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Hussein Abdoh Tabrizi

November 13, 2000

Macroeconomic Implications of Ecommerce The industry-level and economy-wide investmentsrelated to ecommerce?Implications for growth, employment, productivity, andinflation?How can these investments and their effects beuntangled from the influence of other phenomena?How should we identify and measure the key drivers ofthe ecommerce?

How should we account for intangible consumerbenefits and burdens?How pervasive is ecommerce in the economy, betweenbusinesses and business and consumers?

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November 13, 2000

What isecommerce?

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Ecommerce is any form of businesstransaction in which the parties interactelectronically rather than by physical

exchanges or direct physical contactIt is one of those rare cases wherechanging needs and new technologiescome together to revolutionize the way in

which business is conducted European Commission (1997)http://www.ispo.cec/be/Ecommerce/whatis.htm
http://www.ispo.cec/be/Ecommerce/whatis.htmhttp://www.ispo.cec/be/Ecommerce/whatis.htm

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ECOMMERCE includes at least thefollowing:The exchange of goods and servicesacross an interactive digital networkA computer-mediated and virtual marketwith new relationships among businessesand consumersA digital means of exchange (digital

money, ecash, secure credit cardtransactions)The increasing importance of digitalinformation as a commodity

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More: New business processes and technologiesto support digital transactionsNew business strategies and models to

gain a competitive edge in the digitalmarketplaceTechnologies to ensure privacy andprotect intellectual property

A legislative and regulatory environmentthat supports ecommerce (domestic andinternational)

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It enables companies To Be more efficient and flexible intheir internal operations,Work more closely with their suppliers,

Be more responsive to the needs andexpectations of their customers,Select the best suppliers regardless oftheir geographical location, andSell to a global market.

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Benefits of an ecommerce business:

reduces distribution costs or cost-of-sales shrink tonear-zero. Examples include: publishing, informationservices or digital products categories

these can be delivered immediately- this may lead tomassive disintermediation or even the eventualelimination of middleman

buyers and sellers can access and contact each otherdirectly, potentially eliminating some costs and

constraints of phone, letter, and fax

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More

selling- more of the selling function is in the hands ofthe customer, through online ordering and the use offillout forms.This also allows the capture of customerinformation

firms can engage in dialog or communications withbuyers

competitive intelligence- web technology allows thegathering market intelligence and monitoring ofconsumer choices through customers revealedpreferences in browsing and buying

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CorporateISP/VAN

Dist

Manufacturing

SuppliersGovernment

Banks

Credit CardCompanies

Retail

Consumers

Internet ServiceProviders

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Ecommerce

creates a marketplace for digitalproducts, including:

Software, text and image-baseddigitized objects

Services that depend on informationand data (electricity consumption etc) These can be produced and deliveredover the net This changes traditional manufacturingand distribution processes

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Traditional commerce

Physical product: a tangible, materialobjectPhysical process: interactions between

buyers, sellers, producers

Physical agent: People in a storefrontEcommerce Digital product: a digital objectDigital process: interactions betweenbuyers, sellers, producers onlineDigital agent: web storefront

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components of a virtual economy

Virtualplayers

Virtualprocesses

Virtualproducts

The

net

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Virtual players

People, organizations, or automated agentswith an online presenceVirtual products

Digitized objects/services: currency, text,multimedia, tickets, reservations, electricusage, pay-for-view, smart housesVirtual processes

Participants interact digitally,interactively, and in real time (onlineordering/payment; JIT inventory control;customized advertising)

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Virtual intermediaries Provide essential services: certification,authentication, quality assurance, copyrightclearance, distribution

Education brokers: bringing instructors andstudents together onlineMarket organizers: establish meeting placesfor buyers and sellers (auctions...)

Personalized service providers: shoppers,information filtering, travel agent, financialservices

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virtual firm Assumes that they exist in an environmentwhere transaction costs are low They do not have to be based in a singlegeographic location Business processes can be distributed globallyand take place on the net

The value chain is digital

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More:Products can be delivered through a digitalweb of business relationships with producers,financiers, distributors, consumers

Producers, suppliers, warehouses, managers,administrator, subcontractors are all linkedthrough an extranetMany functions can be easily outsourced(accounting, personnel management, training,public relations)

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Convergence in ecommerce Products, processes, and infrastructure allconverge in the global digital marketplace Product: audio, video, still images, text all

in the same digital format Process: multiple uses from a virtualprocess make other processes redundant Consumer feedback is used for productchange, marketing, sales, pricing, andservice

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Supplier opportunity Customer benefit

Global presence Global choiceImproved competitiveness Quality of serviceMass customizing and Personalized productstargeting and servicesShorten or eradicate Rapid response tosupply chains needsSubstantial cost savings Substantial price

reductions

New business opportunities New products andservices

http://www.ispo.cec.be/ecommerce/introduc.htm
http://www.ispo.cec/be/Ecommerce/whatis.htmhttp://www.ispo.cec/be/Ecommerce/whatis.htmhttp://www.ispo.cec/be/Ecommerce/whatis.htm

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Ecommerce can: Reduce costs Shorten product cycle times Provide more rapid customer response Improve customer support and service Focus marketing efforts

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E-commerce and economic eff iciency: Costs

The cost of owning and operating

a physical establishment

To carrying an inventory... ... to conducting a sale...

