E-Commerce Chapter 1 PDF

44 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e 1.1 THE FIRST THIRTY SECONDS: WHY YOU SHOULD STUDY E-COMMERCE The rapid...

44 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e 1.1 THE FIRST THIRTY SECONDS: WHY YOU SHOULD STUDY E-COMMERCE The rapid growth and change that has occurred in the first quarter-century of e-­commerce represents just the beginning—what could be called the first 30 seconds of the e-commerce revolution. Technology continues to evolve at exponential rates. This underlying ferment presents entrepreneurs with opportunities to create new business models and businesses in traditional industries and in the process, disrupt, and in some instances, destroy existing business models and firms. The rapid growth of e-commerce is also providing extraordinary growth in career and employment opportunities, which we describe throughout the book. Improvements in underlying information technologies and continuing entrepre- neurial innovation in business and marketing promise as much change in the next decade as was seen in the previous two decades. The twenty-first century will be the age of a digitally enabled social and commercial life, the outlines of which we can still only barely perceive at this time. Analysts estimate that by 2023, consumers worldwide will be spending around $7 trillion and businesses over $32 trillion in digital transactions. It appears likely that e-commerce will eventually impact nearly all commerce, and that most commerce will be e-commerce by the year 2050, if not sooner. Business fortunes are made—and lost—in periods of extraordinary change such as this. The next five years hold exciting opportunities—as well as significant risks— for new and traditional businesses to exploit digital technology for market advantage, particularly in the wake of the Covid-19 pandemic, which is expected to have a broad and lasting impact on many aspects of life, ranging from how businesses operate, to consumer behavior, to social and cultural life. It is important to study e-commerce in order to be able to perceive and understand the opportunities and risks that lie ahead. By the time you finish this book, you will be able to identify the technological, business, and social forces that have shaped, and con- tinue to shape, the growth of e-commerce, and be ready to participate in, and ultimately guide, discussions of e-commerce in the firms where you work. More specifically, you will be able to analyze an existing or new idea for an e-commerce business, identify the most effective business model to use, and understand the technological underpinnings of an e-commerce presence, including the security and ethical issues raised, as well as how to optimally market and advertise the business, using both traditional e-marketing tools and social, mobile, and local marketing. 1.2 INTRODUCTION TO E-COMMERCE In this section, we’ll first define e-commerce and then discuss the difference between e-commerce and e-business. We will also introduce you to the major technological build- ing blocks underlying e-commerce: the Internet, Web, and mobile platform. The section concludes with a look at some major current trends in e-commerce. M01B_LAUD9313_17_GE_C01.indd 44 5/31/2021 11:34:31 AM  Introduction to E-commerce  45 WHAT IS E-COMMERCE? E-commerce involves the use of the Internet, the World Wide Web (Web), and mobile e-commerce apps and browsers running on mobile devices to transact business. Although the terms the use of the Internet, Internet and Web are often used interchangeably, they are actually two very different the Web, and mobile things. The Internet is a worldwide network of computer networks, and the Web is one of apps and browsers the Internet’s most popular services, providing access to billions of web pages. An app running on mobile devices to transact business. (shorthand for application) is a software application. The term is typically used when More formally, digitally referring to mobile applications, although it is also sometimes used to refer to desktop enabled commercial computer applications as well. A mobile browser is a version of web browser software transactions between accessed via a mobile device. (We describe the Internet, Web, and mobile platform more and among organizations fully later in this chapter and in Chapters 3 and 4.) More formally, e-commerce can be and individuals defined as digitally enabled commercial transactions between and among organizations and individuals. Each of these components of our working definition of e-commerce is important. Digitally enabled transactions include all transactions mediated by digital technology. For the most part, this means transactions that occur over the Internet, the Web, and/or via mobile devices. Commercial transactions involve the exchange of value (e.g., money) across organizational or individual boundaries in return for products and services. Exchange of value is important for understanding the limits of e-commerce. Without an exchange of value, no commerce occurs. The professional literature sometimes refers to e-commerce as digital commerce. For our purposes, we consider e-commerce and digital commerce to be synonymous. THE DIFFERENCE BETWEEN E-COMMERCE AND E-BUSINESS There is a debate about the meaning and limitations of both e-commerce and e-business. Some argue that e-commerce encompasses the entire world of electronically based orga- nizational activities that support a firm’s market exchanges—including a firm’s entire information system infrastructure. Others argue, on the other hand, that e-business encompasses the entire world of internal and external electronically based activities, including e-commerce. We think it is important to make a working distinction between e-commerce and e-business because we believe they refer to different phenomena. E-commerce is not “anything digital” that a firm does. For purposes of this text, we will use the term e-­business to refer primarily to the digital enabling of transactions and processes within e-business a firm, involving information systems under the control of the firm. For the most part, the digital enabling of in our view, e-business does not include commercial transactions involving an exchange transactions and processes of value across organizational boundaries. For example, a company’s online inventory within a firm, involving control mechanisms are a component of e-business, but such internal processes do not information systems under the control of the firm directly generate revenue for the firm from outside businesses or consumers, as ­e-commerce, by definition, does. It is true, however, that a firm’s e-business infrastruc- ture provides support for online e-commerce exchanges; the same infrastructure and skill sets are involved in both e-business and e-commerce. E-commerce and e-business systems blur together at the business firm boundary, at the point where internal ­business systems link up with suppliers or customers (see Figure 1.1). E-business applications turn into e-commerce precisely when an exchange of value occurs. We will examine this intersection further in Chapter 12. M01B_LAUD9313_17_GE_C01.indd 45 5/31/2021 11:34:31 AM  46 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e FIGURE 1.1 THE DIFFERENCE BETWEEN E-COMMERCE AND E-BUSINESS E-business E-commerce Systems Systems The Internet The Internet Mobile Mobile Technology Infrastructure THE FIRM SUPPLIERS CUSTOMERS E-commerce primarily involves transactions that cross firm boundaries. E-business primarily involves the application of digital technologies to business processes within the firm. TECHNOLOGICAL BUILDING BLOCKS UNDERLYING E-COMMERCE: THE INTERNET, WEB, AND MOBILE PLATFORM The technology juggernauts behind e-commerce are the Internet, the Web, and