information
systems under the control of the firm
 E-business does not include commercial
transactions involving an exchange of value
across organizational boundaries

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The Difference between
E-commerce and E-business
Figure 1.1, Page 11

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Why Study E-commerce
 E-commerce technology is different and more
powerful than any of the other technologies
that we have seen in the past century.
 E-commerce has challenged much traditional
business thinking
 E-commerce has a number of unique features
that help explain why we have so much
interest in e-commerce

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Seven Unique Features of E-commerce
Technology and Their Significance
 Is ubiquitous (available everywhere, all the time)
 Offers global reach (across cultural/national boundaries)
 Operates according to universal standards (lowers market
entry for merchants and search costs for consumers)
 Provides information richness (more powerful selling
environment)
 Is interactive (can simulate face-to-face experience, but on
global scale)
 Increases information density (amount and quality of
information available to all market participants)
 Permits personalization/customization

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Seven Unique Features of E-commerce Technology
Table 1.2,
Page 12

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The Changing Trade-off between
Richness and Reach
Figure 1.2, Page 15

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Types of E-commerce
Classified by nature of market relationship
 Business-to-Consumer (B2C)
 Business-to-Business (B2B)
 Consumer-to-Consumer (C2C)

Classified by type of technology used

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Major Types of E-commerce
Table 1.3, Page 17

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Business-to-Consumer (B2C)
E-commerce
 Involves online businesses attempting to
reach individual consumers
 In 2002, total B2C revenues were about $72-
$78 billion
 Many types of business models within this
category including online retailers, content
providers, portals, transaction brokers,
service providers, market creators and
community providers

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Business-to-Business (B2B)
E-commerce
 Involves businesses focusing on selling to
other businesses
 Largest form of e-commerce ($800 billion in
2002)
 Two primary business models within B2B:
 Net marketplaces (includes e-distributors,
exchanges and industry consortia)
 Private industrial networks (includes single
firm networks and industry-wide networks)

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Consumer-to-Consumer (C2C)
E-commerce
 Provides a way for consumers to sell to
each other, with the help of an online
market maker
 eBay most well-known example
 Estimated that size of C2C commerce
will reach $15 billion by 2004

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Peer-to-Peer (P2P) E-commerce
 Uses peer-to-peer technology, which enables
Internet users to share files and computer
resources without having to go through a
central Web server
 Napster most well-known example until put
out of business for copyright infringement
 Today, Kazaa is the leading P2P software
network,

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M-commerce
 Use of wireless digital devices such as cell
phones and handheld devices to enable
transactions on the Web
 Most widely used in Japan and Europe
(especially Finland)
 Expected to grow rapidly in U.S. over the next
five years.

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Growth of the Internet
 The Internet is a worldwide network of computer
networks built on common standards
 Internet was first created in 1960s
 Today is world’s largest network, connecting over 500
million computers worldwide
 Services include the Web, e-mail, file transfers, etc.
 Can measure growth of Internet by looking at number of
Internet hosts with domain names:
 In January 2003, there were 170 million Internet
hosts with domain names, up from 70 million in 2000
 Growing at about 50% a year

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The Growth of the Internet, Measured by Number
of Internet Hosts with Domain Names
Figure 1.3, Page 20

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Growth of the Web
 Web is the most popular service on the Internet
 Developed in early 1990s
 Provides access to Web pages -- documents
created with HTML
 Can include text, graphics, animations, music,
videos
 Web content in form of Web pages has grown
exponentially, from over 2 billion pages in 2000
to over 6 billion pages in 2003

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The Growth of Web Content
Figure 1.4, Page 21

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E-commerce I and E-commerce II
 E-commerce I: A period of explosive growth and
extraordinary innovation; key concepts developed
and explored
 Begins in 1995, ends in March 2000 when stock
market valuations for dot.com companies begin to
collapse
 Thousands of dot.com companies formed, backed
by over $125 billion in financial capital
 E-commerce II: Characterized by a reassessment of
e-commerce companies and their value
 Begins in January 2001; ongoing

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The Visions and Forces Behind
E-commerce 1: 1995-2000
 For computer scientists:
 Belief that Internet should not be controlled by
government, and remain free for all
 For economists:
 Vision of a perfect Bertrand market and friction-
free commerce, characterized by low transaction
costs, low search costs, price transparency, low
menu costs, dynamic pricing, disintermediation,
and elimination of unfair competitive advantages

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The Visions and Forces Behind E-
commerce I: 1995-2000 (cont’d)
 For entrepreneurs, their financial backers and
marketing professionals, e-commerce represented an
extraordinary opportunity to return far above normal
returns on investment based on:
 Worldwide access to consumers
 New marketing communications technologies that
were universal, inexpensive and powerful
First mover advantages – by building in switching
costs
 Network effects

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E-commerce II: 2001-2007
 Crash in stock market values for e-commerce
companies throughout 2000 marks end of E-
commerce I period
 Reasons for crash:
 Run-up in technology stocks due to enormous information
technology capital expenditure of firms rebuilding their
internal business systems to withstand Y2K
 Telecommunications industry had built excess capacity in
high-speed fiber optic networks
 1999 Christmas season provided less sales growth that
anticipated and demonstrated e-commerce was not easy
(eToys.com)

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E-commerce I and E-commerce II Compared
Table 1.5, Page 35

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Understanding E-commerce:
Organizing Themes
 Technology: Development and mastery of
digital computing and communications
technology
 Business: New technologies present
businesses and entrepreneurs with new ways
of organizing production and transacting
business
 Society: Intellectual property, individual
privacy and public policy

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The Internet and the Evolution
of Corporate Computing
Figure 1.9, Page 41

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Academic Disciplines
Concerned with E-commerce
 Technical Approaches
 Computer scientists are concerned with the
development of computer hardware, software, and
telecommunications system as well as standards,
encryption and database design and operation.

 Management scientists are primarily interested in

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Academic Disciplines
Concerned with E-commerce
 Behavioral Approaches
 Information system researchers are interested in
e-commerce because of its implications for firm
and industry value chain, industry structure, and
corporate strategy. They also focus on data
mining search engine and artificial intelligence
 Economists have focused on consumer behavior
at web sites
 Sociologists
 Legal scholars

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Disciplines Concerned with E-commerce

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