3 1

Key Terminology and

Evolution of e-Business
Contents

1.1 Key Terminology – 4

1.1.1 e-Business – 4
1.1.2 Electronic Commerce – 5
1.1.3 Mobile e-Commerce – 5
1.1.4 Social Commerce – 5
1.1.5 Omni-Channel Commerce – 6
1.1.6 u-Commerce – 7
1.1.7 e-Market – 8
1.1.8 The Concept of Strategy – 8
1.1.9 The Concept of Value Creation and Capturing – 14

1.2 The Evolution of e-Business – 14

1.2.1 The Grassroots of e-Business – 18
1.2.2 The Rise of the Internet – 18
1.2.3 The Crash – 20
1.2.4 The Synergy Phase – 24
1.2.5 The Maturity Phase – 25

1.3 The Bene ts of e-Business Adoption – 26

References – 28

© Springer Nature Switzerland AG 2020

T. Jelassi, F. J. Martínez-López, Strategies for e-Business, Classroom Companion: Business,
[Link]
 4 Chapter 1 · Key Terminology and Evolution of e-Business

1 Learning Outcomes
After completing this chapter, you should be able to:
5 Understand what the terms of “e-business,” “electronic commerce,” “mobile
e-commerce,” “social commerce,” and “omni-channel commerce” mean
5 De ne the concept of strategy and recognize the different levels of strategy
development
5 Describe the life cycle of technological revolutions and illustrate it through
different examples
5 Recognize the four main periods of the e-business evolution over the past decade
and explain the peculiar characteristics of each period
5 Recognize main bene ts of e-business adoption

z Introduction
The purpose of this chapter is to set the stage for the remainder of the book. To
create a clear and shared view of what this domain entails, we rstly want to ensure
a common understanding of the key terminology used throughout the book.
7 Section 1.1 includes de nitions of e-business-related terms and concepts as well
as some strategy-speci c perspectives. Following that, 7 Sect. 1.2 provides a
framework that describes the typical stages of technological revolutions and
positions the evolution of electronic business within this framework.

1.1 Key Terminology

1.1.1 e-Business

The term e-business is de ned here as the use of electronic means to conduct
business internally and/or externally.1 Internal e-business activities may include
production, development, maintenance of IT infrastructure, and product man-
agement. For example, it may include the linking of an organization’s employees
with each other through an intranet to improve information sharing, facilitate
knowledge dissemination, and support management reporting. e-Business
activities also include supporting after-sales service activities and collaborating
with business partners. For example, virtual teams in two rms in different
locations may collaborate via a secure extranet on research or new product
development.
Despite the distinct terminology that is used, e-business should not be viewed in
isolation from the remaining activities of a business. Instead, a business should
integrate its online e-business activities with its of ine business into a coherent
whole. For example, customers may now shop, order, and pay for groceries online.

1 For de nitions and distinctions between e-business and e-commerce, see Bartels (2016).
For distinctions between e-commerce and m-commerce, see Surbhi (2015).
1.1 · Key Terminology
5 1
They may choose to either pick up the packed groceries from the physical store, or
for an additional fee, they may be delivered directly to the home.

1.1.2 Electronic Commerce

Electronic commerce, or e-commerce, is more speci c than e-business and can be

thought of as a subset of the latter. It deals with the facilitation of transactions and
selling of products and services online, for example, via the Internet or any other
telecommunications network. It involves the electronic trading of physical and
digital goods, quite often encompassing all the trading processes such as online
marketing, online ordering (e-procurement), e-payment, and, for digital goods,
online distribution and after-sales support activities. e-Commerce applications
with external orientation are buy-side (e-commerce activities with suppliers) and
sell-side (activities with customers).
e-Commerce may occur between business to business (B2B), business to con-
sumer (B2C), and newer forms of e-commerce include consumer to consumer (C2C –
e.g., see 7 Sect. 1.1.4) and consumer to business (C2B). It is sometimes also referred
to as v-Commerce, or virtual commerce. For example, customers worldwide can
browse, compare, and purchase Dell computers online via the Dell website.

1.1.3 Mobile e-Commerce

Mobile e-commerce, or m-commerce, is a subset of electronic commerce. While it

refers to online activities that are similar to those mentioned above in the
e-commerce section, the underlying technology is different because mobile
commerce is limited to mobile telecommunication networks, which are accessed
through wireless hand-held devices such as mobile phones, smartphones, hand-
held computers, and tablets. For example, eBay customers can download and retain
an eBay “app” (application) to their mobile device and then use it whenever they
want to search and purchase products. The app stores their login details and
payment preferences, which streamlines the purchasing process.

1.1.4 Social Commerce

Social commerce generally refers to the use of the social web to deliver e-commerce
activities and transactions, particularly the use of user-generated content and
content sharing. From a business perspective, the socialization of e-commerce can
strengthen business relationships with customers, increase website traf c, identify
potential opportunities, and facilitate product and brand development (Michaelidou
et al. 2011).
In comparison to e-commerce, social commerce enables users to interact
with others and create value jointly. The integration and utilization of informa-
tion and content are implemented through multiple actors instead of a two-way
 6 Chapter 1 · Key Terminology and Evolution of e-Business

collaboration between a customer and business on online platforms (Liang and

1 Turban 2011). Many leading e-commerce sites recognize the importance of
social commerce and include social commerce features in their e-commerce
sites. For example, Alibaba, one of the biggest e-commerce companies, provides
online discussion areas and facilitates online communities for user interaction.
These social commerce features facilitate the exchange and integration of infor-
mation and knowledge and promote selling and buying delivered through
e-commerce platforms. Buyers can use the information and knowledge gleaned
through social commerce features to assist in their shopping journeys and pur-
chase decisions.

1.1.5 Omni-Channel Commerce

Omni-channel commerce refers to meeting customer requirements across a range

of channels, which may entail physical stores, websites, catalogues, call centers,
social media, and mobile apps. Omni-channel commerce requires companies to
conduct synergetic and systematic management of various channels and touch
points in such a way that the customer experience is optimized across channels and
throughout the customer journey (Verhoef et al. 2015).
Most companies do not only rely on one channel, for example, a website or
physical stores. Rather, to maximize pro t, businesses consider the overall
coordinated performance of their business across all channels. Stakeholders and
investors will not support a “for-pro t” business without a thorough consideration
of pro ts. In the past there was much hype about e-business and e-commerce, which
drew attention away from traditional of ine industries. Nowadays, many e-commerce
companies recognize the enormous value of physical stores and their role in the
customer experience. For instance, Amazon launched their cashierless retail store
Amazon Go. Amazon users can go into a store, pick goods, and leave. The Amazon
app will automatically ful ll the checkout process and send bills to users’ smart-
phone. Secondly, Alibaba planned to open 30 physical supermarkets in Beijing in
2018.2 Thirdly, Florius is a US company that offers mortgages via its website.
Customers can choose to apply using self-service or with assisted service help.