increasingly, the mobile platform. We describe the Internet, Web, and mobile platform in some detail in Internet Chapter 3. The Internet is a worldwide network of computer networks built on common worldwide network of standards. Created in the late 1960s to connect a small number of mainframe computers computer networks built and their users, the Internet has since grown into the world’s largest network. It is impossible on common standards to say with certainty exactly how many computers and other mobile devices, such as ­smartphones and tablets, as well as other Internet-connected consumer devices, such as smartwatches, connected TVs, and smart speakers such as Amazon’s Echo, are connected to the Internet worldwide at any one time, but some experts estimate that as of 2019, there were anywhere from around 10 billion to 25 billion connected devices already installed (Fuscaldo, 2020; Maayan, 2020). The Internet links businesses, educational institutions, government agencies, and individuals together, and provides users with services such as e-mail, document transfer, shopping, research, instant messaging, music, videos, and news. One way to measure the growth of the Internet is by looking at the number of Internet hosts with domain names. (An Internet host is defined by the Internet Systems Consortium as any IP address that returns a domain name in the in-addr.arpa domain, which is a special part of the DNS namespace that resolves IP addresses into domain names.) In 2019, there were more than 1 billion Internet hosts in over 245 countries, up from just 72 million in 2000 (Internet Systems Consortium, 2021). The Internet has shown extraordinary growth patterns when compared to other electronic technologies of the past. It took radio 38 years to achieve a 30% share of U.S. households. It took television 17 years to achieve a 30% share. It took only 10 years for the Internet/Web to achieve a 53% share of U.S. households once a graphical user interface was invented for the Web in 1993. In the United States, around 290 million M01B_LAUD9313_17_GE_C01.indd 46 5/31/2021 11:34:32 AM  Introduction to E-commerce  47 people of all ages (about 87% of the U.S. population) use the Internet at least once a month (eMarketer, Inc. 2020a). The World Wide Web (the Web) is an information system that runs on the Internet World Wide Web infrastructure. The Web was the original “killer app” that made the Internet commer- (the Web) cially interesting and extraordinarily popular. The Web was developed in the early 1990s an information system and hence is of much more recent vintage than the Internet. We describe the Web in running on Internet some detail in Chapter 3. The Web provides access to billions of web pages indexed by infrastructure that provides access to Google and other search engines. These pages are created in a language called HTML billions of web pages (HyperText Markup Language). HTML pages can contain text, graphics, animations, and other objects. The Internet prior to the Web was primarily used for text communications, file transfers, and remote computing. The Web introduced far more powerful capabili- ties of direct relevance to commerce. In essence, the Web added color, voice, and video to the Internet, creating a communications infrastructure and information storage system that rivals television, radio, magazines, and libraries. There is no precise measurement of the number of web pages in existence, in part because today’s search engines index only a portion of the known universe of web pages. Google has identified over 130 trillion individual web pages, up from 30 trillion in 2013, although many of these pages do not necessarily contain unique content (Schwartz, 2016). In addition to this “surface” or “visible” Web, there is also the so-called deep Web that is reportedly 500 to 1,000 times greater than the surface Web. The deep Web contains mobile platform databases and other content that is not routinely identified by search engines such as provides the ability Google (see Figure 1.2). Although the total size of the Web is not known, what is indis- to access the Internet putable is that web content has grown exponentially since 1993. from a variety of The mobile platform has become a significant part of Internet infrastructure. The mobile devices such as mobile platform provides the ability to access the Internet from a variety of mobile smartphones and tablets FIGURE 1.2 THE DEEP WEB The surface Web is only a small part of online content. M01B_LAUD9313_17_GE_C01.indd 47 5/31/2021 11:34:32 AM  48 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e FIGURE 1.3 INTERNET ACCESS IN THE UNITED STATES, 2020 Mobile-only Internet users 60 million Dual desktop/laptop and mobile 21% Internet users 210 million 72% Desktop/laptop-only Internet users 20 million 7% Over 72% of all Internet users in the United States (about 210 million people) go online using both a desk- top/laptop and mobile device. About 21% (about 60 million) only go online by using a mobile device. Just 7% (about 20 million) use only a desktop or laptop computer to access the Internet. SOURCE: Based on data from eMarketer, Inc., 2020a, 2020c, 2020d. devices such as smartphones and tablets via wireless networks or cell phone service. Mobile devices are playing an increasingly prominent role in Internet access. In 2020, about 93% of Americans who accessed the Internet used a mobile device to do so at least some of the time (eMarketer, Inc., 2020b). Figure 1.3 illustrates the variety of devices used by Americans to access the Internet in 2020. The mobile platform is not just a hardware phenomenon. The introduction of the Apple iPhone in 2007, followed by the Apple iPad in 2010, has also ushered in a sea-change in the way people interact with the Internet from a software perspective. In the early years of e-commerce, the Web and web browsers were the only game in town. Today, in contrast, more Americans access the Internet via a mobile app on a mobile device than by using a desktop computer and web browser. Insight on Technology: Will Apps Make the Web Irrelevant? examines the challenge that apps and the mobile platform pose to the Web’s dominance of the Internet ecosphere in more depth. MAJOR TRENDS IN E-COMMERCE Table 1.1 on page 51 describes the major trends in e-commerce in 2020–2021 from a business, technological, and societal perspective, the three major organizing themes that we use in this book to understand e-commerce (see Section 1.6). M01B_LAUD9313_17_GE_C01.indd 48 5/31/2021 11:34:32 AM  Introduction to E-commerce  49 INSIGHT ON TECHNOLOGY WILL APPS MAKE THE WEB IRRELEVANT? Nowadays, it’s hard to recall a time In 2014, for the first time ever, Americans before the Web. How did we get used mobile devices more than desktop comput- along without the ability to go online ers to access the Internet. The time U.S. adults to search for an item, learn about a are spending using mobile devices has exploded, topic, play a game, or watch a video? now accounting for about four hours a day. Of the Though the Web has come a remarkably time spent using mobile devices, almost 90% is long way from its humble beginnings, some spent using mobile apps and only about 10% using experts think that the Web’s best days are mobile browsers. In 2020, according to consult- behind it. Opinions vary about the future role ing firm eMarketer, adult mobile Internet users of the Web in a world where apps have become in the United States spent an average of three- a dominant force in the Internet ecosystem. and-a-half hours a day within apps on their In 10 years, will the Web be a forgotten relic? smartphones and tablet computers compared Or will the Web and apps coexist peacefully as to just 25 minutes a day using a mobile browser. vital cogs in the Internet ecosystem? Will the Consumers