E-Commerce Essay, Research Paper
1 Sizing the E-commerce market
IDC forecasts that the Western European market for Internet E-commerce will
rise from ECU 900 million in 1997 to ECU 26 billion in 2001. At the same time,
the number of devices accessing the Web will grow from 14.2 million by the end
of 1997 to almost 58 million by the end of 2001. NUA Internet estimates that, in
1998, the European Internet population is 22% of the world-wide population.
Other studies are confirming a huge growth in Internet access and E-commerce
applications, which began around 1996 and will continue, at a meteoric rate until
just beyond the turn of the millenium. A survey of European organisations carried
out for EITO (European IT and Telecommunications Organisation) shows that
82% of those connected to the Internet set up their connection between
1996-1998, while at the end of 1998, 29% of European businesses will be using
Internet based E-commerce applications – up from just 6% in 1996 ? and, by the
end of 1999, just under a half (47%) of such businesses will be using Internet
based E-commerce applications.
The EC-financed CONDRINET study carried out by CAP Gemini predicts that
within five years, more than 80 million Europeans will become regular network
users (where ?network? refers to interactive digital networks built upon open
standards, eg the Internet, some online services, and some interactive television
systems). It further suggests that 500 billion Euro in annual sales will either be
directly transacted across, or facilitated by, such networks. On a global level,
Forrester Research forecasts that 82% of large companies will trade online by
2002.
2 Types of E-commerce
The E-commerce market is conventionally divided into business-to-business
and business-to-consumer E-commerce. In future, these categories will
become increasingly blurred. Longer term, the distinction may well be between
customer-facing and supplier-facing E-commerce, where a customer may be a
business customer or consumer. The E-commerce applications ? marketing,
sales and post-sales ? needed to serve both types of customer are the same.
Supplier-facing applications, such as procurement (purchasing), will only apply
in the business-to-business segment, where public bodies are also included as
?businesses?.
Datamonitor predicts that Western European spend on business-to-business
E-commerce solutions will grow to $11bn by 2001, from $380m in 1997,
indicating how quickly this market segment will grow. Business-to-business
E-commerce focuses on supply chain and procurement issues. Large
companies, in particular, have streamlined their own internal processes through
the use of technology and business process re-engineering and are looking to
manipulating the supply chain for further increases in profitability.
Datamonitor notes that spending on services (consultancy, systems integration)
will grow most rapidly, experiencing a 92% compound annual growth rate over
the period 1997 ? 2002, compared to 66% for hardware and 85% for software.
This suggests that companies whose first experience of E-commerce was to
establish a Web presence will be revisiting their E-commerce strategy over the
next two to three years, working out a business case, re-engineering processes
onto the Web and integrating E-commerce applications with legacy systems, all
of which typically require the services of external agencies.
KPMG?s 1998 Research Report on E-commerce supports anecdotal evidence
from other European IT consultancies that companies are beginning to realise
the importance of strategy, business case and ?second generation? Internet
applications: that is transactional applications, rather than first generation
marketing presence on the Web. These findings typically refer to large
companies rather than SMEs. KPMG surveyed large companies (with annual
turnover above 150 million ECUs; the majority with turnovers above 300 million
ECUs) and found examples of companies generating at least 1% of their total
turnover from electronic commerce. Around 10% of the overall sample are also
generating E-commerce revenue profitably. KPMG identified key characteristics
of this ?leader? group: they were more likely: to have board level support for
E-commerce activities; to have integrated E-commerce into their supply chain;
and to be concluding Internet transactions. They also had higher Internet
marketing budgets than the rest of the sample, and had more positive attitudes
to the benefits and necessity of the Internet. As we shall see, such
characteristics are also common to best practice SMEs.
Scotland’ Craft Brewers Cooperative is the sales and marketing arm of the
Cream of Craft Brewers in Scotland, that is, those who brew beer in traditional
style, using no additives or preservatives and malt that is free of GMOs
(Genetically Modified Organisms). Of the 22 SME brewers in Scotland, six and a
bottling plant make up the Cooperative, the aim of which is to promote its
members’ product under the Scotland’s Craft Brewers Cooperative brand name,
to the large UK supermarkets. Individual brewers did not have the capacity to sell
into these on their own. In order to reach a larger market and to export beyond
the UK, the Cooperative has developed a web site, which is already breaking
new ground that would be difficult to do through conventional marketing means.