Florius Delivers an Outstanding, Online, Omni-Channel Customer Experience

with Help from Avaya and Dimension Data
Seventy-year-old mortgage specialist outpaces the competition with full and self-
service capabilities from the company’s website enabled by Avaya Contact Center
solutions.
Avaya Holdings Corp. (AVYA) today announced that Florius, a division of
ABN AMRO, now enables customers to quickly complete all aspects of the mort-
gage process with new, expanded self- and assisted-service capabilities provided

2 For more details see Chou (2018).

1.1 · Key Terminology
7 1

through the company’s website. Avaya and Dimension Data, an Avaya channel
partner and system integrator, worked closely with Florius to create an outstand-
ing, online, omni-channel customer experience that would set the company far
ahead of the competition.
See how Florius is transforming the banking experience in the video here.
The 70-year-old company continually seeks to improve its customer experience
and the ability for its 185 employees to enhance interactions with customers. With a
commitment to speed up the review of mortgage applications, Florius needed to
update its contact center operation to increase exibility, support for multi-channel
interactions, and provide a more holistic view of the customer’s journey. Going digi-
tal was top of mind, but Florius wasn’t just looking to simply implement “cool”
technologies. Rather, the business goal was a better customer experience that was
rst and foremost, personalized and omni-channel, supported by digital capabilities.
“The customer journey is very important to us,” said Seif Alhamrany, head of
the Advisory Team at Florius. “We are committed to a fast turnaround for mort-
gage applications, so we need to put the customer in the center, have fast access to
as much information as possible, and automate processes as much as possible.”
The upgrade included integrating Avaya Contact Center solutions with the
company’s CRM system, a step that broadened the view of the customer’s experi-
ence and provided new insights. The addition of Avaya Breeze enables Florius to
innovate quickly, allowing the company to take advantage of pre-made, ready-to-
use Snap-Ins as well as quickly and easily create and integrate its own applications
for a differentiated customer experience.
“We’ve been working with Avaya for a long time. A year ago we started the
conversation with Dimension Data about developing a roadmap to enable us to
work better with customers and do more with the brilliant Avaya platform we
had,” said Alhamrany.
With development of the roadmap, the Florius website went live in March with
new, WebRTC video and co-browsing capabilities facilitated by Avaya Breeze
Snap-Ins. From the customer interaction to the backend magic that brings it all
together, Florius has achieved its goal of creating and delivering a personalized,
omni-channel customer experience that sets it apart from the competition. Rather
than rest on its laurels, Florius is already looking to the future, one that may
include arti cial intelligence capabilities and other new or emerging technologies.
“We won’t be nished after this,” said Alhamrany. “We see this as an ongoing
project to delight our customers. We’re already talking about next steps and what
kind of innovation we’ll see. As far as I’m concerned, the sky’s the limit.” […].
Adapted from Lewandowski (2018).

1.1.6 u-Commerce

u-Commerce stands for ubiquitous commerce. It refers to the wireless,

continuous communication and exchange of data and information between
and among retailers, customers, and systems (e.g., applications) regardless of
 8 Chapter 1 · Key Terminology and Evolution of e-Business

location, devices used, or time of day. Richard T. Watson (2000) claims it

1 includes four major features:
5 Ubiquitous = represents the ability to be connected at any time and in any place
as well as the integration of human-computer interaction into most devices and
processes, e.g., household objects.
5 Uniqueness = stands for the unique identi cation of each customer or user
regarding his identity, current context, needs, and location resulting in an
individual service.
5 Universal = is related to everyone’s devices which can be used multifunctional
and as well as universal—you will always be connected no matter of your place.
5 Unison = constitutes the data integration across applications and devices to
provide users consistent and fully access to required information independent
of device and location. The term unison also relates to fully synchronized
devices at any time.

For example, a household refrigerator may have inbuilt sensors that record when it
empties of speci c foods and automatically adds them to a shopping list and sends
an order, including delivery, to replenish them. The machine-to-machine process
requires little or no human intervention. Ubiquitous commerce creates several new
issues including privacy; it rede nes how value is created3 and requires new busi-
ness models.

1.1.7 e-Market

An e-Market is an electronic marketplace where business to business (B2B) buyers

and sellers trade. Electronic markets are more exible, convenient, and generally
less costly than physical markets. Because they can be real-time, they improve
business operations.
There are three types of electronic markets: independent, group-based, and pri-
vate. Independent e-markets are public markets. Group-based electronic markets
are typically for a speci c industry. Private electronic markets are established by
speci c companies for their procurement.

1.1.8 The Concept of Strategy

In addition to e-business, strategy is the second key theme of this book. More spe-
ci cally, we analyze and illustrate how rms develop and implement strategies for
their e-business activities and draw lessons and guidelines from the studied prac-
tices. However, the term “strategy” means different things to different people. To
create a clear and shared understanding of “strategy” as it is used in this book, we
rstly consider several de nitions of “strategy” and then suggest a common foun-
dation of elements that underpin our use of the word “strategy.”

3 For more details see Zeng (2018).

1.1 · Key Terminology
9 1
Strategy is:

De nition
… the direction and scope of an organisation over the long-term, which achieves
advantage for the organisation through its con guration of resources within a
changing environment to the needs of markets and ful ll stakeholder expectations.
–Gerry Johnson and Kevan Scholes4

De nition
… the determination of the basic long-term goals and objectives of an enterprise,
and the adoption of courses of action and the allocation of resources necessary
for carrying out these goals. –Alfred Chandler5

De nition
… the deliberate search for a plan of action that will develop a business’s
competitive advantage and compound it. –Bruce Henderson6

De nition
… the strong focus on pro tability not just growth, an ability to de ne a unique
value proposition, and a willingness to make tough trade-offs in what not to do.
–Michael Porter7

Based on the above de nitions, we would like to stress the following aspects that
are crucial for strategy formulation8:
5 Strategy is concerned with the long-term direction of the business.
5 Strategy deals with the overall plan for deploying the resources that a business
possesses.
5 Strategy entails the willingness to make trade-offs, to choose between different
directions and between different ways of deploying resources.
5 Strategy is about achieving unique positioning vis-à-vis competitors.
5 The central goal of strategy is to achieve sustainable competitive advantage
over rivals and thereby to ensure sustainable pro tability.

4 Please see Johnson et al. (2005), p. 10.

5 Please see Chandler (1962), p. 13.
6 Please see Henderson (1989), p. 141.
7 Please see Porter (2001), p. 72.
8 Researchers of strategy engage in heated debate about what strategy entails. Most notably, there
are two different schools of strategy. The “design view” of strategy considers strategy as charac-
terized by deliberate planning and objective setting. The “experience view” suggests that strate-
gies develop in an adaptive fashion and depend to a large extent on existing strategies. See also
Johnson et al. (2005). The frameworks and concepts proposed in this book focus on the design
view of strategy.
 10 Chapter 1 · Key Terminology and Evolution of e-Business

Having de ned the concept of strategy, we can now differentiate it from the con-
1 cept of tactics, a term that is often used interchangeably with strategy. Tactics are
schemes for individual and speci c actions that are not necessarily related to one
another. In general, speci c actions can be planned intuitively because of their
limited complexity. A business can, for instance, have a certain tactic when it
launches a marketing campaign.
Strategy, on the other hand, deals with an overarching formulation that affects
not just one activity at one point in time but all activities of a rm over an extended
time horizon. To achieve consistency and synergy between different activities over
time, intuition is generally not suf cient; it also requires logical thinking and sys-
tematic planning. Drawing an analogy with warfare, we could say that while tactics
are about winning a battle, strategy is concerned primarily with winning the war.
More recent theory suggests strategy can also be concerned with nding a
unique strategic position where there are no competitors, or “blue ocean” (foot-
note), or that converging industries and a more dynamic and open environment
require businesses to focus more on complementarities than competition. That is,
forming ecosystems of mutually supporting entities who collaboratively create
value propositions. For example, see the Financial Times article “Ford Open to
Working with Foreign Rivals on Driverless Cars.”

