Amazon (+ commerce)

Fun fact: .com is short for “.commercial”, as in commerce, and it was one of the seven original TLDs (top-level domains) created in 1985.

Required readings:

Something new for this lesson: your predecessors are going to teach you!

In fall 2015, students in NMIX 2010 created projects around many of the topics we’re covering in this version of the course. The Commerce group did a particularly excellent job, and so we’re going to follow their slides and notes as the starting point for our discussion of online commerce.

If you’re on a device that allows it, my recommended way to do this is to have two separate tabs / windows open, each taking half the screen. Put the slides (embedded above) on one half, and the notes (below, or in original Google Doc form here) on the other; then, move through the two in concert.

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The History of Commerce (Section 1)

Commerce and E-commerce Definitions

Commerce: the activity of purchasing and selling goods/services on a large scale. The system of commerce includes technological, economic, legal, social and political systems that are in operation internationally.

E-commerce: any type of business or commercial transaction that involves the transfer of information across the internet.

Types of Transactions

Commerce can be broken down to four basic transaction types:

• Consumer to Consumer – Individuals buy and sell from each other.
• Consumer to Business –  Businesses choose consumer projects to buy (typically the least common form of commerce)
• Business to Business –  Companies doing business with one another
• Business to Consumer – Companies selling to individuals

Important Dates Involving E-commerce

• 1971 – Students use the ARPANET for cannabis sale: Sanford students using Arpanet accounts at Stanford University’s Artificial Intelligence Laboratory made the first e-commerce transaction to counterparts at Massachusetts Institute of technology selling a bag of  cannabis.
• 1979 – Online shopping comes about: Michael Aldrich invented online shopping (what some call teleshopping) to enable online transactions between consumers and businesses using his invention, the videotex.
• 1989 – Tim Berners-Lee invents the World Wide Web :Tim Berners Lee invents the World Wide Web, this is important because it is used as a hub for e-commerce.
• 1991 – The National Science Foundation lifted a ban on commercial businesses operating over the Internet, paving the way for today’s Web-based e-commerce.
• 1994 – Netscape SSL: Netscape 1.0 web browser included SSL ( Secure Socket Layer). SSL ensures that the the information provided to make purchases over the internet stays private.
• 1995 – Cyber Cash & First Virtual: First Virtual and Cyber Cash were two of the first services used for processing credit cards online.
• 1995 – Amazon.com is created: started by Jeff Bezos in Seattle, Washington, Amazon was originally an online book store. Bezos started this company as he saw the potential and growing success of web-commerce. Amazon was one of the first American e-commerce companies to sell products over the internet.
• 1995 – eBay is founded (originally as auctionweb) in San Jose, California by Pierre Omidyar. The goal of the site was to be a e-commerce site to connect people across the world in a marketplace.
• 2000 – Commercial retail corporations and companies began seeing the growing market for e-commerce and want to take part in the success. Stores like Target, Walmart, Macy’s, etc. began building their own online retail sites.
• 2002 – PayPal is purchased by eBay. (It was recently spun off back into its own business.)
• 2003 – iTunes Music Store is launched and becomes one of the biggest online stores ever, paving the way for the introduction of the App Store in 2008.
• 2014 – Overstock processes over 1 million dollars in Bitcoin sales: Within one month of starting to accept Bitcoin as a form of payment, Overstock.com processes $1,000,000 of sales through Bitcoin payments.

Top Ecommerce Companies of Today

Amazon

• The largest internet retailer based in the United States.
• Surpassed Walmart in 2015 as the largest retailer in terms of market cap.
• Amazon.com launched in 1995 by Jeff Bezos in Seattle, Washington and was originally an online book store.
• Amazon was one of the first American e-commerce companies to sell products over the internet.
• Eventually Amazon extended to a variety of goods by adding electronics, software, music CDs, MP3s, apparel, footwear, health products, and much more. Today, they even offer groceries and perishable items in certain markets.
• With the introduction of Amazon Prime and same-day shipping, Amazon has overcome a primary downfall of ordering products online: waiting. You no longer have to wait 5-7 business days to get that cool thing you just had to have.
• Amazon is constantly innovating commerce with new creations such as Amazon Dash (which allows you to purchase something at the tap of a button) and Amazon Echo (which allows you to buy things by your voice alone).

eBay

• Founded in 1995 by Pierre Omidyar.
• Today, operates in over 30 countries.
• It acts as an online shopping and auction platform offering C2C and B2C sales.
• Acquired Skype in 2005 until it was sold to Microsoft in 2011
• CNN Money reported that in 2007 eBay handled 5 million transactions, more than the previous six years combined.
• eBay is a huge medium for e-commerce and, similar to Amazon, handles a variety of products.
• eBay also owns part of Craigslist.

Etsy

• Launched in 2005.
• Etsy is a peer-to-peer (P2P) e-commerce website focused on handmade or vintage items and supplies, as well as unique factory-manufactured items.
• These items cover a wide range, including art, photography, clothing, jewelry, food, bath and beauty products, quilts, knick-knacks, and toys.
• In 2014, revenue was $195.6 million.

iTunes Music Store

• First launched by Apple in 2003.
• The iTunes music store quickly became one of the most successful e-commerce businesses in the world.
• In 2013, Apple announced that over 25 Billion songs had been sold in the music store—about 7 million songs sold daily.

