E-commerce 2023–2024
Laudon
Traver
CVR_LAUD9722_18_GE_CVR_CPI.indd All Pages
GLOBAL
EDITION
E-commerce 2023–2024
business. technology. society.
EIGHTEENTH EDITION
EIGHTEENTH
EDITION
• NEW and UPDATED—Chapter-opening cases introduce the key objectives of
the chapter, and extensive chapter-closing cases demonstrate how concepts apply to
problems and scenarios in actual e-commerce businesses. These cases feature companies
that students encounter every day—Amazon, Google, Twitter, TikTok, eBay—as well as
exciting startups such as Scratch and Canva.
• NEW and UPDATED—Three real-world Insight on… cases in each chapter take
an in-depth look at the three major driving forces of e-commerce—business strategy,
technological innovation, and social and legal issues—and how they relate to the topics
discussed.
• The Careers in E-commerce section at the end of every chapter examines a job
posting for an entry-level position, offers advice on applying for it, and shows students
how the concepts discussed in the chapter can help answer interview questions.
business. technology. society.
E-commerce: business. technology. society. presents the most up-to-date and comprehensive
overview of the subject available to students today. In every edition, Laudon and Traver
present a realistic view of and a critical perspective on the world of e-commerce, one that
encompasses both familiar brands and exciting new startups, as well as topics that have
made headlines around the globe. Updated to include the very latest business and marketing
intelligence, E-commerce offers the strong conceptual framework necessary to engage with
this everchanging field.
E-commerce 2023–2024 continues to focus on the key topics of today, from privacy and
government surveillance to cybercrime, fintech, social-local-mobile marketing, intellectual
property, and many more. This edition explores the continuing impact of the Covid-19
pandemic on e-commerce as well as introduces a new focus on the impact of environmental,
social, and governance (ESG) movements and sustainability movements like recommerce and
the circular economy. All data and figures have been updated to reflect the latest available
information.
This eighteenth edition includes the following features to build a student’s cognitive ability
and analytical skills:
GLOB AL
EDITION
GLOBAL
EDITION
This is a special edition of an established title widely used by colleges and
universities throughout the world. Pearson published this exclusive edition
for the benefit of students outside the United States and Canada. If you
purchased this book within the United States or Canada, you should be aware
that it has been imported without the approval of the Publisher or Author.
Kenneth C. Laudon
Carol Guercio Traver
18/05/23 12:10 PM
Chapter-Opening Cases, Insight Cases,
and Case Studies
Chapter 1: Introduction to E-commerce
Chapter 7: Social, Mobile, and Local Marketing
Opening Case: TikTok: Creators and the Creator Economy
Opening Case: Pinterest Expands Around the Globe
Insight on Technology: Will Apps Make the Web Irrelevant?
Insight on Technology: Optimizing Social Marketing with AccuraCast
Insight on Business: Rocket Internet
Insight on Society: Marketing to Children in the Age of Social, Mobile, Local
Insight on Society: Facebook and the Age of Privacy
Case Study: Uber: Everything on Demand
Insight on Business: Mobile Marketing Revs Up with 3D, AR, VR, and the
Metaverse
Chapter 2: E-commerce Strategies
Case Study: Exchangehunterjumper.com: Building an International Brand with
Social Marketing
Opening Case: Australia’s Canva Grows from Startup to Super Unicorn
Insight on Business: OpenRice Brings Social E-commerce to the Table
Insight on Society: Crowdfunding Takes Off Around the World
Insight on Technology: Behind the Scenes at Etsy
Case Study: Weathering the Storm: Twitter’s Uncertain Future
Chapter 8: Ethics and Law in E-commerce
Opening Case: The Right to Be Forgotten: Europe Leads the Way on Internet
Privacy
Insight on Technology: Apps That Track: A Double-Edged Sword
Insight on Business: New Rules Extend EU Taxation of E-commerce
Chapter 3: E-commerce Infrastructure
Insight on Society: Immersed in the Metaverse: Will It Be Safe?
Opening Case: The Internet Survives the Covid-19 Pandemic: Why It Didn’t
Break
Case Study: Big Tech Firms: Are They Getting “Too Big”?
Insight on Technology: The Internet Space Race
Insight on Society: Government Regulation and Surveillance of the Internet
Insight on Business: Zoom Continues to Zoom
Case Study: Akamai: Sharpening Internet Content Delivery with Edge
Computing
Chapter 4: Building an E-commerce Presence
Chapter 9: E-commerce Retail and Services
Opening Case: Souq.com: How a UAE Startup Paved the Way for Amazon in MENA
Insight on Technology: ASOS Uses Big Data to Find Its Most Valuable Customers
Insight on Society: Revolut: Finance at Your Fingertips
Insight on Business: Bawiq and Careem: Food Delivery on Demand
Case Study: OpenTable: Your Reservation Is Waiting
Opening Case: Scratch Builds an E-commerce Presence from Scratch
Chapter 10: Online Media
Insight on Business: OVHcloud Takes E-commerce to the Clouds
Opening Case: Spotify and Deezer: European Music Streaming Services Spread
Around the Globe
Insight on Society: Designing for Accessibility
Insight on Technology: Klook Sets Its Sights on New Vistas
Case Study: Skyscanner: The One-Stop Travel Platform
Chapter 5: E-commerce Security and Payment
Systems
Opening Case: SolarWinds: Shining a Light on Software Supply Chain Attacks
Insight on Society: Ransomware: The New Business of Hostage-taking
Insight on Technology: Pegasus Exploits Zero-Day Vulnerabilities to Create
Mobile Platform for Cyberespionage
Insight on Society: Is Gen Z Really All That Different?
Insight on Business: British Newspapers Take On the Digital Space
Insight on Technology: Game On: Twitch
Case Study: Netflix: How Does This Movie End?
Chapter 11: Online Communities
Opening Case: LinkedIn: A Different Type of Social Network
Insight on Society: Businesses Beware: The Dark Side of Social Networks
Insight on Technology: Are Facebook’s Algorithms Dangerous?
Insight on Business: Are Biometrics the Solution for E-commerce Security?
Insight on Business: Yahoo and AOL Get Yet Another New Owner
Case Study: Alipay and WeChat Pay: Global Mobile Payment Leaders
Case Study: eBay: Refocusing on Its Roots and Embracing Recommerce
Chapter 6: E-commerce Marketing and Advertising
Chapter 12: B2B E-commerce
Opening Case: InMobi: Global Mobile Ad Network
Opening Case: Alibaba: China’s E-commerce King Splits Up
Insight on Business: Are the Very Rich Different from You and Me?
Insight on Society: Supply Chains Hit the Headlines
Insight on Technology: The Long Tail: Big Hits and Big Misses
Insight on Technology: Blockchain Improves the Food Supply Industry
Insight on Society: Going from Third to First
Insight on Business: Collaborative Commerce at Carrefour UAE
Case Study: Programmatic Advertising: Real-Time Marketing
Case Study: Elemica: Cooperation, Collaboration, and Community
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E-commerce
business. technology. society.
GLOBAL EDITION
E I G H T E E N T H
E D I T I O N
Kenneth C. Laudon
Carol Guercio Traver
New York University
Azimuth Interactive, Inc.
Harlow, England • London • New York • Boston • San Francisco • Toronto
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Authorized adaptation from the United States edition, entitled E-commerce: business. Technology. society, 17th Edition, ISBN
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Br i ef
Con t e nts
PART 1 Introduction to E-commerce
1
INTRODUCTION TO E-COMMERCE
34
2
E-COMMERCE BUSINESS STRATEGIES
84
PART 2 Technology Infrastructure for E-commerce
3
E-COMMERCE INFRASTRUCTURE
138
4
BUILDING AN E-COMMERCE PRESENCE
5
E-COMMERCE SECURITY AND PAYMENT SYSTEMS
208
270
PART 3 Business Concepts and Social Issues
6
E-COMMERCE MARKETING AND ADVERTISING
7
SOCIAL, MOBILE, AND LOCAL MARKETING
8
ETHICS AND LAW IN E-COMMERCE
346
422
492
4
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Brief Contents
5
PART 4 E-commerce in Action
9
E-COMMERCE RETAIL AND SERVICES
10
ONLINE MEDIA
11
ONLINE COMMUNITIES
12
B2B E-COMMERCE
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570
634
696
738
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C o n te n t s
PART 1 Introduction to E-commerce
1
INTRODUCTION TO E-COMMERCE
Learning Objectives
34
34
TikTok: Creators and the Creator Economy
35
1.1
The First Five Minutes: Why You Should Study E-commerce
1.2
Introduction to E-commerce
39
39
What Is E-commerce?
40
The Difference between E-commerce and E-Business
40
Technological Building Blocks Underlying E-commerce: The Internet,
the Web, and the Mobile Platform
41
Insight on Technology: Will Apps Make the Web Irrelevant?
Major Trends in E-commerce
1.3
44
46
Unique Features of E-commerce Technology
48
Ubiquity
49
Global Reach
49
Universal Standards
50
Richness
50
Interactivity
50
Information Density
51
Personalization and Customization
51
Social Technology: User-Generated Content (UGC), Creators, and Social Networks
1.4
Types of E-commerce
52
52
Business-to-Consumer (B2C) E-commerce
53
Business-to-Business (B2B) E-commerce
54
Consumer-to-Consumer (C2C) E-commerce
56
Mobile E-commerce (M-commerce)
56
Social E-commerce
56
Local E-commerce
57
1.5
E-commerce: A Brief History
59
E-commerce 1995–2000: Invention
59
E-commerce 2001–2006: Consolidation
62
E-commerce 2007–Present: Reinvention
63
Insight on Business: Rocket Internet
64
Assessing E-commerce: Successes, Surprises, and Failures
66
6
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­ C o n t e n t s
1.6
7
Understanding E-commerce: Organizing Themes 68
Technology: Infrastructure 69
Business: Basic Concepts 69
Society: Taming the Juggernaut 70
1.7
Careers in E-commerce 70
Insight on Society: Facebook and the Age of Privacy 71
The Company 73
Position: Category Specialist in the E-commerce Retail Program 73
Qualifications/Skills 73
Preparing for the Interview 74
Possible First Interview Questions 74
1.8
Case Study: Uber: Everything on Demand 76
1.9
Review 80
Key Concepts 80
Questions 82
Projects 82
References 83
2
E-COMMERCE BUSINESS STRATEGIES 84
Learning Objectives 84
Australia’s Canva Grows from Startup to Super Unicorn 85
2.1
E-commerce Business Models 88
Introduction 88
Eight Key Elements of a Business Model 88
Insight on Business: OpenRice Brings Social E-commerce to the Table 92
Raising Capital 97
Insight on Society: Crowdfunding Takes Off Around the World 100
Categorizing E-commerce Business Models: Some Difficulties 102
2.2
Major Business-to-Consumer (B2C) Business Models 103
Online Retailer (E-tailer) 103
Community Provider 105
Content Provider 106
Portal 107
Transaction Broker 107
Market Creator 108
Insight on Technology: Behind the Scenes at Etsy 109
Service Provider 111
2.3
Major Business-to-Business (B2B) Business Models 111
E-distributor 111
E-procurement 112
Exchanges 113
Industry Consortia 113
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8
C ontents
Private B2B Networks
2.4
114
How E-commerce Changes Business: Strategy, Structure, and Process
Industry Structure
114
Industry Value Chain
117
Firm Value Chains
118
Firm Value Webs
119
Business Strategy
120
E-commerce Technology and Business Model Disruption
2.5
Careers in E-commerce
114
123
125
The Company
125
Position: Assistant Manager of E-Business
Qualifications/Skills
126
Preparing for the Interview
126
Possible First Interview Questions
127
126
2.6
Case Study: Weathering the Storm: Twitter’s Uncertain Future
2.7
Review
129
133
Key Concepts 133
Questions 134
Projects 135
References 135
PART 2 Technology Infrastructure for E-commerce
3
E-COMMERCE INFRASTRUCTURE
Learning Objectives
138
138
The Internet Survives the Covid-19 Pandemic: Why It Didn’t Break
3.1
The Internet: Technology Background
139
142
The Evolution of the Internet: 1961–the Present
143
The Internet: Key Technology Concepts
147
The Mobile Platform
153
The Internet “Cloud Computing” Model: Hardware and Software as a Service
Other Internet Protocols
157
3.2
Internet Infrastructure and Access
The Internet Backbone
159
Internet Exchange Points
161
Tier 3 Internet Service Providers
153
158
161
Insight on Technology: The Internet Space Race
165
Mobile Internet Access
167
The Internet of Things
171
Who Governs the Internet?
172
Insight on Society: Government Regulation and Surveillance of the Internet
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174
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9
­ C o n t e n t s
3.3
The Web 176
Hypertext 177
Markup Languages 178
Web Servers and Clients 181
Web Browsers 182
3.4
The Internet and Web: Features and Services 183
Communication Tools 183
Search Engines 185
Insight on Business: Zoom Continues to Zoom 186
Downloadable and Streaming Media 190
Web 2.0 Applications and Services 191
Web3 192
Virtual Reality, Augmented Reality, and the Metaverse Intelligent Digital Assistants 193
3.5
Mobile Apps 195
Platforms for Mobile Application Development App Marketplaces 196
3.6
193
196
Careers in E-commerce 196
The Company 197
Position: E-commerce Specialist 197
Qualifications/Skills 197
Preparing for the Interview 198
Possible First Interview Questions 198
3.7
Case Study: Akamai: Sharpening Internet Content Delivery with Edge Computing 3.8
Reviews 203
200
Key Concepts 203
Questions 204
Projects 205
References 205
4
BUILDING AN E-COMMERCE PRESENCE 208
Learning Objectives 208
Scratch Builds an E-commerce Presence from Scratch 209
4.1
Imagine Your E-commerce Presence 212
What’s the Idea? (The Visioning Process) 212
Where’s the Money: Business and Revenue Model 212
Who and Where Is the Target Audience? 213
What Is the Ballpark? Characterize the Marketplace 213
Where’s the Content Coming From? 214
Know Yourself: Conduct a SWOT Analysis 215
Develop an E-commerce Presence Map 216
Develop a Timeline: Milestones 217
How Much Will This Cost? 218
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10
­ C o n t e n t s
4.2
Building an E-commerce Presence: A Systematic Approach 219
The Systems Development Life Cycle 220
Insight on Business: OVHcloud Takes E-commerce to the Clouds 227
Alternative Web Development Methodologies 231
4.3
Choosing Software 232
Simple versus Multi-tiered Website Architecture 232
Web Server Software 233
Application Servers 236
E-commerce Merchant Server Software (E-commerce Software Platforms) 4.4
Choosing Hardware 239
Right-sizing Your Hardware Platform: The Demand Side Right-sizing Your Hardware Platform: The Supply Side 4.5
237
240
241
Other E-commerce Site Tools 244
Website Design: Basic Business Considerations 244
Tools for Search Engine Optimization 245
Tools for Interactivity and Active Content 246
Personalization/Customization Tools 250
The Information Policy Set 250
Insight on Society: Designing for Accessibility 251
4.6
Developing a Mobile Website and Building Mobile Applications 253
Planning and Building a Mobile Presence 254
Mobile Presence: Design Considerations 255
Cross-Platform Mobile App Development Tools 256
Mobile Presence: Performance and Cost Considerations 257
Insight on Technology: Klook Sets Its Sights on New Vistas 258
4.7
Careers in E-commerce 260
The Company 260
Position: UX Designer 260
Qualifications/Skills 260
Preparing for the Interview 261
Possible First-Interview Questions 261
4.8
Case Study: Skyscanner: The One-Stop Travel Platform 263
4.9
Review 266
Key Concepts 266
Questions 268
Projects 269
References 269
5
E-COMMERCE SECURITY AND PAYMENT SYSTEMS 270
Learning Objectives 270
SolarWinds: Shining a Light on Software Supply Chain Attacks 271
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­ C o n t e n t s
5.1
11
The E-commerce Security Environment 274
The Scope of the Problem 275
What Is Good E-commerce Security? 276
Dimensions of E-commerce Security 277
The Tension between Security and Other Values 278
5.2
Security Threats in the E-commerce Environment 279
Malicious Code 280
Insight on Society: Ransomware: The New Business of Hostage-taking 282
Potentially Unwanted Programs (PUPs) 284
Phishing 286
Hacking, Cybervandalism, and Hacktivism 287
Data Breaches 288
Credit Card Fraud/Theft 288
Identity Fraud 289
Spoofing, Pharming, and Spam (Junk) Websites 290
Sniffing and Man-in-the-Middle Attacks 290
Denial of Service (DoS) and Distributed Denial of
Service (DDoS) Attacks 291
Insider Attacks 292
Poorly Designed Software 292
Social Network Security Issues 293
Mobile Platform Security Issues 293
Insight on Technology: Pegasus Exploits Zero-Day Vulnerabilities to Create Mobile Platform for
Cyberespionage 294
Cloud Security Issues 297
Internet of Things Security Issues 297
Metaverse Security Issues 299
5.3
Technology Solutions 299
Protecting Internet Communications 299
Encryption 299
Securing Channels of Communication 307
Protecting Networks 310
Protecting Servers and Clients 312
5.4
Management Policies, Business Procedures, and Public Laws 313
A Security Plan: Management Policies 313
Insight on Business: Are Biometrics the Solution for E
­ -commerce Security? 316
The Role of Laws and Public Policy 318
5.5
E-commerce Payment Systems 320
Online Credit Card Transactions 321
Alternative Online Payment Systems 323
Mobile Payment Systems: Your Smartphone Wallet 324
Blockchain and Cryptocurrencies 326
5.6
Careers in E-commerce 330
The Company 331
The Position: Cybersecurity Threat Management Team Trainee 331
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12
C ontents
Qualifications/Skills
331
Preparing for the Interview
332
Possible First Interview Questions
332
5.7
Alipay and WeChat Pay: Global Mobile Payment Leaders
5.8
Review
334
339
Key Concepts
339
Questions
342
Projects
342
References 343
PART 3 Business Concepts and Social Issues
6
E-COMMERCE MARKETING AND ADVERTISING
Learning Objectives
346
InMobi: Global Mobile Ad Network
6.1
346
347
Consumers Online: The Online Audience and Consumer Behavior
351
The Online Consumer Profile
351
Consumer Behavior Models
353
The Online Purchasing Decision
354
Shoppers: Browsers and Buyers
356
Intentional Acts: How Shoppers Find Vendors Online
358
Why Some People Don’t Shop Online: Trust, Utility, and Opportunism in
Online Markets
358
6.2
Digital Commerce Marketing and Advertising Strategies and Tools
359
Strategic Issues and Questions
359
The Website as a Marketing Platform: Establishing the Customer Relationship
Traditional Online Marketing and Advertising Tools
362
Social, Mobile, and Local Marketing and Advertising
374
Multi-Channel Marketing: Integrating Online and Offline Marketing
375
Other Online Marketing Strategies
377
Insight on Business: Are the Very Rich Different from You and Me?
6.3
Online Marketing Technologies
361
378
386
The Revolution in Online Marketing Technologies
386
Insight on Technology: The Long Tail: Big Hits and Big Misses
387
Web Transaction Logs
390
Supplementing the Logs: Cookies and Other Tracking Files
390
Databases, Data Warehouses, Data Mining, and Big Data
392
Insight on Society: Going from Third to First
393
Marketing Automation and Customer Relationship Management (CRM) Systems
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­ C o n t e n t s
6.4
13
Understanding the Costs and Benefits of Online Marketing Communications 399
Online Marketing Metrics: Lexicon 399
How Well Does Online Advertising Work? 403
The Costs of Online Advertising 404
Marketing Analytics: Software for Measuring Online Marketing Results 405
6.5
Careers in E-commerce 407
The Company 407
The Position: Digital Marketing Assistant 408
Qualifications/Skills 408
Preparing for the Interview 408
Possible First Interview Questions 409
6.6
Case Study: Programmatic Advertising: Real-Time Marketing 411
6.7
Review 416
Key Concepts 416
Questions 417
Projects 418
References 419
7
SOCIAL, MOBILE, AND LOCAL MARKETING 422
Learning Objectives 422
Pinterest Expands Around the Globe 423
7.1
Introduction to Social, Mobile, and Local Marketing 426
From Eyeballs to Conversations 426
From the Desktop to the Smartphone and Tablet 427
The Social, Mobile, Local Nexus 428
7.2
Social Marketing 429
Social Marketing Players 430
The Social Marketing Process 430
Measuring Social Marketing Results 432
Facebook Marketing 434
Insight on Technology: Optimizing Social Marketing with AccuraCast 435
Instagram Marketing 442
TikTok Marketing 443
Twitter Marketing 446
Pinterest Marketing 449
Marketing on Other Social Networks: Snapchat and LinkedIn 453
The Downside of Social Marketing 454
7.3
Mobile Marketing 455
Insight on Society: Marketing to Children in the Age of Social, Mobile, Local 456
Overview: M-commerce Today 458
How People Actually Use Mobile Devices 459
Overview: Mobile Marketing 461
The Technology: Basic Mobile Device Features 463
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­ C o n t e n t s
Mobile Marketing Tools: Ad Formats 464
Starting a Mobile Marketing Campaign 465
Insight on Business: Mobile Marketing Revs Up with 3D, AR, VR, and the Metaverse 466
Mobile Marketing Analytics 468
7.4
Local and Location-based Mobile Marketing 470
The Growth of Local Marketing 470
The Growth of Location-based (Local) Mobile Marketing 471
Location-based Marketing Platforms 472
Location-based Mobile Marketing: The Technologies 472
Why Is Location-based Mobile Marketing Attractive to Marketers? 474
Location-based Marketing Tools 474
Starting a Location-based Marketing Campaign 477
Measuring Location-based Marketing Results 477
7.5
Careers in E-commerce 478
The Company 478
The Position: Social Media Marketing Associate 479
Qualifications/Skills 479
Preparing for the Interview 479
Possible First Interview Questions 480
7.6
Case Study: Exchangehunterjumper.com: Building an International Brand with
Social Marketing 482
7.7
Review 487
Key Concepts 487
Questions 489
Projects 490
References 490
8
ETHICS AND LAW IN E-COMMERCE 492
Learning Objectives 492
The Right to Be Forgotten: Europe Leads the Way on Internet Privacy 493
8.1
Understanding Ethical, Social, and Political Issues in E-commerce 496
A Model for Organizing the Issues 497
Basic Ethical Concepts: Responsibility, Accountability, Liability, and Due Process 499
Analyzing Ethical Dilemmas 500
Ethical Principles 500
8.2
Privacy and Information Rights 502
What Is Privacy? 502
Privacy in the Public Sector: Privacy Rights of Citizens 503
Privacy in the Private Sector: Privacy Rights of Consumers 504
Insight on Technology: Apps That Track: A Double-Edged Sword 511
Limitations on the Right to Privacy: Law Enforcement and Surveillance 522
8.3
A01_LAUD9772_18_GE_FM.indd 14
Intellectual Property Rights 524
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Co n te n ts
Types of Intellectual Property Protection
Copyright
526
Patents
532
Trademarks
533
Trade Secrets
537
8.4
Governance
8.6
525
538
Can the Internet Be Controlled?
Taxation
539
Net Neutrality
540
8.5
15
538
Insight on Business: New Rules Extend EU Taxation of E-commerce
541
Antitrust, Monopoly, and Market Competition in the Internet Era
544
Public Safety and Welfare
544
Protecting Children
545
Cigarettes, Drugs, and Gambling: Is the Web Really Borderless?
