A Conceptual
Investigation
of the E-commerce
Industry
Classifying structures for providing products and
services in the electronic marketplace.
Electronic commerce, or activities
that directly support commerce by
means of electronic (networked) connections, is redefining the very foundations of competitiveness in terms of
information content and information
delivery mechanisms. Flows of information over international networks
have created an electronic marketspace
[8] of firms that are learning to exploit
business opportunities. Those that
embrace e-commerce are predicted to
succeed and those that do not are
expected to fail [6, 10].
Little, however, is understood about
the structure of the e-commerce industry. To compete effectively, firms need a
useful classification scheme for the
e-commerce market, its products and
services.
The e-commerce industry is comprised of a variety of products and services, including: hardware components
(routers, firewalls, digital switches,
servers, and workstations); software
products (HTML editors, Java development environments, EDI applications,
network user interfaces, browsers,
groupware, middleware, and so forth);
network elements (wireless, cable, and
satellite networks, and Web-based telephony); and other transmission network
services (the Internet and virtual private
VANs). Other critical components
Veda C. Storey, Detmar W. Straub, Kathy A. Stewart,
and Richard J. Welke
COMMUNICATIONS OF THE ACM July 2000/Vol. 43, No. 7
117
Table 1. Sample of e-commerce objects created for Q-sort task.
E-Commerce
Object
Digital Money
Hardware
Manufacturers
“Electronic
Community”
Service
Providers
Definition
Organizations that manufacturer hardware
that provides digital cash, tokens, or other
monetary forms.
Organizations that provide services to
their subscribers which allow them to
interact with and teach others, engage in
discussions, and create common-interest
resource Web pages.
Example
Mastercard
SmartCard
Prodigy Chat, www.tripod.com
Tripod
Table 2. Sample object pairings
for data analysis.
Object number 4
occurred
occurred
occurred
occurred
occurred
14
1
2
24
1
times with object #1
time with object #2
times with object #3
times with object #5
time with object #6
Table 3. Industry classes in the
exploratory study.
1. Network access services
2. E-commerce-related hardware manufacturing
3. E-commerce management
4. Electronic billing and payment services
5. Electronic billing and payment software
6. E-commerce security
7. E-commerce infrastructure design, installation, and
maintenance
8. Server and network administration software
9. Software for e-commerce content delivery and
presentation
10. E-commerce publishing software
include intellectual services, systems integration, and
consulting. Moreover, the industry requires mechanisms for managing the Internet and dealing with
overriding public policy concerns such as universal
access, privacy, encryption, and information pricing.
Finally, there are also issues of technical standards and
compatibility across networks.
One way of conceptualizing the e-commerce
industry is to think of it as a traditional supplydemand process. The “players,” are broadly classified
as e-commerce suppliers—providers of technological
infrastructure and of intermediary services—and
users who consume the technologies and services to
reach other users [11]. Suppliers are responsible for
providing: the technology (networks, routers, Internet access, Web servers, and security firewalls); the
design, installation, and maintenance of e-commerce
content (for example, Web site management, digital
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July 2000/Vol. 43, No. 7 COMMUNICATIONS OF THE ACM
URL
www.mastercard.
com/newways
currency back-up, and validation
of transactions); and intermediary services (processing electronic
bill payments, value-added Web
searches, electronic invoicing,
and so forth).
Understanding the
E-commerce Industry
In order to assess the current
composition of the e-commerce
industry, a validation study of ecommerce industry providers and products was conducted. Such a classification is useful for both
e-commerce providers and users. It allows managers
to focus on smaller, more integral units for purposes
of technology forecasting, trend analysis, planning
and strategizing. Moreover, it allows providers to
better understand the competitive and cooperative
dynamics of their industry as well as the marketplace. Furthermore, an empirically derived classification of the industry allows researchers to study
phenomena that are more similar in strategy and
customer perception.
To explore the intricacies of how a market functions, industries are often divided into segments.
Standard industrial classification (SIC) codes are one
of the best-known industry classification schemes [5].
The industry classification proposed for e-commerce
is being carried out in the same spirit: the e-commerce industry will be characterized by substructures
or units that share certain characteristics.
Several models of e-commerce have focused on the
technology necessary for e-commerce [1, 3, 4, 12].
Unfortunately, none of the models makes an explicit
attempt to classify the e-commerce industry in the
same manner as the SIC codes. Nor, given a lack of
empirical validation, do the models provide a ready
basis for predicting how the e-commerce industry can
or will develop.
