Carl De Lucia : The MBA Perspective – E-Commerce

There are an estimated 184 million Americans who shop online. Most purchases continue to take place at brick and mortar locations, but e-commerce is continuing to grow rapidly and is transforming the way organizations operate. The e-commerce market was gauged at roughly $363 billion in 2012 (9% of total retail sales) and is growing at a rate of 15% annually. 

Carl De Lucia : The MBA Perspective

E-commerce means what? РThe term e-commerce refers to the use of the Internet and the Web to transact business. (Laudon & Laudon: Management Information Systems). E-commerce involves commercial transactions between and among organizations and individuals that occur over the Web. E-commerce began in 1995 with Netscape.com, the website that ushered in web adverting and really started the idea that the Web could be used as a new medium for advertising. E-commerce grew at 10% or greater rates every year until the recession on 2008-2009. (e-commerce did better than traditional retail during the Great Recession). (Amazon was up 25% during those 2 years).

Of course, e-commerce created a bubble as will any new technology. A large number of companies did not succeed, but those that did are some of the biggest companies in the world: Amazon, eBay, Google, etc. Consider these statistics:

In 2004 there were 147 million US adults online daily, today there are 239 million.

There are 2.3 billion individuals in the world connected to the Internet.

122 million Americans access the Internet from their smartphones daily.

114 million US adults send e-mail daily, 114 million use a search engine daily.

Industries that are already transformed by e-commerce: travel reservations, music, entertainment, news, education, software, finance (and plenty more to come).

Unique Features of E-Commerce

1. Ubiquity – E-Commerce is ubiquitous, meaning that it’s available anywhere, at any time. Consumers can shop from anywhere, at any time. The result is something called “market space” – a market extended beyond traditional boundaries and removed from a temporal and geographic location. Who benefits from this? The consumer. Travel is cut, as is the amount of effort it takes to complete a purchase.

2. Information Density – The total amount of information available to all market participants and merchants. E-commerce technologies reduce information collection, storage, processing and communication costs while increasing the currency, accuracy and timeliness of information.

3. Global Reach – E-commerce technology permits commercial transactions to cross cultural and national boundaries for more convenient and cost effective commerce. Compare this to a local merchant who can only reach the target audience through local advertising.

4. Social Technology – New Internet social and business models give users the ability to create content and distribute it on social networks.

5. Universal Standards – With one set of technical standards across the globe, disparate computer systems can communicate with one another.

Content Providers – Content can be any form of intellectual property. Intellectual property is any form of human expression that can be put into a medium such as text, DVD, or stored on digital media, like the Internet. (video, text, music, photos, art). The value of online content is that consumers can find a wide range of content online, conveniently and pay for that content, to be played or read on their device.

Example: Apple. Apple sells music (they don’t create music) on the iTunes Store.

Market Creator: Build a digital environment in which buyers and sellers can communicate, display their products and services, search for goods, and establish pricing. (eBay, Priceline, Amazon Merchants.)

Digital Revenue Models

Advertising Revenue Model: The most popular revenue model in e-commerce. Without it, the Internet would be a much different place (better, or worse: that’s opening a whole nother’ can of worms!). In this model, web sites generate revenue by attracting a large audience that can be exposed to advertisements.

Sales Revenue Model: (so old school) In this model, organizations drive revenue by selling goods, information, or services. Content providers charge for downloads (iTunes).

Affiliate Revenue Model: I find this particularly interesting, because every time I read a marketing blog or industry publication, there are a ton of cheesy looking “affiliate revenue programs”. Affiliate web sites send visitors to other web sites in return for a referral fee, or percentage of the revenue from a resulting sale. (Think: Yelp).

Freemium Revenue Model: Firms offer basic services or content for free, while charging more for advanced or special features. This probably sounds familiar to anybody who’s ever downloaded a free app on their mobile device.

Transaction Fee Revenue Model: A company charges a fee for executing a transaction. For example eTrade charges a transaction fee every time it executes a stock transaction.

Subscription Revenue Model: Revenue is from charging a subscription fee for access to offerings on an ongoing basis. (The Wall Street Journal, Xbox Live, Netflix)

To Be Continued…

Reach Carl DeLucia at carldelucia22@gmail.com / Follow him on Twitter @cdelucia

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