546
Insight on Society: Immersed in the Metaverse: Will It Be Safe?
547
Careers in E-commerce
551
The Company
551
Position: E-commerce Privacy Research Associate
Qualifications/Skills
552
Preparing for the Interview
553
Possible First Interview Questions
553
552
8.7
Case Study: Big Tech Firms: Are They Getting “Too Big”?
8.8
Review
555
562
Key Concepts
562
Questions
565
Projects
566
References
566
PART 4 E-commerce in Action
9
E-COMMERCE RETAIL AND SERVICES
Learning Objectives
570
570
Souq.com: How a UAE Startup Paved the Way for Amazon in MENA
9.1
Analyzing the Viability of Online Firms
Strategic Analysis
Financial Analysis
9.2
575
575
576
The Retail Sector: Offline and Online
Online Retailing
571
577
578
Insight on Technology: ASOS Uses Big Data to Find Its Most Valuable Customers
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16
­ C o n t e n t s
9.3
E-commerce in Action: Online Retail Business Models 589
Virtual Merchants 589
Amazon 590
Omnichannel Merchants: Bricks-and-Clicks 597
Manufacturer-Direct 599
Catalog Merchants 601
9.4
The Service Sector: Offline and Online 602
9.5
Online Financial Services 603
Fintech 603
Online Banking 604
Insight on Society: Revolut: Finance at Your Fingertips 605
Online Brokerage 607
Online Mortgage and Lending Services 607
Online Insurance Services 608
Online Real Estate Services 610
9.6
Online Travel Services 611
Why Are Online Travel Services So Popular? 611
The Online Travel Market 612
Online Travel Industry Dynamics 612
9.7
Online Job Recruitment and Career Services 614
Online Job Recruitment and Career Services Industry Trends 616
9.8
On-Demand Service Companies 617
Insight on Business: Bawiq and Careem: Food Delivery on Demand 618
9.9
Careers in E-commerce 621
The Company 621
Position: Associate, E-commerce Initiatives 621
Qualifications/Skills 622
Preparing for the Interview 622
Possible First Interview Questions 623
9.10 Case Study: OpenTable: Your Reservation Is Waiting 624
9.11 Review 628
Key Concepts 628
Questions 630
Projects 631
References 631
10
ONLINE MEDIA 634
Learning Objectives 634
Spotify and Deezer: European Music Streaming Services Spread Around the Globe 635
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­ C o n t e n t s
17
10.1 Online Content 638
Content Audience: Where Are the Eyeballs? 638
Content Market: Entertainment and Media Industry Revenues 640
Insight on Society: Is Gen Z Really All That Different? 641
Online Content: Consumption, Revenue Models, and Revenue 644
Digital Rights Management (DRM) and Walled Gardens 646
Media Industry Structure 646
Media Convergence: Technology, Content, and Industry Structure 647
10.2 The Online Publishing Industry 649
Online Newspapers 650
Insight on Business: British Newspapers Take On the Digital Space 659
Magazines Rebound on the Digital Platform 661
E-books and Online Book Publishing 662
10.3 The Online Entertainment Industry 665
Home Entertainment: Television and Movies 667
Audio Entertainment: Music and Podcasts 672
Games 676
Insight on Technology: Game On: Twitch 680
10.4 Creators and User-Generated Content 682
10.5 Careers in E-commerce 683
The Company 684
Position: Digital Audience Development Specialist 684
Qualifications/Skills 684
Preparing for the Interview 685
Possible First Interview Questions 685
10.6 Case Study: Netflix: How Does This Movie End? 687
10.7 Review 691
Key Concepts 691
Questions 692
Projects 693
References 693
11
ONLINE COMMUNITIES 696
Learning Objectives 696
LinkedIn: A Different Type of Social Network 697
11.1 Social Networks and Online Communities 699
What Is an Online Social Network? 700
The Growth of Social Networks and Online Communities 701
Turning Social Networks into Businesses 704
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18
­ C o n t e n t s
Types of Social Networks and Their Business Models 705
Insight on Society: Businesses Beware: The Dark Side of Social Networks 706
Social Network Technologies and Features 708
Insight on Technology: Are Facebook’s Algorithms Dangerous? 711
11.2 Online Auctions 713
Benefits and Costs of Auctions 714
Auctions as an E-commerce Business Model 716
Types and Examples of Auctions 716
When to Use Auctions (and for What) 717
Auction Prices: Are They the Lowest? 719
Consumer Trust in Auctions 719
When Auction Markets Fail: Fraud and Abuse in Auctions 719
11.3 E-commerce Portals 720
The Growth and Evolution of Portals 721
Types of Portals: General-Purpose and Vertical Market 722
Portal Business Models 722
Insight on Business: Yahoo and AOL Get Yet Another New Owner 724
11.4 Careers in E-commerce 726
The Company 726
Position: Social Marketing Specialist 726
Qualifications/Skills 727
Preparing for the Interview 727
Possible First Interview Questions 727
11.5 Case Study: eBay: Refocusing on Its Roots and Embracing Recommerce 729
11.6 Review 733
Key Concepts 733
Questions 734
Projects 735
References 735
12
B2B E-COMMERCE 738
Learning Objectives 738
Alibaba: China’s E-commerce King Splits Up 739
12.1 An Overview of B2B E-commerce 743
Some Basic Definitions 745
The Evolution of B2B E-commerce 745
The Growth of B2B E-commerce 747
Potential Benefits and Challenges of B2B E-commerce 12.2 The Procurement Process and Supply Chains A01_LAUD9772_18_GE_FM.indd 18
749
749
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­ C o n t e n t s
19
Insight on Society: Supply Chains Hit the Headlines 750
Steps in the Procurement Process 752
Types of Procurement 752
Multi-Tier Supply Chains 753
Visibility and Other Concepts in Supply Chain Management 754
The Role of Existing Legacy Computer Systems and Enterprise Systems in Supply Chains 755
12.3 Trends in Supply Chain Management and Collaborative Commerce 755
Supply Chain Simplification and Just-in-Time and Lean Production 756
Supply Chain Black Swans: Adaptive Supply Chains 757
Accountable Supply Chains: Labor Standards 758
Sustainable Supply Chains 758
Mobile B2B 759
B2B in the Cloud 760
Supply Chain Management Systems 761
Blockchain, the Internet of Things, and Supply Chain Management 763
Insight on Technology: Blockchain Improves the Food Supply Industry 765
Collaborative Commerce 767
Social Networks and B2B: The Extended Social Enterprise 769
B2B Marketing 769
12.4 B2B E-commerce Marketplaces: The Selling Side of B2B 770
Characteristics of B2B E-commerce Marketplaces 771
Types of B2B E-commerce Marketplaces 771
12.5 Private B2B Networks 779
Objectives of Private B2B Networks 780
Private B2B Networks and Collaborative Commerce 781
Insight on Business: Collaborative Commerce at Carrefour UAE 782
Implementation Barriers 784
12.6 Careers in E-commerce 785
The Company 785
Position: Junior Supply Chain Analyst 785
Qualifications/Skills 786
How to Prepare for the Interview 786
Possible First Interview Questions 786
12.7 Case Study: Elemica: Cooperation, Collaboration, and Community 788
12.8 Review 793
Key Concepts 793
Questions 795
Projects 796
References 797
Index 799
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P R EFA C E
NEW TO THIS EDITION
E-commerce 2023–2024: business. technology. society, Global Edition, 18th edition, provides
a thoroughly updated, in-depth introduction to the field of e-commerce. We focus on
the key concepts—and the latest empirical and financial data—that will help you understand and take advantage of the evolving world of opportunity offered by e-commerce,
which is dramatically altering the way business is conducted and driving major shifts
in the global economy. The Global Edition is aimed at students and professionals in the
European Union, the Middle East, Asia-Pacific, Australia, and South Africa. Case studies
reflect e-commerce firms in these regions, and figures and tables relate to these regional
sources wherever possible.
Just as important as our global orientation, we have tried to create a book that is
thought-provoking and current. The book features the latest developments in business,
technology, and society that are impacting e-commerce. We use the most recent data
available and focus on companies that you are likely to encounter on a daily basis in your
everyday life, such as Meta’s Facebook and Instagram, Google, Amazon, Apple, TikTok,
YouTube, Twitter, eBay, Uber, and many more that you will recognize, as well as some
exciting startups that may be new to you. We also have up-to-date coverage of key topics
in e-commerce today, from privacy and piracy to government surveillance, cybercrime,
fintech, social-local-mobile marketing, intellectual property, and many more. You will
find here the most up-to-date and comprehensive overview of e-commerce today.
The e-commerce concepts you learn in this book will make you valuable to potential employers. Many employers expect new employees to understand the basics of
e-commerce, online marketing, and developing an e-commerce presence. Every industry today is touched in at least some way by e-commerce. The information and knowledge that you find in this book will be valuable throughout your career, and after you
read this book, we expect that you will be able to participate in, and even lead, management discussions about e-commerce for your firm.
Enhanced Stand-Alone Pearson eTextbook
E-commerce 2023–2024: business. technology. society, Global Edition, 18th edition, is available as a stand-alone eTextbook, which extends the student learning experience anytime and anywhere: The mobile app lets students use their eTextbook on Android and
iPhone mobile phones and tablets. The eTextbook engages students with compelling
media: Videos and animations written and produced by the authors bring key concepts to life, helping students place what they are reading into context. Other features
include highlights that allow educators to share information directly with students
within the eTextbook and analytics that let educators gain insight into how students
use their eTextbook, thus allowing educators to plan more effective instruction. Pearson’s eTextbook platform provides an affordable, simple-to-use mobile teaching and
learning experience.
20
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The following features are included in the eTextbook:
• Interactive Tools—Students can highlight, take notes, and review key vocabulary all
in one place, even when they are offline. Seamlessly integrated videos enliven student
learning and understanding of concepts.
• Figure Videos—Author Ken Laudon walks students through important concepts in
each chapter using a contemporary animation platform (12 in total). Available only
in the Pearson eTextbook.
• New Videos—A brand-new collection of videos (two per chapter, 24 in total) draws
from Pearson’s extensive library of business and technology video clips. The videos
are related to one or more key concepts or topics within the chapter. Videos are listed
on the opening page of each chapter and on page 29 of the Preface. Further information about the videos as well as questions that can be used as an assignment or for
class dicussion are included in the Instructors Manual.
New and Updated Topics
This edition features all new or updated opening, closing, and “Insight on” cases. The text,
as well as data, figures, and tables in the book, have been updated through March 2023 with
the latest information available from industry and government sources. In addition, we
have added new, expanded, and/or updated material on a number of e-commerce topics
that have appeared in the headlines during 2022, including the following:
• The continuing impact of the Covid-19 pandemic on the Internet and e-commerce
(throughout the book and particularly in Chapters 3 and 12)
• Creators and the creator economy; influencers and influencer marketing (Chapters
1, 2, 7, and 10)
• The rise of TikTok (Chapters 1and 7)
• The metaverse (Chapters 1, 3, 5, 7, and 8)
• Web3 (Chapters 1 and 3)
• Data privacy concerns; Apple’s and Google’s new privacy initiatives (Chapters 1, 2,
6, and 8)
• Artificial intelligence and big data in e-commerce and online advertising (Chapters
1, 6, and 9)
• Efforts to control Big Tech via litigation, regulation, and legislation (Chapters 1 and 8)
• The impact of the ESG (environmental, social, and governance) and sustainability
movements (recommerce, circular economy) (Chapters 1, 2, 9, 11, and 12)
• Blockchain technologies (Chapters 1, 5, 12)
• The impact of the Internet of Things (IoT) on e-commerce, e-commerce business
models, and supply chains (Chapters 2, 3, and 12)
• The QUIC protocol as a replacement for TCP (Chapter 3)
• New Internet access technologies, such as low earth orbit satellites and the arrival
of 5G (Chapter 3)
• The growing importance of omnichannel retail strategies, including BOPIS/clickand-collect (Chapters 4 and 9)
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Pr eface
• Major security issues, such as software supply chain attacks, ransomware, cybercurrency hacks, large-scale data breaches, and hacks related to software vulnerabilities
(Chapter 5)
• New alternative payment services such as Buy Now Pay Later (BNPL) services and
cryptocurrences, including Bitcoin, Ethereum, and stablecoins (Chapter 5)
• Contextual advertising and first-party tracking as a replacement for behavioral
targeting (Chapter 6)
• Social marketing using TikTok and Instagram (Chapter 7)
• Apple ITP and ATT and Google Privacy Sandbox (Chapter 8)
• Web scraping as a copyright issue; efforts to update the Digital Millennial Copyright
Act (Chapter 8)
• State regulatory efforts with respect to privacy, Internet sales tax, net neutrality, and
online gambling (Chapter 8)
• Carvana and other digitally native direct-to-consumer companies (Chapter 9)
• Fintechs including neobanks, robo-advisors, and insurtech (Chapter 9)
• New streaming services, Gen Z and media consumption, and online gaming
(Chapter 10)
• LinkedIn, Facebook algorithms, eBay, Yahoo, and AOL (Chapter 11)
• Supply chain disruption, digital twins (Chapter 12)
SOLVING TEACHING AND LEARNING CHALLENGES
Currency Important new developments happen almost every day in e-commerce and
the Internet. We try to capture as many of these important new developments as possible in each edition. You will not find a more current book for a course offered in the
2023–2024 academic year. Many other texts are already six months to a year out of date
before they even reach the printer. This text, in contrast, reflects extensive research
through March 2023.
Strong Conceptual Foundation: Business, Technology, Society The book emphasizes
the three major driving forces that permeate all aspects of e-commerce: business development and strategy, technological innovations, and social and legal issues and impacts.
In each chapter, we explore how these forces relate to the chapter’s main topic, which
provides students with a strong and coherent conceptual framework for understanding
e-commerce.
Real-World Business Firm Focus and Cases From Amazon to Google, Microsoft,
and Apple; to Facebook, Instagram, TikTok, Twitter, and LinkedIn; to Netflix, YouTube,
and Zoom; to Uber, Instacart, and Grubhub; to Etsy, eBay, and Skyscanner; and so
many more, this book contains hundreds of real-company examples and 60 extensive
cases that place coverage in the context of actual e-commerce businesses. You’ll find
these examples in each chapter as well as in special features such as chapter-opening,
chapter-closing, and “Insight on” cases. The book takes a realistic look at the world
of e-commerce, describing what’s working and what isn’t rather than presenting a
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rose-colored or purely “academic” viewpoint. We strive to maintain a critical perspective on e-commerce and avoid industry hyperbole.
Current and Future Technology Coverage Internet and related information technologies continue to change rapidly. The most important changes for e-commerce
include dramatic price reductions in e-commerce infrastructure (making it much less
expensive to develop a sophisticated e-commerce presence), the explosive growth in the
mobile platform, and expansion in the development of social technologies, which are
the foundation of online social networks. Although we thoroughly discuss the current
Internet environment, we also devote considerable attention to describing emerging
technologies and applications such as the metaverse, Web3, the Internet of Things (IoT),
blockchain, big data, artificial intelligence, augmented and virtual reality, low earth
orbit satellite Internet systems, 5G and Wi-Fi 6, among many others.
Special Attention to the Social and Legal Aspects of E-commerce We have paid
special attention throughout the book to the social and legal context of e-commerce.
Chapter 8 is devoted to a thorough exploration of ethical dimensions of e-commerce,
including information privacy, intellectual property, governance, and protecting safety
and public welfare on the Internet.
In-depth Coverage of Marketing and Advertising The text includes two chapters on
marketing and advertising, both traditional online marketing and social, mobile, and
local marketing. Marketing concepts, including market segmentation, personalization,
clickstream analysis, bundling of digital goods, long tail marketing, and dynamic pricing, are discussed throughout the text.
In-depth Coverage of B2B E-commerce We devote an entire chapter to an examination
of B2B e-commerce. In writing this chapter, we developed a unique and easily understood
classification schema to help students understand this complex arena of e-commerce.
This chapter covers e-commerce supply chains, e-distributors, e-­procurement
companies, exchanges, and industry consortia, as well as the development of private B2B
networks and collaborative commerce.
Up-to-Date Coverage of the Research Literature This text is well grounded in the
e-commerce research literature. We have sought to include, where appropriate, references to and analysis of the latest e-commerce research findings, as well as many classic
articles, in all of our chapters. We have drawn especially on the disciplines of economics,
marketing, and information systems and technologies as well as on law journals and
broader social science research journals that cover disciplines such as sociology and
psychology. Figures and tables sourced to “authors’ estimates” reflect analysis of data
from the U.S. Department of Commerce, estimates from various research firms, historical
trends, revenues of major online retailers, consumer online buying trends, and economic
conditions.
Writing That’s Fun to Read Unlike some textbooks, we’ve been told by many students
that this book is actually fun to read and easy to understand. This is not a book written by
committee—you won’t find a dozen different people listed as authors, co-authors, and
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Pr eface
contributors on the title page. Instead, we have a consistent voice and perspective that
carries through the entire text, and we believe the book is the better for it.
OVERVIEW OF THE BOOK
The book is organized into four parts.
Part 1, “Introduction to E-commerce,” provides an introduction to the major themes
of the book. Chapter 1 defines e-commerce, distinguishes between e-commerce and
e-business, and defines the different types of e-commerce. Chapter 2 introduces and
defines the concepts of business model and revenue model, describes the major e-commerce business and revenue models for both B2C and B2B firms, and introduces the
basic business concepts, including industry structure, value chains, and firm strategy,
necessary for a thorough understanding of e-commerce firms. Chapter 2 also includes
a section on the important topics of e-commerce technology and business model
disruption.
Part 2, “Technology Infrastructure for E-commerce,” focuses on the technology
infrastructure that forms the foundation of all e-commerce. Chapter 3 traces the historical development of the Internet and thoroughly describes how the Internet, Web,
and mobile platform work. Chapter 4 focuses on the steps that managers need to follow
in order to build an e-commerce presence. This chapter also covers the process that
should be followed in building an e-commerce presence; the major decisions regarding
outsourcing site development and/or hosting; how to choose software, hardware, and
other tools that can improve website performance; and issues involved in developing
a mobile website and mobile applications. Chapter 5 focuses on e-commerce security
and payments, building on the e-commerce infrastructure discussion of the previous
chapter by describing the ways in which security can be provided over the Internet. This
chapter defines digital information security, describes the major threats to security,
and then discusses both the technology and the policy solutions available to business
managers seeking to secure their firm’s sites. This chapter concludes with a section on
e-commerce payment systems. We identify the various types of online payment systems
and discuss the development of alternative payment systems such as Apple Pay, Venmo,
Zelle, Buy Now Pay Later (BNBP) services, as well as cryptocurrencies and blockchain,
the technology underlying cryptocurrencies.
Part 3, “Business Concepts and Social Issues,” focuses directly on the business concepts and social-legal issues that surround the development of e-commerce. Chapter 6
focuses on e-commerce consumer behavior and the Internet audience and introduces
the student to the basics of online marketing and branding, including traditional online
marketing technologies and marketing strategies. Topics include the website as a marketing platform, search engine marketing and advertising, display ad marketing, e-mail
campaigns, affiliate and lead generation marketing programs, multichannel marketing,
and various customer retention strategies such as personalization (including interestbased advertising, also known as behavioral targeting) and customer service tools. The
chapter also covers other marketing strategies such as pricing and long tail marketing.
Internet marketing technologies (web transaction logs, tracking files, data mining, and
big data) and marketing automation and CRM systems are also explored. The chapter
concludes with a section on understanding the costs and benefits of various types of
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online marketing, including a section on marketing analytics software. Chapter 7 is
devoted to an in-depth analysis of social, mobile, and local marketing. Topics include
Facebook, Instagram, TikTok, Twitter, Pinterest, and other social media marketing platforms such as Snapchat and LinkedIn; the evolution of mobile marketing; and the growing use of geo-aware technologies to support proximity marketing. Chapter 8 provides
a thorough introduction to the social and legal environment of e-commerce. Here, you
will find a description of the ethical and legal dimensions of e-commerce, including a
thorough discussion of the latest developments in personal information privacy, intellectual property, Internet governance, questions surrounding Big Tech and competition,
jurisdiction, and public health and welfare issues such as pornography, gambling, and
health.
Part 4, “E-commerce in Action,” focuses on real-world e-commerce experiences in online retail and services, online content and media, social networks,
auctions, portals, and business-to-business e-commerce. These chapters take a
sector approach rather than the conceptual approach used in the earlier chapters.
E-commerce is different in each of these sectors. Chapter 9 takes a close look at the
experience of firms in the retail marketplace for both goods and services, as well
as on-demand service companies such as Uber and Airbnb. Chapter 9 also includes
an “E-commerce in Action” case that provides a detailed analysis of the business
strategies and financial operating results of Amazon, which can be used as a model
to analyze other e-commerce firms. Chapter 10 explores the world of online content and digital media and examines the enormous changes in online publishing
and entertainment industries that have occurred over the last two years, including
online newspapers and magazines, e-books, streaming home entertainment, movies, music, and online games and e-sports. Chapter 11 explores the online world of
social networks, auctions, and portals. Chapter 12 concentrates on the world of B2B
e-commerce, describing e-commerce supply chains and various types of B2B business models, including different types of B2B e-commerce marketplaces as well as
the less heralded but still very large arena of private B2B networks and the movement
toward collaborative commerce.
CHAPTER ORGANIZATION
The book’s pedagogy emphasizes student cognitive awareness and the ability to analyze,
synthesize, and evaluate e-commerce businesses. Although there is a strong data and
conceptual foundation to the book, we seek to engage student interest with lively writing
about e-commerce businesses and the transformation of business models at traditional
firms.
Each chapter contains a number of elements designed to make learning easy as
well as interesting.
Learning Objectives A list of learning objectives that highlights the key concepts in
the chapter guides student study.
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Pr eface
Chapter-Opening Cases Each chapter opens with a case that features a leading
e-commerce company or topic that relates the key objectives of the chapter to a reallife e-commerce business venture or issue. Companies featured include TikTok, Canva,
Scratch, InMobi, Pinterest, Spotify, and Alibaba, among others. Sources provide a list of
the references that enable students to delve deeper into the topic of the case.
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A01_LAUD9772_18_GE_FM.indd 26
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P re fa c e
27
“Insight on” Cases Each chapter
contains three real-world cases
illustrating the themes of technology,
business, or society. These cases take
an in-depth look at relevant topics
to help describe and analyze the full
breadth of the field of e-commerce.
The cases probe such issues as
the ability of governments to
regulate Internet content, how to
design websites for accessibility,
the challenges faced by
luxury marketers in online
marketing, and biometric
security. Companies featured
include Facebook, Rocket
482
Internet, OpenRice, Etsy,
SpaceX, OVHcloud, Klook,
7.6
AccuraCast, ASOS, Revolut,
Careem, MailOnline, and
TE-Food, among others.
Sources provide a list
of the references that
enable students to delve
deeper into the topic of
the case.
Margin Glossary Throughout the
text, key terms and their definitions appear in the text margin
where they are first introduced.
EC202
3_GE_C
Real-Company Examples Drawn
09_2p
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5/29/2023 9:56:24 AM
28
Pr eface
Careers in E-commerce At the end of every chapter, we feature a section on careers
in e-commerce that examines a job posting, based on a real-world job opening, by an
­e-commerce company for an entry-level position. Examples include job openings for an
e-commerce retail category specialist, a user experience (UX) designer, a cybersecurity
threat management team trainee, a digital marketing assistant, an e-commerce privacy
research associate, a digital audience development associate, a social marketing specialist,
and a junior supply chain analyst, among others. We provide a brief overview of the field
and the company, some details about the position, a list of the qualifications and skills that
are typically required, and some tips about how to prepare for an interview, and then show
how the concepts learned in each chapter can help students answer some possible interview
questions.
