This paper provides an introduction to e-business and E-Commerce providing definitions, current market and the main two points of disintermediation and value chain integration as stated by the Gartner Group, IDC and Forrester research.
The Appendix contains several vendors’ viewpoints as well as several case studies from providers of e-business.
e-Business is the conduction of business in the electronic marketplace. In practice, this involves the introduction of new revenue streams through the use of e-commerce, the enhancement of relationships between clients and partners and improving efficiency from using knowledge management systems. E-business can be conducted over the public Internet, through internal intranets and over secure private extranets.
E-Commerce is the term used to describe financial transactions in the electronic marketplace. This typically includes buying or selling products or services on the Internet, via secure networks or extranets. Transactions may be business-to-business or business to consumer.
IDC defines B2B
eCommerce as “the procurement of indirect goods or non-production or
non-essential goods, including MRO (maintenance, repair, and operations),
capital expenditures, and services, including such specifics as:
-
Office equipment
and supplies
-
Computer and other
Information Technology equipment
-
Piping, electrical,
and HVAC supplies
-
Legal services
-
Utilities and
communications
-
Catering and food
services
-
Material handling
supplies
-
Nuts, bolts, nails,
and screws
-
Advertising and
marketing supplies/services
Historically, these
goods have been procured manually via phone, fax, and traditional mail.
Business to Consumer seen as mainly retailing or consumer services to build stronger relationships between the provider of goods and services to the individual.
eProcurement
uses Internet and Web technologies to simplify the purchase of these supplies,
which are separate from production supplies – the procurement, receipt, and
payment of goods for manufacturing or production. According to a Purchasing Magazine estimate, corporate America spends $1.4 trillion
on non-production goods annually, which amounts to roughly 20 percent of the US
gross domestic product. An eProcurement solution provides a Web-based interface
to electronic catalogues inside or outside the firewall, allowing employees to
order the goods and services necessary to do their jobs. eProcurement attempts
to automate as much of the requisition and
procurement process as is possible. This includes the use of the Internet
and/or EDI for transactions historically processed manually. The source of the
goods or services may be:
-
Direct from a
manufacturer or service provider
-
Through a
distributor
- Through a trading network serving as an intermediary
The continuing decline in cost of access to
the Internet, rapid improvements in Internet infrastructure and improved secure
transaction capability has seen a dramatic rise in E-commerce. The Forrester
Group predicts that business-to-business Internet e-commerce will grow rapidly,
from $8 billion to $327 billion in goods and services by 2002. On the consumer
side the numbers are equally impressive: studies report that the number of
Internet users in the United States and Canada doubled in the 18 months prior
to March 1997, and that 23 percent of the population over age 16 had used the
Internet within the last month. The user population could reach 200 million by
2000.
These changes will have a dramatic effect on both business-to-consumer and
business-to-business trading patterns. The dollar volume of Internet-based
electronic commerce will expand quickly from an estimated $3 billion in 1996 to
$100 billion in 2000, according to an IDC forecast.
New pricing and business models are
emerging while the range of available products and services expands every day.
e-Business early adopters are already seeing substantial benefits from e-Business. Although many companies are currently adopting e-Business strategies as a short-term attempt to reduce costs, the most powerful long-term benefits will come through improved relationships between customers and suppliers
So how do you become an e-business company? How can becoming an e-business help you maximize the value of your information technology investment? How can it help you reduce your costs and grow your revenue? There are four important areas or stages in this process. We think of these four stages collectively as the e-business cycle. They are:
· Transforming core business processes.
· Building flexible, expandable e-business applications.
· Running a scalable, available, safe environment.
· Leveraging knowledge and information you've gained through e-business systems.
There isn't a set order or hierarchy to this cycle. Successful e-businesses start at different points, and you can, too. But first, you must identify which of your core business processes are most suitable for, or most in need of, conversion to e-business.
