Ecommerce Wholesale Retail

8/11/2019 Ecommerce Wholesale Retail

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Retail and Wholesale TradeE-Commerce:What the Numbers Really Mean*Eric Brousseau**

A review of quantitative research on electronic commerce (e-commerce) and its impactreveals major gaps in our knowledge about current changes. The recent introduction ofsome online applications and the rapid pace of change are not the only explanations. Thegreat store placed in the myth that perfect markets will be achieved through digitalnetworks and the emphasis on online ordering explain many of the obstacles to properunderstanding and measurement of the e-commerce phenomenon.

Three important facts need to be stressed. First of all, the Internet did not begete-commerce. E-commerce developed from other technologies and several forms ofe-commerce will continue to rely on other networks than the Internet. Secondly, manyelectronic systems are not designed to handle all of the operations involved in acommercial transaction. Digital networks are just one of the channels through whichtransactions can be conducted in conjunction with other channels. Depending on theoperations that networks are built to handle, different types of e-commerce are beingdeveloped with contrasting effects. And, thirdly, in many cases, digital networks areused more for differentiating services and targeting specific groups of consumers, ratherthan for creating more transparent markets.

Agencies in charge of monitoring e-commerce need to develop more sophisticatedevaluations of how electronic applications are being used and the rationale of thesystems being set up. Such evaluations would provide information on how e-commerce

is being introduced in the various components of the economy.

* Originally published as Commerce lectronique : ce que disent les chiffres et ce quil faudrait savoir, conomie et Statistique,

No. 339-340, 2000 - 9/10.** Eric Brousseau is a professor at the University of Paris X, Forum & Atom

The names and dates in parentheses refer to the bibliography at the end of the article.


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ecision-makers enthusiastic talk about thesheer size and potential of the new econ-

omy

in general, and e-commerce in particular, isin striking contrast to the dearth of reliable dataabout concrete results. Except for the firstrelease of official statistics on e-commerce

retail sales in the United States in 2000 (U.S.Census Bureau of the Department of Com-merce, 2000), private-sector consulting andmarketing firms produced the vast majority ofthe e-commerce data that are now being circu-lated and even finding their way into officialreports. Such firms as International Data Corpo-ration (IDC), the Gartner Group, KPMG, For-rester Research, Jupiter Communication andAccenture have produced these data usingmethodologies that are not always very trans-parent. The nub of the problem lies in the factthat most of the available data are forecasts

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, notevaluations, and the data from different sourcesare not compatible

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.

The OECD (2000b) cites one of the most blatantexamples: estimates for 1995-1997 vary fromUSD 70 billion to USD 24 billion, depending onthe firm providing them (see Table 1). The samefirms estimates made between 1995 and 1998call for e-commerce to account for an average of5% of retail sales in 2001 and 2002. These fig-ures are totally incompatible with the Depart-ment of Commerces own figures, which put the

share of e-commerce in 2000 retail sales atabout 0.7%, even though the American retailtrade is by far the most digital in the world.

Regardless of the method we use to approache-commerce data, we see that all of the discus-

sion, investment strategies and government pol-icies related to e-commerce are based on veryquestionable numbers. Even the bodies that pro-duce the numbers defend them only half-heart-edly. They admit that their definitions of e-com-merce and categories of e-commerce, as well as

their estimation and sampling techniques, differand that they are prone to problems and biased.The key argument in defence of producing suchnumbers is that the real issue is to capture thetrend, which shows strong growth in this case.We could counter that the different bodies esti-mated growth rates are wildly divergent. Forexample, evaluations of the growth of e-com-merce in Britain show estimated annual growthrates that vary by a factor of 2 between Optime-dias estimate of 67% and NOPs estimate of116%. This means that estimates will diverge bya factor of 14, ten years down the road (CRIC,

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D

1 Many estimates have been revised downwards or turned out tobe false. For example, the U.S. Department of Commerce notedthat estimates published in 1999 of 1998 online retail sales vol-ume put the figure at between USD 7 billion and USD 15 billion.This is to be compared to the figure of USD 4 billion to USD 14

billion estimated in 2000 for 1999 online retail sales volume, andto the figure of USD 5.3 billion measured by the Department ofCommerce itself. Going by these figures, we see that theexpected explosion of sales volume did not occur and estimatedonline sales volume was trimmed in consequence.

2 The French E-Commerce Task Force emphasised that evalua-tions of B2B (business-to-business) online sales volume in 1998

ranged from USD 3 billion to USD 15 billion (Lorentz, 1998). Thereport on the impact of IT by the French General Planning Com-

mission cited discrepancies to the order of one to ten betweenrival estimates (Dang NGuyen, 1999). The accuracy of estimateshas hardly improved at all over the last two years. In its 2000report on the digital economy, the U.S. Department of Com-merce reported that private-sector estimates of B2C (busi-ness-to-consumer) sales volume varied widely (see note 1). Thesame holds true for estimates of B2B sales volume, which rangedfrom USD 634 billion to USD 2,300 billion for 2003 (U.S. Depart-

ment of Commerce, 2000).

Source: OECD, 2000b.

Table 1

The Main E-Commerce Estimates in the United States

In USD millions

Source 1995-1997 2000-2002

IDC 1,000 117,000

INPUT 70 165,000

VeriFone 350 65,000

ActivMedia 24,400 1,522,000

Data Analysis 2,800 217,900

Yankee 850 144,000

E-land 450 10,000

EITO 475 262,000

AEA/AU 200 45,000

Hambrecht & Quest 1,170 23,200

Forrester 8,000 327,000

Morgan Stanley 600 375,000

Mean 725 154,500


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1999). Therefore, the different firms do noteven agree that we are at the same point on theS-shaped diffusion curve (since we are dealingwith network technology, see Curien, 2000) andit is only reasonable to have very serious doubtsabout their ability to account even for trends.

A Phenomenon that Takes ManyForms and Changes Rapidly

he inaccuracy of estimates is easy toexplain. It stems mainly from three over-

lapping phenomena. First of all, we are dealingwith phenomena where quantities and qualitiesare both changing very rapidly (see Table 2).According to the International Telecommunica-

tions Union, the number of Internet users in theEuropean Union/United States/Japan areaincreased from 70 million to 174 millionbetween 1997 and 1999 (Eurostat, 2001)

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.According to the U.S. Department of Com-merce (1999), Internet traffic volume doublesevery 100 days. The number of secure servers,which are especially useful for e-commerce,increased by 95% in the OECD countriesbetween April 1999 and April 2000 (OECD,2000a).

This exponential growth comes with a rapiddiversification of use. The growing numbers ofInternet sites are further testimony to diversifi-cation. The number of sites swelled from 26,000in 19993 to 5 million in 1999 (U.S. Departmentof Commerce, 1999). Even though there is someoverlap, the range of services on offer is muchbroader today than it was a few years ago. Thechange is obvious in the case of online retailing.Lucking-Reiley and Spulber (2000) reviewed

all of the marketplace. More than 75% of the 50or so marketplaces are less than three years old.In the B2C (business-to-consumer) field, thepublic at large is aware of or has heard from themedia about the explosive growth of onlineservices. These include more or less sophisti-

cated distance-selling techniques in all businessareas or more innovative sites offering newfunctions, ranging from auctions and group pur-chasing to networked games. 3

Given these circumstances, it is difficult tocome up with stable classifications and puttogether statistical series, or even to agree onstandardised measurement methods. E-com-merce is not the only area where this problem isencountered. The same problem comes up forall forms of information and communication

technology (ICT) and all its uses, as was empha-sised in a French General Planning Commissionreport (Brousseau and Rallet, 1999). Eveninside firms, it is hard to evaluate the real costsand the real impact of investment in ICT. Stafftraining, maintenance and organisational costsare often omitted. The impactin terms of jobs,productivity and competitiveness is very com-plex, because the technologies involved changeso quickly and affect all business areas. ICT useis governed by more than one decision-makingcircuit and its effectiveness is very dependenton supporting measures. This means that, evenat the firm level, it is difficult to come up withreliable figures.

Secondly, we are dealing with very sensitiveinformation and strategic concerns distort the

T

3 The estimated number of Internet users around the world in1993 was approximately 3 million (U.S. Department of Com-

merce, 1999).

Source: Eurostat 2000.

