Electronic Commerce

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Electronic Commerce

• Workshop on
• Strategic Electronic Commerce and Management
• Electronic Commerce Resource Centre/NECTEC
• Siam City Hotel, Bangkok, 23-25 May 2001
• John Ure
• Director of the Telecommunications Research
  Project
• University of Hong Kong
• www.trp.hku.hk

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What is Electronic Commerce?

• E-commerce - any marketplace electronic
  transactions
• E-business - electronic communications to
  re-engineer the internal and external value
  chains, everything from procurement to sales,
  from production to warehousing, from supply-chain
  management to customer relations management, from
  finances to human relations, etc

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Electronic Commerce by Sector

• E-commerce as e-tailing B2C
• E-business as supply-chain/enterprise resource
  management/marketing B2B
• E-Government as procurement B2G and as
  electronic services delivery G2C
• E-verything else? P2P ? horizontal across the
  ISO layers

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OSI Hierarchy

• Open Systems Interconnection (OSI) of the
  International Standards Organization (ISO)
  designated a reference model in 1977.
• IBM produced its own propriety standard Systems
  Network Architecture (SNA) and a Systems
  Applications Architecture (SAA) to run on top of
  SNA.
• Technological change and development of
  client-server architecture combine to collapse
  the layers.

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When did EC start?

• Dates back as far as the telegraph
• Use of computer-networks (including digital
  telecom networks) dates from 1960s for distinct
  purposes, eg time-sharing mainframe CPU cycles
  data transfer services information services
• 1970s-80s electronic document interchange (EDI)
  using proprietary standards over Value -added
  networks (VANS) CAD over comms networks
• 1990s TCP/IP protocols and email

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5 broad areas of EC up to 1990s

• Electronic mail mailboxes to receiver gateway
  services to corporate server
• Enhanced fax point-to-point
• EDI docs formatting for computer-to-computer
• Transaction processing payments authorizations,
  settlements, supporting credit, etc involving
  banks
• GroupWare secure managed environment for email,
  scheduling, teleconconferencing, etc

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EC from the 1990s

• A transition to fully integrated Internet-based
  MIS and IT systems at firm and industry levels
  (eg. Internet-based Enterprise Resource
  Management ERM) but also on a progressive
  continuum involving 4 basic levels
• a communications infrastructure to carry
  information
• a marketplace of buyers, sellers and
  intermediaries
• transactions mechanisms to send, execute and
  settle orders
• deliverables - merchandise or services to be
  exchanged.

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EC into the 2000s

• Middleware within the firm electronic business
  is becoming an integrated total business
  solution e-platforms for
  middleware replacing distributed ERP systems
• Electronic marketplaces beyond the firm
  marketplaces for procurement and logistics - many
  specialist marketplaces, e.g. steel,
  pharmaceuticals, vehicles, etc.
• Trading platforms these may be pure financial
  plays for brokering or may be part of the
  electronic marketplace for processing payments
  and authentication

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Enterprise resource planning (ERP)

• Larry Ellison (Oracle) on ERP in 1990s We blew
  it Weve learned from the Internet that you
  dont put shared applications on the client and
  that you centralize complexity.
• 1990s ERP software very popular - but based upon
  pre-Internet model! ? assumption that content and
  applications would be dispersed across discrete
  pockets of users within the enterprise ? charging
  model high licensing fees

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ERP - the aftermath

• IBM estimates that 70 of all code written
  today consists of interfaces, protocols and other
  procedures to establish linkages among various
  systems. The Economist, 26 June 1999
• Systems integration is big business complexity
  of systems and architectures, standards,
  generations of equipment and software and
  upgrades, and shortage of IT skilled staff
  ?productivity of computers soon lost (PCs cost
  US1-2,000, but recurrent costs can be
  US8-12,000 pa!)

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3rd Generation eBusinessEnd-to-end Integration,
Personalization, Automation
Generation 1 Generation 2 Generation 3
Marketing Brochureware
Selling Transaction
1.1 Relationship Dynamic Business
Internet Business EDI
Conducting e-commerce
Customer Centric e-business
Web Presence
Back-ends runs independently
Some links to back-end
Fully Integrated Back-end
Source Intel
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First Generation eBusiness Infrastructure
Application Servers Data Center
Application device
Applications
Database
LAN WAN
Batch Mode
Old Epicenter
Application device
Source Intel
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New eBusiness Infrastructure
Clients Front-end Mid-tier
Back-end
Applications Infrastructure
Applications
TA Based Intelligent Storage Proprietary
New Epicenter increasingly open to customers
Internet/ Intranet
Source Intel
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Migration towards Net Economy
Create Commerce Trading Communities
Become a Portal
Connect Your Partners and Suppliers
Intranet Portal
Integrate in Your Existing Asset

