The Future of Electronic Business

21.11.1998

Karoliina Tuokkola
Department of Industrial Engineering and Management
Helsinki University of Technology
atuokkol@cc.hut.fi

Abstract

Electronic commerce, enabled by rapidly emerging new technologies, delivers global business interaction at the touch of a button. Electronic commerce extends an enterprice out to widening circles of ompact. The E-enterprice is participating in a radical redefinition of industries, markets and of the global economy itself. The increased E-commerce business activity is leading to the creation of several types of electronic marketplaces. Today's E-Markets are closed, whereas the next generation will be open, global and based on electronic business rules of engagement.


1 Introduction

It is happening: a new way of doing business, electronic commerce, is changing the rules. Inevitably an electronic economy, "eEconomy" is emerging, and it will soon dominate. Enterprices that do not participate will not survive. Enterprices that do will reduce costs, increase profits and ultimately transform their capability for creating value.[2]

The information and communication technologies used to enable electronic commerce have traditionally existed only in expensive and closed environments. During the past few decades many industry groups and trading partners have invested in technology to handle the routine paperwork of buy/sell transactions from purchase order to payment.

Now that prices have decreased, capabilities have grown, and connectivity using the internet is potentially universal, no business is isolated from either the opportunities or the threats in the online world of the information society. In many cases the use of new technology is vital for an organisation just to remain competitive. At the same time opportunities for global business, and business involving business partners, are newly available at affordable cost. In all cases, optimum use of all capabilities depends on organisations being ready to examine new ways of working. Furthermore, this technology is having both a direct and indirect effect on the consumer and the citizen. The technology has an effect to the way the consumer buys what is needed and performs work, and the way that businesses and public administrations communicate with the consumer and responds to the existing needs.[1]

2 Commerce and the Internet

The internet market is undergoing an explosive growth. At the end of 1995, commerce conducted on the internet amounted to over US$ 159 million in sales. By the end of 1999, that number is expected to grow to over US$ 400 billion. Not only is the dollar volume of trade exchanged on the internet exploding, but so too is the internet itself. In January 1996, the internet had approximately 9,5 million hosts (machines connected) which represented a 94 % increase over the same month in 1995 and a near 700% increase over 1993. Of these new hosts, by far the most rapidly expanding sector is the ".com" domain, which represents commercial enterprices. There are currently approximately 2,4 million ".com" hosts representing just over 25% of the internet hosts.[4] The number of European hostshad its fastest (estimated) growth in November 1997 and will reach a maximum value of about 11 million hosts in 2002[5]. The internet and other global on-line networks are creating new commercial opportunities for networked enterprises. These include selling advertising space on "web pages", selling tangible goods traditionally sold through other mechanisms over the internet, selling information and charging for on-line services.[4]

3 Electronic Markets

Increased electronic business activity is leading to the creation of several types of electronic marketplaces. E-markets, also known as digital markets, are made up of several virtual businesses that come together within the confines of open trusted environments to interact spontaneously and efficiently. They represent an evolution from today's E-commerce, as they force an unprecedented level of co-operation and interoperation between electronic businesses.[3]

3.2 Current State of Electronic Commerce

The first generation of E-markets can be divided into the following categories:

1. Virtual superstores (e.g. Amazon, RuokaNet)
2. Electronic storefronts to existing services (e.g. Internet banking)
3. Bid/ask marketplaces (any online auctions or classified marketplace)
4. Virtual order centers (e.g. Travelocity)
5. Intranet-based electronic business communities (e.g. Cisco, Dell)
6. Virtual trading marketplaces (e.g. PartsNets)

A common aspect to the above models is that they are in reality "closed" standalone marketplaces. They are closed because they are run by one company and include handpicked business partners or loyal electronic consumers.[3]

4 The Future Vision

The evolution to more open and interoperable electronic marketplaces will become a reality when the following two business conditions exist simultaneously:
1) a critical mass of electronic markets willing to co-operate, and 2) the availability of electronic business rules.[3]

