With the astonishing growth of the Internet, many companies are finding new and exciting ways to expand upon their business opportunities. There are very few successful companies that do not use computers in their everyday business activities, which also means there are few companies that do not use E-commerce. To emphasize the point that the effect of the Internet is so widespread in todays business communities, one online article stated that more than 100,000 companies have Internet addresses, and 20,000 companies have Web-sites on the Internet as of February 1999 (DataQuest, 1999).
These numbers have more than tripled since 1995, and the trend shows no signs of slowing. But, what exactly is E-commerce? To most casual Internet surfers, E-commerce means online shopping; for workaholics pointing their web browser to Amazon. com to order an emergency present because they forgot someones birthday again. (Weiss, 1999) As we will soon find out, this is far from the case. Simply put, E-commerce is the exchange of business information between two or more organizations. An example of this would be buying and selling products or services over the Internet.
E-commerce became very popular soon after it proved to be an efficient means to conduct long distance transactions. The purpose of this report is to discuss some of the advantages and disadvantages of E-commerce, as well as examining its potential for the future of business. Electronic commerce, or E-commerce has developed very rapidly in the last few years and has left some people wondering what it is all about. “Most people think E-commerce is just about buying and selling things over the Internet. ” (Wareham, 2000) E-commerce is a broad term describing the electronic exchange of business data between two or more organizations computers.
Some examples might be the electronic filing of your income tax return, on-line services like Prodigy, and on-line billing for services or products received. E-commerce also includes buying and selling any item over the Internet, electronic fund transfer, smart cards, and all other methods of conducting business over digital networks. The primary technological goal of E-commerce is to integrate businesses, government agencies, and contractors into a single community with the ability to communicate with one another across any computer platform. (Edwards, 1998) History of E-commerce
Electronic commerce was built on a foundation that was started more than 125 years ago with Western Union’s money transfer as an example of telegraph technology. In the early 1900s, the advent of credit cards as a payment system revolutionized the process of automated commerce functions. In the mid 1980s, the introduction of the ATM (automated teller machine) card was the latest improvement to electronic commerce. The Internet was conceived in 1969 when the Department of Defense began funding the research of computer networking. The Internet, as a means for commerce, did not become reality until the 1990s.
Before this time, it was mainly a tool for the army, and a research device for some American universities. Its popularity grew when it proved to become a fast and efficient means to conduct long distance transactions, as well as an effective way to distribute information. Economic Impact Clearly, E-commerce will change the face of business forever. Companies that are thousands of miles away can complete business transactions and exchange information in a matter of seconds. As one online article explained: Dell Computers sells more than $14 million worth of computer equipment a day from its web-site.
By taking their customer service department to the web, Federal Express began saving $10,000 a day. The Internet provides businesses with the opportunity to sell their products to millions of people, 24 hours a day. (Baxton, 1999) Figure #1 shows the amount of revenues generated by the on the Internet dating back to 1996 as well as estimating possible revenues through the year 2002. With 1998, revenue equaling almost 74 billion dollars and experts predicting that it will climb to as much as 1,234 billion dollars by the year 2002, anyone can see that E-commerce is the wave of the future.
Figure #1- Internet generated revenues in US dollars. (Source: NUA Internet Surveys) “Without a doubt, the Internet is ushering in an era of sweeping change that will leave no business or industry untouched. In just three years, the Net has gone from a playground for nerds into a vast communications and trading center where some 90 million people swap information or do deals around the world. Imagine: It took radio more than 30 years to reach 60 million people, and television 15 years. Never has a technology caught fire so fast. (Edwards, 1998)
Advantages of E-commerce Speed Reduced Per Transaction Cost Global Reach Customer Service The number one advantage that E-commerce possesses is its speed. The Internet and World Wide Web give businesses opportunities to exchange messages or complete transactions almost instantaneously. Even with the slowest connections, doing business electronically is much faster than traditional modes. With increased speeds of communication, the delivery time is reduced and that makes the whole transaction from start to finish more efficiently.
