Ecommerce

Hussein Abdoh Tabrizi
November 13, 2000

Economic and Financial
Impacts of Ecommercing

November 13, 2000
Macroeconomic Implications of Ecommerce
The industry-level and economy-wide investments
related to ecommerce?
Implications for growth, employment, productivity, and
inflation?
How can these investments and their effects be
untangled from the influence of other phenomena?
How should we identify and measure the key drivers of
the ecommerce?
How should we account for intangible consumer
benefits and burdens?
How pervasive is ecommerce in the economy, between
businesses and business and consumers?
November 13, 2000
What is
ecommerce?

November 13, 2000
Ecommerce 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)
http://www.ispo.cec/be/Ecommerce/whatis.htm
November 13, 2000
ECOMMERCE includes at least the
following:
The exchange of goods and services
across an interactive digital network
A computer-mediated and virtual market
with new relationships among businesses
and consumers
A digital means of exchange (digital
money, ecash, secure credit card
transactions)
The increasing importance of digital
information as a commodity
November 13, 2000
More:
New business processes and technologies
to support digital transactions
New business strategies and models to
gain a competitive edge in the digital
marketplace
Technologies to ensure privacy and
protect intellectual property
A legislative and regulatory environment
that supports ecommerce (domestic and
international)
November 13, 2000
It enables companies
To Be more efficient and flexible in
their internal operations,
Work more closely with their suppliers,
Be more responsive to the needs and
expectations of their customers,
Select the best suppliers regardless of
their geographical location, and
Sell to a global market.
November 13, 2000
Benefits of an ecommerce business:

reduces distribution costs or cost-of-sales shrink to
near-zero. Examples include: publishing, information
services or digital products categories

these can be delivered immediately- this may lead to
massive disintermediation or even the eventual
elimination of middleman

buyers and sellers can access and contact each other
directly, potentially eliminating some costs and
constraints of phone, letter, and fax
November 13, 2000
More
selling- more of the selling function is in the hands of
the customer, through online ordering and the use of
fillout forms.This also allows the capture of customer
information

firms can engage in dialog or communications with
buyers

competitive intelligence- web technology allows the
gathering market intelligence and monitoring of
consumer choices through customers revealed
preferences in browsing and buying
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Corporate
ISP/VAN
Dist
Manufacturing
Suppliers
Government
Banks
Credit Card
Companies
Retail
Consumers
Internet Service
Providers
November 13, 2000
Ecommerce
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 net
This changes traditional manufacturing
and distribution processes
November 13, 2000
Traditional 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
November 13, 2000
components of a virtual economy
Virtual
players
Virtual
processes
Virtual
products
The
net
November 13, 2000
Virtual players
People, organizations, or automated agents
with an online presence
Virtual products
Digitized objects/services: currency, text,
multimedia, tickets, reservations, electric
usage, pay-for-view, smart houses
Virtual processes
Participants interact digitally,
interactively, and in real time (online
ordering/payment; JIT inventory control;
customized advertising)
November 13, 2000
Virtual intermediaries
Provide essential services: certification,
authentication, quality assurance, copyright
clearance, distribution
Education brokers: bringing instructors and
students together online
Market organizers: establish meeting places
for buyers and sellers (auctions...)
Personalized service providers: shoppers,
information filtering, travel agent, financial
services
November 13, 2000
virtual firm
Assumes that they exist in an environment
where transaction costs are low
They do not have to be based in a single
geographic location
Business processes can be distributed globally
and take place on the net
The value chain is digital
November 13, 2000
More:
Products can be delivered through a digital
web of business relationships with producers,
financiers, distributors, consumers
Producers, suppliers, warehouses, managers,
administrator, subcontractors are all linked
through an extranet
Many functions can be easily outsourced
(accounting, personnel management, training,
public relations)
November 13, 2000
Convergence in ecommerce
Products, processes, and infrastructure all
converge in the global digital marketplace
Product: audio, video, still images, text all
in the same digital format
Process: multiple uses from a virtual
process make other processes redundant
Consumer feedback is used for product
change, marketing, sales, pricing, and
service
November 13, 2000
Supplier opportunity Customer benefit

Global presence Global choice
Improved competitiveness Quality of service
Mass customizing and Personalized products
targeting and services
Shorten or eradicate Rapid response to
supply chains needs
Substantial cost savings Substantial price
reductions
New business opportunities New products and
services
http://www.ispo.cec.be/ecommerce/introduc.htm
November 13, 2000
Ecommerce can:
Reduce costs
Shorten product cycle times
Provide more rapid customer response
Improve customer support and service
Focus marketing efforts
November 13, 2000
E-commerce and economic efficiency: Costs

The cost of owning and operating
a physical establishment

To carrying an inventory...
... to conducting a sale...