Ford Open to Working with Foreign Rivals on Driverless Cars

Electric car manufacturers including Tesla, Toyota, and Waymo have captured mar-
ket share from major manufacturers including Ford and Volkswagen.
Ford is open to working with other carmakers—previously thought of as com-
petitors—to expand self-driving services internationally, the head of the carmaker’s
autonomous vehicles business said, adding weight to speculation it may partner with
Volkswagen on driverless cars.
The US carmaker and its German peer are in “broad” talks over collaboration
in a number of areas, both companies have said. Sherif Marakby, CEO of Ford
Autonomous Vehicles, said collaborating in other regions “totally makes a lot of sense.”
“Joint investment with people who can complement each other makes perfect
sense,” he told the Financial Times in an interview.
He said: “The autonomous vehicle development and business costs billions and
billions of dollars in one region, so when trying to deploy this across multiple re-
gions it totally makes sense to be joining in on the risk and the reward.”
The “opportunity to co-invest not just in the technology but the business and go-
to-market and share the reward of that, it does make sense,” he added.
Herbert Diess, Volkswagen chief executive, said talks could lead to VW sharing
its electric car platform with Ford and the pair collaborating over US manufacturing.
Carmakers and technology groups are developing self-driving systems to reduce
road accidents as well as to open up new business models, and many are collaborat-
ing to reduce the vast investment costs needed.
BMW and Fiat are working alongside Intel, while Honda and SoftBank have
both invested in Cruise, the General Motors self-driving car unit.
Volkswagen is working with Aurora, a self-driving development company found-
ed by Waymo founder Chris Urmson, for its technology.
Source: Adapted excerpt from: Campbell and Waldmeier (2018).
1.1 · Key Terminology
11 1

Corporate-
Corporation
level strategy

Business unit Business Business Business

strategy unit A unit B unit C

Operational
R&D Production Etc
strategy

. Fig. 1.1 Three different levels of strategy. (Source: adapted from Jelassi et al. 2014)

It has often been argued that the increasing importance of technology reduces
the need for clear strategies. Firms should instead focus on getting their technology
to work. This is especially true for the technology that underpins e-business and
e-commerce. Yet, technology is not, and cannot be, a substitute for strategy.
Overlooking strategy and not considering how a rm can create sustainable com-
petitive advantage is a likely recipe for failure. Just because certain activities are
feasible from a technological perspective does not mean that they are sensible from
a strategic perspective. Ultimately, information technology (IT) and the Internet
should be used not for the sake of using them but instead to create value for cus-
tomers in a cost-ef cient way.
Formulating long-term strategies has become more dif cult due to dynamic,
rapidly evolving business environments. How long-term can a strategy be when the
technological environment is constantly changing? This is obviously a dif cult
question that has no clear-cut answers. When a disruptive innovation emerges and
rede nes the basis of competition, previous strategies may become all but worthless.
This was the case, for instance, when 7 [Link] entered the book-retailing
market with its online bookstore and when Napster launched its le-sharing
platform for online music distribution. Nonetheless, it is important to be aware of
the trade-offs that arise when a rm diverts from or ceases a long-term strategy in
return for short-term exibility.
Within organizations, we typically recognize the following three different levels
of strategy (see . Fig. 1.1). They are (1) corporate-level strategy, (2) business unit
strategy, and (3) operational strategy.9

9 For a detailed discussion of different levels of strategy, see Johnson et al. (2005).
 12 Chapter 1 · Key Terminology and Evolution of e-Business

Amazon Agrees to Buy Whole Foods for $13.7bn

1 In 2017 Amazon acquired upmarket grocer Whole Foods Market for US$13.7bn,
as the ecommerce group seeks to exploit its online scale to challenge the likes of
Walmart in food retailing.
Buying Whole Foods, the biggest premium grocer in the United States, radically
accelerated Amazon’s ambitions in the $800bn US food and grocery sector, speci -
cally for grocery deliveries and payless shopping.
Whole Foods, had been nicknamed “whole paycheck” for its high prices and had
same-store sales fall for 2 years prior to the acquisition.
Charlie O’Shea, analyst at Moody’s, said the deal was a “transformative transac-
tion, not just for food retail, but for retail in general.”
The deal will give Amazon—a company that has built most of its businesses
online—a much more signi cant bricks-and-mortar presence. The online retailer has
run its own grocery delivery program, AmazonFresh, since 2007 and has experi-
mented with grocery pick-up kiosks in Seattle.
At the time of the acquisition, German discounters Aldi and Lidl had opened in
the United States, risking a price war with incumbents. Walmart looked to discount
its prices to retain market share.
Mr O’Shea added: “Implications ripple far beyond the food segment, where
dominant players like Walmart, Kroger, Costco, and Target now have to look over
their shoulders at the Amazon train coming down the tracks.”
Amazon previously unveiled plans to offer a discount for Prime memberships to
Americans on government assistance, in an attempt to convince food stamp recipi-
ents to do their grocery shopping online. The move was viewed as a direct shot at
Walmart, whose core customers come from low-income backgrounds.
Source: Adapted from: Nicolaou et al. (2017).

Amazon Debuts the Store Without a Checkout

In January 2018, Amazon launched “Amazon Go,” a futuristic convenience store
where shoppers go into a store, pick goods, and leave. The Amazon app automati-
cally ful lls the checkout process and sends bills to users’ smartphone. Shoppers
are tracked by hundreds of cameras on the ceiling and a computer algorithm that
analyzes their every gesture and then tallies up their receipt when they exit. Amazon
calls this “just walk out” shopping, because there is no checkout counter and no
checkout line, just a few turnstiles.
However, the complexity of the Amazon Go store’s design means that it is more
of an experimental concept at the moment, rather than a mature technology that can
be easily and cheaply replicated.
Dilip Kumar, who oversees the technology behind the Amazon Go store, ex-
plains that the store uses computer vision—the ceiling is dotted with hundred of
video cameras—to determine what shoppers are picking out. “Five years ago when
we started this, we said: can we push the boundaries of computer vision and machine
learning to create this effortless experience for customers to come in, take what they
1.1 · Key Terminology
13 1
want, and leave?” he [Link] Kumar points to the cameras that nearly blanket the
ceiling and explains that the computer algorithm uses these to determine which cus-
tomer is taking which products. There are also weight sensors on the store shelves,
but these are less useful because different items can have the same weight, such as
different avors of yoghurt. “The holy grail is video understanding,” he says. “To be
able to understand and interpret and know exactly what is happening. Doing this at
scale and getting transaction-level accuracy is what makes this challenging.”
Source: Adapted from: Hook and Nicolaou (2018).

z Business Unit Strategy

Business unit strategy is concerned primarily with how to compete within individ-
ual markets. It typically involves middle-level management of a rm who deal with
issues such as industry analysis, market positioning, unique competitive advantage,
and value creation for customers. When formulating a business unit strategy, the
desired scale and scope of operations are considered. Each business unit would
typically have a different budget and performance targets that align to the corpo-
rate level strategy. Business units typically have a degree of autonomy and agility
to respond to changes in customer demand.
For example, e-commerce giant Alibaba in 2019 has nearly 30 separate business
units that speci cally target market opportunities including in B2B commerce,
B2C commerce, C2C commerce, mobile payments, and cloud business. This
approach recognizes they are very distinct and dynamic markets with different cus-
tomer pro les and preferences and different levels of competition. The size of each
business unit varies from small teams to large groups of teams and each offers dif-
ferentiated products and services. It is therefore necessary to formulate a separate
business unit strategy with different objectives for each mark.
At a more detailed level, a business unit strategy deals with issues such as
industry analysis, market positioning, and value creation for customers.
Furthermore, when formulating a business unit strategy, it is also necessary to
think about the desired scale and scope of operations.

z Operational Strategy
Operational strategy, also known as functional-level strategy, concerns the imple-
mentation of the business unit strategy with regard to resources, processes, and
people. In the context of e-business, this includes issues such as optimal website
design, hardware and software requirements, and the management of the logistics
process. It aims to optimize operational effectiveness and minimize costs.
Operational strategies use techniques that include business process re-engineering
(BPR), value stream mapping (VSM), and total quality management (TQM).
Operational strategies relate to speci c functions and are typically more short-
term rather than the “whole-of- rm” goals of corporate strategy formulation.
Implementation of operational strategies may involve risk management and change
management for new processes, tools, and organization structures and customer
relationship management. This is discussed further in 7 Chap. 18.
 14 Chapter 1 · Key Terminology and Evolution of e-Business

1.1.9 The Concept of Value Creation and Capturing

1
The ability of a rm to create value for its customers is a critical prerequisite for
achieving sustainable pro tability. In the context of e-business strategies, the con-
cept of value creation deserves special attention because many Internet start-ups
that ended in bankruptcy at the end of the Internet boom years did not pay enough
attention to this issue. Instead, they were frequently concerned primarily with cus-
tomer acquisition and revenue growth, which was sustainable only as long as ven-
ture capitalists and stock markets were willing to nance these rms.
Nowadays, however, in a more challenging and turbulent business environment,
it is critical that strategies focus on what value to create and for whom, as well as
how to create and capture value in the form of pro ts. In economic terms, value
created is the difference between the bene t a rm provides to its customers and the
costs it incurs for doing so. The concepts of value creation and capturing are dis-
cussed in more detail in 7 Chap. 8.

