E-Commerce

Major Industry Trends

Electronic commerce, or e-commerce, involves the sale of goods and services via electronic means principally over the internet, although sales via television (terrestrial, cable, and satellite) are also included. E-commerce can be further divided into the following sectors: business-to-business (B2B), business-togovernment (B2G), consumer-to-consumer (C2C), government-to-business (G2B), government-to-citizen (G2C), and business-to-consumer (B2C). Retailers that rely primarily on e-commerce to sell goods or services are often referred to as e-tailers. Retailing over the internet generally takes one of two forms: Cybermallsthe most famous cybermall is eBay, which offers access to products from a variety of independent retailers. Individual websitesmost major retailers now have their own websites, which complement their traditional bricks-and-mortar outlets. Some retailers operate solely over the internet.

In terms of television sales, programs on dedicated shopping channels generally feature a presenter who demonstrates products on air. Viewers can buy these products by telephoning an order line with their credit card details, or, in the case of interactive television services, by using their remote control. Recent years have seen the development of a variety of selling techniques, including on-air auctions. E-commerce is most closely associated with the internet, and has developed in tandem with the growth of the medium. Indeed, e-commerce initially became possible with the opening up of the internet to commercial users in the early 1990s. However, it wasnt until the latter half of the decade that companies really began to exploit the internets commercial potential. A number of start-up companies, such as Amazon and eBay, have exploited the power of the internet to emerge as retailing behemoths in their own right. However, e-commerce has largely been developed by established large retailers, which regard it as simply another sales channel. The gigantic grocery retailers that have expanded away from food and into a wide variety of other areas, such as clothing and electronic goods, have been particularly quick to appreciate its potential. The medium has also created opportunities for very small businesses. It is now possible to buy over the internet a wide range of specialized products that are not available in shopping malls. Thus, the internet has provided a lifeline for many small producers, and has allowed entrepreneurs to enter the retailing sector without the need to invest heavily in physical retail outlets. E-commerce has proven so successful because it offers significant advantages to both consumers and retailers. Consumers can compare a vast array of retailers in a few minutessomething that it would be impossible to do physically. Online retailers often sell products and services at a significant discount to those offered by traditional outlets, and buying online is convenient: consumers can make their purchases from the comfort of their own home, and have them delivered to their door. Furthermore, online shopping appeals to the environmentally conscious. In March 2009, researchers at Heriot-Watt University in the United Kingdom revealed that online shopping is 24 times greener than taking the car to the shops, and seven times greener than taking the bus. The researchers compared the carbon footprint of a typical delivery from a local depot with average carbon footprints for shopping trips by car and bus, and found that home deliveries involved much lower levels of carbon emissions. In June 2009, a study by the Carnegie Mellon Green Design Institute in the United States found that shopping online can reduce our environmental impact by as much as 66%. For businesses, the advantages of e-commerce lie mainly in the low cost of setting up and maintaining a business. Firms do not need to invest heavily in a physical presence, or in sales staff. However, they do have to organize payment systems, distribution, and returns.

Industry Suitability
Undoubtedly, some industries are more suited to e-commerce than others. This type of retailing is most applicable to goods that are fairly simple, commoditized, and do not require on-the-spot input from
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knowledgeable sales staff. Thus, grocery retailing is ideally suited to e-commerce, whereas consumers generally need to try on clothing before they make a purchase. Equally, the penetration of e-commerce may be high in some sectors of a given market, but low in others. In financial services, for example, purchasing of insurance or a loan, both highly commoditized products, is ideally suited to the internet. However, many people prefer to buy a sophisticated financial product, such as a pension, on a face-to-face basis, as they will almost certainly require advice before making their choice. Generally, it is difficult to make online sales of sophisticated goods and services that require a large amount of advice or input from the retailer.

Technological Advances
The growth of broadband internet connections around the globe has undoubtedly boosted online shopping, simply by dramatically speeding up the process of accessing websites, and buying goods. Broadband is at least ten times as fast as dial-up. Having access to broadband means that consumers are more likely to use the internet to purchase everyday items such as groceries. However, faster connection speeds also allow users to download music files, video clips, and movies, or to compete in online gaming, further boosting the potential revenues generated by e-commerce. Traditionally, individuals and businesses have ordered goods or services online via computers, but the increasing availability of broadband on mobile phones has opened up another avenue for e-tailers. Certainly, e-tailers are now targeting the mobile phone. In April 2010, for example, the UK online grocery retailer Ocado launched an Android app, which allows the weekly shopping to be done on a mobile phone with voice command. Ocado is the United Kingdoms first supermarket to develop an app for Googles operating system, and allows users to search the virtual aisles by speaking into their handset. Surprisingly, given that the United States is generally regarded as the most advanced economy in the world, its broadband penetration rates are relatively low, according to the Organization for Economic Cooperation and Development (OECD), which publishes data on the subject (see More Info). In June 2009, the Netherlands had the highest penetration rate for broadband, at 38.1 per 100 inhabitants, followed by Denmark with 37.0. It was followed by Norway (34.5), Switzerland (33.8), and South Korea (32.8). The United States was in 15th place, with a penetration rate of 26.7 per 100 inhabitants. E-commerce is also making increasing inroads into areas where it was thought difficult to sell goods online. Historically, for example, it was thought difficult to sell clothes online because shoppers could not try on the goods. However, sites such as Asos, which targets 16 to 34-year-olds with outfits and accessories styled on those worn by celebrities, have shown that it is possible to successfully sell clothes online.