Restricting e-business solutions for
commerce to address only transactions has forced businesses to treat Internet
e-commerce as a direct-marketing channel strategy, creating conflicts with
their other channels and selling partners, damaged relationships, and negative
ROI.
E-commerce vendors unable to offer truly interactive solutions have made a
virtue out of this necessity. They have claimed that this disintermediation ---
the elimination of intermediaries (distributors and resellers, for example) in
the chain --- is an advantage of e-commerce. Disintermediation, they claim,
will improve profits and open new markets for businesses that can sell their
products and services on the Internet. And they cite numerous examples: Airlines
will bypass travel agents and sell direct. Auto makers will eliminate their
dealer networks by letting buyers configure their dream cars online.
Based on the disintermediation hype, it would be easy to conclude that in order
to succeed at Internet e-commerce a company must abandon its current business
strategy and selling partners. But it just isn't so. Disintermediation is not
an opportunity for most businesses, it is a disaster: Adding a transaction
server to a company's Web site does not ensure success. The price of buying and
maintaining transaction systems has been high, and the overall cost of
producing a public Web site — acquiring and configuring hardware and software,
developing custom applications, and building and maintaining content and
catalogues — even higher. But most importantly, a transaction server by itself
doesn't integrate Internet-based virtual transactions with the way the company
does business. And when this new channel isn't integrated into the company's
existing systems, the costs of sales can make even successful operations
unprofitable. The gold-rush mentality has often meant that if a business didn't
put up a Web site, its selling partners would — and the business might find
that it had lost control, and its brand had been tarnished in the marketplace.
There is no such thing as a free lunch. Intermediaries exist in a selling chain
because they add value to the sale. If they are eliminated, their contribution
will have to be made up from somewhere else — almost always out of the pocket
of the seller.
Common sense -- and the analysts -- argue
against disintermediation. Forrester Research says in a February, 1997 study:(6) "Indirect channels won't disappear: Reborn as Internet
intermediaries with new capabilities and evolved roles, they will increase in
importance as . . . practices shift to acclimate to the new environments."
Those words were written about the software industry, but they apply to any
industry.
If Internet e-commerce is going to succeed for the enterprise it must support
the business strategy of the enterprise. It cannot be isolated. It cannot be
restricted to just handling virtual transactions on a Web site.
"Disintermediation" is just a way of narrowing down the vision, of
settling for less, of saying that the whole job is too hard, so doing just part
of it is good.
Internet e-commerce offers tremendous
opportunity for smart intermediaries. These enterprises will figure out new ways
of adding value to the selling chain, and they will embrace ways of growing
their business by fostering what Forrester Research calls "communities of
commerce."(7)
The relationships of the selling chain will continue to be critical to any
company's business strategy. To capitalize on them and create communities of
commerce, businesses must find Internet e-commerce solutions that support the
roles their selling partners fill in the real-world sales cycle:
Attracting customers: prospecting, advertising, and informing customers of new products and services. Transacting business: conducting exchanges in ways the customers find comfortable and complete. Retaining customers: Focusing on customer service and relationship-building activities. Managing the process: improving efficiencies, reducing costs, and sharing the benefits among all the parties.
For customers, the benefits of these
solutions might include shopping convenience, immediate delivery, more frequent
updates, access to more products, and better pricing. Partners in selling and
supply chains would benefit from improved communication, access to new markets,
a broader product offering, lower cost of doing business, and new ways of
adding value. And for a manufacturing business it might mean a lower cost of
sales, access to niche markets, better customer identification, and new
business models.
The Internet is a massive network that not only links businesses to consumers,
but links millions of businesses worldwide to other businesses. There is a clear
need for ways to exploit the Internet as a commercial vehicle that doesn't
break existing business models, but enables them.
For an Internet e-commerce solution is to succeed it must cascade the benefits
of the Internet through the entire chain, from supplier to manufacturer to
distributor to reseller to consumer.