This is marketing research on the e-commerce industry and can include information on the background, market structure, definitions, competitors, trends and developments of e-commerce and is related to other topics such as internet, web, retail and on-line shopping.

Table of Contents

Table of Contents

1 Background 
2 Market Structure 
3 Industry Definitions 
4 Market Metrics 
5 Industry Players 
6 Recent Trends and Developments 
7 Sources

Background

While most of the attention paid to the internet is focused on the consumer side of electronic commerce, such as buying books online, and on the wealth generated by many of the initial public offerings (IPOs) of internet companies, the real revolution that is taking place is in business-to-business (B2B) E-commerce. This type of E-commerce is having a profound effect on the way companies operate by reducing the cost of doing business along the entire value chain, from supplier to customer. In some cases, it is transforming entire industries, such as the travel and leisure industry. More and more companies, both large and small, are embracing electronic commerce solutions that will restructure their business processes, the way they define themselves, and their relations with their customers and partners.

Business-to-business electronic commerce comes in many forms. Electronic data interchange (EDI), which allows the electronic exchange of documents between two parties, is a form of B2B that has been used for decades. The internet, however, has expanded EDI’s capabilities greatly. Documents can be exchanged in real time, legally recognized signatures can be authenticated, browsers are used to access customers’ and partners’ systems through extranets and VPNs, and transactions can be completed. More important, internet-based solutions are more affordable for small and medium-size companies, thus integrating a new level of business partners into the supply chain. Increasingly, companies are using internetenabled solutions to integrate their purchasing and selling systems with the rest of their business processes. While many Fortune 1000 companies keep their electronic commerce applications in-house for security reasons, small businesses are apt to exploit the capabilities of ISPs that offer a range of electronic commerce solutions. There are three business models in today’s B2B environment. Each model has its individual advantages, but the net result is an increase in competition.

1. Seller-controlled Web sites. These sites usually are set up by a single company seeking many buyers and increased cost reductions through greater process efficiencies. An example of a seller-controlled Web site is Cisco Systems, the company that manufacturers most of the internet’s routers. Cisco Systems’Web site allows buyers to configure their routers according to their specifications and check prices and order and shipping status. It also allows buyers to speak with technical specialists about their orders. Cisco Systems indicated that its Web site generates $3 billion in sales a year, approximately 40 percent of the company’s total. Cost reductions are realized through reduced printing expenses and customer management services, including technical support. Cisco estimates cost savings of $270 million a year from its Web site.

2. Buyer-controlled Web sites. These sites typically are established to increase a buyer’s purchasing power in the marketplace through lower prices. Buyer-controlled sites allow a single company to post procurement notices on the internet for bidding by suppliers. Often, buyer-controlled Web sites include an intermediary that acts as an agent or aggregator of information in finding the best price for the buyer’s specifications. Perhaps the best example of this is TPN Register, a joint venture between General Electric (GE) and Thomas Publishing. Increased process efficiencies reduced order processing times from a week to a day for GE Lighting and resulted in cost reductions of 10 to 25 percent. The initiative spread to all of GE’s operating units and led its chief executive officer, Jack Welsh, to call on all GE’s businesses to integrate the power of the internet.

3. Intermediaries. One of the greatest myths about the internet is that it will lead to the extinction of the middleman or broker. Entirely new concepts have been created, such as “disintermediation” to describe the demise of the middleman as power shifts to the consumer. However, the opposite has occurredwith B2B intermediaries growing. One reason for this is the sheer mass of information that is available to both buyers and sellers. Intermediaries act as collectors, aggregators, and synthesizers of volumes of information, especially information about buying patterns for a range of products, which can be sold to sellers. They also bring the advantage of scale in transaction processing by making aWeb site more efficient by spreading the cost across many product lines.AWeb site that carries one product from a supplier may not be sufficient to support the expense of that site. An intermediary that can accommodate a number of products and sellers has sufficient scale to keep costs downfor buyers and sellers. Intermediaries also can function in the areas of order fulfillment/logistics, payment processing, and customer data analysis. Photodisc.com is an example of a successful intermediary. That company allows its customers to search and browse its databases of images, purchase or license images on-line, and download a selected image.

Market Structure

Excluding revenues from travel, prescription drugs and automobiles, estimated revenues for the year 2006 is estimated to have reached about $130 billion. The increase over 2005 was approximately 25%.

The global economic recession which began in 2008 will have a major impact on e-commerce sales as consumers in all major geographies have cut back spending by early in 2009. It had been estimated that on-line retail e-commerce sales in 2012 could have been as high as US $210 billion. That number is looking less certain as of early 2009.

Industry Definitions

• eCommerce: Commercial transaction that takes place over the internet. Ordering the product and taking the payment happens electronically. Seller then ships the product to the customer, sometimes through a third party logistics company.

• B2B: Business to business transactions.

• B2C: Business to consumer transactions.

• Podcast: Recorded audio programs that can be downloaded by consumers.

