The Emergence of Electronic Commerce on the Internet

Walt Scacchi directs the ATRIUM Laboratory and is a faculty member in the Information and Operations Management Dept. in the School of Business Administration at the University of Southern California. He can also be reached at 213-740-4782, 213-740-8494 (fax), or (Scacchi@gilligan.usc.edu).

In the event that you have received a copy of this information as a printed document, you can access the interactive version of this material, including embedded WWW links to associated documents and other materials, at the following URL:

http://www.usc.edu/dept/ATRIUM/EC_on_the_Inet.html

http://www.usc.edu/dept/ATRIUM/Papers/Electronic_Commerce.html

Overview

• Why do Business on the Internet?
• Customer Benefits
• Supplier Benefits
• Example Operational Benefits
• What is Electronic Commerce?
• Definitions
• Ways and Means
• EC R&D efforts on the Internet
• Conclusions
• References for EC/EDI on the Internet

Why do Business on the Internet?

Potential customer benefits:

• Lower product prices
• Increased vendor competition
• Increased buyer productivity
• Better management information
• Reduced acquisition times and cost
• Better inventory control.

Why do Business on the Internet?

Potential supplier benefits:

• Improved target customer identification and market definition
• Improved cash flow management
• Increased opportunity to participate in customer acquisition processes
• Improved operating efficiencies
• Opportunities to streamline payment/receivables processes.

Why do Business on the Internet?

Example savings from "proprietary" electronic commerce projects:

• DoD identified $1.2 billion in potential savings by automating 16 most-used forms over a ten-year period.
• Texas Instruments reengineered its procurement organization and process, lowering its average cost to process a purchase order from $49.00 to $4.70.
• Long Island Medical Center reduced its medical supplies inventory 25% over two year period, while the number of orders processed annually increased more than 50%.

What is Electronic Commerce: Definitions

EC is the paperless exchange of business information using EDI, E-mail, electronic bulletin boards, electronic funds transfer (EFT), and similar technologies. EC must seek to automate the generation, processing, coordination, distribution, and reconciliation of business transactions (ECAPMO, Novermber 1994).

What is Electronic Commerce: Ways and Means

• Providing Internet "on-ramps" and WWW presence
• Electronic publishing and advertising
• Electronic retailing
• Electronic customer channels
• Electronic data interchange (EDI)
• Networked data warehousing and mining
• Loosely-coupled business process networks
• Other real-world business concerns

Providing Internet on-ramps and WWW presence

• Many "low-cost" start-up opportunities now exist
• Reminiscent of early neighborhood videocassette rental storefronts
• Income derived from periodic "rents"
• Long-term opportunities lean toward national-level firms via strategic acquisition or aggressive marketing.

Electronic publishing and advertising

• Success of Electronic journals and periodicals depends on timely access to high-value, short-lived information content.
• On-line catalogs are appearing, but how do customers find them?
• Information brokerages address this advertising problem, for a fee.
• Intelligent agents that can "discover" or find relevant items represent possible opportunity area.

Electronic retailing

• Electronic mail order from on-line catalogs is current focus.
• Electronic malls populated with virtual storefronts have appeared.
• Customers can remotely demonstrate, purchase, and immediately download informational products.
• Success in virtual real estate development may depend upon the retailers you can sign-up as lessors.
• Differentiation opportunities exist to make shopping in an electronic mall a playful interactive multi-media or vivid telepresent entertainment experience!

Electronic customer channels

• Electronic marketing is used for "on-demand" dissemination of new product or service announcements.
• Electronic distribution supports the transfer and delivery of informational products to paying customers.
• Electronic service channels are used to communicate operational problems to on-line "help desks" which return maintenance solutions via electronic bulletin boards.
• On-line customer satisfaction feedback surveys can also be provided.

Electronic data interchange (EDI)

"EDI is the primary technology used to support Electronic Commerce" (ECAPMO, November 1994)

• Very little EDI currently on the Internet
• Most EDI occurs via proprietary networks
• Internet insecurity is a perceived barrier
• Most EDI systems are "closed" and assume separation between purchasing and payment systems
• Requires contracted "trading partners"
• Can utilize portable "purchase cards"
• May eventually utilize electronic contracting.

Networked data warehousing and mining

Data warehousing

• Provides remote storage and low-frequency access to voluminous transaction records.

Data mining

• Uses advanced statistical or hueristic search analyses to discover high-value information nuggets within warehoused data.

Current Internet insecurity and limited bandwidth may discourage these activities

Loosely-coupled business process networks

• Growing interest among entrepreneurial start-ups to establish networked-based sources for the provision of intermediate products or services.
• Potential trading partners can negotiate and electronically contract for remote sourcing agreements via network ties.
• This can lead to the establishment of distributed virtual enterprises that emerge from an inter-firm network of business processes, but only need to persist as long as effective.

Other Business Concerns

• How do I go about setting up a new business on the Internet?
• Where do I try to locate it so as to get maximum exposure to the targeted customer base?
• How should I define a product line that can be readily differentiated from competing offers which can be rapidly accessed and demonstrated over the Internet?
• What sorts of barriers to the entry of competitors or competing products can be rapidly erected and affordably sustained?
• What are representative strategies for achieving or sustaining competitive advantage in open electronic markets that otherwise can quickly be reduced to simple price-based competition?
• What kinds of financial controls and performance measurements are needed to manage Internet-based business activity costs?

Example R&D efforts in Electronic Commerce

• EINet: Based in Texas, stared by MCC, supported in part by DoD's Advanced Research Project Agency (to develop a nationwide Agile Manufacturing Information Instructure) and others, serves as basis for TexasONE: a regional EC infrastructure for small businesses in Texas.
• CommerceNet: Funded by ARPA (via Technology Reinvestment Program), State of California, Smart Valley Inc., >250 subscriber businesses, developed by Enterprise Integration Technologies (EIT).
• USC: USC-ISI FAST (funding from Arpa), USC-SBA (multiple projects from multiple funding sources). New projects with USC Entertainment Technology Center (Cinema/TV) and USC School of Medicine (Telemedicine and hospital process management) are being investigated.

Conclusions

• The primary emphasis of EC is on investments being made in technology, rather than into the supporting business processes.
• Most of the lessons of good business management are not as well addressed as are the technical problems and solutions pertaining to the information infrastructure for EC.
• There are substantial R&D opportunities in figuring out how to model, integrate, and enact interorganizational business processes into EC infrastructures.

Additional References on Electronic Commerce on the Internet

• Electronic Commerce on the Internet (May 1994)

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• Electronic Commerce on the Worldwide Web (a Business School "Case")

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• Office of Technology Assessment Report on Electronic Commerce (Government report, May 1994)

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• Making Money on the Internet, presentation materials from a conference at the University of Texas at Austin (May 1994)

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• An architecture for Streamlining Procurement Through Electronic Commerce from the Federal Electronic Commerce Acquisition Program Management Office (ECAPMO), formerly the Federal Electronic Commerce Acquisition Team or ECAT (November 1994, in PDF)

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• A Smart Catalog and Brokering Architecture for Electronic Commerce. (from Stanford, in Postscript)

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• The Business of the Internet (a home page)

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• Samples of Electronic Commerce on the Internet

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• "The Well-Connected Desk" (article on EC appearing in USC Business)

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• Building New Paradigms for Electronic Commerce from Hot Wired (December 1994)

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• Another interactive presentation on the subject of CommerceNet research at Stanford University's Center for Information Technology

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This interactive presentation page is maintained by Walt Scacchi who can be reached at the e-mail address noted above. This page was last updated on 9 March 1995. Return to Top.