IT and global ecommerce: The shape of things to come Howard Rosenbaum <hrosenba@indiana.edu> School of Library and Information Science Center for Social Informatics Indiana University IT and global ecommerce: The shape of things to come I. The shape of the “new” economy • Internet indicators II. Ecommerce trends • Drivers of ecommerce • Components of a virtual economy III. What’s on the horizon? • Technical trends • Social trends http://www.ucomics.com/tomtoles/viewtt.htm I. The shape of the “new” economy Commerce layer Intermediary layer Applications infrastructure layer Infrastructure layer The Internet Economy Indicators http://www.internetindicators.com/ Infrastructure layer This layer includes the wires, boxes, and code that make up the physical structure of the net Telecommunications companies: AT&T, Ameritech, SWBell Internet Service Providers: AOL-Time Warner, Mindspring Internet backbone carriers: Qwest, MCI, WorldCom “Last mile” access companies: Insight Communications, Smithville Telephone Co Manufacturers of end-user networking equipment: Cisco, Corning This layer generated $142.8 billion in revenues in the first half of 2000, (11.2% growth between 1st and 2nd quarters) 1st quarter revenues grew 69.3% over 1st quarter 1999 2nd quarter revenues grew 57.4% over 2nd quarter 1999 Over 932,000 work in this layer (2000) 1st quarter employment grew almost 52% over 1st quarter 1999 2nd quarter growth was 37.7% over 2nd quarter 1999 This layer is the platform for growth for the remainder of the Internet economy Applications infrastructure layer This layer involves the companies producing the software products and services that enable Web transactions: Yahoo Store, Oracle, SAP, Microsoft It includes transaction intermediaries: Paypal, Microsoft It also includes consultants and service companies that design, build and maintain all types of web sites: Scient, Viant, Razorfish, IXL The work occurring at this layer is a fundamental basis for e-commerce and other functionality on the Internet Most of the activity on this and the previous layer is b-2-b This layer grew 14.7% between the 1st and 2nd quarters of 2000, generating $72.8 billion in revenues. 1stQ revenues grew 62.3% over 1stQ 1999 2ndQ revenues increased by 51.9% over 2ndQ 1999 1stQ employment grew over 62 % over 1stQ 1999 2ndQ employment increased by 52% over 2ndQ 1999 Over 740,000 work in this layer (first half of 2000) growing just under 4% between the 1st and 2ndQ This layer has the lowest revenue per employee at $52,554 for the second quarter of 2000. This figure is affected by consulting activities Intermediary layer The businesses are predominantly Internet pure-play They do not generate revenues directly from transactions (unlike layer #4 companies) Revenues are generated through advertising, subscription fees, and commissions Many companies are pure Web content providers: ClickZ, Commercenet market makers: VerticalNet, Ebay market intermediaries: eSteel, Trip.com This group of companies is likely to have a significant impact over time on the efficiency and performance of electronic markets This layer grew 34.5% between the 1st and 2ndQ 2000, generating almost $64 billion in the first half of 2000 1stQ revenues grew 63.8% in relation to 1stQ 2000 2ndQ revenues increased 84.6% over 2ndQ 1999 Employs 468,689 (fewest individuals of any layers) 1stQ employment grew just 5.5% over 1stQ 1999 2ndQ employment growth was 3.2% over 2ndQ 1999 This layer has low growth rates because infrastructure investments and automated processes can be leveraged to produce revenue. Travel booking services Revenue per employee is the 2nd highest at $78,312 for 2ndQ Commerce layer Companies in this layer conduct web-based commerce transactions Some are pure play: Amazon, Egghead It also includes bricks and clicks etailers: Barnes and Noble, Gateway Some are OEMs: Dell Companies may be engaged in B2B as well as B2C online sales Many sell both to consumers and to businesses of all sizes This layer grew 11 % between the 1st/2ndQ 2000, generating over $127 billion in revenues in the first half of 2000. 1stQ revenues grew 66.7% over 1stQ 1999 2ndQ revenues were 57.8% higher than 2ndQ 1999 This layer has the highest employment of any of the layers, topping 1 million in the first half of 2000 Employment growth between 1st/2ndQ was just over 1% 1stQ employment grew 12.6% compared with 1stQ 1999 2ndQ employment growth was 8.2% over 2ndQ 1999 Revenue per employee for the 2ndQ was about $65,000 What this means: key findings from the 2000 Internet Indicators study The internet economy as a whole added 612,375 jobs in the first half of 2000 and directly supports three million workers It is projected to produce $830 billion in revenues in 2000, a 58%increase over 1999 “Dot coms” are a small part of the internet economy Only 9.6%of the firms studied are "dot coms" with 95% or more of their revenue from the net Employment in internet economy companies is growing much faster (10%) than the jobs in the overall economy (6.9%) http://www.internetindicators.com/keyfindings.html Most internet economy jobs are not IT http://www.internetindicators.com/keyfindings.html Internet Economy Indicators Annual Employee Figures by Layer and Total