for example, SCB-Cooperative products are being sampled by the Canadian
Liquor Board. Product can be ordered via the site and paid for by credit card
using the Netbanx clearance system. The beers bear a generic label which can
be customised by the purchaser to reflect an image, name, or both
and words are digitally transmitted to the Cooperative and the customisation
service applies to orders as small as three bottles. Delivery is anywhere in the
world, coordinated by ParcelForce, and customers are able to use
ParcelForce’s Internet-based tracking service to check the status of their
delivery. As a very small business, SCBC did not think it had the skills or funding
to run a business on the web. However, by using the IBM HomePage Creator
service, it was able to go live within a couple of days at very low cost. Because
the service simplifies set-up, SCBC was able to focus on its business without
worrying about the technology. As a result of its growing success on the web,
the Cooperative is forecast to create 75 new jobs within a year and to build a
brand name rivalling better-known traditional brewers on a world scale. The
Cooperative will continue to develop its brand and the market for its product. It
expects other brewers to join the Cooperative, in order to compete in a world
market.
(www.lugton.co.uk)
Datamonitor has also produced forecasts for the business-to-consumer market:
it predicts that total revenues from online shopping at European sites will grow
from 111m ECUs in 1997 to nearly 5 billion ECUs in 2002. It predicts that travel
products will experience greatest growth, from 7% to 35% of the total online
product mix over the period 1997-2002: however, this finding is at variance with
the EITO survey, which found travel one of the slowest sectors to take
advantage of Internet E-commerce. Insurance will also grow, according to
Datamonitor, from less than 1% in 1997 to 9% in 2002. All other product
categories will experience falling shares of the overall product mix.
The business-to-consumer market is widely expected to take off when the
Internet can be accessed by large numbers of low-cost and ubiquitous devices,
such as mobile phones and digital televisions. This means that despite the
numbers of users online, companies in this sector will have to compete for
relatively small numbers of customers over the next three years. However, they
will gain valuable experience, and potentially brand recognition and market
share, that will help them to capitalise on the growth in online numbers once
access through devices other than PCs becomes widespread.
3 E-commerce applications
The trend is very much toward significant growth in transactional E-commerce
applications over the next five years, and particularly those that are
customer-facing, such as sales and post-sales (customer support, customer
monitoring and feedback, electronic delivery/delivery notification applications).
According to the EITO survey, an average of 46% of companies across
European countries have web sites for marketing purposes, while the averages
for those that currently support different types of transactional applications are
much lower. Supplier-facing applications have the lowest penetration, probably
because suppliers tend to be smaller companies, with less technology expertise
and E-commerce awareness, and are therefore highly resistant to doing
business electronically with their customers.
Men@work: the aim was to create the multi-media information system and
tele-service men@work, an important virtual marketplace for people in the office.
The system is a made-to-measured and comprehensive electronic business
solution for the presentation, marketing and distribution of products and services
related to the office. It offers everything from office equipment, accessories, art
and design to the technical equipment of a teleworker. The marketplace
represents a forum for industry, trade and services in Europe. The vision of the
owner of the consulting company OfficeMedia Consult (Altdorf, close to
N?rnberg) is to become a major provider for E-commerce of products and
services for the office in the Internet. The know-how and the technology which is
required for an electronic marketplace is provided by a single entity. The aim of
the business solution is it to bundle the competence of individual companies and
to create a target group orientated information forum that leaves enough room
for the presentation of the individual companies. Each supplier can rapidly
benefit from a low cost distribution channel combined with improved customer
relationship. The offer to the companies comprises logistics, hotline with
Internet call center, offer and data update as well as Forum and membership
care of the marketplace men@work.
(www.men-at-work.net)
Deloitte Consulting has concluded, from its annual survey of around 500 Chief
Information Executives of large companies worldwide, that this situation will very
shortly change. It suggests that customer-facing transactional applications will
pass the critical 50% mark within two years, increasing their penetration by
around 38% overall (29% in Western Europe); while supply chain applications
(procurement) will increase their penetration by almost 45% (42% in Western
Europe) in the same period, to encompass 70% of the large businesses
surveyed.
The EITO survey is more explicit, and also less sanguine, possibly because it
surveyed a range of companies of different sizes. EITO predicts that while
marketing applications will reach critical mass across all sectors by 2000-2001,
sales applications will reach this point faster (by 2000) in
business-to-business-oriented market sectors, such as utilities, manufacturing
and business services, though post-sales will lag slightly, in a 2001-2002 time
frame. Procurement applications will reach critical mass unevenly across
European countries and sectors, from 2000 through 2002