CS99I Freshman Seminar

Winter 1997/1998.

Traveling the Information Highways: Electronic Commerce

Maps, Encounters, and Directions

Master copy on Earth.
Draft 17Jan1994, updated 10Feb1997, CS99 material inserted March 1988, updated and renamed 28May1998, March 2001, March 2005.
This material is

©Gio Wiederhold and CS99I students, Stanford University, 1998 to 2005.

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Chapter: Electronic Commerce

[ ]

ELCOM.Intro

Electronic commerce eludes precise definition. The New York Times, November 3, 1997, "On The Net" suggests that it refers to the way the Internet and world wide web are transforming thousands of businesses around the world, allowing new kinds of interactions among companies, their suppliers, customers and employees. As cyberspace companies are capturing new audiences with new products and new channels of distribution, traditional businesses are replacing paper-based transactions with electronic commerce systems. In this way these businesses are competing with lower costs and improved cycle times.

Early in1997, Mike McCaffery of Robertson Stevens anticipated the development of e-tailing and e-commerce in describing the internet as a sustainable medium for purchasing products and services. He estimated that on line retail sales revenue in the United States would rise from approximately $825 million in1996, to more than $12 billion in the year 2000 and $15 billion dollar by 2001. These figures reflect a 29% annual growth in on line retail sales.

Growth in Internet Opportunities and the Emergence of Electronic Commerce

[provided by Nancy Forster, February 25, 1998]

Today, internet opportunities are evolving at an exponential rate. Marking the opportunities generated by these technologies, we see three broad market trends. First is the emergence of companies that conduct commerce solely in cyberspace. Another simultaneous trend highlights the efforts of traditional businesses to embrace web opportunities. Both driving these changes and responding to them is the continual expansion of web infrastructure, the third trend.

There have been many efforts to size the impact of the internet on the business community. At the end of 1996, according to Prolific's Guide to Internet Commerce, there were approximately 35mm worldwide internet users, projected to reach 163 mm by the year 2000. There were167mm PC users in '96 projected to grow to 269mm in 2000. Assuming that 58% will use the Internet, Morgan Stanley corroborates Prolific's projection anticipating 157mm Internet users in 2000. In their January 1998 edition, Wired Magazine quantified this growth another way. Since the internet was privatized April 1995, monthly traffic on the net exploded from 31 terabytes (10 to the 9th or 31 000 000 000) to greater than 3 petabytes (10 to the 12th or 3 000 000 000 000) - a hundred fold rise in less than 3 years. The increase now seems to be slowing, doubling annually, to the pace of growth of new users.

At times cyberspace companies may appear to burst randomly on the scene. In fact, their emergence follows an orderly pattern of identifiable phases and time frames. For the first phase, we need turn back only a few years to 1995 and witness the exponential growth of web infrastructure companies and products. Networking companies like Cisco, and search engine creators like Excite erupted on the scene. They, in turn, fired the growth of the next market phase relating to software and services. Enter Yahoo with its Initial Public Offering April, 1996. The stage was set during that year for the content and aggregation development phase to gain momentum by early next year, 1997. Typical of the technologies emerging at this point were those offered by Firefly, who produced intelligent agents to gather and organize information. Another example of aggregation development, collaborative software allowed groups in remote areas working on common projects to coordinate their efforts.

With only astonishingly brief periods to digest each of these three major development phases, electronic retail and electronic commerce, the fourth, is only now shooting up the elbow of the curve. The cyberspace company becoming known as a great enabler of e-commerce is America On Line. By September, 1997, Robertson Stevens saw them as a proxy for home internet growth. In the latest cyberspace terminology, they have become a landlord effectively controlling the home internet real estate market with the ability to charge rents to multiple tenants. AOL's business model now appears inherently profitable as it captures more subscribers and new revenue i.e. tenant rental income - with less and less need for incremental marketing spending now that the brand is well recognized. As with any media that successfully attracts an audience, there are opportunities to place advertisements and make direct sales to individuals. And with most of the investment money flowing into the internet for easier access to internet information, AOL has captured much of these access dollars.

