report part 5

Ecommerce Dollars Transacted
As stated before, the estimates of Ecommerce dollars vary widely. In order to maintain a more consistent viewpoint, the primary source of data for this section was Forrester Research. As these figures show, even with the present adverse economic conditions in the US, the trend of significant growth in the future continues. In comparison with the rest of the world, these global Ecommerce projections put the US squarely in the lead.
In 2000, according to one estimate, the US represented three quarters of all B2B and B2C e-commerce trade within the OECD countries. Table 12 shows one estimate (the Forrester Global e-Commerce Model for 2000) of the rate of US electronic compared to eight other countries. Again the position of overall US Ecommerce leadership from a pure dollars standpoint is exhibited.
In Billions
US
Japan
Denmark
France
Singpr.
Taiwan
Brazil
Mexico
S.Korea
Total
488.655
31.880
3.302
9.920
1.182
4.136
2.403
3.249
5.559
B2B Trade
449.900
29.618
3.125
9.102
1.098
3.843
2.233
3.019
5.164
B2C Trade
38.755
2.262
0.177
0.818
0.084
0.293
0.170
0.231
0.394
Table 12. US Rates of Electronic Commerce Activity Compared to Eight Countries. Source: Forrester Global e-Commerce Model
Within the US, figure 4 shows a view of the B2B vs B2C over time. Again this estimate shows significant growth expected in both sectors.
Source: Forrester Research
Figure 4: US Electronic Commerce, 1998-2003

MCGANN, KING AND LYYTINEN/GLOBALIZATION OF E-COMMERCE
With respect to other countries, the US is certainly ahead in the adoption life cycle of B2B Ecommerce. According to a study conducted by CommerceNet of their global partners, companies in the US are grappling with more substantive issues in implementing Ecommerce such as interoperability with legacy systems and with complementary companies’ systems. By contrast, dominant issues outside the US are more perceptual, such as perceptions of security. Four of the top ten barriers to Ecommerce outside the US revolve around security issues such as encryption, trust and risk, user authentication and fraud/risk of loss. Interestingly, the issues of systems integrations/interoperability did not figure into the top ten barriers for Non-US companies. It is expected that they will loom large for Non-US companies in the future however, as global Ecommerce becomes more prevalent. Some concerns that were common to both US and Non-US companies include lack of qualified personnel, culture, organization and security. These will all be issues which will factor heavily into the level of global diffusion of Ecommerce.
In summary, electronic commerce is clearly present and growing, although it is very difficult to say with certainty how large it is or how fast it is growing. It is clear however, that the by all measures available, the US dominates in the diffusion of electronic commerce and is expected to do so on a long-term basis.
Social/Economic Impacts
The advent of the Internet has had widespread impacts in the US in recent history. The effects range from the almost ubiquitous use of electronic mail and browsing of web sites, to increasing B2C and B2B Ecommerce trends. Businesses and consumers alike have begun to make a serious shift towards the adaptation of the Internet and its Ecommerce capabilities as a key part of its societal core. The result has been the evolution of a society that has in large part begun to depend upon the Internet. Further, all indications are that in the future this phenomenon will continue. Although widespread data is not yet available, the effects are obvious and marked. US consumers are taking advantage of the Internet’s shopping forums and content, to get better deals, shop more efficiently and to make more informed buying decisions. Businesses are utilizing the superior Internet infrastructure of the US to enhance existing business models and initiate new businesses. They are beginning to experiment with new and more efficient ways of transacting business online through the integration of existing systems with marketplace and exchange service providers as well as directly to other members of the supply chain. As discussed earlier, the US leads on the overall Ebusiness adaptation curve, but it is still very early in the lifecycle and only a fraction of the potential in this realm has been realized.
The effects of Ecommerce have also been quite noticeable in the industrial organization arena, with a clear consolidation among Internet service providers, mergers between internet-related companies and traditional media companies and the evolution of new B2B oriented businesses from traditional businesses. For example, AOL merged with Time Warner to create the largest media merger in history. Another high impact example in the industry is the famed Microsoft ant-trust case, which has world watching to see the outcome of the US Justice Department’s antitrust case against this software behemoth. The formation of the B2B buying forum called COVINST by the ‘Big 5’ auto makers has the ability to change the way US manufacturing firms will conduct business forever. These and other major business reorganizations are a clear indicator that larger businesses are making a solid Ecommerce strategy a strong priority for the future of their firms and will certainly shape the future of the US Ecommerce landscape.