• Video download: Video programs that can be downloaded for a price or can be shared between users as with You Tube.

Market Metrics

The Census Bureau of the U.S. Department of Commerce announced that the estimate of U.S. retail e-commerce sales for the third quarter of 2008, adjusted for seasonal variation, but not for price changes, was $34.4 billion, an increase of 0.3 percent from the second quarter of 2008. Total retail sales for the third quarter of 2008 were estimated at $1,018.8 billion, a decrease of 1.4 percent from the second quarter of 2008. The third quarter 2008 e-commerce estimate increased 5.7 percent from the third quarter of 2007 while total retail sales increased 0.3 percent in the same period. E-commerce sales in the third quarter of 2008 accounted for 3.4 percent of total sales.

On a not adjusted basis, the estimate of U.S. retail e-commerce sales for the third quarter of 2008 totaled $31.6 billion, a decrease of 2.8 percent from the second quarter of 2008. The third quarter 2008 e-commerce estimate increased 4.6 percent from the third quarter of 2007 while total retail sales increased 0.9 in the same period. Ecommerce sales in the third quarter of 2008 accounted for 3.1 percent of total sales.

A stratified simple random sampling method is used to select approximately 12,500 retail firms whose sales are the weighted and benchmarked to represent the complete universe of over two million retail firms. The MRTS sample is probability based and represents all employer firms engaged in retail activities as defined by the North American Industry Classification System (NAICS). Coverage includes all retailers whether or not they are engaged in e-commerce. Online travel services, financial brokers and dealers, and ticket sales agencies are not classified as retail and are not included in either the total retail or retail e-commerce sales estimates.

Total retail e-commerce sales were estimated at US $145 billion for all of 2008.

Ecommerce in Europe is estimated to have reached Euro 106 billion or $133 billion. A growth rate of around 25% is estimated and by 2011 the market size is expected to reach Euro 323 billion or $407 billion.

In the euro area, The U.K., Germany and France hold the largest share of the market at about 72% of total turnover, or revenue. The U.K. is the largest e-commerce play in the euro area and was estimated to have reached the equivalent of US $84 billion in revenue by the year 2007. Germany, however, has higher number of on-line users at about 3 million.

A U.K. report suggested that the adoption of on-line business models are still less common among retailers (only 3% are active), even though profitability of on-line enterprises has increased considerably (from 43% in 2003 to 72% in 2006). Approximately 40% of on-line businesses were start ups and 75% of businesses had 10 employees or less.

Key Sources - Actinic Software Ltd

Although e-commerce has grown significantly, growth was expected to fall off considerably in 2009 as a result of the ongoping economic recession.

U.S. manufacturers are using e-commerce to their benefit with some surprising participants noted in the chart below:

Industry Players

• Amazon: started in 1995, operates retail websites and offers programs that enable third parties to sell products on their websites. Retail websites are operated globally and provides services for third-party retailers, marketing and promotional services, and web services for developers.

• Google: the world's pre-eminent search engine with a US $112 billion market capitalization (Feb 2009) and a 19% profit margin. The company also serves corporate clients, including advertisers, content publishers and site managers with advertising and other revenue-generating search services.

• Liberty Media: Liberty Media Corporation owns interests in a broad range of electronic retailing, media, communications and entertainment businesses, among them Liberty Interactive group, which includes Liberty's interests in QVC, Provide Commerce, IAC/InterActiveCorp, and Expedia, and the Liberty Capital group, which includes Liberty's interests in Starz Entertainment, News Corporation, and Time Warner.

• IAC/Interactive Corporation: has controlled more than 60 brands from shopping to dating to home buying to travel and entertainment.

• Yahoo: started in 1994 by Stanford Ph.D. students David Filo and Jerry Yang. Recently missed a possible merger with Microsoft at $33 per share in mid 2008. Is now trading at only about $12 per share in early 2009 with a market cap of US $17 billion. Yahoo! Inc. has become the world's largest global online network of integrated services with more than 500 million users worldwide.

Key source - Fortune

Recent Trends and Developments

Visa estimates that about 25 to 28 cents per $100 of transactions are lost to fraud in on-line transactions. This is high compared to about 6 cents lost in overall transactions. Consumers are thus fearful of frauds and identity theft issues. About 1% of transactions turn out to be fraudulent. So security is a concern for end users as well as merchants. Strengthening the transaction security is a critical issue in the e-commerce market. Conversely, a lack of security impedes further growth.

In the recent past, business in digital media has increased significantly. What started with Apple's iTunes music download services is now expanding to include podcasts and video downloads.

On the IT products front Software as a Service (SaaS) is another interesting model currently emerging. It should be really reassuring to be rid of the headache of maintaining updates/upgrades on enterprise resources. IT departments should find it attractive. On the other hand keeping corporate data on some server outside the organization is an issue that should involve prudence.

Sources

• US Government Sources
• GS Pay
• Actinic Software
• U.S. Census Bureau
• U.S. Department of Commerce