Part 1: Background
There are some very big changes going on in the way the world does business. These changes are being driven by the availability of fast, powerful, and cheap computers, fast and cheap telecommunications, and the rise of global electronic networks, particularly the Internet.
These technologies are driving the rapid growth of electronic commerce. In the next few years, e-commerce will certainly impact in some way on your business, if it hasn't done so already.
E-commerce brings with it many opportunities. It also poses some risks. Whole industries are being transformed beyond recognition. Some businesses will prosper, while others will perish. About the only thing that's certain is that you won't prosper by ignoring what's happening. The better you understand what is going on, the better you will be able to use it to benefit your business.
How Big Is the Change?
At the beginning of the 1990s, no one had heard of the Internet, apart from a few researchers and academics. Just ten years later, some 360 million people around the world have Internet access, and the number of Internet users continues to grow rapidly. (For the latest figures, see www.nua.ie/surveys/how_many_online/index.html).
Five years ago, few people were thinking about electronic commerce, other than large companies that could afford to buy expensive proprietary systems. Today, New Zealanders from all walks of life are buying and selling goods and services on-line, from the weekly groceries to airline tickets, software, music, arts and crafts, and clothing.
Today, dairy farmers can use the Internet to access information from www.fencepost.com, a Web site that gives suppliers to Kiwi Dairies data such as farm-specific daily production figures.
Electronic market places are being set up in a variety of industries. Lignus.co.nz, for instance, is an Internet-based marketplace for trading timber and wood-based products.
Job search sites like monster.co.nz are changing the face of recruitment.
In 2000, IDC (a research company) estimates that the value of New Zealand's Internet-based electronic commerce will exceed $ 800 million. That is not counting New Zealand's wholesale electricity market, which in itself is worth a billion dollars annually, and which operates the first electricity trading system in the world accessible through the Internet (see www.m-co.co.nz).
Globally, Forrester Research (a research company) predicts that the value of Internet-based e-commerce will grow from $ US5.7 billion in 2000 to US$ 6.8 trillion in 2004.
The message is simple. E-commerce is big, it's global, it's growing rapidly, and it's here to stay.
Quick Kiwis
Research shows that New Zealanders are usually quick to embrace new technology. When it comes to the Internet, we are true to form. We have been buying computers, signing up with Internet Service Providers, and getting on line at a pretty impressive rate.
New Zealand has a strong foundation on which it can build its e-commerce capability and become a world leader in the field. We score well against all the internationally accepted measures of e-commerce uptake, such as number of Web sites, the growth in commercial Internet domain name registrations, and the number of secure servers.
The cost of accessing the Internet in New Zealand is almost as low as it is in the US. Broadband access to the Internet at a reasonable price, via ADSL, cable and wireless technologies is available now in a number of locations - in fact, we are ahead of Australia in this respect.
In addition, New Zealanders have already adapted to the idea of electronic transactions, as can be seen from our high use of EFTPOS and telephone banking technologies. In New Zealand there is one EFTPOS machine for every 54 people - that's the highest penetration of EFTPOS in the world.
All this means that we already have a well developed infrastructure, and a foundation of understanding and experience on which to build. The challenge for New Zealand business is to make the leap to the next stage and take advantage of the huge range of e-commerce opportunities before us, while managing the new competitive risks that are emerging.
Way to Go
Many large New Zealand businesses have already begun to use the Internet to do business - and in the process they have been changing the way they do business. For them, the "e" in e-commerce stands for "efficient" and "effective".
Research indicates that New Zealand's smaller businesses have not been as quick as the larger firms to take advantage of the Internet and e-commerce. Small businesses are the powerhouse of New Zealand's economy. For everyone's sake, it's important that all New Zealanders in business - owners, managers, and employees alike - understand and come to terms with the way the Internet will affect their business.
Smaller businesses have much to gain from these technologies. Indeed, as we will show, there are some very fine examples of small New Zealand businesses that have grasped the opportunities, dramatically enhancing their products and services and the way they do business.
So Just What Is E-Commerce?
E-commerce means on-line trading, that is, buying and selling goods and services over electronic networks. Although e-commerce refers to all electronic transactions over any electronic network, today we tend to think of it as transactions carried out using the Internet.
