Online sales to consumers are less than 5% of sales to final consumers. Given the fact that sales tax for online purchases has not been imposed where the seller is out of state the transportation cost is frequently covered by the lact of sales tax. B2C is beginning to grow at a steady rate over 10%/ year . Forrester Research expects B2C to about 13% of retail sales by 2010 with travel the largtest category and have grown in 2009, even though the economy is stalled. The two major firms that did most to create online sales are Amazon.com and eBay.com. Let us consider Amazon.com first.
Amazon.com is an online site that sells a wide variety of products both directly and through 3rd party marketplaces
eBay.com is an auction house that also allows sellers to sell product directly
The largest component of online sales is travel. Growth this year could be hurt by the high cost of aviation fuel, but, nevertheless online trave sales could hit $110B in 2008. The article lists the major players in the travel business, such as Priceline, Orbitz, Hotwire, and Travelvelocity.
Most brick and mortor stores in physical space, such as Barnes and Noble, WalMart, Target, have created Websites for their products. Manufacturers sell their products over the Internet. At both Apple and Dell you can purchase a made to order computer where you specify the components going into the product. A new trend is cross-channel retail, which is customers who use the internet to do research and then buy or pick up the product at a physical store location. To promote this type of retail sales retailers are using promotions such as Rewards programs. Another type of online store is Woot that only sells one product at a time at a large discounted price.
Other sites that provide online classified ads are CraigsList and eWanted. Two sites that are trying to organize local markets for services are Respond and Imandi
In some markets likethe purchase of a car or real estate, the buyer would almost always want to see the actual item prior to purchase. In these markets Websites provide information to make the buyers search more efficient. Consider cars first. By starting their search online consumers have the ability to compare products without leaving their homes. Consumers no longer need to drive from store to store in order to compare products they wish to buy. For example by connecting to AutoTrader or Edmonds web site one can narrow his/her search for an automobile by entering in search criteria. After enter desired attributes then compare your results side by side. This enables the consumer to begin the test driving process with a better idea of the car he/she wants. Similar developements are taking place in real estate markets where the consumer can initiate the search online. To check out this multiple listing you can start with the Yahoo Austin real estate list.
A service that was hamered in the dot.com bust was online grocery stores. It is possilbe they will have a slow growth curve. Traditional shopping at the grocery store has forced consumers to travel to other locations. While the mass gathering of food at supermarkets has greatly improved efficiency in shopping, the web offers even more convenience. The NetGrocer web site consumers can browse through products, receiving a nice picture, price, and volume as they shop. Another great feature of this type of shopping is that it allows you to make a grocery list that will be filled automatically and sent to your home as often as you specify. This site also allows the consumer to compare prices quickly and easily from grocer to grocer. The online grocery business was a casualty of the dot.com bust in 2000. It is slowly coming back. Two Austin, Tx online grocery sites are Austin Grocer and Longhorn Delivery
A new type of site is an information aggregator that provides consumers information without directly selling products. One such information aggregator is Consumer Reports Online that charges a flat fee for access, and another is CNET that charges clients fees when viewers pass through to their site to purchase and item that CNET has provided information. Most of CNET's revenue is from advertising, which causes a potential if not real conflict of interests in the quality of the information that they provide. There are also sites that provide the consumer with the best price, Pricegrabber, Dealtime, Bizrate or best deal, SlickDeals. There are sites that will get you insurance quotes, such as INSWEB
Cell phones now provide consumers with services. One example is Shazam and Sony TrackID. Apple's iPhone has applications that help a consumer watch her diet. One of the most interesting cell phone applications is on Googles new Android operation system called CompareEverywhere that allows you to read the barcode of a product and then search online for the best price, read reviews, connect with stores, and build shopping lists.
The shift of markets to the social nervous system is accelerating with the
increase in the capacity of the social nervous system. The current security
problems, such as identity theft, has been partially solved as the various participants agree on the
standards for obtaining secure communications using cryptography. One aspect of secure communications is a digital
signature which uses a public and private key so that the receiver can verify
the origin of the document and verify that no one has tampered with the document.
Problems still exist as hackers find ways to defeat the current security codes.
The reaction is for software firms to create patches correcting the problems.
For a major expansion in home markets communication will have to include both
voice and interactive image. Image communication is less important in industrial
markets in cases where the buyer is purchasing standardized items. To exercise
choice the viewer will have to control the catalog on the screen and must be
able to obtain detailed information on demand.
Payments mechanism
The payments mechanism is gradually becoming completely immersed in the social nervous system. The new payments system that drew with the growth in eBay has been PayPal, which is now a subsidary of eBay. Much technological advancement is directed at reducing the cost of current payment mechanisms such as checks and currency. Magnetic numbers on checks facilitate machine operations. A check can be cleared automatically once the amount has been entered in the computer, if the checks are not returned to the customer. Automatic tellers for transactions and dispensing currency are becoming commonplace. One factor which is inhibiting a more rapid switch to automatic tellers is the cost structure. Banks are charging as much as $1.00 per transaction at automatic tellers and are making no charges for the service of human tellers. This is an example where tradition is a stronger incentive than economics. The underlying costs are about 10 cents for the electronic approach and 1.45 for the human approach.
Technology has created new services such as Visa and Master Charge. Technology has also created funds transfer systems: CHIPS and Fedfunds. The incentives to use the technology lies in the ability to debit a persons account at the time of purchase. Visa and Master Card have a great incentive to do this to reduce float. Stores would eliminate bad checks if payment was instantaneous. To compensate for the loss of float, wages could be paid automatically on a daily or even hourly basis. The switch to an immediate electronic payment system is primarily a matter of standards and a question of the costs and benefits of the investment. The system would have to interface with a wide variety of hardware and software used by banks. An interface standard is required. While the electronic system would be much more efficient, it is a public good. Thus, all will benefit, but individual incentives for its creation are lacking. The move to immediate payment will probably proceed through the expansion of the bank ATM system to include point of sale terminals and by the creation of competing debit credit cards by Visa and Master Charge. For example, here in Austin, customers could for a time purchase gasoline from Diamond Shamrock with their ATM cards. The progress will be gradual and overnight payment will occur long before instantaneous payment occurs. Note that for an automatic clearing mechanism to be desirable for both customers and stores, it would have to be able to reliably process the busiest Christmas shopping day with no more than a ten second delay.
Another trend will be the creation of electronic cash cards which individuals will obtain from their banks. Unlike Visa and Master Card, these bank cash cards provide the customer with anonymity. Anonymous cash cards are opposed by police organizations because they would make it easier for drug pushers to launder money. Entrepreneurs are creating several new payment mechanisms on the Internet, which hackers would find very difficult to intercept.
Some interesting sites to surf for electronic market transactions are:
Intelligent agents and E-commerce
Some computer scientists have visions of households deploying intelligent agents to search for the best price. If a few households do this the resources involved are small. But, as more and more household do this, it will start requiring major resources in computing power and storage on servers. Administrators of servers will deny agents access, ration resources, or charge fees for access. In the earlier version of the notes I listed 5 sites that provided intelligent agents. These sites either disappeared or changed their business plan during the dot.com crash.
If we look at this from the perspective of Adam Smith's parable of specialization of pin manufacturing, a likely solution are WEB sites that specialize in obtaining price information and displaying it. One current example is CNET that provides prices and reviews of computer equipment. Some sites specialize in pricesearch such as PriceGrabber, Dealtime, and Bizrate. These site search the Web to find the lowest prices for a stated product. They provide a list of sellers that can be ordered by price. Each has a rating system to judge the reliability of the seller.