Market Analysis
Calculating the overall size of the global e-commerce market is complicated by the relatively high levels of cross-border sales that take place. Furthermore, few research companies measure all the various sectors of the market (B2B, B2C, etc). However, estimates from various analysts suggest the market was worth around US$500 billion in 2009. The United States is almost certainly the largest market, reflecting the size of its economy. Total e-commerce sales in the United States during 2009 were estimated at US$134.9 billion, an increase of 2% on 2008, according to the US Commerce Department. However, the research firm, Key Note Ltd says that use of the internet is certainly growing most rapidly in fast developing countries such as China, India, and Brazil, which are not only benefiting from fast-rising living standards, but are also spread over huge geographic distances, and thus offer great potential for online sales. The most rapid growth is now occurring in emerging economies, such as China. Statistics from the government-linked China Internet Network Information Center (CINIC) showed that Chinas online trade in 2009 reached 248.35 billion yuan (US$36.38 billion), up 93.7% from 2008, and is expected to reach 1 trillion yuan in 2013. Chinas online population, the worlds largest, grew by 86% in 2009, to 384 million, according to CINIC. The number of internet users in China, which has a population of 1.3 billion, was thus far greater than the entire population of the United States. The CINIC said that the number of broadband users reached 346 million, growing by 76 million compared to 2008. In spite of the high penetration rate of broadband, Chinas broadband access speed is far behind that in the developed economies, according to CINIC.
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Varying Business Models

Companies have adopted differing business models for their e-commerce operations. Amazon operates from vast warehouses, as does Ocado, a grocery retailer based in the United Kingdom. In the Ocado model, pickers inside the warehouse service thousands of internet orders, which are stacked, packed into pods that are attached to big trucks, and then transported all over the United Kingdom to car parks, where the pods are slotted onto individual vans for street-level deliveries. Other retailers pursue different models. The United Kingdoms Tesco, the third-largest retailer in the world, bases its online shopping business at individual stores. Tescos website sends orders to the store nearest to the shopper, and pickers visit the stores shelves to fill the orders. Tesco vans then take the orders out locally. Amazon is regarded as one of the pioneers of e-commerce, and continues to go from strength to strength. Founded in 1995 by Jeff Bezos to sell books, Amazon now sells a wide range of consumer products, and is one of the best-known internet retailers. By the end of the 1990s, Amazons revenue was around US$1.5 billion a year, but it was still making a lossit had to borrow around US$1 billion each year just to keep afloat. However, it managed to survive the financial storm, and, by the middle of the current decade, was making a healthy profit. Indeed, in 2005, on Amazons 10th birthday, Bezos said that his aim was to turn Amazon into the Wal-Mart of electronic retailing, with a company mantra of get big fast. In the year ending December 31, 2009, Amazons net sales increased 28% year-on-year to US$24.51 billion. The established online retailer may face a fresh competitive challenge in the coming years in the shape of Wal-Mart, which in April 2010 said that it was seeking to boost online sales outside the United States. The megastore operator was reportedly studying the best methods to promote its e-commerce initiative worldwide. The company, which operates in 14 countries, hopes to beat off competitors like Amazon. The retailer launched an e-commerce business in 2008 in Brazil, the country with the highest level of broadband penetration in Latin America. In April 2010, it unveiled plans to launch an e-commerce business in China and Japan.

More Info
Websites:
ABI Research, a supplier of technology market research: www.abiresearch.com Key Note Ltd, provides research on a wide range of markets, including retailing: www.keynote.co.uk OECD Broadband Portal: www.oecd.org/sti/ict/broadband Statistical reports on internet development in China: www.cnnic.net.cn/en/index US Census BureauQuarterly Retail E-Commerce Sales: www.census.gov/mrts/www/ecomm.html

See Also
Industry Profile Information Technology Retail

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E-Commerce

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