Those who are effective in conducting business on the internet, like AOL, must offer additional features and benefits enabled by Internet technologies. For the e-tailers, these features include selection, information, targeting, direct connection, and new business models. E-tailing brands must also provide customers enhanced value in terms of saving money and time to motivate the switch to online transactions. It is only by utilizing these features to deliver benefits to the customer that e-tailers can gain share from catalogs and other retailers.

Certainly e-tailers have a unique opportunity to generate consumer interest at the point where consumers are already looking for related information. It is no surprise that brand building efforts and strategic partnerships fueled the rapid growth of e-commerce in 1997. Those successful in brand building believed that first is best when it comes to being in the right web location.

While brand or image building is one objective of advertising, others include creating awareness, education, and finally, the cycle of purchase and repeat purchase. Each of the traditional media is better at meeting some of these objectives than others. For example, television is very effective medium for creating awareness and building image, but when it comes to direct response - no. Direct mail, on the other hand, is effective in creating interest and enabling the cycle of trial, purchase and repeat purchase, but does not help in creating awareness or maintaining brand identity. Online advertising is uniquely able to meet all four objectives effectively. Indicative of its effectiveness as an advertising medium is the steady increase of advertising dollars spent on the web.

While advertising revenues went doen drastically when the Internet bubble burst, but have recivered at a steady pace. In 2004 they ammounted to more than $7 billion.

Where web advertising is differentiated from traditional advertising is in its use of an 'attraction principal', a phrase coined by "Web Insight". At the heart of this concept is the fact that the internet business must motivate potential customer to seek its web site. This behavior is fundamentally different from traditional mass-marketing where the business broadcasts its message to a captive audience as in television advertising.

Because the internet business must attract its customers, once it has done so, it has potential for enormous efficiency in direct marketing. The significant value of the Internet as a one to one marketing tool is its ability to deliver directed messages to an audience with specific demographics and interests. The ability to collect, track, analyze, and leverage consumer behavior/buying patterns provides yet another means of on-line marketing. And, bottom line, the cost to deliver an online advertising/marketing message is roughly comparable, if not better than the cost to deliver the same message via direct mail.

Another attraction of the web as a vehicle for E commerce is its ability to offer more efficient and lower cost distribution systems. History has shown that changes in the distribution of goods and services create substantial business opportunities. Consider the introduction of postal mail order and the Sears Catalog in the late 1800's. Then, in the 1960's, auto-based door to door marketing/distribution was pioneered by Tupperware. Discount super stores emerged later in the decade. Finally, telephone mail order appeared in the 1970's,

A new breed of web e-tailers are now (1998) succeeding by capitalizing on e-commerce technology in distributing products directly to the consumer. Those who set the stage by building the early infrastructure for a direct distribution channel were Dell Computer and Gateway. They were marketing personal computers to early web users who, themselves were technology frontiersmen. The demographics of this audience could not have been more perfectly matched to offerings of these technology companies. These customers quickly learned to place their orders on line and enjoyed the price benefits of receiving goods directly from the manufacturer.

Whereas some businesses benefited from distribution opportunities newly made practical on the web, almost all of the web e-tailers have had successful marketing efforts that are innovative and uniquely suited to cyberspace. One such example, ETRADE delivers a lower cost per trade than telephone-based brokerage services. The company is also building a range of services to empower the investor to make a more informed decision. ETRADE is rapidly emerging as one of the leading brands trading stock on the internet today and is anticipated to have a 2% market share of the equity trading market by the end of 1998.

While some companies benefit from innovative marketing, others provide superior convenience. Preview Travel, for example, conducts a majority of its business during weekends and evenings when most traditional travel agencies are closed.