To placing an order

To customer support and after-sales service... To simple purchase orders and

Product distribution that is expected to fuel strong growth in the business-to-business segment of e-commerce

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Economic: business incentives forecommerceProduct promotion and customizationthrough the direct connection toconsumers

Developing and exploiting new saleschannels (products, information,advertising,transactions)Reduced costs of business transactionsthrough a public shared infrastructureReducing time to market for certain typesof products

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More: Improving customer relationships withintelligent systems for service and supportImproving marketing and targeted advertising

through the collection of detailed customerinformationNew corporate branding and image creationUsing the net for R&D and product developmentDeveloping of new business models based oncharacteristics of the new marketplace

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Current commercial uses of the net Commercial sites

Storefronts, virtual communities, multipleuser gaming

Advertising: $150-200 million in 1996Banner ads, targetted email (ads and

product/service updates), customized webads, spam

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More:

Commercial servicesPayment, product delivery, information

collection, evaluation, and delivery

Non-digital product transactionsBooks, cars, and other tangible goodsDigital product transactions

Publications, freeware, shareware, demosoftware, reservations, financial services

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Continued...

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November 13, 2000

H i Abd h T b i i

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November 13, 2000

H i Abd h T b i i

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November 13, 2000

H i Abd h T b i i

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Growth

From $6.1 billion (1998) to $20 billion in salesby 2000 in the USGartner Goup, 1998

6.8 million households and 16 million people willtrade online (1998) - 15.2 million householdsand 33 million people by 2000Jupiter Communication (1998)

This is ~1% of the economy ($8.5 trillion)Business to business ecommerce: from $15.6billion (1998) to $175 billion in 2000


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According to OECD:

Total ecommerce is $26 billion for 1997 that isequivalent of 37% of US mail order shopping,3% of US credit/debit cards purchases, and0.5% of the retail sales of the seven OECD

economiesPredicted to reach $330 billion in 2001-02(near term) and $1 trillion in 2003-05

(future)

If realised, OECD-wide ecommerce will beequivalent of 15% of the total retail sales ofseven OECD countries .

http://www.oecd.org/subject/e_commerce/ebooks/part3e.pdf
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Future Infrastructure: during the next few years,digital interactive services of all types areexpected to converge

Telephone, cable, microwave, satellite are allmoving into the same arena and losing theirmonopoliesTelevision, computers, radio, pagers, and

cellular telephones are expected to sharefunctionality and attributes You can watch WebTV and TV on yourcomputer or your TV


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In the global economy Competitive advantage to companies that aresuccessful early adopters of ecommerceThis will be true in nations with government

economic and regulatory support forecommerceNations with highly trained labor forces willbenefit from distributed value chain


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Challenges:

Overcome the limitations and asymmetries ofthe infrastructure Implement hardware and software to fullyexploit bandwidth, especially to the last mile Provide universal access at reasonable cost Provide secure frameworks for business- to-business and -to-consumer transactions

Integrate electronic payment into the buyingprocess


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Framework for Global Ecommerce

Organizational ChangeEcommerce has the potential to change the structure andperformance of organizations and human enterprise.

Small Business Much of the innovative activity in the ecommercingappears to have come from small firms.AccessThe growth and success of the ecommercing depends onthe ability of businesses and citizens to participateMarket Structure and Competition Market demand for skilled and knowledgeable workers


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Present State in Developing Countries

Technical: The infrastructure necessaryto support ecommerce is not in place The hardware and software arebecoming more powerful and dropping inprice Beginning to understand the economics ofnetworking and ecommerce

Totally rely on developments andexperiments underway abroad,particularly in business-to-consumerecommerce

Trying to build a consumer marketplace


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To Develop Ecommerce in Third World

The private sector should lead. Governments should avoid undue restrictions onelectronic commerce. The aim of governmental involvement should be tosupport and enforce a predictable, minimalist,consistent and simple legal environment forcommerce. Governments should recognize the unique qualities

of the Internet.


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APEC Leaders DeclarationVancouver, CanadaNovember 25, 1997

We agree that electronic commerce is one of the most importanttechnological breakthroughs of this decade. We direct ministers toundertake a work program on electronic commerce in the region,taking into account relevant activities of other international fora,and to report to us in Kuala Lumpur. This initiative shouldrecognize the leading role of the business sector and promote a

predictable and consistent legal and regulatory environment thatenables all APEC economies to reap the benefits of electroniccommerce.


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ISSUES

Financial Issues customs and taxationelectronic paymentsLegal IssuesUniform Commercial Code for electronic commerceintellectual property protectionprivacysecurityMarket Access Issues

telecommunications infrastructure and info. technologycontenttechnical standards


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Need of Standards Ensure growth of ecommerce standards needed:Electronic payments;Security (confidentiality, authentication, dataintegrity, access control, non-repudiation);

Security services infrastructure (e.g., public keycertificate authorities);Electronic copyright management systems;Video and data-conferencing;

High-speed network technologies;And digital object and data interchange


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Macroeconomic Implications of Ecommerce

The industry-level and economy-wide investmentsrelated to ecommerce?Implications for growth, employment, productivity, andinflation?How can these investments and their effects beuntangled from the influence of other phenomena?How should we identify and measure the key drivers ofthe ecommerce?How should we account for intangible consumer benefitsand burdens?How pervasive is ecommerce in the economy, betweenbusinesses and business and consumers?


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Economic drivers of e-commerce: Five broad themes

The effect on the marketplace: Electronic commerce transforms the marketplace- far closer relationships will be created between businessandconsumers.

The catalytic role: Electronic commerce has a catalytic effect

The impact on interactivity: E-commerce over the Internet vastly increases interactivity in the economy

Openness: Openness is an underlying technical and philosophical tenet of the expansion of electronic commerce

The relative importance of time is fundamental to understanding the economic and social impact of electronic commerce: Electronic commerce alters the relative importance of time .

ecommerce (3)

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