MCGANN, KING AND LYYTINEN/GLOBALIZATION OF E-COMMERCE
Another area being studied is the effect of online advertising. Recent adoption of broadband connections has lessened some of the limitations of online advertising. Therefore, flash, pop-up and pop-under ads are more readily used and have freed companies from the use of traditional eyesore banner ads. Furthermore, there is also considerable speculation about this targeted advertising and its effects. Through the use Customer Relationship Management Systems (CRM), detailed information about consumers, collected through online browsing and Ecommerce transactions, are now being used extensively by most Etailers. The net effect is the ability build detailed user data profiles, enabling the delivery of focused content and advertising with pinpoint accuracy. This is effecting a trend towards a highly upgraded Internet Ecommerce experience with escalated service to consumers. It is not clear whether rising concerns about privacy will cause a backlash against such practices, but this is certainly a possibility that Ecommerce providers and participants will be grappling with in the near future.
Online banking is also a sector that has shown recent growth in impact. It is attracting more customers due to the convenience of consolidated, easy delivery of banking services such as payment of bills, routine transactions, account maintenance and loan application. The use of this model has also created a considerable increase in efficiency and reduction in paper. As Figure 4a shows, most major US banks have leveraged this trend to move aggressively to increase the role of the Internet as a media to improve customer service while realizing its inherent efficiency benefits, as it has now become a competitive necessity in this industry. However, again the US lags behind its counterparts in Europe and Asia in this area. The level of interoperability between banks is much lower as banks are not as cooperative. Further, the level of Electronic Funds Transfer (EFT) is much slower leaving a great deal of room for improvement in this area.
Traffic to Banking Sites
Home & Work Users (000)
July 2000
July 2001
Percent
Change
Total WWW
76,910
92,175
19.80%
Banking Sites
10,411
18,489
77.60%
Multichannel Banking
6,367
13,405
110.50%
Online-Only Banking
1,194
1,097
-8.10%
Multichannel Banks
Chase
957
3,647
281.10%
Wells Fargo
2,007
3,492
74.00%
Citibank
1,718
3,469
101.90%
Bank of America
1,502
3,296
119.40%
Bank One
536
1,139
112.50%
Fleet
501
900
79.60%
Figure 4a Utilization of Banking Sites

MCGANN, KING AND LYYTINEN/GLOBALIZATION OF E-COMMERCE
Another area that will likely be a US Ecommerce factor in the future is the advent of mobile commerce. Though still in the very early stages of adaptation, the evolution of this model is highly significant. It involves the use of personal data assistants (PDA) and cellular phones to conduct Ecommerce transactions and browse the Internet, has great potential for the global diffusion of online commerce. The convenience and mobility that it offers the purchaser has widespread appeal. Although the advantages are obvious, the availability of appropriate 3G technology for large-scale deployment is not currently available in the US. However, Japan and the European community are deploying such services at this time with late 2G and early 3G wireless technologies. This is a key area for future Ecommerce growth and diffusion which the US lags behind significantly in the global market.
Digital Divide
According to a study conducted last year by the Commerce Department’s National Telecommunications and Information Administration (NTIA), the digital divide, which characterizes the technology gap between different demographic groups in the US, is narrowing quickly. This study shows that virtually every group has participated in a sharp upward trend to connect their homes and businesses to the Internet utilizing dial-up and increasingly, broadband access. As Figure 5 shows, rural areas once left behind are catching up with other parts of the country and according to this report , are expected to surpass some of the central cities in their Internet use within the next 5 years.
Figure 5: Percent of US Households With Internet, Urban/Rural
Source: US Department of Commerce and US Bureau of the Census
The effects of the digital divide are also profoundly felt in US classrooms, where the future of US Ecommerce begins. The disparity between the level of technology available from an infrastructure and connectivity standpoint has been significant, with less then 3 percent classrooms connected to the Internet in 1994 according to the US Dept of Commerce. A fundamental paradigm shift in education has been initiated since then which places a high level of emphasis on the Internet as a learning tool and recognizes its place in society. As a result, US schools are incorporating the