Amazon.com took advantage of their prime location on Yahoo to build brand awareness early and relatively cheaply before the competition gained a foothold. They provide enhanced value with their discounted prices and cyberspace inventory offering unparalleled selection. With a relatively cheap and fungible product, and a money back guarantee, Amazon has had an easy time building customer trust.

It will be interesting to see if Barnes & Noble, the bricks and mortar equivalent to Amazon, caught up to its cyberspace rival during the 1997 holiday with the help of AOL traffic. The company appeared to have a superior location in the shopping Channel of AOL. While Amazon is highlighted within the internet channel, it seems to be receiving less traffic than AOL's own content areas. But Amazon, having already established a substantial dialog with a huge customer base, has a formidable start.

Barnes & Noble Stores, on the other hand, enjoys some of the clear advantages of a physical site over one in cyberspace. It's buyers can browse in relaxed surroundings, chatting over the latest book recommendations. Other book retailers, as well, have capitalized on social aspect of their physical space.

ONSALE is a captivating cyberspace story because the company takes advantage of the one on one marketing opportunity inherent in the web to sell merchandise in an auction format. ONSALE started by staging silent auctions for close-out and refurbished PC's and related equipment and is now branching out to a host of other product and service categories, including sports and travel. The auction mechanism eliminates the retail cost layer, allowing substantial price savings to the consumer. Also very important to its customers, ONSALE makes it fun to shop.
(Postscript: in 1999 ONSALE was merged into Egghead.com, as Egghead moved away from brick-and-mortar stores to on-line sales. [GW , jerrold Kaplan, cs99, 2000]

Making a game of purchasing to entice users to the web, is a new marketing strategy says Business Week, February 9, 1998. Yoyodyne, a direct mail marketer gets consumers to read ads on their computer screen using E-mail trivia games, scavenger hunts, and instant win sweep stakes. Rather than bombard customers with yet another unwanted commercial, Yoyodyne markets only to people who have agreed to receive and respond to on line product pitches. So far, more than a million net surfers have tried Yoyodyne games. Along the way hundreds of thousands of potential customers have voluntarily visited Web sites and waded through product information from concerns that include Sprint, Reader's Digest and major league baseball. Last spring H&R Block paid $20,000 toward the winner's federal income tax bill, thereby increasing traffic to the Block Web site and usage of its tax services.

Companies like AOL, ETRADE, Yahoo, Amazon, On Sale, and Yoyodyne are examples of new cyberspace e-commerce and e-tailing businesses. Let us now turn to the physical world and traditional companies whose internet efforts are dedicated to becoming web friendly. No doubt, this internet growth phenomena gains impetus from the growth of the web-grown cyberspace companies.

In introducing web technology, Sprint, Reader's Digest, H&R Block made significant strides in marketing on the web with the help of companies like Yoyodyne. But while some businesses successfully navigate the challenges of becoming web friendly, for others, changes can be fraught with dislocation. The risk of dislocation is greatest where the customer does not perceive value form a particular business function.

This pinch is now being felt particularly by the 'middleman'. From real estate, travel, and insurance agents to car dealers and recruitment firms, virtually no middleman is immune to the upheaval caused when buyers and sellers meet directly on the internet writes Evan Schwartz in Business Week, Feb. 9, 1998. Virtually all will have to change the way they do business. Even businesses that do add value will have to rethink their business models, says Jeffery Rayport of the Harvard Business School.

The new term for the elbowing out of middlemen and distributors by the web is 'disintermediation'. Where ever benefits can arise from the direct connection of the manufacturer and consumer, there is potential for this to occur. As this trend is gaining momentum, another trend is beginning to surface in response. Jeffery Rayport describes the web as bringing about re- intermediation, in which new online businesses perform at least some of the functions of traditional middlemen. Their formula for success has a familiar ring: offer convenience and more efficient services. And so we see the beginning of a cycle of disintermediation, the obsolescence of the traditional middleman followed by the introduction of the cyberspace middleman - re- intermediation.