Like the Internet, electronic commerce has in fact been around for a long time. Large corporations have been conducting electronic transactions via Electronic Data Interchange (or EDI) for years. The problem is that EDI is run on proprietary networks, and uses proprietary software. It is too expensive to be used by smaller businesses.
The Internet, on the other hand, is an open network. The software that makes the Internet work is in the public domain. Anyone can install it for free. The Internet Service Providers (ISPs) who sell you Internet access are often owned by large companies, which also own the telecommunications networks over which the Internet runs, but they don't own the Internet itself. No one does.
This means that accessing and using the Internet is relatively inexpensive. It makes it possible for a one-person business in Morrinsville, say, to use technology that once would only have been available to a multinational company. It means that our Morrinsville business, courtesy of the Internet, can operate in the global environment, participating in global networks and markets.
E-Business - Connecting the Inside with the Outside
As well as e-commerce, the experts also talk about e-business. The distinction between the two can be slippery.
Using this distinction, "e-commerce" is about financial transactions, while "e-business" is about all business processes, from marketing and sales to information management and human resources.
Most businesses already use information technology (computers) to a greater or lesser degree in the management of their internal processes.
Many businesses are now connecting to the Internet, and using Internet technologies to communicate and transact with external customers and suppliers, and to market their products on the Web. So there are internal systems, and an external network. Connect the internal systems to the external system, creating one integrated system, and you have e-business. If you want a more technical definition:
E-business merges the standards, simplicity, low cost, and connectivity of Internet technologies with traditional information technology and business processes to create new business value, enable new relationships, and build trust for an enterprise, its customers and its industry.1
That all sounds a bit abstract, so here are a few concrete examples of things a company thinking "e-business" might do:
- use e-mail to place orders with suppliers or receive orders from business customers
- give customers access to order and invoice information electronically via a Web site
- replace paper-based systems (internal and external, e. g. purchase orders and invoices) with electronic documents
- share access to documents or other information on an internal network within the business (so that sales staff can get access to sales figures while they're on the road, using their lap-top computers, for instance)
- enable the customer's computer system to "talk" directly (i.e. electronically) to the company's computer system
- obtain customs clearance electronically for incoming shipments of goods, and
- track courier consignments electronically (this can be done by the courier company itself or by its customers)
As you can see, and as the case studies in this guide will demonstrate, outside of the textbooks e-commerce and e-business come in many shades. There are many levels of uptake, from the simple use of e-mail, to a fully e-commerce-enabled Web site that is completely integrated into your internal business systems, as well as those of your key customers and suppliers.
The bottom line is that all organisations, not just large corporates, now have an opportunity to take advantage of world-wide networks.
The Value of E-Commerce for Business
Electronic commerce is about moving physical business processes to the electronic environment of the Internet. Instead of sending a fax or a letter, you send an e-mail, or access a Web site.
By using electronic instead of physical means, these processes are faster and less susceptible to human error, reducing the cost of transactions and contributing significantly to business efficiency. Other benefits of the electronic environment include:
- the potential for much greater collaboration and customisation in design
- lower inventory costs
- faster production
- lower supply costs.
Besides the simple reduction in costs through increased efficiency, there are other benefits:
- the reach of the organisation is increased, enabling it to interact with new and different ("non-traditional") suppliers or customers
- business relationships can change by connecting businesses that were not directly connected on the pre-Internet supply chain
- businesses are better able to reach or combine markets across borders, making national borders less of a barrier
- it is easier to enter new export markets, making activities possible that cannot be supported by the local or national market (particularly beneficial for those SMEs located in low population areas and operating in niche markets)
- time-zone differences can become an advantage, and
- managers can get a much better understanding of the real value drivers in the business.
In a nutshell, the Internet makes possible a much more varied and richer range of supplier and customer relationships. It provides an ability to collect and analyse much greater amounts of information about those relationships. This opens up opportunities for new business models to develop, creating new sources of wealth.
All this may seem somewhat abstract, but once you have read the Case Studies in Part 2 you'll be clearer about how e-commerce works in practice, and you'll be able to get an idea of the benefits for your business.
