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Category: Electronic Commerce

E-Commerce Models, Players, and Its Future

Liguo Yu Indiana University – South Bend, USA

INTRODUCTION

Wikipedia defines e-commerce (electronic com- merce) as the trading or facilitation of trading of products or services using the Internet. E- commerce is becoming a major business model in developed countries. For example, in US, the e-commerce sales as ratio of total retail sales reached 7.5% in December 2015; in China, the e-commerce sales as ratio of total retail sales reached 9.7% in July 2015; and it is estimated that globally, the e-commerce sales will reach $ 1.5 trillion in 2018. Furthermore, e-commerce is growing and will continue to grow, especially in developing countries. E-commerce plays an important role in our modern economy (Goldfarb, Greenstein, & Tucker, 2015), and its effect goes beyond economy and business. E-commerce is becoming an inte- gral part of our society and our life. It is therefore necessary to clearly understand e-commerce op- erations and impacts. In this chapter, we examine various e-commerce models, major players, and the environmental ecosystem factors in order to understand how e-commerce has shaped our new way of conducting business and how it is going to influence our future. The remaining of this chapter is organized as follows. Section 2 reviews e-commerce history. Section 3 introduces various e-commerce models. Section 4 describes the major e-commerce players in the global business. Sec- tion 5 describes emerging models and emerging market. Section 6 describes the future trend of e-commerce. Conclusions are in Section 7.

DOI: 10.4018/978-1-5225-2255-3.ch238

BACKGROUND

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Self-sufficiency was considered a primitive life- style in early human society. Once communications and interactions became popular in human society, trading gradually replaced self-sufficient economy (Watson, 2006). The advantages of commerce/ trading over self-sufficient economy include the increase of productivity of human being and the increase of diversity of consuming products/ser- vices. Commerce (trading), as a basic activity of human society, can be traced back to prehistoric time and its evolution can be categorized into the following stages.

Barter System: Barter system is the di- rect exchange of products or services with other products or services without using a medium. This kind of trading model can be traced back to 150 thousand years ago (Watson, 2006).

Currency System: In currency system, standardized exchange medium, money, was introduced. With the support of cur- rency, trading became more convenient. The development of original currency, metal coins, is believed to have originated about 500 BC.

Banknote: The first development of a lo- cal banknote (paper currency) began about 700 AD in China. With its many advantag- es over metal coins, paper currency or pa- per money was gradually adopted nation- ally in China around 1100 AD.

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E-Commerce Models, Players, and Its Future

E-Currency: Electronic money was intro- duced within the modern banking system. Examples of e-currency include bank de- posits, fund transfer, and electronic pay- ment. Using e-currency, money balance and transaction history are stored in a com- puter system and users who have the access key could manage their money. The access key could be a bank card or an online pass- word. The first bank card was introduced in 1946 by John Biggins, a banker in New York, and the first online banking system was introduced in 1983 by the Bank of Scotland.

E-Commerce: The first e-commerce mod- el was proposed and built in 1970s, which was long before the wide use of the Internet. It was created in student laboratories of Stanford University and Massachusetts Institute of Technology (Markoff, 2005). In the following half century, various e- commerce models are proposed, tested, and implemented (Tkacz & Kapczynski, 2009; Palmer, 1988; Kelly, 2005).

E-commerce, like any other internet-based applications, evolves with the revolution of infor- mation technology (Rayport & Jaworski, 2002). On an e-commerce platform, not only payments can be transacted electronically, placing orders, processing orders, and tracking orders all can be executed electronically. After about 150 thousand years of evolution, human beings are entering a completely different business era, which is char- acterized by e-commerce.

E-COMMERCE MODELS

There are many ways a business activity could be conducted online. The most commonly seen e-commerce models include B2B, B2C, and C2C, which are responsible for majority of the online business transactions. These common models together with some other models are described below.

B2B Model

In B2B (Business-to-Business) model, one busi- ness purchases products from another business and then sells the products to the final customer (Haig, 2001; King, 2015). In this model, business operations, such as product ordering, payment transactions, and order tracking, could all be ac- complished online. This B2B model significantly reduces the business cost compared with the tra- ditional business purchasing process. Table 1 lists some of the most visited B2B websites globally 1 . We should not be surprised to see that most com- monly visited B2B websites are in China, because China is currently the world’s largest manufac- turer. The retail business worldwide is importing from China. Therefore, B2B e-commerce could facilitate international trading.

