Electronic Commerce

Electronic Commerce (or eCommerce) is commerce carried out over an electronic medium. Although this often means over the internet, it can also include commerce over telephone systems or other medium. Electronic Commerce received a lot of hype at its inception.

What is eCommerce genuinely good for? There seem to be a few examples where its strengths outweigh its disadvantages ...

eBay. Yeah, it's tacky, but it's now possible to try to sell anything online, no matter how obscure and no matter how cheap. eBay makes this possible by drastically reducing the amount of up-front investment that somebody needs to make to start selling. Before, you'd have to set up a storefront or something similarly expensive. Now you just start an account and describe your item.

Commodity items. eCommerce seems to fail when the sites try to sell things that you want to see in person -- clothing being the biggest example. But when the items are highly standardized and described in full detail in a number of places, it's easy to justify the expense. Such categories would include books, CDs, and computer parts.

A counterexample to clothes is the catalog sales of L L Bean, etc. They sell millions of clothing items each year to people who haven't seen the item yet.

L L Bean is a noteworthy exception. Perhaps it's due to the combination of 1) an extremely high reputation for quality and customer service and 2) a catalog that doesn't change styles very often that people feel they can buy L L Bean clothing without seeing it.

Virtual items. eCommerce is good for things like airline e-tickets and software keys, when you don't actually have to send anything physical.

Rare items. When the demand for a thing is high but geographically dispersed (say, parts for rare automobiles), it makes a lot of sense to centralize warehousing and sales of the things.

Nonmoving items. Physical items that do not need to actually move for you to buy ownership in. Gold, for instance, is often held in central storage locations and is simply shuffled back and forth between different vaults (if it's not stored in one place and the change is ledger-only). This is a variation on the Virtual Items above, as it depends on common respect for the value of the item.

In Mar05 I was glad I did not GaveUpOnTelevision. "Sixty Minutes" profiled the phenomenal growth of GoogleInc, whose revenue was derived from PPC (Pay per click) and rose to become a larger company than GM and Ford combined.

E-Commerce also presents its own challenges for the above-mentioned strengths:

Commodity Items A true commodity is commonly available. Locally, there may be relatively few suppliers, but online there may be thousands, making competition very difficult, especially given the slim profit margins of commodity items. Customers may prefer to pick up commodity items locally, rather than waiting for a shipment (and paying extra for shipping).

Rare Items Rare items suffer from the same challenges online as in the real world, namely limited markets, although this is somewhat offset by minimizing the effects of geography, although for full effectiveness that requires addressing issues of internationalization, localization, currency exchange rates, and international shipping. Also, the producers or distributors of rare items often have comparatively limited resources to spend on their e-commerce site, which amplifies all challenges. They also suffer a bit from the same problem as commodity items - competition. Often the market for rare items is a dedicated core of fans, hobbyists, or professionals, and an e-commerce site must go beyond 'standard' e-commerce to meet the needs of the market audience in order to surpass the competition and gain the loyalty of the market.

Virtual Items are generally best geared toward e-commerce, but often introduce their own special difficulties, such as DigitalRightsManagement, which is a difficult balance between hassle for legitimate purchasers and hassle for potential thieves.

eBay style multiseller sites must deal with a lot of complex issues of legality, payment, shipping, taxes, (at the international level) etc., all of which are complicated by having multiple sellers each of which may have different policies, while remaining as simple as possible for sellers to actually use. They must compete for both sellers and customers.