Why E-commerce Is Different

Why has e-commerce grown so rapidly? The answer lies in the unique nature of the Internet and the web. Simply put, the Internet and e-commerce technol­ogies are much richer and more powerful than previous technology revolutions such as radio, television, and the telephone. Table 10.2 describes the unique features of the Internet and web as a commercial medium. Let’s explore each of these unique features in more detail.

1. Ubiquity

In traditional commerce, a marketplace is a physical place, such as a retail store, that you visit to transact business. E-commerce is ubiquitous, meaning that it is available just about everywhere all the time. It makes it possible to shop from your desktop, at home, at work, or even from your car, using smart­phones. The result is called a marketspace—a marketplace extended beyond traditional boundaries and removed from a temporal and geographic location.

From a consumer point of view, ubiquity reduces transaction costs—the costs of participating in a market. To transact business, it is no longer necessary to spend time or money traveling to a market, and much less mental effort is required to make a purchase.

2. Global Reach

E-commerce technology permits commercial transactions to cross cultural and national boundaries far more conveniently and cost effectively than is true in traditional commerce. As a result, the potential market size for e-commerce merchants is roughly equal to the size of the world’s online population (esti­mated to be more than 3 billion).

In contrast, most traditional commerce is local or regional—it involves local merchants or national merchants with local outlets. Television, radio stations, and newspapers, for instance, are primarily local and regional institutions with limited, but powerful, national networks that can attract a national audience but not easily cross national boundaries to a global audience.

3. Universal Standards

One strikingly unusual feature of e-commerce technologies is that the technical standards of the Internet and, therefore, the technical standards for conducting e-commerce are universal standards. All nations around the world share them and enable any computer to link with any other computer regardless of the technology platform each is using. In contrast, most traditional commerce tech­nologies differ from one nation to the next. For instance, television and radio standards differ around the world, as does cellular telephone technology.

The universal technical standards of the Internet and e-commerce greatly lower market entry costs—the cost merchants must pay simply to bring their goods to market. At the same time, for consumers, universal standards reduce search costs—the effort required to find suitable products.

4. Richness

Information richness refers to the complexity and content of a message. Traditional markets, national sales forces, and small retail stores have great richness; they can provide personal, face-to-face service, using aural and vi­sual cues when making a sale. The richness of traditional markets makes them powerful selling or commercial environments. Prior to the development of the web, there was a trade-off between richness and reach; the larger the audi­ence reached, the less rich the message. The web makes it possible to deliver rich messages with text, audio, and video simultaneously to large numbers of people.

5. Interactivity

Unlike any of the commercial technologies of the twentieth century, with the possible exception of the telephone, e-commerce technologies are interactive, meaning they allow for two-way communication between merchant and con­sumer and peer-to-peer communication among friends. Television, for instance, cannot ask viewers any questions or enter conversations with them, and it can­not request customer information to be entered on a form. In contrast, all these activities are possible on an e-commerce website or mobile app. Interactivity allows an online merchant to engage a consumer in ways similar to a face- to-face experience but on a massive, global scale.

6. Information Density

The Internet and the web vastly increase information density—the total amount and quality of information available to all market participants, consum­ers, and merchants alike. E-commerce technologies reduce information collec­tion, storage, processing, and communication costs while greatly increasing the currency, accuracy, and timeliness of information.

Information density in e-commerce markets make prices and costs more transparent. Price transparency refers to the ease with which consumers can find out the variety of prices in a market; cost transparency refers to the abil­ity of consumers to discover the actual costs merchants pay for products.

There are advantages for merchants as well. Online merchants can discover much more about consumers than in the past. This allows merchants to seg­ment the market into groups that are willing to pay different prices and permits the merchants to engage in price discrimination—selling the same goods, or nearly the same goods, to different targeted groups at different prices. For instance, an online merchant can discover a consumer’s avid interest in expen­sive, exotic vacations and then pitch high-end vacation plans to that consumer at a premium price, knowing this person is willing to pay extra for such a va­cation. At the same time, the online merchant can pitch the same vacation plan at a lower price to a more price-sensitive consumer. Information density also helps merchants differentiate their products in terms of cost, brand, and quality.

7. Personalization/Customization

E-commerce technologies permit personalization. Merchants can target their marketing messages to specific individuals by adjusting the message to a per­son’s clickstream behavior, name, interests, and past purchases. The technol­ogy also permits customization—changing the delivered product or service based on a user’s preferences or prior behavior. Given the interactive nature of e-commerce technology, much information about the consumer can be gath­ered in the marketplace at the moment of purchase. With the increase in in­formation density, a great deal of information about the consumer’s past pur­chases and behavior can be stored and used by online merchants.

The result is a level of personalization and customization unthinkable with traditional commerce technologies. For instance, you may be able to shape what you see on television by selecting a channel, but you cannot change the content of the channel you have chosen. In contrast, online news outlets such as the Wall Street Journal Online allow you to select the type of news stories you want to see first and give you the opportunity to be alerted when certain events happen.

8. Social Technology: User Content Generation and Social Networking

In contrast to previous technologies, the Internet and e-commerce technologies have evolved to be much more social by allowing users to create and share with their friends (and a larger worldwide community) content in the form of text, videos, music, or photos. By using these forms of communication, users can create new social networks and strengthen existing ones.

All previous mass media, including the printing press, use a broadcast model (one-to-many) in which content is created in a central location by experts (professional writers, editors, directors, and producers), with audiences concen­trated in huge numbers to consume a standardized product. The new Internet and e-commerce empower users to create and distribute content on a large scale and permit users to program their own content consumption. The Internet pro­vides a unique many-to-many model of mass communications.

Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16^th edition.