UNIT II
Development of E-Commerce
Learning Objectives:
At the end of this unit, the students are expected to:
• Understand the development of E-Commerce
• Explain the E-commerce Development
E-commerce platforms have gradually crept into our daily lives over the last few decades. These days, online giants like Amazon
and Alibaba are well-known for their great deals and convenient purchasing options. The history of e-commerce is undoubtedly
an eventful one.
Until 2005, the Cyber Monday event was unheard of, but it has now become synonymous with the Black Friday sale—except
that purchases can now be made online. With the ongoing advancement of the e-commerce industry, it is not surprising that
similar marketing strategies targeting online shoppers are prevalent today.
The third quarter of 2017 saw a 15.5 percent increase in sales over the same period last year, bringing the total to $115 billion.
Online retail sales increased by 4.3 percent, while brick-and-mortar retail sales increased by
3.1 percent. (It should be noted that e-commerce also includes services such as online bill payments.)
Importance of E-Commerce
Because of the ease of access, e-commerce has become the preferred method of doing business today. In comparison to
physical stores, customers can easily sift through an extensive product database without leaving the house.
Customers who shop online have virtually everything they need to make a purchasing decision, with massive amounts of
information available, including options, competitive prices, and testimonials from other buyers. They can even buy it right away
if they want to.
Businesses benefit from selling their products online as well. E-commerce can be used by both large and small businesses to
increase exposure, reaching even international audiences via the web and search engines.
Marketing and customer service via websites, social media, and blogs are less expensive and more progressive alternatives to
traditional paid advertising campaigns. Analytics has also simplified the tracking of customer preferences and the delivery of
personalized messages.
Driving the Change
So far, neither technology nor e-commerce have shown signs of slowing down, which may be due to the fact that their
customers' needs are constantly changing. Customers had more bargaining power than ever before thanks to this retail channel,
making it critical for online businesses to truly understand consumer behavior.
Fortunately, the rise of big data has made it much easier to understand consumers over the years. Online analytics tools can
assist marketers in determining a buyer's behavioral patterns based on purchases and content consumed. The data obtained
assists online businesses in determining how to best provide the products and services that consumers seek, as well as what
platforms and channels to use to reach them.
The analyzed data can then be used to discover what customers truly want, need, and seek when shopping online. After that,
brands can make the necessary changes to optimize the customer journey and improve buyer satisfaction.
E-commerce has come a long way and has a fascinating history. This brief trip down memory lane may give you an idea of where
your journey will take you next.
E-commerce from 1960 to 1994 (The Past)
The Early Years
E-commerce can be traced back to the 1960s with the development of Electronic Data Interchange. It was intended to replace
mail and fax by allowing data exchange via digital transfer without the need for human intervention.
Trading partners could send orders, invoices, and other information in a format that complied with the Accredited Standards
Committee X12 of the American National Standards Institute, North America's set of standards. A Value- Added Network
examines the data further before routing it to the recipient's order processing system.
According to some, the first recorded occurrence of an online transaction occurred in 1972. Stanford students allegedly sold
cannabis to MIT students through an Arpanet account—the Advanced Research Projects Agency Network, a packet switching
network that implemented the protocol suite TCP/IP and is considered the forerunner of the Internet.
The Start of Something New
Soon after, in 1979, an English inventor was credited with creating the concept of online shopping. Michael Aldrich had just
finished his grocery shopping with his wife when he had the brilliant idea of connecting their television to the supermarket to
deliver the groceries.
Aldrich then used a telephone line to connect a television to a transaction processing computer, giving birth to what he called
teleshopping, or shopping from a distance. This teleshopping system was marketed as a B2B system a year later, despite no
evidence that it was ever used for consumer retail.
Finally, in 1990, Tim Berners-Lee and Robert Cailliau launched WorldWideWeb, a hypertext project. Lee created the first web
server and the first web browser on a NeXT computer. The web first appeared as a publicly available service on the Internet in
1991. He then connected hypertext to the Internet, creating the URL, HTML, and HTTP.
Opening the Floodgates
Around this time, the world saw the first secure online purchases—with the notable ones being an order of large pizza from
Pizza Hut and a Sting CD.
“The team of young cyberspace entrepreneurs celebrated what was apparently the first retail transaction made on the Internet
using a readily available version of powerful data encryption software designed to guarantee privacy.”
– The New York Times, August 12, 1994
In 1992, one of the first e-commerce sites, Book Stacks Unlimited, was opened by Charles M. Stack. It became [Link] in
1994, and eventually became part of Barnes & Noble. In 1997, Dell became the first company to have an online sales record of
$1 million.
It was also during this era when the Secure Socket Layers (SSL) encryption certificate was developed. The security protocol made
by Netscape provided better security for data transmission over the Internet. The web browser would first check a site for an
authentic SSL certificate to know whether to trust it or not.
This came in the heels of customer hesitations and concerns with online shopping.
Today, SSL encryption protocol is a standard for most web servers, making it a vital part of web security.
