1. eBook: Jeff Bezos, the entrepreneur who developed Amazon.com has created an eBook called Kindle now in its second round of development. Version 2 can hold 1500 books. Sony also has an eBook. Bezos is the type of entrepreneur that has demonstrated tremendous endurance in making Amazon.com a successful firm. In time he may well succeed in making Kindle a popular product. As the quality of this type of product improves it will start to make a major shift from paper to electronics.
2. Newspapers: With the growth of the Web, newspapers have become a declining industry as advertising revenus and readers shift to the Internet. Papers are also migrating to the Internet, but with much smaller operations. For example, when the Seattle Post-Intelligencer closed its paper newspaper and moved online, they dropped the number of journalists from 180 to 40. A new form of online newpaper is NewAssignment.net and PressThink.com.
2. Banks, mutual funds, and other organizations reports to clients: Another gradual shift is reports issued from banks, mutual funds, and other organizations are shifting from paper through mail to documents through email and the Internet. Most organizations are urging their clients to shift, but Texas Tags for toll roads charges you $1 a month for a paper report and nothing for a email report. In time other organizations may begin charging for paper reports. UT is shifting from paper to the internet for salary statements and other reports.
3. Refereeing professional papers: It used to be that submitting and refering papers for pulication in professional journals was a total paperwork process through surface mail. Now it goes through the Internet. As an author, you upload a PDF. Word, or LaTex file to the publisher. As a referee, you obtain the paper to referee through the WEB and all parts of the process all through the WEB.
4. Government: Government usually imitates successful innovations in the private sector. As machines talking to machines become commonplace in the private sector, such machine communication will also become commonplace within the government and between the government and political economic agents. The burden of government paperwork will ease as software firms create programs which automatically create government mandated reports and automatically send them to the appropriate government agency via electronic mail. One current example is tax returns to the IRS. Firms can send many reports to government electronically.
5. Email as a facilitator: As email has advanced, several protocols have been developed, such as IMAP, POP3, SMTP, and HTTP. The email system is compatible because the mail server and mail client can communicate with a variety of protocols. Having an email sysytem the reaches all computers that can access the Internet lays the foundation for a gradual decrease in paperwork between organizations and from organizations to households. Advances in email protocols will probably deal with stoping spam and greater security. One important requirement for transactions on the WEB is security. The federal government and privacy advocates are in a controversy over whether the government should be able to access encrypted communications.
6. Shift labor to the customer: Moreover, technological innovations in addition to facilitating the shift from paper to electronics, also can reduce the firm's costs by transferring labor to the customer. For example, when phones were invented, a human operator made the connections. With the automatic exchange, however, the customer assumed this labor in dialing because it was faster and cheaper. Also, with bank ATMs the customer performs the labor formerly performed by the human teller. Finally, the customer can find and book the best flight using the airline reservation systems accessed through information utilities, for example Orbitz.com, available through modems of personal computers. Tickets are now etickets sent via email. By making software more intelligent, the customer can assume much labor formerly supplied by sales representatives. In some markets, like real estate, the agents will resist the move because it will eliminate their monopoly profits. By assuming the labor costs, the customer can obtain a cheaper product. The time spent interacting with the program is no greater than the time spent interacting with the sales representative.
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From the chart you can see that most of online sales are business to business, B2B, in the categories of manufacturing and merchange wholesale trade. B2C is growing slowly. Let us consider B2B first.
Definition: The Wiktionary Definition of EDI is "the computer-to-computer exchange of structured information, by agreed message standards, from one computer application to another by electronic means and with a minimum of human intervention." In business EDI is used for a variety of documents, such as purchase orders and invoices, all types of documents concerning shipping, payment, import/export information, and more recently all types of documents associted with supply chain management.
Economics: Prior to EDI, a major inefficiency in business paperwork processes was that documents were being transferred back and forth between paper and electronics between firms. Electronic form within the firm and paper to communicate to other firms. EDI eliminates labor cost of handling all the paper and is faster and more accurate. This can facilitate just in time inventory in production.
