The main objective of this work is to provide readers with three-dimensional insight on operational essence of eCommerce, as such that is closely interrelated with economics, politics and technology, because we believe that it is only when the practitioners of eCommerce understand the full scale of implications, related to conducting business online, that they will be able to take a full advantage of this innovative commercial concept.
In the first part of this work (1-3), apart from outlining the methodological and data-collecting principles, we discuss various technological aspects of eCommerce. The second part (4-6), is dedicated to the economic analysis of competitive advantages and disadvantages, associated with eCommerce. In the third part of this dissertation (7-8), we analyze the concepts of B2B (business to business) and B2C (business to customers) e-commercial concepts and discuss what represents the main issues that affect eCommerce in general. In part (9) of our work, we talk about the effects of eCommerce on small and medium commercial enterprises (SME), while defining both: advantages and risks, associated with adoption of eCommerce by SMEs.
The sub-chapter 9.4 (Case study), contains three interviews with CEOs of well-established web-designing companies in Europe: Roland Hertelendy (Webshark Ltd), Alexander Hailfinger (Terrabit GmbH) and Peter Szverle (Paper-Form Ltd), and also the short summary of conclusions that derive out of reading these interviews. In the final part of dissertation (10), we summarize our earlier findings, in regards to eCommerce, forecast the eventual adoption of purely informational subtleties by eCommerce, and come up with recommendations as to what represent the most effective principles of eCommerce’s utilization, by the owners of SMEs.
Electronic Commerce and its effects on SME (Small to Medium Enterprises
The role of electronic commerce, within a context of post-industrial business environment, continues to gain recognition among increasingly larger number of people, due to objective reasons. The rise of informational technology, associated with post-industrial era, resulted in transforming the very essence of many commercial activities. In its turn, it created a situation when the potential of classical approaches to running business, cannot be fully utilized.
At the same time, the innovative methods of making the particular line of products of services commercially appealing, have not yet gained a widespread popularity, simply because the pace of economical progress, falls behind the pace of technological progress. The foremost value of post-industrial society is “stability”, which is the reason why implementation of new technologies into the core of commercial activities often does not seem to proceed with sufficient speed. Nowadays, we face a certain paradox – despite the fact that the practical advantages of eCommerce appear as being self-evident to many commercial operators, they do not always show a lot of enthusiasm, while incorporating eCommerce into their vision of business strategy.
This is despite the fact that the cost of going online for these operators does not represent any challenge. In her article “Put Your Business Online”, Jane Clark suggests that: “In web-design business, you could pay as little as $12 a month for an online presence or as much as $10,000 for a professionally designed Web site with enough sizzle to set the server on fire. Whatever route you choose, you will come out ahead. In fact, you cannot afford not to go online if you plan to attract clients or set up a storefront” (Clark, 2008).
Up until 1995, 90% of all online transactions accounted for governmental contracts. Nowadays, situation changed drastically. In the same article, from where we have already quoted, author provides with following information: “E-commerce retail sales in the second quarter of 2007 increased 21% over the same quarter in 2006, according to the Census Bureau. For all of 2006, e-sales topped $100 billion” (Clark, 2008). Thus, it is an undeniable fact that the market share of eCommerce continues to increase.
However, it appears that this process is being slowed down by people’s “existential stagnancy”, which often prevents them from opening their minds to new ideas. Therefore, the main aim of this research project is to obtain a better understanding of practical implications of eCommerce, as an innovative business approach, because the possession of such understanding, on the part of managers, is going to define the rate of their organizations’ competitiveness in post-industrial era.
Project Aims and Research Questions
During the course of this research, we will define technological foundation, upon which the concept of electronic commerce is based, will explore various factors that affect the practical utilization of this concept and will also point out at differences between application of eCommerce on different corporate levels. In its turn, this will provide us with the insight on the value of eCommerce, as the way of boosting small companies’ commercial efficiency.
Given the strategic nature of this research, we will need to resort to Porter’s Five Forces Model of Industry, in order to position eCommerce, within a context of commercial marketing. This is because Porter’s Five Forces Model is based on the principle of inductive inquiry. Inductive inquiry allows researcher to define the essence of existential trends, associated with the subject of research. In other words, we will only be able to come up with concrete suggestions, as to the best ways of how eCommerce can be utilized on level of small business, if we have the complete understanding of eCommerce’s global implications.
In his article “The Case for Inductive Theory Building”, Edwin Locke makes a very good point, while suggesting that the application of method of inductive inquiry is most suitable when researchers strive to analyze the very nature of socio-political or economical phenomenon, because the results of empirical studies that exploit inductive method, have universal value, as they appear to be more “time-resistant”: “This method (deductive) makes for quick and often short-lived theories; in contrast, true inductive theorizing takes many years, even decades, and, I believe is far more likely to withstand the test of time” (Locke, p. 870).
Thus, we will study different aspects of eCommerce, as the method of increasing the effectiveness of business processes, while stressing out the global nature of this concept. In its turn, this will allow us to make practical use of empirical data, obtained during the course of a study.
This research project will be conducted mainly by qualitative research methods and accompanied by analysis of secondary data. The reasons for choosing qualitative research method instead of quantitative research method are due the nature of the research project. Given the fact that that eCommerce is comparatively new concept, it remains in process of continuous transformation; therefore, the statistical data, obtained during different phases of electronic commerce’s development, only has a supplemental value, as it cannot provide us with the understanding of driving force behind the concept of “shopping online” gaining popularity among more and more people.
Moreover, qualitative research method appears as being more suitable, within a context of conducting inductive study, because it regards exploring the psychological factor as an important element of a research process. In their book “Qualitative interviewing: The Art of Hearing Data”, Herbert Rubin and Riene Rubin imply that qualitative approach to empirical study is more appropriate when the subject of research lack static properties: “Qualitative research methods emphasize the depth of understanding associated with idiographic concerns. They attempt to tap the deeper meanings of particular human experiences and are intended to generate theoretically richer observations that are not easily reduced to numbers” (Rubin, Rubin, p. 25).
We cannot talk of electronic commerce as simply one among many ways to conduct commercial operations. Given the fact that this concept directly derives out of technological progress, closely associated with post-modern (rapid development of informational hi-tech), shopping online is being viewed as the way of self-expression, on the part of great many customers. Therefore, it would be wrong to resort to rationalization, as only the method of dealing with the issue. Within a context of analysing the concept of eCommerce, our qualitative method will consist of reviewing relevant literature, collecting statistical data and establishing logical links between such data and our vision of eCommerce as sub-system, within a system of Global economy, as whole.
As we have mentioned earlier, we will mostly rely on review of relevant literature, during the course of conducting this study. At the same time, in order for us to understand the full spectrum of issues that surround the implementation of eCommerce, as innovative business method at present time, we will conduct a semi-structured interviews with representatives of “e-management”. Roland Hertelendy, CEO of Webshark Ltd., Alexander Hailfinger; CEO of Terrabit GmbH and Peter Szverle, CEO of Paper-Form Ltd are interviewed. We will fully explain the purposes, aims, contexts of this research project to the interviewees.
Structure of study
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Here a brief description (more then a TOC) should be inserted about the structure of the study (how it is built up)
Internet and eCommerce, the new business environment
It is now became a journalistic cliché to suggest that the process of Globalization resulted in elimination of many cultural and economic barriers between countries. Many people believe that this comes as a result of Liberal values being imposed upon citizens. However, the truth appears to be more prosaic – the process of independent countries being deprived of some of their sovereign rights, for the purpose of increasing the efficiency of business practices, only indirectly relates to governments’ intentions to improve the well-being of ordinary people.
This is the reason why, despite the claims that “world became smaller”, more and more barriers are being erected, in order to prevent as many people as possible from traveling internationally. At the same time, the international transactions of large amounts of money continue to take place on ever-increased scale, which allow us to conclude that the process of Globalization does cause world to become “smaller”, but only in financial sense of this word.
There are three trends that define the existential essence of post-industrial economy – the increased manufacturing specialization, the process of outsourcing, and governments’ strive to keep the process of economy being affected by the rise of new informational technologies under its firm control. In its turn, this explains why many economists still lack a clear futuristic vision of economic concepts that were originated after the rise of Internet, at the end of 20th century. The post-industrial business environment often results in the process of manufacturing being alienated from the process of making financial profits. The new informational technologies provide the additional boost to this economic tendency.
For example, the financial transactions that take place between banks over the internet, do not involve handling cash, as physical equivalent of objective physical values. Thus, it would be wrong to suggest that the term “global economy” only has implications, in regards to the relation between producers and consumers. In their article “The New Economy: Myth and Reality”, William K. Tabb and Michael D. Yates, provide us with the insight on the fact that economic Globalization has a potential of changing the classical essence of economic processes, as we know them: “New Economy is the ability of corporations to generate a flood of information in miniseconds, allowing them to reduce unnecessary inventory and dispense with labor and capital redundancies…
Until the mid-1990s, the billions of dollars that businesses had poured into information technology seemed to leave little imprint on the overall economy. But in 1995 all that changed” (Tabb, Yates, 2001). Whereas, during the era of “classical capitalism”, the possession of information, on the part of commercial entities, served simply as a tool of increasing the rate of their competitiveness; nowadays, the possession of relevant information has acquired self-sustainable properties.
In other words, the new business environment only implies indirect links between the process of manufacturing and the exchange of information. This is the reason why the concept of electronic commerce is slowly being deprived of its original status of “supplementary tool” of traditional commerce.
As time goes by, it is very likely that more and more firms that specialize in electronic commerce will tend to prioritize the trade of information, as something that constitutes the bulk of their commercial activities. Nevertheless, since the concept of eCommerce is often being seen as such that eliminates the notion of “middle man”, as the essential element of trading practices, it appears that more commercial operators will strive to make their products and services available online in the future, as the way to increase their operational efficiency.
What is the Electronic Commerce?
Electronic commerce is best defined as conducting business online. In his book “Electronic Commerce”, John Vacca comes up with more detailed description of eCommerce, as economic phenomenon of informational era: “Electronic commerce is about using the power of digital information to understand the needs and preferences of each customer and each partner to customize products and services for them, and then to deliver the products and services as quickly as possible” (Vacca, p. 3).
We can only agree with the author – electronic commerce greatly simplifies the exchange of commercial information; it allows people to do their banking and their shopping, without leaving their homes. It made possible the emergence of many new types of businesses, the existence of which would have been impossible, before the rise of Internet.
The fact that more and more people continue to familiarize themselves with Internet applications creates objective preconditions for the concept of eCommerce to gain a status of one among many conventional ways to conduct business. “eEurope 2002 Final Report”, prepared by Commission to the Council of European Parliament in 2002, allows us to realize a sheer speed, with which Internet finds its way across the Europe: “Almost all large enterprises (with more than 250 employees) and over 80% of all companies with more than 10 employees are using the Internet… Internet connectivity of schools reached 93% in February 2002…
The percentage of the European workforce teleworking (regularly or occasionally) raised from 5.6% in 2000 to 8.2% in 2002 (Diritto & Diritti – Electronic Law Review, 2002). Thus, it will not be an exaggeration, on out part, to suggest that the concept of electronic commerce is yet to reveal its full commercial potential. Even today, it remains beyond comprehension, for technologically advanced consumers, how it can be possible to shop for books, for example, without going online. The situation with the spread of IT technologies nowadays closely reminds us the events, associated with invention of telephone in 19th century.
Back then, only economists with well-developed sense of imagination would come up with suggestions that the concept of telephony might become an integral part of conducting business. Yet, at the beginning of 20th century, it became clear to everyone that the possibility of staying in touch, over great distances, automatically means the possession of a great competitive advantage, on part of those businessmen who were capable of seeing the commercial benefits of telephony. We can draw certain parallels between the spread of telephony and Internet. Even as recent back as 15 years ago, eCommerce applications were only thought to have a supplementary value.
Nowadays, the situation has changed drastically, with electronic commerce expected to account for 13% of all retail sales in the world by 2010. Reading Scott Koerwer’s article “The Top 10 Most Significant Ecommerce Developments” comes in handy, within a context of envisioning the future of eCommerce: “According to recent surveys during upcoming 5 years e-commerce will develop very fast and retail sales in US are expected to take off: it will grow annually on about $20 billion to $30 billion and by 2012 will reach, at least, $215 billion” (Koerwer, 2007).
The very principle of eCommerce naturally derives out of the concept of technological progress; therefore, it has objective properties. In its turn, this allows us to conclude that the attempts to exercise a strict control over eCommerce transactions, on the part of authorities, can never be fully effective.
Ways to be Presented on the Internet
It is commonly assumed that there are five major eCommerce applications: an online shopping, payment processing, order fulfillment and shipping, customer service and promotion.
An online store is actually a specially designed web site that features the line of products or services, available for purchasing, which can be done via Internet. After having selected an item of interest, customers are given various payment options, such as credit card payment, money order payment, Pay Pal payment etc., with the mean of which, they can acquire a desired item, in the matter of seconds. The Amazon.com is probably the most famous online store, which features a wide range of products, 24 hours a day.
Even though that it originally specialized only in selling books; nowadays, the range of items that can be bought at Amason.com include: MP3 downloads, musical instruments, video games, home appliances, electronics, furniture, clothing and even groceries.
Bank’s clients are able to manage their accounts, to send and to receive money, and to choose in favor of different financial options – all without having to be physically present at the bank, during the course of the process. As time goes by, the principles, upon which online payment processing is based, continue to become more user-friendly, in order to encourage more people to resort to the option of making payments online, as it greatly relieves organization’s staff, which in its turn, increases the rate of organizations’ overall efficiency.
An online order fulfillment and shipping has been steadily gaining popularity among customers in recent years, as something that allows them to save a great deal of time, when it comes to goods’ delivery, and to also remain in control of all phases of shipping process. For example, FedEx had introduced its sophisticated web system of parcels’ tracking back in 1997. By 2001, all FedEx’ main competitors, such as UPS, DHL and USPS had similar systems fully operational. Today, it is virtually impossible to think of the process of shipping/receiving as something that has not been affected by electronic commerce. As it is the case with the rest of eCommerce applications, an online order fulfillment and shipping has become quite indispensable, within a context of air, land, and maritime transportation.
The concept of adequate customer service, as an essential part of producers/buyers interactive process, has traditionally been discussed as the tool of increasing customers’ loyalty. People who are being fully satisfied with how they were treated by companies’ staff, during the course of purchasing, are more likely to come back. The rate of customers’ satisfaction directly relates to whether they were given all necessary information about selected item, prior to the actual act of purchasing.
This is why all major retail centers, virtually all large book and music stores, railway and bus stations and airports are being equipped with computerized customer service system, which is connected to World Wide Web. Nowadays, even medium size manufacturers provide buyers with 24 hours customer support, often in form of live Internet chat. It is only natural for the companies that specialize in designing software to be on the leading edge of implementing eCommerce into the very core of their vision of what the notion of customer support stands for.
For example, Digi-Net Technologies. Inc., located in Gainesville, Florida, have long ago realized that in very near future, people are going to think of the principle of customer service as the ultimate tool to satisfy their longing for interaction, rather then simply the source of technical information. The front page of Company’s web site contains a following statement: “Today’s Web customers have become savvier and their demand for immediate satisfaction is only matched by their need for accurate information. Merely publishing an online catalog no longer satisfies the needs of an online customer.
By implementing an e-commerce and customer service software solution, e-businesses are better equipped to provide the level of interaction that many Web customers demand” (Digi-Net Technologies, 2008). The fact that the concept of online customer support gradually transforms its original essence can be explained by the realities of post-industrial living. We will discuss this thesis later, during the course of this work.