have gravitated to apps for app craze eventually die down as users gravi- several reasons. First, smartphones and tablet tate back toward the Web as the primary way computers enable users to use apps anywhere, to perform online tasks? instead of being tethered to a desktop or having Apps have grown into a disruptive force to lug a heavy laptop around. Of course, smart- ever since Apple launched its App Store in phones and tablets enable users to use the Web 2008. The list of industries apps have disrupted too, but apps are often more convenient and is wide-ranging: communications, media and boast more streamlined, elegant interfaces than entertainment, logistics, education, health- mobile web browsers. care, and most recently, with Uber and Airbnb, Not only are apps more appealing in cer- the taxi and hotel industries. Despite not even tain ways to consumers, they are much more existing prior to 2008, in 2019, sales of apps appealing to content creators and media com- accounted for over $120 billion in revenues panies. Apps are much easier to control and worldwide, and the app economy is continuing monetize than websites, not to mention they to show robust growth. can’t be crawled by Google or other services. Although usage of apps tends to be highly On the Web, the average price of ads per thou- concentrated, with nearly 90% of smartphone sand impressions is falling, and many content app minutes spent on an individual’s top five providers are still mostly struggling to turn the apps, consumers are trying new apps all the Internet into a profitable content delivery plat- time and typically use about 20 different apps form. Much of software and media companies’ per month, leaving room for new app develop- focus has shifted to developing mobile apps for ers to innovate and create successful apps. this reason. Users are downloading an increasing number In the future, some analysts believe that of apps, with the number reaching 240 billion the Internet will be used to transport data, but worldwide in 2019, according to research firm individual app interfaces will replace the web App Annie. browser as the most common way to access (continued) M01B_LAUD9313_17_GE_C01.indd 49 5/31/2021 11:34:32 AM  50 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e and display content. Even the creator of the store, and so does not take up any of the mobile Web, Tim Berners-Lee, feels that the Web as device’s memory. Instead, it runs directly in a we know it is being threatened. mobile web browser, but is able to load instantly, But there is no predictive consensus about even in areas of low connectivity. Some people the role of the Web in our lives in the next decade think that a good PWA can ultimately function and beyond. Although apps may be more con- as a total replacement for a company’s mobile venient than the Web in many respects, the website, native app, and even possibly its desk- depth of the web browsing experience trumps top website. that of apps. The Web is a vibrant, diverse The shift toward apps and away from the array of sites, and browsers have an openness Web is likely to have a significant impact on the and flexibility that apps lack. The connections fortunes of e-commerce firms. As the pioneer between websites enhance their usefulness of apps and the market leader in apps, smart- and value to users, and apps that instead phones, and tablet computers, Apple stands seek to lock users in cannot offer the same to gain from a shift toward apps, and although experience. In addition, the size of the mobile it also faces increasing competition from other web audience still exceeds that of the mobile companies, including Google, the established app audience. And when it comes to making success of the App Store will make it next to purchases online, using a web browser on a impossible to dethrone Apple. For instance, desktop computer still handily beats mobile while Google’s Google Play store had more than devices. Retail purchases made on desktops/ double the number of downloads compared laptops still account for almost 55% of all online to Apple’s App Store in 2019, the App Store retail purchases. still made nearly twice the amount of revenue Other analysts who are more optimistic ($54 billion) than Google Play ($29 billion). about the Web’s chances to remain relevant in an Google hopes that PWAs are at least a partial increasingly app-driven online marketplace feel answer to the problem presented to it by native this way because of the emergence of HTML5 apps, because the more activity that occurs on and progressive web apps (PWAs). HTML5 is a native apps, which Google cannot crawl, the markup language that enables more dynamic less data Google has access to, which impacts web content and allows for browser-accessible its web-based advertising platform. web apps that are as appealing as device-­specific Ultimately, most marketers see the future apps. A PWA combines the best elements as one in which the Web and mobile apps work of mobile websites and native mobile apps. together, with each having an important role in A PWA functions and feels like a native app, but serving different needs. it does not need to be downloaded from an app SOURCES: “US Mobile Time Spent 2020,” by Yoram Wurmser, eMarketer, Inc., June 4, 2020; “Desktop/Laptop Retail Ecommerce Sales,” e­ Marketer, Inc., May 2020; “App Stores Saw Record 204 Billion App Downloads in 2019, Consumer Spend of $120 Billion,” by Sarah Perez, Techcrunch.com, January 15, 2020; “State of Mobile 2020,” by App Annie, January 15, 2020; “Apple’s App Store and Google Play Users Spent Over $83 Billion on Mobile Apps in the Last 12 Months, Globally,” by Saima Salim, Digitalinformationworld.com, January 9, 2020; “2019 Global State of Mobile,” Comscore, Inc., December 2019; “Why Progressive Web Apps Are the Future of the Mobile Web: 2020 Research,” by Jason Rzutkiewicz and Jeremy Lockhorn, Ymedialabs.com, September 19, 2020 “Progressive Web Apps: What They Are and Why They Matter,” by Wilson Kerr, Digitalcommerce360.com, May 28, 2018; “Why Progressive Web Apps Will Replace Native Mobile Apps,” by Andrew Gazdecki, Forbes.com, March 9, 2018; “Publishers Straddle the Apple-Google, App-Web Divide,” by Katie Benner and Conor Dougherty, New York Times, October 18, 2015; “How Apps Won the Mobile Web,” by Thomas Claburn, Informationweek.com, April 3, 2014; “Mobile Apps Overtake PC Internet Usage in U.S.,” by James O’Toole, Money.cnn.com, February 28, 2014; “Is The Web Dead in the Face of Native Apps? Not Likely, But Some Think So,” by Gabe Knuth, Brianmadden.com, March 28, 2012; “The Web Is Dead. Long Live the Internet,” by Chris Anderson and Michael Wolff, Wired.com, August 17, 2010; “The Web Is Dead? A Debate,” by Chris Anderson, Wired.com, August 17, 2010. M01B_LAUD9313_17_GE_C01.indd 50 5/31/2021 11:34:32 AM  Introduction to E-commerce  51 TABLE 1.1 MAJOR TRENDS IN E-COMMERCE, 2020–2021 BUSINESS The Covid-19 pandemic fuels a surge in retail e-commerce and m-commerce. The mobile app ecosystem continues to grow, with almost 2.8 billion people worldwide using mobile apps. Social e-commerce, based on social networks and supported by advertising, emerges and continues to grow, generating an estimated $90 billion worldwide in 2020. Local e-commerce, the third dimension of the mobile, social, local e-commerce wave, is also growing, fueled by an explosion of interest in on-demand services such as Uber, Deliveroo, DoorDash, and others. Although global economic activity declined in 2020 due to the pandemic, B2B e-commerce revenues remained stable and are expected to continue to increase. On-demand service firms continue to attract billions in capital and garner multi-billion dollar valuations. Although companies operating in the travel industry, such as Uber and Airbnb, are severely impacted