B2C Model

In B2C (Business-to-Consumer) model, a business

sells its products directly to the final customer (Elliott, 2002). In this model, consumers visit

a B2C website and purchase products. Table 2

Table 1. Top B2B websites measured with global traffic rank

Company

Website

Global Traffic Rank

Languages

Home Country

Alibaba

alibaba.com

81

Multiple languages

China

IndiaMart

indiamart.com

1,145

English

India

Made-in-China.com

made-in-china.com

1,170

Multiple languages

China

DHgate.com

dhgate.com

1,186

Multiple languages

China

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Category: Electronic Commerce

Table 2. Top B2C websites measured with global traffic rank

Company

Website

Global Traffic Rank

Languages

Home Country

Amazon

amazon.com

6

Multiple languages

USA

Alibaba

tmall.com

37

Chinese

China

JD.com

jd.com

88

Chinese

China

Walmart

Walmart.com

110

English

USA

lists some of the most visited B2C websites glob- ally 2 . Although Alibaba’s Tmall is considered a B2C model, its operation is quite different from the others. For Amazon, JD.com, and Walmart, they are the sellers, which means they purchase products from manufacturers, store products in their own warehouses, and when orders are placed by consumers, they need to ship the products. For Alibaba’s Tmall, it is just a B2C platform. Manufacturers and retailers could open a store in Tmall and Alibaba is responsible for payment transactions and the store owner is responsible for shipment. Therefore, Alibaba does not directly handle products, including purchasing, warehous- ing, and shipping.

C2C Model

In C2C (Consumer-to-Consumer) model, a con- sumer buys a product directly from another con- sumer (Turban, King, & Wang, 2003). Table 3 lists some of the most visited C2C websites globally. Most C2C websites, such as eBay and Taobao of Alibaba, offer services to connect consumers (sell- ers and buyers) of a product. In contrast, Craigslist operates on a different business model, through which it offers classified advertising services to get consumers connected.

Other Models

In addition to the three aforementioned e-com- merce models, there are other Internet-based business models. Some people consider them as e-commerce and others do not. These mod- els include C2B (Consumer-to-Business), B2G (Business-to-Government), G2B (Government- to-Business), and G2C (Government-to-Citizen). For example, in C2B model, consumers could offer their products/services online and compa- nies can buy and pay for the products/services. Examples of C2B websites include fotolia.com, GoogleAdsense, and Amazon Affiliate Program. Vertical e-commerce is a business model that the sellers are specialists of a kind of products and the e-commerce website is targeted to a specific group of consumers. For example, beauty.com is a cosmet- ics vertical e-commerce website; drugstore.com is a medicine vertical e-commerce website; zappos. com is a shoe and clothing vertical e-commerce website; and zulily.com is a vertical e-commerce websitefeaturingclothing,toys,andhomeproducts. Although usually vertical e-commerce business is much smaller than the horizontal e-commerce business, such as Amazon, Alibaba, and eBay, which sell products of various categories, there are many vertical e-commerce websites and they play important roles in the retail industry.

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Table 3. Top C2C websites measured with to global traffic rank

Company

Website

Global Traffic rank

Languages

Home Country

Alibaba

taobao.com

12

Chinese

China

eBay

ebay.com

23

Multiple languages

USA

Craigslist

craigslist.org

71

Multiple languages

USA

Etsy

etsy.com

130

English

USA

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E-Commerce Models, Players, and Its Future

4. THE BIG E-COMMERCE PLAYERS

E-commerce, like any other internet-based busi- ness, can grow fast and big without the locality limitations. Currently, the two biggest e-commerce companies worldwide are Amazon and Alibaba. Their business are described below.