In order for the products and services to be successfully sold, they need to be advertised on continuous basis. The enthusiasts of eCommerce have long ago realised that informational technologies open an entirely new horizons for commercial operators, when it comes to advertising and promotion. This is due to multifunctional nature of Internet. Joe Cappo in his book “Future of Advertising : New Media, New Clients, New Consumers in the Post-Television Age”, makes a perfectly good point when he suggests that: “The multidimensional adaptability of the Internet is what makes it superior to all other media. In fact, one of the Internet’s strengths is its capability of distributing many other media…E-commerce has only recently begun to have an impact on the retail segment of the market. The potential for increased consumer commerce on the Internet is boundless” (Cappo, p. 195).
Even today, it represents quite a challenge to mention all the ways Internet is being used by commercial operators to promote various goods and services. Commercial advertisement banners are being featured in virtually all professional web sites. The pop-up advertisements and E-mail spam continues to find its way into people’s computers, even despite their will and despite the fact that spammers are being prosecuted by the law. In its turn, this proves utter effectiveness of web advertisement.
The recent years saw the emergence of an entirely new approach to web based advertisement, which has to do with the fact that more and more people participate in so-called “blog activities”, that is – they make their diaries available for reading online. The most popular bloggers are being paid substantial amounts of money simply for mentioning certain commercial brands in their blogs. This proves once again that it is much too early to suggest that the promotional properties of eCommerce have been fully explored.
Electronic Commerce Applications
Despite the vague range of technological approaches that are being applied, within a context of doing business online, we can still define the most important principles, which software designers always keep in mind, while adapting informational technologies to correspond to the notion of eCommerce, as whole: protection of intellectual property, online security, elimination of cultural, geographic and technological barriers between the subjects of eCommerce, and development of technology infrastructure, in order for eCommerce applications to be continuously improved.
As for today, we can define several important components of informational technologies that are being utilized by eCommerce:EDI (Electronic Data Interchange), which can be defined as electronic inter-exchange of structurally encoded and standardized messages between informational systems. EDI enables data from corporate informational systems to be deciphered into accessible standard, so that it can be transferred through telecommunication channels. The new language’s syntax rules were being agreed upon in 1987, in the form of international standard ISO 9735, which is also known under abbreviation UN/EDIFACT (United Nations rules for Electronic Data Interchange for Administration, Commerce and Transport).
Nowadays, there are twelve different standards that are being used within EDI, but only two standards: UN/EDIFACT and ANSI X-12 had gained a worldwide recognition. It is being estimated that in U.S. alone, there are 500.000 of EDI users in format UN/EDIFACT. EDI implies the existence of common syntax, within a context of data exchange, and the common format for the elements of the data. Up until 2000, the bulk of commercial transactions, associated with eCommerce, used to be conducted with the mean of EDI (Electronic Data Interchange). However, this informational technology proved itself as being overly complicated for the average Internet user.
In addition, the application of EDI did not guarantee a complete confidentiality, during the course of conducting business online. Therefore, it was only the matter of time, before the practitioners of eCommerce would begin searching for more efficient informational technology. In 1998, international organization W3C laid down specifications for new communicational protocol XML (Extensible Markup Language). This was being done in order to enhance the effectiveness of informational transactions. XML does not specify how a particular document must be presented. Instead, it describes document’s structure and its content.
In its turn, this makes the utilization of XML possible, when it comes to designing complex informational systems that incorporate a variety of different electronic applications and that are associated with intensive flow of information. In 2001, CEFACT (the United Nations Centre for the Facilitation of Procedures and Practices) has announced the beginning of work on ebXML (XML for electronic business) protocol. There are few important principles, upon which ebXML is based: multi-language support, the great operational flexibility of XML specifications, and compatibility with EDI system.
The book “IBM e-business Technology, Solution, and Design Overview”, provides us with additional insight on the potential benefits, associated with integration of XML into the very core of eCommerce, as we know it: “ XML allows businesses to define data formats in XML, and to easily build tools that read data, write data, and transform data between XML and other formats. This has allowed a number of businesses and industry consortiums to build standard XML data formats. By using XML, the standard can be published, extended, and easily used by new applications” (IBM Redbooks, p.47).
The creation of Java programming language in 1995, had instantly increased the effectiveness of eCommerce transactions, because applications, developed on this platform, do not require a specially designed operating system to run. The same can be said about HTML (Hypertext Markup Language), which is now being increasingly utilized by eCommerce. The main feature of this language is that it supports hyperlinks rendered by the browser. It appears that, as time goes by, more and more e-business applications will be assembled strictly with the mean of HTML, because even people who do not possess programming skills would also be able to access them.
The Competitive Advantage
In his report “Strategies for Competitive Advantage in Electronic Commerce”, Namchul Shin outlines a theoretical basis for competitive advantages, associated with eCommerce: “The Internet changes the basis of competition by radically altering product/service offerings and the cost structure of firms (e.g., cost reductions in production, distribution, and transaction). The Internet also changes the balance of power in relationships with buyers and suppliers by increasing or decreasing the switching costs of these buyers and suppliers” (Shin, p. 168).
Managers are well aware of the fact that, in order for a particular product of service to enjoy high sales, it has to have a strong commercial appeal for the targeted sector of the market. According to Jerome McCarthy’s concept of marketing mix, managers need to conduct an extensive research on commercial and psychological elements of what constitutes product’s overall appeal. Apparently, in order for a particular product to become a highly sold item, it is not quite enough for such product to be associated with high quality and low price. Nowadays, the notion of commercial success cannot be discussed outside of the context of distribution channels and advertising.
Moreover, one of the distinctive particularities of post-industrial economics is the fact that consumers are often unable to see the difference between product’s perceived and actual values. The political ideology of neo-Liberalism, which dominates public life in Western countries, encourages citizens to think that there is nothing wrong with them striving to satisfy their instant gratification instincts. This is the reason why, according to recent sociological surveys, 65% of population in these countries consist of people who rely on the line of their credit, as the solemn mean of paying for various goods and services.
In other words, these people do not actually own anything, despite the fact that on the outside, they often appear to be respectable members of society. The doctrine of neo-Liberalism and many of its practical aspects, such as “celebration of diversity” or “affirmative action”, gradually deprive society of its inner integrity, with more and more people being unable to rely on their sense of rationale, when it comes to purchasing, as a result. This provides eCommerce with a great competitive advantage, because it greatly reduces the amount of time, during the course of which, the potential customer might rationalise the act of intended purchasing.
Moreover, paying for something with the mean of credit card feels entirely different then paying with the mean of hard-earned cash, while being physically present at the store. Therefore, we can talk of the concept of eCommerce as such that is being specifically designed to correspond to the realities of most-modern living, which is why, is would be appropriate, on our part, to suggest that it is being more competitive then other forms of commerce, in conceptual sense of this word. This is why the overwhelming majority of newly emerged web companies enjoy instant commercial success, despite the fact that the line of products and services they offer can be referred to as “non-essential”, at best.
The process of doing business online does not only consist of buying/selling practices, but also of collecting personal information about potential buyers. In other words, eCommerce leaves all other forms of commerce behind, when it comes to “selective targeting”. Namchul Shin’s report, from which we have already quoted, contains ideas that confirm the validity of earlier statement: “By using the direct access to consumers enabled by the Internet, companies can collect information, identify target consumers, and better introduce products or services to meet consumers’ needs.
Companies can also collect information on new products desired by small segments of the market” (Shin, p. 166). As we have mentioned earlier, despite the fact that the majority of Internet users have a strongly negative attitude towards email spam, the practice of online soliciting has proven itself as highly effective, mainly because it is based on the principle of “selective targeting”.
We can say that one of the main advantages of eCommerce is that people who conduct business online are being rarely bounded by conventional “rules of the game”. For example, manufacturers of food products sometimes ask customers to fill out some questionnaires at the store, in order to gain a better understanding of what attracts them to these products the most. However, it is up to every individual customer to decide on whether to fill out such questionnaire or not (the majority of people consider participating in “customer surveys” as simply the waste of their time).
E-companies, on the other hand, do not have to deal with inconvenience of getting consent from customers, before trying to retrieve their personal information. It is all being done with the mean of spyware programs, application of which remains absolutely legal. In fact, the rise of informational technologies made possible something that could not be achieved before – combining advertisement’s “general” and “selective” appeal.
Let us illustrate this thesis with a concrete example. We often get to observe Nike’s advertisement billboards, with only one word written on it – “run”, supplemented by the image of African-American athlete on the background. This is the classical example of “general” advertisement, which strives to encompass as many people as possible, at the price of weakening advertisement’s motivational factor.
After all, it is highly improbable that a particular individual would head out straight to the sport store, after having seen such advertisement. Let us analyse another situation – a grossly overweight individual, who suffers a great deal from its existential inadequateness, spots a small ad in morning newspaper, which feature some exclusive “magical” pills, manufacturer of which promises potential customers to loose 50 pounds, within a matter of two weeks, after having started to swallow them. The chances are – this person will not be able to think of anything else but these pills, after having read about them in newspaper, which will eventually prompt him to pay “low price of $99.99” for the pills that contain flour as their main ingredient. This is the example of “selective” advertisement.
Up until recently, it was practically impossible to combine the methods of selective and general promotion, simply because it would prove to be financially counter-productive. The rise of Internet has changed this situation dramatically.
Thanks to Internet, today it does not represent any challenge to promote “magical” pills to millions of fat people around the world, without having to invest millions of dollars to make such advertisement easily accessible.
As more people become “e-literate”, they will also be more likely to resort to Internet as the tool that would help them to precisely match their purchasing needs with available products and services. Therefore, the market’s share of eCommerce will continue to expand. We can also say that it is exactly the fact that eCommerce is associated with prospects of continuous expansion that constitutes its strategic advantage.
Thus, after having defined strategic advantages of eCommerce, we can now move on to the discussion of tactical advantages, which naturally derive out of this innovative method of doing business.
- eCommerce implies the absence of a “middle man”, because the sales are being carried out on “one-to-one” basis. In its turn, it automatically increases the commercial effectiveness of e-business operations.
- eCommerce is not being closely regulated by governments’ legislative acts. As we have mentioned earlier, informational technologies continue to develop with amazing speed, which undermines the effectiveness of authorities’ attempts to exercise control over web activities. This allows e-businessmen to spend more time on designing new ways of how to make commercial profits, without having to be overly concerned about appeasing governmental bureaucracy. The reason for this is very simple – eCommerce is a global economic and technological phenomenon, whereas the legislative acts, passed for the purpose of regulating this phenomenon, only have power in the countries of their origin. Person, who owns American e-company, might be the citizen of Russia, for example. As Russian citizen, he is not required to pay taxes in U.S., and he cannot be forced to pay taxes in Russia, as he conducts business in America. In fact, involvement in eCommerce, on the part of corporate and private commercial operators, is being increasingly perceived by them as the way to avoid paying taxes, for which they can be hardly blamed.
- eCommerce is strongly associated with the concept of sales that are being conducted on 24 hour basis. This significantly increases revenues and therefore – overall profitability of e-businesses.
- eCommerce implies a high degree of interactivity. That is, it instantly reacts to shifts in market’s demands. The most of eCommerce applications allow customers to stay in touch with manufacturers, long after the initial act of purchasing. This establishes a corporate loyalty, on the part of customers.
- Unlike conventional businesses, e-companies provide customers with comprehensive information about offered products and services, which greatly increases the rate of buyers’ satisfaction.
The Costs Advantage
One of the most crucial advantages, associated with eCommerce, is the fact that doing business online allows the subjects of commercial activity to greatly reduce operational costs. In his article “E-Commerce: Beyond the Hype, Real Hope”, Peter S. Cohan makes a very good point when he suggests that: “E-commerce is an operational initiative whose survival depends on its ability to fund itself through cost cuts or (tougher to realize) revenue increases” (Cohan, p. 28).
Despite the fact that, in recent years, many “progressive” economists argue that the true purpose of the concept of economic enterprise is to “create jobs” or to “increase the levels of multicultural tolerance”, the possibility of making good profits still represents the foremost priority for entrepreneurs. Thus, in order for any particular type of commerce to be associated with existential vitality, it must provide its practitioners with immediate commercial benefits. Even if there were no other advantages, related to conducting business online, the concept of eCommerce would still remain commercially vital, for as long as it can serve as a tool of reducing operational costs. Let us specify the reasons why eCommerce is considered as one among the most cost effective ways to conduct business:
- The implementation of eCommerce practices into companies’ businesses life-cycle, automatically reduces organizational costs. In the article, from which we have already quoted, Cohan provides us with an example of such cost-reduction: “From 1999 to 2002, International Business Machines Corp. has saved $1 billion through a series of Web-enabled initiatives that streamline employee salary payments” (Cohan, p.130). Such huge savings was made possible by delegating some of the administrative functions to employees, which resulted in laying off the bulk of Company’s “human resources” staff, as logical consequence. Thus, we can say that eCommerce applications provide commercial operators with cost-wise advantages, by simply deeming organizations’ inner bureaucracy unnecessary.
- Given the fact that there is no human interaction involved between sellers and buyers, within a context of doing business online, it means that there is no need to pay salaries to people, whose professional duties consist of transferring information. With the mean of Internet, information can be instantly sent from one corner of the globe to another, within a matter of split of a second. Moreover, eCommerce allows the virtual elimination of processing errors.
- Selling products online provides e-businessmen with cost-wise advantage of not having to acquire physical stores, in order to be able to conduct business. They only need to have warehouses, where the commercial items can be stored, before they are being shipped over to customers. As practice shows, a significantly lesser dependency of e-businesses on conventional means of running a commercial enterprise, often allows them to cut operational costs by as much as half.
- eCommerce applications allow companies’ to increase the cost-effectiveness of their customer support systems. As Peter Cohan says: “Firms using the Internet to maintain a comprehensive and easy-to-navigate database of technical problems and solutions have saved millions of dollars in technical service costs while helping customers solve individual problems more quickly and effectively” (Cohan, p. 29). The managerial decision of establishing an online customer self-service often accounts for freeing up as much as 20%-30% of company’s personnel, with such elements of traditional business environment as faxing, phone calls and data entry becoming outdated.
- Given the fact that going online for overwhelming majority of commercial operators does not represent any financial challenge, it means that conducting e-business does not imply the establishment of “stabilizational fund”, on their part. In other words, if for whatever reason e-business turns out to be unprofitable, the firm can easily pull out of e-market, without sustaining great financial losses. Thus, we can conclude that the percentile rate of potential dangers, linked to the business opportunities eCommerce offers, can be best referred to as neglectable.
- eCommerce implies a complete absence of any costs, associated with establishing a productive relationship between e-commercial enterprise and governmental organizations.
Given the fact that informational technologies, associated with the rise of Internet, are the subject of continuous development, eCommerce still suffers a great deal from the absence of universally accepted technological standards. In her article “XML: B2B Standards Soon to be Established”, Katrina C. Arabe points out at probably one of the most important eCommerce’s operational limitations: “As there are so many XML formats, trading partners require translation maps to read each other’s documents. This, of itself, would not be too much of an obstacle if business transactions were kept only between two or three companies.
However, the promise of electronic commerce has always been to provide a “many-to-many” transaction framework. Without established standards to serve as guidelines in the development of users’ XML, translating a multitude of differing formats becomes more trouble than it is worth” (Arabe, 2001). Even though this article was written in 2001, many points raised in it, continue to remain valid, up until today. The practitioners of eCommerce continuously strive to increase the rate of software applications’ compatibility. In its turn, this often prevents them from staying fully focused on economic aspects of their business.