MCGANN, KING AND LYYTINEN/GLOBALIZATION OF E-COMMERCE
Internet into their curriculum in various ways and the government is providing funding to facilitate this through a program called ‘E-Rate’. This program provides millions in funding to under privileged schools to allow them to build out their infrastructure and receive telecom services for connectivity at a highly discounted rate ranging from 20% to 90% depending upon need. This program has proven highly successful, as the percentage of classrooms with Internet connectivity has escalated to from the figure mentioned earlier, to well over 60% in 1999.
Economy
In the assessment of any commerce-oriented environment, the impacts of the national economy are obviously pivotal. This is especially true in the case of the recent rise and fall of dotcoms and the struggle for adaptation of B2B models in the US. The U.S. economy was characterized during most of the 1990’s by the longest-running economic expansion in the country’s history. The US economy was experiencing unprecedented growth on the strength of thousands of new businesses which represented significantly higher levels of income. Consumer spending was at an all time high. Demand for tech stocks was driving stock prices and company valuations up at levels that seemingly defied all the principle rules of business. The US was, it seemed, in the middle of an economic revolution that could change the face of the marketplace.
The growth was most striking in the companies identified with the “Internet economy,” meaning those firms that were selling key infrastructure for the Internet (e.g., software leader Microsoft and network equipment manufacturer Cisco) or using the Internet to conduct business or create new kinds of industries (e.g., book seller Amazon, web portal Yahoo, and merchandise auction site e-Bay). Many of such companies represented what came to be called the New Economy, in part because they were dealing with new technology itself or with business changes enabled by that economy, or because their shares were being traded on non-traditional exchanges such as the NASDAQ.
The rise of the NASDAQ’s value from a few hundred in the early 1990’s to more than 2000 in 1999 was a genuine boom, resulting in large part from the rapid growth of companies related to the Internet. These companies, signified by the .com extension on their Internet addresses, quickly became known in the industry press as dot.coms. They were the tangible evidence of the New Economy. The growth to 1999 was impressive, but nothing prepared the financial markets or the population at large for what was to follow. As shown in Figure 6, the NASDAQ nearly doubled in a single year, from mid-1999 to mid-2000, to almost 5,000. Entrepreneurs with little more than an interesting idea about how to use the Internet in a business application could garner venture capital, put together an embryonic company, launch some kind of product or service, and move toward an IPO. These IPO’s often launched at less than $15 per share and quickly moved into the hundreds. The entrepreneurs could become worth hundreds of millions or even billions of dollars within weeks. People who had sat on the sidelines of the stock market for years suddenly joined, including many thousands of inexperienced “day traders” who made use of computerized stock trading services to manage their own portfolios of stocks. There was speculation that the New Economy of Internet-related products and services would displace the Old Economy of traditional manufacturing and services.