Chapter-Closing Case Studies Each chapter concludes with a robust case study based
on real-world organizations. These cases help students synthesize chapter concepts and
apply their knowledge to concrete problems and scenarios. Companies featured include
Uber, Twitter, Akamai, Skyscanner, Alipay, WeChat Pay, OpenTable, Netflix, eBay, and
Elemica, among others. Sources provide a list of references that enable students to delve
deeper into the topic of each case.
Chapter-Ending Pedagogy Each chapter
CHAPT
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contains extensive end-of-chapter materials designed to reinforce the learning objectives of the chapter:
s
• Key Concepts Keyed to the learning
STUDY
CASE
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and W
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objectives, Key Concepts present the key
points of the chapter to aid student study.
Pay:
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• Review Questions Thought-provoking
to use a
expected
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questions prompt students to demonstrate their comprehension and apply
chapter concepts to management problem solving.
• Projects At the end of each chapter are a
number of projects that encourage students to apply chapter concepts and to
use higher-level evaluation skills. Many
projects make use of the Internet and
require students to present their findings
in an oral presentation or a written report.
For instance, students are asked to evaluate publicly available information about
a company’s financials at the SEC website,
assess payment system options for companies that function across international
to
my Stock Pho
© Xinhua/Ala
3 5:45:59
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29
boundaries, or search for the top 10 cookies on their own computer and the sites the
cookies are from.
• References At the end of each chapter, a list of references enables students to find
more information about the content and topics discussed in the chapter.
• Videos The Pearson eTextbook contains two videos per chapter that are related to
key concepts or topics discussed in the chapter. There are 24 videos in total, all new
to this edition:
Chapter 1
Video Case 1.1: Shopify and the Future of E-commerce
Video Case 1.2: YouTube and the Creator Economy
Chapter 2
Video Case 2.1: NFT Startup Magic Eden
Video Case 2.2: Venture Capital Firm Neo
Chapter 3
Video Case 3.1: Meter’s Internet Infrastructure Vision
Video Case 3.2: Informatica and the Evolution of Cloud Technology
Chapter 4
Video Case 4.1: Bolt: One-Click Checkout for Small- and Medium-Sized Businesses
Video Case 4.2: Figma: A Collaborative Web Application for UI Design
Chapter 5
Video Case 5.1: Crowdstrike and Cybersecurity
Video Case 5.2: Klarna and Buy Now Pay Later (BNPL)
Chapter 6
Video Case 6.1: Google and the Digital Ad Market
Video Case 6.2: Mutiny Uses AI and No-Code to Improve AdTech
Chapter 7
Video Case 7.1: Snap and Augmented Reality Marketing
Video Case 7.2: AppLovin’s Mobile Marketing Platform
Chapter 8
Video Case 8.1: Is TikTok a Surveillance Tool?
Video Case 8.2: NFT and Trademarks: Hermès Sues Over Birkin Bag NFTs
Chapter 9
Video Case 9.1: DoorDash Partners with BJ’s Wholesale
Video Case 9.2: SoFi and Fintech
Chapter 10
Video Case 10.1: Substack: An Alternative News Delivery Platform
Video Case 10.2: Roblox and Online Gaming
Chapter 11
Video Case 11.1: Nextdoor and Local Social Networks
Video Case 11.2: Zigazoo: A Social Network for Kids
Chapter 12
Video Case 12.1: Apple and Supply Chain Disruption
Video Case 12.2: Ramp Helps Businesses with Procurement Processes
INSTRUCTOR RESOURCES
At www.pearson.com/en-gb.html, educators can easily register to gain access to a variety of instructor resources that are available with this text in downloadable format. If
A01_LAUD9772_18_GE_FM.indd 29
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30
Pr eface
assistance is needed, our dedicated technical support team is ready to help with the
media supplements that accompany this text. Visit support.pearson.com/getsupport
for answers to frequently asked questions and toll-free user support phone numbers.
The following supplements are available with this text:
• Instructor’s Manual written by the authors. Provides chapter-by-chapter teaching
outlines, teaching suggestions and key points, and answers to all questions and projects included in the textbook. Also includes further information about the videos
included with the eTextbook as well as questions that can be used as an assignment
or for class discussion.
• Test Bank created by the authors. Includes a variety of multiple-choice, true/false,
and essay questions. Includes questions on chapter content but also includes questions that require higher-level cognitive skills, such as analysis, synthesis, evaluation,
and written communication skills.
• TestGen Computerized Test Bank allows instructors to customize, save, and generate classroom tests; edit, add, or delete questions from the Test Item Files; analyze
test results; and organize a database of tests and student results.
• PowerPoints created by the authors. Summarize key concepts and figures in an easyto-present format. PowerPoints meet accessibility standards for students with disabilities. Features include keyboard and screen reader access, alternative text for images,
and a high-color contrast between background and foreground colors.
• Image Library
ABOUT THE AUTHORS
Kenneth C. Laudon has been a Professor of Information Systems at New York University’s Stern School of Business. He holds a B.A. in Economics from Stanford and a Ph.D.
from Columbia University. He has authored 12 books dealing with e-commerce, information systems, organizations, and society. Professor Laudon has also written more
than 40 articles concerned with the social, organizational, and management impacts
of information systems, privacy, ethics, and technology. At NYU’s Stern School of Business, Professor Laudon has taught courses on Managing the Digital Firm, Information
Technology and Corporate Strategy, Professional Responsibility (Ethics), and Electronic
Commerce and Digital Markets.
Carol Guercio Traver is a graduate of Yale Law School and Vassar College. She has
had many years of experience representing major corporations, as well as small and
medium-sized businesses, as an attorney with a leading international law firm with specific expertise in technology law, Internet law, privacy law, intellectual property law, and
general corporate law. Carol is a co-author of Essentials of MIS, 15th Edition, as well as
several other texts on information technology, and has been the lead project manager/
editor on a number of technology-related projects. Carol is the co-founder and president
of Azimuth Interactive, Inc., one of the first edtech firms and a provider of digital media
and publisher services for the education industry.
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ACKNOWLEDGMENTS
Pearson Education has sought the advice of many excellent reviewers, all of whom have
strongly influenced the organization and substance of this book. The following individuals provided extremely useful evaluations of this and previous editions of the text:
Deniz Aksen, Koç University (Istanbul)
Carrie Andersen, Madison Area Technical
College
Subhajyoti Bandyopadhyay, University of
Florida
Christine Barnes, Lakeland Community
College
Reneta Barneva, SUNY Fredonia
Rathin Basu, Ferrum College
Dr. Shirley A. Becker, Northern Arizona
University
Prasad Bingi, Indiana-Purdue University, Fort
Wayne
Joanna Broder, Pima Community College
Lisa Bryan, Southeastern Community College
James Buchan, College of the Ozarks
Ashley Bush, Florida State University
Cliff Butler, North Seattle Community
College
Carl Case, St. Bonaventure University
Teuta Cata, Northern Kentucky University
Adnan Chawdhry, California University of
Pennsylvania
Mark Choman, Luzerne City Community
College
Andrew Ciganek, Jacksonville State
University
Daniel Connolly, University of Denver
Tom Critzer, Miami University
Dr. Robin R. Davis, Claflin University
Dursan Delen, Oklahoma State University
Abhijit Deshmukh, University of
Massachusetts
Brian L. Dos Santos, University of Louisville
Robert Drevs, University of Notre Dame
Akram El-Tannir, Hariri Canadian University,
Lebanon
Kimberly Furumo, University of Hawaii at
Hilo
John H. Gerdes, University of California,
Riverside
Gurram Gopal, Illinois Institute of
Technology
Philip Gordon, University of California at
Berkeley
Allan Greenberg, Brooklyn College
Bin Gu, University of Texas at Austin
A01_LAUD9772_18_GE_FM.indd 31
Norman Hahn, Thomas Nelson Community
College
Peter Haried, University of Wisconsin—La
Crosse
Sherri Harms, University of Nebraska at
Kearney
Sharon Heckel, St. Charles Community
College
David Hite, Virginia Intermont College
Gus Jabbour, George Mason University
Thaddeus Janicki, University of Mount Olive
Kevin Jetton, Texas State University, San
Marcos
Jim Keogh, Saint Peter’s University
Ellen Kraft, Georgian Court University
Krish Krishnan, Indiana University of
Pennsylvania
Gilliean Lee, Lander University
Zoonky Lee, University of Nebraska, Lincoln
Andre Lemaylleux, Boston University,
Brussels
Haim Levkowitz, University of Massachusetts,
Lowell
Yair Levy, Nova Southeastern University
Richard Lucic, Duke University
Brenda Maynard, University of Pikeville
Vincent McCord, Foothill College
John Mendonca, Purdue University
John Miko, Saint Francis University
Dr. Abdulrahman Mirza, DePaul University
Natalie Nazarenko, SUNY Fredonia
Barbara Ozog, Benedictine University
Kent Palmer, MacMurray College
Karen Palumbo, University of St. Francis
James Pauer, Lorain County Community
College
Wayne Pauli, Dakota State University
Sam Perez, Mesa Community College
Jamie Pinchot, Thiel College
Selwyn Piramuthu, University of
Florida
Kai Pommerenke, University of California at
Santa Cruz
Barry Quinn, University of Ulster, Northern
Ireland
Mahesh (Michael) Raisinghani, TWU School
of Management, Executive MBA Program
5/29/2023 9:56:25 AM
32
Pr eface
Michelle Ramim, Nova Southeastern
University
Jay Rhee, San Jose State University
Jorge Romero, Towson University
John Sagi, Anne Arundel Community College
Carl Saxby, University of Southern Indiana
Patricia Sendall, Merrimack College
Dr. Carlos Serrao, ISCTE/DCTI, Portugal
Neerja Sethi, Nanyang Business School,
Singapore
Amber Settle, DePaul CTI
Vivek Shah, Texas State University—San
Marcos
Wei Shi, Santa Clara University
Seung Jae Shin, Mississippi State University
Sumit Sircar, University of Texas at Arlington
Toni Somers, Wayne State University Mike
Ilitch School of Business
Hongjun Song, University of Memphis
Pamela Specht, University of Nebraska at
Omaha
Esther Swilley, Kansas State University
Tony Townsend, Iowa State University
Bill Troy, University of New Hampshire
Susan VandeVen, Southern Polytechnic State
University
Hiep Van Dong, Madison Area Technical
College
Michael Van Hilst, Nova Southeastern
University
Mary Vitrano, Palm Beach Community
College
Andrea Wachter, Point Park University
Nitin Walia, Ashland University
Catherine Wallace, Massey University,
New Zealand
Biao Wang, Boston University
Haibo Wang, Texas A&M International
University
Harry Washington, Lincoln University
Irene Wheeler, CVCC
Rolf Wigand, University of Arkansas at Little
Rock
Erin Wilkinson, Johnson & Wales University
Alice Wilson, Cedar Crest College
Dezhi Wu, Southern Utah University
Gene Yelle, SUNY Institute of Technology
Kaimei Zheng, Isenberg School
of Management, University of
Massachusetts, Amherst
David Zolzer, Northwestern State University
Global Edition Acknowledgments
Pearson would like to thank the following people for their work on the Global Edition:
Contributors
Saadat Alhashmi, University of Sharjah
Bernard Bouwman
Joyce Chan, City University of Hong Kong
June Clarke, Sheffield Hallam University
Fiona Ellis-Chadwick, Loughborough
University
Graham Jones, University of Buckingham
PK Senyo, University of Southampton
Reviewers
Bernd Schenk, University of Liechtenstein
PK Senyo, University of Southampton
Tuan Yu, University of Kent
In addition, we would like to thank all those who have worked so hard to make sure
this book is the very best it can be, including Steven Jackson, Daniel J.N. Luiz, Kajori
Chattopadhyay, Amrita Roy, and Nitin Shankar at Pearson Education Limited. Very
special thanks also go to Megan Miller and Will Anderson at Azimuth Interactive, Inc.,
for all their hard work on the production of, and supplements for, this and past editions
of the book.
Finally, last but not least, we would like to thank our family and friends, without
whose support this book would not have been possible.
Kenneth C. Laudon
Carol Guercio Traver
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1
PART
■
CHAPTER 1
Introduction to E-commerce
■
CHAPTER 2
E-commerce Business Strategies
Introduction
to
M01_LAUD9772_18_GE_C01.indd 33
E-commerce
5/26/2023 10:22:06 AM
C H A P T E R
1
Introduction to
E-commerce
LEARNING OBJECTIVES
After reading this chapter, you will be able to:
NEW VIDEOS
The following videos for this
chapter are available in the
Pearson eTextbook:
1.1 Shopify and the Future
of E-commerce
1.2 YouTube and the
Creator Economy
M01_LAUD9772_18_GE_C01.indd 34
1.1 Understand why it is important to study e-commerce.
1.2 Define e-commerce, understand how e-commerce differs from e-business,
identify the primary technological building blocks underlying e-commerce,
and recognize major current themes in e-commerce.
1.3 Identify and describe the unique features of e-commerce technology and
discuss their business significance.
1.4 Describe the major types of e-commerce.
1.5 Understand the evolution of e-commerce from its early years to today.
1.6 Describe the major themes underlying the study of e-commerce.
5/26/2023 10:22:07 AM
­T i k T o k :
Creators and the Creator Economy
D
uring its first decade or so, the Web was a
very different place than it is today. It was
much more static and used primarily to
gather information. That all started to change around
the mid-to-late 2000s, with the development of Web 2.0,
a set of applications and technologies that enabled the
creation of user-generated content. Coupled with the
development of the smartphone and smartphone apps,
this laid the groundwork for social networks and the sharing of all sorts of content that allowed people to express
themselves online. People who develop and distribute
such content are now typically referred to as “creators,” a label originated by YouTube in 2011
for a growing class of users that were attracting large audiences to their channels. From there,
the label spread. Influencers, who use social media to grow a following and exert influence
over the purchasing decisions of those followers, typically for some form of compensation or
monetization, can be considered a subset of creators, although some use the terms synonymously. A recent report estimates the number of creators at 200 million worldwide, and an
entire supporting ecosystem, referred to as the creator economy, has spread up around them.
TikTok is one of the preeminent content platforms in the creator economy.
TikTok, the third-most-popular social network in the United States behind Facebook
and Instagram, is also one of the fastest growing, with 95 million U.S. users and more than
750 million worldwide. (TikTok says it has more than 1 billion users.) Launched in 2017,
TikTok is a short-form video-sharing app owned by Chinese company Bytedance. TikTok
videos were initially limited to 15 seconds but can now be up to 10 minutes long. Many
TikTok videos feature music, with users lip-syncing, singing, and dancing; others focus on
comedy and creativity. Users can “remix” posts from other users and put their own spin on
them, using the app’s array of editing tools, filters, and other effects. Algorithms analyze
the viewing habits of each user, and its “For You” page provides content that is customized based on the user’s activity. The algorithm makes it possible for TikTokers to amass
millions of followers within a matter of weeks, creating stars faster than any other platform.
TikTok skews much younger than other social networks and is the most popular network in the United States among children, teens, and young adults. Almost 70 percent of
its U.S. users are under the age of 35. In 2022, TikTok became the leading social network
platform among U.S. adult users (ages 18 and over) in terms of time spent per day (more
than 45 minutes), surpassing YouTube. A survey of 7,000 TikTok users revealed that almost
70% follow specific creators. Gen Z is leading the charge, with 50% saying that they follow
specific TikTok creators.
©Daniel Constante/Shutterstock
35
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36
C H A P T E R 1 I n t r o d u c t i o n t o E - c o m m e r c e
SOURCES: “What Is the ‘Creator
Economy,’” by Werner Geyser,
Influencermarketinghub.com,
June 10, 2022; “In a First, TikTok
Will Beat YouTube in User Time
Spent,” by Sara Lebow, Insider
Intelligence/eMarketer, May 26,
2022; “The State of the Creator
Economy: Definition, Growth, &
Market Size,” by Werner Geyser,
Influencermarketinghub.com, May
20, 2022; “TikTok Is Giving Top
Creators a Cut of Ad Revenues,”
by Daniel Konstantinovic, Insider
Intelligence/eMarketer, May 5,
2022; “2022 Creator Report,”
Linktr.ee, April 20, 2022; “200
Million People Are Earning
Money from Content Creation,”
by Sam Gutelle, Tubefilter.com,
April 20, 2022; “TikTok Faces a
Wave of Creator Frustration and
Content Moderation Issues,” by
Daniel Konstantinovic, Insider
Intelligence/eMarketer, March 25,
2022; “With a Voice Like Ariana
Grande and a Message of SelfLove, Chicago TikTok Sensation
M01_LAUD9772_18_GE_C01.indd 36
There are a number of ways that creators can earn money. They can be supported
by advertising, for instance, receiving payment directly from a brand for creating or sharing sponsored content or for featuring a product placement, or they may be paid a share
of the advertising revenue earned by the platform on which their content appears. They
can also sell digital content, either on a per-piece basis or on a subscription basis, as well
as physical products. Non-fungible tokens (NFTs), which can be used to create unique
digital assets such as collectibles, artwork, badges, and stickers, are a newer form of digital
content that creators are beginning to use as rewards for their fans. Creators can also get
“tips” from their fans (often characterized as “buying the creator a coffee”), money from a
fan club or a donation platform, or for other types of fan engagement. Most creators use a
variety of these income-generating methods rather than relying on just one.
Of the estimated 200 million creators, a much smaller subset characterizes themselves as “professionals.” For these people, being a creator has evolved into a business.
The leading creators on TikTok can earn millions of dollars. For example, Charli D’Amelio,
who is probably the most well-known, with around 145 million followers, earned $17.5 million in 2021 according to Forbes, putting her at the top of the list of professional creators.
Trained as a competitive dancer, Charli started posting dance and lip-synch videos on
TikTok in May 2019 when she was just 15, and she quickly amassed a large following. Her
older sister, Dixie D’Amelio, a singer with 57 million followers, was second on the list, with
$10 million in earnings. The two sisters have capitalized on their TikTok fame by branching
out into a clothing line as well as a Hulu docuseries, among other initiatives. In the third
spot is Addison Rae, also a competitive dancer, with around 88 million followers and about
$8.5 million in earnings. As with the D’Amelio sisters, Rae has leveraged her TikTok fame,
releasing a music single in 2021 as well as inking a deal with Netflix.
But not everything is rosy in the creator economy. Although superstar creators can
make an incredible amount of money, it is extremely difficult for the average creator to
earn enough to replace a full-time income, and most creators make only a very limited
amount of income, if any. Almost half of full-time creators make less than $1,000 and only
12% make more than $50,000 underscoring how difficult it can be to be a creator. The
majority of creators do not have any sponsorship or branding deals, and even among those
who do, most make less than $100 per paid post.
Being a content creator is also much more time consuming and stressful than many
might assume. Jack Innanen, a 22-year-old TikTok star from Toronto, Canada, has 2.8 million followers. Innanen spends hours shooting video, editing, storyboarding, engaging with
fans, and trying to obtain brand deals. Chrissy Chlapecka, a 21-year-old former Starbucks
barista, is another example. Chlapecka started posting videos on TikTok as a way to deal
with boredom during the Covid-19 pandemic and has since amassed 4.8 million followers.
She spends at least an hour a day selecting her clothing and having her hair and makeup
professionally done, in preparation for filming at least one video per day. Chlapecka
notes that most people underestimate the amount of work that creators have to do and
that it takes skill and perseverance to come up with fresh ideas day after day, establish a
relationship with online followers, and try to obtain sponsorships. The grind wears many
content creators down, leading to potential mental and physical health problems. TikTok’s
algorithm adds to the stress, as it is constantly serving up new content, making it hard for
5/26/2023 10:22:07 AM
­T i k T o k : C r e a t o r s a n d t h e C r e a t o r E c o n o m y
creators to maintain their viewership. Creators note that this volatility can be rattling: As
quickly as their views rise, they can also fall, with fans moving on to the next new thing. And
there is also an even darker side to being a content creator. Creators report being the subject of bullying, harassment, and threats. Internet trolls, especially, can be brutally vicious.
TikTok has established a $200 million Creator Fund, which it says is aimed at supporting creators seeking to make their livelihood through innovative content. To be eligible
for the Creator Fund, creators must be at least 18 years old, must have at least 10,000
followers, and must have accumulated at least 10,000 video views in the previous 30 days
before they apply. Some creators feel that this shuts out beginning and niche creators,
who need the most support. In addition, the amount paid to creators by the Fund has been
less than many expected when it was first announced, with an opaque payment structure.
Unlike YouTube, which gives creators a cut of the ad revenues generated on the platform,
TikTok did not. However, in May 2022, TikTok announced that it would expand its creator
monetization options via a new program called TikTok Pulse, which will run ads alongside
the top 4% of all videos and give creators a 50% cut of those ad revenues. However, many
feel that this does not go far enough and once again shuts out smaller and niche creators.
These critics point out that TikTok’s ad revenues, which reached almost $10 billion worldwide in 2022 (surpassing the combined ad revenues of Twitter and Snapchat), have been
growing rapidly and that it would be more equitable if TikTok shared that revenue more
broadly with the people responsible for attracting users to the platform.
M01_LAUD9772_18_GE_C01.indd 37
37
Aims to Be a Virtual Big Sister,” by
Ashley Capoot, Chicago Tribune,
February 2, 2022; “TikTok,
Instagram Influencers Criticize
Creator Payment Programs,” by
Rachel Wolff, Insider Intelligence/
eMarketer, January 29, 2022;
“Making Money Online, the Hard
Way,” by Shira Ovide, New York
Times, January 27, 2022; “Payday
for TikTok’s Biggest Stars,” by
Katharina Buchholz, Statista.com,
January 11, 2022; “Top-Earning
­TikTok-ers 2022: Charli and Dixie
D’Amelio and Addison Rae Expand
Fame—and Paydays,” by Abram
Brown and Abigail Freeman,
Forbes.com, January 7, 2022;
“TikTok Shares New Insights into
Usage Trends, and Its Impacts on
Audience Behaviors,” by Andrew
Hutchinson, Socialmediatoday.com,
August 30, 2021; “Young Creators
Are Burning Out and Breaking
Down,” by Taylor Lorenz, New York
Times, June 8, 2021; “TikTok Is
Paying Creators. Not All of Them
Are Happy,” by Louise Matsakis,
Wired.com, September 10, 2020.
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C H A P T E R 1 I n t r o d u c t i o n t o E - c o m m e r c e
I
n 1994, e-commerce as we now know it did not exist. In 2022, about 2.8 billion consumers worldwide spent about $5.4 trillion, and businesses more than five times
that amount, purchasing products and services via a desktop/laptop computer,
mobile device, or smart speaker. There have been significant changes in the e-commerce
environment during this time period.
The early years of e-commerce, during the late 1990s, were a period of business
vision, inspiration, and experimentation. It soon became apparent, however, that establishing a successful business model based on those visions would not be easy. There followed a period of retrenchment and reevaluation, which led to the stock market crash
of 2000–2001, with the value of e-commerce, telecommunications, and other technology
stocks plummeting. After the bubble burst, many people were quick to write off e-commerce. But they were wrong. The surviving firms refined and honed their business models, and the technology became more powerful and less expensive, ultimately leading to
business firms that actually produced profits. Between 2002 and 2007, retail e-commerce
grew at more than 25% per year.
