E-Commerce
The term e-commerce embraces all the ways of transacting business via electronic data: for example, the Minitel system in France, videotext systems, and direct selling by phone. But it is most closely identified with commerce transacted over the Internet, and it is the Internet that put e-commerce at the head of the corporate strategic agenda for the first years of the 21st century.
E-commerce is merely an elision of electronic commerce, but it embodies a revolutionary idea: that electronic commerce is qualitatively different from ordinary time-worn commerce, that (in the jargon) there is a paradigm shift in the way that business is conducted in the world of e-commerce. Doing business via the Internet is not only much quicker and much cheaper than other methods, it is also thought to overturn old rules about time, space and price. There is the much-vaunted death of distance: a customer 10,000 miles away becomes as accessible as one around the corner. Furthermore, economies of scale, economic laws that were assumed for centuries to be immutable, become less relevant.
A newspaper like the Wall Street Journal, for example, sells its online edition for a fraction of the price of its paper-based edition. There is no difference in its unit delivery cost if it sells five or 5,000 online copies. This is a revolution for organisations whose structures and strategies have built-in assumptions about relationships between price and volume. Electronic commerce grew rapidly in the late 1990s.
According to International Data Corporation, a company that provides data and analysis for it vendors, worldwide e-commerce grew by 68% between 2000 and 2001, reaching some $600 billion. A big chunk of that is business-to-busi- ness – companies selling their products and services to other companies. Companies like Dell Computer made extraordinary cost savings through early use of the Internet to sell goods and services direct to con- sumers, and to buy components from suppliers. Financial-service offerings over the Internet sprouted like mushrooms.
At Charles Schwab, an American retail brokerage firm, for instance, online dealing came to account for more than half of all its securities trading in just three years.
For banks, however, e-commerce presented both an opportunity and a threat. It has been estimated that a banking transaction carried out over the telephone costs half as much as the same transaction conducted over the counter in a traditional branch, and an atm transaction costs a quarter as much.
But a banking transaction over the Internet costs a mere 1% of an over-the-counter transaction at a branch. This presents established banks with an opportunity to turn their cost structure upside down if they can persuade customers to do their banking online and to stop queuing at branches. E-commerce also allows unknown firms to establish new businesses cheaply and rapidly, and to compete with the old-timers. They do this not only by cutting prices and offering wider choices, but also by allowing consumers to make real-time price comparisons (via electronic marketplaces like Annuity.net) and to switch rapidly (and frequently) to the cheapest provider (via electronic transfer systems like OneSource).