Amazon

In 1995, Jeff Bezos launched Amazon.com as an online bookstore (Stone, 2013). After 20 years growth, it now becomes the most valued e-com- merce company in the world. Although Amazon is mainly operated in the United States, its business has been expanded all around the world, even in the most competitive marketplace like China. Amazon typically follows a B2C business model. It purchases products from the manu- facturers, store products in its own warehouse,

and deliver the products when orders are placed by consumers. The product categories listed in Amazon include books, audio/video/games, electronics, clothing, toys, cosmetics, sports, ap- pliance, furniture, office supplies, auto care, and more. Amazon is well known for its fast delivery and high rate of customer satisfaction. Globally, Amazon is actively growing its busi- ness. Currently, products can be shipped to more than 75 countries that participate in the Amazon Global program. Amazon also produces con- sumer electronics, such as Kindle e-book reader, Fire tablet, and Fire phone. Moreover, Amazon’s web service is one of the most important cloud computing providers in the world. Table 4 shows the business and finance growth of Amazon in the past 18 years. By the end of 2015, Amazon is ranked No. 9 of the public corporations worldwide based on market capitalization. The most important fact

Table 4. Amazon’s growth (data source: various websites on the Internet)

Year

Number of Employees (Thousand)

Annual Active Users (Million)

Annual Revenue

Market Capitalization

($ Billion)

($ Billion)

1997

0.26

1.5

0.148

2.36

1998

1.2

6.2

0.610

28.11

1999

3

14

1.640

31.04

2000

4.5

20

2.762

8.32

2001

6

25

3.122

6.82

2002

7

30

3.933

10.51

2003

8

40

5.264

24.23

2004

9

45

6.921

20.78

2005

12

50

8.490

21.55

2006

13.9

66

10.710

18.11

2007

15.8

76

14.835

37.36

2008

20

88

19.166

28.28

2009

25

105

24.509

60.30

2010

35

130

34.204

81.57

2011

55

164

48.077

93.49

2012

80

200

61.093

127.66

2013

115

237

74.452

172.47

2014

150

270

88.988

170.47

2015

220

304

107.01

282.25

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about Amazon is that its business is still expanding at about 19% year to year rate of revenue growth.

Alibaba

Alibaba is an international internet giant. Fairly to say, Alibaba is not only an e-commerce company. It provides many different services to e-commerce business and consumers. Therefore, Alibaba is an e-commerce environment, in which different kinds of business operations could be executed. Alibaba group was founded in 1999 by Jack Ma (Liu & Avery, 2009). It provides various e- commerce solutions, such platforms for B2B, B2C, and C2C. It also provides payment transaction service through its own payment system, Alipay. In addition, Alibaba contracts with many package delivery companies to provide logistics services. Big data technology is used in these services to improve the business efficiency of its partners. That is not all. Alibaba has many other business, including travel arrangement, advertisement, news and media, music, sport, health, entertainment, financial, banking, and insurance. Alibaba also has its software products and cloud computing services. Moreover, Alibaba is actively investing in foreign countries and foreign companies, including both public and private companies. Examples are Zulily, Groupon, Snapchat, Jet.com, and Magic Leap of USA, and Paytm, Snapdeal of India. To understand the volume of business transac- tions conducted on Alibaba’s platforms, let’s look at the sales of Singles’ Day (11.11) shopping fes- tival created by Alibaba. In November 11, 2015, a total of $14.3 billion sales were made at Alibaba’s platforms, which is more than the combinations of Black Friday sales and Cyber Monday sales in USA. Moreover, Alibaba has a 45% year to year rate of revenue growth, which is faster than its American counterpart Amazon. As stated by the founder and executive chair- man of Alibaba, Jack Ma, Alibaba is building an internet-based business ecosystem that is going to connect the world together, from cities to cities and from villages to villages. Jack ma calls his plan

Category: Electronic Commerce

EWTO (Electronic World Trading Organization). To help the readers better understand Alibaba’s internet-based business ecosystem, Table 5 com- pares Alibaba’s business with some corresponding US companies. It is worth to note that Alibaba is expanding its business both domestically and internationally. Currently Alibaba has connected buyers and sellers of more than 240 countries. Globalization is at the core of Alibaba’s strategic plan over the next decade.

Other Players

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Besides Amazon and Alibaba, other major e- commerce companies in the world include JD.com of China and eBay of USA. JD.com is similar to Amazon and operates with a B2C business model, and it is currently the major competitor of Alibaba in China. In contrast, eBay is an America-based C2C e-commerce website. eBay has successfully developed its business around the world, except China, where it lost its battle against Alibaba’s Taobao (Ou & Davison, 2009), at least for now. Table 6 summarizes the latest financial data of Amazon, Alibaba, JD.com, and eBay. The data is retrieved in February 2016. These four e- commerce companies are responsible for about 46% of the global e-commerce GMV (Gross Merchandise Volume) 3 . It is worth making the following remarks about the data in Table 6. First, Alibaba and eBay are e-commerce platforms and accordingly their revenues do not include the values of products traded on their platforms. On the contrary, the revenue of Amazon and JD.com include all the product values traded on their websites. Second, it is expected that Alibaba and JD.com could have higher growth rates in the next few years and that is why their market capitalizations is relatively higher compared to their net incomes.