1.2 The Evolution of e-Business

Before discussing e-business from a structural perspective through the e-business

strategy framework presented in Part II, we rstly want to analyze the evolution of
e-business over the past decade and compare it with the life cycle of other techno-
logical revolutions. Carlota Perez de nes a technological revolution as a “powerful
and highly visible cluster of new and dynamic technologies, products and indus-
tries, capable of bringing about an upheaval in the whole fabric of the economy and
of propelling a long-term upsurge of development” (Perez 2002: p. 8).
Technological revolutions are not new. Looking back through history, whether
the printing press, steam engine, railway, or car, all such technologies have gone
through similar surges. Perez divides the surge of a technological revolution into
two consecutive periods: (1) the installation period, which consists of an irruption
stage and a frenzy (“gilded age”) stage, and (2) the deployment period, which con-
sists of a synergy (“golden age”) stage and a maturity stage.
Below, we describe in more detail each stage of a typical surge of a technologi-
cal revolution10:
5 Irruption (1). The irruption stage takes place right after a new technology is
introduced to the market. Revolutionary new technologies, also called “big
bangs,” include the mechanized cotton industry in the 1770s, railway
construction in the 1830s and, more recently, Intel’s rst microprocessor in
1971. During the irruption stage, innovative products and services based on the
new technology appear and start to slowly penetrate the economy, which is still
dominated by the previous technology.
5 Frenzy (2). The frenzy stage, also called the “gilded age,” is characterized by a
sense of exploration and exuberance as entrepreneurs, engineers, and investors

10 Ibid. pp. 90–137.

1.2 · The Evolution of e-Business
15 1
alike try to nd the best opportunities created by the technological big bang
irruption. Using a trial-and-error approach, investors fund numerous projects,
which help to quickly install the new technology in the economy. However, as
investors become increasingly con dent and excited, they start considering
themselves to be infallible. Depending on the technological revolution, they
have nanced digging canals from any river to any other river, building railway
tracks between every city and village imaginable and, more recently, creating
online retailing websites for every conceivable product, be it pet food, medicine,
or furniture. This process typically continues until it reaches an unsustainable
exuberance, also called “bubble” or “mania.” At that point, the “paper wealth”
of the stock market loses any meaningful relation with the realistic possibilities
of the new technology to create wealth.
5 Crash (3). The gilded age is followed by a crash, when the leading players in the
economy realize that the excessive investments will never be able to ful ll the
high expectations. As a result, investors lose con dence and pull their funds out
of the new technology. Doing so sets off a vicious cycle, and, as everyone starts
to pull out of the stock market, the bubble de ates, and the stock market
collapses.
5 Synergy (4). Following the crash, the time of quick and easy pro ts has passed.
Now, investors prefer to put their money into the “real” economy, and the
successful rms are not the nimble start-ups but instead established incumbents.
While, during the frenzy stage, there were many start-ups competing within an
industry, the crash led to a shake-out where most of these ventures went out of
business. During the synergy stage, a few large companies start to dominate the
markets and leverage their nancial strength to generate economies of scale and
scope. Now, the emphasis is no longer on technological innovation but instead
on how to make technology easy to use, reliable, secure, and cost-ef cient.
In order for the synergy stage to take hold, governmental agencies need to
introduce regulations to remedy the fallacies that caused the previous frenzy
and the ensuing crash and, by doing so, to regain investors’ con dence. For
instance, following the stock market crash in 1929, the US government set up
separate regulatory bodies for banks, securities, savings, and insurances and
also established protective agencies including the Federal Deposit Insurance
Corporation (FDIC) and the Securities and Exchange Commission (SEC).
5 Maturity (5). The maturity stage is characterized by market saturation and
mature technologies. Growth opportunities in new and untapped markets are
becoming scarcer, and there are fewer innovations resulting from the new
technology. During this stage, companies concentrate on increasing ef ciency
and reducing costs, for instance, through mergers and acquisitions. In today’s
mature automobile industry, for example, large global manufacturers such as
Renault and Nissan or VW and Porsche have merged or established strategic
partnerships in order to generate scale effects and expand market reach.11

11 Note that as one technology reaches maturity, the next technological revolution is about to
emerge. As a result, there can be considerable overlap between two technology surges.
 16 Chapter 1 · Key Terminology and Evolution of e-Business

For a more extensive example of a surge of a technological revolution, consider the

1 evolution of the railway industry in England. Railroads started to become popular
in the 1830s. Many entrepreneurs, nanced by eager investors, started constructing
railway routes throughout the country, which culminated in an investment bubble
in 1847. Initially, when building railway tracks, investors sought out those projects
that showed a clear need and were easy to build. As the bubble kept growing, inves-
tors, searching desperately for investment opportunities, started to fund projects
for which there was hardly any demand and that were complicated and costly.
Ultimately, railway companies were even building tracks that were running parallel
to one another, even though it was obvious that only one track could be operated
pro tably in the long term.
Inevitably, the railway bubble burst. After the dust settled, the stocks of railway
companies had lost 85% of their peak value. After the crash in 1847, when a large
number of railroad companies went bankrupt, the industry bounced back, rapidly
increasing mileage and passengers and tripling revenues in just 5 years after the
bust. After 1850, railways drove much of England’s economic growth, and they
continued to dominate the transportation market until the automobile became a
medium of mass transportation in the middle of the twentieth century (Perez
2002). We can observe similar evolutions with other technological revolutions,
such as steel production, steam energy, and, more recently, the automobile.
The above perspective illustrates that the time from the rst commercial usage
of a new technology to its widespread application can stretch over a period lasting
up to 50 years. Within these long periods, the technology’s diffusion and growth
rates are not continuously smooth. Instead, they are often marked by volatility and
a crash, when the initial exuberance and optimism about a new technology fades.
One of the main reasons for these long gestation periods between the irruption
and the synergy stages is that it is not suf cient just to have the appropriate tech-
nology in place. In addition, managers need to be willing and able to abandon
previous ways of doing things and start using the new technology in such a way
that it actually creates value. This takes time and requires a lot of experimentation,
failure, and ne-tuning.
The development of e-business has been quite similar to that described above.
e-Business has changed dramatically since 1993, evolving through the following
ve periods, which mirror the evolution of the National Association of Securities
Dealers Automated Quotations (NASDAQ)12 in the United States (see . Fig. 1.2)
during the same time period:
5 Grassroots of e-business (1). Before the widespread commercial use of the
Internet, the NASDAQ showed only modest increases. Between 1983 and 1993,
it doubled from 350 to 700 points. We refer to this period as the grassroots of
e-business which corresponds to the irruption stage in the Perez model.
5 Rise of the Internet (2). Even though the beginning of the dotcom boom
cannot be determined precisely, we chose 1995, the year when 7 Amazon.