Overstock

• CEO Patrick Byrne launched the company in May 1999.
• Overstock.com initially sold surplus and returned merchandise on an online marketplace, liquidating the inventories of at least eighteen failed internet companies at below-wholesale prices.
• In recent years, it has expanded to sell new merchandise as well.

Tools for Commerce (Section 2)

• The tools for commerce consist of the applications and services which enable commerce to occur.

PayPal

• Founded in 1998.
• IPO in 2002, became subsidiary of eBay later in the year.
• Boom of online money transfers and better alternative to checks and money orders.
• Offered security of credit card and bank information.
• Convenient to store all information into one place when shopping online.
• In 2014, it moved $228 billion in 26 currencies across more than 190 nations.
• Fun Fact: Elon Musk, co-founder of Tesla and SpaceX, was also a co-founder of PayPal.

Venmo

• Send money instantly, for free.
• Connects social networking and payments.
• Now owned by PayPal.

Square

• Aids small business by providing a simple way to process credit card transactions.
• Transforms mobile devices into Point of Sale.

Google Wallet

• Google Wallet launched in 2011 and allows its users to store debit cards, credit cards, loyalty cards, and gift cards among other things, as well as redeeming sales promotions on their phones.
• Uses NFC (near field communication” to “make secure payments fast and convenient by simply tapping the phone on any PayPass-enabled terminal at checkout.”
• Although it was launched years before Apple Pay, it did not find nearly as much traction as Apple Pay and has not become very popular.

Apple Pay

• Combines two necessary items into one (mobile device + wallet), with the eventual goal to replace the physical wallet completely.
• Shift towards accessibility and convenience
• Shares payment information via a token, not your actual info (card number and other personal data)

The Changing Economy and Changing Commerce

The Concept of the Sharing Economy

• Information about goods is shared
• The value of those goods may increase for the business, for individuals, for the community, and for society in general
• Collaborative consumption, which means shared access to products or services (vs. individual ownership)

Product-service systems

• Goods that are privately owned can be shared or rented out via peer-to-peer marketplaces
• Ex: Uber and Airbnb

Redistribution markets

• Used or pre-owned goods being passed on from someone who does not want them to someone who does want them
• Ex: eBay, Craigslist

International Commerce

Dealing with Inconsistency Between Nations

• As e-commerce grows into new areas, it creates problems for governments on how to best to regulate it (consider Uber).
• Countries are regulating e-commerce in different ways, leading to difficulties in international commerce.
• Language variations must be available for international commerce
• Currency variations must also be considered
• Must understand different cultures

Legal Limitations

• For instance, a customer’s country might mandate that all packaged food must have the ingredients, nutritional values, manufacturing date, and expiration date printed on the label. If you are shipping goods from a country that does not meet these regulations, you could be in violation of local laws in the customer’s country.

Payment Variation

• In Japan, convenience stores, or ‘Konbini’, are utilized as physical registers at which online purchases can be payed for. When a customer places an online order, he or she can choose to pay for it at a konbini, get a reference number, and then pay for the item at a kiosk or at a cash register at the konbini.
• While close to 100% of e-commerce payments in Spain are by Visa, MasterCard, and American Express, in France it is close to 60%, and in Germany it is only 30%.
  • Interestingly, Germany has a well-developed e-commerce ecosystem without a high degree of credit card penetration.
• India and other Asian countries have shown a strong preference for cash on delivery.

Logistics/Delivery

• Effective logistics has repeatedly proven to be a strong competitive advantage for online (Amazon), as well as offline, retailers.
• Numerous parcel carriers such as UPS, FedEx, and DHL provide international service.
• It is not just about cost; it is also about reliability and predictability.

The Future of Commerce (Section 3)

E-commerce Issues

• Security and Privacy
  • Financial details online are at risk of fraud
• Order Fulfillment
  • As opposed to in-person shopping, orders from online must go through a network of deliveries to come to your home

E-commerce vs. Retail

• Online stores are much cheaper to create and operate as opposed to a retail store, which requires retail space, etc.
• Study from University of California noted that customers pay significantly more for items they can see in person. Retail stores have a higher profit margin for individual items.
• Competition depends on the environment. Online stores automatically have more competition, but retail stores depend on where they are located.
• With a retail store, consumer base is limited to the area in which the store is located, while online stores have no limit to consumers.
• Showrooming – Visiting a retail store to inspect a product then going home and buying it online.

The Future of Payment

• Past: Cash, Checks, Card
  • Boring, unsafe, slow, prone to fraud.
• Today: NFC (Near field communication), etc.
  • Apple Pay, Android Pay, Amazon Dash
• Future: Improvements in current technologies + cryptocurrency
  • Bitcoin, Litecoin, Dogecoin, etc.
  • Far more secure
  • Peer to Peer
  • Could lead to streamlined world currency

Automated Innovations

• Autonomous delivery via drones, cars, etc.
• Autonomous fulfillment centers

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And that’s a wrap—for now!—on commerce. You all should be very familiar with my concluding refrain by this point: there’s so much more that we could talk about, so go have fun in your discussion groups!

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Words on this page: 1,978

Words in required readings: –

Total words in this lesson: 1,978

Words on / reading time for this page: 2,051 words / 10-12 minutes

Words in / reading time for required readings: N/A / 21-25 minutes

Total words in / reading time for this lesson: 2,051 words / 31-37 minutes