What You Already Know about E-Commerce
| Take this simple test Have you ever used an automatic teller machine or EFTPOS? Of course you have. Have you ever ordered theatre or movie tickets using an automated phone system? Checked your bank balance over the phone? Have you ever signed your name on a hand-held computer to accept delivery of a package? Do you ever receive electronic mail from your customers? Do you receive e-mails or faxes from your suppliers with quotes, product information, or delivery status updates? Have you ever used the World Wide Web to get more information about a type of product you're interested in buying? If you answered "yes" to any of these questions, then you have engaged in electronic commerce. |
Though you may not realise it, as a New Zealander, you already know a bit about e-commerce.
The E-Commerce Bonsai
The most familiar example of e-commerce in New Zealand is EFTPOS. In fact it is so familiar we have forgotten what a big shift in behaviour EFTPOS represents.
New Zealand is the most EFTPOS-enabled country in the world. Our rapid uptake of EFTPOS, and our first-hand experience of its convenience can give us valuable clues about the effect that Internet-enabled e-commerce will have on us. It's a bit like comparing a bonsai pine tree with a real pine tree - EFTPOS is the miniature or bonsai version of e-commerce.
EFTPOS has many advantages for users. It:
- eliminates unnecessary or expensive steps in the transaction process (no need for cash or cheques)
- speeds things up - money is instantly moved from the customer's bank account to the retailer's
- automates systems, and
- enables the retailer to be integrated directly into the banking network.
EFTPOS has had a dramatic effect on people's behaviour. Most consumers use fewer cheques these days. The value of cheque transactions fell from $464 million in 1993 to $277 million in 1999. Most of the cheques still being written are for business to business transactions. Consumers expect retailers to be able to give them cash when they make a purchase - in effect, New Zealanders' access to their bank accounts is now as close as the corner dairy or petrol station. When you include telephone banking, our access to banking services is available pretty much anytime, anywhere.
Telephone Banking
Many people are so familiar with EFTPOS they find it difficult to see it as revolutionary. So if you aren't convinced yet, think about telephone banking as a way to understand how Internet technologies can change the way you do business.
Telephone banking has lots of advantages for the customer. It:
- provides 24 hour access to the bank
- eliminates unnecessary steps in the transaction process
- does away with cheques, stamps, and trips to utility offices to pay bills
- allows payment of bills any time of day or night, and
- gives customers greater flexibility and control (a big bill can be paid off a little at a time over several weeks).
Telephone banking has changed the way people handle their money and their bills, by making it all much easier to manage and easier to track. No more reconciling the cheque book. Overdrawn at 2am? Just ring the bank and transfer money into the account. (And, of course, it offers significant cost savings to banks as well.)
The Big Pine Tree
One way to get to grips with e-commerce is to think of the ideas behind EFTPOS and telephone banking (automating the business process, eliminating unnecessary steps, speeding processes up, saving costs, and providing a better service) and apply them to the whole business using Internet technologies.
Now take this a step further. Telephone banking enables you, the customer, to directly interact with the bank's systems without the need for a teller, or any other intermediary. You are your own teller. What is more, you can do it at a distance. Your terminal is any telephone.
What if you could interact directly with your suppliers in the same way?
What if your customers could interact with you in the same way, on-line and at their convenience?
This is what Internet-based e-commerce makes possible.
But the Internet Is Different from EFTPOS…
…for one very simple reason. EFTPOS and telephone banking are limited in what you can do with them (you need a card and a terminal to pay for something, or a telephone, a password, and a bank account to perform some simple transactions); but the Internet, to all intents and purposes, is unlimited.
EFTPOS and telephone banking are designed for one purpose - moving money around. The Internet, on the other hand, is specifically designed to be multi-purpose. It is a platform over which you can run any application you want. Hence it can be used to send and receive photographs, spreadsheets, documentation, software, audio and video, reports, invoices, and orders. Indeed, if something can be turned into digital ones and zeros, the Internet can deliver it.
The big difference with Internet-based e-commerce is its flexibility and the potential to apply it to the whole business, not just the movement of money. This can have profound implications for how the business is run, and indeed can change the nature of the business itself.