Internet Economy 1998 1999 Growth Layer 1 - Infrastructure 527,037 778,602 48% Layer 2 - Application 513,125 681,568 33% Layer 3 - Intermediaries 290,856 340,673 17% Layer 4 - Internet Commerce 577,937 726,735 26% The Internet Economy (after removing overlap) 1,819,716 2,476,122 36% http://www.internetindicators.com/key_findings_june_00.html Internet Economy Indicators Annual Revenue and Growth Summary by Layer and Total Internet Economy (millions) 1998 1999 Growth Layer 1 - Infrastructure $117,143 $197,853 68% Layer 2 - Application $71,615 $101,304 41% Layer 3 - Intermediary $63,629 $96,809 52% Layer 4 - Internet Commerce $99,813 $171,473 72% The Internet Economy (after removing overlap) $322,530 $523,923 62% http://www.internetindicators.com/key_findings_june_00.html Ecommerce is expected to grow worldwide Internet Economy companies generated almost one of every five dollars in revenue from the Internet 18.5% of the companies’ revenues were generated from the Web 17 million US households will be shopping online by the end of this year, with online retail sales expected to top USD 20.2 billion (Forrester Research) 56% of US companies will sell their products online this year, up from 24% in 1999. (NUA) Small businesses who use the net have grown 46% faster than those that do not (American City Business Journals) http://www.thestandard.com/powerpoint/101600met5_cou.ppt http://www.thestandard.com/powerpoint/101600met5_cou.ppt The internet has become an indispensable revenue stream One in every five dollars in revenue is generated from the internet The internet economy is highly productive Revenue per employee increasing 11.5% through the first two quarters of 2000 The internet intermediary layer grew an impressive 34.5% between the first and second quarters of 2000 This layer generated almost $64 billion in revenues in the first half of the year. IT and global ecommerce: The shape of things to come I. The shape of the “new” economy • Internet indicators II. Ecommerce trends • Drivers of ecommerce • Components of a virtual economy III. What’s on the horizon? • Technical trends • Social trends II. What’s happening now? Technical: The infrastructure necessary to support ecommerce is almost in place The hardware and software is becoming more powerful and is dropping in price Economic: We are beginning to understand the economics of networking and ecommerce There are many experiments underway, particularly in B-to-B and B-to-C ecommerce Social: The net is redefining the marketplace It is becoming interactive and information routinely flows both ways The conventional distinction between buyer and seller is blurring on the web People are not passive and see themselves as content providers (broadcasters) Legal: The legal and regulatory environment is in flux One current policy battle is over taxation and the definition of the “nexus” of business Another is over privacy Technological drivers of ecommerce Intelligent devices using Software for collaborative work supporting Multimedia data creation and delivery over An open network Getting the infrastructure into place: the last mile is a “pot of gold” Telcos, ISPs, the cable company, and satellite/wireless services are competing to bring the net into the home The pipes that carry data across the net are high pressure fire hoses The line that goes into your home is a straw Who will connect to the home and how will they do it? Copper wire Wireless Fiber optics Satellite TV cable Wall plug The last mile is still a problem Industry Standard Metrics Report 3.15.00 Telecos want to use their infrastructure to provide net to the home Much net traffic is carried over their pipes anyway They want to become content and service providers, not merely conduits They want to support a variety of applications (and have put in 95,000 miles of fiber in the last decade) They correctly see competition from cable companies and ISPs who want to offer a range of services (banking, bill paying, eshopping) Telcos are developing network architecture to remain players in development of net infrastructure They own NAPs in Chicago, NYC, Washington DC, and San Francisco They provide network access for those who want to get to the backbone (ISPs, local phone co.) Also, they want to provide net access services to individuals and organizations This places them in direct competition with ISPs They are waiting to be allowed to provide content and services This places them in direct competition with AOL ISPs are maintaining their foothold in the home Estimates vary, but ~20 million people have accounts with ISPs (out of ~32.6 million who own modems) ISPs can be “gateways” or “full service” Gateways are physical entry points to the net PSI, UUNet, and Kiva are gateway ISPs Full service ISPs provide content and services to business, schools, libraries and homes AOL, Compuserve, Prodigy are full service ISPs ISPs can be local, regional, or international Kiva is local, Panix is regional PSI, UUNET (owned in part by Microsoft) and ANS (owned by AOL) are international These are large public data networks which are not part of the telco infrastructure They compete on speed, reliability and access and points of presence (PoPs) They connect to the Internet through