To identify classes of the e-commerce industry, the
research team used Q-sorting. Participants were asked
to sort a set of cards with descriptive items related to
the industry into short stacks based on perceived similarities among the items [2]. The descriptive items
are termed e-commerce objects, that is, groups or
organizations that offer products or service that are of
value to e-commerce users.
Consistent with other studies [9], the sorting exercise was carried out in three phases. In the first phase,
researchers examined the trade literature and searched
the Web to identify salient and representative EC
objects. From this, 61 e-commerce objects were created (see Table 1), which were transferred to index
cards. The initial list of products and services reflected
what e-commerce providers thought to be representative, mutually exclusive, and exhaustive at the time.
During phase 2, categories were created that could
conceptually contain a number of the descriptive
items related to the industry. Forty academics studying e-commerce, client/server computing, telecommunications, and networking participated.
Participants sorted the objects into a self-determined
number of categories based on perceived similarities
among these objects [7]. The frequencies of pairings
of the objects were then analyzed to determine how
often each object was placed into a category with others. For example, Table 2 depicts how object #4 was
paired 14 times with object #1, once with object #2,
and so forth.
To derive industry classes, frequencies of pairings
among objects were analyzed. More than 50% of the
participants classifying two objects together was used
as a heuristic to form a preliminary class. For each
object (#4 in Table 2, for example), all other objects
with a pairing frequency greater than or equal to
50% were pooled together into one category.
Seven categories out of a total of eight clearly
repeated. The cut-off pairing frequency for the
eighth group was raised to a higher required frequency of pairings in order to identify more clearly
which objects belonged together. As a result, three
additional categories were created for a total of 10.
Each group was labeled according to “themes” that
repeated among the objects in each group. The
resulting categories are shown in Table 3.
During phase 3, participants were asked to sort ecommerce objects into the 10 prespecified classes
shown in Table 2. Participants were told, however,
that they need not force fit objects and could have a
separate group of unclassifiable objects.
The objective was to create classes of providers as
perceived by users of the products and services rather
than technological classes. Thus, classes reflect not
how provider insiders viewed the structure of their
own industry, but how informed outsiders viewed it.
Since the goal was to obtain an external view of the
industry, participants were chosen on the basis of their
role as users of e-commerce, their role in their organization, and their knowledge of the industry.
Organizations with a significant e-commerce initiative under way were selected. Within these large,
medium, and small organizations in several regions of
the U.S., managers in charge of the initiative were
solicited. Fifty-five strategists and technologists representing a variety of organizational types participated.
Table 4 shows the wide diversity in the sample. Nearly
one-third of the participants represented firms whose
Figure 1. Structure of the e-commerce industry.
erce
E-comm
merce
t/
Paymen re E-com are
w
a
w
rd
ft
a
o
H
S
Billing
Makers
E-commerce
Payment/
Billing Services
Web
Integrating
Software
Clientside
Software
Network
Access
Services
erce
E-comm rs/
e
erce
Design
rs E-comm y
Installe
it
Secur
Serverside
Software
merce
E-com t.
Mgm
Table 4. Summary of participant characteristics.
Organizational
% of
Type
Participants Representative Titles
Computer
35%
President, CEO, VP Technical
Services
Operations, VP Information Systems,
Director Internet Marketing
Insurance
25%
President, CIO, Executive VP,
Director of e-commerce, VP of
e-commerce Marketing
Manufacturing
11%
Director of Telecommunications,
EDI Manager, Director Customer
Information Services
11%
Professional
CIO/VP, Global Practice Director
Services
e-commerce, Senior Consultant,
Web Developer
6%
Financial
Exec.VP of Information Systems,
Services
Project Manager, Vice President of
Multimedia Resources
4%
Education
Director of Departmental
Computing, Programmer Analyst
8%
Other
Director of Emerging Technologies,
(Hospitality,
Senior Network Analyst, Director
Health care,
of Information Systems, eFood/Beverage,
commerce Development Manager
Transportation)
annual revenues exceeded $1 billion or were Fortune
500 companies.
E-commerce Industry Classes
The results of empirical testing were industry subgroupings termed e-commerce industry classes,
which describe roles and players in the industry.
Figure 1 gives an overview of the findings by placing the classes within the context of an industry value
chain. Consumers are portrayed as users of “clientside” software and hardware. Businesses offering their
COMMUNICATIONS OF THE ACM July 2000/Vol. 43, No. 7
119
Table 5. E-commerce industry classes.