To placing an order

To customer support and
after-sales service...
To simple purchase orders and

Product distribution that is expected
to fuel strong growth
in the business-to-business
segment of e-commerce
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Economic: business incentives for
ecommerce
Product promotion and customization
through the direct connection to
consumers
Developing and exploiting new sales
channels (products, information,
advertising,transactions)
Reduced costs of business transactions
through a public shared infrastructure
Reducing time to market for certain types
of products
November 13, 2000
More:
Improving customer relationships with
intelligent systems for service and support
Improving marketing and targeted advertising
through the collection of detailed customer
information
New corporate branding and image creation
Using the net for R&D and product development
Developing of new business models based on
characteristics of the new marketplace
November 13, 2000
Current commercial uses of the net
Commercial sites
Storefronts, virtual communities, multiple
user gaming
Advertising: $150-200 million in 1996
Banner ads, targetted email (ads and
product/service updates), customized web
ads, spam
November 13, 2000
More:
Commercial services
Payment, product delivery, information
collection, evaluation, and delivery
Non-digital product transactions
Books, cars, and other tangible goods
Digital product transactions
Publications, freeware, shareware, demo
software, reservations, financial services
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Continued...
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Growth
From $6.1 billion (1998) to $20 billion in sales
by 2000 in the US
Gartner Goup, 1998
6.8 million households and 16 million people will
trade online (1998) - 15.2 million households
and 33 million people by 2000
Jupiter Communication (1998)
This is ~1% of the economy ($8.5 trillion)
Business to business ecommerce: from $15.6
billion (1998) to $175 billion in 2000
November 13, 2000
According to OECD:
Total ecommerce is $26 billion for 1997 that is
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
economies
Predicted to reach $330 billion in 2001-02
(near term) and $1 trillion in 2003-05
(future)
If realised, OECD-wide ecommerce will be
equivalent of 15% of the total retail sales of
seven OECD countries.
http://www.oecd.org/subject/e_commerce/ebooks/part3e.pdf
November 13, 2000
Source: Jupiter Communications. (1998)
http://www.jup.com/digest/980116/stat.shtml
Ecommerce in US households: 1996-2002
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Future
Infrastructure: during the next few years,
digital interactive services of all types are
expected to converge
Telephone, cable, microwave, satellite are all
moving into the same arena and losing their
monopolies
Television, computers, radio, pagers, and
cellular telephones are expected to share
functionality and attributes
You can watch WebTV and TV on your
computer or your TV
November 13, 2000
In the global economy
Competitive advantage to companies that are
successful early adopters of ecommerce
This will be true in nations with government
economic and regulatory support for
ecommerce
Nations with highly trained labor forces will
benefit from distributed value chain
November 13, 2000
Challenges:
Overcome the limitations and asymmetries of
the infrastructure
Implement hardware and software to fully
exploit bandwidth, especially to the last mile
Provide universal access at reasonable cost
Provide secure frameworks for business- to-
business and -to-consumer transactions
Integrate electronic payment into the buying
process
November 13, 2000
Framework for Global Ecommerce

Organizational Change
Ecommerce has the potential to change the structure and
performance of organizations and human enterprise.
Small Business
Much of the innovative activity in the ecommercing
appears to have come from small firms.
Access
The growth and success of the ecommercing depends on
the ability of businesses and citizens to participate
Market Structure and Competition
Market demand for skilled and knowledgeable workers
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Present State in Developing Countries
Technical: The infrastructure necessary
to support ecommerce is not in place
The hardware and software are
becoming more powerful and dropping in
price
Beginning to understand the economics of
networking and ecommerce
Totally rely on developments and
experiments underway abroad,
particularly in business-to-consumer
ecommerce
Trying to build a consumer marketplace
November 13, 2000
To Develop Ecommerce in Third World

The private sector should lead.
Governments should avoid undue restrictions on
electronic commerce.
The aim of governmental involvement should be to
support and enforce a predictable, minimalist,
consistent and simple legal environment for
commerce.
Governments should recognize the unique qualities
of the Internet.
November 13, 2000
APEC Leaders Declaration
Vancouver, Canada
November 25, 1997
We agree that electronic commerce is one of the most important
technological breakthroughs of this decade. We direct ministers to
undertake a work program on electronic commerce in the region,
taking into account relevant activities of other international fora,
and to report to us in Kuala Lumpur. This initiative should
recognize the leading role of the business sector and promote a
predictable and consistent legal and regulatory environment that
enables all APEC economies to reap the benefits of electronic
commerce.
November 13, 2000
ISSUES
Financial Issues
customs and taxation
electronic payments
Legal Issues
Uniform Commercial Code for electronic commerce
intellectual property protection
privacy
security
Market Access Issues
telecommunications infrastructure and info. technology
content
technical standards
November 13, 2000
Need of Standards
Ensure growth of ecommerce standards needed:
Electronic payments;
Security (confidentiality, authentication, data
integrity, access control, non-repudiation);
Security services infrastructure (e.g., public key
certificate authorities);
Electronic copyright management systems;
Video and data-conferencing;
High-speed network technologies;
And digital object and data interchange
November 13, 2000
Macroeconomic Implications of Ecommerce

The industry-level and economy-wide investments
related to ecommerce?
Implications for growth, employment, productivity, and
inflation?
How can these investments and their effects be
untangled from the influence of other phenomena?
How should we identify and measure the key drivers of
the ecommerce?
How should we account for intangible consumer benefits
and burdens?
How pervasive is ecommerce in the economy, between
businesses and business and consumers?
November 13, 2000
Economic drivers of e-commerce: Five broad themes
The effect on the marketplace: Electronic commerce transforms
the marketplace- far closer relationships will be created between business
andconsumers.
The catalytic role: Electronic commerce has a catalytic effect
The impact on interactivity: E-commerce over the Internet vastly
increases interactivity in the economy
Openness: Openness is an underlying technical and philosophical
tenet of the expansion of electronic commerce
The relative importance of time is fundamental to understanding
the economic and social impact of electronic commerce:
Electronic commerce alters the relative importance of time.

Ecommerce

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Hussein Abdoh Tabrizi

November 13, 2000

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