by the Covid-19 pandemic, others, such as Instacart and DoorDash, which operate in the grocery and restaurant delivery areas, grow. Mobile advertising continues growing at astronomical rates, accounting for over 70% of all digital ad spending. Small businesses and entrepreneurs continue to flood into the e-commerce marketplace, often riding on the infrastructures created by industry giants such as Apple, Facebook, Amazon, Google, and eBay. TECHNOLOGY A mobile computing and communications platform based on smartphones, tablet computers, wearable devices, and mobile apps becomes a reality, creating an alternative platform for online transactions, marketing, advertising, and media viewing. The use of mobile messaging services such as Facebook Messenger, WhatsApp, and Snapchat continues to expand, and these services are now used by almost 45% of the U.S. population. Smart speakers such as Amazon Echo and Google Home become increasingly popular, providing an additional platform for e-commerce. Cloud computing completes the transformation of the mobile platform by storing consumer content and software on “cloud” (Internet-based) servers and making it available to any consumer-connected device, from the desktop to a smartphone. The Internet of Things (IoT), comprised of billions of Internet-connected devices, continues to grow exponentially. As firms track the trillions of online interactions that occur each day, a flood of data, typically referred to as big data, is being produced. In order to make sense out of big data, firms turn to sophisticated software called business analytics (or web analytics) that can identify purchase patterns as well as consumer interests and intentions in milliseconds. SOCIETY User-generated content, published online as social network posts, tweets, blogs, and pins, as well as video and photo-sharing, continues to grow and provides a method of self-publishing that engages millions. Social networks encourage self-revelation, threatening privacy, as Facebook comes under fire for allowing third parties such as Cambridge Analytica, device makers, and app developers to mine its database of user information without user consent. The EU General Data Protection Regulation impacts all companies that operate in any of the EU member nations. Concerns increase about increasing market dominance of Facebook, Amazon, and Google, leading to calls for government regulation in both the European Union and the United States. Conflicts over copyright management and control continue, but there is substantial agreement among online distributors and copyright owners that they need one another. Surveillance of online communications by both repressive regimes and Western democracies grows. Concerns over commercial and governmental privacy invasion increase. Online security continues to decline as major companies are hacked and lose control over customer information. Spam remains a significant problem. On-demand service e-commerce produces a flood of temporary, poorly paid jobs without benefits. M01B_LAUD9313_17_GE_C01.indd 51 5/31/2021 11:34:32 AM  52 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e From a business perspective, one of the most important trends to note is that all forms of e-commerce continue to show very strong growth. Retail e-commerce has been growing worldwide at over 20% a year for the last few years, and in 2020 reached almost $4.3 trillion. Retail m-commerce is growing at an even faster rate (over 25% a year) and increased to almost $2.8 trillion in 2020. Social networks such as Facebook, Pinterest, and ­Instagram are enabling social e-commerce by providing advertising, search, and Buy buttons that enable consumers to actually purchase products. Local e-commerce is being fueled by the explo- sion of interest in on-demand services. B2B e-commerce, which dwarfs all other forms, is also continuing to strengthen and grow. The Covid-19 pandemic which emerged in the first quarter of 2020 is expected to result in an increased and lasting shift to e-commerce. From a technology perspective, the mobile platform based on smartphones and tablet computers has finally arrived with a bang, driving astronomical growth in mobile advertising, and making true mobile e-commerce a reality. The use of mobile messaging services such as Facebook Messenger, WhatsApp, and Snapchat has created an alter- native communications platform that is beginning to be leveraged for commerce as well. Cloud computing is inextricably linked to the development of the mobile platform by enabling the storage of consumer content and software on cloud (Internet-based) ­servers and making it available to mobile devices as well as desktops. Other major tech- nological trends include the increasing ability of companies to track and analyze the flood of online data (typically referred to as big data) being produced. The Internet of Things (IoT), comprised of billions of Internet-connected devices, continues to grow exponentially, and will only add to this flood of data in the years to come. At the societal level, other trends are apparent. The Internet and mobile platform pro- vide an environment that allows millions of people to create and share content, establish new social bonds, and strengthen existing ones through social network, photo- and video- posting, and blogging sites and apps, while at the same time creating significant privacy issues. Privacy seems to have lost some of its meaning in an age when millions create public online personal profiles, while at the same time concerns over commercial and govern- mental privacy invasion continue to increase. The major digital copyright owners have increased their pursuit of online piracy with mixed success, while reaching agreements with the big technology players such as Apple, Amazon, and Google to protect intellectual prop- erty rights. Governments have successfully moved toward taxation of e-commerce sales. Sovereign nations have expanded their surveillance of, and control over, online communi- cations and content as a part of their anti-terrorist activities and their traditional interest in law enforcement. Online security, or lack thereof, remains a significant issue, as new stories about security breaches, malware, hacking, and other attacks emerge seemingly daily. 1.3 UNIQUE FEATURES OF E-COMMERCE TECHNOLOGY Figure 1.4 illustrates eight unique features of e-commerce technology that both chal- lenge traditional business thinking and help explain why we have so much interest in e-commerce. These unique dimensions of e-commerce technologies suggest many new possibilities for marketing and selling—a powerful set of interactive, personalized, and rich messages are available for delivery to segmented, targeted audiences. M01B_LAUD9313_17_GE_C01.indd 52 5/31/2021 11:34:32 AM  Unique Features of E-commerce Technology  53 FIGURE 1.4 EIGHT UNIQUE FEATURES OF E-COMMERCE TECHNOLOGY E-commerce technologies provide a number of unique features that have impacted the conduct of business. Prior to the development of e-commerce, the marketing and sale of goods was a mass-marketing and salesforce–driven process. Marketers viewed consumers as passive targets of advertising campaigns and branding “blitzes” intended to influence their long-term product perceptions and immediate purchasing behavior. Companies sold their products via well-insulated channels. Consumers were trapped by geographical and social boundaries, unable to search widely for the best price and quality. ­Information about prices, costs, and fees could be hidden from the consumer, creating profitable information asymmetries for the selling firm. Information asymmetry refers to any information disparity in relevant market information among parties in a transaction. It was so asymmetry expensive to change national or regional