Introduction to Electronic Commerce

Key themes addressed

Some of the key themes addressed in this book are summarized in Exhibit 4. First, we introduce a number of new themes, models, metaphors, and examples to describe the business changes that are implied by the Internet. An example of one of our metaphors is Joseph Schumpeter's notion of creative destruction . That is, capitalist economies create new industries and new business opportunities. At the same time, these economies are destructive in that they sweep away old technologies and old ways of doing things. It is a sobering message that none of the major wagon makers was able to make the transition to automobile production. None of the manufacturers of steam locomotives became successful manufacturers of diesel locomotives. Will this pattern continue for the electronic revolution?

Amazon.com has relatively few employees and no retail outlets; and yet, it has a higher market capitalization than Barnes & Noble, which has more than one thousand retail outlets. Nonetheless, Barnes & Noble is fighting back by creating its own Web-based business. In this way, the Internet may spawn hybrid business strategies–those that combine innovative electronic strategies with traditional methods of competition. Traditional firms may survive in the twenty-first century, but they must adopt new strategies to compete. In this book, we introduce a variety of models for describing these new strategies, and we describe new ways for firms to compete by taking advantage of the opportunities that electronic commerce reveals.

Exhibit 4. Key themes addressed by this book

1. New models, theories, metaphors, and examples for describing electronic commerce and its impact on business and society

2. Describing the reliability and robustness of the technology that underlies the Internet and its multimedia component (the Web)

3. Describing how organizations can compete today, with an emphasis on outlining electronic commerce strategies and tactics

4. Predicting the future, especially the impact of information technology on future business strategies and business forms (e.g., "Amazoning" selected industries)

5. Describing technology trends that will emerge in the future

6. New ways of communicating with stakeholders and measuring communication effectiveness

7. Comparing and contrasting the Internet with other communication media (e.g., TV and brochures)

8. Key features of the Internet which make it a revolutionary force in the economy (a force of creative destruction)

9. The multi-disciplinary perspective that is necessary to comprehend electronic commerce and the changes it inspires in the economic environment. Here, we focus on three disciplinary approaches:

10. Elements that underlie effective Web pages and Web site strategy.

11. New kinds of human interactions that are enhanced by the Internet, such as:

12. New marketing strategies for pricing, promoting, and distributing goods and services

At the same time that information technology has the potential to transform business operations, it also has the potential to transform human behaviors and activities. The focus of our book is business strategy; so we concentrate on those human activities (e.g., consumer behavior) that intersect with business operations. Some examples of consumer behaviors that we discuss include: virtual communities; enhanced information search via the Web; email exchanges (e.g., word-of-mouth communications about products, e-mail messages sent directly to organizations); direct consumer purchases over the Web (e.g., buying flowers, compact disks, software). Of course, the Internet creates new opportunities for organizations to gather information directly from consumers (e.g., interactively). The Internet provides a place where consumers can congregate and affiliate with one another. One implication is that organizations can make use of these new consumer groups to solve problems and provide consumer services in innovative ways. For instance, software or hardware designers can create chat rooms where users pose problems. At the same time, other consumers will visit the chat room and propose suggested solutions to these problems.

Value to organizations is one of our themes. As described previously, organizations can create value via the Internet by improving customer service. The stock market value of some high technology firms is almost unbelievable. Consider the U.S. steel industry, which dominated the American economy in the late nineteenth century and the first half of the twentieth century. As of March 1999, the combined market capitalization of the 13 largest American steel firms (e.g., U.S. Steel and Bethlehem Steel) is approximately USD 6 billion , less than onethird the value of the Internet bookseller, Amazon.com. On most days, the market capitalization of Microsoft rises or falls by more than the market capitalization of the entire U.S. integrated steel industry. Firms such as Microsoft do not have extensive tangible assets, as the steel companies do. In contrast, Microsoft is a knowledge organization, and it is this knowledge (and ability to invent new technologies and new technological applications) that creates such tremendous value for shareholders.

At the same time, technology creates value for consumers. Some of this value comes in the form of enhanced products and services. Some of the value comes from more favorable prices (perhaps encouraged by the increased competition that the Internet can bring to selected industries). Some of the value comes in the form of enhanced (and more rapid) communications–communications between consumers and communications between organizations and consumers. In brief, the Internet raises quality of life, and it has the potential to perform this miracle on a global scale.

To date, the Internet has begun to make some big changes in the business practices in selected industries . For instance, electronic commerce has taken over 2.2 percent of the U.S. leisure travel industry. In the near future, the Internet has the potential to transform many other industries . For instance, the USD 71.6 billion furniture business is a possibility. Logistics is a key for success in this industry. Consumers would expect timely delivery and a mechanism for rejecting and returning merchandise if it didn't meet expectations.

What is the future of electronic commerce? As in any field of human endeavor, the future is very difficult to predict. We describe the promise of electronic commerce. As reflected in the stock prices of e-commerce enterprises, the future of electronic commerce seems very bright indeed. In this book, we present some trends to come, by taking a business strategy approach.

One way to try to understand the future of the Internet is by comparing it to other (communication) technologies that have transformed the world in past decades (e.g., television and radio). Another way to understand the Internet is to consider the attributes that make it unique. These factors include the following:

The Internet is complex. We adopt an interdisciplinary approach to study this new technology and its strategic ramifications. Specifically, we concentrate on the following three disciplines: management information systems, marketing, and business strategy. As described at the outset of this chapter, we show how the Internet is relevant for communicating with multiple stakeholder groups. Nonetheless, since we approach electronic commerce from a marketing perspective, we concentrate especially on consumers (including business consumers) and how knowledge about their perspectives can be used to fashion effective business strategies. We focus on all aspects of electronic commerce (e.g., technology, intranets, extranets), but we focus particular attention on the Internet and its multi-media component, the Web.

For a variety of reasons, it is not possible to present a single model to describe the possibilities of electronic commerce. For that reason, we present multiple models in the following chapters. Some firms (e.g., Coca-Cola) find it virtually impossible to sell products on the Internet. For these firms, the Internet is primarily an information medium, a place to communicate brand or corporate image. For other firms (e.g., Microsoft), the Internet is both a communication medium and a way of delivering products (e.g., software) and services (e.g., on-line advice for users). In brief, one business model cannot simultaneously describe the opportunities and threats that are faced in the soft drink and software industries. The following section provides more details about this book and the contents of the remaining chapters.