E-commerce offers what many people believe to be an effective characteristic of the Web. This characteristic is the ability to adjust sites to the different needs, wants, desires and, even personalities of each individual customer. This ability is known to many experts as "cognitive computing," a mix of behavioral sciences and computer science. Increasing competition worldwide, increasing demands made by customers, and the fast pace of change in technology are forcing companies to review the way they do business, the kinds of products and services they offer, and the speed with which they release products to market. Today, most companies have worked to expand and improve their process and practices. In order to meet the demand made by the Internet users, organizations are now beginning to rely on the e-commerce solutions that help reach and keep customers, open new markets, and condense the business processes. E-Commerce has various advantages for the provider. One advantage is it lets companies build a name for their company, quickly and inexpensively. Another advantage is it offers "suggestive selling". This is when the user can recommend similar or other products that they might/will buy. This is often done through surveys. The last advantage is the speed in which the transaction is completed. Many times Web users give up in trying to buy something due to the frustration that was caused in trying to get to that particular item. There are also many advantages to E-Commerce for the user. The information can be updated in no time and while the user is using it. The pages can be updated without having to redesign the page. Site visitors can maneuver and control the data, as it is displayed, to suit their preferences and need-to-know. The interactive capabilities such as purchasing on-line can be used, and the site visitor can filter information. Overall, E-Commerce delivers a solution to businesses that will help their clients better interact with their customers, suppliers and partners.
In the current ecommerce world, some vendors sell physical goods (Egghead.com for computer hardware and Amazon.com for physical books) and others market information goods in the form of pure bits such as software (numerous offerings available on the web, like Netscape or Adobe), music (Napster and MP3 files), books and videos (not quite yet). A public good is one that can be used by many, yet the product is not diminished by the use. Unfortunately, one negative aspect of a public good is that there are "free riders," or people who gain from using a product without paying for it. This could be in the form of software piracy or taking MP3 files of copyright music and using a CD burner to make copies of the music without paying for the files. Today, newly released movies in the theater are being recorded and distributed around the internet. When there are free riders using a public good, the users who pay end up paying more than their fair share of the price of the good. Information goods have many aspects that are like public goods. (Cowen 1992). If information goods are to survive and prosper, intellectual property laws will need to protect the products from the public goods "free rider" problem. (Kleist)
Information as a good for sale is able to be customized and made into unique products which can be sold at varying prices, so allowing a business to take advantage all of the possible price points under the customer demand curve (Shapiro and Varian 1999). Shapiro and Varian give the example of research reports like Gartner Group , etc., who sell "detailed and personalized " information at high prices to buyers at very expensive prices, and then also sell the same information in a less detailed and personalized fashion to a general audience for a much lower price. This technique of versioning also works in the software market, the stock advising market or even in medicine and law. If you want the deluxe product, you will pay the higher price for the deluxe version. The interesting
thing about selling information goods over the internet is that a marketer has the technological ability to carve up information products into multiple version and bundle them into different price points. I may use websiteonline.com for free, or I can pay $14.95 a month and use all of the bells and whistles that website-online has to offer. I can pay $29.95 for an online subscription to the Wall Street Journal if I also buy the print edition, or pay a higher price for the online version only. Further, I can pay a very high price for complete access to 500 journals and papers with a search function from the Wall Street Journal for $2.95 per article download, or between $500 per month up to $2,000 per month. This is the concept of the "versioning" of an information good. A similar thought is called "mass customization" (Laudon and Laudon 1999), which refers to the ability to market to a niche customer through the use of technology, yet still keep volumes high. Some people counter this concept by saying that the increased use of technologies for mass customization ultimately lead to diseconomies to scale, and vendors may end up with smaller footprints because of the complexities of delivering multiple versions of a product to many customers (Brooke 1991). (Kleist)