In addition, you can find practically any product available for sale on the Internet, as one author put it from books and compact disks (from www. amazon. com) to French bread (available from www. sourdoughbread. com) (Buskin, 1998). Even more significant is the fact that information appearing on the Internet can be updated continuously and rapidly. This gives business owners the ability to inform customers of any changes to the service that they are offering. This also allows them to update marketing and promotional materials as often and as frequently as possible.
The second advantage of the electronic commerce is the opportunity it offers to save on costs. As an advertising medium, promotion using a web site results in the sale of ten times the number of units of one-tenth of advertising budget. In addition, web based promotion cost roughly one quarter of direct mail expenditures. Colorful, graphical are always less expensive than four color printing and distributing printed materials. AMP International of Harrisburg, once printed its catalogues at a cost of 8 million dollars. By putting its stock of 70,000 items on the web, such costs have been greatly reduced and sales have increased.
Furthermore, the specially designed web site makes it easier for the customer to identify desired equipment parts than the paper catalogue ever did. (Cameron 19) The Web can reduce the call volume and cost for providing effective customer support. For example, Federal Expresses web site enables customers to track their own packages with a cost to the company of $ 0. 10 per inquiry. When live operators handle these inquiries over toll-free telephone lines, each call costs federal Express $ 7. One quickly see that offloading any telephone traffic to the web site results in substantial savings.
Files of frequently asked questions (FAQs) at SunSolve reduced the companys support costs by $4 million. Lotus Development Corporation can manage six times the volume of calls with the web and the telephone staff as it could by telephone alone. There is no question is cost effective. (Cameron 19) In addition to cost savings, Web-based E-commerce provides companies with an expedient global reach that cannot be duplicated. In no other medium can a company globally market its products and, in only one month, receive orders around the world.
While success depends on how well the site is promoted online, new vistas open up for small and large businesses alike, without physically placing offices in other countries or using other forms of localized advertising. (Cameron 20) At SGI, the Silicon Surf Web site daily receives 15,000 visitors from 60 countries. These visitors download 18 gigabytes of information from the site. Even if SGI could reach these visitors through another method, marketing representatives at the company estimate that it would cost them $100,000 to distribute the downloaded information in printed format.
Cameron 20) Because of differences in time zones, coordinating international business negotiations can be highly inconvenient. Providing support and service 24 hours per day, seven days per week is expensive. However, Web sites, unlike salespeople, are always online. Users can find the answers to their questions any day of the year and can E-mail inquiries if the Web site does not answer their questions. In addition, prospects that are unaware of the companys existence can find it online because Web sites can be indexed by the Internet search engines under a variety of keywords.
A Web site becomes the companys permanent home base, an information resource continually available to the world. (Cameron 20) Allowing customers to transact business at their convenience can result in increased sales. Expro, that supplies parts to oil companies, set up a Web site enabling engineers from Shell Oil on a tanker in the North Sea to immediately place orders on the Web, rather than waiting to return onshore. The engineers admit that they do, in fact, place more orders because they can place orders when they are facing the need for the product on the oil rig. (Cameron 21)
The cost for Web-based sales decreases even further if back-end systems are integrated with the Web site so orders and fulfillment can occur without human intervention. An online store can afford to be open at all times of the day and every day of the year. Few real world stores can justify such an arrangement. (Cameron 21) Existing businesses can create Web sites as an additional sales channel, but the Web also opens the possibilities for new types of enterprises that have no real-world counterparts. In the virtual of cases, a store can have no inventory and no square footage to maintain.
CUC International runs this types of enterprise, drop-shipping its products from distributor to customer. Other stores such as wine seller Virtual Vineyards and bookstore Amazon. com keep some items in inventory, but have no retail outlets apart from their Web sites. Manufacturing companies can assemble products as need arises, following the lead of such PC manufacturers as Gateway and Dell rather than maintaining huge inventories. Even stores with retail outlets find that their Web-based stores do not face the same shelf space limitations real-world stores do. No restrictions exist on the number of items an online store can carry.