How the Perceptions of Ecommerce As a Business Model Have Changed in the Last Decade
Looking back on the past ten years in e-commerce, it is clear that there have been a lot of changes in how e-commerce business models are perceived. New business models have emerged every year following developments in Internet technologies and telecommunications. The speed of the Internet has increased dramatically with the advent of broadband and supporting hardware and software are more sophisticated. Businesses and entrepreneurs are more familiar with trading online than they previously were; the online environment is a lot more open, enabling businesses to predict consumer behaviour and expectations. The successes and failures of e-commerce, from pioneers and firms that have participated throughout its progression, have played a key role in making e-commerce what it is today. Today’s e-commerce is driven by a wider availability of tools and realistic business strategies and models. These emerged through innovations and have made electronic commerce capable of sustaining and developing further.
Technologists, businesses, entrepreneurs, governments and academics have all invested time, money and other resources to test the boundaries of what is possible in e-commerce. Fortunately, these investments have been worthwhile, resulting in a better technological infrastructure to support the growth of e-commerce.
In tracing the progression of e-commerce, it is difficult to define exactly what changed the perception of e-commerce as a business model. E-commerce experienced a very fast growth, doubling annually, and became prevalent, impacting not just on businesses but on all aspect of our lives. Televisions are connected to the Internet; if you miss one of your favourite programs shown on the BBC, you can download it from their website; local government agencies are encouraging people to make payments, for council tax, parking fines etc. via their websites; in fact, some consumers find online banking more convenient than using a local branch. Undoubtedly, the perceptions of e-commerce have changed given the high number of people who are connected online, expanding the opportunities for businesses.
To track the changes in perceptions that have occurred over the last ten years, I will look at events that have had a significant impact during that time, such as the dot com boom and bust in late 1990s and early 2000s and the recent arrival of social networking websites, which have shifted the power to consumers who are targeted for advertising. I will also look at firms, which have invented business models that have impacted radically on e-commerce, such Amazon and e-Bay. Their business models are perceived as successful by many of the other e-commerce firms and sectors that exist today. My essay will therefore discuss the occurrences of events, businesses, innovations that have fundamentally changed the perception of e-commerce, not just from a business perspective but also from a consumer perspective. To support some of my arguments, I have reviewed surveys from The Economist dated 1997, 2000 and 2004 and consulted other recent and relevant literature written by industry experts, which helped to provide accounts of events in e-commerce.
Before examining the surveys, one of the most obvious observations about e-commerce is how the term ‘electronic’ is now used to prefix many different activities that can take place online. Terms such as e-banking and e-gaming are now commonly used not just by industries but also by consumers, who are becoming familiar with these terms and other aspects of e-commerce. This phenomenon can be interpreted as a sign of how e-commerce has developed, and also that consumers are now much more aware of the various e-commerce models than they previously were.
Ten years ago many consumers would have been very wary of using their credit cards online. Nowadays, the majority of consumers recognise the convenience of having services, such as online banking, and being able to purchase goods online. This combined with the fact that technologies and business models have matured enough to provide the security required for banks and their customers to trade online has resulted in a greater confidence in e-commerce.
Two key questions are “how did it get to this and where is it going?” Ten years ago the number of online users was still doubling; firms were experimenting with how money could be made online. Given that e-commerce was seen as an easy market to enter, many entrepreneurs embraced the opportunity and the number of online companies that were started also increased. Large firms benefited from e-commerce, not just in terms of increased revenue but conducting their businesses online made them more efficient in their operations. An example of this is General Electric which was saved money by buying up to $1 billion worth of goods from its suppliers online, according to a survey in The Economist published in May 1997.
Although there are signs of a great deal of money being made online, not all firms enjoyed the success of General Electric. Hard goods, traditionally sold through catalogues and retail stores, were selling poorly online, as consumers were not able to inspect the goods before purchasing. Furthermore, the prices were not much lower than in bricks-and mortar shops. Information goods, from software to news, seemed better suited to the online environment.
Despite the increase in number of websites, many were being used as information brochures rather than for conducting transactions. Setting up a website would have cost a lot more in the late 1990s than it would now especially if transaction functionalities were required. Research by Forrester, a Massachusetts consultancy firm suggested “their main reasons for setting up web sites were to market wares and help customers.” This suggestion can be supported also by saying that there were less financial risks in setting up a website to support a business (for example, to increase its brand awareness) than to set up a website that was an integral part of a business in those early days.
Making money was not the only concern; there were security concerns from consumers who feared that hackers could get hold of their card details and use them. A poll by USA Today conducted in 1997 highlighted that 95% of Americans would not give out their credit card details online. An Internet currency, known as digital cash, was invented as a more appealing alternative to using card details online. It was to be used not just for purchasing but also to facilitate micro transactions for information goods, such as news articles. However, it was rejected by consumers and failed to take off. Consumers were more familiar with payment systems of the ‘physical’ world such as credit cards and subscriptions and these were eventually adapted to the online world.