prices in traditional retailing (what are called any disparity in relevant menu costs) that one national price was the norm, and dynamic pricing to the market- market information among place (changing prices in real time) was unheard of. In this environment, manufacturers parties in a transaction prospered by relying on huge production runs of products that could not be customized or personalized. E-commerce technologies make it possible for merchants to know much more about consumers and to be able to use this information more effectively than was ever true in the past. Online merchants can use this information to develop new information asymmetries, enhance their ability to brand products, charge premium prices for high- quality service, and segment the market into an endless number of subgroups, each receiving a different price. To complicate matters further, these same technologies also M01B_LAUD9313_17_GE_C01.indd 53 5/31/2021 11:34:32 AM  54 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e make it possible for merchants to know more about other merchants than was ever true in the past. This presents the possibility that merchants might collude on prices rather than compete and drive overall average prices up. This strategy works especially well when there are just a few suppliers (Varian, 2000a). We examine these different visions of e-commerce further in Section 1.4 and throughout the book. Each of the dimensions of e-commerce technology illustrated in Figure 1.4 deserves a brief exploration, as well as a comparison to both traditional commerce and other forms of technology-enabled commerce. UBIQUITY marketplace In traditional commerce, a marketplace is a physical place you visit in order to transact. physical space you visit For example, television and radio typically motivate the consumer to go someplace to in order to transact make a purchase. E-commerce, in contrast, is characterized by its ubiquity: it is avail- ubiquity able just about everywhere, at all times. It liberates the market from being restricted to available just about a physical space and makes it possible to shop from your desktop, at home, at work, or everywhere, at all times even from your car, using mobile e-commerce. The result is called a marketspace—a marketplace extended beyond traditional boundaries and removed from a temporal and marketspace geographic location. marketplace extended From a consumer point of view, ubiquity reduces transaction costs—the costs of partic- beyond traditional boundaries and removed ipating in a market. To transact, it is no longer necessary that you spend time and money from a temporal and traveling to a market. At a broader level, the ubiquity of e-commerce lowers the cognitive geographic location energy required to transact in a marketspace. Cognitive energy refers to the mental effort required to complete a task. Humans generally seek to reduce cognitive energy outlays. When given a choice, humans will choose the path requiring the least effort—the most convenient path (Shapiro and Varian, 1999; Tversky and Kahneman, 1981). GLOBAL REACH E-commerce technology permits commercial transactions to cross cultural, regional, and national boundaries far more conveniently and cost-effectively than is true in tra- ditional commerce. As a result, the potential market size for e-commerce merchants is roughly equal to the size of the world’s online population (an estimated 4 billion in 2020) (eMarketer, Inc., 2020e). More realistically, the Internet makes it much easier for startup e-commerce merchants within a single country to achieve a national audience than was ever possible in the past. The total number of users or customers an e-commerce busi- reach ness can obtain is a measure of its reach (Evans and Wurster, 1997). the total number of In contrast, most traditional commerce is local or regional—it involves local users or customers ­merchants or national merchants with local outlets. Television, radio stations, and an e-commerce ­newspapers, for instance, are primarily local and regional institutions with limited business can obtain but powerful national networks that can attract a national audience. In contrast to ­e-commerce technology, these older commerce technologies do not easily cross national boundaries to a global audience. UNIVERSAL STANDARDS One strikingly unusual feature of e-commerce technologies is that the technical stan- dards of the Internet, and therefore the technical standards for conducting e-commerce, M01B_LAUD9313_17_GE_C01.indd 54 5/31/2021 11:34:32 AM  Unique Features of E-commerce Technology  55 are universal standards—they are shared by all nations around the world. In contrast, universal standards most traditional commerce technologies differ from one nation to the next. For instance, standards that are television and radio standards differ around the world, as does cell phone technology. shared by all nations The universal technical standards of e-commerce greatly lower market entry costs— around the world the cost merchants must pay just to bring their goods to market. At the same time, for consumers, universal standards reduce search costs—the effort required to find suitable products. And by creating a single, one-world marketspace, where prices and product descriptions can be inexpensively displayed for all to see, price discovery becomes sim- pler, faster, and more accurate (Banerjee et al., 2016; Bakos, 1997; Kambil, 1997). Users, both businesses and individuals, also experience network externalities—benefits that arise because everyone uses the same technology. With e-commerce technologies, it is possible for the first time in history to easily find many of the suppliers, prices, and delivery terms of a specific product anywhere in the world, and to view them in a coher- ent, comparative environment. Although this is not necessarily realistic today for all or even most products, it is a potential that will be exploited in the future. RICHNESS Information richness refers to the complexity and content of a message (Evans and richness Wurster, 1999). Traditional markets, national sales forces, and retail stores have great the complexity and richness: they are able to provide personal, face-to-face service using aural and visual cues content of a message when making a sale. The richness of traditional markets makes them a powerful selling or commercial environment. Prior to the development of the Web, there was a trade-off between richness and reach: the larger the audience reached, the less rich the message. E-commerce technologies have the potential for offering considerably more infor- mation richness than traditional media such as printing presses, radio, and television because they are interactive and can adjust the message to individual users. Chatting with an online salesperson, for instance, comes very close to the customer experience in a small retail shop. The richness enabled by e-commerce technologies allows retail and service merchants to market and sell “complex” goods and services that heretofore required a face-to-face presentation by a sales force to a much larger audience. INTERACTIVITY Unlike any of the commercial technologies of the twentieth century, with the possible exception of the telephone, e-commerce technologies allow for interactivity, meaning interactivity they enable two-way communication between merchant and consumer and among con- technology that allows for sumers. Traditional television or radio, for instance, cannot ask viewers questions or enter two-way communication into conversations with them, or request that customer information be entered into a form. between merchant Interactivity allows an online merchant to engage a consumer in ways similar to and consumer a face-to-face experience. Comment features, community forums, and social