MCGANN, KING AND LYYTINEN/GLOBALIZATION OF E-COMMERCE
Figure 6. NASDAQ Rise and Fall
Then the immutable laws of business and economy resurfaced and reality set in quickly. The inevitable market correction began to take place as scores of the new businesses that had launched, many of them with marginal business models, burned through cash in a struggle for survival. The plight and attrition of these businesses combined with the Microsoft verdict has caused tech stocks to sharply decline. The result has been a US economic tailspin that has many talking of recession. Beginning in mid-2000 the NASDAQ headed down at a terrifying pace, shattering the dreams of millions of investors who had come to believe their modest investments had made them wealthy. While not showing the exaggerated movements of the NASDAQ, the other major stock indices (e.g. Dow Jones, Standard and Poor) rose and fell with the fortunes of the dot.coms. The economy as a whole showed a major slowdown during this period, as Table 4 shows. Over $3 trillion of value was created during the three-year run-up to the NASDAQ peak, only to be lost in less than 18 months. Venture capital for New Economy ventures nearly dried up, and in many cases, Old Economy firms were seen to be swooping in to take control of the territory once occupied by the New Economy companies.
Our new president says the economy is ‘winded’ while Federal reserve Chairman Alan Greenspan says we’re still growing, albeit at a slower rate. It is true that this is a time of serious decline, and that many of the concerns that are being voiced are indeed viable.
However, the consensus among economists seems to be that this decline is simply a correction, which was inevitable. The opinion being voiced is that even the power of the Internet is not strong enough to rewrite the laws of business, which state that in order to survive, a business must be profitable. This is something the startups and the venture capitalists that supported them seem to have forgotten in the process. Electronic commerce as both concept and fact was caught up in the rise of the doc.coms and the New Economy rhetoric. Not surprisingly, the intense enthusiasm for the concept has waned as the disappointment with the New Economy followed the NASDAQ’s slide.
The temporary setback that this correction has brought is not an indication that the US Economic environment is not highly favorable for long-term growth and Ecommerce leadership. Historically, the US has proven that it can weather economic storms and emerge bigger and better.
The bottom line is that the society and economy of the US is still positioned very well for long-term success in Ecommerce. However, a more thoughtful perspective on this subject has evolved. Concerns regarding the establishment and maintenance of trust between customers and

MCGANN, KING AND LYYTINEN/GLOBALIZATION OF E-COMMERCE
Internet-based companies have emerged, focusing mainly on security and privacy. Many companies are placing privacy policies on their web sites in hopes of assuring customers that personal data about transactions are safe from disclosure or abuse. Non-profit organizations such as the Better Business Bureau Online and TRUSTe now grant seals of approval to companies who verify their privacy policies. The World Wide Web consortium, a group of companies and others promoting use of the WWW, have been working on the Platform for Privacy Preferences Project (P3P) (http://www.w3.org/P3P/), an effort to create a standard wherein consumer preferences are automatically matched to a site's privacy policy. The rating service Consumer Reports has started an online e-ratings service to consider privacy policies in their rankings of commercial sites. New innovations in security, smart cards and biometrics for identification, are being explored to add an extra layer of identification in Internet-based transactions.
Further, analysts predict the correction that is taking place will bring the Ebusiness environment back to reality. Viable businesses will have to become more efficient to survive. Those that are not viable have either fallen by the wayside or will soon. The workforce will reposition itself and consumer spending will continue to increase as a wiser more stable breed of Ecommerce strategies evolve. Though the first attempt to launch into the digital economy was less than successful on many fronts, Ecommerce will still play a huge role in the future of US business, as it is likely that by 2002, 93% of US firms will have some portion of their business conducted online (Balakrishnan, 1999). The difference is that it will have to evolve in a more realistic fashion. This imperative was summarized well in a study of American and European Ebusinesses entitled ‘Value Creation in Ebusiness’ (Amit and Zott, 2000). This study explored how these recently publicly traded firms create value in an Ecommerce setting, and serves as an excellent benchmark for future Ebusinesses. They summarize the requirements for success in this arena as high levels of transactional efficiency and keeping costs minimal; bundling of goods and services; ‘locking in’ customers by providing them with ample incentives to stay and keeping switching costs high; and novelty of service which is adding new and exciting means to deliver products and services. Although these may seem obvious, the key to competing effectively will be leveraging the power of the Internet to exploit these modes of creating value for customers.