The Future of Electronic Commerce: A Shift from the EC Channel to Strategic Electronic Commerce

Article excerpt

ABSTRACT

Poor business performance and lost equity values have cast doubt for some on the future viability of electronic commerce. Most of this attention focuses on the EC channel, just one aspect of electronic commerce. The paper examines the effectiveness of the EC channel for seven types of products and infers that for four of them, the EC channel is unlikely to be the best way to sell and deliver goods and services. Much of the value to be had from this channel has already been captured and overinvestment in it may result in continued contraction. A more mature EC model, the Strategic Electronic Commerce Model (SECT, is proposed that provides a framework for balanced EC investments across the value chain and continued opportunities for EC investment.

Crashing prices for technology-- related equities and the failure of many electronic commerce (EC) businesses have caused many to question the future of EC. In this paper I will examine the popular notion of EC and will draw some inferences about its future. Then I will propose a more complete EC model, the Strategic Electronic Commerce Model (SECM) that can serve as a basis for continuing investment in information technology to improve the effectiveness of the firm.

THE EC CHANNEL: THE POPULAR DEFINITION OF EC.

Since early 2001, the popular press has focused on failures of the "dot.com" companies, such as pets.com and Webvan.com, and the failure of many firms to make a transition from early loss-taking, designed to enable them to achieve dominating market shares, to profit-making maturity. The focus on "dot.com" firms to define EC implicitly defines EC in terms of selling products and services using the Internet. This is the "channel view of EC."

In marketing literature, a channel consists of all of the means of bringing a product from the producer to the end user (Jobber 2001). The channel starts after the product has already been invented, designed and produced. Six major activities, information distribution and selling, ordertaking and negotiation, payment, delivery, and service define the channel view of EC. In this popular view, firms have been urged to "e-volve or die (Levy 2001)," as all transactions move toward the new, obviously superior, electronic medium. People who think that things like autos, electricity production, or real estate, are important are told that they are engaged in "old economy thinking (Connexus Resources, LLC 1999)." In the channel view of EC, firms may begin by using the Internet only for providing information about their products and services, but then they move toward a more mature position in which they perform all channel activities in the new media. It is important for them to continue to add activities until the entire transaction is handled over the Internet channel. Old economy businesses must reinvent themselves to become e-businesses or (more likely) upstart new EC companies will replace them.

Is THE EC CHANNEL ALWAYS SUPERIOR?

The EC channel is superior to prior existing channels in several respects, generating enthusiasm and optimistic expectations that it will displace the prior channels. It allows businesses to achieve immediate global scope. It allows firms to take advantage of economies of scale by consolidating global markets. It permits businesses to position themselves to serve tiny niche markets as such markets achieve sufficient scale with global scope. It allows customers to inexpensively search for the best product at the lowest price. It is immediate, faster, and more personal than other distribution channels.

THE PROBLEM OF EXTRA TRANSACTION COSTS IN THE EC CHANNEL.

Little attention has been focused on the EC channel's limitations. The EC channel is burdened with several types of higher costs. These include payment system limitations, delivery costs, returns costs, transaction repudiation, fraud, and product specification requirements. These higher costs may limit the universal application of the EC channel for every product type. …