the NAPs or through a CIX router Economic: business drivers of ecommerce Product promotion and customization through the direct connection to consumers Developing and exploiting new sales channels (products, information, advertising, transactions) Reduced costs of business transactions through a public shared infrastructure Reducing time to market for certain types of products Improving customer relationships with intelligent systems for service and support And: Improving marketing and targeted advertising through the collection of detailed customer information New corporate branding and image creation Using the net for R&D and product development Developing of new business models based on characteristics of the new marketplace Ecommerce business activities: Internal email messaging Online publishing of corporate documents Online searching for documents, projects, information Managing corporate finance and personnel systems Manufacturing logistics management Supply chain management for inventory, warehousing, distribution Ordering processing management to suppliers and customers Order tracking IT and global ecommerce: The shape of things to come I. The shape of the “new” economy • Internet indicators II. Ecommerce trends • Drivers of ecommerce • Components of a virtual economy III. What’s on the horizon? • Technical trends • Social trends IV. Where is it going?: Ecommerce will generate $3.2 trillion globally by 2003 (5% of global sales revenue) (Forrester Research, 1998) Business-to-business ecommerce generates 2-3X the revenues of business-to-consumer ecommerce Global B2B ecommerce will reach $8.5 trillion in 2005 This market was worth $433 billion (2000) and will be worth $919 billion (2001), $1.9 trillion (2002), $3.6 trillion (2003), $6 trillion (2004). (Gartner Group, 2001) Mid sized companies using online procurement can reduce purchasing costs by over 70%, saving almost $2 million annually (Aberdeen Group, 2001) B2B sales may have accounted for 90 percent of all ecommerce activity in the US in 1999 (US Census Bureau, 2001) US mobile phone users will spend more time on the wireless Web than making phone calls by 2010 The average user will spend 75 hrs/yr browsing the Web in 2010, up from 1.6 hrs/yr (2001), and 11.4 hours (2004) (Meyers Research, 2001) Sales of Internet appliances were disappointing last year but will grow from $219 million (2000) to $1.3 billion (2005) (Cahners In-Stat, 2001) 25% of US Internet users have purchased groceries online but only 11% have done so in the past 3 months (Gomez Research. 2001) 1/3 of US citizens will file taxes over the net in 2001 The IRS expects 35.3 million people to file taxes online (a 20% increase over 2000) (Gartner Group, 2001) Total online retail sales for 2000 in the US were $28 billion, up from $17.3 billion (1999) and $7.7 billion (1998) (US Census Bureau, 2001) The worldwide corporate elearning market will exceed t$23 billion by 2004 (IDC, 2001) Almost 95% of US local governments either have a website or plan to have one in place within a year (International City/Council Management Association , 2001) Most physicians connect to the Internet on a daily basis and 42% work in practices that have websites (Harris Interactive, 2001) The number of US companies billing online will triple to 26% (2002) and increase to 35% (2004) (Gartner Group, 2001) Show me the money Industry Standard Metrics Report 2.1.00 Show me where the money is Industry Standard Metrics Report 2.1.00 The future of B-to-B Industry Standard Metrics Report 2.1.00 The future of B-to-C Industry Standard Metrics Report 2.1.00 Ecommerce in US households: 1996-2002 Jupiter Communications. (1998) http://www.jup.com/digest/980116/stat.shtml A potential reordering of the global economy Competitive advantage to companies that are successful early adopters of ecommerce This will be true in nations with government economic and regulatory support for ecommerce Nations with highly trained labor forces will benefit from distributed value chain Businesses have to place ecommerce in a larger context than traditional commerce How can they exploit the digital product marketplace? Dell claims that the efficiencies of web based marketing give them a 6% profit advantage Redesign business processes to take advantage of the rapid and real time information and data exchange on the net Develop a secure and widely acceptable framework for digital business contracts Consumers will develop new behaviors and will: Routinely check prices globally Engage in real-time negotiation with multiple sellers creating a more dynamic and fast moving marketplace for certain products Make more considered purchasing decisions based on more and better information Publicly share experiences with others about products, customer support, and companies There will be a shift towards an “economy of attention” Basic assumption: attention is an intrinsically scarce resource Information <--> Attention (a two way flow) There is competition for attention Capturing attention can lead to action The problem is how to capture and keep it Obtaining attention is a source of wealth Portal advertising costs bear this out The components of a virtual economy Virtual players The net Virtual products