networks with social sharing functionality such as Like and Share buttons all enable consumers to actively interact with merchants and other users. Somewhat less obvious forms of interac- tivity include responsive design elements, such as websites that change format depending on what kind of device they are being viewed on, product images that change as a mouse hovers over them, the ability to zoom in or rotate images, forms that notify the user of a problem as they are being filled out, and search boxes that autofill as the user types. M01B_LAUD9313_17_GE_C01.indd 55 5/31/2021 11:34:32 AM  56 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e INFORMATION DENSITY information density E-commerce technologies vastly increase information density—the total amount and the total amount and quality of information available to all market participants, consumers, and merchants quality of information alike. E-commerce technologies reduce information collection, storage, processing, and available to all market communication costs. At the same time, these technologies greatly increase the cur- participants rency, accuracy, and timeliness of information—making information more useful and important than ever. As a result, information becomes more plentiful, less expensive, and of higher quality. A number of business consequences result from the growth in information density. One of the shifts that e-commerce is bringing about is a reduction in information asym- metry among market participants (consumers and merchants). Prices and costs become more transparent. Price transparency refers to the ease with which consumers can find out the variety of prices in a market; cost transparency refers to the ability of consumers to discover the actual costs merchants pay for products. Preventing consumers from learning about prices and costs becomes more difficult with e-commerce and, as a result, the entire marketplace potentially becomes more price competitive (Sinha, 2000). But there are advantages for merchants as well. Online merchants can discover much more about consumers; this allows merchants to segment the market into groups willing to pay different prices and permits them to engage in price discrimination—selling the same goods, or nearly the same goods, to different targeted groups at different prices. For instance, an online merchant can discover a consumer’s avid interest in expensive exotic vacations, and then pitch expensive exotic vacation plans to that consumer at a premium price, knowing this person is willing to pay extra for such a vacation. At the same time, the online merchant can pitch the same vacation plan at a lower price to more price-sensitive consumers. Merchants also have enhanced abilities to differentiate their products in terms of cost, brand, and quality. PERSONALIZATION AND CUSTOMIZATION personalization E-commerce technologies permit personalization: merchants can target their the targeting of marketing marketing messages to specific individuals by adjusting the message to a person’s messages to specific name, interests, and past purchases. Today this is achieved in a few milliseconds and individuals by adjusting followed by an advertisement based on the consumer’s profile. The technology also the message to a permits customization—changing the delivered product or service based on a user’s person’s name, interests, preferences or prior behavior. Given the interactive nature of e-commerce technology, and past purchases much information about the consumer can be gathered in the marketplace at the customization moment of purchase. changing the delivered With the increase in information density, a great deal of information about the product or service based consumer’s past purchases and behavior can be stored and used by online merchants. on a user’s preferences The result is a level of personalization and customization unthinkable with traditional or prior behavior commerce technologies. For instance, you may be able to shape what you see on televi- sion by selecting a channel, but you cannot change the contents of the channel you have chosen. In contrast, the online version of the Financial Times allows you to select the type of news stories you want to see first and gives you the opportunity to be alerted when certain events happen. Personalization and customization allow firms to precisely identify market segments and adjust their messages accordingly. M01B_LAUD9313_17_GE_C01.indd 56 5/31/2021 11:34:32 AM  Unique Features of E-commerce Technology  57 SOCIAL TECHNOLOGY: USER-GENERATED CONTENT AND SOCIAL NETWORKS In a way quite different from all previous technologies, e-commerce technologies have evolved to be much more social by allowing users to create and share content with a worldwide community. Using these forms of communication, users are able to create new social networks and strengthen existing ones. All previous mass media in modern history, including the printing press, used a broadcast model (one-to-many): content is created in a central location by experts (profes- sional writers, editors, directors, actors, and producers) and audiences are concentrated in huge aggregates to consume a standardized product. The telephone would appear to be an exception, but it is not a mass communication technology. Instead the telephone is a one-to-one technology. E-commerce technologies have the potential to invert this standard media model by giving users the power to create and distribute content on a large scale, and permit users to program their own content consumption. E-commerce technologies provide a unique, many-to-many model of mass communication. Table 1.2 provides a summary of each of the unique features of e-commerce technology and their business significance. TABLE 1.2 BUSINESS SIGNIFICANCE OF THE EIGHT UNIQUE FEATURES OF E-COMMERCE TECHNOLOGY E-COMMERCE TECHNOLOGY BUSINESS DIMENSION SIGNIFICANCE Ubiquity—E-commerce technology is available The marketplace is extended beyond traditional boundaries and is everywhere: at work, at home, and elsewhere via removed from a temporal and geographic location. “Marketspace” is mobile devices, anytime. created; shopping can take place anywhere. Customer convenience is enhanced, and shopping costs are reduced. Global reach—The technology reaches across Commerce is enabled across cultural and national boundaries seamlessly national boundaries, around the earth. and without modification. “Marketspace” includes potentially billions of consumers and millions of businesses worldwide. Universal standards—There is one set of technology There is a common, inexpensive, global technology foundation for standards. businesses to use. Richness—Video, audio, and text messages are Video, audio, and text marketing messages are integrated into a single possible. marketing message and consuming experience. Interactivity—The technology works through Consumers are engaged in a dialog that dynamically adjusts the experi- interaction with the user. ence to the individual and makes the consumer a co-participant in the process of delivering goods to the market. Information density—The technology reduces Information processing, storage, and communication costs drop information costs and raises quality. dramatically, while currency, accuracy, and timeliness improve greatly. Information becomes plentiful, cheap, and accurate. Personalization/Customization—The technology Enables personalization of marketing messages and customization of allows personalized messages to be delivered to products and services based on individual characteristics. individuals as well as groups. Social technology—User-generated content and Enables user content creation and distribution and supports social networks. development of social networks. M01B_LAUD9313_17_GE_C01.indd 57 5/31/2021 11:34:32 AM  58 