Opportunities generated by Internet-based electronic commerce

Internet commerce can substantially improve productivity by lowering transaction, production and

distribution costs, facilitating market entry, improving customer service, extending geographical coverage

and increasing competition. This should lead to lower prices, improved quality and innovative new products

and services, which should further increase economic growth and welfare. Some of the benefits associated

with commerce over the Internet include (a) better availability of information, (b) global reach, (c) reduced

transaction costs, (d) lower barriers to entry, and (e) new sources of revenue.



(a)Better availability of information: Online commerce enables better access to product and price

information for all involved including buyers and sellers, producers and distributors. Already, searchagent

software allow users to look for the lowest prices around the world. A new breed of

'infomediaries' has emerged that base their operations on bringing more complete product information

to customers. Excite Inc. search engines, for instance, offer a comparison-shopping service called Jango

(jango.com), which screens a range of online merchants and brings back the best prices for specific

books, compact discs or other products. Many others offer similar service, such as Hotbot (hotbot.com)

by Wired Ventures. A fast growing auction house that brings buyers and sellers together and claims to

have been profitable from day one is eBay (ebay.com). Compare.net finds products that match the

features and price range that the user has specified. The user can then jump to the indicated site to make

a purchase.



(b) Global reach (production, distribution and customer service): Distance and time become less relevant

as companies are able to reach their business partners across the globe and serve their customers quickly

and around-the-clock. Producers will often be able to choose a place for production and customer

service much independently from the location of their customers. Companies and individuals in low

income countries are able to reach information and get contacts in ways which were difficult earlier-

either due to the nature of voice communication and/or its very high cost.



(c) Reduced transaction costs: Cost reduction has been one of the main motivations for early adoption of

the Internet. E-commerce should also offer improved transaction management thanks to automated

order, payment and logistics processing systems. Cisco Systems reports reducing its expenses by

US$ 500 million thanks to the Internet



(d) Lower barriers to entry: The capital cost of entry to establish a presence online is low compared to

conventional outlets. The cost of establishing a reputation on the Internet can also be lower than in

traditional established markets. A modest investment in a brilliant idea can eventually lead to good

results. Small and medium-sized enterprises (SMEs) benefit from easier market entry. But considering

the amount of unsuccessful business endeavors online, the actual cost of setting up a profitable

business is probably higher than believed. With increasing global competition in electronic business,

many argue that global brands will continue to dominate, while SMEs will have to specialize to niches

in order to compete.



(e) New source of revenue: In 1998, nearly half of website managers claim that their online businesses are

profitable (46 per cent, up from 30 per cent recorded in the last three years). the reality is that today few companies are making big profits on the Internet. Only

1 per cent of the b-to-b online businesses generated revenues above one million US dollars in the year.







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