E-commerce OTAKU theory

What are the pros and cons of e-commerce? As far as I understood from the lecture, the most valuable factors of having an e-commerce website as opposed to a traditional mortar store are the lowered costs and the amount of potential customers that can be reached. And exactly which costs am I talking about? ‘Cause setting up an e-commerce platform can cost a fortune, nowadays.

Well, to start with, let’s mention the difference between e-commerce setup/maintenance and the rent, inventory, facilities and warehousing associated with a mortar store. This itself can be quite a significant difference in favor of e-commerce. On top of that, we need to consider the possibility of distributing directly to the public. In other words, the direct web business model can be implemented so that the manufacturers sell straight to their customers. This tactic has been successfully used by Dell Computer Corp. Basically, it cuts on the costs associated with too many intermediaries in the marketing channel (retailers, brokers etc.). Another interesting example of this method in use is a company called Flowerbud. It is a floricultural business based in Oregon, USA. This company grows flowers and sells them through very well designed and much praised e-commerce site Flowerbud.com. Flowerbud’s web illustrates greatly the concept of tailoring the site’s content to appeal to a niche market, OTAKUs or early adopters. This great idea is presented in an excellent lecture given by Seth Godin.

Flowerbud’s owners have always been big flower enthusiasts and they’ve never cared for selling cheap bouquets to people who don’t really share their passion for flowers. Instead, they focus on a target market, which consists of flower lovers, those who want to present others with fancy looking bouquets. A combination of this approach and the wonderful, niche design of their platform is bringing them ahead of their competition.

Internet World Stats  estimated the total amount of internet users to be over 2.2 billion people at the end of 2011. This obviously makes it possible to market to much greater number of potential customers than when operating from a mortar store. Just in the year of 2010, online transactions reached $186 billion.

Now, what are some of the disadvantages of e-commerce? We can get customers from anywhere in the world, for much cheaper than if we operated a store. The problem is that unlike in the case of mortar stores, we would be expected to provide a prompt delivery and easy online access with an exceptional customer service otherwise, customer could leave by a click of a mouse.

There are various issues and questions to ask oneself when planning for the launch of an e-shop. Most of them have to do with the SMART criteria – specific, measurable, attainable, result-oriented and time-bound. The meaning of each is obvious, but it is further described in various sources such as Wikipedia. Most issues revolve around business purpose, target market and how to market to it, and technical factors concerning the platform, the payment processing etc.

There are few more web business models besides the manufacturer (direct) one. Advertising model serves as a provider of content and services, which are mixed with banner ads that often generate most of the site’s revenue. Another model is the infomediary one, which functions as a marketing campaign support. It collects data about web users and their habits and then sells this data to those who want to utilize it for their marketing campaigns. Then there are various types of merchant model. Either businesses sell solely online, or they have both a mortar shop and an e-shop. Affiliate model stands for the type of web business that pays other sites for placing ads on their pages. Community model is based on the loyalty of the visitors and voluntary contributions. Subscription model charges its visitors fees.

The last important model is the brokerage. It is based on bringing online buyers and sellers together and facilitates the exchange. There are many types focusing on different things like auctions, transactions etc. The one we all know is the auction giant eBay.com. It grew from a small auction platform (1995) to have 55 million users and $15 billion in the value of transactions in 2002. The first quarter of 2012 meant $3,277 billion in revenue, which was $800 million in 2001. An article on the Internet Retailer conveys the notion that there is a Darwinian environment on the eBay, meaning that only the fittest will survive. In 2002, eBay faced an issue whether it is a good idea to allow large companies to operate among the small individuals. Small individuals, however, are still a significant part of the eBay’s business as we can see in the following video 😉


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