In order for eCommerce to be truly effective, the subjects of online commercial activities need to have an access to a broadband Internet access. This, however, is not always the case. In his article “Bandwidth Colonialism? The Implications of Internet Infrastructure on International E-Commerce”, Kenneth Neil Cukier, provides us with the example of how insufficient speed of e-business commercial interactions, can undermine the effectiveness of a whole process on international scale: “The only country (in Africa) that has any continental interconnections is South Africa, which shares links with Namibia and Swaziland. While nearly all African nations have Internet connectivity, in every other case the connection is via an industrialized nation (usually its former colonial power). There are no interconnection points for pan-African traffic” (Cukier, 2000).
In fact, it appears that it would be wrong to assume, on our part, that the access to broadband Internet connection in developing countries will become available for more people, as time goes by. It is often other way around. For example, whereas as recent back as 5 years ago, there were three ADSL providers in Zimbabwe – today, there is only one of them left. Apparently, the continuous improvement of digital technologies is only possible, for as long as professionals, in charge of doing it, posses the mental ability to operate with highly abstract categories. With the end of colonial era, the number of such professionals in developing countries continues to decline.
Given the fact that people’s average IQ rate in Africa equals 60, it appears to be highly improbable that the concept of eCommerce would ever be able to realise its full potential in that continent. The same can be said about Third World countries in other parts of the world, to larger or lesser degree.
In order for commercial organizations to present the line of their products online, they need to rely on services of web hosting companies. The logical result of it is the fact that we cannot discuss these organizations as such that enjoy operational freedom, to the full extent of this word. The commercial operator that decides to begin trading online agrees to observe rules and regulations, imposed by web hosting company.
At the same time, web-hosting companies often refuse to guarantee 100% reliability rate, within a context of providing their corporate and private clients with web space. Moreover, the practice of web hosting has now become a subject of close attention, on the part of governmental authorities in many countries of the world. In its turn, it means that web-hosting companies have to invest increasingly larger amounts of money to insure full compliance with governmental regulations, on their part. As result, the rates for web hosting continue to increase, as time goes by.
Along with technological ones, there are also various non-technological limitations that are closely related to e-business. The most significant of them appears to be people’s subconscious fear of practical applications, associated new technologies. Sociological report “Internet Finding Few Newcomers in 2006”, conducted by Parks Associates and which is available of organization’s web site, indicates that there are many psychological barriers, which prevent Americans from incorporating Internet into their existential mode: “A new study from Parks Associates has found few new households willing to subscribe to Internet services, which will limit 2006 growth in overall Internet penetration to one percent, rising from 63% to 64% by year’s end.
According to The National Technology Scan (2005), a survey of 1,000 U.S. homes, there are currently 39 million homes without Internet access, and among these, only eight million own a computer, an obvious prerequisite for Internet adoption. Moreover, the majority of these PC households will not subscribe to an Internet service at any cost… Roughly one-fifth of all US “heads-of-household” have never used email… 50% of those who have never used email are over 65; 56% had no schooling beyond high school” (Parks Associates, 2006).
What is the most interesting about this report is that it denies validity to the opinions that relate the low rate of e-literacy, among senior citizens and among newly arrived immigrants from Third World, exclusively to their underprivileged social status. According to the report, 31% of all respondents have suggested that they are simply not interested of using Internet for any purposes whatsoever. Thus, we can say that many aspects of Internet’s slow rate of penetration, in certain social niches, have purely demographical essence. The fact that Western societies grow increasingly multicultural and the fact that percentile rate of elderly citizens, among White people, continues to grow, represents an objective challenge to the concept of eCommerce.
eCommerce transactions have changed the very essence of trading practices, the way we know them. Therefore, it is only natural for many people to consider these transactions as “dubious”, because of their paperless and faceless nature. As we have mentioned earlier, paying for goods and services with the mean of credit card, over Internet, is still being perceived by such people as something utterly insecure.
Unfortunately, such their opinions, in this respect, do not always appear as being unmotivated. Numerous frauds that involve an online identity theft, caused many citizens to exercise an extreme caution, when it comes to participating in eCommerce. According to recent statistical data, the rate of so-called “e-crimes” continues to increase, with different law enforcement agencies, such as FBI, proving their professional inadequacy, within a context of combating these crimes.
There is a lack of quantitative methodologies, when it comes to measuring the objective benefits of eCommerce. In its turn, this causes a situation when commercial forecasts, in regards to a particular e-business, are being commonly perceived as utterly unreliable. This is due to the extreme sensitivity of eCommerce’s economical equations to the initial preconditions, which in its turn; tend to transform their essence, as time goes by.
The growing technological complexity of eCommerce applications resulted in creation of situation when e-operators are gradually becoming less capable of exercising a strict control over its own commercial activity, since they are not aware of many technological aspects of running their business online. Let us illustrate it with the mean of allegorical example. We are all capable of turning the light on, by the mean of flipping the switch, despite the fact that only very few of us understand what the concept of electricity stands for.
However, our proficiency with electricity, does not necessarily implies our control over it, because if something goes wrong at the power plant, we will not be able to restore light, no matter how hard we try flipping the electrical switch. The same can be said about eCommerce applications – their high commercial efficiency come hand in had with their vulnerability to the external circumstances. As practice shows, when e-firm is being deprived of Internet access, even for as little as 2-3 days, it often means that this particular firm will go bankrupt (as a result of loosing a significant portion of loyal customers), because its physical existence outside of virtual realm does not count.
There are many unresolved legal issues that continue to haunt eCommerce as whole. The reason for this is eCommerce’s innovative nature. As Ali Nasir in his article “Legal Issues Involved in E-Commerce” rightly points out: “Electronic transactions separate e-business from traditional types of businesses. When a transaction takes place, who has jurisdiction? Who has the authority to apply law over the transaction?” (Nasir, p. 130).
We have mentioned legal uncertainty, in regards to eCommerce, earlier in this work; as such that represents one of its commercial advantages. However, we can also talk about it as one of eCommerce’s biggest drawbacks, because legal uncertainty also implies the possibility of wider interpretations of the law. At the same time, it is important understand that no matter how any particular law maybe adapted to the realities of conducting business online, its practical application will always result of counter-productive effects, in regards to the industry, simply because of an utterly outdated legal foundation, upon which such law is based.
Many businessmen come to conclusion that authorities will continue to strive to “regulate” eCommerce, which will logically result in such commerce being associated with less and less practical benefits. As objective reality proves, such their conclusions cannot be referred to as utterly unsubstantiated. The example of Napster.com, which is being continuously sued over the period of 7 years for alleged copyright violations, without prosecutors being able to fully substantiate their accusations, confirms the validity of earlier statement.
Five Forces Model of Competitive Threats
Five Forces Analysis framework, designed by Michael Porter, is now being widely used, when it comes to defining commercial entities’ “competitiveness rate”. According to Michael Porter, the competitive rivalry within the industry corresponds to the dynamics between customers and suppliers’ bargaining power. It is also being affected by the threat of new entrants and by the threat of substitute products.
The reason why Porter’s framework has been steadily gaining popularity, as the tool of economic analysis, is that it is comparatively easy to understand and that it exploits the qualitative principle, within a context of research. In his article “The Five Competitive Forces That Shape Strategy”, Porter suggests that it is crucial for managers to understand the strategic positioning of a particular industry, in order to be able to define the full scope of economic factors that will affect company’s overall commercial efficiency: “The job of the strategist is to understand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among today’s direct competitors.
Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products” (Porter, 2008). In other words, author implies that managers need to have a strategic vision of a market, where their company intends to operate. Let us apply Porter’s model to analyse the competitive positioning of eCommerce.
Buyer Power can be best described as the mechanism of customer’s influence on a producing industry. When there are many suppliers in a particular market, it often leads to a situation when buyer sets the price. Alternatively, when the number of suppliers is limited, buyer has lesser capability of affecting a price. However, the rise of Internet brought about a new factor that increases customers’ bargaining power – the easy access to information, in regards to desired products and services.
In mentioned earlier report “Strategies for Competitive Advantage in Electronic Commerce”, Namchul Shin comes up with the statement that allows us to get a better understanding of what corresponds to buyers’ power, within a context of eCommerce: “By reducing customers’ search costs, the Internet makes price comparison easy for customers, and thus increases price competition. The price competition resulting from lowered customer search costs increases rivalry among existing competitors, reduces switching costs of customers, and thereby shifts bargaining power to customers” (Shin, p.165).
Thus, the web-based competition between the subjects of electronic commerce can be generally described as such that is being affected by strong buyers’ power. As we have stated before, the information is a strategic resource, possession of which significantly improves one’s competitive prospects. The fact that Internet allows customers to save great amount of time and money on hunting for bargains, results in competing web firms striving to insure that prices on their line of products are the lowest on the market. There are many indications that point out to the fact that a so-called “monopsony” (customers set the price) exists in most of segments of today’s e-market.
The economic rivalry between Amazon.com and Barnes & Noble illustrates the validity of earlier statement. Ever since these two companies began competing online, they continuously strived to offer customers various incentives, in order to insure their “purchasing loyalty”. Both companies provide their customers with free shipping for orders that exceed $25. They both excessively utilize various promotion techniques, such as awarding loyal customers with $10, $25 and $50 gift certificates. Simultaneously, both Amazon.com and Barnes & Noble invest substantial amounts of money into online advertising.
Amazon.com and Barnes & Noble maintain analytical departments, within their organizational structure, the main purpose of which is designing new approaches to counteract competitor’s promotional initiatives. It appears that, despite the fact that Barnes & Noble owns 800 huge “physical” bookstores nationwide, unlike Amazom.com, which is nothing but a virtual business project, this company is still having hard time, while trying to effectively deal with Amazon’s rivalry.
In his article “Will Barnes & Noble Win the Book Wars?”, Michael Brush suggests that it is much too early to even try to predict which company will prevail in the end, during the course of their competition: “Even the experts don’t know how this tale will end. Wall Street analysts have mostly stepped to the sidelines with “neutral” ratings on the mega-bookstores” (Brush, 2008).
Thus, we can conclude that eCommerce is actually subjected to the objective laws of competition, described in Porter’s Five Forces framework. When an entirely new way of conducting business is being designed (in case of eCommerce, due to the rapid development of informational technology), it automatically eliminates many traditional “entrance barriers”. In its turn, this significantly increases buyer power, within a context of an industry, affected by new business philosophy.
However, as practice shows, such state of affairs does not last very long. After new business approach is being legally and technologically structuralized, the commercial organizations that were the first to realize the potential benefits, associated with new business philosophy, will gradually begin pushing smaller competitors out of their market’s share. The fierce rivalry between Amazon.com and Barnes & Noble will sooner or later result in one of these companies winning the competition, which will coincide with the end of “monopsony” on the e-market of printed books.
One of Five Forces theory’s pitfalls is the fact that it is static, in its essence. Therefore, even though that there are enough indications that point out to the existence of strong buyer power on today’s electronic market, it would be wrong, on our part, to suggest that such state of affairs will continue to define e-commercial dynamics in the future. In fact, we can say that the only reason why customers can still often dictate their prices to e-companies, is because of the very innovative nature of eCommerce, as whole.
eCommerce is still being looked upon by corporate and private commercial operators as the way to make quick money. In its turn, it continues to attract more “new entrants” into the industry. However, only few of them will be able to strongly establish themselves on the market. After this, the process of “market’s consolidation” will begin, with buyers being slowly deprived of their bargaining advantage.
Such scenario is utterly simplified, of course. During the course of “market’s consolidation” process, buyers will still be able to retain variety mechanisms to defend their agenda. For example, they will be able to combine their purchasing needs by the mean of creating “buyers clubs”, which will continue to retain a strong bargaining power. Moreover, the consolidation of e-markets is not going to proceed unopposed, on the part of software designing companies.
Let us not forget that, so far, Microsoft Corporation controls 90% of all software platforms in the world. When consolidation of a particular segment of e-market will result in the dominant e-company starting to make disproportionate profits, Microsoft will most likely want to have share in it. In its turn, the ensuing legal controversies will result in buyers’ power being increased again. Thus, our definition of buyer power as being strong, within a context of today’s eCommerce, will only remain valid for a limited period of time.
Porter refers to Supplier Power as potential capability of suppliers to increase prices. If prices for raw materials continue to rise, it will eventually undermine the rate of company’s commercial profitability, as margin between initial investments and the received profit is going to be minimized or even eliminated altogether. Stanley Slater and Eric Olson, in their article “A Fresh Look at Industry and Market Analysis”, provide us with the insight on what corresponds to suppliers’ ability to drive up prices: “The forces that lead to more supplier power are the same as those that lead to more customer power.
Suppliers have the greatest bargaining power when they are large, few in number, and can sell easily to alternate customers. Traditionally, supplier power has been seen as greater when the product provided represents a low percentage of the buyer’s total costs” (Slater, Olson, p. 17).
When we discuss supplier power, on e-market, we usually refer to the power, associated with web-hosting industry’s ability to manipulate with prices for its services. Even when we rely on common sense, as a tool of figuring out supplier power, it will clearly appear that, at present time, such power is low. This is due to a fierce competition on the market of web-hosting services. Kim Guenther’s article “Understanding Your Web Hosting Options” contains a valuable observation, in regards to the trends on web hosting market: “Hosting market is intensively competitive. Aside from price, services across vendors look the same.
Hosting has reached a point where services are so similar and interchangeable across vendors that they have been commoditized. There is not a lot that differentiates one vendor or hosting plan from another–which makes the choice that much more difficult. Other than price, is there really a difference between a hosting plan costing $10 per month versus one costing $9.95 per month? Probably not” (Guenther, p. 59).
E-companies also have an option of hosting their own web site. However, this option does not appear to be fully justifiable, in commercial sense of this word, as it implies the existence of IT team, within company’s inner structure, as its integral element, the maintenance of which is associated with high organizational costs. Therefore, the overwhelming majority of e-commercial operators choose in favour of relying on services of web-hosting companies, when it comes to establishing themselves online. Smaller e-businesses and private entrepreneurs often opt for a so-called “virtual hosting”, when web servers are actually being shared between many users, even though that every individual web site appears to be fully independent. The “virtual hosting”, however, is being closely associated with low technical reliability.
Large online companies simply cannot afford to have their web sites down, even for a little as few hours. In the article, from which we have already quoted, Guenther gives us a rough idea of what a few hours of operational inactivity means to large online operators: “For high-volume sites such as Amazon or eBay, downtime can result in a loss of thousands of dollars and potentially millions if occurring during peak hours” (Guenther, p. 60).
It is quite impossible to come up with a concrete number for web-hosting companies that offer their services for corporate and private clients, as it continues to increase on daily basis, although it is being estimated that in 2007, this number accounted for at least 3 million of web hosts. Thus, we can say that, within a context of web-hosting, supplier power is best defined as extra low. It appears that in the field of providing software services, supplier power can also be described as low, despite the fact that 90% of world’s software applications, utilized by eCommerce, account for Microsoft’s products. This can be explained by operational essence of eCommerce.
As Mark W. Vigoroso in his article “Did Microsoft Miss the E-Commerce Boat?” rightly suggests: “Standing in the way of Microsoft’s consumer e-commerce ambition is the reality that Web services probably will not affect business-to-consumer (B2C) e-commerce anytime soon” (Vigoroso, 2002). In other words, at present time, there are no objective preconditions for the developers of computer software to be able to significantly affect the commercial trends on e-market, for as long as majority of potential customers remain satisfied with the speed of eCommerce transactions, made possible by implementation of broadband connection.