Standards: But, in order to convert a paperwork process to computer networks the participants must create standards because as we have pointed out many times unlike humans machines can not deal with ambiguity and must have a highly structured environment. As pointed out by EDI 101 one of the first industries to create EDI standards was the transportation industry in 1968 when the they formed a task force of a couple of hundred workers to create the standards for railroads and motor carriers. By 1985 their system resulted in 90% of all paperwork concerning rail traffic between railroads being eletronicall communicated. The the 1980s the US auto industry created EDI standards so the Ford, Chrysler, and GM could order their parts from suppliers electronically to save up to $2B a year by eliminating the paperwork process. There is a movement to common standards. In 1979 the American National Standards Institute (ANSI) formed a committee to create EDI standards for all industries that produced the widely acceptedin the US standard, the X12 standard. The rest of the world uses the EDIFACT standard created by the United Nations in 1986.
Communication: It is essentially two or more computers with specialized software linked in a network. EDI requires a direct link between firms. The most cost-effective alternative is usually contracting the use of a VAN (value-added network). VAN providers use the existing phone infrastructure, but offer the advantage of EDI software knowledge and expertise as well as other types of technical support. Software exists to transmitt EDI by email.
EDI and the Internet: EDI is currently shifting from private networks, VANs, to the Internet to reduce cost. EDI over the Internet uses standards based on XML. This shift gathered steam as WalMart shifted their EDI from VAN to the WEB in 2003. There is now widespread adoption of AS2, the Electronic Data Interchange Internet Integration Applicability Statement 2 protocol. Again all players must agree to the same standard to get universial compatibility.
Currently new developments to transfer paperwork business processes is taking place using XML. Because the Internet is cheaper than private networks and the Internet has created a new more powerful standard, XML that will gradually displace HTML, e-commerce will grow quickly on the Internet For news on how XML is being used to promote e-commerce see XML.org. Also, business leaders formed consortia, such as Rosetta net and ebXML to create the standards for the new XML based international Internet business e-commerce. For e-commerce to become the global way of doing business, standards must be created for representing catalogues, production information, and all aspects of transactions. There is a movement towards convergence in the various standards.
EDI represents over 70% of business electronic transactions. It started with the auto industry spread to manufacturing and has entered retail.
Business Renting instead of owning software: Business to business is creating a software and service rental business, with the buz word SAAB that may grow considerably in 2008. Entrepreneurs are creating a service industry to rent servers and the application software to run e-business. The clients do not have to tie up funds in servers and the associated software. The problem is hackers that blasted sites with overload recently and the problems of security breaches. Firms specializing in renting e-business software are more likely to be up on security problems than their clients.
Weblining: One ominous aspect of B2B is weblining. Once an e-business identifies a customer, it knows how profitable it is to do business with this customer. E-businesses are focusing all their promotions and special service on their best customers and giving ordinary customers higher costs and less service. This follows market logic, but many of you may consider this objectionable from an equal treatment standpoint. Also, there are serious issues about the accuracy of the analysis programs.
The financial asset markets (stocks, bonds, commodities, futures, and so on) have proceeded the furthest towards total immersion in the social nervous system. A financial market that has moved totally to an electronic network is the over-the-counter market, NASDAQ. This market is a totally computerized communications network with nodes (market makers) for each stock. Once the information comes up on the screen, the deal can be consummated. Before automation, the over-the-counter market was very small. Now it rivals the NYSE. The success of NASDAQ forced the other exchanges to automate.
With improved communications and networks, financial players such as pension funds and mutual funds can trade stock between themselves and avoid the traditional market altogether. Reuters, a British financial firm, has established a worldwide automatic trading systems, Instinet and Nasdaz another Crossing Network, in which traders can consummate transactions without brokers. To reduce the possibility of fraud and speed up transactions, the commodity markets created their automatic trading system, GLOBEX.
In addition, financial institutions have created whole new classes of financial assets, such as junk bonds and derivatives. The latter include options, futures and composite securities which bundle securities to reduce market risk. These composite securities did not perform well in 94.
Another aspect of the impact of computers on asset markets is the new computer programs to play the market. These programs are based on a variety of quasi-intelligent software and optimization techniques. These programs contributed to the magnitude of the crash in 1987. Before these programs were introduced into the asset marketplace the stock market might take several months to correct for excessive evaluation. Now such corrections are frequently made in a single session.
For the individual investor the new computer-communications technology has made possible access to asset markets through personal computers 24 hours a day. There has been a proliferation of information services accessible through personal computers such as the Dow Jones information service, which enable the customers to make comparisons between financial alternatives. Consumers can also obtain financial information and brokerage services through AOL, CompuServe, Prodigy, and brokerage firms directly on the Internet. You can trade any time of the day or night. Also, one aspect of the growth of Internet has been in increase in Online Trading and information sources.