• Set-up trading
• communities
• Leverage vertical
• content

Supplier Portal
Establish a web Presence

• Extend services to
• supply-chain partners
• Optimize your supply-chain for
• faster responsiveness

Partner Portal

• Extend existing
• systems
• Sell product and services online
• Enable real-time transactions

Your business
Customer Portal

• Publish your presence
• market product service

Source Servanova
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What is B2C?

• Business-to-consumer e-commerce is sometimes
  referred to as etailing or electronic retailing
• But the B part could include any transactor,
  eg. another consumer, as in C2C
• Many electronic communities are C2C, and may
  involve payment in or in kind (eg, baby-sitting
  tokens) or simply barter

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E-marketing vs. E-tailing

• Creating a method of sales online - but the
  payment mechanism may be off line e-marketing
  the most common early use of websites by B2C
• Delivery mechanisms for goods and services
  ordered online - eg. use of convenience stores
  such as 7-11 in Japan for payments and delivery
  pick-up

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A site to be seen

• Two Categories of Sites
• Destination sites such as online storefronts,
  presence sites and content sites, which compete
  for consumer attention
• Traffic control sites such as malls, incentive
  sites and search agents, which function to direct
  consumers to Destination sites

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A site typology - 1 (Kalakota and Whinston,
1997, Readings in Electronic Commerce)

• 1. E-shops online stores - revenues from
  transactions (eg Amazon.com)
• 2. E-malls cluster of e-shops - revenues from
  rents, ads and maybe transaction fees (eg AOL)
• 3. E-auctions revenues from selling the
  technology platform, transaction fees and
  adverting sales (eg. Priceline, E-Bay)

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A site typology - 2 (cf Kalakota and Whinston)

• 4. Search engines, portals and vortals offer
  search and navigation tools - revenues from
  advertising, also personalized information,
  etailing, community services (eg webpage
  building, etc - eg. Yahoo)
• 5. Virtual communities non-commercial and
  commercial services (eg GeoCities)
• 6. Content providers offer entertainment, news,
  information - revenues from subscriptions,
  pay-per-download, membership (eg. CNN.com)
• 7. Applications providers next? networked
  computer?

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How Big is B2C?

• Boston Consulting estimates Asia-Pacific EC
  revenues at US2.8 billion in 1999 0.1 overall
  retail sales revenues (cf 1.2 in USA)
• Gartner Group estimate Japan 54 ! Australia
  15! Taiwan 5.6! South Korea 4.8! Only
  leaves 20 for rest of Asia-Pacific!

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Drivers and constraints

• Access, bandwidth and affordability
• Security
• Credit cards and payments
• Complementary issues (see below)
• Language difficulies and translation software

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Modelling Critical Mass for B2C

• Telecommunications Research Project modelled
  critical mass for Hong Kong to provide a more
  rational basis for forecasts and projections
• Can be used elsewhere!!

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The Model - Aim

• Aim model critical mass for business-to-consumer
  (B2C) e-commerce or electronic retailing using
  the case of Hong Kong.
• Conclusion based on Dec. 2000 data critical
  mass could be reached by 2003
• Purpose not a prediction, rather to provide a
  benchmark for a future better understanding of
  the process

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The Model - Forecasting

• Forecasting e-commerce runs up against many
  difficulties, including
• a) definition of what is being measured
• b) reliable sources of data over sufficient
  period of time
• c) appreciation of complementary factors
• Most forecasting of EC currently done by
  marketeers and consultants, not economists - very
  little analysis of the significance of EC
  (despite fact everyone thinks it is important).