Such state of affairs is most likely to last until the time when governmental authorities coin up a technological approach to regulating eCommerce.
Web hosting is the element of eCommerce that is being regulated by legislative acts to significantly lesser degree then other types of eCommerce, not to mention a conventional commerce. Today’s enthusiasts of doing business online often host their web sites on foreign web servers, specifically for the purpose of remaining legally unaccountable in countries of their residence. As practice shows, investing into development of e-hosting is the activity, which is associated with one of the highest rates of commercial profitability, in today’s business world. Therefore, we can conclude that e-supplier power will continue to remain very weak in foreseeable future. In fact, it is most likely to grow even weaker, as continuous development of informational technologies increases the risk of new entrants.
At the same time, there many indications that point out to the fact that the number of ADSL providers will be reduced in the future, which will result in strengthening supplier power. In his article “Broadband Market Consolidation Inevitable”, where he describes a situation on New Zealand’s broadband market, Allan Swann suggests that nowadays, there are many objective reasons for potential broadband providers to think twice, before deciding to enter the market: “A high cost to entry and shrinking margins due to heated competition means the barriers to entry are simply too high for many of the smaller ISPs…
Quite simply, this means the small ISPs have to rely on the goodwill of bigger companies to give them a decent wholesale price so they can compete” (Swann, 2008). Thus, it logically brings us to conclusion that, as we speak, there are various preconditions being established to increase supplier power, within a context of eCommerce.
In the future, many web-hosting companies that have sprung up in recent years will find themselves unable to stay afloat, by offering potential customers competitive prices, as they do now, simply because broadband providers will increase rates for their services, after broadband market undergoes a process of consolidation. This, however, is rather a long-term perspective, as nowadays, the number of ADSL providers continues to grow rapidly around the world.
The Threat of Substitution is also a very important element of Porter’s framework, as it defines the chances of specific lines of products or services being substituted with identical or similar ones, on the part of competing rivalry. It is needless to say that if that happens, the company that faces such threat, looses its competitive edge. When we discuss the threat of substitution, in regards to the concept of eCommerce as whole, it might appear that, as for today, it is impossible to pin point at another concept of conducting business in virtual realm, which can be associated with the threat of substitution.
This, however, is not quite the case. Given the fact that the concept of eCommerce remains in the state of continuous transition, it would only be natural, on our part, to predict the emergence of conceptually different method of doing business online, which would initially derive out of eCommerce, while having purely supplementary role, but would eventually grow to represent the threat of substitution to traditional concept of eCommerce.
The increased tendency among businessmen to use handheld wireless devices, within a context of conducting business online, represents such threat. In his book M-Business: The Race to Mobility”, Ravi Kalakota outlines the trends, within eCommerce, which gradually turn eCommerce into mCommerce (Mobile Commerce): “The players (commercial operators) are no longer just the geeks and early adopters; they include mainstream users, and these users are demanding mobility. Mobility means fully portable, real-time access to the same information resources and tools that, until recently, were accessible only from your desktop” (Kalakota, p. 3).
At present time, the majority of economists still consider mCommerce to be the part of eCommerce. However, the utilization of handheld devices, for conducting business, has distinctive characteristics, which allows us to talk about mCommerce as conceptually different way to engage in commercial activities online. First of all, the majority of eCommerce software applications, are not being used in handheld devices. Second of all, the wireless access to Internet is being provided by mobile operators, which implies that mCommerce is not affected by the developments on broadband market. Third of all, the concept of mCommerce is much more user-friendly then the concept of eCommerce.
Fourth of all, m-applications provide access to new services that are only available in mobile channels. Whereas eCommerce establishes conditions for the quick exchange of information between parties, within a context of B2B (business to business) and B2C (business to customer) transactions, mCommerce also makes such exchange of information possible outside of business environment. Therefore, we can say that the newly emerged concept of mCommerce definitely posses the operational properties of “threat of substitution”.
At the same time, we cannot talk about this threat as such that represents clear and immediate danger to eCommerce, because the process of these two online business methods acquiring independent subtleties has only begun. Thus, if we view eCommerce from global perspective, it will appear that the threat of substitute to this concept is very low. Nevertheless, as we have shown earlier, it is only the matter of time, before conducting business with the mean of desktop computers, connected to Internet, will be considered as anachronism.
Within the concept of eCommerce, the threat of substitute is also best defined as low. Statistics show that 65% of all commercial transactions associated with B2C, account for selling “niche market” items. For example, if one wants to buy a t-shirt with the sign of swastika on it, he would have no choice but going online and paying for the desired item with its credit card, as these t-shirts are simply not available in “physical” stores.
As we have mentioned earlier, eCommerce competitiveness is closely associated with its ability to provide customers with products and services that match their exact specifications. In fact, we cannot apply the notion of threat of substitute, in traditional sense of this word, when it comes to discussing economic trends, within eCommerce. For example, the reason why conventional retail industry is affected by the high threat of substitution, is because of China’s growing economic power. Nowadays, close to 80% of all electronic products in the world, are being manufactured in this country.
The fact that Chinese products are closely associated with low prices and low quality, allows us to conclude that the threat of substitution is particularly strong in price-sensitive markets. Price-sensitive buyers, low manufacturing specialization, and the wide range of the market – these factors set preconditions for the threat of substitution to begin affecting a particular industry. These factors, however, can be hardly associated with eCommerce, as industry.
The possession of ADSL connection, on the part of corporate and private participants of eCommerce, prevents us from suggesting that hunting for bargains, constitutes the very sense of their lives, as it the case with majority of Wal-Mart shoppers, which rely on welfare checks as the main source of income. In his book “Dot.Bomb Survival Guide : Surviving (and Thriving) in the Dot.Com Implosion”, Sean Carton says: “A Bain & Company/ Mainspring study in May 2000 found that most of the online profits were being driven by shoppers looking for brand or convenience, not necessarily price. In fact, they found that shoppers they labeled as “bargain hunters” were the least profitable segment of all” (Carton, p. 45). Therefore, Internet users cannot be lured by bargaining prospects with the same easiness as conventional shoppers.
In fact, the retail bargaining, with which we closely associate the threat of substitution, is quite impossible, within a context of eCommerce, due to its very nature. It was not by pure accident that we have mentioned selling of t-shirts online earlier, as it provides us with the insight on why e-commercial practices can hardly be affected by the threat of substitution. There are thousands of different web sites that feature different lines of t-shirts.
Yet, the standard price for a particular t-shirt in online stores never goes below $19.95, because offering lower price, on the part of these stores, would simply be economically counterproductive. There are objective reasons for commercial operators that strive to beat a competition in e-market with the mean of product substitution, to never get an upper hand, in economic sense of this word, because of operational specifics of “niche market”.
Threat of New Entrants
One of the most appealing aspects of eCommerce, is that it is not associated with various artificial barriers to entry, as the mean of dealing with the Threat of New Entrants, on the part of long-established commercial players in a particular market.
When the profits of companies that operate in particular market increase, it automatically results in more companies willing to enter such market. By doing it, they restore “market equilibrium”. However, such equilibrium implies lower commercial opportunities, which is why firms that had established themselves on the market over the long period of time, strive to prevent new competitors from endangering their business interests.
The requirement of considerable capital investment, on the part of company that intents to enter a particular market, serves as ultimate tool of dealing with the threat of new entrants. For example, the reason why FedEx can afford charging only $20 for sending a medium size parcel to another part of the country is that it possesses the fleet of close to 100 cargo jet planes, which cost from 40 to 70 million each.
Thus, only a corporation with annual revenue of hundreds of millions of dollars might be eligible to enter the market of air cargo transportation in America. Government also strives to prevent new entrants into well-established markets by requiring new companies to comply with its rules and regulations. However, given the fact that e-markets are only through their initial stages of consolidation and the fact that Internet technology is commonly available around the world, we can define eCommerce as the most liberal business philosophy, because it is associated with the absence of barriers to market’s entry.
Even a single individual, who owns computer hooked on to Internet, can become e-commercial operator with ease. Thus, we can say that the threat of new entrants, within a context of eCommerce, is particularly high.
What contributes to the easiness, with which companies and private entrepreneurs can enter the world of eCommerce, is the fact that the development of informational technologies, at the end of 20th century, was only indirectly subjected to licensing. In its turn, it resulted in IT applications becoming easily available around the globe. The rise of Internet made possible the transactions of these applications within a matter of an instant. This is why designers of computer software have such a hard type, while trying to protect their intellectual property.
There are many indications of e-market having contestable properties, which is due to very few barriers to entry, in regards to new entrants. In his report “E-Commerce: Impacts and Policy Challenges”, Jonathan Coppel suggests that it is only because of the rise of eCommerce, at the end of 20th century, that contestable markets still exist, despite the fact that their existence appears to be quite odd, within a context of post-industrial economics: “A contestable market is one in which competitive pressures from potential entrants exercise constraints on the behavior of incumbent suppliers. Conditions for a market to be contestable include no significant entry or exit barriers, potential entrants have access to the same production technology as incumbents and there are no special costs that must be borne by an entrant that do not also fall on incumbent firms” (Coppel, 2000).
At the same time, it would be wrong to suggest that e-market does not feature entry barriers, whatsoever. Given the fact that such market is closely associated with the absence of physical sales outlets and with low switching costs, it is crucial for new entrants to gain customers’ loyalty, which in most cases proves to be impossible, due to organizations’ limited financial assets. Thus, the exactly the same factor that enables corporate and private commercial operators to enter e-market with ease (the absence of cost deterrents), prevents such operators from firmly establishing themselves on the market.
Moreover, the existence of eCommerce is closely related to customers’ supreme ability of monitoring e-market’s dynamics. In its turn, this undermines such market’s inner stability because of so-called “network effect”, when commercial effectiveness of a particular segment of e-market becomes proportionally dependent on the sheer number of participants. In other words, we can say that despite the fact that that the rapid development of informational technology had eliminated many traditional entry barriers to e-market, it nevertheless proved as being unable to affect the objective laws of economics. Thus, we can conclude that
B2C segment of eCommerce can be characterised by the high threat of new entrants. The same can be said about B2B segment, although to considerably lesser degree, because business to business transactions still rely mostly on EDI, implementation of which into online company’s business strategy, is often associated with considerable costs.
Competitive rivalry is probably the most important element of Five Forces Framework, because company’s chances to succeed commercially directly correspond to the numbers of its rivals, in particular sector of the market. Economists operate with the concept of industry concentration, when it comes to utilization of this part of Porter’s method. Concentration Ratio (CR) indicates the percentage of market share held by the four largest firms.
If this ratio is high, it means that that the industry, in analyzed segment of the market, can be referred to as “concentrated”. In its turn, this implies that the analyzed segment of the market is a subject of low competition between manufactures and providers of services, simply because in this case, the economic dynamics on the market are being controlled by semi-monopolist companies. We can say that high CR usually corresponds to a few large companies holding at least 80% of the market. The low CR usually indicates the fact that the analyzed segment of the market can be defined by many rivalries, which entitles the process of competition with objective properties.
At the same time, the high CR does not necessarily imply the fact that potential competitors will have a hard time, while trying to establish themselves on the market. Alternatively, low CR does not always mean that competitive chances in particular segment of the market, on the part of companies that have similar economic potential, would be “equalized”. As Chris Mallon in his article: “Porter’s Five Forces Analysis” points out: “Rivals are competitors within an industry. Rivalry in the industry can be weak, with few competitors that don’t compete very aggressively. Or it can be intense, with many competitors fighting in a cut-throat environment” (Mallon, 2007). A large number of competing companies increase the factor of rivalry and vice versa.
At the same time, the rivalry itself cannot be simply defined by the sheer number of competitors, which strive to satisfy the demands of the same market. There many other factors that need to be taken into consideration, within a context of analyzing Porter’s “fifth” force: the pace of market growth, high or low fixed costs, high or low switching costs, the measure of rivals’ diversity, and industry shakeout (the process of too many competitors entering the same market).
When we look at eCommerce as whole, it will appear that its CR is very low – ten largest B2C e-companies only control 4% of global e-market. In its turn, it implies the high intensity of competitive rivalry within eCommerce. Supplier’s low power, combined with buyer’s high power and the fact that continuous development of informational technologies continue on at an unprecedented pace, serves as a powerful mechanism that weakens consolidation tendencies on e-markets.
It is important to understand that the objective value, associated with commercial web site, does not relate to company’s physical assets (hardware) or to the degree of its technological advancement, as much as it relates to web site’s “content”, quality of which corresponds to the number of people who visit this particular web site. For example, the rate commercial profitability of social networks Live Journal of MySpace.com, which helps people to interact, is much higher, in comparison to numerous e-retailing companies, which are being fully focused on satisfying people’s purchasing needs. The fact that millions of people log onto these web sites, ads up to the actual value of these sites’ content, which is the reason why it is an online networking which is associated with the highest effectiveness of banner advertisement.
Therefore, we can say that e-company’s ability to compete in the realm of virtual reality directly corresponds to its ability to attract as many web browsers as possible, which in its turn, directly corresponds to the value of web site’s “content”, regardless of what this site features. We can say that the whole concept of competitive rivalry, within a context of eCommerce, has undergone a drastic transformation, as it being almost completely deprived of its rationalistic properties.
As practice shows, more and more people who do their shopping online, tend to be more willing to pay for “perceived” rather then actual value, which they associate with every particular product or service. Therefore, we can no longer talk about competitive rivalry on e-market as such that has purely economic essence. In order for the commercial operator to win a competition on the web, it must find an ingenious method of attracting visitors and, as practice shows, such method has very little to do with such competitive strengths of conventional commerce as products’ high quality, speedy delivery and the easiness of purchasing procedures.
In preface to his book “E-Commerce and Cultural Values”, Theerasak Thanasankit makes a very good point when he suggests: “Efficiencies gained from e-business are not necessarily those of cost reduction, but essentially are gained from assets in terms of value added, in terms of new knowledge supporting the strategic alignment and direction of intra-national companies, international companies and nations themselves” (Thanasankit, p. 6). For example, MySpace.com now directly competes with Ebay, when it comes to sales of physical products, despite the fact that it was only in 2006 that MySpace has gained a status of e-commercial operator.
The lack of e-commercial experience, on the part of MySpace managers, was being fully compensated by the high value of site’s content. In his 2006 article “MySpace vs. eBay”, Gavin O’Malley says: “Myspace, News Corp’s star social-networking site, is under pressure to come up with a revenue-generating business model. It’s already ramped up advertising and now is tapping into the $50 billion online-shopping and -classifieds market.
Like its ad model, MySpace’s e-commerce efforts are immature, but analysts agree the potential is enormous” (O’Malley, 2006). Thus, we can conclude that in the future, competitive rivalry within eCommerce is going to be defined by purely commercial factors to significantly lesser degree. The post-industrial reality implies people’s increased “existential secularization”, which prompts them to seek a surrogate ways to communicate with each other, as something that has value in itself.
Internet comes in very handy, in this respect. However, given the fact that traditional concept of product’s quality in era of Globalization does not make much of a sense (industrial goods are being assembled in China from parts manufactured in different countries), it is the emotional association of a particular commercial item with existential comfort, which is going to insure its high online sales. Such comfort is being experienced by the customer because of product’s ability to match his exact specifications, as we have illustrated earlier, or because it helps customer to emphasize the particularities of his lifestyle.