Ecommerce: 1995–Present The Would-be Giants
At this point, there’s no stopping e-commerce, especially with significant advancements in technology coming in
hot. In 1995, two websites put online shopping on the map for good. Amazon, perhaps the most prominent online retailer today,
started as an online bookstore and offered more titles compared to its offline competitors. In 2001, they launched their first
mobile site.
Amazon attracts 65 million customers monthly. Before its Prime Day Sale this 2018, Amazon has been reported to have record-
high share prices, with a market capitalization of $900 billion, as well as an 80% increase in stocks from a year [Link] from their
beginnings as a bookstore, Amazon now offers DVDs, CDs, MP3 and eBook downloads, electronics, apparel, furniture, food, and
toys.
The world saw the efficiency of e-commerce category pages through Amazon. But more importantly, it was the user review and
rating scale that defined the website. This feature helped undecided buyers get an idea of their preferred product from existing
customers. It’s now considered one of the most effective social media tactics for driving sales, with reviews producing an
average of 18% uplift.
eBay launched in the same year as Amazon (1995). While it also allowed online purchases, it’s mainly famous for introducing
online auctions. These two sites lead the way for Zappos and Victoria’s Secret to enter online shopping in 1999.
Meanwhile, 1995 saw the inception of search engines starting with Yahoo!, then Google in 1998. Both now have e-commerce
subsidiaries—Google Shopping and Yahoo! Auction—which goes to show the increasing focus on e- commerce as a revenue
channel.
Making the Process Seamless
In 1998, PayPal made global e-commerce possible as an acquired bank that does payment processing for online sellers, auction
sites, and commercial users. Customers get to send, receive, and hold funds, in 24 different currencies. Today, PayPal
transactions have a 79% higher checkout conversion rate compared to non-PayPal ones.
Additional security for online transactions was applied with the creation of the Payment Card Industry Security Standards
Council in 2004. The council was tasked to ensure that businesses are complying with security requirements. They also
established, improved, stored, circulated, and implemented security standards for account data protection.
As mentioned, the continuing improvement in technology paved the way for better e-commerce, and in 2003, more than 20% of
Americans had broadband Internet in their homes or Internet access that is faster and always on (24h) compared to dial-up.
With high-speed connections at disposal, there is now better access to online shops. According to E-Commerce Times, online
sales increased by 26% that year, with Amazon alone reporting a 28% sales increase year on year. Faster internet speeds and
increase penetration has facilitated product research for interested buyers, as well as the search for competitive prices and
alternatives.
The Industry in 2020
The last decade saw the domination of e-commerce, not only due to better technology but also to heightened consumer interest
and participation. In 2016, China pulled in around $900 billion of sales, while the US raked in more than $423 billion. The e-
commerce industry earned approximately $1.915 trillion in 2016.
These trends may just be the reason for the continuing rise of the industry: Online Marketplaces
These platforms have become a very convenient choice for vendors to sell, marketers to promote, and customers to shop. It has
added a layer of convenience and confidence to buyers, thanks to a range of product offerings and brands, relevant testimonials,
and the ability to compare and make purchases.
There are now around 63% of sellers that are online-exclusive, with 55% of them earning a profit margin above 20%. Since 2014,
large marketplace platforms like Alibaba, Flipkart, and Magento have grown around 51.7% over a three-year period.
M-commerce
If you’ve ever bought something from the Internet using only a smartphone or tablet, then you’re not alone—in fact, the
number of US mobile subscribers jumped in 2008, with 62% having bought a product using their devices.
M-commerce or buying and selling of products or services through handheld devices are considered one of the most vital
developments in e-commerce. It has allowed users to browse for goods, compare details and prices, and shop from sites or apps
using a smartphone or tablet, without the need to visit a physical store.
In 2015, mobile devices accounted for 30% of e-commerce sales, and it’s expected to grow 2.58 times faster. Javelin Strategy
predicts that sales will jump to $319 billion by 2020. But, you only need to listen to public opinion to know how mobile usage has
dominated e-commerce in the last few years.
48% of people use mobile to look up product rating or promos
56% believes mobile shopping has helped make the buying experience more enjoyable
Aside from these benefits, mobile marketplaces have more opportunity for interactivity and engagement, mainly through push
notifications.
Digital Marketing and Social Shopping
There is no better proof of consumer behavior and mobile influence on e-commerce than in marketing. Digital marketing has
enabled companies to speak directly to consumers by hinging on places or apps where people are likely to be present or
spending more time.
Aside from reaching a wider audience, online marketing has allowed businesses to adopt client-specific marketing and nurturing
through behavioral data, as well as to have the versatility to make dynamic changes to advertising for personalization.
Online behavior is especially helpful for the young demographic who keep their mobile devices on hand. An Accenture millennial
shopping study suggests that 89% of respondents believe that access to real-time product availability information would
influence their shopping choices regarding which stores to go.