Table 2

Changes in E-Commerce Infrastructure 1995-1999

In millions of Units

France EU USA Japan

1995 1999 1995 1999 1995 1999 1995 1999

Number of PCsPer 100 people

7.8

13

13.0 22

56.2 15

93.225

86.333

141.0

52

15.1

12

36.3

29

Internet Hosts

Per 100 peoples

0.15

0.3

0.6

1.0

1.8

0.5

8.5

2.3

6.0

2.3

53.1

19.6

0.26

0.2

2.6

2.1

Internet usersPer 100 people

1.0*

1.7*

5.6

9.6

19.3* 5.2

*55.914.9

40.0*15*

110.0

40.5

11.5*

9.3*

18.3

14.5

Mobile telephone

Per 100 people

1.0

1.8

21.4

36.3

21.1

5.7

146.5

39.1

33.7

12.9

86.0

31.7

1.7

9.3

56.8

45.0

* 1997 figures


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behaviour of firms with regard to disclosure anddiffusion. We are faced with emerging marketsand uses in a context of technological competi-tion. Online service providers and the technol-ogy providers serving them are aware of thecharacteristics of an economy with high returns

to adoption and network externalities (David,1985; Katz and Shapiro, 1985; Arthur, 1989;Cowan, 1990; Varian and Shapiro, 1999). Pro-viders have to convince potential adopters orsubscribers that their products and services willbecome industry standards or that they willplay a central role in the market. This means thatthey are inevitably tempted to exaggerate infor-mation about their actual or expected marketshares. Furthermore, potential adopters are espe-cially sensitive to forecasts and beliefs

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. Aswas the case in other ICT applications (Brous-seau and Rallet, 1999), the uncertainty surround-ing the impact of new uses, combined with largereal or assumed potential for economies of learn-ing, created a constant fear of being left behindby the competition. This fear leads to copying ofcompetitors adoption choices.

The Myth of Online Ordering

The third phenomenon that explains divergencebetween e-commerce evaluations stems fromgreat uncertainty surrounding the definition and

possibilities of e-commerce. As Rallet (2000)aptly points out, most of the evaluations arebased on the myth of online ordering. Wecould even add that they focus solely on onlineordering over the Internet. This stems from abiased perception of what ICT contributes tocommercial transactions and a simplistic viewof Internet characteristics. In fact, many opinionleaders, technology mavens and ordinary citi-zens have a more or less explicit vision of theInternet as a global virtual marketplace operat-ing as a quasi-Walrasian market with not inter-

mediaries between supply and demand

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. On topof this, the virtual nature of the electronic mar-ket is assumed to provide extraordinary savingson transaction costs.

On the strength of this myth, a lot of research one-commerce disregards all forms of commercethat dont use the Internet, even though theymay use other electronic media. Yet, in func-tional terms, using e-mail to place an order isnot very different from using a fax or a tele-phone. Similarly, viewing a catalogue on a web-site is not very different from consulting a cata-logue via a videotext system, such as theMinitel, or even using a telephone to reserve air-

line tickets, for example. Furthermore, conduct-ing an electronic data interchange (EDI) overthe Internet using WebEDI or over another net-work, does not change the fact that EDI ismainly concerned with ex post

transaction man-agement, rather than ex ante

management (see

below). In more general terms, the exclusion ofcommerce that does not use the Internet disre-gards the diversity of uses. Most e-commercesites are not anonymous auction markets. Mostsites are more concerned with implementingnew forms of discrimination and intermediationthan they are with creating transparent marketswithout intermediaries. 4

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It is also on the strength of this myth of a virtualWalrasian market that most statistical work con-centrates on online ordering. If all of the opera-tions involved in a transaction are not conductedonline, the innovative effect of the Internet isassumed to be less significant. If orders are notplaced online, the World Wide Web is no longerthe medium for a fully integrated global market,it is merely another medium that conventionaloperators use for advertising, prospecting forcustomers, supplying some additional servicesmore cheaply, more dynamic catalogue andprice list management, etc.

While it is easy to understand why so manyobservers are obsessed with the online ordering

criterion, this position is untenable if we want tounderstand the impact of using electronic mediato manage commercial transactions. Yet, this isa key issue for macroeconomic and microeco-nomic research. We need to evaluate the impactof ICT on productivity and market coordinationto understand its macroeconomic impact andmicroeconomic research needs to capture firmsstrategies and analyse the impact of e-com-merce on the division of the surplus. It is reallynot very relevant to make a distinction betweencommerce on the Internet and commerce thatuses other media and to restrict the notion ofelectronic commerce to transactions whereorders are placed online when we are trying tounderstand how commerce is using digital tech-nologies rather than electronic commerce perse

, as suggested by A. Rallet (2000).

4 In the case of e-commerce, exaggerated demand figures werefurther inflated by figures presented to investors as the dot-com

stock market bubble grew during 1998 and 1999.

5 A Walrasian market

is one that centralises the supply anddemand of all of the agents involved in the economy in order todiscover the market-clearing equilibrium prices. If the Internetwere to make the cost of finding information insignificant andcomputers did the same thing for the cost of processing informa-

tion, then each agent could have full information about all of theopportunities and terms of trade in the economy. This would bethe same as knowing the equilibrium price vector.


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Beyond the Internet:Other Digital Networks

ather than letting our approach be dictatedby technical criteria, we should look at the

problems in terms of uses. The technical charac-teristics of the network used are not important;what counts is how the network is used. Thismust be the starting point for any attempt tomeasure e-commerce. The approach needs tofocus on services or applications, rather than onthe medium.

The Internet is by no means the sole growth vec-tor for e-commerce. In France, the Minitel vide-otext system handles substantial traffic relatedto commercial transactions (OECD, 1998). Dig-

ital television cable and satellite networks, aswell as cell telephone networks, are also majorvectors for growth in B2C commerce (seeBox 1). Some 8% of households in the Euro-pean Union have Internet access, as opposed to11% in the United States, and 34% of EU house-holds have cable or satellite television, asopposed to 36% of American households. Inboth the USA and the EU one-third of the pop-ulation have cell phones and two-thirds haveaccess to teletex (CRIC, 1999).

Dedicated data transmission networks play animportant role in B2B commerce. Such net-works are long-established links between mostlarge and medium-sized firms and they are themain medium for EDI. According to the CensusDepartment of the French Ministry of Industry(Sessi), only 8% of French manufacturing firmsreceived online orders over the Internet in 1999(even though some 24% of such firms used theInternet to diffuse information), yet 44% ofthese firms used EDI: 36% for transactions withpartners, 15% for exchanges with tax and

employment authorities and 14% for exchangesbetween their various establishments. In France,business volume conducted via EDI was esti-mated at FRF 800 billion, as compared to theestimated volume of FRF 7.3 billion for B2Bbusiness over the Internet (Observatoire duCommerce et des changes lectroniques,1999).

Even though there is a gradual shift towards theInternet, many of the online information mar-kets still rely on dedicated secure data transmis-

sion networks (Brousseau and Qulin, 1991 and1996).

Internet Innovation

The indisputable innovation that the Internetbrings to e-commerce lies mainly in the InternetProtocol technologies (TCP/IP, invented in theearly nineteen-seventies) and the World Wide

Web (WWW, invented in the early nine-teen-nineties).

IP is a communications protocol that providesinteroperability for networks operating on differ-ent standards. It makes all of the available phys-ical networks in the world into a single network.

Network administration is also decentralised. Itprovided by all of the network components thatuse the IP address information included in eachpacket of information travelling over the net-work. Decentralisation means that the network

cannot be blocked and it enables the network togrow with minimal coordination, which is lim-ited to compliance with the Internet technicalstandards. The range of functions available canbe expanded simply by hooking up more hard-ware or introducing new software to the Inter-net. Decentralisation also makes differentiatedcommunications management possible, rangingfrom mass communication to point-to-pointcommunications and all combinations inbetween in which information is targeted andadapted to different audiences.

World Wide Web technology provides a stand-ardised system for addressing and displayinginformation that also works on all networks.This technology can handle data, text, stillimages and animated images.

We could cite hundreds of other innovationsrelated to the Internet, such as signal compres-sion and encryption techniques that enhancenetwork capacity and security, but IP and theWorld Wide Web are the two that brought aboutthe greatest transformation.

The Internet has become an inexpensive world-wide multimedia network used for:

Information exchanges between economicplayers in different categories, including pro-ducers, intermediaries and consumers. Theseexchanges have the potential to reorganise mar-ket transactions,

Mass worldwide distribution of informationproducts and services,

Cooperation, especially between individualsinvolved in creative and innovative processesthat require powerful media for informal com-munication.