The fact that many e-companies, which had started as “online hangout joints”, are now associated with high commercial profitability, confirms the validity of earlier statement. Thus, within a context of today’s B2C eCommerce, competitive rivalry is defined by e-companies’ ability to create web site’s powerful content, which will attract potential buyers.
Categories of Electronic Commerce
Business to Business (B2B)
Business to business (B2B) model of eCommerce is best characterized as inter-exchange of goods, services and information between corporate commercial operators online. In his book “Global Digital Bussiness: a Perspective for Creating B2B Value”, Tim Wroblewski provides us with understanding of what was the initial reason that prompted commercial operators to resort to Internet, as the way of increasing their operational efficiency: “Companies are no longer as concerned with receiving items quickly as they are with receiving them when they are needed.
That is, delivery times are fading in importance compared to product availability as and when necessary. Because the lines of communication using the Internet are always open, companies are essentially extending their enterprises outside the physical organization and linking with other entities” (Wroblewski, p. 30). Thus, B2B concept often deems such important element of conventional commerce as “storing” as unnecessary.
In its turn, this allows e-operators to come up with considerable savings, as result of implementation of B2B principle into the core of their business strategy. We can only agree with Wroblewski when he says: “The primary rationale influencing companies’ decisions to migrate to B2B e-commerce today is the prospect for cost” (Wroblewski, p. 31). As practice shows, the immediate savings, made possible by implementation of B2B eCommerce, often account for as much as 20% of organization’s revenues, due to the fact that B2B concept allows pricing flexibility and integration of business systems. The competitive advantages of implementation of B2B are as follows:
- Access to new suppliers – companies are able to satisfy their needs in raw materials not only by the mean of negotiating the appropriate price with long-established suppliers, but also by setting up an entirely new supply chains, since information about the available products and services becomes easily accessible.
- Availability of user-friendly technological tools to monitor corporate spending – B2B concept allows managers to keep a track of company’s operational activities, which in its turn, allows them to get a better picture of overall buying/selling trends that have a great affect on company’s competitive strategy. Once managers understand what defines the dynamics of company’s operational pattern, they will be able to come up with strategic forecast, in regards to commercial challenges that company might face in the future.
- Establishment of efficient market segmentation – the objective reality indicates the fact that cost effectiveness alone, as something that corresponds to company’s business philosophy, cannot insure its competitive edge. It is only when company is able to anticipate customers’ purchasing preferences, even before purchasing takes place, which guarantees that such company will remain competitive. B2B concept eliminates operational misbalance between the processes of supplying and selling and therefore, improves company’s overall operational efficiency.
- E-procurement – the concept of procurement remain the essential component of conventional commerce. However, within a context of eCommerce, managers’ ability to find a perfect buying/selling ratio becomes truly indispensable, as it allows them to continuously adjust company’s commercial activities, so that they would correspond to ever changing economical circumstances.
The practical benefits, associated with B2B, are best illustrated with the example of Wal-Mart’s business strategy, which incorporates B2B as its essential element. Wal-Mart utilizes a “pull” model of supply chain management, which creates preconditions for customers to affect supplier’s power. In other words, suppliers are simply given the task of replenishing the lines of commercial products that customers tend to buy the most. However, without utilization of B2B’s technological tools, such as EDI, it would not be possible. B2B allows almost instant conversion of information, in regards to customers’ buying preferences, into statistical data, which contains clue, as to what would represent the most effective way to address customers’ demands in the future.
Business to Consumer (B2C)
B2C (business to customers) is the concept of commercial interaction between sellers and buyers online. There are many operational similarities between B2B and B2C, except for the fact that B2C eCommerce does not utilize private e-commercial networks, such as EDI or SWIFT. There are following sub-categories of B2C eCommerce:
- Informational – providing customers with an online access to the products and services of interest.
- Customer self service – along with being able to access information, buyers are also able to exercise control over the process of purchasing. Moreover, after having paid for a particular product with their credit cards, customers can track all stages of physical delivery of goods and services online.
- Interactive self-service – customers are being provided with 24 hours technical support. The process of communication between manufactures and buyers is being conducted mainly by the mean of interacting via e-mail.
- Direct selling – products and services are being directly sold to the customers. This sub-category implies the absence of a “middleman”.
- Auctioning – the commercial goods that represent a great value in the eyes of potential buyers and that are limited in numbers are being sold for the highest bidding price, with the mean of customers making their bids online.
- Online payments – customers take care of their billing needs online.
There are five commonly recognized models of B2C eCommerce: Direct selling, Online intermediating, Advertising, Community based model and Free based model. As we have mentioned, direct selling is being practiced by manufactures of industrial products to remove intermediaries. The best example of e-commercial operator that sells its line of products directly to customers is Dell Corporation. The available computer hard and software is being displayed on company’s web site, with customers being given a choice to buy it online. As a result, company is able to maintain its competitive edge, as prices for Dell computers are significantly lower, in comparison to the prices asked by Dell’s main competitors.
Online intermediating is meant to facilitate commercial transactions between subjects of eCommerce and consists of online intermediates helping consumers to place order, compare prices for similar lines of products and to hunt for bargains. For example, MySimon.com saves potential buyers a lot of time, by enabling them to use its online “bargain search engine”, when they strive to find the best price on particular product or service.
Advertising based model of B2C involves selling advertising content, on the part of e-companies, to the third party. There are two philosophies of online advertising, which are being commonly practiced nowadays: “high-traffic” and “niche”.
Community based model of B2C thrives on the fact that people, united by common interest, tend to have similar buying agenda. As we have stated earlier, within a context of eCommerce, people’s communicational needs represent a high commercial value. The high profitability of such online interactive networks as MySpace or Yahoo! Groups illustrates the validity of this statement.
Free-based model implies generation of income with the mean of application of “viewing fee”. This model is closely associated with Internet porn industry and with web sites’ content, which represents intellectual value. For example, Questia.com allows customers an access to variety of academic materials, while applying a subscription fees.
It is being estimated that in 2009, the retail sales over Internet in will amount to $229 billion, which would not be possible if concept of e-retailing was not strongly associated with strategic commercial advantages over other types of conventional commerce. At the same time, it would be wrong to suggest that the concept of B2C eCommerce is being freed of all possible pitfalls. In fact, as functional dynamics within eCommerce, during the course of last few years, indicate – this concept has entered the phase of “operational stagnancy”.
In his book “Contemporary Research in E-Marketing”, Sandeep Krishnamurthy provides us with recent statistical data, in regards to increasing rates of customers’ dissatisfaction with B2C online applications: “Despite the growth in online retail sales, statistics show that 67% of transactions on the Web are never completed. Only 36% of customers are satisfied by electronic transactions and this bad experience tends to drive customers to other channels” (Krishnamurthy, p.121).
The main disadvantage of B2C eCommerce is the fact that customers do not perceive it as being fully secure, despite e-companies’ continuous strive to improve operational safety, associated with B2C transactions. We can say that the issue of trust is crucial, within a context of B2C. However, given the fact that the trust is loosely defined category, it cannot be organically incorporated into the very core of eCommerce as something that has purely technological essence.
Characteristics of Internet Based Market Places
The electronic market place is comparatively new economic term that refers to the existence of inter-organizational system of information, which allows participants of commercial activity (sellers and buyers) to exchange various data, in regards to market’s positioning of products and services. The emergence of electronic market places can be explained by economic opportunities, which were brought about by the rise of informational technologies. In other words, it was only the matter of time, before conducting business online, within a context of both B2B and B2C concepts, would lead e-operators towards realization of their common business interests.
The universal properties of these interests relate to the existence of easily accessible informational database, resorting to which would allow e-operators to significantly increase their revenue margins. It is important to understand that e-market is a collective product of many commercial entities, which create it in close cooperation with each other. Given the fact that the notion of e-market has only recently emerged, there are no universally applicable systems of its characterization. However, we can still define the main types of e-marketing:
- Supplier directories and search engines – by visiting an online supplier directory, buyers are able to choose among offered products and services that suit their needs the best. EcomVia.com, which claim itself to be “world’s biggest global B2B system of more than 50 interconnected national and continental catalogs offering information about products and manufacturers online” (EcomVia, 2008), can serve as the best example of such supplier directory. It allows visitors to search globally for the industrial products and it also allows them to pay for the selected products online.
- Tendering sites – private and corporate clients are able to invite supply chain companies to a particular tender. The available tenders will be viewed by the large number of suppliers. Ipost.com is the classical example of online tendering service. Its mission statement can serve as the best explanation as to what the process of online tendering stands for in general: “iPost™ is a website that brings contractors and the supply chain together offering considerable benefits to both by converting all tender documents to PDF and then uploading them for access by the supply chain” (Ipost, 2006).
- E-classifieds – is the virtual place, which helps sellers to match items intended for sale with specifications of potential buyers.
- e-Auctions – sellers present their products to a wide audience, so that potential buyers can place bids, which results in the initial products’ price being considerably high jacked, before the act of purchasing takes place. E-bay is probably the most famous example of commercial benefits, related to the concept of e-auctioning.
We can define following characteristics of Internet based markets:
- An online buying significantly reduces customers’ costs of obtaining information, in regards to the products and services. It also allows customers to choose among alternative suppliers, thus increasing their buying power.
- Electronic market reduces cost of making information available to customers, on the part of suppliers.
- Commercial benefits, associated with e-market, proportionally relate to the number of e-traders.
- Electronic markets imply the existence of significant switching costs.
- Despite the fact that e-markets exist in virtual reality, their technical maintenance requires a substantial financial investments.
- The overwhelming majority of commercial operators that present their products and services on e-market do not understand the full scope of legal technicalities, which relate to selling goods online.
- The return, on the initial investment into founding e-market, usually takes a long time.
Key Issues of Electronic Commerce
As we have mentioned earlier, the main operational strength of eCommerce corresponds to the fact that conducting business online is closely related to large amounts of information being quickly processed by commercial operators, which in its turn, endows them with competitive advantage. Therefore, the issue of connectivity, within a context of eCommerce, continues to represent a crucial importance, because the possession of information, on the part of e-companies, without being able to exchange it for money or for other information, deprives it of its empirical value. In fact, it is the issue of connectivity that managers are being concerned about the most, when it comes to establishing their companies’ presence on World Wide Web.
In his article “Internet-Based Business-to-Business Electronic Commerce: A CIO’s Perspective”, Khalid Soliman says: “Strategic plans in most organizations place emphasis on utilizing IT to increase connectivity, both internally and externally. Accordingly, for IT managers to establish connectivity along the supply chain, they should have a full understanding of the most critical issues involved in B2B and B2C” (Soliman, p. 40). Thus, we can say that the issue of eCommerce’s connectivity does not only correspond to purely technical aspects of establishing a broadband connection, as it is closely related to the philosophy of eCommerce, as whole. Managers can only strive to increase connectivity, for as long as it facilitates compatibility of e-applications.
Nowadays, it is practically impossible to envision eCommerce without its extensive utilization of broadband Internet, which offers a speed of 100-520 mbps. The most experienced practitioners of eCommerce know perfectly well that bandwidth utilization should not exceed 70%, during peak hours; otherwise, the overall quality of performance, associated with running e-applications, will deteriorate. A so-called “proximity to backbone” is the key to insuring a supreme connectivity. As practice shows, the majority of web hosting companies do not posses physical servers, while relying on the services of larger Internet providers.
Therefore, the less there are “intermediary” providers, between the customer and the place where servers are located, the better is the quality of Internet connection. It is important to understand that the broadband speed does not necessarily relate to connection’s quality, which is why an extensive research, on all aspects of establishing Internet connection, must be conducted, before it takes place.
As we have mentioned earlier, the concept of eCommerce continues to gain mobile properties, as time goes by. The revolutionary technological advancement, in the field of wireless hand-held devices’ design, has brought about situation when many e-commercial transactions can be conducted “on the go”. However, it would be wrong to strictly associate eCommerce’s mobility with the rise of “m-commerce”, especially given the fact that “m-commerce” implies various operational limitations.
In her article “Mobile Commerce and Usability”, Suzy Chan comes up with observation, regarding the present state of mobile commerce: “The convergence of mobile Internet and wireless communications has not yet resulted in expected growth in mobile commerce. The enterprise and business use of wireless technology holds greater promise for business growth and increased competitiveness, but it demands the transformation of business processes and infrastructure. Poor usability of mobile Internet sites and wireless applications for commerce activities stands out as a major obstacle for the slow adoption of mobile solutions” (Chan, p. 235).
The very concept of e-commercial mobility implies individual’s ability to engage in business activities, regardless of its geographical whereabouts. The existence of Internet allows individual to go online just about anywhere, in order to take care of its business, without him or her having to be personally present at the place where an online commercial activity enters its physical phase. In recent years, the emphasis has been shifted from considering eCommerce’s mobility as simply a business tool, to viewing it as the necessary precondition of insuring loyalty, on the part of customers.
In her book “E-Commerce and M-Commerce Technologies”, Candace Deans makes a very good point when she suggests that the factor of mobility, within a context of eCommerce, should be viewed from the perspective of sellers/customers relationship: “An e-commerce site can enhance customer retention by building customer trust and loyalty through a variety of online features. These features enable customers to check the status of transactions, shipments and orders, at any time, anywhere on the globe” (Deans, p. 5). We can say that eCommerce’s mobility compensates people’s decreased ability to travel around the world, thus making it quite indispensable, when it comes to buying or selling, on the part of private and corporate e-operators.
One of the reasons why the concept of eCommerce continues to gain popularity, as time goes by, is because it implies high reactivity. This reactivity is best defined as e-operators’ ability to quickly respond to changing demands of e-market, with Internet serving the role of branding medium. In his book “Advances in Electronic Marketing”, Irvine Clarke provides us with the insight on why eCommerce is being closely associated with its ability to satisfy customers’ demands in most effective manner: “The concept of customer experience encompasses all the marketer-initiated activities that influence brand equity.
Learning, or indirect experience, takes place in the traditional media. Direct experience is gained at the point of purchase and in actual use. Experience gained through interactive media, particularly the Internet, has characteristics of both direct and indirect experience” (Clarke, p. 108). In other words – the reason why eCommerce is able to effectively address market’s dynamics, is because e-applications allow companies that conduct business online, to understand the very essence of such dynamics. The concept of conventional marketing deals with satisfaction of customers’ needs as static category, whereas the concept of eCommerce views such needs as being in the state of constant transition. Hence, eCommerce’s high reactivity.
Given the fact that IT technologies allow to conduct a quick analysis of the trends, associated with a particular pattern of e-transactions, it comes as no surprise that e-firms are able to adjust their functioning to ever changing conditions of e-business environment. In fact, they are often able to anticipate market’s dynamics well ahead of time, which implies a high degree of commercial reactivity, on their part.
Insuring security, within a context of eCommerce, began to represent the issue of paramount importance, ever since the time when conducting business online became possible. As Mehdi Khosrowpour rightly points out in the preface to his book “Solutions Series: E-Commerce Security: Advice from Experts”: “Although e-commerce technologies offer immense benefits, conducting any kind of online communications or transactions offers the potential for greater misuse of these technologies and even potential criminal activities.
The issues of technology security and misuse are not only limited to e-commerce technologies, but rather are part of much broader issues affecting computer and information systems throughout the world” (Khosrowpour, p. 2). Even nowadays, the participants of eCommerce are not being given a complete guarantee, in regards to the safety of their e-transactions, which explains why many people still experience a deep mistrust towards e-commercial practices that involve customers revealing their personal information, as the essential element of process of online purchasing.