There are many examples of dis-intermediation setting the stage for re-intermediation. Real estate agents, for example, may know a community, a buyer, and idiosyncrasies of transacting a sale. Pre-internet, their lock on home sales sprang from the fact that only commissioned agents had access to the multiple listing service, the database containing most homes on the market. With the advent of digital middlemen like Cyberhomes.com, which abridged multiple listings on the Web in markets where it was licensed to do so, real estate agent commissions are potentially threatened.

Within the auto industry, Boston Consulting's Ericksen predicts the number of auto dealerships nationwide will drop from 22,000 today to about 10,000, and most of these will be super lots. This is because of the popular Auto-by-Tel which provides free car research and hassle free low price quotes over the web. Buyers then come to the dealership and complete their paper work quickly. Dealers have experienced purchase requests leading to sales that they would not have landed otherwise.

A similar scenario is evident with Internet Travel Network. When airlines capped commissions in 1994, travel agencies' largest source of revenue was threatened. ITN became one of the first companies to book trips over the web. Despite the far greater sales volumes of competing airline web sites, the company has secured a place in this web ticketing business by being there early and building a name.

The massive new opportunities driven by the internet have affected cyberspace companies and traditional businesses alike. As there is greater and greater business activity on the web, new obstacles to further growth become evident. These obstacles to growth, in turn, become business opportunities in the future.

As we look ahead, it is obstacles within the internet infrastructure that are becoming key building blocks for conducting commerce in the future. And thus the spot light turns to the third major internet marketing segment, the infrastructure companies. Three critically needed infrastructure components are (1)security (ref to Chapter on ELCOM.Security), (2)bandwidth infrastructure and (3)value added service infrastructure. In the early commercialization efforts of the internet we talked about the explosion of web infrastructure companies. Around 1995, we saw computer networking companies and search engine products. Over the past three years, hardware infrastructure providers have been instrumental in and beneficiaries of the massive deployment of routers, switches, and remote access servers for the build-out of the new Internet Service Providers' networks.

We are at the forefront of the next wave of infrastructure building, focusing this time on software infrastructure to bring a greater number of commercial applications to this medium thereby ratcheting it to the next level of usefulness. These investments in network security, commerce, middleware, overcoming bandwidth congestion, or in innovative transaction models auger well for a number of companies poised to deliver these benefits. These companies include new players such as Sterling Commerce, Security Dynamics, Edify Corporation, CHECK Point Software as well as familiar ones, Cisco, Ascend and 3-Com.

As these new companies continue to enhance internet infrastructure, e-commerce becomes increasingly attractive for business to business commerce over and above the business to consumer, e-tailing opportunities that we have focused on in this paper. One overreaching theme of this paper is that commerce over the Net is poised to experience secular growth over the next several years. While business to consumer commerce has garnered a lot of popular attention, currently, companies focused in business to business commerce are also significant beneficiaries of a market opportunity that will grow sooner, faster, and become bigger than the business to consumer opportunity. According to Forrester Research, the business to business market is expected to soar from $8 billion in 1997 to $327 billion in 5 years while estimates for business to commerce ranges from $1.1 billion in 1997 to around $6.6 billion (Goldman Sachs) in the year2000 to $12 billion (Robertson Stevens) that year.

In the years 1999 and beyond, AOL, viewed as a pundit in the field, envisions advertisers and marketers paying the freight; more consumers using PCs in prime time than television and the promises of interactive services achieved. David Readerman, Managing Director, Montgomery Securities, describes the next wave of internet technology supporting the real E-commerce featuring integrated payment systems, digital certificates and authentication technology. He sees the service business model evolving especially for advertising based businesses such as Yahoo, Excite, and CNET. Most dramatic, he predicts an integrated supply chain between the Web world and physical space.