Class
1 - Network Access
Services Providers
Description
Example
Organizations that offer common carrier services,
Internet access services, cable TV services,
“Electronic Community” services
AT&T, Sprint, Compuserve, Comcast, Media One, Prodigy
Chat, Tripod, GeoCities
Organizations that manufacture PC hardware,
Internet appliances, modems, point-of-sale
hardware, servers, TV set-top boxes, cable
modems, routers and switches, digital moneyoriented hardware, information kiosks
Dell's Dimension computers, Web TV network computers,
US Robotics, Verifone's credit card reader, Dell's network
servers, Web TV's set tops, Digital's Channel Works Internet
Router, Cisco's routers, MasterCard SmartCard, Kiosk
Information Systems (KIS) kiosk hardware platform
Organizations that manage the Internet, set
communication protocol standards
American Registry for Internet Numbers, ATM Forum,
Internet Network Information Center (INTERNIC) TCP/IP
4 - E-Commerce
Payment/Billing
Services Providers
Organizations that process electronic payments,
provide electronic receipt and payment of bills,
offer electronic money services, provide Internet/
e-commerce banking service
Security First Virtual Bank, NetCash, Mastercard, First
Union CyberCoin, First Union National Bank
5 - E-Commerce
Payment/billing
Software Providers
Organizations that create software for use with
electronic money, electronic billing and bill
payment, micropayments, point-of-sale
Microsoft Wallet, Quicken, Microsoft Money, CyberCash's
CyberCoin, NationsBank Home Banking software, Verifone's
embedded payment-processing software
6 - E-Commerce
Security Providers
Organizations that create software for Internetoriented security, firewalls, communication
security services, digital signatures, network
security, set encryption and Internet security
digital signature standards
Internet Security Systems (ISS) Intranet Scanner software,
CyberGuard Firewall 3.0, Bell Atlantic's Mobile Authentication
service. AT&T SecretAgent. MIT's Kerberos.Visionics' FaceIT,
McAfee's antivirus, U.S. Government, Visa and Mastercard's
SET (Secure Electronic Transactions) standard, Internet Privacy
Coalition, National Institute of Standards and Technology
7 - E-Commerce
Designers/Installers
Organizations that install corporate intranets,
network hardware and software. Web-oriented
software, maintain Internet and Web technologies,
offer Web design services
Lotus Consulting, Andersen Consulting, EDS Consulting,
IM&C Web design and hosting services
8 - Server-Side
Software Providers
Organizations that develop software for network
administration and server software
Novell Netware, Network General's Snooper, Microsoft's
Merchant server, Lotus Domino, Merchant
9 - Client-Side
Software Providers
Organizations that create software for working
with multimedia content on the Web, interactive
TV for delivering video-on-demand, plug-ins,
Web browsers, Webcasting software, infromation
retrieval over the Internet
Silicon Graphics Cosmo Player for VRML, Microware Systems'
DAVID software, Active Imaging Mv-NET, Progressive
RealAudio, Netscape Communicator, Microsoft Internet
Explorer, Marimba Castanet, Pointcast, Digital's Altavista
search engine, Yahoo!
Organizations that make software for Web
publishing, Web-authoring software
Adobe Acrobat, Microsoft Word HTML plug-in, Microsoft
Frontpage, Corel Wordperfect
2 - E-Commercerelated Hardware
Manufacturers
3 - E-Commerce
Management Providers
10 - Web Integrating
Software Providers
goods and services via e-commerce are envisioned as
users of e-commerce on the “server-side.” Principal
intermediaries in the process are services for processing,
certifying, and handling billing and payments of ecommerce transactions. Certain activities—e-commerce management, design/installation/maintenance
services, and security—play a role throughout the value
chain and are represented in that manner. Software
required for e-commerce payment and billing as well as
hardware apply to both server and client sides. Lines
with arrows in the diagram represent flows of information; lines without arrows represent applicability.
Participants agreed on the classification of 51 out
of the 61 e-commerce objects, so 10 objects were
eliminated. For the remaining classified objects, there
were a number of completely expected results, and
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July 2000/Vol. 43, No. 7 COMMUNICATIONS OF THE ACM
some major surprises. It was anticipated, for example,
that server hardware would be categorized by the
majority of participants in the hardware manufacturing class—86% of the participants did, indeed, classify it as such. But other objects were put in classes
not posited during the exploratory phase. For
instance, the Visa and MasterCard SET (Secure Electronic Transaction) standards object was predicted to
belong to an e-commerce management segment.
However, 68% of the participants in the confirmatory phase chose to categorize it in the e-commerce
security class. The results are summarized in Table 5.
Class 1: Network access services providers. In the
network access services class, e-commerce objects were
categorized as predicted. Common carriers such as
AT&T and British Telecomm were perceived as being
in the same industry group as ISPs and cable companies. Interestingly, value-added services involved in creating electronic communities also appeared.