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E-Commerce Models, Players, and Its Future

Table 5. Alibaba’s internet-based ecosystem (data source: various websites on the Internet)

Business Name

Service Description

Operation Method

Corresponding USA Company/Service

Alibaba.com

B2B (international)

Platform

NA

1688.com

B2B (domestic)

Platform

NA

TMall

B2C (domestic, international import)

Platform

Amazon

Aliexpress

B2C (international export)

Platform

Amazon

Taobao

C2C (domestic)

Platform

eBay

Alipay

Online payment

Directly owned

PayPal

Cainiao

Logistics

Collaborated

UPS

Alitrip

Travel arrangement

Directly owned

Priceline

Juhuasuan

Group and discount shopping

Directly owned

Groupon

AutoNavi

Map

Directly owned

Google map

Youku Tudou

Video sharing and broadcasting

Directly owned

YouTube

SCMP

Newspaper

Directly owned

Washington Post

Alimama

Online advertisement

Directly owned

Google

YunOS

Mobile operating system

Directly owned

Android

UCWeb

Mobile web browser

Directly owned

Safari

Sogou

Mobile search engine

Directly owned

Google

Aliyun

Cloud computing

Directly owned

Amazon Web Service

Baozun

E-commerce service

Partially owned

Vteams

Sina

Online news services

Partially owned

The Huffington Post

Weibo

Micro blogging

Partially owned

Twitter

Momo

Social networking

Partially owned

Facebook

Kuaidi

Online taxi dispatch

Partially owned

Uber

Meizu

Smart phone manufacture

Partially owned

Apple

Table 6. Comparisons of the financial results of the big e-commerce companies (data source: various websites on the Internet)

Business

Number of

Monthly

Annual

Annual

Annual Net

Market Capitalization

Name

Employee

Active User

GMV

Revenue

Income

Amazon

230,800

244

M

$225.6 B

$107 B

$596 M

$ 261 B

Alibaba

34,985

405

M

$376 B

$11.7 B

$5.38 B

$168 B

JD.com

94,615

131

M

$71.4 B

$28 B

-$131 M

$36 B

eBay

11,600

162

M

$82 B

$8.59 B

$2.23 B

$28.5 B

EMERGING MODELS AND EMERGING MARKET

Although the world e-commerce business is largely shared by Amazon, Alibaba, and several other big players, no one business and no one business

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model can dominate the market forever. Some new e-commerce models have surfaced recently. The e-commerce future is unknown, especially in the emerging market. One new e-commerce model is represented by Jet.com. It is an e-commerce website launched

in July 2015. The unique feature of Jet.com is its smart shopping cart, which can help the customer to build a shopping list with more potential sav- ings. According to its business strategy, Jet.com makes no profit through selling products. Instead, the income is generated through member fees. Col- lecting membership fee is not rare in e-commerce business (Monteiro, Swatman, & Tavares, 2003). Other e-commerce companies, like Vipshop, Sephora, also have paid membership programs. O2O (Online-to-Offline) is considered another important emerging e-commerce model (Roberts & Zahay, 2012). This model combines online shopping and offline (physical store) shopping together and provides unique shopping experi- ences. For example, a product could be ordered online and picked up from or delivered by a local physical store; or a service, such as movie ticket, club membership, could be ordered online and consumed offline locally. Therefore, O2O model is also called local e-commerce. It can be inte- grated into local business and accordingly it is well supported by the local government. O2O is becoming a more and more popular life style in China. Examples of O2O services in China include Meituan.com, 58.com. Internet giants Alibaba and Baidu also have their O2O business, which are Koubei and Nuomi, respectively. Relatively speaking, O2O business is still under development in USA. Groupon can be classified into this field. Another important trend in e-commerce in- dustry in the past years is that more and more customers like to shop with mobile devices. For example, in the quarter ended December 2015, Alibaba’s mobile penetration rate is about 67% and this number was only 19.7% two years ago. Mobile devices, such as smart phones and tablets, provide convenient ways and pleasant experiences for users to shop online. With devices connected online all the time, the customers would like to shop more frequently. Therefore, e-commerce companies are shifting their core business from desktop computers to mobile devices. Although e-commerce is a common business model in developed countries, especially in USA and China, it is still under development in many

Category: Electronic Commerce

other countries. There are great business potentials around the world. Using India as an example, it is estimated that its e-commerce could reach $100 billion by 2019. Currently, Amazon, Alibaba, and India’s domestic e-commerce companies, such as Snapdeal, Flipkart are fighting hard to grow their market share there.