Clearly there is a trend towards globalization with new deal makers looking beyond Silicon Valley for strategic partnerships to compete globally. High tech powerhouses Hewlett Packard, together with Verifone, a leader in secure electronic payment systems along with Electronic Data Systems, processor of bank and other electronic payments have joined eight financial institutions to form a world wide consortium to promote e-commerce. Their strategy is to create a global e-commerce business software organization with a dedicated sales force.

Finance.doc [Clarence Hu]

And so the thundering hooves of cyberspace companies, of traditional companies and of infrastructure companies resonate throughout the business community around the globe. Taken together they presage a time only a few years hence when business will be conducted in a profoundly different way. Some of the greatest winners of this period are companies not yet born. Yet as the major players in the internet world, with their vast financial resources and technical expertise strategically aligned, one with another, they are the ones I would choose personally will bet on for the year 2000. What about you?

Unsustainable growth

Unfortunately, as more companies enter the market, the base to sustain the growth is inadequate for all the players that want to enter the field. Growth and Perceptions (.ppt). [GW]

ELCOM.History

In the development of the Internet commerce was little thought about. The only business-like function was the interchange of computing cycles through telnet, where consumers needing more computing power than they had locally could invoke a remote server computer. In order to be allowed remote computer use one had to establish an account on the server. Rarely were funds exchanged for the service, more typically the server reported such usage to their funding agency, which was supportive of the efficiency of computer usage that ensued.

ELCOM.Functions

The new technology is an enable for individual responsibility, but also imposes many obligations on its participants. In this chapter we focus on the delivery of goods and services that are to be reimbursed, in distinction with the focus in the library chapter, where intellectual property was being delivered. The payment choices considered here apply to both types of property.

ELCOM.Functions.participants

The have commerce one must have participants. For trusted transaction we have three types of participants:
  1. The Consumer, willing to reimburse the vendor for goods received
  2. The Vendor, who wants to make a living of providing goods
  3. An Escrow agent, who helps establishe the confidence that the transaction will be beneficial to all concerned.
In face-to-face transactions the treasury department acts as the escrow agent: the bills that are exchanged have a value backed by the full faith and trust in the government. When checks are used the banks take on that role, and today credit cards are issued by banks and specialized organizations.

ELCOM.Functions.goods

Most things that surround as are goods that were, or at least can be purchased. Will they be purchased in the future over the Internet? The success or failure of Electronic Commerce will differ greatly in different domains. We can characterize domains broadly by the categories of goods they sell:
  1. Commodity: goods sold in quantity, without brand-name identification or distinction; for example grain, gravel, .
  2. Fungible: goods where individual items, once specified, are interchangeable without perceived change in value: a CD-ROM, .
  3. Non-fungible: an item where the specific instance is significant: a work of art, a house, a used convertible car, ...
Many goods bridge categories. Boxes of some cereal may be considered fungible, but you want to be sure that it has the same date-stamp and that it was stored with care.

We will use these terms when we investigate

ELCOM.Functions.domains

As Examples we will illustrate some domains where electronic commerce is relevant, and analyze the effect, and the restructuring that will ensue as electronic commerce takes over.

Provisions

Daily purchases of food and other goods for living.

Books and Recordings

Software

Theater Tickets

Stocks and Bonds

[Wired Feb. 1998]

Furniture

Software

Capital Goods

Capital goods are items which are considered a major investment. They are expected to last many years and are often bought on an installment plan. Examples range from appliances, as dishwashers and stoves to new automobiles.

Used Capital Goods

When capital goods are used, the price is less, but there are differences in age, wear, appearance, which make those purchases more difficult.

Real Estate

Gambling

ELCOM.Functions.purchasing

Purchasing is the interaction of a customer with a supplier pertaining to some goods being being exchanged for money. It still unclear how the Electronic Highways will change current patterns of purchasing goods, but much will depend on the type of goods, their accessability on and off the electrobiuc highway, their cost -- is a purchase seen as and investment or an intrusion on one's time --, and their value. We introduced above the concept of goods being fungible or not.

