"No single force embodies our electronic transformation more than the evolving medium known as the Internet. Internet technology is having a profound effect on the global trade in services," according to a White House paper in

1997. Electronic commerce is estimated to have been in the range of $63 billion in 1999 and is expected to soar to $1,444 trillion by 2003 (For rester Research, 1999). Electronic commerce is a broad term describing business activities with as sociated technical data that are conducted electronically. It is an entire set of different, digitally enabled activities that are progressively replacing the more traditional brick-and-mortar commercial functions. While the wider phenomenon of "electronization of economic activities" encompasses the digitalization of all processes of economic wealth generation—including economic analysis, production, storage, information provisioning,

marketing, and so on—it is the area of sales and related processes facilitated by electronic media that have been popularly termed "electronic commerce." Consequently within the more general phenomenon of digitalization of modern life, we find its most important component electronic commerce.

NEW WAYS OF DOING BUSINESS

Corporate, not-for-profit, and governmental sys tems are incorporating many increasingly digitalized processes that are leading to astounding productivity gains in the world economy because these processes are becoming less expensive, less time consuming, and more useful ("Why the Productivity Revolution," 2000). For example, a directory-assistance call formerly required an operator, look-up in paper-based directories, and a localized search. Now it involves a national (or international) computer database, voice synthesis, and automatic connection. Furthermore, the process has been expanded; one can do reverse searches through the Internet that will point to the owner of a telephone number, link this to one's telephone bill, and not involve any individual as the service provider. Thousands of "system processes" are undergoing this type of mutation, leading to cheaper, less time-consuming, and expanded types of services. Figure 1 shows several components of the business process (e.g., marketing) and electronic commerce tools (e.g., Web banners) that are structurally changing ways of doing business.

The marketing, advertising, and care triad are the core of the phenomenon. One-to-one

marketing (whereby large customer databases link much information about clients, thus creating very efficient leads) is linked to very tailored advertising: The firm knows the client when he or she is connected to the Internet, and it fires off a series of individually targeted banners catering very closely to the client's needs. These advertising banners can explore the geography of the client at that moment (for example, if in a car, the closest gas station, drug store, or sports bar), linkages among products or recent purchase (bought a computer, needs parts and software), personal factors (getting married, needing a dress, birthday, death in the family), and other factors. The e-care part of the triad is the emerging process of the new organization. Technologically rich products need superior, technologically based support. E-care—a mix of e-mail, Web based support, and, when essential, phone sup port—is cheaper and more powerful if properly done than the traditional means. Organizations are finding that the same stringent standards of traditional care must be applied in the e-organization.

The electronic commerce revolution is in its initial phases and will progressively take over all processes either directly or indirectly. The distinction between "snail" commerce and e-commerce will disappear, with all processes be coming either digital or aided by digital supporting processes. The pace of this transformation is what differentiates winning from losing competitors, industries, and investors. The intrinsic nature of the product and processes, as well as the dynamics and resistance to change of corporations and industries, will determine the pace of change and the gains in productivity. Together with the telephone, railroads, and electricity, the Internet is one of the major agents of change of modern life.

Two major factors affect the speed of change in terms of product: (1) bitability and (2) e-commoditization. A product is bitable or not. If it can be transmitted over the Internet, the product (or service) is bitable. Software, information, remote support services, banking, bro kerage, and insurance, for example, fall into this category. If a product is bitable it does not ultimately have to be physically delivered, although

it may take some time to acquire sufficient bandwidth or get consumers used to the idea. The e-commoditization factor is more complex. An e-commodity is an item that one does not need to touch, see, try on, try out, taste, or squeeze before buying. Clearly high-fashion clothes, cars, foods, meats, vegetables, and girlfriends tend not to fall into this category. On the other hand, this is very much a question of attitude and need. Busy executives will forgo the examination of food items for the convenience of having them at home when they arrive there. Once a teenager has tried on an item of brand-name clothing for size, it becomes a commodity, since sizes tend to be quality controlled. A buyer who lives in a very remote location may consider an item to be a commodity because the cost of its examination does not warrant extensive travel—and, in the case of clothes, they can be altered. Ultimately, bitable goods and bitable commodity goods present the highest potentials for e-commerce.

Research predicts that there will be a wide range of business expansion on the Internet. This is reflected on Figure 2, which incorporates a series of predictions from four different organizations.

Travel and apparel are expected to be the largest B2C (business to consumer) areas. At the same time, the volumes of B2B (business to business) trade are expected to be six to ten times larger than B2C, but with much narrower margins.