Virtual processes Virtual players People, organizations, or automated agents with an online presence Virtual products Digitized objects/services: currency, text, multimedia, tickets, reservations, electric usage, pay-for-view, smart houses Virtual processes Participants interact digitally, interactively, and in real time (online ordering/payment; JIT inventory control; customized advertising) Virtual intermediaries Provide essential services: certification, authentication, quality assurance, copyright clearance, distribution Education brokers: bringing instructors and students together online Market organizers: establish meeting places for buyers and sellers (auctions...) Personalized service providers: shoppers, information filtering, travel agent, financial services The evolution of the virtual firm Assumes that they exist in an environment where transaction costs are low They do not have to be based in a single geographic location Business processes can be distributed globally take place on the net The value chain is digital and Also: Products can be delivered through a digital web of business relationships with producers, financiers, distributors, consumers Producers, suppliers, warehouses, managers, administrator, subcontractors are all linked through an extranet Many functions can be easily outsourced (accounting, personnel management, training, public relations) Convergence in ecommerce Products, processes, and infrastructure all converge in the global digital marketplace Product: audio, video, still images, text are all in the same digital format Process: multiple uses from a virtual process make other processes redundant Consumer feedback is used for product marketing, sales, pricing, and service change, Infrastructure: during the next few years, digital interactive services of all types are expected to converge Telephone, cable, microwave, satellite are all moving into the same arena and losing their monopolies Television, computers, radio, pagers, and cellular telephones are expected to share functionality and attributes You can watch WebTV and TV on your computer Mcommerce 300 million people use mobile telephones globally This outstrips the number using PCs This is estimated to grow to one billion by 2003 Mobile phones will be as common as television sets Drivers of mcommerce The fast transfer of data on mobile networks Standard protocols delivering Internet-like services on smaller screens The personal nature of mobile telephones By 2004, the annual value of business transacted over mobile networks may reach $13 billion This will by ~7 % of all e-commerce transactions Technical underpinnings Growth depends on "true third-generation networks” Two problems are network speed and data streaming Current technologies are too slow The UMTS (Universal Mobile Telephone System) standard will raise data transfer rate to 2 megabits per second This is one-fifth of the bandwidth available on the standard Ethernet in today’s offices GPRS (General Packet Radio System) will allow packet switching Protocols to enable mcommerce WAP (Wireless Application Protoco) and iMode These take into account the constraints of wireless communications Limited bandwidth and end-system processing A constrained user interface Each platform defines a standard markup language that permits an application’s user interface to be specified independently of the end device The delivery of these services is independent of the underlying networking technology Applications based on these protocols can be used on different networks Wireless access allows mobile interactive services to be more personalized than traditional Internet applications Mobile telephones are carried by their owners everywhere and kept switched on most of the time In Europe mobile users aren’t charged for incoming calls There is access to wireless services wherever there is a network presence People can keep tabs on time-critical information They can receive news, stock market reports, auction notifications or urgent messages Personalization is also enhanced by tracking and identification capabilities of the technology Wireless-network operators - at least those using the GSM standard - are uniquely able to determine the identity of a user Most mobile telephones are not usually shared, and have a personal-identification number to protect the owner This means that the telephone itself can be used as a means of identification This allows easy verification for purchasing Also, operators can detect a user’s exact location, enabling a whole range of new applications This also raises interesting privacy concerns Things to do Overcome the limitations and asymmetries of the infrastructure Implement hardware and software to fully exploit bandwidth, especially to the last mile Provide “universal access” at reasonable cost Provide secure frameworks for B-to-B and B-toC transactions Integrate electronic payment into the buying process And: Develop a secure and reliable system for banking: emoney exchange and transfer electronic Develop a system for microtransactions Build a consumer marketplace Convert browsers into buyers Develop new approaches to web site design that encourage purchasing Develop new business models for this CME