Shopping

With shopping we refer to the purchasing of goods by individuals.

access website Yahoo: Internet shopping sunservice

Virtual Supermarkets

[Contributed by Claribel Chan, 13 March 1998]

Everyday, an increasing number of companies look towards the Internet to expand their business and boost their profits. The future of commerce lies along this vast electronic network and the possibilities extend far beyond any limit we can imagine now. The success of electronic commerce depends on various factors, requiring a compromising balance between its incentives and handicaps. With the Internet becoming more accessible to people all over the world, the magnitude of its influence on our daily lives is augmented with each passing day.

Through the Internet, one can perform many diverse tasks such as purchasing a customized automobile or buying a few cans of tomato sauce for dinner. One company by the name of NetGrocer offers this novel opportunity to shop for groceries within the comfort and convenience of one's own home or office. Claiming to be the first nationwide on-line supermarket, NetGrocer provides hundreds of name brand items at prices supposedly up to twenty percent less than that of your neighborhood grocer. A sampling of their features includes a personal shopping assistant, delivery by Federal Express, and a guarantee of security and confidentiality of transactions. The process of purchasing these goods is simulated as the shoppers click through the aisles organized by food categories, placing the products they want into their "cart". The items offered by NetGrocer are all prepackaged and are not easily perishable. They range from artichokes in a jar to canned zucchini, and from baby foods to pet supplies. For all of these products, NetGrocer provides a complete price analysis in addition to all relevant nutritional information.

How Companies Establish Trust
The thought of purchasing groceries over the Internet may provoke some skepticism among most people. The reliability and accountability of a service certainly comes into question. NetGrocer, however, tries to overcome this by using a combination of tactics to establish trust. The exclusion of generic products proves to be the most effective way to do so. By depending solely on name brand items, a sense of familiarity often subdues any lingering doubt in the customer's mind; people tend to trust products they are familiar with. This point also holds true in regards to the < A HREF="http://www3.netgrocer.com/about.cfm?title=Delivery">delivery of the goods. NetGrocer relies on Federal Express for all their shipping needs and promises delivery within four business days. And by offering the option of tracking the groceries, potential customers can be more assured of their order and the approximate time of its arrival.

Besides hinging on these two external factors to build a customer's confidence, this virtual supermarket also offers its own guarantee. NetGrocer pledges to handle every customer's credit card number and other personal data with the utmost care and highest standards of safety, security, and confidentiality. They employ an innovative form of encryption in transmitting all private information. As an added incentive, the browser that they affiliate with, Netscape, acts as an extra escrow agent in the case of fraud. Netscape covers personal credit card liability up to $50 in the event of unauthorized card use. This possible compensation is of course in addition to the amends initially paid by the credit card company.

The customer service policy disclosed by NetGrocer also reflects their intent on furnishing dependable, quality service. One of the more important concerns of on-line shopping is the availability of stock. To circumvent this problem, NetGrocer tries to monitor its inventories and regularly cross-check it against the advertised products to minimize offerings of out-of-stock merchandise. This is rather significant due to the lack of personal inspection associated with shopping on the Internet. NetGrocer also imposes a strict time limit when responding to customers’ inquiries and for processing and confirming their orders. Furthermore, to maintain an interactive relationship with the customer, NetGrocer also offers a free newsletter to the community at large. The combination of this ambitious customer service policy with familiar name brands and a reputable guarantee establishes the sense of trust so imperative in making electronic commerce a success.

Some of the Problems Associated with Virtual Supermarkets

Unfortunately, there are a few limiting factors regarding the potential of on-line grocery shopping. In its attempt to revolutionize the supermarket world, NetGrocer sadly falls victim to a circumstance out of its control. As a nationwide provider of goods, NetGrocer cannot possibly supply the fresh produce and dairy products so essential in everyone’s diets. People must still depend on their neighborhood grocer for their fresh products. Unless NetGrocer decides to set up some sort of warehouse chain or retail grocery conglomerate to distribute these fresh goods, they have practically no control over this aspect of groceries. Besides being infeasible, by resorting to such a solution, it would defeat the original purpose of centralized shopping since these warehouses would probably be almost as close to our homes as the nearest supermarket. Delivering fresh groceries would also dramatically increase the time constraint and the inability to inspect these non-fungible items (like stalks of broccoli) also becomes a concern.