Class 2: E-commerce-related hardware manufacturers. The e-commerce hardware industry sub-sector
is the most clearly defined part of the industry. With
an average consensus level of 83%, this area had the
highest overall agreement about constituency. Products such as PC hardware and server hardware were
seen as being closely related. Even hardware specifically designed to support electronic billing and payment was perceived as being primarily a hardware
product. Only 4 of the original posited 10 e-commerce hardware objects were retained. Six that were
predicted to be associated with specific electronic
billing/paying areas of e-commerce, such as “digital,
money-oriented hardware,” were classified as plain
hardware by participants.
Class 3: E-commerce management providers.
The lack of a cohesive set of beliefs about how the
Internet and e-commerce should be managed is likely
reflected in the few objects that remained in this class
(8 e-commerce objects posited; 2 retained). This class
showed more changes during the confirmatory phase
than any other. It was expected that many of the standards bodies (other than the communication protocols standards bodies that was retained) would be
associated with managing the development of e-commerce, but apparently the participants did not feel this
way. Management groups intended purely for governance, groups such as the Internet Society, would
likely fit into this segment. Curiously, groups interested in privacy issues were thought to be more closely
related to e-commerce security by participants.
Class 4: E-commerce payment/billing services
providers. Banks and information providers of various types were categorized into this class, as predicted
(4 e-commerce objects posited; 4 retained). This class
obviously includes major new intermediaries of ecommerce. Large and/or first mover banks, as well as
credit card companies, will likely be competing for
business in this industry class.
Class 5: E-commerce payment/billing software
providers. This class also came out nearly as predicted
(6 e-commerce objects posited; 5 retained). Participants viewed this type of software as being distinct
from the class that services invoicing and payment
portions of the value chain.
Class 6: E-commerce security providers. Originally, this class was expected to have only 6 objects. In
the final analysis, however, 5 of those predicted were
retained and another 4 were selected by participants
from other exploratory classes, yielding a total of 9
objects. Participants chose to bundle anything related
to asset protection, privacy, and security standards
into this critical segment. Like the e-commerce hardware class, security involved an expansive set of activities, but one clearly organized around the central
theme of security.
Class 7: E-commerce designers/installers. This is
a purely service class that factored out exactly as anticipated in the exploratory work (6 e-commerce objects
posited; 6 retained). Installation, maintenance, and
design of Web-based and EDI products are at the
heart of this part of the industry. The major systems
integrators are likely to be in fierce competition with
each other.
Class 8: Server-side software providers. This class
was very restricted, with only 2 of the original 5
objects retained. Except for software for network
operating systems or administrative support and software that clearly ran only on the server itself, no other
server software fulfilled the criteria for this group.
Notably, server applications such as email were not
categorized in this class. Opinions were divided
enough so that human communication software was
not viewed as a client-side application either, with the
final result being an unclassified e-commerce object
“Organizations that build software for person-toperson communication.”
Class 9: Client-side software providers. This class
underwent a great deal of transformation. Browsers
and other server-client software were seen in a pragmatic, rather than technical, light by the participants.
Technically, browsers interface network, server, and
client processes, but participants chose to view them
as client-side applications. A number of the other
objects in this category underwent the same conversion, including Webcasting software and information
retrieval/search software. Of the 4 objects predicted
for this segment, all 4 were retained, but another 3
were added.
Class 10: Web integrating software providers.
This class was more limited than expected (9 e-commerce objects posited; 2 retained). Participants did
not choose to include backend software such as Cold
Fusion, nor did they consider Webcasting or browsing
software as belonging to this class, as originally
expected. The category is strictly limited to software
that allows one to convert documents, images, or
multimedia to Web pages. Several of the objects predicted for this class moved to client-side applications.
Opportunities and Challenges for Each
Industry Class
Several objects were not readily categorized by participants. Where software technically resides was
much less critical to participants than where inforCOMMUNICATIONS OF THE ACM July 2000/Vol. 43, No. 7
121
mational results were delivered. Participants were
inclined to categorize all Web applications that
delivered information directly to the client as clientside applications, regardless of where these applications actually resided. Information retrieval
applications such as Digital’s AltaVista search engine
and PointCast’s Marimba were categorized by half of
the participants as client-side software even though
the software actually resides on the server side of the
exchange. Software that integrates Web content for
Web applications, such as browsers, was also considered a client-side tool.
Classifying other applications that utilize both
servers and clients for their full functionality also
Classifying E-commerce
or firms to compete successfully in e-commerce, they must understand the structure of
the e-commerce industry and the roles of its many
and varied players. A useful classification scheme
for e-commerce providers of products and services
is also required. What the SIC codes do for industry
classification, for instance, can be done for emerging e-commerce providers.
