| Lesson 7 || Advantages of e-commerce |
| Objective || Discuss the advantages of using e-commerce. |
Advantages of ecommerce
Ecommerce has the potential to markedly increase the speed, accuracy, and efficiency of business and personal transactions.
Establishing a Web storefront can be as simple as allowing an Internet Service Provider to host your electronic storefront or as involved as leasing your own Internet access line. Compare this to the costs associated with leasing and upkeep of a prime real estate parcel; then consider the broader reach the Internet brings to a Web storefront.
Growth in Information Density
A number of business consequences result from the growth in information density. In e-commerce markets, prices and costs become more transparent. Price transparency refers to the ease with which consumers can find out the variety of prices in a market; cost transparency refers to the ability of consumers to discover the actual costs merchants pay for products.
But there are advantages for merchants as well. Online merchants can discover much more about consumers; this allows merchants to segment the market into groups willing to pay different prices and permits them to engage in price discrimination, selling the same goods, or nearly
the same goods, to different targeted groups at different prices. For instance, an online merchant can discover the avid interest of a consumer in expensive exotic vacations, and then pitch expensive exotic vacation plans to that consumer at a premium price,
knowing this person is willing to pay extra for such a vacation. At the same time, the online merchant can pitch the same vacation plan at a lower price to more price-sensitive consumers.
Merchants also have enhanced abilities to differentiate their products in terms of cost, brand, and quality
Brief History of e-commerce
Long before the World Wide Web, electronic networks were used to support transactions between businesses and their various external components such as suppliers or customers.
In the 1970s, forward-thinking manufacturers and wholesalers deployed proprietary data networks and simple terminal-based remote ordering systems to business customers. In three of the most famous examples from this era,
- pharmacists could replenish prescription drug stocks by filling out an electronic form on a terminal provided by McKesson,
- hospitals could use computer terminals to order a wide range of medical supplies from American Hospital Supply, and
- travel agents could look up flights on a computer terminal connected to American Airlines Sabre system.
Soon the value of computer networks to link business buyers and sellers was well established, and efforts to create standard electronic documents to support trade were occurring across many industries. These latter standards were collectively called EDI (electronic document interchange). In some industries, such as automobile manufacturing and chemical production, EDI transactions proliferated because their use was mandated by large, dominant manufacturers. However, because EDI standards were complex and the proprietary data networks on which they relied were costly to implement, especially for small businesses, the extent of EDI diffusion was limited. Unlike the Internet, these proprietary networks took substantial time, investment, and effort before any new trading partner could join.
There were precursors to consumer-based e-commerce as well. The Home Shopping Network on cable television, in which consumers can use a standard telephone to order goods displayed on TV, certainly resembles a web-based electronic retailing model.
Even more similar, were the many different electronic information services, collectively known as videotex, that developed largely in Europe and the United States in the 1980s. As with the Internet, these services were offered over a public network to which anyone could connect. In addition they used a single standard and relied extensively on graphical content. Unlike with the Internet, a clear payment model was implemented, with France Telecom (at the time, the public administration responsible for the provision of all telecommunications networks and services in France) providing a
"billing and collection" service for all companies that wished to sell by means of Minitel. Consumers received the bill for their Minitel use on their regular phone bill, and France Telecom, in turn, paid the various service providers.
Hence, the cost of participating in the Minitel marketplace was quite low, and by the early 1990s, there were over 25,000 services available, including both consumer-oriented and B2B services. Today, even with the Internet firmly entrenched in
France and with many other telecommunications operators competing with France Telecom, the Minitel survives and generates revenue.
The benefits of ecommerce
- Instant worldwide availability and easier entry into new markets
- Streamlined buyer-to-seller relationship
- Reduced paperwork, errors, time, and overhead costs
- Improved market and product analysis
The next lesson wraps up this module.