Transcript No Slide Title

Electronic Commerce
Workshop on
Strategic Electronic Commerce and Management
Electronic Commerce Resource Centre/NECTEC
Siam City Hotel, Bangkok, 23-25 May 2001
John Ure
Director of the Telecommunications Research Project
University of Hong Kong
www.trp.hku.hk
What is Electronic Commerce?
• E-commerce - any marketplace electronic
transactions
• E-business - electronic communications to reengineer the internal and external value chains,
everything from procurement to sales, from
production to warehousing, from supply-chain
management to customer relations management,
from finances to human relations, etc
Electronic Commerce by Sector
• E-commerce as e-tailing = B2C
• E-business as supply-chain/enterprise resource
management/marketing = B2B
• E-Government as procurement = B2G and as
electronic services delivery = G2C
• E-verything else? = P2P  horizontal across the
ISO layers
OSI Hierarchy
• Open Systems Interconnection (OSI) of the
International Standards Organization (ISO)
designated a reference model in 1977.
• IBM produced its own propriety standard
Systems Network Architecture (SNA) and a
Systems Applications Architecture (SAA) to run
on top of SNA.
• Technological change and development of clientserver architecture combine to collapse the layers.
When did EC start?
• Dates back as far as the telegraph
• Use of computer-networks (including digital
telecom networks): dates from 1960s for distinct
purposes, eg time-sharing mainframe CPU cycles;
data transfer services; information services
• 1970s-80s: electronic document interchange (EDI)
using proprietary standards over Value -added
networks (VANS); CAD over comms networks
• 1990s: TCP/IP protocols and email
5 broad areas of EC up to 1990s
• Electronic mail: mailboxes to receiver; gateway
services to corporate server
• Enhanced fax: point-to-point
• EDI: docs formatting for computer-to-computer
• Transaction processing: payments authorizations,
settlements, supporting credit, etc involving banks
• GroupWare: secure managed environment for
email, scheduling, teleconconferencing, etc
EC from the 1990s
• A transition to fully integrated Internet-based MIS
and IT systems at firm and industry levels (eg.
Internet-based Enterprise Resource Management
ERM) … but also on a progressive continuum
involving 4 basic levels:
•
•
•
•
a communications infrastructure to carry information
a marketplace of buyers, sellers and intermediaries
transactions mechanisms to send, execute and settle orders
deliverables - merchandise or services to be exchanged.
EC into the 2000s
• Middleware: within the firm electronic business is
becoming an integrated ‘total business solution’
= e-platforms for middleware replacing distributed ERP
systems
• Electronic marketplaces: beyond the firm marketplaces for
procurement and logistics - many specialist marketplaces,
e.g. steel, pharmaceuticals, vehicles, etc.
• Trading platforms: these may be pure financial plays for
brokering or may be part of the electronic marketplace for
processing payments and authentication
Enterprise resource planning (ERP)
• Larry Ellison (Oracle) on ERP in 1990s: “We blew
it… We’ve learned from the Internet that you
don’t put shared applications on the client and that
you centralize complexity.”
• 1990s: ERP software very popular - but based
upon pre-Internet model!  assumption that
content and applications would be dispersed
across discrete pockets of users within the
enterprise  charging model + high licensing fees
ERP - the aftermath
• “IBM estimates that 70 % of all code written today
consists of interfaces, protocols and other procedures
to establish linkages among various systems.” The
Economist, 26 June 1999
• Systems integration is big business: complexity of
systems and architectures, standards, generations of
equipment and software and upgrades, and shortage of
IT skilled staff productivity of computers soon lost
(PCs cost US$1-2,000, but recurrent costs can be
US$8-12,000 pa!)
3rd Generation eBusiness
End-to-end Integration, Personalization, Automation
Generation 1
Internet
Business
EDI
Generation 2
Generation 3
1.1 Relationship
Marketing
Brochureware
Selling
Transaction
Web
Presence
Conducting
e-commerce
Customer
Centric
e-business
Some links to
back-end
Fully Integrated
Back-end
Back-ends runs
independently
Dynamic Business
Source: Intel
First Generation eBusiness Infrastructure
Application
device
LAN
WAN
Application Servers
Data Center
Applications
Database
Batch
Mode
Application
device
Source: Intel
New eBusiness Infrastructure
Clients
Front-end Mid-tier
Back-end
Applications Applications
TA Based
Internet/
Intranet
Intelligent
Storage
Infrastructure
Proprietary
Source: Intel
Migration towards Net Economy
Become a
Portal
•Set-up trading
communities
•Leverage vertical
•Extend services tocontent
supply-chain partners
•Optimize your supply-chain for
faster responsiveness
Your
business
•Extend existing
systems
•Sell product and services online
•Enable real-time transactions
•Publish your presence
• market product service
Source: Servanova
Intranet
Portal
Supplier
Portal
Partner
Portal
Customer
Portal
What is B2C?