Then, in 2007, Apple introduced the first iPhone, a transformative event that marked
the beginning of yet another new era in e-commerce. Today, mobile devices, such as
smartphones and tablet computers, and mobile apps have supplanted the traditional
desktop/laptop platform and web browser as the most common method for consumers to access the Internet. Facilitated by technologies such as cellular networks, Wi-Fi,
and cloud computing, mobile devices have become advertising, shopping, reading, and
media-viewing machines, and in the process they have transformed consumer behavior yet again. During the same time period, social networks such as Facebook, Twitter,
YouTube, Pinterest, Instagram, Snapchat, and TikTok, which enable users to distribute
their own content (such as videos, music, photos, personal information, commentary,
blogs, and more), rocketed to prominence. As discussed in the opening case, many such
users, now referred to as creators and/or influencers, have taken additional steps to
monetize their content. The mobile platform infrastructure also gave birth to another
e-commerce innovation: on-demand services that are local and personal. From hailing a
taxi to finding travel accommodations, to food delivery, on-demand services have created
a marketspace that enables owners of resources such as cars, spare bedrooms, and spare
time to find a market of eager consumers looking for such services. Today, mobile, social,
and local are the driving forces in e-commerce. But e-commerce is always evolving.
On the horizon are further changes, driven by technologies such as artificial intelligence,
virtual and augmented reality, and blockchain, among others.
While the evolution of e-commerce technology and business has been a powerful
and mostly positive force in our society, it is becoming increasingly apparent that it also
has had, and continues to have, a serious societal impact, from promoting the invasion
of personal privacy to aiding the dissemination of false information, enabling widespread security threats, and facilitating the growth of business titans, such as Amazon,
Google, and Facebook (which has rebranded as Meta), that dominate their fields, leading
to a decimation of effective competition. As a result, the Internet and e-commerce are
entering a period of closer regulatory oversight that may have a significant impact on
the conduct of e-commerce in the future.
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Introduction to E-commerce
1.1
39
HE FIRST FIVE MINUTES: WHY YOU SHOULD STUDY
T
E-COMMERCE
The rapid growth and change that have occurred in the first quarter-century or so since
e-commerce began in 1995 represents just the beginning—what could be called the first
five minutes of the e-commerce revolution. Technology continues to evolve at exponential rates. This underlying evolution presents entrepreneurs with opportunities to
create new business models and businesses in traditional industries and in the process
disrupt—and in some instances destroy—existing business models and firms. The rapid
growth of e-commerce is also providing extraordinary growth in career and employment opportunities, which we describe throughout the book.
Improvements in underlying information technologies and continuing entrepreneurial innovation in business and marketing promise as much change in the next
decade as was seen in the previous two and a half decades. The twenty-first century will
be an age of a digitally enabled social and commercial life, the outlines of which we can
still only barely perceive at this time. It appears likely that e-commerce will eventually
impact nearly all commerce and that most commerce will be e-commerce by the year
2050, if not sooner.
Business fortunes are made—and lost—in periods of extraordinary change such as
this. The next five to 10 years hold exciting opportunities—as well as significant risks—
for new and traditional businesses to exploit digital technology for market advantage,
particularly in the wake of the Covid-19 pandemic, which continues to have a broad and
lasting impact on many aspects of life, ranging from how businesses operate, to how
consumers act, and to how social and cultural life evolves.
It is important to study e-commerce in order to be able to perceive and understand
the opportunities and risks that lie ahead. By the time you finish this book, you will be
able to identify the technological, business, and social forces that have shaped—and
continue to shape—the growth of e-commerce and be ready to participate in, and ultimately guide, discussions of e-commerce in the firms where you work. More specifically,
you will be able to analyze an existing or new idea for an e-commerce business, identify
the most effective business model to use, and understand the technological underpinnings of an e-commerce presence, including the security and ethical issues raised as
well as how to optimally market and advertise the business, using both traditional digital
marketing tools and social, mobile, and local marketing.
1.2
INTRODUCTION TO E-COMMERCE
In this section, we’ll first define e-commerce and then discuss the difference between
e-commerce and e-business. We will also introduce you to the major technological building blocks underlying e-commerce: the Internet, the Web, and the mobile platform. The
section concludes with a look at some major current trends in e-commerce.
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40
C H A P T E R 1 I n t r o d u c t i o n t o E - c o m m e r c e
WHAT IS E-COMMERCE?
e-commerce
the use of the Internet,
the Web, and mobile
apps and browsers
running on mobile devices
to transact business.
More formally, digitally
enabled commercial
transactions between
and among organizations
and individuals
E-commerce involves the use of the Internet, the World Wide Web (Web), and mobile
apps and browsers running on mobile devices to transact business. Although the terms
Internet and Web are often used interchangeably, they are actually two very different
things. The Internet is a worldwide network of computer networks, and the Web is one of
the Internet’s most popular services, providing access to trillions of web pages. An app
(shorthand for “application”) is a software application. The term is typically used when
referring to mobile applications, although it is also sometimes used to refer to desktop
computer applications as well. A mobile browser is a version of web browser software
accessed via a mobile device. (We describe the Internet, Web, and mobile platform more
fully later in this chapter and in Chapters 3 and 4.) More formally, e-commerce can be
defined as digitally enabled commercial transactions between and among organizations
and individuals. Each of these components of our working definition of e-commerce
is important. Digitally enabled transactions include all transactions mediated by digital
technology. For the most part, this means transactions that occur over the Internet, the
Web, and/or via mobile devices. Commercial transactions involve the exchange of value
(e.g., money) across organizational or individual boundaries in return for products and
services. Exchange of value is important for understanding the limits of e-commerce.
Without an exchange of value, no commerce occurs. The professional literature
sometimes refers to e-commerce as digital commerce. For our purposes, we consider
­e-commerce and digital commerce to be synonymous.
THE DIFFERENCE BETWEEN E-COMMERCE AND E-BUSINESS
e-business
the digital enabling of
transactions and processes
within a firm, involving
information systems under
the control of the firm
M01_LAUD9772_18_GE_C01.indd 40
There is a debate about the meaning and limitations of both e-commerce and
e-business. Some argue that e-commerce encompasses the entire world of digitally
based organizational activities that support a firm’s market exchanges—including
a firm’s entire information system infrastructure. Others argue, on the other hand,
that e-business encompasses the entire world of internal and external digitally based
activities, including e-commerce. We think it is important to make a working distinction
between e-commerce and e-business because we believe they refer to different phenomena. E-commerce is not “anything digital” that a firm does. For purposes of this text, we
will use the term e-business to refer primarily to the digital enabling of transactions
and processes within a firm, involving information systems under the control of the
firm. For the most part, in our view, e-business does not include commercial transactions involving an exchange of value across organizational boundaries. For example, a
company’s online inventory control mechanisms are a component of e-business, but
such internal processes do not directly generate revenue for the firm from outside businesses or consumers, whereas e-commerce, by definition, does. It is true, however, that
a firm’s e-business infrastructure provides support for online e-commerce exchanges:
The same infrastructure and skill sets are involved in both e-business and e-commerce. E-commerce and e-business systems blur together at the business firm boundary, at the point where internal business systems link up with suppliers or customers
(see Figure 1.1). E-business applications turn into e-commerce precisely when an
exchange of value occurs. We will examine this intersection further in Chapter 12.
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Introduction to E-commerce
FIGURE 1.1
SUPPLIERS
41
THE DIFFERENCE BETWEEN E-COMMERCE AND
E-BUSINESS
E-business
Systems
E-commerce
Systems
The Internet
Mobile
The Internet
Mobile
Technology
Infrastructure
THE FIRM
CUSTOMERS
E­ -commerce primarily involves transactions that cross firm boundaries. E-business primarily involves the
application of digital technologies to business processes within the firm.
TECHNOLOGICAL BUILDING BLOCKS UNDERLYING E-COMMERCE: THE
INTERNET, THE WEB, AND THE MOBILE PLATFORM
The technology juggernauts behind e-commerce are the Internet, the Web, and the
mobile platform. We describe the Internet, the Web, and the mobile platform in
some detail in Chapter 3. The Internet is a worldwide network of computer networks
built on common standards. Created in the late 1960s to connect a small number of
mainframe computers and their users, the Internet has since grown into the world’s
largest network. It is impossible to say with certainty exactly how many computers and other mobile devices (such as smartphones and tablets) as well as other
Internet-connected consumer devices (such as smartwatches, connected TVs, and
smart speakers like Amazon’s Echo) are connected to the Internet worldwide at any
one time. However, some experts estimate that as of 2022, there were about 15 billion
connected devices (not including smartphones, tablets, or desktop/laptop computers) already installed (Watters, 2022). The Internet links businesses, educational
institutions, government agencies, and individuals together and provides users with
services such as e-mail, document transfer, shopping, research, instant messaging,
music, videos, and news.
The Internet has shown extraordinary growth patterns when compared to other
electronic technologies of the past. It took radio 38 years to achieve a 30% share of U.S.
households. It took television 17 years to achieve a 30% share. In contrast, it took only
10 years for the Internet/Web to achieve a 53% share of U.S. households once a graphical
user interface was invented for the Web in 1993. In the United States, more than 300 million people of all ages (almost 90% of the U.S. population) use the Internet at least once a
month (Insider Intelligence/eMarketer, 2022a).
M01_LAUD9772_18_GE_C01.indd 41
Internet
worldwide network of
computer networks built
on common standards
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42
C H A P T E R 1 I n t r o d u c t i o n t o E - c o m m e r c e
­ orld Wide Web
W
(the Web)
an information system
running on the Internet
infrastructure and that
provides access to
trillions of web pages
The World Wide Web (the Web) is an information system that runs on the Internet
infrastructure. The Web was the original “killer app” that made the Internet commercially interesting and extraordinarily popular. The Web was developed in the early 1990s
and hence is of much more recent vintage than the Internet. We describe the Web in
some detail in Chapter 3. The Web provides access to trillions of web pages indexed by
Google and other search engines. These pages are created in a language called HTML
(HyperText Markup Language). HTML pages can contain text, graphics, animations, and
other objects. Prior to the Web, the Internet was primarily used for text communications,
file transfers, and remote computing. The Web introduced far more powerful capabilities of direct relevance to commerce. In essence, the Web added color, voice, and video to
the Internet, creating a communications infrastructure and information storage system
that rivals television, radio, magazines, and libraries.
There is no precise measurement of the number of web pages in existence, in part
because today’s search engines index only a portion of the known universe of web pages.
By 2013, Google had indexed 30 trillion individual web pages, and by 2016, the last year
that Google released data on the size of its index, that number had jumped to more than
130 trillion, although many of these pages did not necessarily contain unique content.
Since then, it is likely that the number has continued to skyrocket (Wodinsky, 2021).
In addition to this “surface” or “visible” Web, there is the so-called deep Web, which is
reportedly 500 to 1,000 times greater than the surface Web. The deep Web contains databases and other content that is not routinely identified by search engines such as Google
(see Figure 1.2). Although the total size of the Web is not known, what is indisputable is
that web content has grown exponentially over the years.
FIGURE 1.2
THE DEEP WEB
SURFACE/VISIBLE WEB
130 trillion web pages
identified by Google
DEEP WEB
Subscription content,
databases (government,
corporate, medical, legal,
academic), encrypted content
The surface Web is only a small part of online content.
M01_LAUD9772_18_GE_C01.indd 42
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Introduction to E-commerce
FIGURE 1.3
43
INTERNET ACCESS IN THE UNITED STATES, 2022
Mobile-only
Internet users
59 million
20%
Dual desktop/laptop
and mobile
Internet users
221 million
73%
Desktop/laptop-only
Internet users
21 million
7%
More than 73% of Internet users in the United States (about 220 million people) use both desktop/laptop
computers and mobile devices to access the Internet. About 20% (about 60 million people) go online only
by using a mobile device. Just 7% (about 20 million people) use only a desktop or laptop computer to
access the Internet.
SOURCES: Based on data from Insider Intelligence/eMarketer, 2022a, 2022c, 2022d.
The mobile platform has become a significant part of Internet infrastructure. The
mobile platform provides the ability to access the Internet from a variety of mobile
devices such as smartphones, tablets, and ultra-lightweight laptop computers such as
Google’s Chromebook via wireless networks or cellphone service. Figure 1.3 illustrates
the variety of devices that people in the United States use to access the Internet. Mobile
devices play an increasingly prominent role in Internet access. In 2022, about 93% of
U.S. Internet users used a mobile device to access the Internet at least some of the time
(Insider Intelligence/eMarketer, 2022b).
The mobile platform is not just a hardware phenomenon. The introduction of
the Apple iPhone in 2007, followed by the Apple iPad in 2010, has also ushered in a
­sea-change in the way people interact with the Internet from a software perspective.
In the early years of e-commerce, the Web and web browsers were the only game in
town. Today, in contrast, more people in the United States access the Internet via a
mobile app on a mobile device than by using a desktop/laptop computer and web
browser. Insight on Technology: Will Apps Make the Web Irrelevant? examines in more
depth the challenge that apps and the mobile platform pose to the Web’s dominance of
the Internet ecosphere.
M01_LAUD9772_18_GE_C01.indd 43
mobile platform
provides the ability
to access the Internet
from a variety of
mobile devices such as
smartphones, tablets,
and ultra-lightweight
laptop computers
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C H A P T E R 1 I n t r o d u c t i o n t o E - c o m m e r c e
INSIGHT ON TECHNOLOGY
WILL APPS MAKE THE WEB IRRELEVANT?
Nowadays, it’s hard to recall a
time before the Web. How did we
get along without the ability to go
online to search for an item, learn
about a topic, play a game, or watch
a video? Although the Web has come a
remarkably long way from its humble beginnings, some experts think that the Web’s best
days are behind it. Opinions vary about the
future role of the Web in a world where apps
have become a dominant force in the Internet
ecosystem. In 10 years, will the Web be a forgotten relic? Or will the Web and apps coexist
peacefully as vital cogs in the Internet ecosystem? Will the app craze eventually die down
as users gravitate back toward the Web as the
primary way to perform online tasks?
Apps have grown into a disruptive force
ever since Apple launched its App Store in
2008. The list of industries that apps have
disrupted is wide-ranging: communications,
media and entertainment, logistics, education, health care, dating, travel, and financial
services. Despite not even existing prior to
2008, in 2021, sales of apps accounted for
more than $170 billion in revenues worldwide,
and the app economy is continuing to show
robust growth.
Although the usage of apps tends to be
highly concentrated, consumers are trying new
apps all the time and typically use more than 45
different apps per month, leaving room for new
app developers to innovate and create successful apps. Users are downloading an increasing
number of apps, with the number of downloads
reaching 230 billion worldwide in 2021, according to research firm Data.ai.
In 2014, for the first time ever, people in
the United States used mobile devices more
M01_LAUD9772_18_GE_C01.indd 44
than desktop computers to access the Internet.
The time U.S. adults are spending using mobile
devices has exploded and now accounts for four
and a half hours a day. Of the time spent using
mobile devices, people spend almost four times
the amount of time using apps (three hours and
22 minutes) compared to the time spent using
mobile browsers (about 52 minutes).
Consumers have gravitated to apps for
several reasons. First, smartphones and tablet
computers enable users to use apps anywhere,
instead of being tethered to a desktop or having
to lug a heavy laptop around. Of course, smartphones and tablets enable users to use the
Web too, but apps are often more convenient
and boast more streamlined, elegant interfaces
than mobile web browsers.
Apps are not only more appealing to
consumers in certain ways but are also much
more appealing to content creators and media
companies. Apps are easier to control and
monetize than websites, not to mention they
can’t be crawled by Google or other services.
On the Web, the average price of ads per thousand impressions has fallen, and many content
providers are still mostly struggling to turn the
Internet into a profitable content delivery platform. Much of software and media companies’
focus has shifted to developing mobile apps for
this reason.
In the future, some analysts believe that the
Internet will be used to transport data but that
individual app interfaces will replace the web
browser as the most common way to access
and display content. Even the creator of the
Web, Tim Berners-Lee, feels that the Web as we
know it is being threatened.
But there is no predictive consensus
about the role of the Web in our lives in the
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Introduction to E-commerce
45
next decade and beyond. Although apps may even in areas of low connectivity. Some
be more convenient than the Web in many people think that a good PWA can ultirespects, the depth of the web browsing mately function as a total replacement for a
experience trumps that of apps. The Web is company’s mobile website, its native app, and
a vibrant, diverse array of sites, and brows- even possibly its desktop website.
The shift toward apps and away from
ers have an openness and flexibility that
apps lack. The connections among websites the Web is likely to have a significant impact
enhance their usefulness and value to users, on the fortunes of e-commerce firms. As
and apps that instead seek to lock in users the pioneer of apps and the market leader
cannot offer the same experience. In addi- in apps, smartphones, and tablet computtion, the size of the mobile web audience still ers, Apple stands to gain from a shift toward
exceeds that of the mobile app audience. And apps, and although it also faces increasing
when it comes to making purchases online, competition from other companies, includusing a web browser on a desktop computer ing Google, the established success of the
still handily beats using mobile devices. Retail App Store will make it next to impossible
purchases made on desktops/laptops still to dethrone Apple. For instance, while the
account for almost 60% of all online retail number of downloads from Google’s Google
Play store was almost four times as many
purchases.
Analysts who are more optimistic about as the number of downloads from Apple’s
the Web’s chances to remain relevant in an App Store in 2021, the App Store still
increasingly app-driven Internet ecosystem feel made nearly twice the amount of revenue
this way because of the emergence of HTML5 ($85 billion) than Google Play did $48 biland progressive web apps (PWAs). HTML5 is a lion. Google hopes that PWAs are at least a
markup language that enables more dynamic partial answer to the problem presented by
web content and allows for browser-accessible native apps, because the more activity that
web apps that are as appealing as device-­ occurs on native apps, which Google canspecific apps. A PWA, which combines the best not crawl, the less data Google has access
elements of mobile websites and native mobile to, which impacts its web-based advertising
apps, functions and feels like a native app but platform.
Ultimately, most marketers see the future
does not need to be downloaded from an app
store and thus does not take up any of the mobile as one in which the Web and mobile apps work
device’s memory. Instead, it runs directly in a together, with each having an important role in
mobile web browser and is able to load instantly, serving different needs.
SOURCES: “US Time Spent with Connected Devices: A Return to Pre-Pandemic Growth,” by Jessica Lins, Insider Intelligence/eMarketer, June 9,
2022; “US Desktop/Laptop Retail Ecommerce Sales,” by Insider Intelligence/eMarketer, June 2022; “Average Number of Apps Used per Month, US Mobile
Devices, 2019–2021,” by Insider Intelligence/eMarketer, January 27, 2022; “The State of Mobile 2022,” Data.ai.com, January 2022; “Global Consumer
Spending in Mobile Apps Reached $133 Billion in 2021, Up Nearly 20% from 2020,” Sensortower.com, December 2021;“Why Progressive Web Apps Are
the Future of the Mobile Web: 2020 Research,” by Jason Rzutkiewicz and Jeremy Lockhorn, Ymedialabs.com, September 19, 2020; “Publishers Straddle
the Apple-Google, App-Web Divide,” by Katie Benner and Conor Dougherty, New York Times, October 18, 2015; “How Apps Won the Mobile Web,” by
Thomas Claburn, Informationweek.com, April 3, 2014; “Mobile Apps Overtake PC Internet Usage in U.S.,” by James O’Toole, Money.cnn.com, February
28, 2014; “Is The Web Dead in the Face of Native Apps? Not Likely, but Some Think So,” by Gabe Knuth, Brianmadden.com, March 28, 2012; “The Web
Is Dead? A Debate,” by Chris Anderson, Wired.com, August 17, 2010; “The Web Is Dead. Long Live the Internet,” by Chris Anderson and Michael Wolff,
Wired.com, August 17, 2010.
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MAJOR TRENDS IN E-COMMERCE
Table 1.1 describes the major trends in e-commerce in 2022–2023 from a business, technological, and societal perspective, the three major organizing themes that we use in
this book to understand e-commerce (see Section 1.6).
From a business perspective, one of the most important trends to note is that all
forms of e-commerce continue to show very strong growth. Retail e-commerce worldwide
grew by more than 25% in 2020, in part as a result of the Covid-19 pandemic, and in 2022
reached $5.4 trillion. By 2026, it is estimated that retail e-commerce will account for more
than $7.6 trillion in revenue. Retail m-commerce also grew astronomically (by almost
30%) in 2020 and increased to more than $3.6 trillion in 2022, constituting about 67% of
all retail e-commerce sales. By 2026, retail ­m-commerce is expected to account for almost
$5.3 trillion worldwide. Social networks such as Facebook, Instagram, TikTok, Twitter, and
Pinterest are enabling social e-commerce by providing advertising, searches, and the ability to purchase products without leaving the site. Local e-commerce is being fueled by
the explosion of interest in on-demand services. B2B e-commerce, which dwarfs all other
forms, also is continuing to strengthen and grow. The Covid-19 pandemic has resulted in
an increased—and what is expected to be a lasting—shift to e-commerce.
From a technology perspective, the mobile platform based on smartphones and tablet
computers has finally arrived with a bang, driving astronomical growth in mobile advertising and making true mobile e-commerce a reality. The use of mobile messaging services
such as Facebook Messenger, WhatsApp, and Snapchat has created an alternative communications platform that is beginning to be leveraged for commerce as well. Cloud computing is inextricably linked to the development of the mobile platform because it enables the
storage of consumer content and software on cloud (Internet-based) servers and makes the
content and software available to mobile devices as well as to desktops. Other major technological trends include the increasing ability of companies to track and analyze the flood of
online data (typically referred to as big data) being produced. The Internet of Things (IoT),
comprised of billions of Internet-connected devices, continues to grow exponentially and
is driving the growth of a plethora of smart devices as well as adding to the torrent of data.
Other major technological trends include increasing use of artificial intelligence technologies, increasing interest in blockchain technologies, and increasing focus on the concept
of a metaverse that will create an immersive, 3D Internet experience using augmented and
virtual reality technologies.
At the societal level, other trends are apparent. The Internet and mobile platform provide an environment that allows millions of people to create and share content, establish
new social bonds, and strengthen existing bonds through social networks and other types
of online platforms. At the same time, privacy seems to have lost some of its meaning in
an age when millions create public online personal profiles, leading to increased concerns
over commercial and governmental privacy invasion. The major digital copyright owners
have increased their pursuit of online piracy with mixed success while reaching agreements with the big technology players such as Apple, Amazon, and Google to protect intellectual property rights. Sovereign nations have expanded their surveillance of, and control
over, online communications and content as a part of their anti-terrorist activities and their
traditional interest in law enforcement. Online security, or the lack thereof, remains a significant issue, as new stories about security breaches, malware, hacking, and other attacks
emerge seemingly daily.
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TABLE 1.1
47
MAJOR TRENDS IN E-COMMERCE, 2022–2023
BUSINESS
• Retail e-commerce and m-commerce both settle back to “normal” growth rates (around about
9% to 10%) after surging in 2020–2021 because of the Covid-19 pandemic.
• The mobile app ecosystem continues to grow, with almost 3.3 billion people worldwide using
mobile apps.
• Social e-commerce, based on social networks and supported by advertising, continues to grow,
generating an estimated $55 billion in the United States in 2022.