R


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Public Networks, Corporate Networks

There are many other media for e-commercetransactions beside the Internet. The generalpublic is likely to use digital television networks

and cell telephone networks for many e-com-merce transactions in the future. Cell telephonenetworks are complementary to the fixed tele-phone networks carrying the Internet today.They reach more people and different segments

Box 1

E-COMMERCE CATEGORIES

It is common practice to distinguish between business

and retail e-commerce applications.

B2C stands for Business-to-Consumers and refers

to sales of goods and services to the general public,

some of which are delivered online. Amazon and Dell

are the archetypes of such online retailers. However, a

large proportion of Minitel services also follow the

same pattern. B2C services are mostly provided by

commercial intermediaries, who may be new retailers,like Amazon, or conventional retailers, like Carrefour

(Brousseau, 1999).

However, there are a few sites where manufacturers

sell their products directly to customers. There are not

many such sites, since manufacturers and service pro-

viders do not always have the necessary expertise to

sell their products and manage their customer relation-

ships. Furthermore, they do not necessarily wish to

compete with the retail outlets that handle most of their

sales.

B2B stands for Business-to-Business and refers to

transactions between businesses This category of

e-commerce is either based on bilateral agreementsbetween commercial partners that decide to share

information via electronic media, or else on services

provided by specialised firms. As a general rule, these

services are aimed at a particular sector or industry, in

view of the specific coordination requirements in each

industrial segment, in each country or each economic

area. These service providers are mostly offshoots of

firms in the sectors where they do business. They are

either subsidiaries of the major firms in the sector, as

is the case with the airline sector; joint-ventures com-

bining different firms, as in the case of car insurance in

France, etc.

Sometime specialised providers of

value-added

information are commissioned by industry associa-tions or standardisation bodies to develop customised

services. For example, in the United States, GEIS, a

General Electric subsidiary developed services to pro-

mote trading between oil companies at the end of the

nineteen-seventies. B2B services are less familiar to

the general public than B2C services are, but they are

much older and involve much greater business vol-

ume.

Other

classes

of service emerged with the Internet:

C2C stands for Consumers-to-Consumers and

refers to systems aimed at promoting transactions

between individuals. There are services that operate in

the same way as classified advertisements. The inter-active possibilities of the Internet have given rise to

genuine electronic auction markets. E-bay is the prime

example of this type of service. C2C now refers to all

of the services intermediating between individuals,

such as selling used goods, barter systems similar to

local trading systems and agencies that bring inter-

ested parties together. Such services had already

emerged with the Minitel.

Insofar as many of these services do not give rise to

commercial activity per se, it would not be appropriate

to put them all under the heading of e-commerce. Yet

the example of Napster, which a system that enables

users of the Napster software to share data stored on

all of the users hard disks, shows that such systems

can have a significant impact on commercial activities.

C2B stands for Consumers-to-Business and repre-

sents an attempt to turn the rationale governing the

relationship between supply and demand around. The

basic principle is to use electronic networks to consol-

idate individual consumers' demands and have suppli-

ers bid for their business. Priceline.com, for example,

enables individuals to announce the price that they are

willing to pay for an airline ticket. It is then up to the air-

lines whether or not to accept the prices bid. On

another level, several services are aimed at aggregat-

ing individual demands so that individual buyers can

form groups to obtain wholesale prices from manufac-

turers.

In what is bound to be a more interesting development,

there are now sites where consumers pool their infor-

mation about service providers in order to reduce the

asymmetry of information. One of the most dynamic

developments of this type is taking place in the health

information services sector in the United States. Some

sites are aimed at providing a forum for people suffer-

ing from the same diseases. In addition to their psy-

chological aspects, such

virtual communities

nowplay a major economic role by promoting systems for

evaluating the quality of care, services provided by

insurance companies, treatment costs, etc. (Naba-

rette, 20021).

Some of the classification matrixes now have an extra

line and column labelled G for Government. This gives

G2B, B2G, etc. Governments have made a major effort

in recent years to provide a growing supply of informa-

tion over the Internet for economic agents (G2B and

G2C. However, such tools as the Minitel, Videotext

and EDI (electronic data interchange) had already been

used for conducting such operations in the past, albeit

on a much smaller scale. Furthermore, the relation-

ships between the government and its partners are notcommercial.


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of the population. They can also be used whentravelling. Digital television networks can beused for two-way communication and viewerscan order programmes through their televisionsets. Cell telephone networks will offer moreservices as future generations of telephones

offer higher transmission speeds. Certain seg-ments of the population that have alreadyadopted earlier networks, such as the Minitel,will continue to use them if they have no com-pelling reason to switch to the Internet. Thesemedia should be seen as complements to theInternet, and not substitutes. A visit to a websitemay be followed by a telephone order placedwith a call centre, a shipment to a physicaldelivery point, online provision of after-salesservice, etc.

The current lack of reliability with regard totransmission speeds and security means that theInternet is not suited for certain types of B2Btransactions. Primarily for this reason, firmswill continue to use the dedicated data links andnetworks that have been in place since the earlynineteen-seventies. In most cases, the datatransmission capacity is provided by telecom-munications operators and the owners of physi-cal networks, such as the French railways oper-ator, SNCF. These networks link firms that haveentered into bilateral agreements or subscribedto the same dedicated networks.

Once again, firms make simultaneous use ofseveral communications media, even though theInternet will eventually become a platform forintegrating all network services. This futureplatform will not, however, be the Internet weknow today. IP will be the common standard fornetworks administered in different ways. As isthe case today, differentiated communicationservices will be available. But, unlike today,they will use a common network infrastructure,instead of being implemented on separate phys-ical infrastructures.

It should also be noted that systems being devel-oped on the Internet today often rely on systemsdeveloped a long time ago for business use.Online financial market transaction systems andonline airline ticket sales systems are in factconnected to the on-line trading systems andairline reservation systems that were developedin the mid-nineteen-seventies. Retail transac-tion systems would not exist without these oldersystems, which link major institutions and cor-porations and ensure secure and reliable trans-actions.

To measure e-commerce, therefore, we have toobserve what is happening on other digital net-works, far beyond the Internet. This observationrequires us to analyse how the various channelsfor exchanging information are complements orsubstitutes for one another. The other channels

may be digital networks, other means of tele-communication, the mail or face-to-face meet-ings. These various media for informationexchanges are often thought of as substitutes forone another, when they are in fact largely com-plementary

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Breaking Transactions Downinto their Components

t helps to analyse the uses made of electronicnetworks in order to move beyond the

medium-based approach. Uses can be capturedby identifying the transactional functions thatthe parties choose to carry out online, with a dis-tinction between ex ante

functions and ex post

functions (Williamson, 1985).

Before a transaction can take place, the partiesmust:

- find potential partners [1];

- negotiate with their partners [2];

- and then reach an agreement [3].

After the transaction has been concluded, theagreement needs to be carried out, whichinvolves an exchange of information:

- specifying the parties obligations in detail(especially if the contract is incomplete withregard to such information as volumes, deliverydates and addresses and certain technical speci-

fications) [4];

- enabling the parties to make adjustments(delivery status, resource planning, etc.) [5];

- enabling the parties to reach a financial settle-ment (invoicing and payment) [6].

6 Analysis of telephone and e-mail traffic patterns, for example,show that the electronic exchanges are most intense betweenindividuals who communicate regularly by other means. In com-mercial relationships, electronic media may also be complementsto face-to-face meetings. In the American automotive market, forexample, it is estimated that fewer than 1% of the sales are made

online, yet nearly two-thirds of the purchases are prepared on theInternet, where buyers go for information about models anddealers.

I


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Finding, Negotiating and ReachingBargains on Digital Networks

Electronic markets emerge when the ex ante

functions are carried out on digital networksand supply and demand actually meet online.Under circumstance, the parties informationscosts might be lower, which could enable themthem to make prospective counterparties com-pete for their business. In practice, however,contrasting forms of markets may emerge(Brousseau, 2000). Intermediaries can organisenon-transparent markets, such as the airline res-ervation systems, where supply and demandinformation is centralised and managed accord-ing to the intermediaries own rationales foradjusting the other agents plans. Or, con-versely, the market can operate as a dou-

ble-blind auction, where all bidders and sellersare competing against each other (marketplacerationale; see Box 2).

In the same way, the actual operating proce-dures on the market can differ greatly, depend-ing on whether all functions, or only certainfunctions, are carried out electronically. In thevast majority of cases, Internet-based e-com-merce today relies mainly on an electronicsearch for potential partners (Function [1]). Onthe one side, product and service providers usewebsites to advertise and their websites can beseen as showcases. On the other side, consum-ers use the capabilities of more or less special-ised search engines that list providers and, morerarely, compare the advertised prices. In prac-tical terms, this limits the usefulness of suchsearch engines to standardised products and ser-vices, where there is little uncertainty aboutquality. Typical examples are books, compactdiscs and software

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.

