Feedback

TechWatch: E-Commerce Changes Business and Raises New Questions

You are sitting in LaGuardia Airport in New York, waiting for your flight to Seattle, with a change in Chicago. Your flight is delayed and it looks like you will miss the connection in Chicago. As the flight to Paris is announced, you realize you could fly to Paris both quicker and cheaper than to Seattle. You are reading The Death of Distance and another conclusion comes to you — distance is not dead, it has been redefined, or twisted.

Computing and communications have played a significant role in the twisting of distance. Distance once was an approximate measure for the time and cost it would take to get somewhere. This is no longer true. For some tasks, electronic communication has created instantaneous connection, taking distance away completely. For other tasks, where the movement of physical goods or persons is required, time, cost, and geographical distance are no longer related.

How does business take advantage of this new measure of distance?

A View of E-Commerce

At the heart of e-commerce is the carefully thought out tradeoff between what can move electronically, and what must move physically. Nicholas Negroponte created an enjoyable description of the tradeoff between moving electrons and atoms in his book Being Digital.

Until recently, it seemed more efficient for an individual to go to a store than for the store to come to each individual. Now, this is no longer obvious.

If the store can be represented in digital form, then the physical movement of goods to a store for display, and the physical movement of people to visit that display can be replaced by an electronic “store” delivered to each potential buyer. So the first half of the transaction allows the replacement of the movement of both people and goods by the electronic movement of information. Examples are booksellers like amazon.com, grocery sellers like homegrocer.com, and drugstores like drugstore.com. While only a small percentage of people take advantage of this service today, those who do report convenience and good prices (the seller can minimize inventory and display space to cover costs of delivery).

There are certainly parallels here with the century-old practice of ordering things from the Sears catalogue. The difference is that the catalogue was made of atoms, so the updates and changes would take a very long time to get to the potential buyer.

A key challenge is making the shopping experience both simple and enjoyable. While a great deal of progress has been made here, work is far from complete. My daughter recently spent an hour and a half finding her way through the various menus to order a couple of books. In the end she concluded the experience would have been more enjoyable, and quicker, if she had gone to the local Barnes and Noble and spent the time browsing through real books with a mocha in her hand.

Delivery of Information Based Products

What about the second half of this transaction? That is, once the purchase order has been
placed, can e-commerce also enable the movement of goods to the customer in electronic form? Here the answers are just beginning. A printer-like product was announced earlier this year to enable the printing of “paper back style” books, complete with binding and a color cover, at the store. Thus the seller could eliminate inventory, creating the book when it is ordered at a location close to the person who ordered it. Perhaps in the future, this kind of printer could be available for personal use and books could be downloaded directly from the seller.

I can hear the objections from both sides. The technologist would say, “Why do we need a paper book at all? Read it on the computer.” Indeed, for less than $350 you can buy a 22 ounce electronic reader with a 40 hour battery life capable of holding about ten novels (see http://www.rocket-ebook.com). Simply download the desired books and read them at your leisure.

The traditionalist would say they never want to read a book on the computer, regardless of the form of the computer. In fact, they want a leather bound, attractive book. It will be interesting to watch the changing market for these types of products, and to see how personal preference will change.

In the meantime, the downloading of music is becoming a commercial success. Perhaps this is because people are comfortable listening to music from the radio, where the package for the music plays less of a role.

Physical Products

When the product requires delivery of physical goods, one key challenge for all physical service companies is managing warehouses, inventories, and efficiently dealing with the fundamentally physical parts of the process. Can the book sellers work directly with the publishers and regional printers to create the book at the time of order (using the “just in time” manufacturing concept)? What is the role of agents (both physical and computer based) for finding, locating, and moving goods through the system? How efficiently can an electronic grocer get the fresh produce from wherever and make the delivery?

E-Commerce in Other Business Arenas

The examples I have used so far are in the consumer shopping area. They extend in an obvious way to many information rich businesses. Insurance is an obvious one, where pictures of an auto accident or building destroyed by fire can be electronically transmitted to an adjuster with access to the policy conditions and a check can be cut (perhaps even electronically). Banks represent another information rich environment.

Even the manufacture of physical goods such as automobiles and aircraft parts is affected. The electronic parts description, along with its manufacturing plan, can be electronically communicated to a manufacturing plant close to where the parts will be needed.

Downsides?

So the wave of progress towards more efficiency and faster delivery moves forward. Where are the questions?

Security is an obvious concern. Are the financial transactions I make over the Net safe? While tremendous progress is being made in this area, it is a significant deterrent for first time users. Is my credit card number at greater risk over the network, or in the hands of a minimum-wage waiter at a restaurant? The risks are not completely comparable since the electronic information can move to many more hands and last a long time.

When all of the transactions are in digital form, another concern is what is done with this digital data. Who knows my records and how will they be used? This is a hot topic with significant discussion today.

I saw recently the demonstration of a pen-sized scanner. The vendor described its potential use: go to a book store and enjoy browsing and drinking coffee. When you find a title you like, simply scan the information. When you get home, download the titles into your computer and let a software agent search for the best price and order the book for you. While the pen-scanner is not essential for this practice (you could write down the titles of interest), it adds to the convenience of doing so. What does this do to the bottom line for the physical book store? It seems that information technology is hitting traditional book stores from all sides.

Conclusions

It is easy to see there are new issues for both the buyer and seller in the transformed business of electronic commerce.

“Beam me up” will remain in the realm of science fiction. But computing and telecommunications have changed the meaning of distance, enabling fast and inexpensive movement of information. This change calls for businesses to rethink traditional models and create new forms of commerce. While many of the information tools are in place, I believe we are just at the beginning of the business application of this change, with its upsides and downsides. Some of the most important questions have not yet been asked.

erisman-thumb

Al Erisman is executive editor of Ethix, which he co-founded in 1998.
He spent 32 years at The Boeing Company, the last 11 as director of technology.
He was selected as a senior technical fellow of The Boeing Company in 1990,
and received his Ph.D. in applied mathematics from Iowa State University.

Share Your Thoughts