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Electronic Commerce:
clinging to the tip of the iceberg

Steven L. Telleen, Ph.D.
Principal
iorg.com


Sellers and buyers on the Internet today have rarely ventured beyond the boundaries of print/broadcast metaphors in the Internet medium. While Internet uptake is dramatic, the business revolution has hardly begun.

The most widespread and simplistic form of Internet commerce finds sellers relying on their brand name to attract people to their Web site. Once there, they "educate" the buyer with information and search tools then either try to sell the product directly, in competition with their established channels, or help the buyer find a convenient distributor. Even with extensive personalization tools, this model does not alter the traditional buyer-seller relationship to any significant degree - other than to create potential channel conflicts between a manufacturer and its distributors.

Extending the metaphor further, we find automated product finders. These are third party agents that comparison shop features and prices for the buyer. Web sites like ShopFind, Excite's Jango and Autobytel.com  have relationships with an established set of sellers which they compare. Others, like Top10 and mySimon, use agents that search and compare from the Web at large. 

Neither of these models utilizes the most powerful feature of the Internet, the ability to create a dynamic marketplace for buyers and sellers, one that facilitates efficient matching and price negotiation. 
 

The power of this new medium lies in its ability to allow the buyer and the seller to connect, communicate and negotiate in a faster, more efficient way.

In their most highly developed state electronic marketplaces would act like the automated exchange behind international currency trading, or the automated exchange recently introduced to the Pacific Stock Exchange. These systems efficiently and impartially match buyers and sellers, and price becomes a function of current supply and demand. The revolution comes in their potential to replace the current marketing techniques designed to exploit the fragmented and inefficient matching of buyers and sellers inherent in paper and broadcast media.
 

We have seen some movement in this direction by Priceline and eBay. Both are playing with primitive forms of market based pricing and both have achieved success quickly. 

Expect web-based electronic commerce to alter the markets and economies of today as fundamentally as the industrial revolution altered the agrarian-based markets and economies of the past. This medium has the potential to make markets less susceptible to manipulation and ownership by sellers and turn them into efficient,  interactive exchanges. In retrospect, many of the electronic commerce strategies of today may look as misguided as those of the landed gentry trying to maintain their hold on the pre-industrial economy as wealth shifted to the capital and skill based cottage industries. 

There has been a lot of attention paid to the new Internet superstores, portals and the struggle for megamarkets. But don't look there for the revolution. Just as the Industrial Revolution grew out of the cottage industries so the new Interactive Revolution will grow from the seeds of atomized capitalism. The use of the web by small and local businesses for local and regional commerce will quietly undercut the current order of mega-merchants. As an appropriate analogy, even though the phone system is global - most phone usage is local. As critical parts of the economy move to more efficient electronic exchanges expect the advantages of large size to disappear or even become a disadvantage in many industries. This in itself will impact the concepts and opportunities for corporate ownership and investment. Stock portfolios of today may begin to look like the castles and estates during the last economic revolution as their ongoing value slipped below their cost of maintenance.

In his book Net Benefits: Guaranteed Electronic Markets, Wingham Rowan provides one scenario on how this revolution might play out - and even suggests another point of warning. Nations that are the current economic leaders may be the least likely to lead the new revolution. Whether the revolution takes the form of guaranteed electronic markets as Rowan envisions, or follows some other variant, is immaterial. The inevitable resistance of large corporations to their loss of value combined with their residual power to control their national economies creates an inertia that will likely be debilitating.

Most of the changes we have seen so far have been cosmetic. 
 

The real electronic commerce revolution will be much more subtle in its approach and more devastating in its impact.

Want to read more:
Electronic Commerce: interaction does make a difference


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Originally Published May 1999
For more information contact: stevet@iorg.com
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