4.2 The Critical Mass of Electronic Markets

We are starting to reach a critical mass of electronic users in certain segments, butwe are still awaiting a critical mass of electronic businesses in several industries. While E-commerce is giving birth to electronic businesses, several of them are needeed to form an E-market. Only after enough of these businessesexist in each segment would there be a reason to form associations that foster co-operation for common benefits. The increasing weight of electronic markets dependence and competitive industry forces will be an economic incentive for co-operation. More electronic businesses are needed, even if they start in a self-serving "closed" stage.[3]

4.3 Electronic Business Rules

Electronic business rules define the predictable terms of engagement and behavior between two electronic businesses or between an E-market and another one. E-rules are admission tickets to E-markets. Once E-rules are known, companies can tap new electronic markets by differentiating themselves with the established criteria. E-rules could, for example, include product definitions and classifications, common business process policies, bid acceptance terms, delivery options and other necessary knowledge.[3]

4.4 Result

What if a critical mass of E-markets willing and able to co-operate by adhering to open business rules of engagement would exist? Three different resulting scenarios are possible:

1. Within a vertical industry. For example a consumer would be able to manage all financial holdings (accounts, insurances, retirement funds, stocks portfolio, bonds) across the various financial institutions that are maintaining them. This information can today be organized on a PC, but a more significant evolution would be to do it interactively and in real time. This could force all financial institutions to co-operate on a set of E-rules for electronic customers.
2. Across co-operating industries, but focused on a uniquely identified process. For example realtors, mold inspectors, lenders, lawyers, appraisers, listing sources are all needed to enable the consumers process of buying a house. But what is needed is not just the handful of appraisers or banks recruited by the company running a given real-estate Web business. Rather what is needed is for all appraisers to be available electronically, for any bank to be able to fullfill mortgage requests, for all real estate companies to pool their listings, etc. By coming together co-operativily and intermixing their inventory of capabilities, industry players can build a truly comprehensive electronic marketplace, and that is much more attractive to all buyers, sellers and process participants.
3. From an E-market to another. Going one final step further, why not allow complete E-markets to accept electronic business opportunities from other E-markets? All of them would have to "open" their services to other available E-markets. For example all the insurance industry's inventory would automatically be made available when an automobile would be purchased through an online process. Or why not allow the entire shipping industry to collectively bid on large or small orders, directly from manufacturers or distributors? By allowing an E-market coalition from one country to interact with another E-market segment in a different country, open listings of "interchangeable services" would have to be available. This way businesses can feed each other electronic services. This is beyond linking a web site to another. This is about seamlessly chaining products and services needed from one E-market to another, without human intervention.

The possibilities described here are beyond what we see today, byt they are inevitably going to happen. The current technology already allows it, byt that is of a lesser concern. Not all business conditions exist yet and that is a more important consideration. E-markets will emerge first in the business-to-business side of E-commerce because the economic incentives are greater than they are with consumers.

At the end, tomorrow's E-markets will be open and orderly, but the path to this evolution may not be.[3]

References

[1] Accelerating Electronic commerce in Europe - Technology development and business pilot projects, June 1998 [referred 23.9.1998]
< http://www.ispo.cec.be/ecommerce/ecbook.html>
[2] Andersen Consulting, eCommerce [referred 27.9.1998]
< http://www.andersen.com/services/ecommerce/ecom_home.html>
[3] E-Markets: Beyond Today's E-commerce, Cyber Review, 1998, Vol.2, No.3 [referred 23.9.1998]
< http://www.cyberm.com/CyberR.html>
[4] Fariselli, Patrizia & Oughton, Christine & Picory, Christian & Sudgen, Roger, Electronic Commerce and the Future for SMEs in a Global Market-Place [referred 23.9.1998]
< http://www.ispo.cec.be/ecommerce/doc4.html>
[5] Kauppa- ja Teollisuusministeriö, Sähköisen kaupankäynnin tilastoja [referred 27.9.1998]
< http://www.vn.fi/ktm/1/skauppa/5.htm>


Further Information

http://www.microsoft.com/europe/industry/ecommerce/default.htm
eCommerce solutions for industry
http://www.vn.fi/ktm/1/skauppa/3.htm
International projects in electronic commerce