12 The NASDAQ is the main US-based stock exchange for technology companies.
1.2 · The Evolution of e-Business
17 1
7,235.881
7,000.000

6,000.000

5,000.000

4,000.000

3,000.000

2,000.000

1,000.000
– +
0.0000

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

. Fig. 1.2 NASDAQ Composite Index 1993–2018. (Source: Yahoo! Finance 2019)

com was launched, as the starting point of the rise of the Internet period.13
The year 1995 also saw the initial public offering (IPO) of Netscape, the
maker of the Netscape Navigator web browser. This was the rst IPO of a
major Internet company. This period, which corresponds to the “gilded age,”
is re ected in the strong rise of the NASDAQ index, especially during the late
1990s. At the peak of this frenzy stage, the NASDAQ traded at price/earnings
(p/e) ratios of 62, after it had not exceeded p/e ratios of 21 in the years between
1973 and 1995.14
5 Crash (3). The bubble burst in March and April of 2000, when the NASDAQ
index crashed. Between 10 March and 14 April 2000, the NASDAQ dropped
1727 points or 34 percent. By the end of 2000, it had fallen by 45 percent. The
subsequent consolidation has been characterized by a more sober approach to
e-business and a refocusing on the fundamental drivers of value creation. The
NASDAQ continued its decline for another 2 years, albeit at much slower rates,
until it bottomed out in early 2003.
5 Synergy (4). By winter 2003 there were signs of an e-business revival, as re ected
in the rise of the NASDAQ index during the second half of 2003. This trend
continued, thus marking the beginning of the synergy stage (“golden age”)
mentioned in the Perez model.
5 Maturity (5). From 2012 we see the emergence of maturity. Digital tools are
used more broadly by businesses and consumers. Investor con dence in pure
e-business start-ups grows, underpinned by awareness and experience. Start-ups
and emergent business opportunities that are not yet cash ow positive are
subject to more rigorous assessments of their value creation and nancial
projections.

13 7 [Link] was the rst rm to add the suf x “.com” to the end of its name, thereby estab-
lishing the expression “dotcom,” which refers to all types of Internet ventures.
14 The p/e ratio of a company’s stock is calculated by dividing its stock price by its earnings per
share. For example, if a company made $5 per share in the past year and the share sells for $50,
then the p/e ratio for this share is 10. In general, a high p/e suggests that investors are expecting
higher earnings growth in the future compared to companies with a lower p/e.
 18 Chapter 1 · Key Terminology and Evolution of e-Business

In the following sections, the above ve time periods are discussed in more detail.
1 The purpose of doing so is to explain with hindsight some of the underlying
characteristics of each time period using strategic concepts such as the ve forces
industry framework, value creation and capture, and economies of scale and scope.
These concepts are explained in more detail in Part II of the book.

1.2.1 The Grassroots of e-Business

Before the Internet became a widely used platform for conducting e-business trans-
actions, companies were already using other information and communication tech-
nologies (ICT) infrastructures. These included electronic data interchange (EDI),
interorganizational information systems (IOS) and public IT platforms such as the
Minitel15 videotext system in France. They enabled companies to connect their
business functions internally and also to reach out to their suppliers, customers,
and third-party partners.
However, the value creation potential of these technologies was limited due to
the high costs involved and the limited bene ts that were achieved. System imple-
mentation costs were high since most of these ICT infrastructures were more or
less proprietary and had to be adapted extensively to the individual needs of each
company.
Once implemented and adapted, the ongoing bene ts of these systems were
further limited due to two factors: the number of market participants and technical
incompatibility. Firstly, the number of companies using these IT systems was rela-
tively low compared with today’s ubiquitous Internet, thus limiting the number of
potential partners to work with. Secondly, even if a company used an ICT infra-
structure, its IT systems and applications were not compatible with those of its
business partners. This made it dif cult at best, if not impossible, to interconnect
different “islands of technology.” As a result of the above factors, e-business existed
only to a limited extent within and across companies or even beyond national
boundaries.

1.2.2 The Rise of the Internet

In July 1995, the Internet boom years began with the launch of 7 [Link],
one of today’s best-known online retailers. The subsequent 5 years were character-
ized by great exuberance and the belief in the seemingly unlimited potential of the
Internet. During that time period, the pro tability and economic viability of com-
panies and business models did not seem to matter much. Instead, metrics such as
“click-through rates,” or “number of eyeballs” (the number of visitors to a site)
were the main determinants for stock market success and media coverage.

15 France Telecom closed this service in 2012.

1.2 · The Evolution of e-Business
19 1
For a more detailed insight into this period, consider the example of 7 Priceline.
com, which allowed people to purchase airline tickets over the Internet. The
7 [Link] IPO on 30 March 1999 issued shares at $16 each, and they soared
immediately to $85 each. At the end of the day, 7 [Link] had reached a
market valuation of almost $10 billion, which was more than the combined market
value of United Airlines, Continental Airlines, and Northwest Airlines.16 While
these airlines had a proven business model, valuable brands, and substantial physi-
cal assets, 7 [Link] owned only a few computer servers and an untested
business model. In fact, the company even stated in its IPO prospectus that it did
not expect to be pro table at any time in the near future, that the business model
was new and unproven, and that the brand might not be able to achieve the required
brand recognition.
Investors ignored these warnings because they believed that they would always
be able to sell the stock to someone else at an even higher price. This investment
approach during the Internet boom years became known as the “Greater Fool
Theory.”17 In the United States, an estimated 100 million people, about half of the
adult population, had invested in stocks at the peak of the bubble. As the stock
market kept soaring, more and more people—who had seen their colleagues and
friends become wealthy—also started investing in Internet stocks. This meant that
the chances of nding a “greater fool” were high—at least during the Internet
boom years. The case study on 7 [Link], which dates back to this time
period, illustrates this very same spirit of almost boundless excitement and opti-
mism.
The fundamental driver of the e-business boom was the belief that it would be
possible to increase values exponentially because, as explained below, the Internet
would lower costs while, at the same time, increase consumer bene ts. Costs were
expected to decrease signi cantly because managers and analysts alike believed
that Internet ventures would not require heavy investments in expensive bricks-
and-mortar infrastructure such as warehouses, retail outlets, and delivery trucks.
Instead, they believed that all physical activities could be outsourced to external
providers—typically as variable costs based on transaction volumes—while they
focused on the technological aspect of the business and on customer interactions.
At the same time, the belief was that, compared with their more traditional
bricks-and-mortar competitors, Internet pure play companies would provide far
superior consumer bene ts, for example, improved customer services and customer
experiences. It was thought that combining the two-way connectivity of the Internet
with database capabilities and customer relationship management (CRM) systems
would create much higher bene ts than traditional outlets ever could.
This still leaves us with the question of why so many businesses rushed into this
e-market so rapidly during the Internet boom years. Several factors can explain
this new “gold rush” (see also 7 Chap. 7 for a more detailed discussion of early-

16 J. Cassidy provides a detailed account of the exuberance and hysteria during the Internet boom
years in [Link], Perennial, New York, 2003, pp. 2–5.
17 Ibid. p. 5.
 20 Chapter 1 · Key Terminology and Evolution of e-Business

mover advantages and disadvantages in e-business) including a race to build market

1 share and retain customers and the investment climate. These are discussed below.
By entering the e-market early, businesses tried to capture market share in their
respective market segment and to generate scale effects through large sales vol-
umes. They wanted to attract new customers quickly and build up a large customer
base. The underlying hope was that once customers had used a website a number
of times, then they would be unlikely to switch to a competitor, since they would
have to get used to a new website layout and functioning. Furthermore, data-min-
ing techniques would allow online companies to customize their offerings to the
speci c preferences of the individual customer. By switching to another provider,
customers lose this level of customization, at least over the short term.
Internet ventures also aimed to create a customer lock-in through network
effects. As more and more customers sign up and provide information about them-
selves, as is the case at eBay and through 7 [Link]’s book reviews, custom-
ers are less likely to switch to competitors unless the latter offer better (or at least
similar) network effects. Because of these effects, there was a “winner-takes-all”
expectation, whereby a dominant player would outperform competitors through
economies of scale and network effects.
Finally, and probably most importantly, the peculiar investment climate pushed
companies to spend and expand rapidly instead of taking a more cautious
approach. In 1999, Silicon Valley venture capitalist rms such as Sequoia Capital
and Benchmark Capital invested an all-time high of US$48.3 billion. This repre-
sented a 150 percent increase over 1998, and 90 percent of this money went toward
high-tech and Internet companies (Pandya et al. 2002). In order to qualify for ven-
ture capital funding, companies had to convince investors that they would be able
to grow row rapidly to a large scale and so fuel the hope of a rapid payback on
investment.
The investors did not necessarily believe in the future of the start-ups they
funded. Yet they knew that as long as stock markets kept going up and people kept
buying Internet stocks, regardless of the underlying business model, they could not
go wrong. At the same time, investment bankers and venture capitalists who refused
to play this “game” also knew that they would fall behind the short-term return on
investment performance of their less scrupulous competitors. These perverted
incentives contributed signi cantly to the buildup of the stock market bubble.

