E-commerce Fundamentals  «Prev  Next»
Lesson 1

e-Commerce Fundamentals

Conducting ecommerce on the World Wide Web no longer qualifies as a novelty. Companies, both large and small, non-profit organizations and governments, now enable customers to purchase products and services over the Web. Web-based ecommerce has already had an earth-shattering impact on the world of business, yet the Web's effect on business can be observed on a daily basis. Companies and organizations of all types should expect several more years of dramatic change to their business models due to the influence of Web-based ecommerce. Ecommerce's phenomenal penetration in all kinds of industries means that understanding the fundamentals of ecommerce, both from a business and technical perspective, is necessary for practically every business endeavor and thus for every business person. In this module, we will introduce the basic concepts of Web-based ecommerce, how ecommerce has influenced business, and begin to explore the business advantages and disadvantages of deploying a Web ecommerce site.

Learning objectives

At the end of this module you will be able to:
  1. Define ecommerce
  2. Distinguish between various ecommerce models
  3. Discuss how ecommerce has, in general, impacted business models
  4. Identify key pros and cons to conducting business using Web-based ecommerce
As your online business grows, you will need to respond to the changing needs of your customers. In the next lesson, you will see how the concept of ecommerce is continually being redefined.

Early Years of Ecommerce

The early years of ecommerce had all the characteristics of a gold rush, as companies flocked to the web to set up their electronic storefronts. Lured by the rapid growth of amazon.com, an enormous flow of investment capital was poured into Internet start-up firms selling everything imaginable on the Web. For example, there was a report that more than $125 billion was invested in the initial public offerings (IPOs) of Internet firms between 1996 and 2000. The birth of a new digital economy was proclaimed, characterized by a seemingly unending growth in productivity rooted in the supposedly frictionless commerce afforded by the Internet. The new Web-based businesses theoretically offered such benefits as access to a larger potential market, lower inventory and building costs, more flexibility in sourcing inputs, improved transaction automation and data mining capabilities, an ability to bypass intermediaries that added costs but little value, lower costs for adjusting prices, increased ease of bundling complementary products, and no limitation on depth of information provided to potential customers . These advantages were expected to allow Internet firms to enter new markets at a lower cost and respond rapidly to shifts in market demand. Moreover, because the Internet also lowered consumers search costs (e.g., they did not have to drive from business to business to compare prices), prices would decline and Internet firms would prosper at the expense of traditional firms
Despite these projections for ecommerce, in late 2000 and early 2001, many of the dot-com companies began to fail. Few ever made any profits, as their business approach revolved around scaling up to increase market share. This approach was based on the belief that Internet businesses would enjoy positive network externalities, implying that the more people who used a site, the more value it would have for each user. The dotcoms that could attract the most users the fastest would, thus, have an insurmountable competitive edge. In search of the required scale, Internet firms kept prices too low and quickly burned through the cash raised from venture capitalists. At the same time, the U.S. economy began to slip into a recession, and venture capitalists began to lose faith in the viability of start-ups that failed to return any profits. Stock prices, which were far too high by normal investment standards, dropped dramatically, and the venture capital community lost interest in businesses during the dot-com era. By the end of 2001, the dot-com era was over, and according to one estimate, only about 10% of the dotcoms created since 1995 still survived.

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