• Business-to-consumer e-commerce is
sometimes referred to as ‘etailing’ or
electronic retailing
• But the ‘B’ part could include any
transactor, eg. another consumer, as in C2C
• Many electronic communities are C2C, and
may involve payment in $ or in kind (eg,
baby-sitting tokens) or simply barter
E-marketing vs. E-tailing
• Creating a method of sales online - but the
payment mechanism may be off line = emarketing the most common early use of
websites by B2C
• Delivery mechanisms for goods and
services ordered online - eg. use of
convenience stores such as 7-11 in Japan for
payments and delivery pick-up
A site to be seen
Two Categories of Sites
• Destination sites: such as online storefronts,
presence sites and content sites, which
compete for consumer attention
• Traffic control sites: such as malls,
incentive sites and search agents, which
function to direct consumers to Destination
sites
A site typology - 1
(Kalakota and Whinston, 1997, Readings in Electronic Commerce)
1. E-shops: online stores - revenues from
transactions (eg Amazon.com)
2. E-malls: cluster of e-shops - revenues from
‘rents’, ads and maybe transaction fees (eg AOL)
3. E-auctions: revenues from selling the technology
platform, transaction fees and adverting sales (eg.
Priceline, E-Bay)
A site typology - 2
(cf Kalakota and Whinston)
4. Search engines, portals and vortals: offer search and
navigation tools - revenues from advertising, also
personalized information, etailing, community
services (eg webpage building, etc - eg. Yahoo)
5. Virtual communities: non-commercial and
commercial services (eg GeoCities)
6. Content providers: offer entertainment, news,
information - revenues from subscriptions, pay-perdownload, membership (eg. CNN.com)
7. Applications providers: next? “networked computer?”
How Big is B2C?
• Boston Consulting estimates Asia-Pacific
EC revenues at US$2.8 billion in 1999 =
0.1% overall retail sales revenues (cf 1.2%
in USA)
• Gartner Group estimate Japan = 54% !
Australia = 15%! Taiwan = 5.6%! South
Korea = 4.8%! Only leaves 20% for rest of
Asia-Pacific!
Drivers and constraints
•
•
•
•
•
Access, bandwidth and affordability
Security
Credit cards and payments
Complementary issues (see below)
Language difficulies and translation
software
Modelling Critical Mass for B2C
Telecommunications Research Project
modelled critical mass for Hong Kong
to provide a more rational basis for
forecasts and projections
Can be used elsewhere!!
The Model - Aim
• Aim = model critical mass for business-toconsumer (B2C) e-commerce or electronic
retailing using the case of Hong Kong.
• Conclusion based on Dec. 2000 data =
critical mass could be reached by 2003
• Purpose = not a prediction, rather to provide
a benchmark for a future better
understanding of the process
The Model - Forecasting
• Forecasting e-commerce runs up against many
difficulties, including:
a) definition of what is being measured
b) reliable sources of data over sufficient period of time
c) appreciation of complementary factors
• Most forecasting of EC currently done by
marketeers and consultants, not economists - very
little analysis of the significance of EC (despite
fact everyone thinks it is important).