In addition, social networks have incorporated online purchasing on their platforms. According to Flurry, an adult spends 5 hours
a day on their devices, with 50% of time spent in social, messaging, media, and entertainment apps. The amount of time
consumers spend on social media includes discovering new products (43%) and buying products directly (18.2%).
Twitter has the “Buy Now” button, while Instagram just recently rolled out actionable advertisements, which is another way for
customers to learn and buy products in real time.
E-commerce: The Future
The foreseen development and growth of the industry will still rely heavily on advances in technology and a few sociocultural
influences.
AI and Machine Learning
In a practical sense, machine learning can be used for stock management by analyzing sales and predicting when stocks should
be replenished. It can also improve customer support through chatbots that can provide quick, 24/7 assistance.
E-commerce can also utilize AI by offering more relevant search results to buyers based on available information and buying
patterns. Every detail available about the buyer is valuable, and the AI analysis can help provide improved customer service.
AI also gives way for more defined buyer profiles, which your marketing can tap into for more personalized audience insights. AI
can analyze purchases to make suggestions that are of similar or complementary tastes.
Amazon has commented that its recommendation engine is responsible for 35% of its sales, demonstrating the benefits of
machine learning to e-commerce companies. Indeed, iAI can be a strong driver for growth and customer satisfaction.
AR/VR
The mixed reality of augmented and virtual reality (AR/VR) are bound to dominate e-commerce. AR and VR have changed the
way customers shop by offering an immersive and interactive experience through layers of digital enhancements to give them an
idea as to how a product or service will be useful in their lives.
A proper application of AR is cosmetic retail store Sephora’s Virtual Artist feature. It allows users to try on their preferred
makeup via an app or through the website by either choosing a model closest to their skin tone or uploading their own photo
and choosing what to put on from the plethora of makeup types or brands available.
AR takes out the uncertainty one may experience from buying a cosmetic product online without seeing how it looks on their
skin.
VR, meanwhile, allows consumers to visit a virtual store. In the case of eBay, with help from Australian retailer Myer, shoppers
can purchase from a virtual reality department store using a VR headset.
There are virtual isles that they can view, and with only their sight or by gazing at it for a few seconds—what the company calls
the “eBay Sight Search”—an item can be selected for purchase or checking. They can also move through the aisles, with the top
100 products viewable in 3D and the rest in 2D.
Cryptocurrency Payments
Digital currencies like Bitcoin are expected to be the new method of payment as they don’t require an intermediary for seller
and customer exchange, allowing both parties to have more control over how they do business. It also requires little to no
transaction fees, as opposed to traditional payment processing where transaction fees can be much higher.
A multitude of e-commerce stores are opening up their doors to payments in the form of cryptocurrencies, and this is likely to
stir a change in buying behavior.
Multi-Channel Buying
Managing multiple channels for your business can be confusing. In fact, nearly a third of retailers “lack the inventory visibility
across stores, vendors, and warehouses” needed for multi-channel fulfillment.
This can be problematic, as around 86% of people have been found to shop around on at least two touchpoints or channels,
which means that interest can start either offline or online, but the buying process can only continue to be tracked if it’s online.
Multi-channel is about creating a balance so as not to overwhelm your audience, and to avoid overspending on strategies to try
to convert people who aren’t interested to begin with. It’s about knowing when and where to amplify and show restraint
throughout your channels.
Taking Advantage of Content for Engagement
Different surveys and studies about content marketing have found that:
• 74% get frustrated when content has nothing to do with their interests
• 56% say they are inclined to support a retailer if it offered a personalized experience
• Brands that rely on content save over $14 on each new customer acquired
• HubSpot also found that content can help double website conversion rates from 6% to 12%
• 64% said that customer experience is more important than price when choosing a brand, according to Gartner
Great content is educational and entertaining, staying relevant to customers’ needs; but it’s tough to do it right. With consumer
attention spans spreading thin, marketers now need to optimize their content to drive product interest and sales, while retaining
a high quality standard.
Opportunity for B2B
Wholesale e-commerce platforms have had an even bigger chance to flourish, with B2B e-commerce earning bigger than B2C by
over $5 trillion. In 2017, Statista found that “the gross merchandise volume of B2B e-commerce transactions is projected to
amount to $7.66 trillion, from $5.83 trillion in 2013.” B2C, meanwhile, had projected transactions of $2.143 trillion.
B2B respondents had an average conversion rate of 10%, which is over three times higher than the 3% average of B2C
respondents. This goes to show that there’s a huge untapped opportunity for B2B brands that haven’t opened e-commerce
channels.
Let’s take a look at e-commerce trends in more detail with this infographic by Subscriptionly
Assessment of Learning 2.1
Discuss briefly the following
1. Online Marketplaces
.
2. M-commerce
3. Digital Marketing and Social Shopping
4. AI and Machine Learning
5. AR/VR
6. Cryptocurrency Payments
7. Multi-Channel Buying
.
8. Opportunity for B2B
.
What are the benefits of E-Commerce Development in Marketing Strategy, in your
opinion?