Internet-based electronic commerce opportunities
Internet commerce can substantially improve productivity by lowering transaction, production and distribution costs, facilitating market entry, improving customer service, extending geographical coverage and increasing competition. This should lead to lower prices, improved quality and innovative new products and services, which should further increase economic growth and welfare. Some of the benefits associated with commerce over the Internet include (A) global reach, (B) lower barriers to entry, (C) better availability of information (D) reduced transaction costs,,and (E) new sources of revenue.
(A) Global reach (production, distribution and customer service): Distance and time become less relevant as companies are able to reach their business partners across the globe and serve their customers quickly and around-the-clock. Producers will often be able to choose a place for production and customer service much independently from the location of their customers. Companies and individuals in low income countries are able to reach information and get contacts in ways which were difficult earlier— either due to the nature of voice communication and/or its very high cost.
(B) Lower barriers to entry: The capital cost of entry to establish a presence online is low compared to conventional outlets. The cost of establishing a reputation on the Internet can also be lower than in traditional established markets. A modest investment in a brilliant idea can eventually lead to good results. Small and medium-sized enterprises (SMEs) benefit from easier market entry. But considering the amount of unsuccessful business endeavors online, the actual cost of setting up a profitable business is probably higher than believed. With increasing global competition in electronic business, many argue that global brands will continue to dominate, while SMEs will have to specialize to niches in order to compete.
(C)Better availability of information: Online commerce enables better access to product and price information for all involved including buyers and sellers, producers and distributors. Already, searchagent software allow users to look for the lowest prices around the world. A new breed of ‘infomediaries’ has emerged that base their operations on bringing more complete product information to customers.
(D) Reduced transaction costs: Cost reduction has been one of the main motivations for early adoption of the Internet. E-commerce should also offer improved transaction management thanks to automated order, payment and logistics processing systems. Cisco Systems reports reducing its expenses by US$ 500 million thanks to the Internet
(E) New source of revenue: In 1998, nearly half of website managers claim that their online businesses are profitable (46 per cent, up from 30 per cent recorded in the last three years). The highest profits are reported among retail websites selling directly to consumers—around half of them are profitable today. Of the websites that generated revenue in 1997, the average was a little over US$ 100’000. About 30 per cent generated revenues under US$ 1’000 and 25 per cent had revenues between US$ 1’000 and US$ 10’000. Yet, the reality is that today few companies are making big profits on the Internet. Only 1 per cent of the b-to-b online businesses generated revenues above one million US dollars in the year. Not even the widely admired Amazon.com, in the Internet book selling business, is expected to be profitable before 2001.
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