• Local e-commerce, the third dimension of the mobile, social, local e-commerce wave, is also
growing, fueled by an explosion of interest in on-demand services.
• B2B e-commerce remains the “silent giant,” generating more than five times the amount of B2C
e-commerce revenue.
• Mobile advertising continues to grow, accounting for almost 75% of all digital ad spending
worldwide, but may be impacted by new privacy-related app store rules that restrict the ability of
advertisers to track users.
• The media business becomes more and more decentralized, with content created and distributed
online by users (now typically referred to as creators) becoming more and more prevalent, giving
rise to what is often termed the creator economy.
TECHNOLOGY
• A mobile platform based on smartphones, tablet computers, wearable devices, and mobile
apps has become a reality, creating an alternative platform for online transactions, marketing,
advertising, and media viewing.
• Cloud computing completes the transformation of the mobile platform by storing consumer
content and software on “cloud” (Internet-based) servers and making it available to any
consumer-connected device, from the desktop to a smartphone.
• The Internet of Things (IoT), comprised of billions of Internet-connected devices, continues to
grow exponentially and drives the growth of a plethora of “smart/connected” devices such as
TVs, watches, speakers, home-control systems, and cars.
• The trillions of online interactions that occur each day create a flood of data, typically referred to
as big data. To make sense out of big data, firms turn to sophisticated software called business
analytics (or web analytics) that can identify purchase patterns as well as consumer interests and
intentions in milliseconds.
• Artificial intelligence technologies are being increasingly employed in a variety of e-commercerelated applications, such as for analyzing big data, customization and personalization, customer
service, chatbots and voice assistants, and supply chain efficiency.
• Blockchain, the technology that underlies cryptocurrencies, non-fungible tokens (NFTs), and the concept
of a more decentralized Internet known as Web3, attracts increasing interest, particularly from traditional
financial service firms as well as firms seeking to use the technology for supply chain applications.
• Facebook rebrands as Meta, jumpstarting an increased focus on the “metaverse,” which entails
moving the Internet experience beyond 2D screens toward immersive, 3D experiences using
augmented and virtual reality technologies.
SOCIETY
• User-generated content (UGC), published by creators online in the form of video, podcasts, newsletters,
literary content, online classes, digital art, and more, continues to grow and provides a method of selfpublishing that engages millions: both those who create the content and those who consume it.
• Concerns over commercial and governmental invasion of privacy increase.
• Concerns increase about the growing market dominance of Amazon, Google, and Meta (often
referred to as Big Tech), leading to litigation and calls for government regulation.
• Conflicts over copyright management and control continue, although there is now substantial
agreement among online distributors and copyright owners that they need one another.
• Surveillance of online communications by both repressive regimes and Western democracies grows.
• Online security continues to decline as major companies are hacked and lose control of customer
information.
• On-demand services and e-commerce produce a flood of temporary, poorly paid jobs without benefits.
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1.3
Figure 1.4 illustrates eight unique features of e-commerce technology that both challenge traditional business thinking and help explain why we have so much interest in
e-commerce. These unique dimensions of e-commerce technologies suggest many new
possibilities for marketing and selling—a powerful set of interactive, personalized, and
rich messages is available for delivery to segmented, targeted audiences.
Prior to the development of e-commerce, the marketing and sale of goods was a
mass-marketing and salesforce–driven process. Marketers viewed consumers as passive targets of advertising campaigns and branding “blitzes” intended to influence
their ­long-term product perceptions and immediate purchasing behavior. Companies
sold their products via well-insulated channels. Consumers were trapped by geographical and social boundaries, unable to search widely for the best price and quality.
Information about prices, costs, and fees could be hidden from the consumer, creating profitable information asymmetries for the selling firm. Information asymmetry
refers to any disparity in relevant market information among parties in a transaction.
It was so expensive to change national or regional prices in traditional retailing (what
are called menu costs) that one national price was the norm, and dynamic pricing to
the marketplace (changing prices in real time) was unheard of. In this environment,
­ FIGURE 1.4
EIGHT UNIQUE FEATURES OF E-COMMERCE TECHNOLOGY
Ub
a l rea
Gl
E
o m me r c
Un
for
Soc ial
n
hn olog
io
Per
Cu
st
ec
t
nsity
nalizat
so
ion
de
ma t i o
a n d a rd
n
In
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iver s a
l
i
-c
e
In
ob
ty
t
c
e ra t i v
chne s s
ch
Ri
iq ui ty
s
information
asymmetry
any disparity in relevant
market information among
parties in a transaction
UNIQUE FEATURES OF E-COMMERCE TECHNOLOGY
y
48
o m i z at
E-commerce technologies provide a number of unique features that have impacted the conduct of business.
M01_LAUD9772_18_GE_C01.indd 48
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Unique Features of E-commerce Technology
49
manufacturers prospered by relying on huge production runs of products that could
not be customized or personalized.
E-commerce technologies make it possible for merchants to know much more
about consumers and to be able to use this information more effectively than was ever
true in the past. Online merchants can use this information to develop new information asymmetries, enhance their ability to brand products, charge premium prices for
high-quality service, and segment the market into an endless number of subgroups,
each receiving a different price. To complicate matters further, these same technologies
also make it possible for merchants to know more about other merchants than was ever
true in the past. This presents the possibility that merchants might collude rather than
compete on prices and thus drive overall average prices up. This strategy works especially well when there are just a few suppliers (Varian, 2000a). We examine these different
visions of e-commerce further in Section 1.4 and throughout the book.
Each of the dimensions of e-commerce technology illustrated in Figure 1.4 deserves
a brief exploration as well as a comparison to both traditional commerce and other
forms of technology-enabled commerce.
UBIQUITY
In traditional commerce, a marketplace is a physical place you visit in order to transact.
For example, television and radio typically motivate the consumer to go someplace to
make a purchase. E-commerce, in contrast, is characterized by its ubiquity: It is available just about everywhere and at all times. It liberates the market from being restricted
to a physical space and makes it possible to shop from your desktop, at home, at work,
or even from your car. The result is called a marketspace—a marketplace extended
beyond traditional boundaries and removed from a temporal and geographic location.
From a consumer point of view, ubiquity reduces transaction costs—the costs of participating in a market. To transact, it is no longer necessary to spend time and money
traveling to a market. At a broader level, the ubiquity of e-commerce lowers the cognitive
energy required to transact in a marketspace. Cognitive energy refers to the mental effort
required to complete a task. Humans generally seek to reduce cognitive energy outlays.
When given a choice, humans will choose the path requiring the least effort—the most
convenient path (Shapiro and Varian, 1999; Tversky and Kahneman, 1981).
­marketplace
physical space you visit
in order to transact
ubiquity
available just about
everywhere and at all times
marketspace
marketplace extended
beyond traditional
boundaries and removed
from a temporal and
geographic location
GLOBAL REACH
E-commerce technology permits commercial transactions to cross cultural, regional,
and national boundaries far more conveniently and cost-effectively than is true in traditional commerce. As a result, the potential market size for e-commerce merchants is
roughly equal to the size of the world’s online population (more than 4.5 billion in 2022)
(Insider Intelligence/eMarketer, 2022e). More realistically, the Internet makes it much
easier for startup e-commerce merchants within a single country to achieve a national
audience than was ever possible in the past. The total number of users or customers that
an e-commerce business can obtain is a measure of its reach (Evans and Wurster, 1997).
In contrast, most traditional commerce is local or regional—it involves local merchants or national merchants with local outlets. Television, radio stations, and newspapers, for instance, are primarily local and regional institutions with limited but ­powerful
M01_LAUD9772_18_GE_C01.indd 49
reach
the total number of
users or customers
that an e-commerce
business can obtain
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50
C H A P T E R 1 I n t r o d u c t i o n t o E - c o m m e r c e
national networks that can attract a national audience. In contrast to e-commerce technology, these older commerce technologies do not easily cross national boundaries to a
global audience.
UNIVERSAL STANDARDS
universal standards
standards that are
shared by all nations
around the world
One strikingly unusual feature of e-commerce technologies is that the technical standards
of the Internet, and therefore the technical standards for conducting e-commerce, are
universal standards—they are shared by all nations around the world. In contrast, most
traditional commerce technologies differ from one nation to the next. For instance, television and radio standards differ around the world, as does cellphone technology.
The universal technical standards of e-commerce greatly lower market entry costs—
the cost merchants must pay just to bring their goods to market. At the same time, for
consumers, universal standards reduce search costs—the effort required to find suitable
products. And by creating a single, one-world marketspace, where prices and product
descriptions can be inexpensively displayed for all to see, price discovery becomes simpler, faster, and more accurate (Banerjee et al., 2016; Bakos, 1997; Kambil, 1997). Users,
both businesses and individuals, also experience network externalities—benefits that
arise because everyone uses the same technology. With e-commerce technologies, it
is possible for the first time in history to easily find many of the suppliers, prices, and
delivery terms of a specific product anywhere in the world and to view them in a coherent, comparative environment. Although this is not necessarily realistic today for all or
even most products, it is a potential that will be exploited in the future.
RICHNESS
richness
the complexity and
content of a message
Information richness refers to the complexity and content of a message (Evans and Wurster,
1999). Traditional markets, national sales forces, and retail stores have great richness: They
are able to provide personal, face-to-face service using aural and visual cues when making
a sale. The richness of traditional markets makes them a powerful selling or commercial
environment. Prior to the development of the Web, however, there was a trade-off between
richness and reach: the larger the audience reached, the less rich the message.
E-commerce technologies have the potential for offering considerably more information richness than traditional media such as printing presses, radio, and television
can because the former are interactive and can adjust the message to individual users.
Chatting online with a customer service representative, for instance, can come close to
the customer experience that takes place in a small retail shop. The richness enabled by
e-commerce technologies allows retail and service merchants to market and sell “complex” goods and services that heretofore required a face-to-face presentation by a sales
force to a much larger audience.
INTERACTIVITY
interactivity
technology that allows for
two-way communication
between merchant
and consumer and
among consumers
M01_LAUD9772_18_GE_C01.indd 50
Unlike any of the commercial technologies of the twentieth century, with the possible
exception of the telephone, e-commerce technologies allow for interactivity, meaning they enable two-way communication between merchant and consumer and among
consumers. Traditional television or radio, for instance, cannot enter into conversations
with viewers or listeners, ask them questions, or request customers to enter information
into a form.
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Unique Features of E-commerce Technology
51
Interactivity allows an online merchant to engage a consumer in ways similar to a
face-to-face experience. Comment features, community forums, and social networks
with social sharing functionality such as Like and Share buttons all enable consumers to
actively interact with merchants and other users. Somewhat less obvious forms of interactivity include responsive design elements such as websites that change format depending
on what kind of device they are being viewed on, product images that change as a mouse
hovers over them, the ability to zoom in or rotate images, forms that notify the user of a
problem as they are being filled out, and search boxes that autofill as the user types.
INFORMATION DENSITY
E-commerce technologies vastly increase information density—the total amount and
quality of information available to all market participants, consumers and merchants
alike. E-commerce technologies reduce information collection, storage, processing, and
communication costs. At the same time, these technologies greatly increase the currency, accuracy, and timeliness of information—making information more useful and
important than ever. As a result, information becomes more plentiful, less expensive,
and of higher quality.
A number of business consequences result from the growth in information
density. One of the shifts that e-commerce is bringing about is a reduction in information asymmetry among market participants (consumers and merchants). Prices
and costs become more transparent. Price transparency refers to the ease with which
consumers can find out the variety of prices in a market; cost transparency refers to
the ability of consumers to discover the actual costs merchants pay for products.
Preventing consumers from learning about prices and costs becomes more difficult with e-commerce, and, as a result, the entire marketplace potentially becomes
more price competitive (Sinha, 2000). But there are advantages for merchants as well.
Online merchants can discover much more about consumers, which allows merchants to segment the market into groups willing to pay different prices and permits
merchants to engage in price discrimination—selling the same goods, or nearly the
same goods, to different targeted groups at different prices. For instance, an online
merchant can discover a consumer’s avid interest in expensive exotic vacations and
then pitch expensive exotic vacation plans to that consumer at a premium price,
knowing this consumer is willing to pay extra for such a vacation. At the same time,
the online merchant can pitch the same vacation plan at a lower price to more pricesensitive consumers. Merchants also have enhanced abilities to differentiate their
products in terms of cost, brand, and quality.
PERSONALIZATION AND CUSTOMIZATION
E-commerce technologies permit personalization: Merchants can target their marketing messages to specific individuals by adjusting the message to a person’s name,
interests, and past purchases. Today this is achieved in a few milliseconds and followed by an advertisement based on the consumer’s profile. The technology also
permits customization—changing the delivered product or service based on a user’s
preferences or prior behavior. Given the interactive nature of e-commerce technology, much information about the consumer can be gathered in the marketplace at the
moment of purchase.
M01_LAUD9772_18_GE_C01.indd 51
information density
the total amount and
quality of information
available to all market
participants
personalization
the targeting of marketing
messages to specific
individuals by adjusting
the message to a
person’s name, interests,
and past purchases
­customization
changing the delivered
product or service based
on a user’s preferences
or prior behavior
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52
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With the increase in information density, a great deal of information about the
consumer’s past purchases and behavior can be stored and used by online merchants.
The result is a level of personalization and customization unthinkable with traditional commerce technologies. For instance, you may be able to shape what you see
on television by selecting a channel, but you cannot change the contents of the channel you have chosen. In contrast, the online version of the Financial Times allows you
to select the type of news stories you want to see first and gives you the opportunity
to be alerted when certain events happen. Personalization and customization allow
firms to precisely identify market segments and adjust their messages accordingly.
SOCIAL TECHNOLOGY: USER-GENERATED CONTENT (UGC),
CREATORS, AND SOCIAL NETWORKS
In a way quite different from all previous technologies, e-commerce technologies have
evolved to be much more social by allowing users to create and share content with a
worldwide community. Using these forms of communication, users are able to create
new social networks and strengthen existing ones.
All previous mass media in modern history, including the printing press, used
a broadcast (one-to-many) model: Content is created in a central location by experts
(professional writers, editors, directors, actors, and producers), and audiences are concentrated in huge aggregates to consume a standardized product. The telephone would
appear to be an exception, but it is not a mass communication technology. Instead, the
telephone is a one-to-one technology. E-commerce technologies invert this standard
media model by giving users the power to create and distribute content on a large scale
and permitting users to program their own content consumption. E-commerce technologies provide a unique, many-to-many model of mass communication, and over the
last several years, user-generated content (UGC), in the form of video, podcasts, newsletters, literary content, online classes, digital art, and more, has come to occupy an
ever-increasing role in the online content landscape. People who develop and distribute
such content are now typically referred to as “creators.” More than 200 million people
worldwide characterize themselves as creators, and an entire ecosystem, referred to as
the creator economy, has sprung up around them. The creator economy includes social
network platforms, content creation tools, monetization tools, fan interaction and community management tools, ad platforms, and administrative tools that support creators
and enable them to earn revenue.
Table 1.2 provides a summary of each of the unique features of e-commerce technology and each feature’s business significance.
1.4
TYPES OF E-COMMERCE
There are a number of different types of e-commerce and many different ways to characterize them. For the most part, we distinguish different types of e-commerce by the
nature of the market relationship—who is selling to whom. Mobile, social, and local
e-commerce can be looked at as subsets of these types of e-commerce.
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Types of E-commerce
TABLE 1.2
53
BUSINESS SIGNIFICANCE OF THE EIGHT UNIQUE FEATURES OF E-COMMERCE
TECHNOLOGY
E-COMMERCE TECHNOLOGY
DIMENSION
BUSINESS SIGNIFICANCE
Ubiquity—E-commerce technology is available
anytime and everywhere: at work, at home, and
elsewhere via mobile devices.
The marketplace is extended beyond traditional boundaries and is
removed from a temporal and geographic location. “Marketspace” is
created; shopping can take place anywhere. Customer convenience is
enhanced, and shopping costs are reduced.
Global reach—The technology reaches across
national boundaries and around the earth.
Commerce is enabled across cultural and national boundaries seamlessly
and without modification. “Marketspace” includes potentially billions of
consumers and millions of businesses worldwide.
Universal standards—There is one set of
technology standards.
There is a common, inexpensive, global technology foundation for
businesses to use.
Richness—Video, audio, and text messages are
possible.
Video, audio, and text marketing messages are integrated into a single
marketing message and consuming experience.
Interactivity—The technology enables interaction
with the user.
Consumers are engaged in a dialog that dynamically adjusts the
experience to the individual consumer and makes the consumer a
co-participant in the process of delivering goods to the market.
Information density—The technology reduces
information costs and raises quality.
Information processing, storage, and communication costs drop
dramatically, while currency, accuracy, and timeliness improve greatly.
Information becomes plentiful, cheap, and accurate.
Personalization/Customization—The
technology permits personalization and customization.
Marketing messages can be personalized and products and services
customized, based on individual characteristics.
Social technology—The technology supports
user-generated content (UCG), creators, and social
networks.
Enables user content creation and distribution and supports
development of social networks.
­BUSINESS-TO-CONSUMER (B2C) E-COMMERCE
The most commonly discussed type of e-commerce is business-to-cons­umer (B2C)
e-commerce, in which online businesses attempt to reach individual consumers. B2C
e-commerce includes purchases of retail goods; travel, financial, real estate, and other
types of services; and online content. B2C has grown exponentially since 1995 and is the
type of e-commerce that most consumers are likely to encounter (see Figure 1.5).
Within the B2C category, there are many different types of business models.
Chapter 2 has a detailed discussion of seven different B2C business models: online retailers, service providers, transaction brokers, content providers, community providers/
social networks, market creators, and portals. Then, in Part 4, we look at each of these
business models in action. In Chapter 9, we examine online retailers, service providers (including on-demand services), and transaction brokers. In Chapter 10, we focus
on content providers. In Chapter 11, we look at community providers (social networks),
market creators (auctions), and portals.
The data suggests that, over the next several years, B2C e-commerce worldwide
will continue to grow around 9% annually. There remains significant upside potential. Today, for instance, retail e-commerce (which currently comprises the majority
M01_LAUD9772_18_GE_C01.indd 53
business-to-consumer
(B2C) e-commerce
online businesses selling
to individual consumers
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54
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FIGURE 1.5
THE GROWTH OF B2C E-COMMERCE WORLDWIDE
$5000
Revenue (Bllions)
$4000
Asia-Pacific
$3000
$2000
$1000
North America
Europe
Latin America/Middle East/Africa
$0
2021
2022
2023
2024
2025
2026
Year
B2C e-commerce revenues in all regions continued to grow throughout 2022 and is anticipated to continue
to grow at about 8% to 9% a year through 2026. The Asia-Pacific region generates the highest amount of
B2C e-commerce revenue, followed by North America.
SOURCES: Based on data from Insider Intelligence/eMarketer, 2023a
of B2C e-commerce revenues) is still only 28% of the overall $28 trillion global retail
market. There is obviously still much room to grow (see Figure 1.6). However, it’s not
likely that B2C e-commerce revenues will continue to expand forever at current rates.
As online sales become a larger percentage of all sales, online sales growth will likely
eventually decline. However, this point still appears to be a long way off. Online content sales, everything from music to video, games, and entertainment, have an even
longer period to grow before they hit any ceiling effects.
­BUSINESS-TO-BUSINESS (B2B) E-COMMERCE
business-to-business
(B2B) e-commerce
online businesses selling
to other businesses
M01_LAUD9772_18_GE_C01.indd 54
Business-to-business (B2B) e-commerce, in which businesses focus on selling to other
businesses, is the largest form of e-commerce, with about $8.5 trillion in transactions in
the United States in 2022 (see Figure 1.7). This is still a small portion of total B2B commerce (which remains largely non-automated), suggesting that B2B e-commerce still has
significant growth potential.
There are two primary business models used within the B2B arena: B2B e-commerce
marketplaces, which include e-distributors, e-procurement companies, exchanges, and
industry consortia, and private B2B networks. We review various B2B e-commerce business models in Chapter 2 and examine them in further depth in Chapter 12.
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Types of E-commerce
FIGURE 1.6
55
ROOM TO GROW
overall global
retail market
$
28
trillion
worldwide retail
e-commerce
$
5.4
trillion
The retail e-commerce market is still just a small part of the overall retail market but has much more room
to grow in the future.
FIGURE 1.7
THE GROWTH OF B2B E-COMMERCE IN THE UNITED STATES
$10
Revenue (Trillions)
$8
$6
$4
$2
$0
2005
2010
2015
2020
2026
B2B e-commerce in the United States is almost seven times the size of B2C e-commerce. In 2026, U.S. B2B
e-commerce is projected to reach almost $10 trillion.
SOURCES: Based on data from Insider Intelligence/eMarketer, 2022f; U.S. Census Bureau, 2021; authors’ estimates.
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CONSUMER-TO-CONSUMER (C2C) E-COMMERCE
consumer-toconsumer (C2C)
e-commerce
consumers selling to other
consumers with the help
of an online market maker
Consumer-to-consumer (C2C) e-commerce provides a way for consumers to sell to
each other with the help of an online market maker (also called a platform provider). In
C2C e-commerce, the consumer prepares the product for market, lists the product for
auction or sale, and relies on the market maker to provide catalog, search engine, and
transaction-clearing capabilities so that products can be easily displayed, discovered,
and paid for. eBay, Craigslist, and Etsy were the original C2C platform provider pioneers
in the United States, but today they face significant competition. For instance, thirdparty sales on Amazon have skyrocketed. In China, Alibaba operates a similar global C2C
marketplace, Taobao, that is now one of the world’s largest. Facebook has also entered
the arena with Facebook Marketplace. There are also a number of newer entrants, such
as Gumtree, Depop, and Vinted, that are focused on the C2C market. On-demand service
companies such as Uber and Airbnb can also be considered C2C platform providers.
Although there are no officially reported statistics on the size of the U.S. C2C market,
it is probably safe to estimate its current size as more than $200 billion (not including
­on-demand services), based on estimates of gross merchandise volume/sales on platforms
such as eBay, Etsy, Amazon’s third-party sellers, Facebook Marketplace, and Craigslist.
­MOBILE E-COMMERCE (M-COMMERCE)
mobile e-commerce
(m-commerce)
use of mobile devices to
enable online transactions
Mobile e-commerce (m-commerce) refers to the use of mobile devices to enable online
transactions. M-commerce involves the use of cellular and wireless networks to connect
smartphones and tablet computers to the Internet. Once connected, mobile consumers
can purchase products and services, make travel reservations, use an expanding variety
of financial services, access online content, and much more.
Retail m-commerce revenues reached about $3.6 trillion worldwide in 2022 and
are expected to grow to more than $5.2 trillion by 2026, as consumers become more
and more accustomed to using mobile devices to purchase products and services (see
Figure 1.8). Mobile digital travel revenues experienced a significant decline in 2020
because of the Covid-19 pandemic but rebounded in 2022 and are expected to continue
to grow though 2026. Factors that are driving the growth of m-commerce include the
increasing amount of time consumers are spending using mobile devices, larger smartphone screen sizes, greater use of responsive design enabling websites to be better optimized for mobile use and mobile checkout and payment, and enhanced mobile search
functionality (Insider Intelligence/eMarketer, 2023b, 2022g, 2022h).
SOCIAL E-COMMERCE
social e-commerce
e-commerce enabled by
social networks and online
social relationships
M01_LAUD9772_18_GE_C01.indd 56
Social e-commerce is e-commerce that is enabled by social networks and online social
relationships. Social e-commerce is often intertwined with m-commerce, particularly
as more and more social network users access those networks via mobile devices.
