Electronic Commerce

ELECTRONIC COMMERCE

ELECTRONIC COMMERCE, or e-commerce, is the conduct of business by electronic means. Following this general definition, e-commerce began soon after Samuel Morse sent his first telegraph message in 1844, and it expanded across the sea when another message, containing share price information from the New York stock market, linked Europe and North America in 1858. By 1877, Western Union, the dominant telegraph company, moved $2.5 million worth of transactions annually among businesses and consumers, and news companies led by Reuters sold financial and other information to customers around the world. The telephone permitted electronic voice transactions and greatly extended the reach of retail companies like Sears, whose mail-and telephone-order catalog helped to create genuine national firms.

In the twenty-first century, e-commerce referred more specifically to transactions between businesses (B2B e-commerce) and between businesses and consumers (B2C e-commerce) through the use of computer communication, particularly the Internet. This form of electronic commerce began in 1968, when what was called Electronic Data Interchange permitted companies to carry out electronic transactions. However, it was not until 1984 that a standardized format (known as ASC X12) provided a dependable means to conduct electronic business, and it was not until 1994 that Netscape introduced a browser program whose graphical presentation significantly eased the use of computer communication for all kinds of computer activity, including e-commerce.

To take advantage of the widespread adoption of the personal computer and the graphical browser, Jeff Bezos in 1995 founded Amazon.com to sell books and eventually a full range of consumer items over the Internet. Amazon went public in 1997 and in 2000 earned $2.76 billion in revenue, though its net loss of $417 million troubled investors. Other booksellers followed quickly, notably Barnes and Noble, whose web subsidiary—begun in 1997—also experienced rapid revenue growth and steep losses. One of the most successful e-commerce companies, eBay, departed from traditional retail outlets by serving as an electronic auction site or meeting place for buyers and sellers, thereby avoiding expensive warehousing and shipping costs. Its earnings derive from membership and transaction charges that its participants pay to join the auction. The company's profit of $58.6 million in 2000 made it one of the few to show a positive balance sheet. Other notable consumer e-commerce firms like the "name your own price" company Priceline.com and the online stock trading company E*TRADE suffered significant losses. Despite the backing of the New York Times, the financial news site The Street.com also failed to live up to expectations and eliminated most of its staff. Others did not manage to survive, notably the online-community

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firm theglobe.com, which received strong startup support in 1998, and Value America, which sold discounted general merchandise and enjoyed the backing of Microsoft's cofounder Paul Allen and the FedEx corporation.

The business-to-business form of e-commerce fared better in 2000 and 2001, although a faltering economy lowered expectations. B2B e-commerce evolved with the development of the Internet. One of the leading B2B firms, i2 Technologies, was founded in 1988 as a business software producer to help companies manage inventories electronically. As the Internet expanded, the role of i2 grew to include the procurement and management of all the elements required to produce finished goods. Successful in this endeavor, its revenue grew to $1.1 billion and its profit to $108 billion in 2000. Another form of B2B e-commerce involves managing a market for firms in specific industries. VerticalNet, founded in 1995, links producer goods and services markets, earning money on commissions it receives for deals struck using its electronic marketplace. Other market-creating firms focus on specific products. These include Pantellos in the utilities industry, ChemConnect in chemicals, and Intercontinental Exchange for oil and gas. Concerned about this trend, manufacturers began creating their own electronic purchasing markets, the largest of which, Covisint, was founded in 2000 by General Motors, Ford, and Daimler Chrysler. In its first year of operation, the company managed the purchasing of $129 billion in materials for the automobile industry. Other B2B companies have concentrated on the services sector, with consulting (Sapient) and advertising (DoubleClick) somewhat successful, and health services (Healthion/WebMD) less so.

By 2001, electronic commerce had not grown to levels anticipated in the late 1990s. In addition to a decline in economic growth, there remained uncertainties, particularly in relation to the consumer sector. Buyers were slower than expected to change habits and make the shift from going to a store to shopping on a computer. Concerns about privacy and security remained, although some progress was made in setting national and international regulations. Businesses remained reluctant to guarantee strict privacy protection because selling information about customers was a valuable part of the e-commerce business. Nevertheless, business-to-business sales continued to grow and companies that developed their electronic sales divisions slowly over this period and carefully integrated their e-commerce and conventional business practices appeared to be more successful. Forecasters remained optimistic, anticipating the $657 billion spent worldwide on e-commerce in 2000 to double in 2001 and grow to $6.8 trillion by 2004.

BIBLIOGRAPHY

Frank, Stephen E. NetWorth: Successful Investing in the Companies that Will Prevail through Internet Booms and Busts. New York: Simon and Schuster, 2001.

Lessig, Lawrence. Code and Other Laws of Cyberspace. New York: Basic, 1999.

Schiller, Dan. Digital Capitalism: Networking the Global Market System. Cambridge, Mass.: MIT Press, 1999.

Standage, Tom. The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century's Online Pioneers. New York: Walker, 1998.

Vincent Mosco

See also Digital Technology ; Internet ; Telegraph ; Telephone .