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The Model Itself

• A. Assume online shopping is a household activity
  (ignore 3G, palm pilot, etc)
• B. Three parts to the model
• 1. Percentage of households with computers
  (precondition to going online)
• 2. Percentage of (1) online (precondition for
  online shopping)
• 3. Percentage of (2) who are frequent shoppers

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The Model - Critical Mass

• A critical mass when growth self-sustaining
• Everett Rogers (1983) The Diffusion of
  Innovations established the accepted categories
• 1) Innovators first 2.5 ? market grows slowly
• 2) Early adopters second 13.5 ? faster growth
• 3) Early majority third 34 ? exponential
  growth
• 4) Late majority fourth 34 ? growth slows
• 5) Laggards last 16 ? market reaches
  saturation

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Hong Kong data - S-curve

• A family of S-curves nicely describe most the
  diffusion patterns (rates) of most new
  technologies and products
• Critical mass associated with the 2nd deflection
  point (16)
• The following slide illustrates the diffusion of
  computers among households in Hong Kong
• The data collected by the TRP with assistance
  from the Social Science Research Centre, HKU
  (gt500 households)
• Finding critical mass of households with
  computers already reached by 1998/9

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PCs Penetration Rate

Note Assume an upper bound of 100
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Hong Kong - Online

• Percentage of all households using Internet
• 2000 (December) 50.4 (36.4 HKGSAR)
• 1999 (September) 40.4 (45.4 finding by the
  Democratic Party, November 1999 telephone survey
  of 1,571 households)
• 1998 (December) 26.2 (11.8 HKGSAR) 1996
  (February) 4.4
• 1994 (December) 0.88

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Hong Kong - Online Driver

• The following graph shows that 1998 is the
  cross-over between the percentage of households
  with computers and the percentage of those online
• This means that from 1998 the number of
  households online (and potentially online
  shoppers) is driven by the number of households
  with computers

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PCs Online Penetration Rate

Note Assume an upper bound of 100
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Hong Kong - Transactors

• What percentage of frequent online shoppers in
  Hong Kong? A C Nielsen (translated by TRP)
  suggest the minimum numbers who had ever
  purchased online (15-54 year olds) are
• 2000 95,000 households
• 1998 48,000 households
• 1997 22,000 households
• NOTE had ever purchased online does not imply
  frequent

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Hong Kong - Transactors

• TRP figure suggests 74,000 households in 2000,
  but only 7,000 households in 1998 (but used
  non-prompt questions! May underestimate, but can
  this explain the big difference?) tenfold
  increase!
• A.C.Nielsen figures suggest slow down from 120
  per annum 1997-1998 to 40 per annum 1998-2000

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Hong Kong - Per family

• Using AC Nielsen data, TRP estimate ceiling of
  2.3 family members use the Internet (NB. average
  family size 3.2)
• If Hong Kong population 6.8 million, then
  critical mass (16) 1.088 million individual
  transactors (/2.3) ? 473,000 households
• If transactors double each year ?critical mass
  for B2C reached by 2003 (But this evidence is the
  weak link in the chain! No data of frequent)
• If transactors increase by 50 each year
  ?critical mass for B2C reached by 2004/5

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How Does Thailand Compare?

• Thailand
• compared with
• Hong Kong ?

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Shopping Online

• Hong Kong Thailand (Urban)
• Shopping Online
• of Internet Households 6.9 7.8 (??)
• All Households 3.5 0.66 (??)
• NOTES For Thailand (1) assumes all Internet
  users are accessing from home! (2) assumes
  Internet users are distributed evenly across
  households! (3) assumes all Internet users are
  urban!
• Source of Thai data Merrill Lynch Thailand
  Internet 13/10/ 2000

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B2C Online Shopping in Thailand?

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Complementary factors

• Technologies - e.g. 3G phones, cable TV/ PC-TV,
  falling prices, accepted standards, etc.
• Complementary goods and services - more content
  and more plug-and-play devices (e.g. digital
  cameras, music centres), home networks, etc
• Policies - government online, encouragement of
  the IT sector, data protection, payments security
• Socio-economic - more women and older people,
  better distribution systems for good delivery, etc

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Conclusion - 1

• B2C is in its infancy, and recent dot.com
  failures (cash burn) of etailers highlight the
  difficulties
• B2B seems much larger, but this is
• (a) partly because much of it is existing
  business going online, and
• (b) by definition in National Accounts B2C is
  the retail margin (otherwise doubling counting)
  not the retail sum. (How many consultancy
  forecasts confuse the two?)

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Conclusion - 2

• B2C in the longer term will have the more radical
  effects because
• (a) its social impact is more direct and
  personal
• (b) B2C will be the tail that wags the B2B dog
  for many businesses
• The model of critical mass can be applied to any
  economy, but the complementary factors need to be
  built in.

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B2B similar to B2C

• Similar advantages global reach and ability to
  offer inter-active customer services ?
  opportunities to track and lock-in customers
• Similar disadvantages need for skilled IT
  support staff, need for an efficient Just-in-Time
  delivery system, problems of payments and
  security issues,
• Larger trading volumes justify credit cards, bank
  transfers and Letters of Credit, etc.