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e 1.4 TYPES OF E-COMMERCE There are a number of different types of e-commerce and many different ways to char- acterize them. For the most part, we distinguish different types of e-commerce by the nature of the market relationship—who is selling to whom. Mobile, social, and local e-commerce can be looked at as subsets of these types of e-commerce. BUSINESS-TO-CONSUMER (B2C) E-COMMERCE business-to-consumer The most commonly discussed type of e-commerce is business-to-consumer (B2C) (B2C) e-commerce e-commerce, in which online businesses attempt to reach individual consumers. B2C online businesses selling e-commerce includes purchases of retail goods; travel, financial, real estate, and other to individual consumers types of services; and online content. B2C has grown exponentially since 1995 and is the type of e-commerce that most consumers are likely to encounter (see Figure 1.5). Within the B2C category, there are many different types of business models. ­Chapter 2 has a detailed discussion of seven different B2C business models: online retailers, service ­providers, transaction brokers, content providers, community providers/social networks, market creators, and portals. Then, in Part 4, we look at each of these business models in FIGURE 1.5 THE WORLDWIDE GROWTH OF B2C E-COMMERCE $5000 Asia Pacific $4000 Revenue (Bllions) $3000 $2000 North America $1000 Europe Latin America/Middle East/Africa $0 2018 2019 2020 2021 2022 2023 Year B2C e-commerce revenues in all regions continued to grow throughout 2020. Retail e-commerce, the largest part of B2C e-commerce, surged throughout the world in 2020, in part due to the impact of the Covid-19 pandemic, offsetting the decline in digital travel revenues. The Asia-Pacific region generates the highest amount of B2C e-commerce revenue, followed by North America. SOURCES: Based on data from eMarketer, Inc., 2020f, 2020g. M01B_LAUD9313_17_GE_C01.indd 58 5/31/2021 11:34:33 AM  Types of E-commerce  59 FIGURE 1.6 ROOM TO GROW overall global retail market $ 23.8 trillion worldwide retail e-commerce $ 4.3 trillion The retail e-commerce market is still just a small part of the overall global retail market, but with much room to grow in the future. action. In Chapter 9, we examine online retailers, service providers, including on-demand services, and transaction brokers. In Chapter 10, we focus on content providers. In Chapter 11, we look at community providers (social networks), market creators (auctions), and portals. The data suggests that, over the next several years, B2C e-commerce worldwide will continue to grow by over 10% annually. There is tremendous upside potential. Today, for instance, retail e-commerce (which currently comprises the majority of B2C e­ -commerce revenues) is still a relatively small part of the overall $23.8 trillion retail market worldwide, although the percentage increased significantly, from 13.6% in 2019 to 18% in 2020, due to the Covid-19 pandemic. But there is obviously still much room to grow (see Figure 1.6). However, it’s not likely that B2C e-commerce revenues will continue to expand forever at current rates. As online sales become a larger percentage of all sales, online sales growth will likely eventually decline. However, this point still appears to be a long way off. Online content sales, involving everything from music, to video, games, and entertainment, have an even longer period to grow before they hit any ceiling effects. BUSINESS-TO-BUSINESS (B2B) E-COMMERCE Business-to-business (B2B) e-commerce, in which businesses focus on selling to other business-to-business businesses, is the largest form of e-commerce, with almost $8 trillion in transactions in (B2B) e-commerce the United States in 2020 (see Figure 1.7) and about $27 trillion worldwide (U.S. Cen- online businesses selling sus Bureau, 2019; UNCTAD, 2019; The World Bank, 2021). This is still a small portion to other businesses of total B2B commerce (which remains largely non-automated), suggesting that B2B M01B_LAUD9313_17_GE_C01.indd 59 5/31/2021 11:34:33 AM  60 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e FIGURE 1.7 THE GROWTH OF B2B E-COMMERCE IN THE UNITED STATES $10 $8 Revenue (Trillions) $6 $4 $2 $0 2005 2010 2015 2020 2024 Year B2B e-commerce in the United States is over six times the size of B2C e-commerce. In 2024, U.S. B2B e-com- merce is projected to be reach around $9.8 trillion. (Note: Estimates for 2020 through 2024 may be impacted by the Covid-19 pandemic.) SOURCES: Based on data from eMarketer, Inc., 2020i; U.S. Census Bureau, 2019b; authors’ estimates. e-commerce has significant growth potential. The ultimate size of B2B e-commerce is potentially huge. There are two primary business models used within the B2B arena: Net ­marketplaces, which include e-distributors, e-procurement companies, exchanges, and industry consortia, and private industrial networks. We review various B2B business models in Chapter 2 and examine them in further depth in Chapter 12. CONSUMER-TO-CONSUMER (C2C) E-COMMERCE Consumer-to-consumer (C2C) e-commerce provides a way for consumers to sell to consumer-to- each other with the help of an online market maker (also called a platform provider). consumer (C2C) In C2C e-commerce, the consumer prepares the product for market, places the prod- e-commerce uct for auction or sale, and relies on the market maker to provide catalog, search consumers selling to engine, and transaction-clearing capabilities so that products can be easily displayed, other consumers discovered, and paid for. Craigslist, eBay, and Etsy were the original C2C platform provider pioneers in the United States, but today they face significant competition. For instance, third-party sales on Amazon have skyrocketed. In China, Alibaba oper- ates a similar global C2C marketplace, Taobao, that is now one of the world’s largest. Facebook has also entered the arena with Facebook Marketplace. There are also a number of new entrants focused on the C2C market, such as Gumtree, Depop, and Vinted. On-demand service companies such as Uber and Airbnb can also be considered as C2C platform providers. M01B_LAUD9313_17_GE_C01.indd 60 5/31/2021 11:34:33 AM  Types of E-commerce  61 FIGURE 1.8 THE WORLDWIDE GROWTH OF RETAIL M-COMMERCE $5 $4 Revenue (Trillions) $3 $2 $1 2018 2019 2020 2021 2022 2023 2024 Year Retail m-commerce revenues surged by over 30% in 2020 and are expected to continue to grow to almost $4.5 trillion by 2024. SOURCES: Based on data from eMarketer, Inc., 2020h. MOBILE E-COMMERCE (M-COMMERCE) Mobile e-commerce (m-commerce) refers to the use of mobile devices to enable online mobile e-commerce transactions. M-commerce involves the use of cellular and wireless networks to connect (m-commerce) smartphones and tablet computers to the Internet. Once connected, mobile consumers use of mobile devices to can purchase products and services, make travel reservations, use an expanding variety enable online transactions of financial services, access online content, and much more. Retail m-commerce revenues reached almost $2.8 trillion worldwide in 2020, grow- ing by 32%, in part due to the Covid-19 pandemic. Retail m-commerce is anticipated to continue to grow and reach almost $4.5 trillion by 2024, as consumers become more and more accustomed to using mobile devices to purchase products and services (see Figure 1.8) (eMarketer, Inc., 2020h). Mobile digital travel sales declined significantly in 2020 due to the Covid-19 pandemic but are expected to gradually begin to grow again once the pandemic eases. Factors that are driving the growth of m-commerce include the increasing amount of time consumers are spending using mobile devices, larger smartphone screen sizes, greater use of responsive design enabling websites to be better optimized