The growth of social e-commerce is being driven by a number of factors, including the
increasing popularity of social sign-on (signing onto websites using your Facebook or
other social network ID), network notification (the sharing of approval or disapproval
of products, services, and content), online collaborative shopping tools, social search
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Types of E-commerce
FIGURE 1.8
57
THE GROWTH OF RETAIL M-COMMERCE WORLDWIDE
$4000
$3500
Revenue (Bllions)
$3000
Asia-Pacific
$2500
$2000
$1500
Latin America/Middle East/Africa
$1000
$500
Europe
North America
$0
2021
2022
2023
2024
2025
2026
Year
The Asia-Pacific region accounted for almost 75% of all retail m-commerce revenues in 2022.
SOURCES: Based on data from Insider Intelligence/eMarketer, 2023b.
(recommendations from online trusted friends), and the increasing prevalence of integrated social commerce tools such as Buy buttons, Shopping tabs, marketplace groups,
and virtual shops on Facebook, Instagram, Pinterest, TikTok, YouTube, and other social
networks.
Social e-commerce is still in its relative infancy, but with social media and networks playing an increasingly important role in influencing purchase decisions and
driving sales, it is continuing to grow. Total U.S. social retail ­e-commerce revenues
were estimated to be around $55 billion in 2022 (Insider Intelligence/eMarketer, 2022i).
LOCAL E-COMMERCE
Local e-commerce, as its name suggests, is a form of e-commerce that is focused
on engaging consumers based on their current geographic location. Local merchants
use a variety of online marketing techniques to drive consumers to their stores. Local
e-commerce is the third prong of the mobile, social, local e-commerce wave and,
fueled by an explosion of interest in local on-demand services such as Uber and Lyft
(ride services), Instacart (grocery shopping), and Grubhub and DoorDash (restaurant
food delivery), grew in the United States to more than $150 billion in 2022.
Figure 1.9 illustrates the relative size of all of the various types of e-commerce while
Table 1.3 provides examples for each type.
M01_LAUD9772_18_GE_C01.indd 57
local e-commerce
e-commerce that is focused
on engaging consumers
based on their current
geographic location
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FIGURE 1.9
THE RELATIVE SIZE OF DIFFERENT TYPES OF
E-COMMERCE IN THE UNITED STATES IN 2022
B2B
$
8.5
trillion
Social $55 billion
Local $150+ billion
B2C
Mobile
$500 billion
C2C
$200+
billion
$1.3
trillion
B2B e-commerce dwarfs all other forms of e-commerce; mobile, social, and local e-commerce, although
growing rapidly, are still relatively small in comparison to “traditional” e-commerce.
TABLE 1.3
M01_LAUD9772_18_GE_C01.indd 58
MAJOR TYPES OF E-COMMERCE
TYPE OF E-COMMERCE
EXAMPLE
B2C—business-to-consumer
Amazon is an online retailer that sells consumer products to retail
consumers.
B2B—business-to-business
Metalshub is an independent third-party marketplace that serves
the metals industry.
C2C—consumer-to-consumer
Online platforms such as eBay, Etsy, Taebao, and Gumtree enable
consumers to sell goods directly to other consumers. Airbnb and
Uber provide similar platforms for services such as room rental
and transportation.
M-commerce—mobile
e-commerce
Mobile devices such as smartphones and tablet computers can be
used to conduct commercial transactions.
Social e-commerce
Facebook is both the leading social network and the leading
social e-commerce platform.
Local e-commerce
Groupon offers subscribers daily deals from local businesses in the
form of Groupons, which are discount coupons that take effect
once enough subscribers have agreed to purchase a particular item.
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E-commerce: A Brief History
1.5
59
E-COMMERCE: A BRIEF HISTORY
It is difficult to pinpoint just when e-commerce began. There were several precursors to
e-commerce. In the late 1970s, a pharmaceutical firm named Baxter Healthcare initiated
a primitive form of B2B e-commerce by using a telephone-based modem that permitted
hospitals to reorder supplies from Baxter. This system was later expanded during the
1980s into a PC-based remote order entry system and was widely copied throughout the
United States long before the Internet became a commercial environment. The 1980s
saw the development of Electronic Data Interchange (EDI) standards that permitted
firms to exchange commercial documents and conduct digital commercial transactions
across private networks.
In the B2C arena, the first truly large-scale digitally enabled transaction system was
the Minitel, a French videotext system that combined a telephone with an eight-inch
screen. The Minitel was first introduced in 1981, and by the mid-1980s, more than 3 million had been deployed, with more than 13,000 different services available, including
ticket agencies, travel services, retail products, and online banking. The Minitel service
continued in existence until December 31, 2006, when it was finally discontinued by its
owner, France Telecom.
However, none of these precursor systems had the functionality of the Internet.
Generally, when we think of e-commerce today, it is inextricably linked to the Internet.
For our purposes, we will say e-commerce begins in 1995, following the appearance of
the first banner advertisements placed by AT&T, Volvo, Sprint, and others on Hotwired.
com, the first commercial online magazine, in late October 1994 and the first sales of
banner ad space by Netscape and Infoseek in early 1995.
Although e-commerce is not very old, it already has had a tumultuous history,
which can be usefully divided into three periods: 1995–2000, the period of invention;
2001–2006, the period of consolidation; and 2007–present, a period of reinvention with
social, mobile, and local expansion. The following examines each of these periods
briefly, while Figure 1.10 places them in context along a timeline. View the Figure 1.10
video in the eTextbook for an animated and more detailed discussion of this figure.
E-COMMERCE 1995–2000: INVENTION
The early years of e-commerce were a period of explosive growth and extraordinary
innovation. During this Invention period, e-commerce meant selling relatively simple
retail goods via the Internet. There simply was not enough bandwidth for selling more
complex products. Marketing was limited to unsophisticated, static display ads and not
very powerful search engines. The web policy of most large firms, if they had one at all,
was to have a basic, static website depicting their brands. The rapid growth in e-commerce during the Invention period was fueled by more than $125 billion in venture capital. This period of e-­commerce came to a close in 2000 when stock market valuations
plunged, with thousands of companies disappearing (the “dot-com crash”).
The early years of e-commerce were also one of the most euphoric of times in
U.S. commercial history. It was a time when key e-commerce concepts were developed.
For computer scientists and information technologists, the early success of e-commerce
was a powerful vindication of a set of information technologies that had developed over
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FIGURE 1.10
PERIODS IN THE DEVELOPMENT OF E-COMMERCE
INVENTION
CONSOLIDATION
REINVENTION
(social, mobile, local)
Retail
Retail + Services
Retail + Services + Content
$600
2000
ai
l
2 00 7
(Billions)
h
Sm
on
C ras
e
he
Th
T
$400
e
Re
t
$500
ar tp
h
v
Ser
$300
s
ice
$200
$100
Content
$0
1995
2000
2005
2010
2015
2018
Year
a period of 40 years—extending from the development of the early Internet, to the PC,
to local area networks. The vision was of a universal communications and computing
environment that everyone on Earth could access with cheap, inexpensive computers—
a worldwide universe of knowledge stored on HTML pages created by hundreds of millions of individuals and thousands of libraries, governments, and scientific institutes.
Technologists celebrated the fact that the Internet was not controlled by anyone or
any nation but was free to all. They believed that the Internet—and the e-commerce
that arose based on this infrastructure—should remain a self-governed, self-regulated
environment.
For economists, the early years of e-commerce raised the realistic prospect of
a nearly perfect competitive market: one in which price, cost, and quality information are equally distributed; a nearly infinite set of suppliers compete against one
another; and customers have access to all relevant market information worldwide. The
Internet would spawn digital markets where information would be nearly perfect—
something that is rarely true in other real-world markets. Merchants in turn would
have equal, direct access to hundreds of millions of customers. In this near-perfect
information marketspace, transaction costs would plummet because search costs—
the costs of searching for prices, product descriptions, payment settlement, and order
fulfillment—would all fall drastically (Bakos, 1997). For merchants, the cost of searching for customers would also fall, reducing the need for wasteful advertising. At the
same time, advertisements could be personalized to the needs of every customer.
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E-commerce: A Brief History
Prices and even costs would be increasingly transparent to the consumer, who could
now know exactly and instantly the worldwide best price, quality, and availability of
most products. Information asymmetry would be greatly reduced. Given the instant
nature of Internet communications, the availability of powerful sales information
systems, and the low cost involved in changing online prices (low menu costs), producers could dynamically price their products to reflect actual demand, ending the
idea of one national price, or one suggested manufacturer’s list price. In turn, market middlemen—the distributors and wholesalers who are intermediaries between
producers and consumers, each demanding a payment and raising costs while adding
little value—would disappear (disintermediation). Manufacturers and content originators would develop direct market relationships with their customers. The resulting
intense competition, the decline of intermediaries, and the lower transaction costs
would eliminate product brands and, along with these, the possibility of monopoly
profits based on brands, geography, or special access to factors of production. Prices
for products and services would fall to the point where prices covered costs of production plus a fair, “market rate” of return on capital, plus additional, small payments
for entrepreneurial effort. Unfair competitive advantages (which occur when one
competitor has an advantage that others cannot purchase) would be reduced, as would
extraordinary returns on invested capital. This vision was called friction-free commerce (Smith et al., 2000).
For real-world entrepreneurs, their financial backers, and marketing professionals, e-commerce represented a tremendous opportunity to earn far-above-normal
returns on investment. This is the exact opposite of what economists hoped for. The
e-commerce marketspace represented access to millions of consumers worldwide
who used the Internet and a set of marketing communications technologies (e-mail
and web pages) that was universal, inexpensive, and powerful. These new technologies would permit marketers to practice what they always had done—segmenting the
market into groups with different needs and price sensitivity, targeting the segments
with branding and promotional messages, and positioning the product and pricing for
each group—but with even more precision. In this new marketspace, extraordinary
profits would go to first movers—those firms who were first to market in a particular
area and who moved quickly to gather market share. In a “winner-take-all” market,
first movers could establish a large customer base quickly, build brand name recognition early, create an entirely new distribution channel, and then inhibit competitors
(new entrants) by building in switching costs for their customers through proprietary
interface designs and features available only on one platform. The idea for entrepreneurs was to create near monopolies online based on size, convenience, selection,
and brand. Online businesses using the new technology could create informative,
community-like features unavailable to traditional merchants. These “communities
of consumption” also would add value and be difficult for traditional merchants to
imitate. The thinking was that once customers became accustomed to using a company’s unique web interface and set of features, they could not easily be switched
to competitors. In the best case, the entrepreneurial firm would invent proprietary
technologies and techniques that almost everyone adopted, creating a network effect.
A network effect occurs when all participants receive value from the fact that everyone else uses the same tool or product (for example, a common operating system,
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disintermediation
displacement of
market middlemen,
who traditionally are
intermediaries between
producers and consumers,
by a new, direct
relationship between
producers and consumers
friction-free
commerce
a vision of commerce
in which information
is equally distributed,
transaction costs are
low, prices can be
dynamically adjusted to
reflect actual demand,
intermediaries decline,
and unfair competitive
advantages are eliminated
first mover
a firm that is first to market
in a particular area and
that moves quickly to
gather market share
network effect
occurs when users receive
value from the fact that
everyone else uses the
same tool or product
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telephone system, or software application such as a proprietary instant messaging
standard or an operating system such as Microsoft Windows), all of which increase in
value as more people adopt them.1
To initiate this process, entrepreneurs argued that prices would have to be very low to
attract customers and fend off potential competitors. E-commerce was, after all, a totally
new way of shopping that would have to offer some immediate cost benefits to consumers. However, because doing business on the Web was supposedly so much more efficient
when compared to traditional “bricks-and-mortar” businesses (even when compared to
the direct mail catalog business) and because the costs of customer acquisition and retention would supposedly be so much lower, profits would inevitably materialize out of these
efficiencies. Given these dynamics, during an online firm’s early years, market share,
the number of online visitors (“eyeballs”), and gross revenue were considered far more
important than earnings or profits. Entrepreneurs and their financial backers expected
that extraordinary profitability would come but only after several years of losses.
Thus, the early years of e-commerce were driven largely by visions of profiting from
new technology, with the emphasis on quickly achieving very high market visibility. The
source of financing was venture capital funds. The ideology of the period emphasized
the ungoverned, “Wild West” character of the Web and the feeling that governments and
courts could not possibly limit or regulate the Internet; there was also a general belief
that traditional corporations were too slow and bureaucratic—too stuck in the old ways
of doing business—to “get it” and be competitive in e-commerce. Young entrepreneurs
were therefore the driving force behind e-commerce, backed by huge amounts of money
invested by venture capitalists. The emphasis was on disrupting (destroying) traditional
distribution channels and disintermediating existing channels, using new, purely online
companies who aimed to achieve impregnable first-mover advantages. Overall, this
period of e-commerce was characterized by experimentation, capitalization, and hypercompetition (Varian, 2000b).
E-COMMERCE 2001–2006: CONSOLIDATION
In the second period of e-commerce, from 2001 to 2006, a sobering period of reassessment
of e-commerce occurred, with many critics doubting its long-term prospects. Emphasis
shifted to a more “business-driven,” rather than a technology-driven approach; large traditional firms learned how to use the Web to strengthen their market positions; brand
extension and strengthening became more important than creating new brands; financing shrunk as capital markets shunned startup firms; and traditional bank financing
based on profitability returned.
During this period of consolidation, e-commerce changed to include not just retail
products but also more complex services such as travel and financial services. This
period was enabled by widespread adoption of broadband networks in U.S. homes and
businesses, coupled with the growing power and lower prices of personal computers
that were the primary means of accessing the Internet, usually from work or home.
Marketing on the Internet increasingly meant using search engine advertising targeted to user queries, rich media and video ads, and behavioral targeting of marketing
1
The network effect is quantified by Metcalfe’s Law, which argues that the value of a network grows by the
square of the number of participants.
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63
messages based on ad networks and auction markets. The web policy of both large and
small firms expanded to include a broader “web presence” that included not just websites but also e-mail, display, and search engine campaigns; multiple websites for each
product; and the creation of some limited community-feedback facilities. E-commerce
in this period was growing again, by more than 10% a year.
E-COMMERCE 2007–PRESENT: REINVENTION
Beginning in 2007, with the introduction of the iPhone, to the present day, e-commerce has
been transformed yet again by the rapid growth of Web 2.0 (a set of applications and technologies that enable user-generated content such as that posted on online social networks,
blogs, wikis, and video- and photo-sharing websites and apps); the widespread adoption of
mobile devices such as smartphones and tablet computers; the expansion of e-commerce
to include local goods and services; and the emergence of an on-demand service economy
enabled by millions of apps on mobile devices and cloud computing. This period can be
seen as both a sociological as well as a technological and business phenomenon.
The defining characteristics of this period are often characterized as the “social,
mobile, local” online world. Entertainment content has developed as a major source of
e-commerce revenues, and mobile devices have become entertainment centers as well
as on-the-go shopping devices for retail goods and services. Marketing has been transformed by the increasing use of social networks and much more powerful data repositories and analytic tools for truly personalized and targeted marketing. Firms have greatly
expanded their online presence by moving beyond static web pages to social networks
such as Facebook, Instagram, TikTok, Twitter, and Pinterest in an attempt to surround
the online consumer with coordinated marketing messages. These social networks
share many common characteristics. They are inherently highly interactive, creating
new opportunities for people to socially connect to others. They attract extremely large
audiences (about 2.9 billion monthly active users worldwide as of July 2022 in the case
of Facebook). These audiences present marketers with extraordinary opportunities
for targeted marketing and advertising. Social networks also predominantly rely on
user-generated content. “Regular” people (not just experts or professionals), now often
referred to as creators, are producing, sharing, and broadcasting content to huge audiences, which has given rise to what has become known as the creator economy.
The reinvention of e-commerce has also resulted in a set of on-demand, personal
service businesses such as Uber, Airbnb, and Deliveroo. These businesses have been
able to tap into a large reservoir of unused assets (cars, spare rooms, and personal spare
time) and to create lucrative markets based on the mobile platform infrastructure. More
recently, the reimagining of the Internet experience in the form of the 3D, immersive
experience that has been labeled the metaverse, as well as more decentralized blockchain-related concepts known as Web3, is attracting enormous attention and hype.
The Insight on Business case, Rocket Internet, takes a look at Rocket Internet, which has
invested in and mentored a number of startups.
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Web 2.0
set of applications and
technologies that enable
user-generated content
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INSIGHT ON BUSINESS
ROCKET INTERNET
Most people have heard the story
of Mark Zuckerberg dropping out
of college to start Facebook. Today,
tech startup founders are less likely
to build businesses on their own and,
instead, often seek the help of an incubator. Incubators have become a vital tool in
helping new tech startups grow from the kernel
of a great idea into an established, vibrant business. Rocket Internet is one such incubator.
Founded in 2007 by German entrepreneurs Oliver Samwer and his brothers
Alexander and Marc, Rocket Internet invests
in e-commerce and other Internet startups in
emerging markets. Headquartered in Berlin
and with offices around the globe, Rocket
Internet has launched over 200 companies in
120 countries. In 2014, Rocket went public on
Germany’s Frankfurt Stock Exchange. The initial pricing valued the company at around €6.5
billion. However, after the IPO, over the course
of a number of years, the company’s stock
price fell from a high of nearly €60 to about
€20 per share in September 2020, reducing
the company’s market capitalization to about
€2.5 billion. In October 2020, Rocket delisted
its shares from the Frankfurt and Luxembourg
Stock Exchanges, with its investment division, Global Founders Capital, and CEO Oliver
Samwer continuing to hold the majority stake.
Rocket’s struggles illustrate the perils of prioritizing growth over profitability.
Rocket bills itself as more than a venture
capital firm or typical incubator. Rocket has a
variety of teams that work closely with each of
its ventures, including teams focused on engineering and product development, online marketing, CRM, business intelligence, operations,
HR, and finance. Rocket also helps its startups
by providing access to centralized logistics and
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other back-office functions to help them cut
down on operational costs. Rocket also provides
assistance in the acquisition of additional venture capital on behalf of its startup companies,
freeing them to focus on rapidly growing the
business.
Prominent companies launched via Rocket
Internet in the past include Germany’s Zalando,
India’s Jabong, Russia’s Lamoda, Australia’s
The Iconic and Zanui, Pakistan’s Daraz, and
Southeast Asia’s Zalora. However, critics claim
that throughout Rocket Internet’s history, the
company has been less concerned with innovation than with launching clones of successful
U.S.-based businesses in other markets. Rocket
counters that it improves upon established
businesses by refining their business processes
and by localizing them to better fit specific
areas. Through the years, investors have been
concerned about the profitability of Rocket’s
portfolio. Many of Rocket’s companies in the
past have had market-leader status in their
respective areas, but not many of them were
profitable. Rocket’s view has been that by focusing on growth in emerging markets first, profits
will come in time. In the meantime, Rocket has
also benefited from the successful IPOs of a
number of its most prominent startups, including food delivery companies Delivery Hero and
HelloFresh; home goods retailers Home24 and
WestWing; African e-commerce retailer Jumia;
and Global Fashion Group. However, in 2020,
the Covid-19 pandemic negatively impacted
both the company’s revenues and stock market
performance, leading to the decision to delist its
shares. According to Samwer, Rocket Internet
is now better positioned and able to focus on
longer-term results without having to deal with
the stock market’s typical focus on short-term
results.
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E-commerce: A Brief History
Rocket has had the most success launching companies modeled after established
businesses in emerging markets and then selling these ventures to those established businesses. eBay’s acquisition of Germany’s leading auction site, Alando, where the Samwers
got their start, is an example. Rocket also sold
a controlling stake in Southeast Asian Amazon
clone Lazada to Alibaba for $1 billion, a price
exceeding investor valuations of the company,
and representing a profit of over 20 times its
initial investment. Rocket also sold half of its
shares of Delivery Hero for €660 million, as well
as Germany-based beauty retailer Glossybox
and Dubai-based fashion retailer Namshi.
These sales and the IPOs have helped Rocket
as it continues to support its other less-profitable businesses.
Going forward, Rocket is focusing more on
sustainable companies and less on selling their
companies to market leaders. Oliver Samwer
believes that in the past, it may have sold some
businesses, such as Alando, too early, but that
it was necessary in order for Rocket to build a
track record. Now that it has one, it can afford
to take a longer-term view. Flash Coffee is a
good example of a company in Rocket’s current
portfolio.
Flash Coffee is a tech-enabled coffee chain
founded in Indonesia in 2019. David Brunier,
Flash’s founder and chief executive officer, took
a position as a business development manager
65
with food delivery service Foodara, which
at the time was backed by Rocket Internet.
In 2017, Brunier moved to Singapore as the
chief marketing officer (APAC) for Foodpanda,
another Rocket Internet–backed company. He
saw an opportunity to develop a tech-enabled
coffee chain that would be more efficient, save
costs for consumers, and still serve a highquality cup of coffee.
Now headquartered in Singapore, Flash
Coffee has grown to 80 outlets in Indonesia,
with 170 others in Singapore, Thailand, Taiwan,
Hong Kong, South Korea, and Japan. Rocket
believes in the power of data, and Flash Coffee
provides a case in point. Maxime Chaury, Flash
Coffee’s managing director, notes that the
first pillar of Flash’s business is its consumer
app, which enables customers to order and
pay online, pick up their drinks or get them
delivered, and use Flash’s loyalty program and
in-app gamification. Flash’s Barista App helps
baristas manage stores and improve their
operational efficiency. Another pillar of Flash’s
business is using big data for decision-making,
from personalized promotions based on the
purchasing behavior of customers to the development of new menu items. Flash has said that
the majority of its stores are already profitable,
demonstrating the success of its business
model. In 2022, Flash raised $38 million in
additional venture capital, which it hopes to use
to expand into additional regions.
SOURCES: “Flash Coffee’s Success: No Instant Brew but Constant Grind,” by Shravanth Vijayakumar, Techinasia.com, July 17, 2022; “A Chat with
Maxime Chaury about the Future of Hi-tech Coffee,” by Riga Ramadhan, Prestigeonline.com, May 18, 2022; “How I’m Making It: Flash Coffee’s David Brunier on
How He Built Asia’s Tech-enabled Coffee Empire after Wanting to Drop Out,” by Camilla Dass, Tatlerasia.com, April 11, 2022; “As It Delists, Rocket Internet’s Illfated Experiment with Public Markets Is Over, “ by Mike Butcher, Techcrunch.com, September 1, 2020; “Rocket Internet Sits on $3.3 Billion Cash Pile after IPOs,”
by Stefan Nicola, Bloomberg.com, September 19, 2019; “Rocket Internet: Organizing a Startup Factory,” by Oliver Baumann et al., Link. springer.com, December
2018; “Wimdu, Rocket Internet’s Airbnb Clone, to Shut Down This Year ‘Facing Significant Business Challenges,’” by Ingrid Lunden, Techcrunch.com, September
27, 2018; “Cash-flush Rocket Internet Lifted by $175 Million Buyback Plan,” by Emma Thomasson, Reuters.com, September 20, 2018; “Rocket Internet CEO
Samwer Looks at Crafting New Strategies for Success,” by Stefan Nicola, Bloomberg, August 27, 2018; “Rocket Internet–Providing Access to Up and Coming
Companies in the Emerging Markets,” by Kevin Carter, Seekingalpha.com, June 10, 2018; “Rocket Internet’s Spectacular Display,” by Leila Abboud, Bloomberg.
com, September 28, 2017; “Start-ups Giant Rocket Internet Offloads Glossybox to UK Rival,” by Mark Kleinman, News.sky.com, August 14, 2017; “Rocket
Internet’s Trajectory Shift,” by Leila Abboud, Bloomberg.com, November 23, 2016; “German Tech Incubator Rocket Internet to Focus on Biggest Companies,”
Nasdaq.com, November 16, 2016; “Rocket Internet Leaves Us Groping in the Dark,” by Leila Abboud, Bloomberg.com, October 12, 2016; “Inside Rocket
Internet’s Ailing Startup Factory,” by Jeremy Kahn, et al., Bloomberg.com, October 7, 2016; “Rocket Internet’s Deal with Alibaba Validates Its Opaque, Unproven
Model,” by Joon Ian Wong, Qz.com, April 13, 2016; “Rocket Internet Drops 13% in Debut,” by Chase Gummer, Wall Street Journal, October 2, 2014; “Rocket
Internet’s Marc Samwar on Cloning: We Make Business Models Better Because We Localize,” by Leena Rao, Techcrunch. com, October 28, 2013; “eBay Acquires
Germany’s Leading Onine Person-to-Person Trading Site–Alando.de AG,” Prnewswire.com, June 22, 2013.
