Chapter 13

E-commerce

Online business for transparency and savings

The pattern

Within the E-commerce business model, traditional products or services are delivered via online channels, thus removing overheads associated with running a physical branch infrastructure. Customers benefit from searching online for products and services, being able to compare offers, eliminating time and travel costs and obtaining lower prices. Companies benefit by making their products and services searchable online, and reducing intermediaries, retail premises and traditional non-targeted advertising.

E-commerce, which came in with the universal adoption of the computer, refers to the buying and selling of products and services via electronic systems (HOW?). Since both business and information technologies continue to develop, it is hard to define the exact dimensions of E-commerce. According to Vladimir Zwass, editor-in-chief of the International Journal of Electronic Commerce, E-commerce is ‘sharing business information, maintaining business relationships, and conducting business transactions by means of telecommunications networks’. Aside from the immediate sale of goods and services, E-commerce also includes customer service and support (WHAT?, HOW?).

Selling virtual goods engenders one major disadvantage compared with selling regular physical goods: buyers can’t test or evaluate virtual goods first-hand before spending money on them. This shortcoming has to be offset by making the various benefits abundantly clear to buyers (including making sure that the goods are always available and easily accessible, irrespective of time or place). Furthermore, customers want increased market transparency, which should include being able to consult other customers’ reviews of the products. Conversely, there is no problem with offering a larger selection of goods that might overwhelm customers, since they can easily search, filter and navigate the product range online (WHAT?).

The E-commerce business model may affect all levels and areas within a company. For instance, the sales department will use data mining or similar methods to analyse sales with the aim of directly optimising sales strategies – a task that can also be carried out automatically. Customers receive individualised advertisements and recommendations, and the company is able to reach many more customers – the Internet’s reach is truly global – with minimal additional cost (VALUE?). E-commerce can also act as a complementary sales channel through which the inherent benefits of digitised products can be exploited (HOW?). When a customer downloads digital music, films or software, this comes about through a rapid integrated sales process that completes all the necessary transactions with virtually no wait times. Lastly, E-commerce has also become important for many companies’ purchasing departments; business purchases are increasingly taking place on B2B online platforms to increase transparency and reduce transaction costs.

The origins

E-commerce has now been around for over 60 years, in particular since the electronic transmission of messages during the Berlin Airlift of 1948–49. The later development of electronic data interchange (EDI) became a prominent precursor of the E-commerce of today. Numerous sectors of industry worked together during the 1960s to develop a common electronic data standard. The original format was designed exclusively for purchasing, transportation and financial data and was primarily employed in intra-industry transactions. The first sectors to develop and utilise EDI were the retail, automotive, defence and heavy industries. A global data standard developed between the 1970s and 1990s.

Originally, such EDI systems were extremely expensive and primarily used by businesses. The growing general availability of the Internet acted as a catalyst in developing and redefining E-commerce. Today, traditional E-commerce channels are slowly but surely moving towards taking full advantage of the Internet’s capabilities, which have enabled private customers to access it as well.

The innovators

One company that has perfected the E-commerce business model is Amazon. Jeff Bezos founded the bookseller in 1994, and a year later the company had already sold its first book online after launching its website and E-commerce platform. Since Amazon faced far fewer restrictions in terms of logistics, it was able to offer a much larger selection of books than bricks-and-mortar stores at the time. Amazon’s strong growth and increasing pervasiveness on a global scale allowed it to continually introduce new product lines. The E-commerce model enabled Amazon to establish integrated ordering and distribution systems, as well as to make these systems available to other retailers via its online platform. Amazon dominates E-commerce, with a total market share of 42–50 per cent of the total E-commerce business in Europe and North America.

Asos is a British online retail store that offers fashion and beauty products as well as its own range of clothing, using an easy-to-navigate online E-commerce platform on its website. Asos reduces the costs associated with subsidiary branch infrastructure and intermediaries and is thus able to offer excellent customer service at competitive prices. Its highly effective website and global reach enables the company to connect with millions of active customers in over 165 countries.

E-commerce: the retail titan Amazon

E-commerce enables companies to reach customer groups on a new geographical scale. The Chinese Alibaba Group, for example, sees it as its mission to enable and simplify global trade. Founded in 1999, the company started E-commerce with a global and a domestic B2B platform. Over the years, this offering has been expanded to include numerous other offerings, ranging from a B2C E-commerce platform to marketing technologies, dealer training offerings and the company’s own payment service, Alipay. Today, Alibaba is an independent digital ecosystem that offers a comprehensive solution for all sales-related services, especially for small businesses.

New technologies such as virtual reality (VR) and augmented reality (AR) allow for many innovations in E-commerce businesses. Think of entering a virtual department store, trying on clothes using a body avatar or arranging pieces of furniture online in your own home – such E-commerce innovations aim to transform online shopping into a unique experience for customers. There are several examples of companies that have made use of VR to foster their E-commerce experience: German trade-and-service group Otto launched, for example, a virtual furniture planner with its app YourHome in 2018. The app enables online shop customers to arrange products such as furniture or decoration in their own four walls with the help of AR – both before the purchase, as a help to check the proportions, and after the purchase as a furnishing planner.

When and how to apply E-commerce

Just like Digitalisation, E-commerce is brimming with potential. It has redefined shopping, as almost any B2C transaction can now be conducted online. The advantages of traditional online marketing and transaction management are clear, but there are additional hidden benefits associated with E-commerce. Both big data and the use of search and transaction data show promise. Despite increasing concerns about the implications of sharing data in (Western) society, they will continue to be commercialised as long as doing so creates value for customers. In professional B2B settings, E-commerce has contributed to improving cost efficiency and reducing transaction costs.