The leading example in this field is the range ofservice provided by the automotive sales inter-mediaries that have emerged in the UnitedStates (Autobytel.com, Autoweb.com, Car-point.com). These sites list the affiliated cardealers prices for a given model and send themprospective buyers. They earn money by charg-ing car dealers a subscription fee or a findersfee. Buyers enjoy the lowest prices, which aremade possible both by keener price competitionand the economies of scale that affiliated deal-ers achieve as a result of higher stock turnover.A recent study (Scott Morton, et al

., 2000)reports that buyers save about 2% on the price ofa car.

Parties are less likely to negotiate terms andplace orders online (functions [2] [3]). Buyersdo not have much assurance as to the quality ofthe products and services provided. Thusonline negotiations and orders only involvehighly standardised and not very complex

products and services, since the relevant char-acteristics have to be described using an inter-face that does not leave a lot of room for detail.In addition, the products and services have tobe ones that are used in a standardised manner,since online shoppers can only get fairly lim-ited help in choosing the best product for theirneeds

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.

In practice, even though consultants estimatesneed to be taken with a grain of salt, more than80% of the transactions on the Internet involveproducts with such clear-cut standard character-istics. They are travel tickets, which are definedby a departure date and city, an arrival date andcity and the means of transport, or else culturalproducts, which are defined by the title and theartist or author, and computer products, whichare defined by technical standards, capacitiesand, where appropriate, generation (seeTable 3). There is a fourth category of suchproducts, which is financial products. A grow-ing share of retail trading orders is being placedvia online brokerage systems. 7

8

Deliveries of these products and services do notraise any major logistical problems. They can bedelivered electronically or via conventional cir-cuits, such as the mail or parcel delivery serv-ices, since such products are compact, relativelylight and do not require special treatment duringshipment and storage.

7 The main sites in America are Dealtime, mySimon, Pricewatch,Pricescan, Pricegrabber, BottomDollar and Qixo. However, as

Ellison and Fisher Ellison (2000) point out, consumer surveys inAmerica shown that most of the sales made over the Internet donot involve the use of such sites. For example, in 1997 and 1998,70% of the buyers purchased recordings and books from a single

site (Johnson et al., 2000).

8 Several attempts to create online B2B systems failed in thenineteen-eighties, or else they had to be redesigned. This wasbecause complex products and services are not easy to describeonline. For example a system for exchanging real estate market

information online was not successful since posting descriptionsand photos could not replace visits to the properties in person toevaluate their true characteristics. In a similar vein, DEC, whichwas the leader for networked mini-computers at the time, had to

limit its Electronic Store to taking orders for supplies and periph-erals. Selling computers required DEC to give a great deal of

advice and work with customers to determine their exact require-ments. Customers were not necessarily able to express theirneeds in terms of hardware and software because they did not

have a comprehensive grasp of what was available, technicaldevelopments and how certain solutions could match their

requirements.


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Box 2

E-COMMERCE TECHNOLOGY

E-commerce can be based on several types of tech-

nology, which correspond in part to technological

progress. If fact, any use of an electronic medium to

carry out all or part of a commercial transaction can be

seen as an e-commerce operation. Consequently, a

fax used for placing orders can be seen as an e-com-

merce technology. A number of digital network serv-

ices are more specifically designed as media for com-

mercial transactions. Some of the main ones are:

Value added services (VAS), typified by airline reser-

vation systems and financial information and trading

systems, like Reuters. These systems operate on the

principle of a centralised server. The

clients

, which

are travel agencies and fund managers in this case,

have access to a service that is usually made up of an

information component to help them carry out their

transactions and a transaction component to record

and validate orders and to handle payments. These are

closed systems, since only subscribers have access to

them and the services offered are specific to the net-

work. Most of the time, the service provider plays an

active role, matching supply and demand, defining

precise operating rules for the market, etc. Most of the

systems used today emerged in the nineteen-seven-

ties. They were originally modelled on large centralised

mainframe systems, which were interconnected in

some cases (Brousseau and Qulin, 1991 and 1996).

Videotext, typified by France's Minitel and systems

developed in other countries in the early nine-

teen-eighties, is also based on a centralised computer

system, which was the prevailing model before the

advent of personal computers. The main differencesbetween videotext and value added services are that

videotext solutions are aimed at the general public and

they are much cheaper, since they use public switched

telephone networks and data transmission networks

that are accessible to everyone. Dumb terminals are

used to connect to the servers providing services. The

success of France's Minitel system is largely attributa-

ble to the free distribution of the terminals and the

invention of kiosk billing whereby the network operator

bills customers for

minutes

on the network and then

passes on a share to the information service providers.

This type of solution provides a reliable and inexpen-

sive system for handling

micropayments

that is well

suited for the provision of information services aimed

at the general public (Flichy et al., 1991; OECD, 1998).

Electronic data interchange (EDI) is typified in

France by the GALIA information sharing system used

by car makers and their suppliers, or the GENCOD

system used by major retailers. EDI is primarily based

on standardised presentation of the information

exchanges between firms so that the order processing

systems can automatically generate and interpret

messages. More importantly, EDI is linked to applica-

tions for inventory management, shipping, invoicing

and payments, as well as production and sales man-

agement. The main attraction of EDI is not automation

of information processing, but automation of coordina-

tion between firms. This requires more than just stand-

ardised message formats and involves rules governinginterfirm transactions, contracts, etc. This explains

why most EDI systems are specific to given sectors of

industry. EDI systems were developed in the late nine-

teen-eighties and, in most cases, they were integrated

into dedicated data transmission networks that were

well suited to very secure mainframe systems (Brous-

seau, 1994). However, since EDI standardisation is not

very dependent on the infrastructures used to transmit

data, WebEDI is starting to make its appearance, and

EDI messages can now be transmitted over the Inter-

net. This development will bring EDI within reach for

smaller firms since the Internet is cheaper and it can be

used to link personal computers.

Secure web servers are generally used for e-com-

merce applications. These are Internet servers that use

software techniques to protect themselves against

intrusions by hackers and to secure the information

exchanged with the computers connecting to the

server. Data security is usually provided by encryption.

In most cases, the servers currently in use offer access

to online catalogues and ordering systems that are

similar in spirit to VAS services and videotext. The

main difference lies in the Internet technology used to

connect computers to each other, instead of connect-

ing terminals to central servers. The Internet makes

multimedia presentations possible and customisation

of information so that servers send data suited to the

customers' requests or adapted to user profiles estab-

lished by the

cookies

that servers leave and read on

users' hard disks.

Servers can also use the processing and storage

capabilities of client machines for online delivery of

some types of information services (downloading).

Servers can also organise dialogues between clients'

computers. The rich potential and flexibility of web

servers mean that they are used for services operating

in very different ways (see Box 1). The first commercial

web servers, such as Amazon, were developed in the

second half of the nineteen-nineties. The fact

that services are not dependent on the medium

means that web techniques can be used to develop

applications using mobile terminals, digital television

sets, etc.

Marketplaces organise genuine virtual markets by

combining the technology of EDI with web servers and

extranet, which is the capability of creating virtual con-trolled-access networks on the Internet. Subscribers

have secure and anonymous access to the market-

place to make business propositions to all of the

potential customers and suppliers connected to the

network. Responses are received and selected, either

by the party making the proposition or by a centralised

system for managing anonymous bids. At present,

most of the systems are still in the development or

testing phases. There are formidable technical prob-

lems to be overcome. Such systems require an

immense effort to standardise services and to come

up with rules for interfirm coordination. Partnerships

have been formed in practically every sector of indus-

try since 1998, but it is not clear that such market-

places are well suited to the specific characteristics oftransactions in every industry.


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10

Obstacles to Fully Electronic Transactions

There are several obstacles to performing func-tions [1], [2] and [3] electronically. These obsta-cles are the reason that only a minority of trans-actions involving a minority of products and

services are conducted as wholly electronictransactions at this time (see Table 3).

First, in spite of technical progress, electronicmedia still face the problem of coming up withstandardised language for describing productsand services (

measurement

systems in the cate-gories proposed by North, 1990). Without suchlanguage, consumers cannot evaluate the natureand quality of the products and services on offerand they cannot express their requirements. Ofcourse, similar problems arise in the distribution

of products and services through conventionalbricks-and-mortar networks. However, personalcontact and the physical presence of the prod-ucts or service provider reduce uncertaintyabout quality. The local presence of conven-tional distributors and service providers alsoensures that there are means of dealing withproblems. A local operators reputation is one ofthe main assurances of the quality of its service,since its reputation serves as a form of certifica-tion

for the products that it distributes.