The Model Itself
A. Assume online shopping is a household activity
(ignore 3G, palm pilot, etc)
B. Three parts to the model
1. Percentage of households with computers
(precondition to going online)
2. Percentage of (1) online (precondition for
online shopping)
3. Percentage of (2) who are ‘frequent’ shoppers
The Model - Critical Mass
• A critical mass when growth = self-sustaining
• Everett Rogers (1983) The Diffusion of
Innovations established the accepted categories
1) Innovators = first 2.5%  market grows slowly
2) Early adopters = second 13.5%  faster growth
3) Early majority = third 34%  exponential growth
4) Late majority = fourth 34%  growth slows
5) Laggards = last 16%  market reaches saturation
Hong Kong data - S-curve
• A family of S-curves nicely describe most the diffusion
patterns (rates) of most new technologies and products
• Critical mass associated with the 2nd deflection point
(16%)
• The following slide illustrates the diffusion of computers
among households in Hong Kong
• The data collected by the TRP with assistance from the
Social Science Research Centre, HKU (>500 households)
• Finding = critical mass of households with
computers already reached by 1998/9
PCs Penetration Rate
%
100
90
80
70
60
50
Actual PC
40
Estimate PC
30
20
10
0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Note: Assume an upper bound of 100%
Hong Kong - Online
• Percentage of all households using Internet:
2000 (December): 50.4%
(36.4% HKGSAR)
1999 (September): 40.4%
(45.4% finding by
the Democratic Party, November 1999 telephone
survey of 1,571 households)
1998 (December): 26.2%
(11.8% HKGSAR)
1996 (February): 4.4%
1994 (December): 0.88%
Hong Kong - Online Driver
• The following graph shows that 1998 is the
cross-over between the percentage of
households with computers and the
percentage of those online
• This means that from 1998 the number of
households online (and potentially online
shoppers) is driven by the number of
households with computers
PCs Online Penetration Rate
%
100
90
80
70
60
Act ual PC
50
Act ual PC on line
40
Est imat e PC
30
Est imat e PC on
line
20
10
0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Note: Assume an upper bound of 100%
Hong Kong - Transactors
• What percentage of frequent online shoppers in
Hong Kong? A C Nielsen (translated by TRP)
suggest the minimum numbers who ‘had ever
purchased’ online (15-54 year olds) are:
– 2000: 95,000 + households
– 1998: 48,000 + households
– 1997: 22,000 + households
NOTE: ‘had ever purchased’ online does not imply
‘frequent’
Hong Kong - Transactors
• TRP figure suggests 74,000 households in 2000,
but only 7,000 households in 1998 (but used nonprompt questions! May underestimate, but can this
explain the big difference?) = tenfold increase!
• A.C.Nielsen figures suggest slow down from
120% per annum 1997-1998 to 40% per annum
1998-2000
Hong Kong - Per family
• Using AC Nielsen data, TRP estimate ceiling of 2.3 family
members use the Internet (NB. average family size 3.2)
• If Hong Kong population = 6.8 million, then critical mass
(16%) = 1.088 million individual transactors (/2.3) 
473,000 households
• If transactors double each year critical mass for B2C
reached by 2003 (But this evidence is the weak link in the
chain! No data of ‘frequent’)
• If transactors increase by 50% each year critical mass
for B2C reached by 2004/5
How Does Thailand Compare?
Thailand
compared with
Hong Kong ?
Shopping Online
Hong Kong Thailand (Urban)
Shopping Online
% of Internet Households: 6.9%
% All Households:
3.5%
7.8% (??)
0.66% (??)
NOTES: For Thailand (1) assumes all Internet users are
accessing from home! (2) assumes Internet users are
distributed evenly across households! (3) assumes all
Internet users are urban!
Source of Thai data: Merrill Lynch Thailand Internet 13/10/ 2000
B2C Online Shopping in Thailand?
%
25
20
15
% of internet
users who are
online shoppers
10
% of urban
users/
households
shopping online
5
0
1999
2000E
2001E
2002E
2003E
2004E
2005E
2006E
2007E
2008E
2009E
2010E
Complementary factors
• Technologies - e.g. 3G phones, cable TV/ PC-TV,
falling prices, accepted standards, etc.
• Complementary goods and services - more content
and more ‘plug-and-play’ devices (e.g. digital
cameras, music centres), home networks, etc
• Policies - government online, encouragement of
the IT sector, data protection, payments security
• Socio-economic - more women and older people,
better distribution systems for good delivery, etc
Conclusion - 1
• B2C is in its infancy, and recent dot.com failures
(cash burn) of ‘etailers’ highlight the difficulties
• B2B seems much larger, but this is
(a) partly because much of it is existing business
going online, and
(b) by definition in National Accounts B2C is the
retail margin (otherwise doubling counting) not
the retail sum. (How many consultancy forecasts
confuse the two?)
Conclusion - 2
• B2C in the longer term will have the more radical
effects because
(a) its social impact is more direct and personal
(b) B2C will be the tail that wags the B2B dog for
many businesses
• The model of critical mass can be applied to any
economy, but the complementary factors need to
be built in.
B2B similar to B2C
• Similar advantages: global reach and ability to
offer inter-active customer services 
opportunities to track and lock-in customers
• Similar disadvantages: need for skilled IT support
staff, need for an efficient Just-in-Time delivery
system, problems of payments and security issues,
• Larger trading volumes justify credit cards, bank
transfers and Letters of Credit, etc.
But different!
• B2B e-commerce = e-business: straddles the entire
value chain from procurement, through design and
production, to sales and distribution, customer
care, etc.