Although several models of the e-commerce
industry have been proposed, no validated classification scheme for the industry has appeared. The
present study seeks to address this need.
The industry classification was validated
through a Q-sorting technique with a select group
of academics and practitioners. This structure was
field tested with a large group of strategists and
technologists across businesses that are now
investing in significant ways in e-commerce. The
research identified a 10-category classification
scheme of 61 products and services offered by
industry providers.
Useful for technology forecasting, trend analysis, planning, and strategizing, the structure
included the following classes:
F
• Client-side software providers;
• Server-side software providers;
• Network access service providers;
• Billing and payment software providers;
• Billing and payment service providers;
• Security products and services providers;
• Web-integrating software providers;
• E-commerce designers and installers;
• E-commerce management providers; and
•s E-commerce-related
hardware
manufacturers.
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July 2000/Vol. 43, No. 7 COMMUNICATIONS OF THE ACM
proved to be distributed. The object for development
of extranet software, for example, was almost evenly
distributed between server, client, and Web design
categories.
There could be important competitive implications underlying this finding. The server-side
industry class is limited to server operating/communication systems and administrative support software.
As articulated by one participant, software that resides
on servers but presents its “face to the client” is perceived to be client-side software. Participants were
likewise not generally sensitive to the distinction
between software that converted content for Web use
that happened to reside on the client and other client
applications. In sum, user practitioners appear to
apply a broad definition of Web client-side applications. Firms that now perceive themselves as being
noncompetitors may, in fact, be competing in the
eyes of their customers.
Managerial Implications
There are a number of important implications for
both the supply and demand sides of e-commerce:
• Software for e-commerce billing and payment is
distinct from traditional software for invoicing
and payment.
• The e-commerce payment/billing class includes
both banks and other types of information
providers and will likely support major new intermediaries.
• There is a large security class, which includes all
computer asset protection, privacy, and standards
issues.
• The Web-integrating software industry class is
restricted to software for converting documents,
images, or multimedia to Web pages.
• Browsers, information retrieval and search
engines are viewed as client-side applications.
• The server-side software class is very limited,
including only network operating systems,
administrative support software and software that
runs solely on the server.
• The designer and installer class includes organizations that install corporate intranets, network
hardware and software, maintain internet and
Web technologies, and so forth. This class is
likely to be a most competitive segment.
• E-commerce management is a class about which
there is little agreement; this may reflect the present, generally chaotic state of the Internet.
• The e-commerce hardware class is the most
clearly delineated segment.
• The network access services class includes com-
mon carriers as well as value-added services. Users
see these services as competing for the same
market.
8. Rayport, J.F. and Sviokla, J.J. Managing in the marketspace. Harvard
Business Review (Nov.–Dec. 1994).
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success: An investigation of the construct and its measurement. Management Information Systems Quarterly 22, 2 (June 1998), 139–164.
10. Streeter, L.A., Kraut, R.E., Lucas, H.C., Jr., and Caby, L. How open
data networks influence business performance and market structure.
Commun. ACM 39, 7 (July 1996), 62–73.
11. Wigand, R.T. Electronic commerce: Definition, theory, and context.
Information Society 13, 1 (Jan.–Mar. 1997), 1–16.
12. Zwass, V. Electronic commerce: Structures and issues. International
Journal of Electronic Commerce 1, 1 (1996), 3–23.
Conclusion
E-commerce is a dynamic, quickly changing phenomenon. In such an environment, managers need
to quickly assess where the industry is headed and
learn how to compete, form strategic alliances, and
create and dissolve virtual organizations. Information about how to segment this emergent industry Veda C. Storey (VStorey@gsu.edu) is an associate professor in
Department of Computer Information Systems in the J. Mack
should serve as a useful classification scheme for the
Robinson College of Business at Georgia State University.
c
providers of e-commerce products and services.
Detmar W. Straub (dstraub@gsu.edu) is a professor in the
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Department of Computer Information Systems in the J. Mack
Robinson College of Business at Georgia State University.
Kathy A. Stewart (kstewart3@gsu.edu) is an assistant
professor in the Department of Computer Information Systems in
the J. Mack Robinson College of Business at Georgia State
University.
Richard J. Welke (rwelke@gsu.edu) is the director of the
eCommerce Institute at Georgia State University’s J. Mack
Robinson College of Business.
This research was supported in part by EDS, Policy Management Services Corporation (PMSC), Sedgwick North America, Sun Microsystems, The eCommerce Institute
and The Risk Management Centers at the J. Mack Robinson College of Business at
Georgia State University.
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