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But different!

• B2B e-commerce e-business straddles the entire
  value chain from procurement, through design and
  production, to sales and distribution, customer
  care, etc.
• B2B in part involves transferring existing
  business relationships online and this reduces
  risk on investment in Web-technology and networks
• Customer empowerment is more complex as every
  business is a customer of another business

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Various Estimates and Forecasts of the Size of
the Global B2B Market

• Year B2B in US Source
• 1998 US43 billion Forrester Research
• 1999 US145 billion Gartner Group
• 2000 US403/843 billion Gartner Group/Forrester
• 2001 US953 billion Gartner Group
• 2002 US2.2 trillion Boston Consulting Gr
• 2003 US1.4/2 trillion Forrester/Boston CG
• 2004 US7 trillion Gartner Group
• (Revised US5.95 trillion Gartner Group, 2001)

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Value Added Chains in the Shirt Industry
Three Variants
Cost per Shirt
Per cent savings
1.
Producer
Wholesaler
Retailer
Consumer
52.72 0 41.34 28 20.45 62
Producer
Wholesaler
Retailer
Consumer
2.
Producer
Wholesaler
Retailer
Consumer
3.
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Business cost savings 1

• Estimated cost of bank transfers
• By bank teller - US1.27
• By ATM - 27
• By Internet - 1
• Note these widely quoted figures were
  originally from a Booz Allen Hamilton study, but
  do they include the capital and recurrent costs
  of the back-end?

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Business cost savings 2

• Estimated non-labour industry cost savings
• EC can save between 10-20 of indirect labour
  costs (eg. telephone bills, furniture,
  electricity) which typically are between 30-60
  on all non-labour costs
• Bulk of these savings (up to 70) come from
  electronic placing and processing of orders
• Source London Economics (on behalf of UK
  Internet company GroupTrade) cited by The
  Economist 27 May 2000, p.93

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Taxonomy of B2B

• 1. E-businesses altered relationships all the
  way along the value chain
• 2. E-hubs or Infomediaries electronic markets or
  exchanges

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E-businesses

• Business service models e-procurement and online
  customer ordering through Extranets - eg. Cisco
  processed US500m orders online in 1999
• Collaboration platforms Big 3 US auto
  manufacturers (Covisint GM, Ford, Chrysler)
  share common supply chain platform, built by
  CommerceOne but operated by themselves
• Virtual communities PetroChem.Net was worlds
  first in 1997 networking industry managers,
  regulators, lawmakers, journalists, etc

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Infomediaries (any-to-any)

• Vertical hubs extensive industry-specific
  content spread across many buyers and sellers in
  the supply chain
• Functional (horizontal) hubs provide wide range
  of service functions across industries, where
  some level of standardization is required
• Network economies (n2-n) advantages in scale

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E-commerce business sectors

• Procurement systems eg Ariba, CommerceOne
• E-commerce platforms eg. AOL/Netscape, IBM,
  Sterling Commerce, Broadvision, Calico
• Relational Databases Oracle, Informix, i2, NCR,
  Business Objects
• Front-office applications Siebel, Vantive, Onyx

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E-commerce business trends

• Middleware e-business systems that integrate
  various front-end and back-end processes
• Fat server- thin client applications on tap
  model whereby applications are for rental
• Corporate or B2B portals Corporate Yahoo!,
  Oracle, SAP, etc moving into this market - based
  upon Internet servers

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Including electronic markets

• Electronic markets alliances between IT and
  telecom companies to provide E-commerce platforms
  (web-hosting, transactions software, etc) for
  industry sectors, of SMEs, or regions - Gartner
  Group estimate online trading exchanges will grow
  from 400 in 2000 to 10,000 by 2002
• E-commerce hubs (a) large companies become the
  hubs and small companies the trusted spokes
  (Note the sub-contracting chains of Asia may be
  resistant) (b) HK Telecom, SingTel, etc aim to
  become Internet eXchanges or hubs for regional
  traffic

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Electronic markets

• Over 900 have emerged over past couple of years
• Different exchanges offer different range of
  services catalogues, spot and forward pricing,
  ordering and transactions processing, bulk-buying
  and discounts, electronic databases, etc
• Dangers of (a) collusion to create monopsony
  power to keep prices down (b) use of dominance
  to price discriminate (c) collusion on retail
  price maintenance (eg Justice Dept settled a case
  with big US airlines using the electronic airfare
  system ATP to undermine discounting)
• NB. MetalSite, an electronic market for steel,
  includes an anti-trust lawyer sitting in on its
  meetings

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Electronic markets - the future?