Secondly, there is also the problem of the reli-ability of e-commerce operators (

enforcement

problems in the categories proposed by North,1990). If they have no local presence, or are

located in a different jurisdiction than their cus-tomers, they may be tempted by opportunism

9

as regards the quality or even the reality of whatthey are offering. This can work both ways,since customers could also escape paying forgoods and services rendered.

Thirdly, producers and consumers alike may fearthat IT will make markets too transparent andthat they will end up as the victims of this exces-sive transparency

10

If we look at what has hap-pened to airlines, we see that the growth of themarket for online airline reservations has intensi-fied price competition between airlines and madedifferentiation strategies pointless, with theresult that airlines are engaged in a brutal pricewar (Dang Nguyen, 1996). In other industries,operators have responded by developing strate-gies to prevent such markets from emerging. Forexample, at the end of the nineteen-eighties, themajor American insurance companies opposedthe development of on online market for insur-ance products (Brousseau, 1993).

In addition, many producers impose restrictionson their distributors. These restrictions are moti-

9 In transactions cost theory, opportunism means not respectingthe letter or the spirit of an agreement by misrepresenting thequality of products or services, or else by defaulting on ones obli-

gations.

10 This argument relates more to conducting transactions ontransparent electronic markets than to conducting transactionsonline per se, since sellers can set up their systems to preventconsumers from comparing offers by differentiating offers, using

incompatible standards, setting fixed subscription fees, etc.

* According to BIPE (2000), these amounts account for 7% of the book sales, 6% of CD sales and 3.7% of box office and game sales inthe United States. In the travel industry, the FRF 620 million in online sales represent 0.3% of travel and hotel sales in France.Sources: Benchmark Group, 2000 for France (survey of the

75 most active commercial sites in France,

http://www.internet.gouv.fr/francais / Forrester Research, 2000), for the United States, http://www.forrester.com/Home/0,3257,1,FF.html

Table 3

E-Commerce Structure in France and the United States in 1999*

SectorFrance USA

FRF millions % of total USD millions % of total

Travel, transportation and hotels 620 47.18 7,798 38.33

Computers (hardware and software) 312 23.74 4,455 21.89

Cultural products (books - music - video) 137 10.43 2,376 11.67

Apparel 5 0.38 1,620 7.96

Flowers and gifts 15 1.14 656 3.23

Food and drink 33 2.51 513 2.52

Health and beauty - - 509 2.50

Furniture and appliances 25 1.90 446 2.19

Box office 7 0.53 300 1.47

Games 2 0.15 253 1.24

General retail (mail order, distributors, chain stores) 92 7.00 - -

Miscellaneous 66 5.02 1,418 6.97

Total 1 314 100.00 20,344 100.00


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11

vated by strategic considerations aimed at creat-ing and using market power or by the require-ments of providing end consumers with relatedafter-sales service and support (OECD, 1994).Service providers and manufacturers todayoften refuse to develop distribution circuits that

would compete with their conventionalcircuits

11

.

Consumers, on the other hand, may worry thatprivate information revealed by their onlinebuying habits (see below) may eventually beused for excessively discriminatory marketing.Many web users have already adopted the pol-icy of giving false information when signing upfor services that are offered to users for free ifthey will disclose personal information. Profes-sionals estimate that 40% of the informationobtained in this way is false.

Beyond the shipping issues that are frequentlycited as arguments in favour of developingmixed systems combining online and conven-tional distribution channels (clicks-and-mortar),information and strategic issues are cited toexplain why electronic distribution channels(click-and-deliver) have not taken the place ofconventional channels (bricks-and-mortar)

12

. Itwould be misguided to think of these elementsas just so many obstacles that need to beremoved in order to create markets that are truly

efficient because they are truly electronic. Obvi-ously, the best media and organisational struc-tures for commercial transactions differ,depending on the specific characteristics of var-ious goods and services. The most efficientexchange procedures in the real world are notthe same for everything, as can be seen in thevariety of structures and technologies used foroffline transactions. There is no reason to thinkthat a single model for e-commerce can beimposed, or even to think that e-commerce willbe suited to all types of commercial transac-

tions.

Commercial Functions of Digital Networks

Consequently, it is more important to see howdigital networks change supply-and-demandrelationships than to monitor the growth ofonline ordering. Furthermore, these sup-ply-and-demand relationships rely on severalmedia.

Digital networks, and the Internet in particular,provide several useful functions for commerce.The client-server structure of the Internet makes

it a good medium for providing personalisedinformation. It is a multimedia network that canbe used for carrying media content. It is decen-tralised, which means it can facilitate the consti-tution of self-managed communities. The com-bination of these elements: 11

12

makes the Internet a channel for supplyingdense information that is tailored to the charac-teristics of each individual user. In addition tothe market for specialised information (servedby the media, databanks, etc.), the Internet is avector for targeted marketing messages. It isalso a key to providing other services aimedeither at simplifying the tasks of potential cus-tomers by helping them choose, make appoint-ments, locate retail outlets, etc. or aimed atattracting new customers by providing freeadvice, for example.

makes the Internet a targeted marketingresource. Digital network can automatically andaccurately trace and store exchanges. This givesmarketing experts the tools to draw up highlydetailed individual profiles and identify targetpopulation groups for focused marketing cam-paigns. This trend emerged in the nine-teen-eighties, when computer use became wide-spread in the retail trade. The development ofdigital networks accentuated the trend by mak-ing it possible to combine earlier databases with

monitoring of cyber-consumers. The resultingmarketing data has been used for discriminationstrategies based on identifying consumptionprofiles and implementing customer loyaltyschemes (Gensollen, 2001).

makes the Internet the home for virtual com-munities based on cooperation and informationsharing by individuals with common character-istics. The Internet was developed in anon-commercial context for sharing informa-tion and knowledge. It became the medium for

the development of a number of tools, such ase-mail, discussion lists, newsgroups and chat

11 This is especially true in some sectors, such as chain stores inFrance. The retailers market power means that manufacturersconsidering direct online sales have very explicit fears about

potential retaliation by retailers. In practice, manufacturers andwholesalers e-commerce services are differentiated from theirconventional business so as to avoid competition between distri-

bution channels. For example, Compaqs online offer of comput-ers does not include its high-end products aimed primarily at the

business market and wine dealers market imported and varietalwines online, but they sell their highest quality products onlythrough conventional distribution channels (Giraud-Hreaud et

al., 2001).

12 In the early days of e-commerce, the contrast was between the

click-and-deliver and the bricks-and-mortar models. Thus themodel combining conventional distribution channels with thecapabilities of digital networks was dubbed clicks-and-mortar.


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12

rooms. These tools have come to play a key rolein managing relationships between supply anddemand. In the past, consumers organised them-selves into groups in an attempt to reduce theasymmetry of information that put them at a dis-advantage (see C2C in Box 1). But sellers are

now using the power of these tools for their ownends by providing such tools to their customersand building communities around their productsand services (Curien et al

., 2001). Amazon.comis a prime example, since it asks its customers toreview and rate books to help guide other con-sumers in their choices. Software vendors usenewsgroups to help identify bugs in products,thus making each customer a product tester.They also provide user support newsgroups thatease the workload of their after-sales servicedepartments. These tools also help suppliers toidentify the product features that consumerswant.

If we measure only agreements entered intoonline (function [3]), then we only account for afraction of the applications having an impact onthe way markets work and we run the risk ofunderestimating the proportion of operations tofind partners (function [1]) and negotiate deals(function [2]) that are carried out online.

On the other hand, it does not make sense tosimply aggregate all of the sales volume thatinvolves digital networks in one way or another,without making distinctions between the opera-tions concerned. In the first place, such anaggregation would not enable us to determinewhich aspects of transactions are affected. Fur-thermore, the use of digital media would sooncease to be a discriminating variable, since suchmedia will be used as the medium for one func-tion or another in nearly 100% of the cases, as isthe case with the telephone network today.

Relationship Managementover Digital Networks

After an agreement has been entered into, elec-tronic media become powerful tools for manag-ing logistical coordination between the con-tracting parties (function [4]) and enabling theparties to provide each other with informationservices(function [5]).

One of the advantages of digital networks forcoordination as part of function [4] is that theymake automated information exchanges possi-ble. They can link automatic systems for man-

aging interfaces between economic partners.This is done to manage purchasing and sales,inventories and shipping, and even productionscheduling. This helps to reduce relative ex postadjustment costs and potential response times13.