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TABLE 1.4
EVOLUTION OF E-COMMERCE
1995–2000
INVENTION
2001–2006
CONSOLIDATION
2007–PRESENT
REINVENTION
Technology driven
Business driven
Mobile technology enables social, local,
and mobile e-commerce
Revenue growth
emphasis
Earnings and profits
emphasis
Audience and social network
connections emphasis
Venture capital
financing
Traditional financing
Return of venture capital financing;
buy-outs of startups by large firms
Ungoverned
Stronger regulation and
governance
Extensive government surveillance
Entrepreneurial
Large traditional firms
Entrepreneurial social, mobile, and local
firms
Disintermediation
Strengthening
intermediaries
Proliferation of small online
intermediaries renting business
processes of larger firms
Perfect markets
Imperfect markets, brands,
and network effects
Continuation of online market
imperfections; commodity competition
in select markets
Pure online strategies
Mixed “bricks-and-clicks”
strategies
Return of pure online strategies in new
markets; extension of bricks-and-clicks
in traditional retail markets
First-mover
advantages
Strategic-follower strength;
complementary assets
First-mover advantages return in new
markets as traditional web players
catch up
Low-complexity retail
products
High-complexity retail
products and services
Retail, services, and content
Table 1.4 summarizes e-commerce in each of these three periods.
ASSESSING E-COMMERCE: SUCCESSES, SURPRISES, AND FAILURES
Looking back at the evolution of e-commerce, it is apparent that e-commerce has been
a stunning technological success, ramping up from a few thousand to trillions of e-commerce transactions per year, generating an estimated $5.4 trillion in retail e-commerce
revenues worldwide, with around 2.7 billion online buyers worldwide, as well as many
more trillions in B2B revenue. With enhancements and strengthening, described in later
chapters, it is clear that e-commerce’s digital infrastructure is solid enough to sustain
significant growth in e-commerce during the next decade. The Internet scales well. The
“e” in e-commerce has been an overwhelming success.
From a business perspective, though, the early years of e-commerce were a mixed success and offered many surprises. Only a very small percentage of the dot-coms formed in
those early years have survived as independent companies. Yet online retail sales of goods
and services are still growing very rapidly. Contrary to economists’ hopes, however, online
sales are increasingly concentrated. For instance, according to Insider Intelligence/eMarketer, the top 10 U.S. e-commerce retailers grew their market share to almost 63% in 2022,
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67
while the top 500 retailers accounted for almost 75% of all U.S. online retail sales in 2021.
No one foresaw that Google/YouTube and Facebook/Instagram would dominate the online
advertising marketplace, accounting for more than 50% of U.S. digital advertising revenues,
or that one firm, Amazon, would account for almost 38% of all U.S. online sales via direct
sales and sales by third-party sellers using Amazon’s platform (Insider Intelligence/eMarketer, 2022j, 2022k; Young, 2022). And, of course, no one anticipated that a pandemic would
occur in early 2020, forcing broadscale and widespread changes in consumer shopping
behavior, changes that are likely to persist even after the crisis passes, fueling increased
growth of retail e-commerce, particularly from the top 1000 online retailers.
So, thousands of firms have failed, and now, a few of those that have survived dominate the market. The idea of many thousands of firms competing on price has been
replaced by a market dominated by giant firms. Consumers use the Web as a powerful source of information about products they often actually purchase through other
channels, such as at a physical store, a practice sometimes referred to as “webrooming,”
“ROBO” (research online, buy offline), or O2O (online-to-offline) (Flavian, Gurrea, and
Orus, 2022). This is especially true of expensive consumer durables such as automobiles,
appliances, and electronics. This offline, “Internet-influenced” commerce is very difficult to estimate but is definitely significant. For instance, Forrester Research estimates
that nearly two-thirds 62% of all U.S. retail sales are now digitally influenced, up from
49% prior to the Covid-19 pandemic (Vail, 2021). The “commerce” in “e-commerce” is
basically very sound, at least in the sense of attracting a growing number of customers
and generating revenues and profits for large e-commerce players.
Although e-commerce has grown at an extremely rapid pace in number of customers and amount of revenues, it is clear that many of the visions, predictions, and
assertions about e-commerce that developed in the early years have not been fulfilled.
For instance, economists’ visions of “friction-free” commerce have not been entirely
realized. Prices are sometimes lower online, but the low prices are sometimes a function of entrepreneurs selling products below their costs. In some cases, online prices
are higher than those of local merchants, as consumers are willing to pay a small premium for the convenience of buying online. Consumers are also less price sensitive than
expected: Surprisingly, the companies with the highest revenues often have the highest prices. There remains considerable persistent and even increasing price dispersion:
Online competition has lowered prices, but price dispersion remains pervasive in many
markets despite lower search costs. The concept of one world, one market, one price
has not occurred in reality as entrepreneurs discover new ways to differentiate their
products and services. Merchants have adjusted to the competitive Internet environment by engaging in “hit-and-run pricing” (or changing prices every day or hour using
“flash pricing” or “flash sales”) so that competitors never know what they are charging
(neither do customers) and by making their prices hard to discover and sowing confusion among consumers by “baiting and switching” customers from low-margin products
to high-margin products with supposedly “higher quality.” Finally, brands remain very
important in e-commerce: Consumers trust some firms more than others to deliver a
high-quality product on time, and they are willing to pay for this assurance (Cavallo,
2017; Zhuang et al, 2018; Soleimani, 2021).
The “perfect competition” model of extreme market efficiency has not come to
pass. Merchants and marketers are continually introducing information asymmetries.
Search costs have fallen overall, but the overall transaction cost of actually completing
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a purchase in e-commerce remains high because users have a bewildering number of
questions to consider: Will the merchant actually deliver? What is the time frame of
delivery? Does the merchant really stock this item? How do I fill out this form? Many
potential e-commerce purchases are terminated in the shopping cart stage because of
these consumer uncertainties. Some people still find it easier to call a trusted catalog
merchant on the telephone than to order online.
Finally, intermediaries have not disappeared as predicted. Although many manufacturers do sell online directly to consumers, these manufacturers typically also make use of
major e-commerce marketplaces, such as Amazon, eBay, and Walmart. If anything, e-commerce has created many opportunities for middlemen to aggregate content, products, and
services and thereby introduce themselves as the “new” intermediaries. ­Third-party travel
sites such as Travelocity, Orbitz, and Expedia are examples of this kind of intermediary.
The visions of many entrepreneurs and venture capitalists for e-commerce have
not materialized exactly as predicted, either. First-mover advantage appears to have
succeeded only for a very small group of companies, albeit some of them extremely
­well-known, such as Google, Facebook, Amazon, and eBay. Getting big quickly sometimes
works but often does not. Historically, first movers have been long-term losers, with the
early-to-market innovators usually being displaced by established “fast-follower” firms
with the right complement of financial, marketing, legal, and production assets needed to
develop mature markets; this has proved true for e-commerce as well. Many ­e-commerce
first movers, such as eToys, FogDog (sporting goods), Webvan (groceries), and Eve.com
(beauty products), failed. Customer acquisition and retention costs during the early years
of e-commerce were extraordinarily high, with some firms, such as E*Trade and other
financial service firms, paying up to $400 to acquire a new customer. The overall costs of
doing business online—including the costs of technology, website and mobile app design
and maintenance, and warehouses for fulfillment—are often no lower than the costs faced
by the most efficient bricks-and-mortar stores. A large warehouse costs tens of millions of
dollars regardless of a firm’s online presence. The knowledge of how to run the warehouse
is priceless. The startup costs can be staggering. Attempting to achieve or enhance profitability by raising prices has often led to large customer defections. From the e-commerce
merchant’s perspective, the “e” in “e-commerce” does not stand for “easy.”
On the other hand, there have been some extraordinary and unanticipated surprises in the evolution of e-commerce. Few predicted the impact of the mobile platform.
Few anticipated the rapid growth of social networks or their growing success as advertising platforms based on a more detailed understanding of personal behavior than
even Google has achieved. And few, if any, anticipated the emergence of on-demand
­e-commerce, which enables people to use their mobile devices to order everything from
taxi to grocery to laundry service.
1.6
UNDERSTANDING E-COMMERCE: ORGANIZING THEMES
Understanding e-commerce in its totality is a difficult task for students and instructors
because there are so many facets to the phenomenon. No single academic discipline is
prepared to encompass all of e-commerce. After teaching the e-commerce course for
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a number of years and writing this book, we have come to realize just how difficult it is
to “understand” e-commerce. But we have found it useful to think about e-commerce
as involving three broad, interrelated themes: technology, business, and society. We do
not mean to imply any ordering of importance here because this book and our thinking
freely range over these themes as appropriate to the problem we are trying to understand and describe. Nevertheless, as in previous technologically driven commercial
revolutions, there is a historic progression: Technologies develop first, and then those
developments are exploited commercially. Once commercial exploitation of the technology becomes widespread, a host of social, cultural, and political issues arise, and society is forced to respond to them.
TECHNOLOGY: INFRASTRUCTURE
Digital computing and communications technologies are at the heart of the global
digital economy we call e-commerce. To understand the likely future of e-commerce,
you need a basic understanding of the information technologies upon which it is built.
E-commerce is above all else a technologically driven phenomenon that relies on a host
of information technologies as well as fundamental concepts from computer science
developed over a 60-year period. At the core of e-commerce are the Internet and the
Web, which we describe in detail in Chapter 3. Underlying these technologies are a host
of complementary technologies: cloud computing, desktop computers, smartphones,
tablet computers, local area networks, relational and non-relational databases, client/server computing, data mining, and fiber-optic cables, to name just a few. These
technologies lie at the heart of sophisticated business computing applications such as
­enterprise-wide information systems, supply chain management systems, manufacturing resource planning systems, and customer relationship management systems.
E-commerce relies on all these basic technologies—not just the Internet. The Internet,
while representing a sharp break from prior corporate computing and communications
technologies, is nevertheless just the latest development in the evolution of corporate computing and a part of the continuing chain of computer-based innovations in
business.
To truly understand e-commerce, you will need to know something about
­packet-switched communications, protocols such as TCP/IP, client/server and cloud
computing, mobile platforms, web servers, HTML5, CSS, and software programming tools such as JavaScript on the client side and Java, PHP, Ruby on Rails, and
ColdFusion on the server side. All of these topics are described fully in Part 2 of the book
(Chapters 3–5).
BUSINESS: BASIC CONCEPTS
While technology provides the infrastructure, it is the business applications—the potential for extraordinary returns on investment—that create the interest and excitement in
e-commerce. New technologies present businesses and entrepreneurs with new ways of
organizing production and transacting business. New technologies change the strategies and plans of existing firms: Old strategies are made obsolete, and new ones need to
be invented. New technologies are the birthing grounds where thousands of new companies spring up with new products and services. New technologies are also the graveyard
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of many traditional businesses. To truly understand e-commerce, you will need to be
familiar with some key business concepts, such as the nature of digital markets, digital
goods, business models, firm and industry value chains, value webs, industry structure,
digital disruption, and consumer behavior in digital markets, as well as basic concepts
of financial analysis. We’ll examine these concepts further in Chapters 2, 6, 7, and 9
through 12.
SOCIETY: TAMING THE JUGGERNAUT
With more than 4.5 billion people worldwide now using the Internet (many for e-commerce purposes), the impacts of the Internet and e-commerce on society are significant
and global. Increasingly, e-commerce is subject to the laws of nations and global entities. You will need to understand the pressures that global e-commerce places on contemporary society in order to conduct a successful e-commerce business or understand
the e-commerce phenomenon. The primary societal issues we discuss in this book are
individual privacy, intellectual property, and public policy.
Issues surrounding the preservation of privacy—the abilities of individuals to place
limits on the type and amount of information collected about them and to control the
uses of their personal information—have become one of the leading societal issues
related to e-commerce. Read the Insight on Society case, Facebook and the Age of Privacy, to
get a view of some of the ways online businesses use personal information.
Because the cost of distributing digital copies of copyrighted intellectual property,
such as music, books, and videos, is nearly zero on the Internet, e-commerce poses special challenges to the various methods societies have used in the past to protect intellectual property rights.
The global nature of e-commerce also poses public policy issues regarding equity,
equal access, content regulation, and taxation. For instance, in the United States, public
telephone utilities are required under public utility and public accommodation laws
to make basic service available at affordable rates so that everyone can have telephone
service. Should these laws be extended to the Internet and the Web? If goods are purchased by a New York State resident from a website in California, shipped from a center
in Illinois, and delivered to New York State, what state has the right to collect a sales tax?
Should some heavy Internet users who consume extraordinary amounts of bandwidth by
streaming endless movies be charged extra for service, or should the Internet be neutral
with respect to usage? What rights do nation-states and their citizens have with respect
to the Internet, the Web, and e-commerce? We address issues such as these in Chapter 8,
and also throughout the text.
­ 1.7
CAREERS IN E-COMMERCE
At the beginning of this chapter, in Section 1.1, we explained why studying e-commerce
can help you take advantage of future opportunities. Because the digital Internet/­
e-commerce economy is growing rapidly and is expected to continue to do so, prospects
for employment in this area are promising. Employers in this sector are looking for a
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INSIGHT ON SOCIETY
FACEBOOK AND THE AGE OF PRIVACY
In a 2010 interview, Mark
Zuckerberg, the founder of
Facebook, proclaimed that the
age of privacy had to come to an
end. According to Zuckerberg, people
were no longer worried about sharing their
personal information online. However, many did
not agree with Zuckerberg’s vision. Privacy—
limitations on what personal information government and private institutions can collect and
use—is a founding principle of democracies. A
decade’s worth of privacy surveys in the United
States shows that well over 80% of the public
fears that the Internet and social networks such
as Facebook are threats to their privacy.
Why, then, do so many people remain
Facebook users and continue to share details
of their lives on Facebook? Often it’s because
users do not realize all the data that is being
collected about them and the purposes
for which that data may be used. Many of
Facebook’s features and services are enabled
by default, and a study by Siegel+Gale found
that Facebook’s privacy policy is more difficult to comprehend than are government
notices or typical bank credit card agreements, which are notoriously dense.
Facebook’s business model is based on
building a database of billions of users who
are encouraged, or perhaps even deceived,
into relinquishing control over personal information, which is then sold to advertisers and
other third-party developers. The less privacy
Facebook’s users want or have, the more
Facebook profits. Eliminating personal information privacy is built into Facebook’s DNA
and business model.
Zuckerberg’s remarks have haunted
Facebook over the past decade as the company has faced continual crises related to
privacy. Third-party developers, advertisers,
and Facebook employees and executives have
known for years about Facebook’s practice of
sharing users’ personal information with whomever would pay, but little of this was known
by the public until the so-called Cambridge
Analytica scandal that first came to light in
2018. Aleksandr Kogan, a psychology professor
at Cambridge University, had obtained permission from Facebook to use the personal information of Facebook users as part of a research
project on psychological profiles. Kogan used
a personality quiz app that was downloaded by
around 300,000 participants to collect the data,
which ultimately included information about not
only the participants but also about their friends
as well as their friends’ friends. The result was
a database of profiles of more than 87 million
Facebook users! Cambridge Analytica, a political and data analytics firm, obtained access to
these profiles from Kogan and then used them
to target political ads. These revelations led to
congressional hearings in which Zuckerberg
and other executives apologized for Facebook’s
failure to enforce its own privacy policies, its failure to recognize the massive drain of personal
information on 87 million users, and its failure to
protect the privacy of its users.
Public confidence in Facebook was
further shaken when it was revealed that
Facebook had data-sharing agreements with
at least 60 phone and device makers (including Apple, Amazon, Microsoft, and Samsung)
that allowed these firms access to virtually all
the personal information Facebook collected
on its on users. In addition, the personal data
of users’ friends was also shared, even when
these friends had used Facebook’s privacy
controls to explicitly choose not to have their
data shared. For instance, a New York Times
(continued)
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(continued)
reporter investigated an app called The Hub
that let users view all their messages and
social media accounts in one location. The
investigation revealed that the Hub app could
access detailed data about the reporter and
556 of her friends, as well as on 294,000
friends of the reporter’s friends, without their
consent and without regard to their Facebook
privacy settings! Spokespersons for the
device makers either declined to comment
or claimed they used the information solely to
provide an effective user experience.
Not long thereafter, a Wall Street Journal
exposé revealed that a number of popular
smartphone apps shared personal information
with Facebook even when the user wasn’t a
Facebook user and without specifically disclosing that they had done so. For instance, the most
popular heart-rate iOS app shared data about a
user’s heart rate with Facebook immediately
after it was recorded. A Realtor.com app sent
Facebook the location and price of listings that
a user viewed, also noting the user’s favorites.
Facebook then used the data to personalize ads
and content on Facebook. It was also revealed
that Facebook had suspended about 10,000
different apps for potentially misusing Facebook
users’ personal data, raising further questions
about Facebook’s failures to protect its users’
privacy.
In 2020, Facebook was finally forced
to pay a price for its failures. A federal
court approved a $5 billion fine imposed
by the Federal Trade Commission to settle
charges that Facebook had violated a previous FTC order requiring Facebook to obtain
user consent before overriding user privacy
preferences, to stop making false
statements about how much information
was shared with third-party developers, to
stop falsely claiming that users could restrict
sharing of data to limited audiences, and to
stop falsely claiming that it did not share
deep personal information with advertisers.
Facebook also had to agree to new restrictions
on its business operations and to restructure
its approach to privacy, establishing mechanisms that would supposedly ensure that
Facebook and its executives would be held
accountable for the decisions made about
privacy. Critics charged that although the fine
was the largest ever imposed on a company
for violating consumer privacy, it was largely
meaningless, given Facebook’s overall revenues and also given Facebook’s failure to
comply with similar orders in the past.
However, Facebook’s future may rely on
how it responds to its ethical challenges such
as these going forward. Over the last several
years, there has been an increasing focus
on ethical business practices and a growing
awareness that good ethics is good business.
The ESG (environmental, social, and governance) movement, which focuses on a company’s performance beyond just profit and
loss, is gaining increased traction and becoming a strategic business imperative. Facebook
says it is taking a number of steps to respond
to these challenges. However, given that
Facebook’s business model relies almost
entirely on the largely unfettered use of users’
personal information and given its past history
and business practices, it is unclear whether
Facebook can be trusted.
SOURCES: “Meta Investor Relations: Environmental Social Governance Resources,” Investor.fb.com, accessed September 29, 2022; “Meta Platforms
Inc. Form 10-K for the fiscal year ended December 31, 2021, Sec.gov, February 3, 2022; “A Timeline of Trouble: Facebook’s Privacy Record and Regulatory
Fines,” Guild.co, August 4, 2021; “Facebook’s $5 Billion Privacy Settlement Wins Court Approval,” by Ryan Tracy, Wall Street Journal, April 24, 2020;
“Facebook’s Suspension of ‘Tens of Thousands’ of Apps Reveals Wider Privacy Issues,” by Kate Conger, Gabriel Dance, and Mike Isaac, New York Times,
September 20, 2019; “A $5 Billion Fine for Facebook Won’t Fix Privacy,” New York Times, July 25, 2019; “You Give Apps Sensitive Personal Information. Then
They Tell Facebook,” by Sam Schechner and Mark Secada, Wall Street Journal, February 22, 2019; “Facebook’s Latest Problem: It Can’t Track Where Much of
the Data Went,” by Deepa Seetharaman, Wall Street Journal, June 27, 2018; “Facebook Gave Device Makers Deep Access to Data on Users and Friends,” by
Gabriel Dance, Nicholas Confessore, and Michael LaForgian, New York Times, June 3, 2018; “Facebook Says Cambridge Analytica Harvested Data of Up to 87
Million Users,” by Cecilia Kang and Sheera Frenkel, New York Times, April 24, 2018.
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wide variety of skills, and having a familiarity with the vocabulary—as well as with the
concepts—underlying e-commerce can help you as you interview and also on the job.
To illustrate, we will conclude each chapter with a section that examines an example
job posting by an e-commerce company for an entry-level position. We will give you a
brief overview of the company, some details about the position, and a list of the qualifications and skills that are typically required and then follow up with some tips about
how to prepare for an interview as well as show you how concepts you’ve learned in the
chapter can help you answer some possible interview questions. In this chapter, we
look at a job posting from one of the most familiar types of e-commerce companies: an
online retailer.
THE COMPANY
The company is a large global retailer that is rapidly expanding its online and mobile
operations. The company is seeking to develop omnichannel e-commerce capabilities
based on world-class pricing technology, automated warehouses, and an advanced fulfillment program that combines its retail stores with its online and mobile sales. The
company has hundreds of different product categories and operates multiple branded
websites.
POSITION: CATEGORY SPECIALIST IN THE E-COMMERCE
RETAIL PROGRAM
You will manage the performance of your category of products across the firm’s websites
and apps. More specifically, you will:
• Manage and monitor the introduction of new products and establish processes to
ensure they are available at stores and online.
• Improve the online user experiences of browsing and searching for products.
• Manage item and category pages including graphics, customer reviews, and content.
Find new ways in which our customers can discover products online.
• Optimize the pricing of our products, and benchmark competitors’ prices.
• Analyze product performance, identify key trends, and suggest how the firm can
improve its revenues, customer service, and margins.
• Work with cross-functional teams in marketing, customer relationship management, and supply chain management to execute initiatives to optimize category
performance.
­QUALIFICATIONS/SKILLS
• Bachelor’s degree with a strong academic background
• An entrepreneurial attitude
• Strong attention to detail
• Strong communication and teamwork skills
• Strong analytical and critical-thinking skills
• Ability to work in a fast-paced environment, face challenges, and solve problems
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• Negotiation and persuasion skills
• Fast learner, with the abilities to absorb information and experiences and then apply
them
PREPARING FOR THE INTERVIEW
The first step in preparing for an interview is to do some research about the company
you will be interviewing with as well as about the industry in general. Visit the company’s
websites, apps, and social media presence. It would also be helpful to review Sections 1.2
and 1.3 so that you can demonstrate an understanding of the basic concepts underlying
e-commerce, show that you are aware of some of the major trends that will be impacting
e-commerce in the coming year, and demonstrate that you are familiar with the basic
features underlying e-commerce technology. Being able to talk about the different
types of e-commerce (covered in Section 1.4), especially the growing importance of
m-commerce, should also be helpful. Before the interview, you should consider where
your background, such as courses taken, outside activities, and personal interests, can
be useful to the company’s business objectives. Reread the position description and
identify where you may have unique skills.