This is the reason why highly reputable e-companies strive to integrate privacy, integrity, authentication, and non-repudiation, into the very core of their business strategy, as its essential elements. There are several technological methods to increase the levels of security, associated with e-commercial transactions:
- Application of digital signatures and certificates.
- Establishment of secure socket layers, which prevent “information leakage”, when it comes to TCP/IP reassembling.
- The usage of PCI (Peripheral Component Interconnect) and SET (Secure Electronic Transaction) as the elements of process of authentication.
Nevertheless, as practice shows, e-commercial security breaches occur very often. This can be explained by the fact that the number of professionals, who posses a complete understanding of all technological aspects of running an online commercial enterprise, is limited to few hundreds, worldwide. The possession of such information, on their part, is not being controlled by the third party. This is why the new methods of breaching eCommerce’s security are being invented at considerably faster pace, comparing to the methods of insuring such security.
Given the fact that legislative acts, which are meant to prevent people from engaging in illegal activities, within a context of eCommerce, become grossly outdated, even before they are being passed, it comes as no surprise that the issue of security continues to remain one of eCommerce’s weakest points. Moreover, the issue of e-commercial security often appears to be the matter of irrational perception. For example, paying $20 for a t-shirt online is being perceived by majority of customers as perfectly safe – that is, only very few of them have doubts as to whether the acquired item will be delivered to them, within a matter of very short time. However, if they were offered to pay $20.000 for a car, while relying on the same online channel, only very few of them would feel safe, while doing it.
The issue of e-commercial confidence is closely related to the issue of security. Moreover, the lack of confidence, on the part of eCommerce’s subjects, relates to the existence of various legal inconsistencies, at the point of intersection of law and technology, just as it is the case with the issue of security. In his article “Confidence and E-commerce”, Marc Rotenberg provides us better understanding as to why many people experience the lack of confidence, when it comes to conducting business online: “Should governments be responsible for protecting consumers’ rights in the Internet economy? If the answer is yes, how can governments safeguard their citizens’ interests when they do business from a home computer with companies on the other side of the globe?” (Rotenberg, 2007).
In fact, the lack of confidence, associated with a particular online enterprise, often comes as a side effect of the high rate of its profitability. As practice shows, the overwhelming majority of e-customers relate the understanding of online confidence to how their personal information is being protected. This is the reason why the popularity of various anti-spyware programs has been steadily growing in recent times.
However, it appears the e-companies will continue to be gaining an access to customers’ personal information, as something that would provide them with the insight on customers’ existential mode, which in its turn, will help managers immensely, during the course of designing a proper advertising strategy. As we have mentioned earlier, the main operational strength of eCommerce consists in its ability to combine a personalized and general approaches to advertising. Thus, on one hand, gathering personal information about customers appears to be the crucial element of maintaining a competitive edge, on the part of e-commercial operator.
On the other hand, if gathering of such information becomes too intensive, in will result in customers being deprived of their confidence towards a particular e-company. For example, in 2001, DoubleClick.com, is being sued for providing a third party with personal information about its customers. As result, company has found itself on the brink of bankruptcy, with the value of its stock being dropped from $135 per share to $30 per share, within a matter of few days.
However, it would be wrong to think that the lack of confidence, with which e-commercial activities are being clearly marked, represents a strategic challenge. The less there is a degree of confidence, related to a particular e-business, the better are the prospects of commercial reward and vice versa. Therefore, the insuring a complete security and confidence, within a context of eCommerce, will result in the concept of doing business online being deprived of its operational competitiveness.
eCommerce and Small Business
The process of economic Globalization resulted in increasing the degree of manufacturing specialisation and created preconditions for many conventional markets to undergo a process of consolidation, with smaller companies being pushed out of their share of the market by larger commercial operators. However, the emergence of eCommerce, as an entirely new economic concept, now gives small businesses another chance to succeed.
The fact that people’s buying power has considerably grown, in last twenty years, and the fact that post-industrial era implies people’s basic economic needs being fully satisfied, provide small commercial enterprises with possibility of making considerable profits, with the mean of offering a “niche products” on World Wide Web. However, as objective reality indicates, only 30% of small commercial operators in Western countries were able to immediately take the advantage of new commercial opportunities, associated with eCommerce.
In her book “Role of E-Commerce Adoption Among Small Businesses : An Exploratory Study”, Pauline Ratnasingam relates the lack of enthusiasm, on the part of small business’ owners, when it comes to integration of eCommerce into their vision of operational strategy, to structural particularities of small companies: “While it is true that small firms play an increasingly crucial role in U. S. economy, there is limited research on their success.
Research suggests that although most small businesses were contracted to the Internet, the potential use of the Internet in their business was rarely explored. Small businesses are typically characterized by a flat organizational hierarchy and proximity to co-workers, thereby contributing to effective communication practices. These communications are typically carried out face-to-face as the need arises, rather than applying formal standard operating procedures. Hence, small businesses differ from large firms because their decision making is centralized and is mostly the responsibility of the owner” (Ratnasingam, p. 3).
Thus, we can say that the force, behind small businesses’ slow pace of Internet adoption, is mostly of psychological nature. Given the fact that small firms are usually associated with high degree of manufacturing specialization, it comes as no surprise that many of such firms’ owners have a hard time opening up their minds to the idea of latest informational technologies being organically incorporated into competitive strategy.
For example, a small firm that specializes in manufacturing office furniture is very unlikely to have the line of its products featured on the web for the purpose purchasing, because, as practice shows, the operational activity of such type of company is usually being scheduled for years ahead of time, with company’s owner simply having no time to consider the expansion of its business. However, the commercial enterprise can only be considered as such that possesses competitive vitality, for as long as it strives to expand the range of its operations, regardless of such enterprise’s actual size.
The reason why Wal-Mart, for example, continues to push local retailers out of their share of the market is not that these retailers are not able to offer competitive prices, on their lines of products, but that these retailers’ managers were never truly committed to pursuing the policy of commercial expansion. As classical saying goes – soldier, who does not dream of becoming a general, is a bad soldier. Therefore, as practice indicates, small businesses that do not strive to expand can never be associated with commercial vitality. The concept of eCommerce allows small firms to offer their products and services to virtually unlimited number of potential buyers, thus providing these firms with the prospect of operational expansion.
This is why, the adoption of eCommerce, as the essential element of small companies’ business strategy, is not really the matter of choice, on the part of these companies’ owners. As Tanya Castleman in her article “Small Businesses as Social Formations: Diverse Rationalities in the Context of e-Business Adoption” has rightly noted: “Ultimately, most businesses will have little choice but to accommodate the spread of ecommerce. As electronic and Internet-based transactions become the dominant way of doing business, our concerns about SME (Small to Medium Enterprises) adoption will abate” (Castleman, p. 31).
At the same time, it would be wrong to suggest that such adoption is risk-free. In the next part of this research project, we will define the full scope of advantages and disadvantages, associated with small businesses acquiring e-operational properties. We will also discuss the variety of non-rational considerations, on the part of SME’s owners, which seem to affect the overall rate of small businesses becoming “e-commercialized”.
Psychological Factors that Affect Adoption of eCommerce by SME
In the article, from which we have already quoted, Tanya Castleman comes up with valuable observation, in regards to the very nature of small businesses, while suggesting that SMEs should rather be discussed in terms of social formation then in terms of economic entity: “In many cases we could argue that small businesses are primarily social formations and their economic roles are secondary.
However, almost all discussion of SME e-commerce adoption has taken place entirely within a business discourse” (Castleman, p. 33). We can only agree with the author – despite the fact that 75% of commercial operators in U.S. consist of SME, their overall economic weight is negligible, while accounting for only 8% of America’s GNP (Gross National Product). The percentile ratio of SME market’s share in Europe accounts to 20%.
At the same time, it is practically impossible to imagine “Western living” without the extensive range of privately owned ethnic restaurants, for example, attending of which adds up quality to such “living”. Thus, in order for us to obtain a comprehensible understanding of the factors that affect the rate of eCommerce implementation by small businesses; we will also have to consider a variety of “non-commercial” characteristics that define such businesses.
The weakness of classical approach to discussing competitive advantages, associated with SME’s adoption of eCommerce, is that it is only capable of revealing their rational essence. Adoption of eCommerce has been justified as the way of reducing transaction costs, increasing the efficiency of organizational strategy, and improving overall business performance. This approach utilizes instrumental methodology of “wild capitalism”, within a context of discussing eCommerce as economic phenomenon of post-modernity; therefore, it cannot be effective in principle. We are far from suggesting that the notion of instrumental rationality had lost its empirical value, because of realities of post-industrial era. At the same time, we want to emphasize that the process of adopting eCommerce, is the subject to many irrational considerations, on the part of SMEs owners:
- The percentile ratio of small businesses in U.S. being owned by the members of the same family reaches 75%. Thus, when it comes to decision-making, within a context of running such businesses, managers with executive powers tend to refrain from trying to implement innovative business methods, as it is often being perceived by business owners as “unnecessary”, due to the lack of education, on their part.
- As practice show, the reason why many small companies are able to stay afloat, in commercial sense of this word, is because customers’ perception associates them with “long-established traditions”, which implies high quality. Therefore, the adoption of e-commercial practices is often being viewed by SMEs owners as such that represents threat, because it has a potential of depriving a particular small business of its existential uniqueness.
- The adoption of eCommerce by SME will automatically result in such enterprise becoming integrated into global e-market, which in its turn, implies the establishment of extensive operational links with the wide range of suppliers and buyers. However, the establishment of such links is often being viewed as unfeasible or simply undesired, because the conservative worldview, on the part of majority of SMEs owners.
- The prospect of gaining new economic benefits does not affect SMEs organizational decision making to the same degree as it affects organizational strategy of larger companies.
- As practice shows, the death of small business’ owner often results in his company being sold out and consequentially restructured. Thus, the owner is not being motivated to improve his business’ operational effectiveness, while knowing perfectly well of what lies ahead of him.
- The operational effectives of SME often directly correspond to owner’s ability to exercise a direct executive control over his company’s functioning. The adoption of eCommerce will significantly undermine owner’s ability to exercise such control, as it would result in company’s structural complexity being significantly increased.
- Many SMEs owners are not being overly concerned about maintaining their companies’ competitive edge, because they associate their professional duties with leisure activities.
At the same time, it would be wrong to think of all SMEs owners as individuals who do not think of making money as their existential priority. In fact, many of them strive to expand the range of their business’ operations, even though that organizational specifics of their commercial enterprises often prevents them from considering the implementation of eCommerce. In his article “Small Biz, High Tech”, John R. Quain provides us with the example of how implementation of informational technologies, closely related to eCommerce, can boost up operational efficiency of small agricultural enterprise: “Going green is a growing business for Greenling Organic Delivery, which supplies organic groceries and fresh produce directly to customers.
Started in May 2005, the company now has 500 customers, with about 10 percent growth per month, says Greenling’s president, Mason Arnold. Working with local farmers and organic producers in California and Colorado, Greenling takes orders online from shoppers and performs the routing and distribution through its automated systems” (Quain, p. 65). Author reveals that it took a while for Arnold to realize the practical benefits of integrating eCommerce into Greenling’s business cycle.
Nevertheless, the seemingly incompatible concepts of electronic commerce and conventional agriculture proved their ability to integrate into one another, in most natural manner. Ever since Greenling’s customers were given the option to do their grocery shopping online, it significantly increased the rate of their satisfaction with the company’s products, as these products are now being delivered to customers much faster, while retaining their freshness. In the next chapter of this work, we will discuss operational and economic benefits, associated with SMEs integrating e-commercial applications into their competitive strategy.
There are few major operational benefits, which can be instantly realized, upon SME adopting eCommerce: improved communicational efficiency, increased customer satisfaction, reduced lead-time and more effective cash flow. Before the rise of computer technology, in second half of 20th century, SMEs had to spend a considerable bulk of their organizational potential to insure the quality of accounting procedures. Nowadays, it is no longer the case. At the same time, many small businesses suffer from the absence of technologically supported communication channels, within organizations’ inner structure. The adoption of eCommerce, on their part, appears to be the most effective way of dealing with this issue.
The economic benefits, in regards to small business becoming “e-commercialized”, derive out of the fact that improvement of business’ operational efficiency directly leads to a considerable financial gains. These benefits include:
- Automation of operational procedures, which results in strengthening managers’ control over many aspects of company’s functioning.
- Increased productivity – conducting business online results in market scope being increased beyond regional borders, because of global operational properties of eCommerce. Moreover, by “going online”, small businesses are able to strengthen their market’s positioning, since widening the range of potential buyers automatically implies larger sales.
- Disintermediation – services of “middleman” become irrelevant, within a context of organization’s functioning. In its turn, this directly leads to reduced operational costs.
- Improved relationship with customers – buyers are being entitled with better controls over purchasing process. In his book “Managing Information Technology in Small Business: Challenges and Solutions”, Stephen Burgess” suggests that the role of eCommerce in establishment of an adequate relationship with customers cannot be underestimated: “Reaching out to customers directly with correct information and personalized services via the Internet enabled their clientele to make better decisions about their purchases. With e-mail responses to confirm orders and the dispatch of goods, these organizations developed a better relationship with their customers” (Burgess, p. 321).
Strategic benefits, associated with adoption of eCommerce by small businesses include:
- Increased resources’ flexibility – given the fact that eCommerce allows managers to apply an analytical approach to designing company’s business strategy; the operational efficiency of the process of organizational resources’ allocation is being significantly increased, as a result.
- Expansion of market’s scope – small e-businesses are able to attract virtually unlimited number of potential buyers.
- Increased circulation of advertisements – eCommerce eliminates waiting period between advertisement being made available and the public beginning to access it. For example, the billboard advertising has clearly defined timely properties – the longer a particular billboard is being viewed by people, the more likely it is to be associated with practical benefits for the advertiser. It is understood that only so many people will be able to view such advertising daily. Placing commercial advertisement on World Wide Web is an entirely different matter. As many surveys indicate – when commercial advertisement is being placed on the web site, associated with high traffic, such as MySpace, for example, it gets to be viewed by 2-3 million people, within a matter of 24 hours.
- Improved competitiveness – while competing for customers on Internet, large companies do not have significant advantages over smaller counterparts, simply because the quality and accessibility of a web site does not relate to the actual size of the company that runs it.
- The improved “existential” quality of potential clientele – people who do their shopping online are assumed to have basic computer skills, thus their ability of distinguishing between actual and perceived products’ quality is expected to be higher then average. Very often, is it small companies that are able to fully satisfy sophisticated customers’ buying needs, because smaller number of manufactured products or offered services automatically implies their higher quality. Internet allows SMEs to present the line of its products and services to the wide audience, consisting of people who are more likely to decide to pay for these products then those who do not have e-connection. In fact, the recent years saw the emergence of great many small e-companies, which specialize on providing customers with “intellectual services”. In the same article “Small Biz, High Tech”, John R. Quain discusses one of such companies “PREPME”, which provides students with tuition services. Despite the fact, that company’s workforce consists of only five employees; it has proven itself capable of handling close to 1000 academic requests a month. Author is quoting company’s owner Avichal Garg, who provides us with the insight on what corresponds to “PREPME’s” competitive strength: “We have tens of thousands of students all over the world, from Africa to Asia,” Garg says. The benefit for those students is that no matter where they are, they can access the training tools and have access to a tutor. And it saves families money. A typical classroom test-preparation course can cost from $800 to $1,000, versus PrepMe’s $300 to $500 fees” (Quain, p. 70).