EMERGING PRINCIPLES OF ELECTRONIC COMMERCE

An entirely new set of principles of commerce is emerging. First is the realization that a Malthusian physical world is giving way to a place where information is abundant and eyeballs limited. Second is the realization that paradoxes exist because of technology, and that giving things away for free, not protecting software against privacy, and paying for visitors, may be the paradigms of the e-world. Third, the meaning of the words competitor and industry are changing. In the faceless world of the Internet, one's current and future customers and suppliers are both one's competitors and one's allies. Fourth, industries are blending and changing, and affiliation agreements allow for the creation of entire product cycles without the ownership of inventory or production facilities. Finally, pricing models are changing; hybrids of fixed pricing, auctions, variable pricing, contingent pricing, and name-your-price pricing are emerging and creating new business models. While technology gets most of the credit, actually successes are usually based on the triad of: (1) technology, (2) business model innovation, and (3) a family of facilitating (profitable) services. (See Figure 3)

The B2B sector of e-commerce will present both vertical and horizontal models. In the vertical model, the firm will focus on an industry and develop great industry expertise in order to develop its markets. In the horizontal model the firm will focus on one type of product or service and offer it across industries (e.g., Internet payroll services). The B2B sector is intrinsically different from B2C. Buyers are well informed, possess many resources and can negotiate based on volume. Brand name is much less of a consideration than price, quality, delivery time, and reliability. Three different models have emerged for B2B transactions: (1) the e-catalog model for situations in which there are many different items at distributed locations and the price is fixed (e.g., auto parts); (2) the auction model, in which products are not standardized and there are great differences in the perceptions of value (e.g., auctions of used capital plant products); and (3) the commodity auction model, in which there are not too many variations on the type of product and there are large buyers and sellers (e.g., natural gas, pork bellies, coffee, etc.).

Electronic commerce is progressively and irreversibly changing the face of many businesses because of three dominant phenomena: (1) disintermediation, whereby one party to a transaction is eliminated (e.g., brokers in on-line trading); (2) re-intermediation, whereby a new electronic intermediary comes between the seller and the buyer (e.g., electronic booksellers that take orders and farm them out to providers that have the book in stock); and (3) cannibalization, whereby businesses progressively give up their traditional brick-and-mortar ventures for the superior electronic model (e.g., traditional pharmacies opening on-line drug stores).

PROBLEMS IN SEARCH OF SOLUTIONS

The e-commerce juggernaut is not without its dangers and shortcomings. It is drastically affecting traditional firms that cannot continue to do business according to the traditional economic model. For example, a stock brokerage firm that on average charged $90 per trade cannot compete with $10 on-line trades; if any adaptations meet with strong resistance, the organization could be dooming itself to extinction. The security weaknesses of the e-commerce infrastructure have been well publicized: Viruses, security intrusions, and inability to provide services because of volume attacks are not phenomena that will disappear. A continuous struggle is evolving among facilitating technologies, intrinsic technological dangers, and the management of these factors.

Privacy issues present a different set of challenges. The same technology that facilitates business activities and provides wonderful services is also a major threat to individual freedom. Large databases linking information about economic activity from different sources (purchases, banking activity, medical records) provide great economic advantages by making marketing more efficient, loans more targeted, and medical information ubiquitous. They also create great dangers for privacy potentials for abuse. Doubleclick.com, a marketing analysis technology firm, tracks customer activities in Web sites. Its click-path analysis allows firms to understand customer behavior and improve their offerings. However they have 11,000 clients, and linking together the buyers' profiles from these sites is considered to be far too intrusive by many people. Complaints have been filed with the Federal Trade Commission and boycotts proposed. As a response, Doubleclick lured bigger profile "primary" officers for its board."

Solutions, however, are not as straightforward as they might seem. Making certain actions illegal can actually create arbitrage opportunities and extraordinary advantages for Internet players. Because gambling rules are strict in the United States, electronic casinos are created in cooperative havens in the Bahamas: A legal obstacle in the United States is a business opportunity for another country. When restrictions are placed on the use and content of databases in Germany, offshore database havens appear immediately. When Web-site censorship appears in China, free-Chinese Web sites are constructed. Telephone systems are monitored and taxed by PTTs, supranational satellite telephone networks are being created.

Consequently, easy fixes are not possible and new methods of establishing order, efficiency, and decency will have to be created. Because the Internet is truly a supranational entity, nations need to band together to maintain order and efficiency and reasonableness in cyberspace. The same economic factors that allow for arbitrage can also be used for self-policing and monitoring of the e-commerce environment. To benefit fully from this medium, companies/entities and nations must have payment-clearing solutions, customs solutions, and access to the large markets of the economy. Rogue countries can be excluded from the payment-clearing chains; rogue companies behaving in unacceptable ways can be boycotted and excluded from any affiliation and linking deals. Self-policing seals such as the American Institute of Certified Public Accountants' (AICPA) Web Trust and SysTrust products, inspections, and certificates can be used for monitoring and supervision. International information structures, involving many cooperating organizations, can be on the alert for rogue behavior and spearhead a drive to create reasonable and unbiased rules. Technology can be used to monitor and detect money laundering, illegal product flows, and information trafficking. But such monitoring must be carefully conceived and supervised, because it could turn into a "Big Brother" type of behavior. Most important of all is not to succumb to the easy temptation of creating restrictive and ill-thought-out laws of the sort that legislators tend to create when some local scandal occurs.