E-Commerce Basics

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Business Models for E-commerce: Old Wine in New Bottles?

Abstract- While e-commerce is sprouting radical changes in intra-organizational

structures and inter-organizational relationships, the underlying principles turn out to

be less than novel. Rather, they reflect a revival of traditional values that prevailed

well before the advent of mass production. From a customer's perspective, most

"new" business models in the Information Age are indeed old wine in new bottles.

This is demonstrated with ten trends in e-commerce and explains why conventional

rules in the old economy still apply, bursting the bubble of unrealistic valuations of

numerous e-business ventures.

Keywords-- e-commerce, business models, digital economy, information age

1. Introduction

There has been much hyperbole in both academic and business circles, not to mention the news

media, about how the Internet is revolutionalizing the marketplace. Online business is transforming the

marketplace into a marketspace [7]. E-commerce is giving rise to a global, digital economy [10], [11], [6].

Enterprises large and small must adapt or risk falling by the wayside [3]. "New" business models are the

order of the day [2]. While emerging changes in intra-organizational structures and inter-organizational alliances

[8] do qualify as novelty, in contrast to previous development in the context of modern management,

the underlying principles turn out to be nothing new. This is best demonstrated by assuming a customer's

perspective and examining ten trends in business transformation that are the driving forces behind the rapid

growth in e-commerce [5].

2. Transformation versus Transplantation

T he Internet is a new medium of communication connecting businesses and their customers. Initially,

we can expect to see mostly direct translations of existing processes to the alternative channel. A display ad

for a newspaper can be scanned and used on a Web page. The same can be done for an entire product

catalog. In place of faxing a purchase order, now one can fill out an electronic form that will be transmitted

as E-mail. Apart from the fact that we may be saving some time, and perhaps some trees, there is little significant

change in how business get done.

This is true even for cases of greatly improved accessibility. For instance, the printed Yellow Pages

for Sri Lanka are not likely to be readily available to a business person in Japan. Now they can be found on

the Web, and available for consultation regardless of location or hour of day. That is certainly helpful. But

the value of the information extends only as far as the conventional concept of a condensed, classified directory,

which is basically static in nature. The question is whether that is all there is to it.

Anyone who is content with such transplantation, thinking that the new medium has been successfully

exploited, is bound to be left behind when new ways of doing business emerge. These are ideas that

take full advantage of the defining features of the Internet to transform business, and to create new value

in the process. Printed directories are static because it is not practical to update them constantly by reprinting

and redistributing all the copies. There is no such limitation for Web pages, which can be updated as

frequently as desired by modifying just one electronic master file. Therefore, Web-based directories that do

not incorporate timely and dynamic information will eventually become obsolete. Those that do have transformed

the concept of directories with the new medium.

Although the transformation of business processes may sound exciting, it does not follow that it will

automatically or immediately displace existing ways. Skeptics who proclaim that online shopping will never

replace physical stores and malls are actually correct. The point they miss is that it is not a question of simple

substitution. By creating an alternative mode of business, the online approach is offering consumers

more choices, and different value propositions that can actually open up new or grow existing markets. The

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early success of online bookstores like Amazon.com (www.amazon.com) is not only a sign of growth in ecommerce,

but--ironically--evidence of the staying power of the print medium itself.

Besides, the added value is likely to entice the top end of any market. These are typically the customers

with good credit, who are knowledgeable about their selections, and reasonable to service. Your

competitor's e-commerce plan may not be to drive you out of business right away. Rather, it will aim to lure

away the best 20% of your customers this year. You are welcome to hang on to the rest. And next year, it

shoots for the top 20% of those you manage to keep, or attract anew.

Obviously, some business transformations will have more impact than others. Some are quite obvious,

while others are as yet beyond anyone's