The most striking example in this area has beenthe development of EDI in the automotiveindustry. The need to combine mass productionand greater product differentiation led to theimplementation of flexible just-in-time produc-tion methods. As more than 70% of the valueadded in a car comes from the carmakers sup-pliers, it became critical to make inter-firm rela-tionships more flexible and fluid. The old sup-ply contracts, which stipulated the technicalspecifications and delivery schedules for prod-ucts in the medium term, have been replaced byless complete contracts, where delivery typesand schedules are redefined on an ongoingbasis, according to the carmakers sales and pro-duction requirements. These new productionand coordination techniques would probablynot be feasible without the development of theEDI systems that provide very close linksbetween the suppliers and the carmakers com-puterized production management systems(Brousseau, 1994). The same type ofjust-in-time sourcing is now the prevailing prac-tice in retail distribution.

Electronic media are also effective tools for pro-viding personalised information services (func-tion [5]). These media are either the main vectorfor the services on offer, as is the case withonline information services, or else they are thevector for differentiating and enhancing serv-ices, as it the case of services developed bytransportation firms. Many express deliveryfirms now offer customers real-time tracking oftheir shipments, so that customers can deploy orre-deploy their resources preventatively.

Most of these information services are sold on asubscription basis (which may be combinedwith per-use charges). The idea is to lock in cus-tomers by providing a service for which there isno substitute or by bundling several comple-mentary information services into a subscrip-tion service. Bundling actually presents manyadvantages that are well know in terms of indus-

13 Technical potential must not be confused with organisationalcapability. A great deal of research on the use of ITC has shownthat firms have to reorganise to achieve the full potential of ICT interms of flexibility. In this particular case, the reorganisation con-

cerns inter-firm interfaces. Organisational changes are a delicatematter and very costly (Brousseau, 1994; Brousseau and Rallet,1999).


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13

trial economics, particularly with regard to dis-criminating customers and building customerloyalty (Gensollen, 1999; Gaudeul and Julien,2001). Bundling information services makes itpossible to solve security problems in informa-tion transactions, since the products that are less

vulnerable to resale ensure the sale of more vul-nerable products. Bundling also makes it possi-ble to implement marketing strategies based onthe tracking of consumer profiles mentionedabove.

This is the Dawn of AlternativePayment Systems

Making payments via electronic media [6] isfast and cheap. Implementation problems are

primarily related to organisational and institu-tional issues. In addition to access to secure net-works and reliable encryption systems, the mainproblems lie in the development of sufficientlyall-purpose systems so that the payment dataexchanges are really universal equivalents andare reliable enough to maintain users confi-dence. In other words, the new technical toolsand, where appropriate, new service providers,have to be fitted into the conventional means ofpayment management system run by the banksand overseen by the banking authorities.

The emerging alternative payment systems,such as e-cash, secure protocols, private clear-ing systems, notarised systems and loyaltyreward systems, all raise different issues, sincethey have differing impacts on monetary crea-tion, bypassing the banking system, etc. Suchsystems are still in their infancy, which is whyso few online payments are made over open net-works. The use of conventional means of pay-ment, and particularly the practice of givingcredit card numbers online, still raises majorsecurity problems.

On the other hand, payments over secure net-works are already widely developed. A growingshare of such payments is made on customersinstructions to their banks. Interbank networksdeveloped in the nineteen-seventies, includingthe international SWIFT network, are widelyused for transfers between bank accounts. Themain challenge today lies in the development ofonline payment systems that can reliably handlelarge numbers of small-value payments for thegeneral public (Bounie, 2001). This may entailthe development of genuine private cross-bor-der monetary-issuance systems. Consequently,

online payment solutions raise very sensitiveissues14.

All in all, the problems involved in the use ofdigital networks for ex post transactions man-agement are very different from those involved

in ex antetransactions management.

Ex post transactions management systemshave nothing to do with finding partners ornegotiating bargains. Consequently, they haveno direct influence on the way markets operate,which means their only impact should be on theefficiency of coordination. Nevertheless, suchsystems are so carefully tailored to fit the par-ties specific needs very closely that they lock inthe partners in the transactions concerned.Groups of users sharing the same technical andorganisational standards (Brousseau, 1994)become de facto closed communities. Further-more, the inter-organization information shar-ing systems provide services that are designedfor differentiation, thereby increasing switchingcosts for users.

Wholesale payments are already handledelectronically on the whole, as are most transac-tions between banks and their business custom-ers. This means that the critical issue now withregard to the development of electronic pay-ment systems for emerging markets, such as

online information providers, is the design ofinstitutional frameworks for regulating pay-ments between consumers and businesses.

Once again, the criterion of online ordering is apoor choice for capturing the influence of IT oncoordination procedures in market economies.

Categories of Players and Differentiationof E-Commerce Forms

Another way of approaching IT uses is to iden-tify the types of players that the different elec-tronic commerce services bring together (seeBox 1). The most common distinction betweenB2B and B2C relates to the transaction volumehandled or likely to be handled via electronicsystems. All of the measurements and forecastsestimate that online B2B business volume (seeTable 4) is 8 to 10 times greater than online B2C

14 Online securities trading systems raise similar problems.Online brokers are capable of handling clearing amongst them-

selves and are setting up systems that bypass the conventional

capital markets. This raises regulatory issues with regard to secu-rities markets, even though competition between the variousmarkets creates greater efficiency (Serval, 2001).


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14

business volume. However, examining e-com-merce in these terms raises problems (seeabove), especially as B2B transactions are verydifferent from B2C transactions at present.

Most observers agree that B2C primarily con-

cerns the operations leading up to a contract(functions [1], [2] and [3]). Most of the existingsystems were designed to handle search andnegotiation operations relating to a very narrowrange of goods and a tiny proportion of transac-tions (see Table 3). Nonetheless, B2C sites playa substantial role in the markets concerned. Thespectacular failure of some e-commerce busi-nesses launched in other markets, such as cloth-ing, suggest that the first B2C market segmentswere not so much trailblazers as segments thatlent themselves particularly well to online han-

dling of some or all of the operations leading upto contracts (see above).

The banking and financial sector offers the mostsubstantial range of ex post transactions man-agement in the B2C market. Banks first intro-duced home banking systems back in themid-nineteen-eighties, when American house-holds were buying personal computers andFrench households gained access to telematicsthrough the Minitel system. The advent of theInternet as a commercial network greatly

increased the capacities of such systems andopened the field to new operators, who broughtsweeping changes in the way households tradeon capital markets. Online trading systemsmake it possible for members of the generalpublic to manage their market positions inreal time. Online securities trading nowaccounts for some 45% of trading in the UnitedStates, leading to a fall in brokerage com-missions of some 70%, according to the BIPE,as a result of greater competition and the sav-ings on back office15costs in online trading sys-tems.

While B2C e-commerce mainly focuses on exante transactions management, B2B focusesmore on ex posttransactions management. The1999 survey of French manufacturing firms bythe Census Department of the French Ministryof Industry (Sessi) shows that online ordering is

tiny in comparison to information exchangesbetween industrial and commercial partners(see Table 5 and Chart). The exceptions are thefinancial and airline sectors, which developedB2B online transaction systems in the nine-teen-seventies. The oil industry also developedonline brokerage systems in the wake of two oilshocks to manage a good that had come to havea very high unit price. 15

The vast majority of existing systems, such asEDI systems, were designed to handle ex post

transactions management, including orderscheduling, sharing technical information, syn-chronisation of production and shipping andhandling invoicing and payments. As in the caseof B2C, e-commerce transactions primarilyconcerned specific activity sectors. For exam-ple, Edifrance estimates that two sectorsaccount for most of the FRF 800 billion volumeof commercial EDI traffic in France: with distri-bution accounting for FRF 500 billion and theautomotive sector accounting for FRF 200 bil-lion (Observatoire du Commerce et deschanges lectroniques, 1999)16.

But these two sectors are not the only ones touse e-commerce. In addition to EDI, there aremany other systems for exchanging informationbetween business that are based on less highlyautomated means of communication, such asthe Minitel, or on less highly organised meansof communication, such as e-mail. These sys-tems can play a role in transactions managementin other sectors. For example the Minitel plays arole in the transport sector (Brousseau, 1991).There are also long-established online informa-tion systems that rely on the dedicated networksthat information service providers use to delivertheir services to business customers (seeTable 6).