1.2.3 The Crash

During 1995–1999, investors and managers had arti cially in ated market sizes for
dotcom companies and overlooked a number of important issues that led to the
subsequent end of the Internet boom years.18

18 For an excellent discussion of the awed thinking during the boom years of the Internet, refer to
Porter (2001), pp. 63–78.
1.2 · The Evolution of e-Business
21 1
On the one hand, revenues were arti cially in ated through a number of ways.
Firstly, in order to gain market share, Internet ventures subsidized customer pur-
chases of their products. For example, Internet retailers such as 7 [Link]
and the pet food supplier 7 pets. com provided free shipping and delivery to their
customers—even for dog food bags that weighed 20 pounds. Secondly, many cus-
tomers bought products and services online more out of curiosity than to ful ll an
actual need. After the novelty wore off, many customers reverted to their tradi-
tional buying behavior. Thirdly, in many instances, revenues for the Internet ven-
tures were generated through stocks from partner companies that enjoyed equally
high market valuations.
On the other hand, costs were not represented realistically, which further dis-
torted the true state of the underlying business. In many cases, dotcom companies
received subsidized inputs because suppliers were eager to do business with them,
which helped them to reduce costs. More importantly, many suppliers and employ-
ees accepted equity as payment, expecting that the stock market boom would con-
tinue to rise.
The abovementioned factors were re ected in poor operating cash ows that
did not re ect the actual Internet ventures’ business model in terms of costs and
revenues. Furthermore, bank analysts, such as Mary Meeker from Morgan Stanley,
who in 1996 wrote the highly publicized Internet Report, pointed out that the focus
of investors should not be on current earnings but on earnings potential (Meeker
and DePuy 1996). Instead, investors were supposed to rely upon indicators includ-
ing the numbers of online customers, unique website visitors, and repeat online
buyers. Consequently, to try to meet investors’ expectations, e-managers spent
heavily on marketing and advertising to attract site visitors and customers, regard-
less of costs. As it turned out, however, these metrics might have been a good indi-
cator for spectator traf c on a website, yet they did not represent a reliable indicator
of revenue or pro tability.
On Monday, 13 March 2000, the dotcom bubble started to burst. Within 3 days,
the NASDAQ index slid by almost 500 points. At that time, Jack Willoughby, a
journalist for Barron’s, published an article in which he calculated the “burn rate”
of Internet companies. The “burn rate” measured the rate at which these compa-
nies were spending money. He concluded that most of the Internet companies
would run out of money within a year:

» When will the Internet bubble burst? For scores of Net upstarts, that unpleasant
popping sound is likely to be heard before the end of this year. Starved for cash,
many of these companies will try to raise fresh funds by issuing more stock or bonds.
But a lot of them won’t succeed. As a result, they will be forced to sell out to stron-
ger rivals or go out of business altogether. Already, many cash-strapped Internet
rms are scrambling for funding.19

19 Please see Willoughby (2000), p. 29.

 22 Chapter 1 · Key Terminology and Evolution of e-Business

The article shattered the hope of investors that, regardless of their poor nancial
1 viability, Internet rms would always be able to raise more money.
Along with most other Internet rms, the stock of the abovementioned
7 [Link] started to slide from US$150 at its peak down to less than $2. At
this valuation level, the market capitalization of 7 [Link] could not have
bought two Boeing 747 jets. Other Internet companies faced similar fates and
either went bankrupt or were acquired by larger competitors, often traditional
bricks-and-mortar companies from the so-called old economy. For example, K·B
Toys, an 80-year-old, bricks-and-mortar toy retailer, purchased the intellectual
property, software, and warehouses of bankrupt 7 [Link]—once one of the
most highly praised online start-ups and valued at $10 billion—and relaunched
7 [Link] in October 2001.
Subsequent to the burst of the Internet bubble, which took place in March and
April 2000, e-business entrepreneurs, managers, investors, and the media awoke to
the new reality and started re ecting on what had really happened. More impor-
tantly, they tried to understand the reasons that led to the failure of so many
Internet ventures, as well as the aws in their business models. In addition to the
hysteria that had distorted valuations, many of these ventures did not create as
much value as was anticipated, and they were also unable to convert their lofty
market values into real operating cash ows and pro ts. Let us look at each of
these points in turn.
Overall, the value created by Internet ventures turned out to be lower since
costs were higher and bene ts were lower than was projected throughout the boom
years. The belief that e-business would be comparatively low cost stemmed mainly
from the idea that it required only a couple of computer servers and a website to
set up an online company. Furthermore, it was thought that doing business over
the Internet would be highly scalable since it only required additional computer
processing capability to cater for new customers around the globe.
Yet for many online businesses, the costs of developing a website turned out to
be only a small fraction of the total costs. For example, during the boom years,
7 [Link], on average, paid around $16 for buying and shipping a book. On
top of that came $8 for marketing and advertising and $1 for overheads (which
included the website development), raising overall costs per book to $25. Average
price per book sold, however, was only $20 (Cassidy 2003). The main reason for the
high costs was that most costs, including marketing and sales, were not nearly as
scale sensitive as the creation of a website. In fact, the acquisition costs of online
customers were, in general, much higher than those of traditional bricks-and-
mortar companies. Internet “pure player” companies rstly needed to build their
brand and then win the trust of online customers.
Furthermore, the notion of the unbundled corporation in which external pro-
viders manage the high xed-cost logistical processes did not work out as
expected—at least during those early years when the interfaces between e-business
companies and their logistics providers had not yet been clearly de ned and stream-
1.2 · The Evolution of e-Business
23 1
lined. To maintain high levels of quality and reliability, online companies such as
7 [Link] reverted to setting up their own warehouses and distribution cen-
ters, thereby adding signi cantly to overall costs.
It also turned out to be dif cult for most Internet companies to establish a sus-
tainable revenue model. As a result, they were unable to achieve a high enough
return on investment to justify their stock market valuation. For example, after
starting operations in April 1998, 7 [Link] managed, by the end of that
year, to sell $35 million worth of airline tickets—at an overall cost of $36.5 million!
The inability of many rms to charge appropriate prices for products and ser-
vices was due to the following factors. Firstly, the Internet lowered barriers to entry
(see 7 Sect. 3.2). While in the past it was necessary to operate an extensive physical
network to compete in the retailing sector, many companies from all realms, such
as 7 [Link] and 7 [Link], attempted to grow market share by leveraging
the Internet. In the online market for pet food, more than half a dozen web retail-
ers were competing for customers. This led to a price war to attract customers, with
some companies giving away products or services for free.
Secondly, the strategic stakes that were involved further aggravated the com-
petitive scenario. Knowing that only a few online companies per sector would be
able to stay in business, these companies invested heavily and sacri ced pro ts for
market share. They also hoped that market share would translate into sustained
customer relationships. After all, e-business was supposed to be a winner-takes-all
market. Yet, ultimately the lock-in effect created through high switching costs and
network effects occurred only in a few cases. As websites became more user-friendly,
it also became easier for customers to switch from one provider to another.
With regard to network effects, only companies that relied heavily on consumer
interactions (e.g., eBay) were able to leverage the power of their installed customer
base. However, as long as there was no substantial interaction with other users,
individual customers usually did not care about the size an e-business company’s
installed user base.
The nal dark side of the boom years was that many companies applied illegal
accounting practices to boost pro ts. Notable examples include the energy trader
Enron that was once hailed as the model Internet-based company and the telecom
operator WorldCom. Their illegal accounting methods continued undetected,
while the boom persisted and the stock market kept rising. However, when the
market collapsed and investors started to scrutinize accounts more closely the
extent of the criminal activities became obvious, forcing these companies and
numerous others to le for bankruptcy. As with previous crashes, regulatory agen-
cies also reacted to improve investor protection. In July 2002, President George
W. Bush signed the Sarbanes-Oxley Act of 2002, which mandates a number of
reforms to enhance corporate responsibility and nancial disclosures and to com-
bat corporate and accounting fraud. In addition, the Act also created the Public
Company Accounting Oversight Board (PCAOB), which has the role of overseeing
the activities of the auditing profession.
 24 Chapter 1 · Key Terminology and Evolution of e-Business