POSSIBLE FIRST INTERVIEW QUESTIONS
1. We hope to build an omnichannel presence where consumers can buy our
products online or in our physical stores, which will also have in-store kiosks
where customers can explore and order products. What challenges do you think
you will face when introducing products to an omnichannel store?
You can prepare for this type of question by visiting national retail stores that already
have an omnichannel presence and being prepared to report on your experience as a
consumer. Some of the key challenges include providing a consistent customer experience across channels, coordinating pricing, and integrating physical store sales teams
with efforts from online marketing teams.
2. Based on what you already know about our online presence, how do you think
we should expand our online activities?
You could reference the explosive growth in smartphones and m-commerce, as well as
the growth in social networks, and suggest that the firm expand its mobile and social
network presence.
­ . We’re finding that quite a few of our customers come to our website to see
3
our offerings and then buy them on Amazon. How do you think our firm can
respond to this situation?
You could approach this question by explaining why so many people use Amazon: a
great product search engine, an interface that’s easy to use, a convenient payment process, Prime shipping, and low prices. This suggests that the firm should develop websites
and a mobile app that match Amazon’s features.
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4. How can our company use social networks such as Facebook, Instagram,
TikTok, Twitter, and Pinterest to expand our business?
You could respond to this by noting that social networks are excellent branding and
product introduction tools but that purchases are more likely to be made on the company’s website.
5. We gather a tremendous amount of personal information about our online
customers. What kinds of issues do you think this poses for our company?
You could address this question by referencing the concerns that people have about
their private communications, online transactions, and postings being kept private
unless they grant permission for the release of this personal information. You may have
had some personal experiences online where you felt your privacy was being invaded.
Talk about these experiences.
6. Our online sales have grown at about 20% a year for several years. Yet many of
our customers also buy from our retail stores, sometimes based on what they see
online. Do you think our e-commerce channel will continue expanding at this
rate in the future?
You can address this question by pointing out that e-commerce currently is still a relatively
small part of total retail commerce and that you therefore believe there is plenty of room
for e-commerce to keep growing rapidly in the future. The firm’s online presence will likely
drive in-store purchases.
7. Have you ever worked on the development of a website or app for a business
or started an online business yourself? How did it work out?
Here, you will have to draw on your personal experiences, or those of friends, in using
the Web to promote a business. If you’ve had some experience you can share, be prepared to identify what made these efforts successful as well as what the challenges were
and what mistakes you made. Failure is a valuable experience to share with interviewers
because it shows you tried. If you have no experience, you can talk about an idea for an
e-commerce company that you have thought about and how you would turn it into a
successful business.
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1.8
CASE STUDY
Uber:
Everything on Demand
I
f you were asked to pick iconic examples of e-commerce through the years since
it began, it is likely that companies such as Amazon, Google, Apple, Facebook,
and Netflix would be high on your list. But during the last decade or so, a different breed of e-commerce company, focused on the provision of on-demand
services, has muscled its way into the mix.
Uber is perhaps the most well-known company that uses the on-demand service
model. Uber’s business model differs from traditional retail e-commerce business models.
Uber doesn’t sell goods. Instead, it created a smartphone app/Internet cloud-based platform that enables people who want taxi services—like hailing a taxi—to find a provider
with the resources, such as a personal automobile and a driver with available time, to fill the
demand. It’s important to understand that although Uber and similar firms are often called
“sharing economy” companies, this is a misnomer. Uber drivers are selling their services as
drivers and the temporary use of their cars. Uber itself is not in the sharing business, either:
It charges a 20% commission on every transaction on its platform. Uber is also not an
example of true “peer-to-peer” e-commerce because Uber transactions involve an online
intermediary: a third party that provides a platform for, and takes a cut of, all transactions.
© PhotographerIncognito/Shutterstock
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Uber offers a compelling value proposition for both customers and drivers. Cus­
tomers can download the Uber app for free. There is also a specialized app for drivers. To
find a ride, the customer opens the app and enters a destination. The app shows an estimated, upfront price for the ride as well as options for vehicle size and estimated dropoff time. The customer then chooses the desired options and confirms the trip. Nearby
drivers get an in-app notification on their Driver app and can choose whether to accept
the ride request. The customer is automatically notified when the driver’s vehicle is about
a minute away, thus eliminating the need to stand on a street corner frantically waving,
competing with others, or waiting endlessly for an available cab to drive by without knowing when that might happen. Uber provides a variety of payment options, including a
stored credit or debit card, Uber Cash (a stored payment method), Apple Pay, Google Pay,
PayPal, Venmo, and, in some areas, even cash. At the end of each ride, drivers and riders
review the ride based on a five-star rating system. Drivers that fall below a certain rating
(4.6/4.5) are warned that they may be dropped if they don’t improve. Customers that have
high ratings are likely to be prioritized by drivers, who can also refuse to pick up customers with low ratings. Uber’s value proposition for drivers is that it allows them to set their
own hours, work when they like, and put their own cars to use generating revenue. Today
Uber operates in around 10,000 cities in 72 countries around the world, with an estimated
4 million drivers and around 115 million riders per month.
Uber has disrupted the traditional taxi business model because it offers a superior,
fast, convenient taxi-hailing service when compared to what traditional taxi companies provide. With a traditional taxi service, there is no guarantee that you will find a
cab. Uber significantly reduces that uncertainty, although consumers can still sometimes be impacted by availability issues: During a rainstorm, a convention, or a sports
event, when demand peaks, not enough drivers may be available at any price. Uber also
charges prices that vary dynamically with demand: the higher the demand, the greater
the price of a ride. Therefore, it is impossible using public information to know if Uber’s
prices are lower than traditional taxi prices. Clearly, in high-demand situations Uber’s
prices are higher, sometimes 10 times higher, than a regulated taxi’s prices. However,
there is no regulatory taxi commission setting uniform, per-mile fares.
Uber’s business model is also much more efficient than a traditional taxi firm’s.
Uber has shifted the costs of running a taxi service entirely to the drivers. Uber does
not own taxis and does not provide fuel, insurance, or maintenance for its drivers’ cars,
something that became increasingly problematic in 2022 as fuel prices dramatically
escalated. Although Uber began adding a fuel surcharge in March 2022 of between 35 to
55 cents per ride or delivery, drivers said that it was far from adequate. Drivers must also
use their own smartphones and cell service. Uber classifies its drivers as independent
contractors (often referred to as “gig workers”), not as employees; and rather than paying them a salary, Uber gives drivers a cut of each fare. Doing so enables Uber to avoid
costs for social security, workers’ compensation, minimum wage requirements, driver
training, health insurance, and commercial licensing.
If Uber is the poster child for the on-demand service economy, it’s also an iconic
example of the social costs and conflicts associated with this kind of e-commerce. The
classification of its drivers as independent contractors, which significantly reduces
Uber’s costs, is currently being challenged in courts, by legislators, and by government
agencies in the United States and around the world. Uber is apparently so desperate to
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maintain this classification of its drivers that it is backing bills that would classify its
drivers as independent contractors in exchange for agreeing not to try to block their
efforts to unionize. Uber has also been the target of numerous lawsuits filed on behalf of
its drivers, accusing the company of mistreatment, lack of due process, underpayment,
and violation of state employment laws.
Even governments find Uber to be a disruptive threat. Governments do not want to
give up regulatory control over passenger safety, driver training, or the healthy revenue
stream generated by charging taxi firms for a taxi license and sales taxes. Uber has been
accused of violating public transportation laws and regulations throughout the world;
abusing the personal information it has collected on users of the service; seeking to
use personal information to intimidate journalists; failing to protect public safety by
refusing to do adequate criminal, medical, and financial background checks on its drivers; taking clandestine actions against its chief U.S.-based competitor, Lyft, in order to
disrupt its business; and being tone-deaf to the complaints of its own drivers against
the firm’s efforts to reduce driver fees. Uber has been banned in several European cities.
For instance, in London, Transport for London, the regulatory body that governs taxi
services in London, has repeatedly tried to revoke Uber’s license to operate, based on
concerns about user safety. Currently, Uber is operating under a 30-month license, after
adding a number of safety features, such as an in-app panic button. More significantly,
the Court of Justice of the European Union, the European Union’s most powerful court,
has ruled that Uber should be treated as a transportation service—and be subject to all
of the existing laws and regulations that apply to such services in the EU member countries in which it operates—rather than as a digital platform not subject to such laws and
regulations, as Uber had been attempting to assert.
Critics also fear the long-term impact of on-demand service firms because of their
potential for creating a society of part-time, low-paid, temp work displacing traditionally full-time, secure jobs—the so-called “uberization” of work. As one critic put it,
Uber is not the Uber for rides as much as it is the Uber for low-paid jobs. A study by the
MIT Center for Energy and Environmental Policy Research found that after taking into
account costs such as fuel, insurance, maintenance, and repairs, Uber drivers earn less
than the minimum wage. Uber contends that it is lowering the cost of transportation,
making better use of spare human and financial resources, expanding the demand for
ride services, and expanding opportunities for car drivers, whose pay it claims is about
the same as that of other taxi drivers. Uber has also taken some remediating steps. It
enhanced its app to make it easier for drivers to take breaks while they are on the job.
Drivers can now also be paid instantly for each ride they complete rather than weekly
and see on the app’s dashboard how much they have earned. In addition, Uber added
an option to its app that allows passengers to tip its U.S. drivers.
Over the last several years, Uber has been hit by a series of continuing controversies and scandals, creating a public relations nightmare for the company and culminating in the resignation of a number of board members, senior executives, and finally its
­co-founder and CEO, Travis Kalanick. It was charged with corporate mismanagement
and misconduct (including using a secret program known as Greyball to track and
evade regulators and other law enforcement officials), workplace discrimination and
sexual harassment, and violation of the privacy of its customers by using its mobile app
to track the location of those customers at all times, even when the app was not in use.
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Case Study
In December 2021, its former chief security officer was charged with wire fraud in addition to a previous obstruction of justice charge related to his role in an alleged cover-up
of a data breach at Uber that exposed approximately 57 million user and driver records.
In July 2022, the Washington Post announced its participation in an international journalistic investigation into Uber’s alleged use of stealth technology to thwart regulators
and law enforcement in order to assist its expansion throughout the world. The project
is based on more than 124,000 e-mails, text messages, memos, and other records. In a
statement in response to the investigation, Uber admitted to “mistakes and missteps,”
but said it had been transformed under the leadership of its current chief executive,
Dara Khosrowshahi.
Despite the controversy surrounding it, Uber continues to attract drivers, customers, and additional investors. In 2019, Uber went public, raising more than $8 billion at a
valuation of about $82 billion, which although a staggering amount, was well below the
$120 billion value initially floated by its investment bankers. During 2019, Uber’s stock
price declined significantly, losing almost half its value since the IPO. Then came the
Covid-19 pandemic, which had an adverse impact on Uber’s business, drastically reducing the demand for ride services. In 2021, it recorded an operating loss of $3.8 billion,
and its accumulated deficit rose to an astounding $23.6 billion. It also experienced a
shortage of drivers as a result of the pandemic.
Although Uber began business solely as an alternative to traditional taxis, it has
expanded its horizons to envisioning itself as a platform for a variety of different services associated with the movement of people and things from one point to another.
While its flagship offering is still what it refers to as mobility services that provide
rides for consumers in a variety of vehicles, it now also is almost as equally focused on
restaurant food delivery services (Uber Eats) and freight services (Uber Freight). It sees
itself as the “Amazon” of transportation, with the potential to become the dominant
force in all forms of transportation. But Uber faces significant challenges in each of
these areas.
In the wake of the pandemic, Uber turned to Uber Eats, its online ­food-ordering
and delivery service, which became much more in demand. In December 2020, after
an attempt to acquire food delivery service Grubhub failed to come to fruition, Uber
instead acquired competitor Postmates for $2.65 billion. It had previously acquired
Careem, a rival in the Middle East, for $31 billion. Uber faces stiff competition in the
delivery business, including from DoorDash, Deliveroo, Instacart, Grubhub, and many
others. In a sign that Uber may be finding it hard to let go of its dreams of dominating
all sorts of transportation-related services, it has announced a variety of new features
for Uber Eats that expand its core value proposition. For instance, it has partnered with
a direct-to-consumer telehealth company to deliver health and wellness products in 12
markets across the United States via the Uber Eats app. It has also teamed up with digital
pharmacy startups to deliver prescription medications. In May 2022, it announced an
expansion of its partnerships with Albertsons to include grocery delivery for more than
2,000 Albertsons stores.
One of Uber’s newer lines of business is its Uber Freight segment, which it launched
in 2017. Uber is aiming to revolutionize the logistics industry in much the same way it revolutionized the ride-hailing business: by providing an on-demand platform to automate
logistics transactions. The platform connects shippers with carriers and gives shippers
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SOURCES: “Form 10-K for the
Fiscal Year Ended December
31, 2021, Uber Technologies,
Inc., Sec.gov, February 21,
2023; “About the Uber Files
Investigation,” by Washington
Post Staff, Washingtonpost.com,
July 11, 2022; “‘We Will Not Make
Excuses’: Uber Responds to Uber
Files Leak,” Theguardian.com,
July 10, 2022; “Uber Granted
30-Month License to Continue
Operating in London,” by
Emma Roth, Theverge.com,
March 26, 2022; “Uber Drivers
Are Slamming the Company’s
Fuel Surcharge as ‘Woefully
Inadequate,’” by Gabrielle
Bienasz, Businessinsider.com,
March 16, 2022; “Gig Workerfocused Business Models Face
a Host of Challenges,” by Zak
Stambor, Insider Intelligence/
eMarketer, March 9, 2022;
“Form 10-K for the Fiscal Year
Ended December 31, 2021,”
Uber Technologies, Inc., Sec.
gov, February 24, 2022; “Former
Uber Security Officer to Face Wire
Fraud Charges,” by Rhea Patel,
Justice.gov, December 22, 2021;
“Uber Acquires Food Delivery
Service Postmates for $2.65B” by
Stephanie Mlot, Pcmag.com, July
6, 2020; “Uber Unveils New Safety
Features amid Scathing Report,”
Cbsnews.com, September 26,
2019; “Culture Crossover: Uber
Impact: The Cost and Disruption
and Monopoly,” by Somrata
Sarkar, Techworld.com, May 17,
2019; “How the Promise of a
$120 Billion Uber IPO Evaporated,”
by Mike Isaac, Michael J. de la
Merced, and Andrew Ross Sorkin,
New York Times, May 15, 2019;
Eliot Brown, “Uber Wants to Be
the Uber of Everything—But Can
It Make a Profit?” Wall Street
Journal, May 4, 2019; “MIT Study
Shows How Much Driving for
Uber or Lyft Sucks,” by Natasha
Lomas, Yahoo.com, March 2,
2018; “Uber Dealt Setback after
European Court Rules It Is a Taxi
Service,” by Liz Alderman, New
York Times, December 20, 2017;
“Here’s All the Shady Stuff Uber’s
Been Accused of So Far,” by Joe
McGauley, Thrillist.com, March
7, 2017; “An Uber Shakedown,”
Wall Street Journal, April 24, 2016;
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“Uber Settlement Takes Customers
for a Ride,” by Rob Berger, Forbes,
April 22, 2016; “Twisting Words
to Make ‘Sharing’ Apps Seem
Selfless,” by Natasha Singer,
New York Times, August 9, 2015;
“How Everyone Misjudges the
Sharing Economy,” by Christopher
Mims, Wall Street Journal, May
25, 2015; “The On-Demand
Economy Is Reshaping Companies
and Careers,” The Economist,
January 4, 2015; “The On-Demand
Economy: Workers on Tap,” The
Economist, January 3, 2015.
upfront, transparent pricing; the ability to book a shipment with just a few clicks; and
the ability to track shipments in real time from pickup to delivery. To date, Uber has
invested heavily in its Uber Freight segment, and in 2021, it acquired Transplace, a managed transportation and logistics network, for $2.25 billion. Like Uber’s other lines of
business, Uber Freight’s revenue is growing, particularly as a result of its acquisition of
Transplace, but it is still operating at a loss. Uber Freight also faces significant competition from a number of already-entrenched global and North American freight brokers.
In February 2023, Uber released its financial results for 2022. It was in many senses a
promising report, as revenue for all of its segments grew by more than 80% compared to
2021, to $31.8 billion. But it once again recorded a loss from operations. Will Uber ever be
able to consistently turn a profit?
Case Study Questions
1. How does an on-demand services business model such as Uber’s differ from a
retail e-commerce business model?
2. What ethical and social issues are raised by Uber and its business model?
3. What unique features of e-commerce technology does Uber’s business model rely on?
1.9
REVIEW
KEY CONCEPTS
■ Understand why it is important to study e-commerce.
•
The next five years hold out exciting opportunities—as well as risks—for new and traditional businesses to
exploit digital technology for market advantage. It is important to study e-commerce in order to be able to
perceive and understand these opportunities and the risks that lie ahead.
■ Define e-commerce, understand how e-commerce differs from e-business, identify the primary technological building
blocks underlying e-commerce, and recognize major current themes in e-commerce.
•
•
•
•
E-commerce involves digitally enabled commercial transactions between and among organizations and
individuals.
E-business refers primarily to the digital enabling of transactions and processes within a firm, involving
information systems under the control of the firm. For the most part, unlike e-commerce, e-business does not
involve commercial transactions across organizational boundaries where value is exchanged.
The technology juggernauts behind e-commerce are the Internet, the Web, and the mobile platform.
­From a business perspective, one of the most important trends to note is that all forms of e-commerce
continue to show very strong growth. From a technology perspective, the mobile platform has finally arrived
with a bang, driving growth in mobile advertising and making true mobile e-commerce a reality. At a societal
level, major issues include privacy and government surveillance, protection of intellectual property, online
security, and governance of the Internet.
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■ Identify and describe the unique features of e-commerce technology and discuss their business significance.
There are eight features of e-commerce technology that are unique to this medium:
• Ubiquity—available just about everywhere and at all times, making it possible to shop from your desktop, at
home, at work, or even in your car.
• Global reach—permits commercial transactions to cross cultural and national boundaries far more
conveniently and cost-effectively than is true in traditional commerce.
• Universal standards—shared by all nations around the world, in contrast to most traditional commerce
technologies, which differ from one nation to the next.
• Richness—enables an online merchant to deliver marketing messages in a way not possible with traditional
commerce technologies.
• Interactivity—allows for two-way communication between merchant and consumer and enables the merchant
to engage a consumer in ways similar to a face-to-face experience but on a much more massive, global scale.
• Information density—the total amount and quality of information available to all market participants. The
Internet reduces information collection, storage, processing, and communication costs while increasing the
currency, accuracy, and timeliness of information.
• Personalization and customization—the increase in information density enables a level of personalization and
customization unthinkable with previously existing commerce technologies.
• Social technology—provides a many-to-many model of mass communications. Millions of users are able to
generate content consumed by millions of other users. The result is the formation of social networks on a
wide scale and the aggregation of large audiences on social network platforms.
■ Describe the major types of e-commerce.
There are six major types of e-commerce:
• B2C e-commerce involves online businesses selling to consumers and is the type of e-commerce that most
consumers are likely to encounter.
• B2B e-commerce involves online businesses selling to other businesses and is the largest form of e-commerce.
• C2C e-commerce is a means for consumers to sell to each other with the help of an online market maker.
• M-commerce involves the use of mobile devices to enable online transactions.
• ­Social e-commerce is e-commerce that is enabled by social networks and online social relationships.
• Local e-commerce is a form of e-commerce that is focused on engaging consumers based on their current
geographic location.
■ Understand the evolution of e-commerce from its early years to today.
E-commerce has gone through three stages: invention, consolidation, and reinvention.
• The early years of e-commerce were a technological success, with the digital infrastructure created during the
period solid enough to sustain significant growth in e-commerce during the next decade, and mixed business
success, with significant revenue growth and customer usage but low profit margins.
• E-commerce entered a period of consolidation beginning in 2001 and extending into 2006.
• E-commerce entered a period of reinvention in 2007 with the emergence of the mobile platform, social
networks, and Web 2.0 applications that attracted huge audiences in a very short time span.
■ Describe the major themes underlying the study of e-commerce.
E-commerce involves three broad, interrelated themes:
• Technology—To understand e-commerce, you need a basic understanding of the information technologies
upon which e-commerce is built, including the Internet, the Web, the mobile platform, and a host of
complementary technologies—cloud computing, desktop computers, smartphones, tablet computers, local
area networks, client/server computing, packet-switched communications, protocols such as TCP/IP, web
servers, HTML, and relational and non-relational databases, among others.
• Business—While technology provides the infrastructure, it is the business applications—the potential for
extraordinary returns on investment—that create the interest and excitement in e-commerce. Therefore, you
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also need to understand some key business concepts such as digital markets, information goods, business
models, firm and industry value chains, industry structure, and consumer behavior in digital markets.
Society—Understanding the pressures that global e-commerce places on contemporary society is critical
to being successful in the e-commerce marketplace. The primary societal issues are intellectual property,
individual privacy, and public policy.
•
QUESTIONS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
What does omnichannel mean in terms of e-commerce presence?
What is the deep Web?
What are some of the unique features of e-commerce technology?
What are some of the factors driving the growth of social e-commerce?
­Why is it likely that the Internet and e-commerce are entering a period of closer regulatory oversight?
How does the ubiquity of e-commerce impact consumers?
What impact does the increased interactivity provided by e-commerce technologies have on business?
What difficulties are presented in trying to measure the number of web pages in existence?
Why is the mobile platform not just a hardware phenomenon?
What is conversational commerce and how does it relate to m-commerce?
Describe the three different stages in the evolution of e-commerce.
Define disintermediation and explain the benefits to Internet users of such a phenomenon. How does
disintermediation impact friction-free commerce?
What is the difference between a PWA and a regular app?
What is driving the growth of social e-commerce?
Discuss the ways in which the early years of e-commerce can be considered both a success and a failure.
What are five of the major differences between the early years of e-commerce and today’s e-commerce?
How do the Internet and the Web fit into the development of corporate computing?
Why is the term “sharing economy” a misnomer?
What have been some of the surprises that have occurred in the evolution of e-commerce?
What is the metaverse?
PROJECTS
1. Choose an e-commerce company, and assess it in terms of the eight unique features of e-commerce
technology described in Table 1.2. Which of the features does the company implement well, and which
features does it implement poorly, in your opinion? Prepare a short memo to the president of the company
you have chosen, detailing your findings and any suggestions for improvement you may have.
2. Search online for an example of each of the major types of e-commerce described in Section 1.4 and
listed in Table 1.3. Create a presentation or written report describing each company (take a screenshot of
each home page, if possible), and explain why it fits into the category of e-commerce to which you have
assigned it.
3. Given the development and history of e-commerce in the years 1995–2022, what do you predict we will
see during the next five to seven years of e-commerce? Describe some of the technological, business, and
societal shifts that may occur as the Internet continues to grow and expand. Prepare a brief presentation or
written report to explain your vision of what e-commerce will look like in 2030.
4. Prepare a brief report or presentation on how businesses are using Instagram or another social network of
your choosing as a social e-commerce platform.
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