15 The financial sector makes a distinction between front officeoperations, which are necessary for carrying out trades on the

markets, and back office operations, which are the internal andadministrative procedures for preparing and processing trades.16 It should be noted that EDI projects abounded in all sectors atthe end of the nineteen-eighties, but EDI only plays a major role

in two very specific areas today. The pattern is likely to be similarfor Internet technology. The possibilities opened up by variousforms of IT and by the various potential applications are not nec-

essarily useful or applicable in all areas. This means there is littlereason to believe that a single model of e-commerce will becomethe norm in all areas.

* The estimates are based on a definition of e-commerce whereonline operations are any transactions carried out over a data

transmission network (Internet, EDI, etc.), regardless of the pay-ment method used.Source: Forrester Global eCommerce Model, 2000.

Table 4Online Business Volume in 2000*

In USD billions

USA Japan France

B2B 449.900 29.618 9.102

B2C 2.262 38.755 818

Total 488.655 31.880 9.920


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15

The Effects of E-CommerceTake Many Shapes, Whichare Poorly Understood

ar from bearing out the myth of the Internetas a marketplace, the emerging pattern of

e-commerce is one of marginal use of differingsystems for:

- supporting and guiding consumers seekingsuppliers and products (and ordering onlineoccasionally), with B2C e-commerce used forvery limited range of products;

- more efficient management of industrial andcommercial partnerships with B2B e-com-merce;

- providing online information services.

Naturally, qualitative and quantitative devel-opments are to be expected. These shouldeventually have a major impact on the waymarkets and industries work, but it will varyfrom area to area, since different systems arebeing developed to work in different contexts.How will these developments affect futuremarkets?

F

Field: manufacturing firms with 20 or more employees, including the energy industry and excluding the agri-food industry.Source: TIC survey, 1999, Sessi.

ChartThe Advent of E-Commerce

Key: The percentage of firms offering customers online ordering (via EDI, web sites or minitel) and online payments (via EDI, web sites orminitel) are shown for each of the two groups (all manufacturing firms and large firms with more than 500 employees).Field: manufacturing firms with 20 or more employees, including the energy industry and excluding the agri-food industry.Source: TIC survey, 1999, Sessi.

Table 5Electronic Data Interchange (EDI)

As % of firms

Number of employeesTotal

20 to 49 50 to 99 100 to 249 250 to 499 > 500

With other firms (subcontractors,

suppliers, customers, banks, etc.) 29 39 47 60 76 36

Between divisions within the firm 10 16 21 31 40 15

With government agenciesand public bodies 11 14 20 26 34 14

For one of the three functions 36 47 57 69 82 44

0 3 6 9 12 15 18 21 24 27 30 33 36

As % of firms with more than 20 employees

EDI ordering

Web site

Minitel

EDI payments

Web site

Minitel

EDI ordering

Web site

Minitel

EDI payments

Web site

MinitelAllmanufacturingfirms

Largefirms


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16

Two Generations of Research

Rigorous research in this area is still rare. Thisis undoubtedly due the relative newness of thephenomenon. However, there is nothing newabout using digital networks as a medium for

commercial transactions (see above). Electronicmarkets and data exchanges between companieshave been around for more than 20 years. There-fore, we need to draw a distinction between twogenerations of research.

The first generation started in the nine-teen-eighties and analysed the impact ofinter-organisation information sharing systems(e.g., Barette and Konsisky, 1982; Brousseau,1993; Clemons and Row, 1988; Faulhaber,Noam and Tasley, 1986; Malone, Yates and

Benjamin, 1987; Scott Morton, 1991). Thisresearch was mainly intended to determinewhether ICT brought about changes in the gov-ernance of inter-organisation transactionsthrough disaggregation of hierarchies intomarkets, changes in the economics of certainindustries or productivity and competitivenessgains. Most of the research focused on analysisof B2B e-commerce.

At the end of the nineteen-nineties, a secondgeneration of research started to analyse the

impact of the development of e-commerce onthe Internet. Very few findings have been pub-lished, since the advent of Internet-basede-commerce is still very recent. Most of thisresearch focuses on B2C e-commerce, since thedevelopment of Internet B2B e-commerce isstill in its infancy17. In both cases, we do nothave enough perspective to observe the impactof different types of e-commerce applications

on the Internet. The potential organisationalchanges triggered by these applications havebarely started to be seen and, more importantly,the services offered and the strategies used arechanging constantly. Applied research based onproper scientific foundations is therefore rare,

which fuels a great deal of purely speculativewriting about the presumed impact of the Inter-net and the advent of B2C e-commerce. 17

The context for the second generation ofresearch is different from that of the first. Thefocus is primarily on testing the reality of themyth of the Internet being the medium for com-petitive markets with no intermediaries.

These two issues (competitive markets and dis-intermediation) need to be clarified before tak-

ing a more general look at the type of researchthat needs to be promoted.

Prices are not Always Loweron the Internet

Some research has been done on retail sites inthe last five years to test the reality of the myththat IT has made markets more transparent. Thistype of research raises major methodologicalproblems, because there is no guarantee that theproducts and services being compared are truly

equivalent and because web sites do not alwaysgive prices. The research also has to focus on a

17 Even though the volume of B2B traffic is greater than B2C traf-fic, most of the B2B traffic consists of EDI exchanges relating toex post transactions management. Internet-based e-procure-

ment, with the development of virtual marketplaces (see Box 2),is just starting to get off the ground. Therefore, looking at the B2Cactivity gives us more perspective on how large-scale virtual mar-kets work than observation of the B2B market does.

Source: TIC survey, 1999, Sessi.

Table 6Manufacturing Firms and the Internet

As % of manufacturing firms

Internet access Web site Online ordering Intranet Extranet

Major firms

SMEs

97.7

67.6

70.5

38.1

13.6

8.9

79.1

19.3

37.2

8.6

High techLow tech

85.664.3

51.536.2

9.2 8.9

36.517.4

16.8 7.8

Export rate over 25%

Export rate under 25%

83.0

64.0

52.4

35.0

10.2

8.6

33.4

17.3

16.7

7.3

Group subsidiaries

of which foreign group subsidiariesIndependent firms

82.1

85.759.2

47.9

46.333.3

9.5

9.8 8.6

38.4

46.5 9.5

15.8

20.0 5.3

Innovative firms

of which innovative product firmsNon-innovative firms

80.5

81.658.7

49.6

51.130.5

11.1

11.3 7.3

28.6

29.515.2

13.2

13.5 6.6


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very specific range of products, which are pri-marily books and compact discs. Furthermore,research has led to contrasting findings, whichmake us think that reliance on electronic mediais far from being the sole factor to consider incurrent developments and that other aspects,

such as market structures and marketing strate-gies, also need to be considered.

The first study by Bailey (1998a and 1998b) wasbased on 24,000 prices collected on the Americanmarket for books, compact discs and software in1997. This study concluded that prices are notlower on the Internet than they are in stores. It fur-ther found that price dispersion is greater on theInternet and that price adjustments are more fre-quent. According to Bailey, Internet price levelsare explained by the profile of Internet consum-ers, who have high educational attainment andincome levels and who use the Internet not somuch to find the best bargains as to save time.Many other observations have upheld this view(see footnote 7). Contrary to common belief, it isrelatively expensive to find information on theInternet18and most of the consumers using theInternet at this time are more concerned with sav-ing time than they are with saving money.

At this stage in the development of the Internet,we tend to see distribution channels using theInternet more to target specific types of con-

sumers rather than consumers using the Internetto shop for the lowest prices and increase com-petition between sellers. A great deal of subse-quent research has borne out Baileys observa-tions: Degeratu, Rangaswamy and Wu (1998)on grocery prices; Shankar et al. (1998), alongwith Clemons, Hann and Hitt (1998), on travelprices and Lee (1998) on used car prices.

However, more recent and more in-depth inves-tigations have added greater detail to the earlierobservations. In some cases (Scott Morton et al.,

2000), Internet shoppers do enjoy lower prices(see above). Brynjolfson and Smith (1999)looked at 8,5000 prices for books and compactdiscs to conclude that prices on the Internet are9% to 16% lower than in stores. On the otherhand, their research also showed that the pricelevels are proportional to the prominence ofweb sites and traffic levels. Thus, despite offer-ing lower prices, less well-known sites are notable to attract Internet shoppers away from thetop sites, which is proof that the market is notperfectly transparent.