The lack of variety poses another obstacle to NetGrocer’s potential. Although this service provides a decent selection of merchandise, it still falls short of what most supermarkets have available. For example, NetGrocer sporadically offers only one brand of artichoke which, in comparison to the six different brands sold at a nearby Safeway, would really disappoint the artichoke lover in any family. Moreover, NetGrocer’s claim of "up to twenty percent savings" apparently must only be applicable in some outrageously affluent city because even in this high-priced neighborhood of Palo Alto, a six-ounce jar of Progresso’s marinated artichoke costs only $1.99 compared to the $2.98 price tag set by NetGrocer. This difference of nearly a dollar might be just enough to drive away likely customers and adds to the demise of on-line grocery shopping.

While NetGrocer presents itself as honest and straightforward on the most part, there lies within their policy a section of "fine print" which could possibly undermine their credibility. In this obscure segment of information, NetGrocer basically specifies a few conditions stating their rights and prerogatives when handling a customer’s order. As with any business, NetGrocer validly reserves the right to limit quantities of their products as necessary. However, they also concede that the availability of stock may be limited and that some item pictures are for design purposes only and may not necessarily represent the actual item delivered. This concession actually addresses one of the more significant issues hindering the growth of NetGrocer. The uncertainty created by the absence of personal inspection is further compounded by the agitation caused by the possibility of false advertisement. And with prices and other items subject to sudden changes, it certainly shakes the confidence a customer has in on-line grocery shopping.

This problem revolving around the intangibility of the merchandise reveals the emphasis we place on the quality of our purchases. With this system of delivering goods, our dissatisfaction with the groceries we receive cannot be easily atoned for due to the complications related to the refund process. Even though NetGrocer vows to place customer satisfaction as a top priority, the few damaged or misrepresented items may be too trivial to bother causing a commotion about. This reluctance to seek compensation for a can of crushed corn, for example, illustrates just another encumbrance associated with this virtual supermarket.

Possible Solutions to Compensate for Disadvantages

In order to overcome these obstacles and restrictions, on-line grocery shopping must offer other incentives and motivations to persuade potential customers. By expanding the selection of products to anticipate and encompass the many different tastes and needs of customers, NetGrocer just might seize a larger share of the supermarket industry. This would require a substantial increase in stock availability and the investment in more name brand items for each product.

The development of a network of grocery retailers presents an alternative solution. This approach has been embraced by another on-line "supermarket", Peapod, and enables customers to receive both fresh and packaged goods within a day, at most. Within the area of about seven cities, Peapod has established a coalition of local grocery stores which provides the products ordered through Peapod. But the availability of this service in such a small and confined area exposes the shortcoming in this type of on-line shopping. Although this company boasts a growing customer base and an aggresive plan for expansion, the possibility of one company controlling so many disparate neighborhood grocers seems impractical. And by that time, there might also be some government interference claiming Peapod to be guilty of creating a monopoly. The additional monthly fees and other miscellaneous charges also weighs against using Peapod as an option to shop for groceries. These virtual supermarkets cannot rely solely on the factor of convenience to attract customers.

Their Main Customer Base

Although many people might be discouraged by the questionable savings and limited selection of NetGrocer, there are others who find this method of shopping most attractive and appealing. Many businesses involved in electronic commerce aim to target the working class: those who are pressed for time and have the means to spend a little extra in return for the convenience of having their desired goods delivered right to their doorstep. These people are also the ones who have access to computers and are comfortable using them.