Thus, the range of advantages, associated with adoption of eCommerce by small businesses is best described as extensive. It is not only that such adoption will increase SMEs operational efficiency, but it is also capable of allowing small businesses to realize their hidden commercial potential. Therefore, it represents quite a challenge to pin point at objective reasons that cause SMEs owners to refrain from adopting eCommerce. Nevertheless, such reasons do exist.
Conducting business online relies on electronic methods of making payments. Even though such methods allow SMEs to save time and to reduce operational costs, they also are being commonly perceived as somewhat insecure by majority of potential customers. This is why the electronic methods of payment, offered on commercial web sites, are being usually supplemented by ones that are more traditional, such as check or money order payments.
As we have mentioned earlier, eCommerce, as whole, often benefits from underdevelopment of regulative legal framework, especially when it comes to conducting business with international partners. However, when we discuss this issue, within a context of small business, it appears that the absence of internationally recognized legal standards, as regulative factors of eCommerce, is often being perceived by SMEs owners as such that represents a threat, for which they can hardly be blamed, given such businesses’ limited financial resources.
Therefore, we can only agree with Stephen Burgess, who suggests that many SMEs owners’ cautious attitude towards adoption of eCommerce is actually being rationally motivated: “Although small businesses could significantly expand business by contributing to various supply chains, many of them missed out on the prospect due to “fuzzy” e-agreements” (Burgess, p. 323). The owners of small commercial enterprises simply cannot afford taking chance, when it comes to reconsidering organizational strategy.
Effective assimilation of web technologies into the core of SMEs operational activity cannot proceed from stage to stage. In other words, such integration implies a complete overhaul of company’s business philosophy, which often can hardly be possible, due to the fact that managers view such overhaul as unnecessary. In order for the integration of e-commercial applications to increase company’s competitiveness, it must affect all the aspects of company’s operational activity. However, since there are no effective analytical tools to predict possible consequences of eCommerce’s adoption, small business’ owners often tend to postpone the implementation of eCommerce, until the time when it will no longer be associated with various operational threats.
As practice shows, the rate of e-illiteracy, among SMEs employees is high. This means that adoption of eCommerce, on the part of owners, can only be possible if designing company’s web site is being delegated to the third party. In its turn, this implies a high probability of company’s business objectives not being adequately represented on the World Wide Web. The successful running of small commercial enterprise is only possible when production’s criteria is being highly specialized.
However, the representation of all aspects of such specialization on the web can only be achieved if web designer is familiar with operational essence of a particular small business, which strives to establish an online presence. It is needless to say that this does not happen very often. In addition, e-commercial technologies continue to develop, which often causes a situation when newly designed web site fails to meet the criteria of technologically advanced buyers.
Integration of e-commercial applications into a small business requires implementation of network services, which in its turn, is associated with high costs. It appears that the majority of SMEs owners do not fully understand the whole range of competitive advantages that derive out of adoption of intranets and extranets and, as a result, these businesses suffer from inadequate commercial reactivity.
The adoption of eCommerce is being perceived by many SMEs workers as such that represents a threat to their employment. Even though progressive economists suggest that employees’ concerns, in regards to eCommerce, are being unsubstantiated, the objective reality often proves such economists wrong, because incorporation of e-commercial philosophy has a potential of deeming employees’ previous professional experience useless.
As we have mentioned earlier, the very nature of small commercial enterprise implies very close relationship between employees and owners, which is why owners often willing to overlook the potential benefits of eCommerce’s adoption, simply because they do not want to force workers to undergo training, in order to retain their loyalty. However, as practice shows, insuring employees’ loyalty at the expense of them continuing to lack the basic e-skills can hardly be beneficial, in the long run.
Many SMEs owners complain about the absence of reliable mechanism to measure effects of eCommerce’s integration. Despite the fact that there is an extensive empirical data available, in regards to such effects, this data often proves to be impossible to analyse with the mean of traditional statistical methods. This is due to the fact that, within a context of eCommerce, the difference between customers’ attraction to a particular line of products is often being confused with their willingness to actually pay for these products.
In his book, Stephen Burgess points out at the very essence of measuring inconsistency, when it comes to evaluation of adoption of eCommerce by SME: “Most e-commerce ventures thought they were successful, without knowing how to measure success. The most common methods of measuring success by the organizations was placing a counter on their homepages to keep a track of the number of times the homepages were accessed. However, these online businesses ignored the fact that some users access a site but do not buy and some end up at the same site again and again by mistake or due to “keyword” search” (Burgess, p. 325).
Thus, we can say that there are many objective reasons for SMEs owners to think twice, before resorting to eCommerce, as the tool of increasing their operational efficiency. However, the drawbacks of eCommerce’s adoption have “situative” nature, which means that their number can be significantly reduced in the future. By integrating eCommerce into the core of their competitive strategy, small businesses automatically adjust their status from regional to global commercial entities, regardless of their actual size.
Interview with the CEO of Webshark Ltd. Roland Hertelendy
Dear Roland, would you please describe your company and the services it provides to customers? Sure! website info.
What is the e-commerce? It depends on the profile of the enterprise, but generally the commerce made by the enterprise over the internet – which requires the presence of the company on the internet. The question or actual problem is that due to the lack of resource of logistic and administration they are dying. There is no point to open a new N+1 webshop. It makes much more sense to join to a big one, which connects the visitors to several webshops.
The most important is to keep the reliability of the webshop. In case you cannot deliver, or cannot trace the products upon customer inquiry, you are lost. Pxmania.com (in Europe) is very reliable, providing huge added value by services provided in logistic and information area. The major problem is that company managers are not able to see the value and the risk of this way of business; they just want to apply to a need of presence on the internet, without realising the whole spectrum of actual benefits, associated with such presence.
What is Web branding? Doesn’t it closely relate to web designing? A mark-image available online. It is closely related to web designing. However, there is a certain difference between these two activities. Nowadays, in order for a small business to firmly establish itself on e-market, it must opt in favour of proper market’s positioning strategy. This is actually, what many owners of small businesses do not quite understand. I often have to spend few hours a day, while trying to convince them that the opening of commercial web site alone will not result in their companies beginning to enjoy extensive e-sales. Web branding can also be referred to as the process of e-companies’ realization of their place in a particular “market niche”, which they intend to utilize.
How many people are being employed by WebShark? What area they are working? Thirty people, mostly web developers, site builders and project managers. All of them hold degree in software programming. Nevertheless, it would be wrong to think of their professional duties as such that are being limited to programming.
Do you have a plan to expand your company? No. Not in amount of employees, but on quality and efficiency. We have just finished our WIS (Webshark Information System) which will help this process. We will start on the 1st of January.. We are expanding the range of our commercial activities, as we speak. One of the particularities of eCommerce is the fact that e-company’s operational expansion does not necessarily involve increasing the number of personnel. Moreover, it would be wrong to think of our employees as such that are being subjected to “organizational discipline”, in traditional sense of this word. Every worker is being given an opportunity to set up its own working schedule. For example, employees are at liberty of showing up at work at any time of the day, for as long as they guarantee an adequate professional outcome, on their part.
Would you describe WebShark as rather virtual web project rather then a conventional firm? You could say it, to a certain degree. It is only natural for people who generate income in virtual realm not to act as conventional employees do. The very essence of eCommerce implies reconsideration of traditional approaches to employment. We appreciate workers for their ability to provide value to the content of web sites they design. At present time, we are transferring ourselves now to a web project team which takes all (as much as possible) activities from the customer. Such our ability is being naturally perceived by customers as essential, within a context of our interaction with them. Basically, we provide an additional value to our customers’ lines of products and services.
Does not this value depend on what a particular company offers to potential customers? Yes and no. Let us say, some small company that has been specializing in manufacture of decorative ceramics, wants to become e-commercial operator. If it simply opens up a web site, with the line of its products being featured there for online purchasing, it is very unlikely that such initiative, on the part of company’s managers, will result in significant increase of amount of actual sales, simply because such web site will be lost among millions of similar ones. Does it mean that the objective subtleties of ceramic manufacturing prevent this business from becoming associated with high online profits? We do not think so. What we do at WebShark, is insuring that our clients’ entrance into the world of eCommerce will not result in frustration, by adding value to the content of their web sites. There is only one way to do it – making our clients’ lines of products to be e-accessible by as many potential buyers as possible.
In other words, you suggest that the value of ceramic vase, for example, is a relative category, which can be manipulated with? Yes, but this has been the case even before the rise of eCommerce. Nowadays, the process of buying/selling is a category that has value in itself. Have not you heard of people being able to sell their souls on Ebay for thousands of dollars?
Yes, but what does it have to do with my previous question? It helps to understand the mechanics of online purchasing as being quite different from conventional purchasing. Do you think the reason why these people were able to sell their souls on Ebay is because of their souls’ highest quality? No, it is because their commercial offer was being seen by millions and millions of people, within a short period of time. If these people tried selling their souls on the street, they would be getting picked up by representatives of the nearest mental institution, as the best case scenario. Therefore, I can say that our company does add value to the products of our clients, even though we do not manipulate with it physically
Does it mean that product’s value is proportionally dependent on the number of people who were being told about such product? When we discuss this value, within a context of eCommerce, then my answer will be positive.
In other words, there can be no objective reasons for the owners of small business to refrain from participating in eCommerce? No, there are many objective reasons for them not to be willing to do so. However, as I have illustrated earlier, the very essence of eCommerce is rather subjective then objective, which is why I’m not entirely sure that rational reasoning in this respect, is being appropriate. When electricity was being made available to people for the first time, its practical utilization used to be initially associated with various practical inconveniences, which nevertheless, did not prevent electricity from eventually becoming an essential element of people’s lives. The same can be said about eCommerce. Its pitfalls, of which people tend to complain the most, such as lack of security, will be completely eliminated in near future. Therefore, we can say that it is a matter of foremost importance for commercial operators to be present and to communicate on the Internet. If not, significant loss of market share is foreseen.
But don’t you think that continuous development of IT technologies will always allow hackers to remain ahead of the game, when it comes to authorities’ attempts to insure security? It is something, which had to be done long-long time ago. There are some individual providers’ approaches, but the most important is the education, user information and the propagation of security. I hope there will be a global regulation but the technical realization is almost impossible. The most important would be to be able to localize the computer, the user of computer is linked and then traceable.
As long as there is the anonymity, there is no sense to speak about the security. We need to understand that ecommerce has not yet obtained a mainstream status. As for today, only a fraction of e-commercial applications can be referred to as fully compatible. I personally view security threats, associated with eCommerce, as logical consequence of this concept being in embryonic stage of its development. However, this stage is not going to last forever. Even today, there are many indications of eCommerce becoming safer. Therefore, I would not worry too much about hackers.
It appears that WebShark is being fully focused on providing services to corporate clients from Hungary; don’t you think that it contradicts conclusions about the truly global nature of eCommerce, with which you came up earlier? We mainly focus of local companies, as multinationals are spending their money in headquarters. On the other hand, they need such specialties that we do not want to provide, as we have no resources for that. We have some corporate clients, which have purchased some services from us but only some part of the project was done by us. At the end, the return is minimal. We are going to implement now a new product line – the consultancy, to reach all area of web and internet market.
What do you think corresponds to WebShark’s competitiveness? Full service – we do all what internet gives. On the other hand, we are a Hungarian company, which also gives a price advantage. At present time, we strive to move out the price advantage commercial niche, in order to move to premium level (in Hungary, which is still cheap on European level). Our present clients appreciate WebShark’s operational reliability – there was not a single incident of our site being down due to some technical problems.
Does WebShark have to deal with increasing competition in its operative field? The segmentation of the service and the market provides us more than enough customers, which is giving us the possibility to continue the expansion we have planned. There are many competitors out there that provide the scope of services similar to ours. However, we do not experience a high competitive pressure, in traditional sense of this word, because of sheer size of operative market, associated with web designing and web hosting.
How do you envision WebShark in five years from now? Our company has a very good potential for growth. However, we think of this growth in terms of intensiveness rather then extensiveness. In other words, we do not refer to such expansion as the process of providing employment for more and more people and extending the range of our physical assets as something that has empirical value. As for today, the professional potential of our staff has not been realized to the full extent, which is why it will be a while, before we will face the necessity of hiring more workers. One of the features of eCommerce is the fact that professional output of employees is dependant on their number in geometrical progression. In conventional commerce, such progression is best described as mathematical, which is why, the practical effectiveness of e-commercial applications will always remain high. In five years from now our company will be fully focused on exploiting European rather then Hungarian market.
Would you describe your business as such, that utilizes momentary commercial opportunities, or as such, that is being long-term oriented? It goes without saying that WebShark strives to firmly establish itself in the chosen market. As for today, there are no immediate threats to the continuous development of Internet technologies. However, it would not be entirely honest to suggest that we are being only concerned about future commercial prospects, associated with our business. We are making good money at WebShark and our operational priority, as for today, consists of attracting as many potential clients as possible.
Despite the innovative nature of eCommerce, it is still being subjected to classical laws of free-market economy, which considers company’s ability to generate profits as such that corresponds to its commercial vitality. We are being lucky enough to operate from the country that does not require commercial operators to implement irrelevant socio-political dogmas into the core of their business strategy.
For example, we do not ask our employees to “celebrate diversity” as their main professional priority, as it is the case in U.S. or in such countries as Germany or France. We do not strive to educate them on the subject of such sophistically sounding but meaningless concepts as “transition-decision making” or “participative leadership” – their professionalism is all that counts. This is the reason why WebShark does not have deal with the issue of its employees not being professionally adequate. This is also the reason we consider our company as having a strong competitive edge, which in its turn, allows us to look into the future with optimism.
Do you relate the concept of eCommerce to the concept of politics? Not really, except for when the technological aspect of eCommerce is being concerned. Despite the fact that eCommerce continues to encompass more and more people, as time goes by, there are not that many professionals left who fully understand all technological aspects of conducting business online. For example, 65% of Microsoft software designers consist of naturalized citizens from Eastern Europe, despite the fact that they are not being trained how to “celebrate diversity” and despite the fact that many of them used be hackers in their home countries, with extensive criminal records. Moreover, the shortage of professionals, in the field of designing e-commercial software, is being experienced throughout the world, and such shortage becomes more acute, as time goes by.
In other words, you suggest that the objective threats to the concept of eCommerce, are closely related to the current demographical trends in the world? ? Not the concept of eCommerce as whole, but the technological foundation, upon which this concept is based. The continuous development of digital technologies derives out of software designers’ ability to operate with highly abstract categories. The current demographical trends in the world imply the number of people, capable of abstract theorizing, being continuously reduced. This is the reason why, the more “multicultural” any particular society becomes, the more it is likely to experience the shortage of mathematicians, engineers and computer software designers.
Thank you for agreeing to be interviewed. It was my pleasure. I hope my answers were comprehensible enough for you to get a better understanding of eCommerce as whole and many of its operational aspects.
Interview with Alexander Hailfinger, CEO of Terrabit GmbH
Terrabit GmbH is considered as one of major Internet access providing and web designing companies in Germany, could you please outline Company’s major operating challenges? The biggest challenge we are dealing with now is worldview economic recession, which had negatively affected Company’s financial standing. Another challenge, we have been dealing with, since the time when Terrabit GmbH was being founded, is the fact that e-commercial laws, very rarely correspond to the objective realities of conducting business online. The governmental officials that strive to regulate web companies’ operating activities, often simply lack the basic understanding of what the concept of eCommerce really is.
Any specific examples? Our company has been accused of copyright infringement, simply because we provide our customers with 24 hours technical support, which also entitles them to download various third-party shareware computer programs off Company’s main web site, even though that legally speaking, this cannot be considered as violation of law.