• Public exchanges seeking an IPO - most have
  failed due to lack of liquidity to carry them
  through
• Consortium exchanges liquidity guaranteed, but
  how willing are partners to share information?
• Private exchanges supply chain online -natural
  extensions of EDI networks?

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A few examples of E-markets in Thailand?

• Point Asia Dotco Samart Exchange Shin Group
  FoodMarketExchange.com
• E-Procurement Alliance Company established by
  Asia Freewill (affiliate of Charoen Pokphand
  Group) CP, Siam Cement Group, TelecomAsia,
  United Communications Industry, Bangkok Bank,
  Siam Commercial Bank Petroleum Authority of
  Thailand using the site Pantavanij.com - hope
  to save up to US2 billion annually on indirect
  goods procurement auctions (software from
  CommerceOne)

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Bizarre range of estimates for e-commerce in
Thailand?

• Department of Business Economics (Thailand)
  estimates E-commerce will gt Bt25 billion (US0.5
  billion) for 2000-2001 (The Nation, 15/3/2000)
• Arthur Andersen estimate B2B at Bt109.5 million
  (US2.4 million) - (The Nation23/5/20001)
• Gartner Group estimates B2B in Thailand will
  takeoff in 2001, ? US15 billion (?!) by 2004
  (www.nua.ie/surveys)
• Thammasat University report estimated e-commerce
  in Thailand at around Bt40 million (US0.9
  million) and reaching Bt600 million (US13
  million) by 2004 (The Nation, 5/7/99)

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E-business and E-readiness in Thailand?

• McConnell International Risk E-Business
  Seizing the Opportunity of Global E-Readiness
  August 2000
• 1/2. India (4A 1R) and South Korea (3A2B)
• 3/4. Malaysia (3A 1B 1R) and Taiwan (2A 3B)
• 5. China (3A 2R)
• 6/7. Thailand (1A 4R) and Philippines (1A 4R)
• 8/9 Indonesia (5R) and Vietnam (5R)
• NB. A majority conditions ok B improvements
  needed R substantial improvements needed

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E-business and E-readiness in Thailand?

• McConnell International Risk E-Business
  Seizing the Opportunity of Global E-Readiness
  August 2000
• Ease of connectivity infrastructure
• Government E-leadership ( Thailands A)
• Information security and legal framework
• Human capital
• E-business climate

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E-business and E-readiness in Thailand?

• EIU Rankings (Business Asia 14/5/2001)
• Australia 8.29 (2) Philippines 3.98 (39)
• Singapore 7.87 (7) Sri Lanka 3.82 (43)
• Hong Kong 7.45 (13) India 3.79 (45)
• Taiwan 7.22 (16) Thailand 3.75 (46)
• Japan 7.18 (18) China 3.36 (49)
• New Zealand 7.00 (20) Indonesia 3.16 (54)
• South Korea 6.97 (21) Vietnam 2.76 (48)
• Malaysia 4.83 (33) Pakistan 2.66 (60)

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E-business and E-readiness Factors

• Hard Infrastructure telecoms, cable TV,
  satellite, fixed wireless, mobile, digital
  terrestrial transmission (DTT), Ethernets, etc
• IT investment penetration rates of computer
  devices and networks
• E-commerce service providers
• vendors, systems integrators and IT management
  consultants
• e-business users and e-marketplaces, eg.
  FoodMarketExchange, E-Procurement Alliance Co
  (Asia Freewill consortium), Samart Exchange, etc
• ISPs, content and applications service providers
  for SMEs and residential
• Financial infrastructure banks, eg. Siam
  Commercial Bank, Bangkok Bank, Krung Thai Bank,
  and credit cards!
• Soft infrastructure legal and regulatory
  framework ? trust

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A Challenge - coming to terms with the New Media
Value Chain

• 1. Content conception creative activity
• 2. Content creation from drawing board to
  realization
• 3. Content packaging make content marketable
• 4. Content service provision distributor of
  content
• 5. Content transmission distribution channel
  (licensed multiplexer of interactive digital
  TV, telecoms network, WAP phone, WWW, etc)
• 6. Content access device PC, TV, cellphone,
  handheld computer, etc.
• 7. Content consumer private, public, business,
  consumer