• B2B in part involves transferring existing business
relationships online and this reduces risk on
investment in Web-technology and networks
• Customer empowerment is more complex as every
business is a customer of another business
Various Estimates and Forecasts of the
Size of the Global B2B Market
•
•
•
•
•
•
•
Year
B2B in US$
Source
1998
1999
2000
2001
2002
2003
2004
(Revised
US$43 billion
US$145 billion
US$403/843 billion
US$953 billion
US$2.2 trillion
US$1.4/2 trillion
US$7 trillion
US$5.95 trillion
Forrester Research
Gartner Group
Gartner Group/Forrester
Gartner Group
Boston Consulting Gr
Forrester/Boston CG
Gartner Group
Gartner Group, 2001)
B2B Forecasts for Selected Asian Markets - 2003
Economy
B2B Forecast for 2003 (US$ million)
Australia
China, mainland
Hong Kong, SAR
India
Indonesia
Korea
Malaysia
Philippines
Singapore
Taiwan
Thailand
Total without Japan
Japan
Total with Japan
United States
$89,800
$12,940
$2,690
$3,710
$470
$93,400
$2,800
$620
$19,900
$4,450
$4,300
$235,080
$591,300
$826,380
$1,438,000
Sources: IDC, Forrester, Merrill Lynch, MITI Japan, Morgan Stanley Dean Witter. Forrester
Research estimates global online cross-border marketplace trade will reach US$408 billion by
2004, of which US$219 billion will be in the Asia-Pacific.
Value Added Chains in the Shirt Industry
Three Variants
Cost per Per cent
Shirt
savings
1. Producer
Wholesaler
Retailer
Consumer
$52.72
0%
2. Producer
Wholesaler
Retailer
Consumer
$41.34
28%
3. Producer
Wholesaler
Retailer
Consumer
$20.45
62%
Business cost savings 1
Estimated cost of bank transfers:
• By bank teller - US$1.27
• By ATM - 27¢
• By Internet - 1¢
Note: these widely quoted figures were originally from a
Booz Allen Hamilton study, but do they include the capital
and recurrent costs of the back-end?
Business cost savings 2
Estimated non-labour industry cost savings:
• EC can save between 10-20% of indirect labour costs (eg.
telephone bills, furniture, electricity) which typically are
between 30-60% on all non-labour costs
• Bulk of these savings (up to 70%) come from electronic
placing and processing of orders
Source: London Economics (on behalf of UK Internet
company GroupTrade) cited by The Economist 27 May
2000, p.93
Taxonomy of B2B
1. E-businesses: altered relationships all the
way along the value chain
2. E-hubs or Infomediaries: electronic
markets or exchanges
E-businesses
• Business service models: e-procurement and online
customer ordering through Extranets - eg. Cisco processed
US$500m orders online in 1999
• Collaboration platforms: Big 3 US auto manufacturers
(Covisint = GM, Ford, Chrysler) share common supply
chain platform, built by CommerceOne but operated by
themselves
• Virtual communities: PetroChem.Net was world’s first in
1997 networking industry managers, regulators,
lawmakers, journalists, etc
Infomediaries (any-to-any)
• Vertical hubs: extensive industry-specific content
spread across many buyers and sellers in the
supply chain
• Functional (horizontal) hubs: provide wide
range of service functions across industries, where
some level of standardization is required
• Network economies: (n2-n) = advantages in scale
E-commerce business sectors
• Procurement systems: eg Ariba, CommerceOne
• E-commerce platforms: eg. AOL/Netscape, IBM,
Sterling Commerce, Broadvision, Calico
• Relational Databases: Oracle, Informix, i2, NCR,
Business Objects
• Front-office applications: Siebel, Vantive, Onyx
E-commerce business trends
• Middleware: e-business systems that integrate
various front-end and back-end processes
• Fat server- thin client: ‘applications on tap’
model whereby applications are for rental
• Corporate or B2B portals: Corporate Yahoo!,
Oracle, SAP, etc moving into this market - based
upon Internet servers
Including electronic markets
• Electronic markets: alliances between IT and telecom
companies to provide E-commerce platforms (webhosting, transactions software, etc) for industry sectors, of
SMEs, or regions - Gartner Group estimate online trading
exchanges will grow from 400 in 2000 to 10,000 by 2002
• E-commerce hubs: (a) large companies become the hubs
and small companies the trusted spokes; (Note: the subcontracting chains of Asia may be resistant) (b) HK
Telecom, SingTel, etc aim to become Internet eXchanges
or hubs for regional traffic
Electronic markets
• Over 900 have emerged over past couple of years
• Different exchanges offer different range of services:
catalogues, spot and forward pricing, ordering and transactions
processing, bulk-buying and discounts, electronic databases, etc
• Dangers of (a) collusion to create monopsony power to keep
prices down; (b) use of dominance to price discriminate; (c)
collusion on retail price maintenance (eg Justice Dept settled a
case with big US airlines using the electronic airfare system ATP
to undermine discounting)
NB. MetalSite, an electronic market for steel, includes an antitrust lawyer sitting in on its meetings
Electronic markets - the future?