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FUTURE RESEARCH DIRECTIONS

The key factors to e-commerce, just like to any other business, are user addition and user retention. That is why JD.com is collaborating with Tencent to get more users from Wechat, a communication platform and Alibaba is building its ecosystem to maintain a sustainable customer base. Friendly user interface, secure and convenient payment method, fast and quality delivery are other im- portant factors to improve user retention rate. For new generations of consumers, shopping is no longer the single purpose of shopping online; shopping experience could be more important than the product. Like the traditional shopping mall, entertainment, social networking, education, and more, could all be built into e-commerce. An online expectant mother club incorporating all these features to allow pregnant women to socialize, obtain parenting knowledge and ex- perience, and most likely, share baby products shopping information, is a perfect example of social e-commerce. Another examples of social e-commerce is the online stores built on top of social networking platforms, such as Facebook and WeChat. In this model, products/service are sold to friends or followers. This is a kind of peer to peer business model and some business cost, such as advertisement, could be significantly reduced. Most importantly, with the growing us- age of mobile devices that connect users all the time, social e-commerce could become more and more popular. E-commence companies and customers are important players in an e-commerce environment. However, they are not the only players. No busi- ness can be operated without the influence of other

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E-Commerce Models, Players, and Its Future

factors, such as government policies, international laws, cultures, religions, and geopolitics. The roles played by different parties, such as governments and other organizations, in an e-commerce envi- ronment could be complex and their influence may shape the future business rules and models of e-commerce. A detailed study in this area is surely needed for the future research. For example, Amazon originally only collected sales tax from a few states; after a long battle between Amazon and the state governments, it now collects sales tax from 28 states. Another example is Alibaba. Currently, the stores at Alibaba’s Tmall and Taobao platforms are exempted from the 4% business tax that is unavoidable for offline physical stores. No one is expected this policy will remain forever. Clearly, any future changes of this tax rule may have effect on Alibaba’s business. In addition, globalization is the theme of the 21 st century, to expand business in developing countries, espe- cially those unrest regions with cross cultural and religious conflicts, is a challenging task for Amazon, Alibaba, and any ambitious e-commerce companies. E-commerce is growing and is growing at an unprecedented speed. Its impact on our life is extraordinary. Commerce started in the prehistoric time and the business model has not changed much for thousands of years. At one time, all stores were small with merchandise sold to local consumers. But, industrial revolution finally led to the changes of our commerce model. In the 20 th century, chain stores, department stores, and especially supermarkets, gradually replaced small family stores, and our lifestyle was changed. Now, less than 100 years later, information technology revolution is going to change again our commerce model, which in turn will affect our life.

7. CONCLUSION

In this chapter, we discussed e-commerce models, its big players, and its future trend. E-commerce is becoming an important integral part of our

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economy and our life. E-commerce originated and developed in the era of internet and will continue to develop with the evolution of information technol- ogy. It is hard to predict the future. However, one thing we are sure is that our lifestyle will always change, including the way of doing business. E-commerce, like any other information tech- nology supported business activities, will play an important role in shaping our society and life. We are living in a time full of possibilities. The potential of e-commerce is yet to be realized.

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Kelly, K. (2005). We are the Web. Wired Magazine, 13(8), 113–123.

King, K. A. (2015). The Complete Guide to B2B Marketing: New Tactics, Tools, and Techniques to Compete in the Digital Economy. Pearson Education.

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Markoff, J. (2005). What the Dormouse Said: How the Sixties Counterculture Shaped the Personal Computer Industry. Penguin.

Monteiro, J., Swatman, P. M., & Tavares, L. V. (2003). Towards the Knowledge Society: Ecom- merce, Ebusiness and Egovernment. Springer.