The Power of Networks
To understand the power of the Internet it is necessary to understand the power of networks. Back in the days when the telephone had just been invented, telephones weren't very useful, because there weren't very many people you could ring up. Now that almost every household has at least one phone, and many people also have a phone in their pocket, they are so useful that most of us regard them as essential. Telephones are a perfect illustration of Metcalfe's Law: the value of being connected to a network grows exponentially as the network grows, while the cost per user stays the same.2
The power of the Internet comes from its size. A connection to the Internet in the year 2000 with 360 million users and access to 2 billion Web pages is much more valuable to the user, yet is much less expensive, than a connection to the Internet was in 1990 with less than a million users and no Web pages at all. The result is that the bigger the Internet grows, the more important it becomes. Already, having an e-mail address is as important as having a fax machine. Soon it will be just like having a telephone.
Think B2B, B2C, G2B, dooBdoo
Increasingly, e-commerce is described in terms of relationships and processes. We have already noted the need for experts to differentiate between e-commerce and e-business. Other kinds of relationships need further definitions.
Electronic buying and selling can be done between businesses (this is known as B2B for short) or between businesses and consumers (commonly called B2C or e-tailing ). Governments and businesses also inter-relate a lot, and this is known as G2B (or B2G ). And indeed consumers are transacting directly with other consumers, which is of course C2C.
Buying CDs from Amazon.com is known as dooBdoo (actually, we made that bit up). But seriously, buying books or CDs from Amazon.com is for lots of people the most familiar example of e-commerce of the B2C kind. (New Zealand examples include FlyingPig.co.nz or www.nzbooks.com for books and CDstar (www.cdstar.co.nz) for CDs.)
An example of B2B is Biolab Direct (www.biolab.co.nz). Biolab sells laboratory and scientific supplies to the Australasian market. They have implemented an electronic commerce system that enables customers to browse their database for product specifications, availability, and price. Customers can create orders and send them via the Internet. Biolab can integrate the Biolab Direct system with customers' own purchasing systems.
An example of B2G in New Zealand is registering a company on-line at the Companies Office Web site (www.companies.govt.nz). This facility has made the process much faster and greatly reduced the cost.
C2C is an Internet-generated phenomenon. Auction Web sites like the massive ebay.com in the United States and our own Trademe (www.trademe.co.nz) are enabling millions of individuals to sell goods and services to each other. Indeed in the United States some businesses are bypassing Web sites altogether and selling directly through Ebay.
These relationships are not new: they have always existed. We have never before felt the need to separate them out and give them names. So why are we doing it now?
The simple answer is that the rise of e-commerce is forcing us to think. E-commerce is about automation and interaction. It is about networks and relationships and systems. In order for it to work, organisations, from large government agencies to small businesses, have to put serious thought into what their business actually does, with whom it actually deals, and to what purpose.
For instance, what is it the business does to create value? Sometimes the answer is unexpected.
At a fundamental level, e-commerce is about logistics and systems. As you go down the e-commerce route you will have to do some serious thinking about the nature and functions of your business. Until these relationships and processes have been worked out, any e-commerce systems you implement are unlikely to be truly effective.
Confused? Think of an Iceberg
It may help to think of e-commerce as an iceberg. B2C is the visible tip sticking up above the water - It may help to think of e-commerce as an iceberg. B2C is the visible tip sticking up above the water - the part we all hear about. But seven-eighths of the iceberg, the B2B part, is out of sight below the water. You can't see it, but it's there - and it's incredibly important.
In this guide, we have used the term e-commerce to refer to the whole iceberg, following common usage, and have used the terms B2B and B2C to distinguish between business-to-business and business-to-consumer transactions.
B2B or B2C?
The experts think that most small and medium-sized businesses in New Zealand stand to benefit from B2B, but that B2C won't be as important to many of them. (There's more on this point in Part 2.) In fact, the jury is out on what will constitute a successful e-tail strategy, as even huge companies like Amazon.com have yet to make a profit. It is likely that a combination of storefront shops and e-tailing facilities will be the most successful business model. (This is known as "clicks and mortar".) Alternatively, "pure play" e-tailers (like Amazon) may form alliances with existing "bricks and mortar" networks, to provide a shop front.
B2B is more to do with streamlining relationships with customers and suppliers, making dealings faster and more effective. At a more abstract level it is about networks and computers collecting, processing and moving information which makes the operation of markets more efficient and more responsive. Several case studies in Part 2 illustrate the potential benefits of B2B.
Back to Top