A consumer searches for a purchase until the lowest price for a product for the money is found. The more expensive the search, the less likely a consumer will be to search all possibilities, and may end up just selecting the best option out of the known alternatives. There is a cost to searching called "search costs," which effects how a consumer learns about products. If search costs are low, markets tend to be efficient because no one can take advantage of a consumer by their not knowing that a better price exists across town. It is possible that the easy access to prices that are available on the internet may lead to higher efficiencies in markets because consumers can look everywhere for the best buy. The less efficient marketers will go away because customers will flock to only the best run firms with the cheapest prices and highest value. (Kleist)
Asymmetry in information occurs when I know something and you don't. This gives me an edge over you, and causes you to pay more for something than I might pay. If a firm sells a good at a price which is too high, and other vendors sell it for less, yet you do not know this and I do, there is a situation of information asymmetry. If I run a restaurant and you run a restaurant, and I buy my napkins from cheapnapkins.com, yet you go to MarthaStewart.com, I will be a more effective competitor than you are because I can charge less to my customers. Why? I got a bargain on napkins due to information asymmetry and you didn't. (Kleist)
It is possible that the ecommerce world eliminates the advantages of information asymmetry and high search costs by allowing an easy flow of information across all participants in markets. This should lead to improvements in the efficiencies of markets for all. One possible mechanism in ecommerce that may bring about this improved efficiency through reductions in search costs and information asymmetry is the technological invention called a shopbot. A shopbot is a software module that searches all relevant corners of the Internet for prices on a specific good, and returns the information to the buyer. The idea here is that the buyer is fully aware of all prices before making a purchase, and therefore selects the lowest cost with the best value. (Kephart and Greenwald 1999). Some wonder if shopbots are real, and that the internet economy will operate just as the real economy, where consumers value vendors based on trust, service and performance. (Kleist)
Customers get used to using a certain product, and are reluctant to try new things because there is a cost associated with learning a new way of doing things. Possibly this cost is proven, and is relevant in the selection of information goods products. An example of the concept to switching costs is the Microsoft Word software product. I use this for word processing, as do many of you. If I were to change to a new software package, I would have some cost (more time) to learn the new word processing software product. Because there is a cost to my time, I am less likely or inclined to change from the product which I already know. When the software product that I use upgrades to a new version, I am more likely to follow the development trajectory of my already known software, rather than to pay the switching costs to learn a new product. If an upgrade cost is high, I may then choose to weigh the cost of paying the switching cost of learning a new package vs. the upgrade costs of staying with my known product. Information goods products may be more likely to have high switching costs associated with them because they usually require some investment of learning to use the products. Thus, information goods may have higher switching costs. If information goods have higher switching costs, then they may be able to charge the customer ever so slightly higher, because the customer is not willing to pay to learn something new. Thus, the higher switching costs associated with may accelerate the monopolistic market forces of increasing returns and network externalities through promulgating market inefficiencies and higher costs. (Kleist)
Firms have costs associated with acquiring the inputs to production in the value chain, as well as with the output and distribution side. Coase (1937) argued that sometimes these purchase or input costs were so high, that it just made sense for a firm to buy the input good firm. For example, if I make steel, and the electricity plant is right next to my factory, I probably pay high prices for that electricity because I have no other choice but to use them. But, if I buy the electricity plant, then I don't have to put up with being price slashed. Firms that become huge, like General Motors, have done so because they faced high transactions costs from their suppliers, and therefore chose to just to buy the input goods firms because it was cheaper than paying the transactions costs (Williamson).
In Conclusion, E-Commerce in the near future will be in every business and in everywhere in our lives. It is the time for all businesses to get themselves in E-commerce either big or small or else they will lose in the globe or quit. I could say that business without E-Commerce is like banks today with out ATM Machines.
Works Cited
1. “What Is E-Commerce? – Learning Curve – Enterprise Magazine June 15, 1999 Derek Slate.
2. Cowen, Tyler (ed.).(1992) Public Goods and Market Failures: a Critical Examination. New Brunswick, Connecticut: Transaction Publishers.
3. Coase, R. H.(1974) "The Lighthouse in Economics." Journal of Law and Economics. 17 (October): 357-376.
4. A.R. Greenwald, J.O. Kephart, and G.J. Tesauro. Strategic pricebot dynamics. In Proceedings of First ACM Conference on Electronic Commerce, To Appear, November 1999.
5. Shapiro, C. and H. Varian, (1999): Information Rules, Harvard Business Studies.
6. Laudon, K. C., Laudon, J.P. (1996). Management Information Systems. New Jersey, Prentice-Hall.
7. Kleist, Unique Economics of Ecommerce and Information Goods Products