The possibility of becoming a trendsetter might be another incentive to purchase goods through the Internet. One cannot deny the increasingly prominent role the Internet plays in our lives and the fact that it will be the wave of the future. If more people resort to this mode of shopping for groceries (assuming that it expands to meet everyone’s needs), the larger supermarket chains like Safeway will suffer most while the smaller, more intimate mom and pop stores will likely prosper. By eliminating the need to buy fungible, packaged products, stores would only require their shelves to be stocked with fresh produce and dairy products. In this scenario, people would just stop by their nearest grocer instead of making the excursion to a larger supermarket to fulfill their shopping needs.

Predicting the future of electronic commerce can be an arduous task and many pitfalls line the road to its success. The potential of engaging in trade over the Internet, however, cannot possibly be deterred by these minor impediments and remains as bright as ever. By expanding their business to account for what they cannot control, virtual supermarkets should also share in this powerful entrepreneurial movement. But until then, companies like NetGrocer and Peapod must still fight to compete with neighborhood grocers over the existing customer base. Only when they have found their niche will it be possible for virtual grocery stores to revolutionize the supermarket world.

ELCOM.Functions.domains

As Examples we will illustrate some domains where electronic commerce is relevant, and analyze the effect, and the restructuring that will ensue as electronic commerce takes over.

Provisions

Daily purchases of food and other goods for living.

Books and Recordings

Software

Theater Tickets

Stocks and Bonds

[Wired Feb. 1998]

Furniture

Software

Capital Goods

Capital goods are items which are considered a major investment. They are expected to last many years and are often bought on an installment plan. Examples range from appliances, as dishwashers and stoves to new automobiles.

Used Capital Goods

When capital goods are used, the price is less, but there are differences in age, wear, appearance, which make those purchases more difficult.

Real Estate

Gambling

Auctions

ELCOM.Functions.payment

money

Banking

BANKING

credit

wallets

ELCOM.Functions.money

ELCOM.Functions.fairness

!!ref: Intellectual Property for SW, Coalition for Electronic Markets, Centerville VA 22020, Brad J. Cox, 703 968-8229 ATP>

ELCOM.Technologies

We will describe here methods that are used to transmit orders and confirmation over the Internet. Trust is a major issue. One the principal infrastructure technologies to maintain trust achieve is encryption. But this technology has to be placed in a certain context, since without an overall coherent system encryption will just increase cost, and may fool customers into assuming that all business transactions are secure and private.

ELCOM.Technologies.escrow

ELCOM.Functions.credit

ELCOM.Functions.wallets

ELCOM.Functions.delivery

ELCOM.Alternatives

ELCOM.Alternatives.creditcards

ELCOM.Alternatives.BILLING

Via 900 number.

ELCOM.Bio

Bio: Danny Cohen, Anna-Lena Neches alneches@ISI.EDU, FAST@ISI.EDU

ELCOM.Conclusion

ELCOM.Lists

Organizations promoting Electronic Commerce


Organizations
Name location objective environment [ref]|
Commerecenet / San Jose CA Facilitation Internet [www.commerce.net]|
Cybercash
Wallets Internet [www.cybercash.com]|
EPFElectronic Payment Form
standards [www.epf.net]|
Indelible Blue / Raleigh NC OS/2 SW Internet / credit cards [wall street journal 17jan94]|
Internet Commerce Directory
directory Internet [www.internetsourcebook.com]|
Intertrust
trusted IP transactions Internet [www.intertrust.com/star/ecom-ip]|

Businesses Enagaged in Electronic Commerce

This list can only be a small sampler.
Businesses
Name location goods delivery / billing method [ref]|
Amazon / Seattle WA books surface ship/ credit cards [www.amazon.com]|
Corner Store / Litchfield CN OS/2 SW / credit cards [wall street journal 17jan94]|
FAST ISI / Marina del Rey, CA electronic parts direct ship / accounts [Cohen...] |
Indelible Blue / Raleigh NC OS/2 SW internet / credit cards [wall street journal 17jan94]|

Fin

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