• Public exchanges = seeking an IPO - most
have failed due to lack of liquidity to carry
them through
• Consortium exchanges = liquidity
guaranteed, but how willing are partners to
share information?
• Private exchanges = supply chain online natural extensions of EDI networks?
A few examples of E-markets in Thailand?
• Point Asia Dotco; Samart Exchange; Shin Group;
FoodMarketExchange.com
• E-Procurement Alliance Company established by Asia
Freewill (affiliate of Charoen Pokphand Group) = CP,
Siam Cement Group, TelecomAsia, United
Communications Industry, Bangkok Bank, Siam
Commercial Bank + Petroleum Authority of Thailand
using the site Pantavanij.com - hope to save up to
US$2 billion annually on indirect goods procurement
auctions (software from CommerceOne)
Bizarre range of estimates for
e-commerce in Thailand?
• Department of Business Economics (Thailand) estimates Ecommerce will > Bt25 billion (US$0.5 billion) for 20002001 (The Nation, 15/3/2000)
• Arthur Andersen estimate B2B at Bt109.5 million (US$2.4
million) - (The Nation23/5/20001)
• Gartner Group estimates B2B in Thailand will takeoff in
2001,  US$15 billion (?!) by 2004 (www.nua.ie/surveys)
• Thammasat University report estimated e-commerce in
Thailand at around Bt40 million (US$0.9 million) and
reaching Bt600 million (US$13 million) by 2004 (The
Nation, 5/7/99)
E-business and E-readiness in Thailand?
McConnell International ‘Risk E-Business: Seizing the
Opportunity of Global E-Readiness’ August 2000
1/2. India (4A + 1R) and South Korea (3A+2B)
3/4. Malaysia (3A + 1B + 1R) and Taiwan (2A + 3B)
5. China (3A + 2R)
6/7. Thailand (1A + 4R) and Philippines (1A + 4R)
8/9 Indonesia (5R) and Vietnam (5R)
NB. A = majority conditions ok; B = improvements needed; R
= substantial improvements needed
E-business and E-readiness in Thailand?
McConnell International ‘Risk E-Business: Seizing the
Opportunity of Global E-Readiness’ August 2000
•
•
•
•
•
Ease of connectivity = infrastructure
Government E-leadership (= Thailand’s “A”)
Information security and legal framework
Human capital
E-business climate
E-business and E-readiness in Thailand?
EIU Rankings (Business Asia 14/5/2001)
Australia
Singapore
Hong Kong
Taiwan
Japan
New Zealand
South Korea
Malaysia
8.29 (2)
7.87 (7)
7.45 (13)
7.22 (16)
7.18 (18)
7.00 (20)
6.97 (21)
4.83 (33)
Philippines
Sri Lanka
India
Thailand
China
Indonesia
Vietnam
Pakistan
3.98 (39)
3.82 (43)
3.79 (45)
3.75 (46)
3.36 (49)
3.16 (54)
2.76 (48)
2.66 (60)
E-business and E-readiness Factors
• Hard Infrastructure = telecoms, cable TV, satellite, fixed wireless,
mobile, digital terrestrial transmission (DTT), Ethernets, etc
• IT investment = penetration rates of computer devices and networks
• E-commerce service providers =
– vendors, systems integrators and IT management consultants
– e-business users and e-marketplaces, eg. FoodMarketExchange, EProcurement Alliance Co (Asia Freewill consortium), Samart Exchange,
etc
– ISPs, content and applications service providers for SMEs and residential
• Financial infrastructure = banks, eg. Siam Commercial Bank,
Bangkok Bank, Krung Thai Bank, and credit cards!
• Soft infrastructure = legal and regulatory framework  trust
A Challenge - coming to terms with the
New Media Value Chain
1. Content conception = creative activity
2. Content creation = from drawing board to realization
3. Content packaging = make content marketable
4. Content service provision = distributor of content
5. Content transmission = distribution channel (licensed
‘multiplexer’ of interactive digital TV, telecoms network,
WAP phone, WWW, etc)
6. Content access device = PC, TV, cellphone, handheld
computer, etc.
7. Content consumer = private, public, business, consumer