E-Commerce: For the Love of Shopping

E-Commerce is “buying and selling, marketing and servicing, and delivery and payment of products, services, and information over the Internet, intranets, extranets and other networks…” (O’Brien & Marakas, 2011).  We all know and love e-commerce as a go-to way to easily locate and purchase almost anything.  According to the blog ReferralCandy, in 2012 the number of retailers, differentiated by yearly sales, was as follows:

Yearly Sales of at least	Number of retailers in 2011	Number of retailers in 2012	Year-on-Year Growth
$12,000	90,501	102,728	13.5%
$25,000	54,686	61,728	12.8%
$50,000	33,983	38,157	12.3%
$100,000	21,118	23,587	11.7%

(http://blog.referralcandy.com/2013/09/18/how-many-online-stores-are-there-in-the-us-2013-edition/, retrieved 6/9/14)

The number of retailers are only one way to measure the impact of e-commerce.  When we look at the holiday shopping season of 2013 we see a shift from shopping in malls and stores to the “well informed, socially-connected consumers” (http://www.forbes.com/sites/oracle/2014/01/13/10-technology-trends-that-will-revolutionize-retail/, retrieved 6/5/14).  Further, while retail sales rose 2.7% in November of 2013, actual store visits declined 14.6% and eMarketer estimates that up to 20% of the 2013 holiday season sales occurred on mobile devices (http://www.forbes.com/sites/oracle/2014/01/13/10-technology-trends-that-will-revolutionize-retail/, retrieved 6/5/14).

So, if sales are on the rise, all must be fine in the world of e-commerce? Not so fast!  Competition in the e-commerce world is fierce.  This is true, at least in part, because of the impact of globalization that Thomas Friedman (2008) discussed in his lecture at MIT about his book The World is Flat: A Brief History of the 21^st Century.  Although globalization increases competition in all industries, the impact is greater in e-commerce because buyers have no physical connection to e-commerce retailers.  This heightened competition “encourages and sometimes requires a constant effort to gain competitive advantage in the marketplace” (O’Brien & Marakas, 2011, p. 46).  Given this, we were able to identify a number of barriers to commerce which are somewhat unique or more prevalent in the e-commerce world.  Additionally, we identified a number of IT strategies companies are using to overcome these barriers.

Barriers and Strategies to Overcome in the World of E-Commerce

If we assess the barriers through the lens of competitive forces, we can easily see how IT can assist with overcoming some of the barriers identified in the literature.  As a leader in the industry, Amazon can be used to highlight several examples of barriers in e-commerce.  Also, Amazon provides several examples of how these barriers can be overcome.  Amazon is an example of an e-commerce organization that has utilized IT, to assist with marketing, logistics and distribution, integration of selling channels, and customer management. 

Logistics and Distribution

Logistics and distribution functions not only provide customers with products, but they also play a role in allowing Amazon to be a cost leader.  Furthermore, they allowed Amazon to innovate by morphing from an online book store, carrying only a few titles and sourcing from other retailers, to becoming essentially a wholesaler by providing smaller retailers the ability to market through Amazon.  All of these business decisions were supported by data obtained through its large technology infrastructure which allows Amazon to divide their IT into three functions; query, historical data, and ETL which pulls data from one source and integrates it into another.  A quick overview of Amazon's E-Commerce Success Story below outlines their data differentiating strategy.

  

Most recently, IT solutions allowed Amazon to invest in about 50 new warehouses to bring same-day delivery to many of its customers.  Same day shipping allows Amazon to differentiate themselves from their competition.  However, the con of this is shipping isn’t cheap.  Amazon reported an all-time high of shipping costs in the first quarter of 2014, reporting net shipping costs of $1 billion – an increase of 28% over the same quarter in the previous year (see chart below).  (http://www.geekwire.com/2014/amazons-shipping-costs-keep-soaring-ripping-retailers-business/, retrieved 6/9/14). Although many customers pay an annual membership fee to allow for free shipping and other perks, it turns out that this doesn’t necessarily cover the cost and Amazon ultimately pays the price.  In order to alleviate the burden on the company, Amazon increased the membership price by $20.  However, with this increase in price comes a demand for more features to enhance the customer experience which IT will have to be fully involved in such as access to streaming videos and music.

Marketing, Selling Channels and Customer Management

A look at customer management also provides insight into how IT can assist with overcoming barriers to commerce.  When a customer opens the Amazon site, he or she will not only see featured products and special offers, but also recommendations based on past searches and sales history.  Customer tracking and behavioral targeting, thanks to its investment in IT, is an Amazon stronghold and differentiates it from many of its other e-commerce competitors (http://money.howstuffworks.com/amazon1.htm, retrieved 6/9/14).  Although, tracking is convenient to customers and increases sales, one con is it is costly to the company to implement and maintain.  Additionally, some customers might consider it an invasion of privacy.

Another feature of customer management that sets Amazon apart from its competitors and relies heavily on IT is its multi-leveled e-commerce strategy that provides customers access to almost anything by allowing other retailers to sell merchandise through their site.  For Amazon, this is both an innovation and alliance strategy.  By aligning with other retailers and bringing them on-board with their IT platform, Amazon eliminates competition by making them their business partners. 

References

http://blog.referralcandy.com/2013/09/18/how-many-online-stores-are-there-in-the-us-2013-          edition/, retrieved 6/9/14

http://blogs.hbr.org/2013/11/amazon-constantly-audits-its-business-model/, retrieved 6/9/14

http://www.forbes.com/sites/oracle/2014/01/13/10-technology-trends-that-will-revolutionize-        retail/, retrieved 6/5/14. 

Friedman, T. (2008, January 11). MIT Milestone Celebration | Keynote Address, retrieved on from https://www.youtube.com/watch?v=EcE2ufqtzyk, retrieved 6/10/14. 

Hanley Frank, B. Amazon’s shipping costs keep soaring, forcing tough decisions http://www.geekwire.com/2014/amazons-shipping-costs-keep-soaring-ripping-retailers-business/, 6/9/14

Layton, J. How Amazon Works. Retrieved from How Stuff Works             http://money.howstuffworks.com/amazon1.htm, retrieved 6/9/14. 

O’Brien, J.A. & Marakas, G.M. (2011).  Management information systems, 10^th edition. NYC,      NY, McGraw-Hill.

Tucker, B. List of Barriers to eCommerce.  Retrieved from How Stuff Works             http://www.ehow.com/info_8465346_list-barriers-ecommerce.html, retrieved 6/9/14.