1.2.4 The Synergy Phase

1
What messages can we take away from looking at these boom and bust cycles
across history? Firstly, in order to enter the synergy phase, it is essential to return
to business fundamentals. This includes paying close consideration to issues such
as industry structure, value creation, and ways to create pro ts and a sustainable
competitive advantage through the Internet and other technologies.
Secondly, just as the railway, steel, and automobile industries underwent boom
and bust phases before realizing their true economic potential, we observed a simi-
lar evolution in the e-business sector. The booming “installation” years of the
Internet were followed by a bust. Since then, the time has come for the much more
profound deployment period of e-business.20
At the time of writing the fourth edition of this book, about 20 years have
passed since the crash. Companies with established Internet businesses such as
Ducati, eBay, Google, 7 [Link], and Nordea, some who have been docu-
mented in this book, con rm that if rms have consistent e-business strategies and
implement them successfully, they can create signi cant value for their customers
while at the same time being highly pro table. As a result, the stock valuations of
some highly successful Internet ventures, such as eBay and 7 [Link], have
increased beyond the levels of the Internet boom years.
In addition, in recent years, entrepreneurial start-ups have also had substantial
success. Ironically, nowadays it seems to be the case that it really does only require
a couple of computer servers and a website to set up an online company. Most
businesses that had been acquired by large industry incumbents such as Alibaba or
Google were founded by young entrepreneurs out of their private homes or college
dorm rooms. Businesses such as Flickr, YouTube (within Google), Instagram, and
Twitter have built communities around a website offering videos and photos or
enabling social networking, all of which do not require heavy investments in mar-
keting (because users mostly took care of this) or infrastructure (because no phys-
ical goods were involved).
These businesses, however, had a different starting point than their predecessors
of the dotcom period. The actual network infrastructure of the Internet has
changed dramatically in the last few years. The spread and penetration of internet
means that more people spend more time online. Other tools, for example, video-
editing software, have allowed for richer content to be created and viewed, which,
in turn, makes it easier for new start-ups to create new service and sites for user-
generated content. Furthermore, technology standards such as RSS and AJAX21
have evolved which makes it easier to keep track of content updates and provide a
faster and more convenient web experience.

20 See also Mullaney and Green (2003).

21 RSS is a type of web feed which allows users and applications to access updates to online con-
tent in a standardized, computer-readable format. AJAX stands for Asynchronous JavaScript and
XML. It is a technique for creating better, faster, and more interactive web applications.
1.2 · The Evolution of e-Business
25 1
Based on these improvements, new web-based services have evolved that focus
on fostering communication, sharing, or collaboration. The so-called blogosphere
where bloggers create their own content and comment on other bloggers’ output is
democratizing the web by allowing individuals to engage in their personal journal-
istic interests (“citizen journalism”), creating articles and media on any possible
topic. While web-based folksonomies such as YouTube or Flickr allow their mem-
bers to upload, label, and categorize content such as videos or photos using tags,
other sites allow users to create their own pro les and to connect with other people
through a social network. Furthermore, there was a wide variety of services evolv-
ing on the web, such as Google’s online calendar or word processing and spread-
sheet applications, which replicate traditional desktop applications, thus posing a
threat to established software industry incumbents such as Microsoft.
By functioning as platforms for its users, these software services allow partici-
pants to make various content items available and accessible for others. A common
concept for understanding the extent of the growing variety in services and how
they create value from a user’s point of view is the concept of the “long tail.”22 It
relates how the Internet enables niche markets to be accessed easily at negligible
cost and in theory therefore by a broader customer base, by allowing the individual
to reach and capitalize more on previously inaccessible market niches, described as
the “long tail.” Search tools, for example, are an integral part of the internet and
are needed in order to break down a complex world of choice into reasonable
pieces which can be handled and/or are valued by the user.
Still many of the new services are yet to prove that they have revenue models that
can achieve sustainable pro ts. However, highly traf cked sites and high user numbers
suggest that the value created by these companies is more signi cant than the value
created by companies during the new economy era. While survivors of the dotcom
bust such as eBay and 7 [Link] always had community aspects in their busi-
ness models and managed to be successful hybrid retailers, companies selling solely
digital content have the advantage of completely freeing themselves from the bound-
aries of a physical world, therefore being even more cost-ef cient than others.
Furthermore, investors seem to be more realistic about their protégés’ future.
Web 2.0 is more about business models and people rather than IPOs. Selling a suc-
cessful, meaning heavily traf cked, website to one of the established incumbents
on the Internet appears to be the modus operandi of exiting entrepreneurs.

1.2.5 The Maturity Phase

In recent years, e-business has become deeply integrated with traditional businesses
and our everyday life. The start of the maturity phase refers to a special transitional
phase between immaturity and maturity. The immaturity of e-business stems from
current emerging new e-businesses and their journey to pro tability. For example,
the Internet of Things (IoT) is an emerging technology that is far from mature. IoT

22 See Anderson (2008).

 26 Chapter 1 · Key Terminology and Evolution of e-Business

technologies have been applied within many business settings. Retail stores use sen-
1 sors in clothes hangers to identify customer movement and clothing selections and
can display the selected item and its details through an in-store IPS screen, which
helps customers to make purchase decisions and/or order their size. The IoT has
many potential business applications, but how IoT-based e-business integrates into
existing businesses and its potential to generate pro ts is still undeveloped.
On the other hand, some e-businesses have become mature and developed.
Online shopping is a mainstream form of e-commerce. Today’s shoppers are accus-
tomed to shopping through a range of websites and apps. e-Commerce giants such
as Amazon and Alibaba have created popular online shopping platforms and
de ned the standard for online shopping businesses, with Amazon hosting more
than 300 million customers (2017) and Alibaba hosting a total of more than 600
million customers (2018). As another example, Google popularized the use of
search engines in everyday life, particularly search engines on mobile devices, and
so search engine optimization is an important activity for businesses to promote
their products and services. Businesses pay Google to prominently feature in search
results for speci c keywords that are relevant to their business.
To summarize, in 2019 e-business is starting its maturity phase, as the Internet
and digitization are a necessary part of everyday life and modern business. At the
same time, with the evolution of new e-business and e-business technologies, many
strategic opportunities remain to be explored by future entrepreneurs.