Do you plan to expand the range of Company’s operations in near future? We were planning to do this until very recently, when it became clear to us that the current economic crisis would last for much longer that we originally expected. Many of our corporate clients are from Eastern Europe and you should know that, throughout the duration of last month, their foremost concern was not as much making a commercial profit but simply keeping it warm in their offices, because the supply of natural gas was being altogether cut off from them by Ukraine. We have lost a lot of money as well, because of it.
How do you envision the future of eCommerce? From purely technological perspective, this future is very bright. However, the IT technology simply cannot be continuously developing, unless social and economic preconditions are being created for that. In recent years, Company was having an increasingly hard time, while looking for fully qualified employees. Eventually, we have decided to “raise” our employees, instead of looking to “hire” them – that is, we provide talented young people with scholarships in computer science, on the condition that they will work for Terrabit GmbH, after completing their studies. For now, we simply look forward to normalization of economic situation in the world.
What would be your advice to the owners of small and medium commercial enterprises, who consider adopting eCommerce? I would advice them to seek a consultation from our specialists, as to how it can be done. However, generally speaking, I would advice them to think of an online presence as the instrument of promotion more then anything else. It is only when small company produces truly unique products or provides customers with truly unique services that it can benefit from switching to fully e-commercial operational mode.
Interview with Peter Szverle, CEO of Paper-Form Ltd
Tell me please a little about Your Company’s specialization. We specialize in “e-commercialization” of wide range of businesses, mostly in Eastern Europe. That is – we design web sites for our private and corporate clients, while using our servers in Slovakia as the physical location for these sites.
What is you general impression about the prospects of eCommerce in that particular region? In Eastern Europe, every respectable commercial enterprise is strongly affiliated with its online presence. However, many executives actually consider entrance into the world of eCommerce as fashionable gesture, on their part, rather then the practical instrument of providing their enterprises with a sharper competitive edge. However, in last decade, such tendency among them has been weakening, which I think is a result of Eastern European countries having joined EU.
What do you think is the main obstacle on the way of eCommerce in this region gaining a status of absolutely legitimate form of commerce? I think it is the fact that conducting business online is comparatively recent form of commercial activity, which is strongly associated with technical complexity. Such complexity is being rightly viewed as undesirable, especially on the part of well-established commercial operators. The very concept of eCommerce requires its practitioners to actually trust their partners and customers. The economic realities in Eastern Europe, however, are still being marked with high degree of uncertainty, which is why; the very concept of commercial trust is not very popular in the region of our Company’s specialization. Also, gaining access to a broadband Internet connection continues to be a problem for many companies in Eastern Europe, especially in Romania.
What prompts your corporate clients to resort to your Company’s services? It is the fact that, whether people like it or not – eCommerce is the way of future, given of course, that the current economic crisis would not lead to de-monetanization of world’s major currencies. If this happens, then there is going to be only one form of commercial activity left in the world – barter. Nevertheless, since eCommerce is more technological then economic phenomenon, we still look in future with optimism, because, even in times of economic recession, technology continues to advance, thus providing educated people with more and more commercial opportunities.
Can you say that the concept of eCommerce gains popularity among the owners of small and medium commercial enterprises in Eastern Europe? Of course it does. However, as practice shows, only 15% of people who decide to buy products online, think of paying for these products with their credit and bankcards as fully secure. This is the reason why companies we design web sites for, ask us to make sure that these sites would offer alternative payment methods for their customers. Small companies have learned a long time ago that advertising their products on Internet is absolutely necessary, in order for them to increase their operating efficiency. Still, it would be a mistake to suggest that such companies are willing to become completely virtualized.
All three conducted interviews indicate the fact that, whereas there can be no doubt that eCommerce will continue expanding its operational range in the future, it is also wrong to think that this form of commerce had attained a highly structuralized properties. The successful implementation of eCommerce appears to be depended on numerous independent variables (introduction of new laws, dynamics on world’s largest stock markets, effectiveness of educational system in every particular country, etc), therefore, only a short-term economic forecasts are applicable to eCommerce in general.
The validity of this statement has been confirmed by last two interviewees pointing out to the recent economic crisis as such that had a strong negative effect on overall commercial sustainability of their companies. Thus, we can say that these interviews validate the dissertation’s main thesis – eCommerce is a complex techno-economical phenomenon, which relates to politics and social dynamics of countries where it is being practiced.
Summary and Conclusion
As we have mentioned in the proposal, the reason why we embarked on qualitative method of analyzing the issue of eCommerce, is that only this method would provide us with the strategic perspective on many aspects of conducting business online. Despite the fact that the rise of eCommerce was made possible by the rapid progress in development of informational technologies, it would be wrong to refer to this concept as being purely technological, in its essence.
eCommerce is best discussed as the sub-system, within the system of conventional commerce. Just as any open thermo-dynamical system, commerce cannot only be described by mentioning the number and the quality of its internal elements. The stability of such system depends on the quality of links between system’s elements, which bind it together. In its turn, such quality has objective properties, which directly relate to socio-political aspects of modern living. As we have shown earlier, the unwillingness of many SMEs owners to adopt eCommerce, often appears to be irrational; therefore, it cannot by analyzed with the mean of application of quantitative methodology.
Traditionally, the slow pace of embracing new technology, on the part of commercial entities in Western societies, used to be directly related to the lack of financial means. However, as soon as these means would become available, nothing could prevent the implementation of such technology into the commerce. This is because commercial activities, in the era of “classical capitalism”, used to be defined by existential rationality. In its turn, such rationality derives out of very psyche of Western civilization.
In his famous work “The Protestant Ethic and the Spirit of Capitalism”, Max Weber suggests that the emergence of Protestantism in Europe corresponded to the fact that, from 16th century onwards, more and more people were realising themselves, as what Weber refers to, as “existential sovereigns”: “The spirit of capitalism, in the sense in which we are using the term, had to fight its way to supremacy against a whole world of hostile forces… Capitalism of today, which has come to dominate economic life, educates and selects the economic subjects which it needs through a process of economic survival of the fittest” (Weber, Ch.2).
During the era of “classical capitalism”, company’s manufacturing and trading capabilities were being discussed solemnly in quantitative terms. Commercial operator’s inability to insure the ever-increasing amount of sales corresponded to the lack of competitiveness, on its part. Nowadays, we can come up with many examples of small companies being able to stay afloat, in commercial sense of this word, without having to continuously explore new economic opportunities and without striving to push competitors out of their share of the market. This is because that, within a context of post-industrial economics, the “perceived” value of a particular product, often means more then its actual value.
For example, the reason why many people are willing to pay thousands of dollars for some exclusive lines of vine, is exactly because family-owned companies that produce such vine, resist any attempts, on the part of their managers, to add automation to the process of vine-making. In post-industrial era, the concept of “exclusivity” is being discussed as such that has value in itself, without such exclusivity being related to the actual quality of a particular product. This is why, when it comes to the discussion of post-industrial economics, we will be much better off, resorting to the usage of political or psychological terminology, rather then economical one.
The adoption of eCommerce is nothing but the tool of increasing the operational effectiveness of a commercial enterprise, which is exactly the reason why it is often being referred to by many SMEs as counter-productive, in its essence. However, as we have mentioned earlier, the impression that the objective laws of economics have ceased to influence post-industrial reality, is only going to last for so long.
The reason why Western conventional and electronic markets are being overfilled with products and services is because of process of outsourcing. In countries of Third World, the concept of eCommerce cannot become popular by definition – often up to 50% of citizens in these countries are illiterate. On the other hand, the most successful e-tailers in Western countries specialize in selling items that can hardly be referred to as essential – DVD’s and books. As we have mentioned earlier, in order for the individual to buy these items online, he must posses some basic computer skills. However, the process of gaining these skills cannot be assessed from educational perspective alone, as variety of different socio-political variables defines one’s ability to become computer-literate.
The concept of B2C online shopping can only attract people that have steady and considerable income, since the very essence of this concept implies their interest in buying highly specialized commercial items. However, the current demographical trends in Western countries reduce citizens’ overall ability to gain a buying satisfaction from practicing e-commerce on individual basis. At the same time, there can be no doubt as to the fact that it is namely the owners of SMEs that are being affected by so-called “commercial stagnancy” the most.
In his book “Role of E-Commerce Adoption Among Small Businesses : An Exploratory Study”, Paul Ratnasingam makes a perfectly good point when he suggests that: “Some small business owners who perceive IT implementation as risky and uncertain become immobilized by indecision and hesitation, thereby experiencing resistance to change. Even after approaching an IT investment, owners with negative or uncertain attitudes toward e-commerce adoption often have difficulty in sustaining commitment throughout the implementation process, thereby reducing resources allocated to the project, inhibiting organizational changes, and preventing the use of IT to its fullest potential” (Ratnasingam, p.6).
The worldwide economic crisis, which nowadays defines the socio-political realities in just about every country, provides additional preconditions for practitioners of e-Commerce to keep sustaining a considerable financial loses (just as it the case with practitioners of “conventional” commerce). As we have mentioned earlier, the very concept of Internet commerce has sprung up as the result of people’s realization of possibility to conduct monetary transactions online, when the physical constant of money, as reflection of an objective commercial value, has been eliminated altogether.
In fact, the very concept of post-industrial economics implies the absence of direct links between the process of manufacturing and the process of making financial profit. Nowadays, it is banking, as commercial activity, which is associated with the best prospects of making quick profits. In its turn, this explains why the number of banks in the world has doubled, within a matter of last 20 years. Such rapid expansion of world’s banking system would not be possible without the utilization of B2B e-Commerce, within the context of banks conducting financial operations. It is important to understand that the financial transactions that take place between banks consist of transferring “nothingness” from one bank to another, since these transactions do not even involve handling cash.
Thus, we can say that in the future, the B2B eCommerce may only retain its vitality, within the boundaries of world’s speculative economics, because the practical effectiveness of electronic transactions, between businesses, can only be insured, for as long as owners of these businesses are willing to play by game’s rules.
That is – both, buyers and sellers, have to pretend that they do believe that the “nothingness”, which is being inter-exchanged between them, in form of electronic transactions, somehow reflects the value of physical assets, which they supposedly posses, in order maintain the “content” of their businesses, which in its turn, is being created by the sheer number of people who utilize method of electronic payment for their convenience, without realization that by doing it, they generate the actual value, within B2B and B2C eCommerce.
Thus, these two concepts are now being slowly deprived of their distinctive subtleties. For example, the owners of Internet based Live Journal (online blog), generate huge profits on annual basis, simply because millions of people utilize their site as an online diary, thus creating a “content”, whereas the actual value of Live Journal solemnly relates to the cost of furniture in company’s office (the office itself is being rented). The same could be said about the official initiator of current financial crisis Lehman Brothers Holdings Inc., which used to conduct financial transactions amounting to hundreds of millions of dollars on daily basis (as the result of Company’s owners having taken a full utilization of B2B concept, immediately after invention of Internet), despite the fact the actual value of Company’s physical assets was less then one million dollars.
Thus, it is not the lack of confidentiality or the risk to security, which is the main factor that slows down the rate of eCommerce’s implementation nowadays, but the fact that this concept actually exposes the inconsistency of post-industrial economics, as such that generally imply the absence of links between manufacturing and the generation of profit. Ever since 1971, when Federal Reserve refused to redeem U.S. dollars for gold, the value of American legal tender is being artificially maintained by variety of different means.
For example, even today, U.S. dollar remains to be only the currency accepted for payments, on international market of oil. However, as time goes by, this currency transforms its essence from being a legal tender, to serve as simply the physical equivalent of “existential wellness”, objective properties of which cannot even be defined by people with truly wild imagination. This is the reason why commercial entities in possession of highly valuable physical assets, such as land or mineral resources, do not rush to enter the world of eCommerce and that is why large companies now engage in bartering activities on ever-increased scale.
It is needless to say that barter and eCommerce are diametrically opposite concepts and that it is doubtful of whether they will ever be reconciled. The main factor of uncertainty, within eCommerce, appears to be the fact that we still tend to think of economics and politics as such do not interrelate between each other. This, of course, is not quite the case. Economic activities simply reflect the dominant socio-political trends in every particular society, which in its turn; correspond to these societies’ biological makeup.
In the future, the functional properties of eCommerce will be closely related to inter-exchange of information, rather then to buying/selling of physical assets. Even today, there are many indications that point out to the validity of such conclusion. Nowadays, eCommerce constitutes 10% of global commerce, while relying on Internet as its operational tool. In its turn, 65% of Internet traffic relates to promotion and sale of pornography, with percentile ratio of “virtual sex”, presented on World Wide Web, continuing to increase.
This strengthens our thesis about future developments of eCommerce, as such that will correspond to its ability to increase the “perceived” value of mostly irrelevant goods and services. Therefore, as time goes by, more and more SMEs owners will resort to their companies’ presence on Internet as largely the mean of promotion then anything else, whereas the concept of B2B will slowly transform its essence from the tool the increases the convenience of monetary exchanges between commercial operators to the tool of creating a “web-content”.
As we have indicated in Five Forces Analysis, the adoption of eCommerce, on the part of wide range of commercial operators today, automatically improves their competitiveness. However, it does not mean that such state of affairs will last forever, because e-market will eventually become consolidated. Given the fact that world’s currencies gradually lose their buying power, it is only the possession of information, within a context of conducting online business, which is going to be associated with empirical value.
In fact, the effectiveness of eCommerce’s adoption, on the part of a particular company, will be proportionally related to company’s operational specialization – the less company specializes in manufacture of physical goods, the more it will be able to benefit from its online presence. This is because, within a context of providing informational and web-designing services, the increase of company’s operational efficiency does not necessarily relate to the process of its physical expansion (this thesis has been illustrated by interview with Roland Hertelendy). In its turn, such conclusion relates to economists’ vision of post-industrial society as such that refers to information as an equivalent of the only real “post-industrial” value.
This statement allows us to formulate recommendations for the owners of SMEs, which consider entering the world of eCommerce:
- The adoption of price-wise competitive strategy, on their part, will not benefit them in the long run, because, the buying power of representatives of middle class continues to decline rapidly, therefore, in near future, they will no longer be able to create a popular market demand. At the same time, the number of wealthy people continues to increase just as rapidly. Therefore, the owners of SMEs should strive to add the products they intend to sell online an aura of exclusivity (this can simply be done by hijacking price on a particular product of service), because it is namely this that will allow small e-commercial operators to maintain their competitive edge. The best example of successful implementation of such strategy is Mobiado – a Canadian manufacturer of exclusive mobile phones, which can only be bought online and which cost up to $30.000 each.
- SMEs that practice eCommerce must strive to affiliate their online presence with web sites that offer potential investors a high value of “web content”, regardless of the objective properties of such content, because only this will provide small online companies with a possibility to advertise their products to as many people as possible.
- The SMEs that practice eCommerce need to continuously work on simplifying the online payment methods, available to potential customers and also on reducing the factor of “bank involvement”. Nowadays, there are many indications available as to the fact that conducting SMS payments through mobile phones might eventually become more popular among e-customers then paying for goods and services with their credit cards.
- The design of SMEs web sites must be simple but it must also be capable of wining an instant attention, on the part of web visitors. This can be achieved by incorporating flash animation in these web sites, as their essential element.
- The owners of SMEs need to consider using foreign servers, as the “residence” for their web sites (preferably in off-shore zones), in order to be less affected by domestic e-commercial laws and regulations, which in its turn, will significantly increase their companies’ operating efficiency.
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