In fact, more recent research (e.g. Friberg, Gan-slandt and Sandstrom, 2000) has shown that the

Internet is a means of implementing personal-ised pricing policies. This observation is in linewith the more qualitative observations that thepossibilities of the Internet make mass-custom-isation policies feasible. These policies aim fora subtle combination of differentiation and tar-

geting (see above and Gensollen, 2001). Inter-net shoppers enjoy services that are adapted totheir main needs, which are saving time, shop-ping from home and obtaining expert advice. Inexchange, consumers let sellers adjust pricesaccording to their propensity to pay. 18

No Progress towards PerfectVirtual Markets

Up until the bursting of the dot-com stock mar-ket bubble, the press and some of the Internetgurus thought that disintermediation was akey to productivity gains stemming frome-commerce. The thinking was that digital net-works would squeeze conventional commercialintermediaries out of business by making themobsolete. Events have not borne out this widelyheld belief. Far from being dominated by man-ufacturers and service providers, e-commerce ismainly a business for conventional intermediar-ies, such as chain stores, specialised retailersand mail-order firms. The Internet is obviouslya complementary channel for these retailers,

alongside their other channels for selling goods,rendering services and finding customers.

This stands to reason when we look at the eco-nomics of intermediation in commerce. Farfrom being intermediaries that merely provideinformation, commercial intermediaries pro-vide shipping, financial services and security.These services are closely linked (economies ofscope) and require specific know-how (Spulber,1996). The advent of new media has modifiedthe economics of commercial intermediation,but it has not resulted in radical change (Brous-seau, 2002). Thus, for reasons that relate to bothlogistics and strategy (Dang NGuyen, 1999;Rallet, 2000; Gensollen, 2001), intermediariesin commerce continue to enjoy a competitiveadvantage in the intermediation function, aslong as they are able to adapt digital technolo-gies and make them complementary to theirconventional tools.

18 One method for cutting search costs is to use Shopbots(Shopping Robots) which are smart search engines that shop theInternet for the e-commerce sites with the lowest prices. How-

ever, as Bailey (1998a and 1998b) points out, e-commerce siteadministrators tend to prevent shopping bots from accessingtheir sites.


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There was never any guarantee that many of thenew intermediaries created in the wave of inno-vative start-ups over the last five years would beviable. Revenues failed to cover costs and thesurvival of many start-ups depended on thenew-economy stock market bubble. Now that

the bubble has burst, their continued existence isin jeopardy. The start-ups are either being takenover by conventional intermediaries or they aregoing bankrupt. Some of these firms managedto build up world brand images, as in the case ofAmazon. They are bound to survive and becomeleading retailers. Eventually, however, they arelikely to become multi-channel retailers just liketheir competitors are. They will have toacknowledge the fact that the most efficient dis-tribution channels vary depending on popula-tion densities and consumer habits and thatcommercial and logistical systems vary fromone country to the next.

Recent research on Internet-based e-commercetends to discredit the assumption that we aremoving towards perfect virtual markets. E-com-merce takes contrasting forms in different sec-tors. It complements rather than replaces con-ventional distribution channels and technology.Players turn it to their own purposes. This is par-ticularly true of commercial intermediaries,who use e-commerce to serve their differentia-tion and targeting strategies. These strategies

produce very different levels of profitability andvery different divisions of the surplus in variouscompetitive environments.

This recent stream of research upholds one ofthe main conclusions of earlier research oninter-organisation information sharing systems.ICT per se is not a determining factor. Every-thing depends on how ITC is used and on theenvironments where it is implemented. Wheninter-organisation information sharing systemswere deployed, there was a strengthening of

quasi-integration around dominant firms insome industries and, simultaneously, disaggre-gation of other forms of industrial organisation.Similarly, the measurement of the impact ofe-commerce in the future is likely to dependlargely on the types of systems deployed in var-ious environments.

Lessons for Statisticians

Debate is still continuing at the French Coucilfor Statistics (CNIS), Eurostat and the OECD(CNIS, 2000), but the tendency is to prefer avery restrictive definition of e-commerce, with

the criterion of online ordering, as the basis forthe statistical observations now being devel-oped. From a technical point of view, such adefinition has the advantage of being clear andsimple. From the economic point of view, how-ever, all of the previous discussion stresses that

it will lead to a strongly biased view of the influ-ence of ICT on coordination proceduresbetween firms and between businesses and con-sumers.

This bias could be detrimental for macroeco-nomic and microeconomic analysis of currentchanges. The issue of faster factor productivitygrowth and its relationship to ICT diffusion (theproductivity paradox) is still largely an openquestion, since, with a few exceptions, theresearch done up until now lacks basic micro-economic data about organisational changesrelated to ICT. Even though more recentresearch has tended to fill this gap with regard tocoordination within firms, we will need morereliable data to examine changes in relation-ships between firms and between businessesand consumers.

We need more microeconomic data to informplayers and public authorities strategies. Itwill be difficult to promote the most promisingforms of e-commerce if we do not have tools formeasuring how using digital technologies to

handle various transaction functions affects neworganisational structures in commercial inter-mediation and thus employment and the divi-sion of labour in the retail and shipping sector ,

as well as productivity gains, and commercialpractices with regard to differentiation and dis-crimination strategies and thus the division ofthe surplus among the various players in thesystem , etc.

All of these are good reasons to use investigativemethods that go far beyond simply measuring the

business volumes affected by the use of digitalnetworks. Surveys of e-commerce need to comeup with better measurements of the various cate-gories of uses and more systematic evaluation ofthe business environments (particularly marketstructures and industrial organisation) wheresuch uses are implemented, and their impact(particularly on organisational structures). Fur-thermore, a comprehensive set of measurementsis needed to conduct more relevant analyses ofthe microeconomic and macroeconomic impactof e-commerce. In addition to looking at pricelevels and price dispersion, or transactions costs,which are not the same as information costs, weneed to enhance the analysis of the impact of


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e-commerce systems on the quality of distribu-tion services, on positive and negative externali-ties, on suppliers efficiency, etc.

These are the keys to developing an accurateanalysis of the impact that new digital tools

have on price formation, industrial structures,competition structures, households welfare, theefficiency of production systems, etc. Thiseffort is bound to require targeted surveys ratherthan general statistical classifications, which are

unlikely to be accurate because of the diversityof uses and practices from one sector to the nextand from one country to the next. We need toadapt our methods and measurements to thediverse range of e-commerce and the differentways of organising transactions in different con-

texts. It would also be worthwhile to look intothe possibility of putting together reliable statis-tical series on the development of e-commerce,now that we have some historical perspective onsome of its forms.

The author would like to thank the Forum members and two readers, whose remarks and suggestionshelped to improve a previous version of this article.

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Arthur, B. W. (1989), Competing Technologies,Increasing Returns and Lock-In by HistoricalEvents, Economic Journal, 99, pp. 116-131.

Bailey, J. P. (1998a), Electronic Commerce: Pri-ces and Consumer Issues for Three Products:Books, Compact Discs and Software, DSTI/ICCP/Ie(98)4, OECD, Paris.

Bailey, J. P. (1998b),Intermediation and Electro-nic Markets: Aggregation and Pricing in Internet

Commerce, Ph.D., Technology, Management andPolicy, Massachusetts Institute of Technology,Cambridge, Ma.

Barett, S. and B. Konsisky (1982),Inter-Organization Information Sharing Sys-tem,MIS Quarterly, Dec., 6, pp. 93-104.

BIPE (2000),Bonjour la nouvelle conomie ! Lesenjeux prospectifs de la rvolution numrique,BIPE, Paris.

Bounie, D. (2001), Monnaie lectronique: nature

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Brousseau, E. (1993),Lconomie des contrats ;technologies de linformation et coordinationinterentreprises, PUF, Paris.

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Brousseau, E. (2002), The Governance of Tran-saction by Commercial Intermediaries: An Analy-sis of the Re-engineering of Intermediation byElectronic Commerce, International Journal ofthe Economics of Business, 8(3), forthcoming,

Brousseau, E. (2000), What Institutions to Orga-nize Electronic Commerce: Private Institutionsand the Organizations of Markets, Economics of

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Brousseau, E. and B. Qulin (1991), Stratgiede coopration et formation dun march : les nou-veaux services de tlcommunications, in colla-boration,Revue dconomie Industrielle, No. 56,2nd quarter 1991, pp. 77-100.

Brousseau, E. and B. Qulin (1996), Asset Spe-cificity and Organizational Arrangements: TheCase of the New Telecommunications ServicesMarket, Industrial and Corporate Change,vol. 5, No. 4, pp. 1205-1230.

Brousseau, E. and A. Rallet (eds) (1999), Tech-nologies de lInformation, Organisation et Perfor-mances conomiques, Commissariat Gnral duPlan, Paris, September. (http://atom2.univ-paris1.fr/FR/membres/eric/eric.htm).

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