1.3 The Bene ts of e-Business Adoption

Before making a decision to initiate e-business activities, businesses should evalu-

ate the bene ts of e-business and also consider their capability, resourcing, demand,
and alignment with organization goals. The next section introduces some general
potential bene ts that e-business may create.23
1. Worldwide connection. The Internet and other information technologies can
connect worldwide information, content, knowledge, and people to a business.
E-business provides an approach to access information or contact other people
worldwide, often at an extremely low cost.
2. Organization communication and process. e-Business communication software
allows internal staff to communicate with others and to work with staff in other
businesses online. For example, Skype and software for meetings allow “virtual
teams” of staff to meet colleagues and discuss projects.
3. Core business (product/service). e-Business creates the potential for companies
to expand market share through online channels and overcome the physical
barriers of face-to-face contact. For example, they may respond to customers
anywhere instantly. E-business has also created cross-border competition, for

23 This section is based on Pavic, S. (2011). The creation of competitive advantage in SMEs through
e-business, Unpublished doctoral dissertation, University of Shef eld, Shef eld.
1.3 · The Bene ts of e-Business Adoption
27 1
example, domestic retailers can sell goods to customers worldwide through
international e-commerce platforms.
4. Environment. To some degree, e-businesses can be more transparent than tradi-
tional businesses, because anyone can access to an e-business platform that
publicly available. A company’s marketing-mix can be gleaned through their
online pro le. Hence, e-business enables companies to be more sensitive to
changes within their business environment.
5. Value creation through differentiation or low cost. e-Business typically has a
lower entry cost in comparison to traditional business. According to neoclassic
economics, low entry costs could facilitate the formation of prefect competition
since barriers to entry are largely reduced, transaction costs lowered, informa-
tion asymmetry is reduced, market-dominant pricing is possible, and all with
less legislation and regulation than businesses with physical storefronts. e-Busi-
ness may also help businesses in nancial distress. For example, prior to its
acquisition by Amazon, sales at Whole Foods’ grocery stores were declining.
Amazon promoted Whole Foods to its online Prime subscribers and added
online ordering of Whole Foods groceries via Prime, and sales rebounded. As
e-business matures, more objects can be put online and more customer needs
can be ful lled via e-business platforms. There are endless opportunities to cre-
ate new value and capture more value for companies knowing how to design
suitable e-business strategies.

Summary
This chapter:
5 Introduced the de nitions of e-business-related terms, including “e-business,”
“electronic commerce,” “mobile e-commerce,” “social commerce,” “omni-
channel commerce,” u-commerce, and e-markets and de nitions of strategy and
value creation.
5 Provided a framework to describe the typical periods of technological revolutions.
It positioned within this framework the evolution of the Internet and e-business.
The ve main periods that characterize this evolution are:
– The grassroots of e-business period, which took place before the widespread
commercial use of the Internet
– The rise of the Internet period, which started with the launch of 7 Amazon.
com in 1995 and continued until 2000
– The crash (or burst of the dotcom bubble) which took place in March and
April 2000 and caused a 45% decline of the NASDAQ by the end of that
year
– The synergy phase, which followed the stock market crash and bridges
e-business into the next phase
– The start of the maturity phase, which represents a transitional mode of
e-business from immaturity to maturity
5 Described the main bene ts of e-business adoption.
 28 Chapter 1 · Key Terminology and Evolution of e-Business

? Review Questions
1 1. De ne the terms “e-business,” “electronic commerce,” “mobile electronic
commerce,” “social commerce,” u-commerce, e-markets, and “omni-channel
commerce” and describe how they differ from one another.
2. Provide a de nition of strategy in the way it is used in this book.
3. What are the three distinctive levels of strategy that can be recognized?
4. Describe the different periods of the life cycle model, as proposed by Carlota
Perez.
5. What are the ve time periods of the Internet evolution? What are the peculiar
characteristics of each period?
6. What are the main lessons that the CEOs of pure player companies (e.g., eBay,
7 [Link], Google, and more) might draw from these past years of the
Internet?
7. Why do today’s traditional businesses introduce digital processes and tools into
their business and adopt e-business?
8. Omni-channel commerce aims at a synergetic view of all channels. Discuss the
potential challenges of managing various channels of an omni-channel busi-
ness.
9. What do you think are the main elements of strategy formulation? Does the
perspective chosen in this chapter correspond to your own experiences and
observations? If so, how?
10. Choose two technological revolutions, and discuss their evolution using the
Perez framework described in this chapter.
11. Critically re ect upon the bene ts of e-business and the potential risks and
challenges related to each bene t.

References
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[Link]. Accessed 12 Jan 2019.
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Available at: [Link]
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Johnson, G., Whittington, R., & Scholes, K. (2005). Exploring corporate strategy (7th ed.). New
Jersey: Prentice Hall.
References
29 1
Lewandowski, D. (2018, April 17). Florius delivers an outstanding, online, omni-channel customer
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Porter, M. (2001, March). Strategy and the Internet. Harvard Business Review.
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Further Reading
A detailed account of different levels of strategy can be found in G. Johnson, K. Scholes and
R. Whittington, Exploring corporate strategy. 7th edition, Prentice Hall, 2005.
B. Arthur builds on the insights of C. Perez in the article ‘Is the information revolution dead?’,
Business 2.0, 2002, March, pp. 65–73, where he suggests that the Internet economy is undergoing
the same evolutionary phases as previous technological revolutions.
B. Henderson uses the metaphor of biological evolution to describe the essence of strategy in ‘The
origin of strategy’, Harvard Business Review, 1989, November–December, pp. 139–143.
C. Perez. developed the ve-stage model of technological revolutions presented in this chapter: see
Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages,
Edward Elgar, 2002. She draws heavily on the writings of twentieth-century economist
J. Schumpeter. Among his important works rank the books Business Cycles, Porcupine Press,
1982 and Capitalism, Socialism and Democracy, Harper & Rank, 1975.
E. Malmsten (the co-founder of [Link]), E. Portanger and C. Drazin provide an account of the rise
and fall of the Internet fashion retailer [Link] in their book Boo Hoo, Arrow Books, 2002.
For further analysis on social commerce and social layers of the internet, see T. Philbeck, N. Davis
and A. M. Engtoft Larsen, ‘Values, Ethics and Innovation Rethinking Technological Development
in the Fourth Industrial Revolution’, World Economic Forum White Paper, August, 2018.
For traditional businesses seeking to increase their e-Business, Sunil Gupta describes omni-channel
strategy in Gupta, S. (2018). Driving digital strategy: A guide to reimagining your business. Boston:
Harvard Business Review Press.
H. Mintzberg is one of the most prominent critics of the design or positioning school. For further
reading, see Strategy Safari – A guided tour through the wilds of strategic management. Prentice
Hall, 1998, pp. 114–118, which offers no less than ten different approaches to explaining strategy.
His article ‘The design school: Reconsidering the basic premises of strategic management’.
 30 Chapter 1 · Key Terminology and Evolution of e-Business

Strategic Management Journal, 1990, 11(3), 171–195, provides a more condensed criticism of the
1 design school.
In ‘Pro ts and the Internet: Seven misconceptions’, Sloan Management Review, 2001, Summer,
pp. 44–53, S. Rangan and R. Adner analyse why the promises of the Internet economy were not
ful lled.
In The long tail: Why the future of business is selling less of more. Hyperion, New York, 2006,
C. Anderson illustrates how, by using the Internet, companies can capitalise on niche markets
better to serve their customers.
J. Cassidy. takes a critical perspective of the development of the Internet economy in [Link],
Perennial, New York, 2003.
Liang, T. P., & Turban, E. (2011). Introduction to the special issue, social commerce: A research
framework for social commerce’, International Journal of Electronic Commerce, 16(2), p. 5–14.
M. Porter’s article ‘Strategy and the Internet’, Harvard Business Review, 2001, March, pp. 63–78,
provides an excellent overview of the impact of the Internet on strategy formulation. His recent
work updates this. See: Porter, M. and Heppelmann, J. (2014) How Smart, Connected Products
Are Transforming Competition. Harvard Business Review. November. See also: Porter, M. and
Heppelmann, J. (2015, October) How smart, connected products are transforming companies.
Harvard Business Review.
Pavic, S. (2011). The creation of competitive advantage in SMEs through e-business, Unpublished
doctoral dissertation, University of Shef eld, Shef eld.
The experience of General Electric provides insight to the challenges and opportunities of e-business
transformation. Former CEO Jeffrey Immelt describes the strategy at: J. Immelt, (2017). ‘How I
Remade GE’, Harvard Business Review, September. For another perspective, see V. Chemitiganti,
‘What we can learn from GE and why digital transformations fail’, ITProPortal, 3 October, 2018.
Available at: [Link]
transformations-fail/

Weblinks
The website www.tutor2u. net provides interesting background information on a number of concepts
discussed in this chapter.
[Link] is an online newspaper speci c to e-commerce developments.

[Link]