for mobile use and mobile checkout and payment, and enhanced mobile search functionality. A variation of m-commerce known as conversational commerce involves the use of chatbots on mobile messaging apps such as Facebook Messenger, WhatsApp, Snapchat and Slack as a vehicle for companies to engage with consumers. social e-commerce SOCIAL E-COMMERCE e-commerce enabled by Social e-commerce is e-commerce that is enabled by social networks and online social social networks and online relationships. Social e-commerce is often intertwined with m-commerce, particularly social relationships M01B_LAUD9313_17_GE_C01.indd 61 5/31/2021 11:34:33 AM  62 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e as more and more social network users access those networks via mobile devices. The growth of social e-commerce is being driven by a number of factors, including the increasing popularity of social sign-on (signing onto websites using your Facebook or other social network ID), network notification (the sharing of approval or disapproval of products, services, and content), online collaborative shopping tools, social search (recommendations from online trusted friends), and the increasing prevalence of inte- grated social commerce tools such as Buy buttons, Shopping tabs, marketplace groups, and virtual shops on Facebook, Instagram, Pinterest, YouTube, and other social networks. Social e-commerce is still in its relative infancy, but with social media and networks playing an increasingly important role in influencing purchase decisions and driving sales, it is continuing to grow. Total social commerce revenues worldwide in 2020 were estimated to be around $90 billion (Business Wire, 2020). LOCAL E-COMMERCE local e-commerce Local e-commerce, as its name suggests, is a form of e-commerce that is focused on e-commerce that is focused engaging the consumer based on his or her current geographic location. Local mer- on engaging the consumer chants use a variety of online marketing techniques to drive consumers to their stores. based on his or her current Local e-commerce is the third prong of the mobile-social-local e-commerce wave and, geographic location fueled by an explosion of interest in local on-demand services such as Uber, grew in the United States to over $125 billion in 2020. Figure 1.9 illustrates the relative size of all of the various types of e-commerce while Table 1.3 provides examples for each type. FIGURE 1.9 THE RELATIVE SIZE OF DIFFERENT TYPES OF E-COMMERCE IN THE UNITED STATES IN 2020 B2B $ 8 Social $30+ billion trillion Local $125+ billion B2C C2C Mobile $1.16 $105+ $360 billion trillion billion B2B e-commerce dwarfs all other forms of e-commerce; mobile, social, and local e-commerce, although growing rapidly, are still relatively small in comparison to “traditional” e-commerce. M01B_LAUD9313_17_GE_C01.indd 62 5/31/2021 11:34:33 AM  E-commerce: A Brief History  63 TABLE 1.3 MAJOR TYPES OF E-COMMERCE TYPE OF E-COMMERCE EXAMPLE B2C—business-to-consumer Amazon is a general merchandiser that sells consumer products to retail consumers. B2B—business-to-business Metalshub is an independent third-party marketplace that serves the metals industry. C2C—consumer-to-consumer Online platforms such as eBay, Taobao, and Gumtree enable consumers to sell goods directly to other consumers. Airbnb and Uber provide similar platforms for services such as room rental and transportation. M-commerce—mobile Mobile devices such as tablet computers and smartphones can e-commerce be used to conduct commercial transactions. Social e-commerce Facebook is both the leading social network and social e-commerce platform. Local e-commerce Groupon offers subscribers daily deals from local businesses in the form of Groupons, discount coupons that take effect once enough subscribers have agreed to purchase. 1.5 E-COMMERCE: A BRIEF HISTORY It is difficult to pinpoint just when e-commerce began. There were several precursors to e-commerce. In the late 1970s, a pharmaceutical firm named Baxter Healthcare initiated a primitive form of B2B e-commerce by using a telephone-based modem that permitted hospitals to reorder supplies from Baxter. This system was later expanded during the 1980s into a PC-based remote order entry system and was widely copied throughout the United States long before the Internet became a commercial environment. The 1980s saw the development of Electronic Data Interchange (EDI) standards that permitted firms to exchange commercial documents and conduct digital commercial transactions across private networks. In the B2C arena, the first truly large-scale digitally enabled transaction system was the Minitel, a French videotext system that combined a telephone with an 8-inch screen. The Minitel was first introduced in 1981, and by the mid-1980s, more than 3 million had been deployed, with more than 13,000 different services available, includ- ing ticket agencies, travel services, retail products, and online banking. The Minitel service continued in existence until December 31, 2006, when it was finally discontinued by its owner, France Telecom. However, none of these precursor systems had the functionality of the Internet. Generally, when we think of e-commerce today, it is inextricably linked to the Internet. For our purposes, we will say e-commerce begins in 1995, following the appearance of the first banner advertisements placed by AT&T, Volvo, Sprint, and others on Hotwired in late October 1994, and the first sales of banner ad space by Netscape and Infoseek in early 1995. Although e-commerce is not very old, it already has a tumultuous history, which can be usefully divided into three periods: 1995–2000, the period of invention; 2001–2006, the period of consolidation; and 2007–present, a period of reinvention with social, M01B_LAUD9313_17_GE_C01.indd 63 5/31/2021 11:34:33 AM  64 C H A P T E R 1    I n t r o d u c t i o n t o E - c o m m e r c e mobile, and local expansion. The following examines each of these periods briefly, while ­Figure 1.10 places them in context along a timeline. E-COMMERCE 1995–2000: INVENTION The early years of e-commerce were a period of explosive growth and extraordinary innovation. During this Invention period, e-commerce meant selling retail goods, usually quite simple goods, on the Internet. There simply was not enough bandwidth for more complex products. Marketing was limited to unsophisticated static display ads and not very powerful search engines. The web policy of most large firms, if they had one at all, was to have a basic static website depicting their brands. The rapid growth in e-­commerce was fueled by over $125 billion in venture capital. This period of e-­commerce came to a close in 2000 when stock market valuations plunged, with thousands of companies disappearing (the “dot-com crash”). The early years of e-commerce were one of the most euphoric of times in com- mercial history. It was also a time when key e-commerce concepts were developed. For computer scientists and information technologists, the early success of e-commerce was a powerful vindication of a set of information technologies that had developed over a period of 40 years—extending from the development of the early Internet, to the PC, to local area networks. The vision was of a universal communications and computing environment that everyone on Earth could access with cheap, inexpensive computers— a worldwide universe of knowledge stored on HTML pages created by hundreds of ­millions of individuals and thousands of libraries, governments, and scientific institutes. FIGURE 1.10 PERIODS IN THE DEVELOPMENT OF E-COMMERCE INVENTION CONSOLIDATION REINVENTION (social, mobile, local) Retail Retail + Services Retail + Services + Content $600 200 0 2007 li ta $500 Re e Th T on he h Sm h C ras e ar tp (Billions) $400 s r vice Se $300