It may sound astonishing, but I think that despite all the challenges to define e-commerce and its boundaries relative to non e-commerce, of measuring it, of all the academic papers we see evolving on price effect e-commerce and synonyms thereof, we can agree on the basic fact that e-commerce is growing. Going one step further, I think we could even agree that this field is far from being saturated, as underlined by stable growth in volume, ideas, and number of new business models being tried. Even the almighty economic crisis (year five and counting) has not changed this, as a recent article makes the point. And while during the early days of the Internet, the biggest hype was around B2B platforms, and these were also to become the biggest failures as well. Even these B2B markets and platforms are back alive again, and coming on strong.
Given this healthy growth, market participants seem to be in a happy situation where they do not have to take marketshare from competitors, but instead can keep their investors happy by just showing up in e-commerce, and growing with the market. The tide lifts all boats, one would think.
And yet, there are important reasons to think about the nature of the market and one’s position inside it. The first one is that the e-commerce market is still evolving. While it is important to be climbing the e-commerce mountain, and it is prudent to be careful of each step you take, it is even more important to know whether it is Chomolungma you are climbing, Matterhorn, or Mount Etna. Especially when it is Mount Etna. The second reason? Economies of scale are going to exist in many fields of e-commerce. So, when the inevitable industry consolidation starts in e-commerce, you better be one of the big guys.
Two recent articles shed light on these points. The first article highlights that Google is capturing too little of all the value it creates, since Google is not getting paid for all the clicks on non-sponsored links, and it does so because Google is not involved in the transactions it facilitates. The second article outlines how Amazon is gaining market share through unique services, like Sunday Delivery to Prime customers, mobile apps, and expansion into additional market segments.
To me, the common denominator of both articles is this: “E-Commerce” is a vague term, but it includes “business”, and that is something we know quite a bit about. Doing “business” (aka trade) consists of several logical steps – identifying your need, finding vendors to service the need, comparing offers, negotiating the best deal, ordering, delivery, payment, after sales, etc. It is clear, if you want to win a bigger share of that “business”, you have to do better in one or more of these domains, or you have to offer several of these in a superior way, bundle them, and outperform competitors who may be better at one of them but add less overall value to customers.
In other words, success in e-commerce is dependent on superior services, like any other commerce – superior search, superior customer care, superior payment mechanisms and trading mechanisms, superior communication, and/or superior delivery are critical differentiators. Given massive investments dedicated to a sector where few will win (the other side of the “returns to scale” and “natural monopoly” coin), participants are well advised to take this into account.