The Impact of E-commerce on the Bookselling Industry

Table of Contents

Abbreviations

1 Introduction
1.1 Electronic Commerce, a Topic of current Interest
1.2 Procedure and Analysis Objectives

2 E-commerce
2.1 What is E-commerce?
2.2 The History of E-commerce

3 The Impact of E-commerce on Booksellers
3.1 Positive Impacts of E-commerce on Booksellers in General
3.2 The Impact of E-commerce on Entrepreneurs
3.2.1 E-commerce, a Good Opportunity for Bookseller Start-Ups?
3.2.2 Why can Internet Bookselling be Successful?
3.2.3 Negative Impacts of E-commerce on Entrepreneurs
3.3 The Impact of E-commerce on Existing Booksellers
3.3.1 The Impact of E-commerce on Large Bookselling Chains
3.3.2 The Impact of E-commerce on Small Independent Booksellers

4 The Impact of E-commerce on Customers

5 Conclusion
5.1 Summary
5.2 Outlook

6 References

7 Bibliography

Abbreviations

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1 Introduction

1.1 Electronic Commerce, a Topic of current Interest

Electronic commerce (e-commerce) is becoming more and more important in our world. In the beginning, only start-up companies tried doing online business, but today even the old economy has realized that e-commerce can be profitable and can make a company operate more efficiently. Despite the fall of many unprofitable Internet companies in the last months, many businesses still see e- commerce as an opportunity. Therefore, lots of companies have already taken or want to take part in e-commerce. If it is not because of making profits out of the online business immediately, it is due to the fear of missing the train and being left behind, when all other companies have successfully started selling their products or services over the Internet. Moreover, technology is changing very fast and not starting early can lead to a lack of experience, that is desperately needed later on, provided that the technology proofs to be a success. Of course, this strategy bears also a high risk. If the technology turns out to be a failure, it would have been better not to have rushed into it. However, the reasons for or against going into e-commerce should not be discussed in this report. Fact is, that many companies have started e-commerce and still today many others try to start online business successfully. As a result, e-commerce has quite a big impact on companies and their customers.

1.2 Procedure and Analysis Objectives

From the author’s point of view, this impact can be examined best by regarding the bookselling industry, because books are still the most frequently sold items on the Internet, followed by CDs and computer equipment. Almost three out of five European online shoppers purchase books. (Ernst & Young, 2001, p. 7) Furthermore, Amazon.com, which is an outstanding example of doing e- commerce in a successful way, is also in the bookselling business together with many other Internet companies, that are selling books over the web in order to imitate Amazon’s success story (Online Bookstores (n.d.). On the other hand there are many small independent booksellers, challenged by the new online competitors as well as some really big companies like Barnes & Noble or Bertelsmann. Many of these companies have realized the new competition through online booksellers and have already responded to that new threat by launching their own online stores.

This report is going to take a closer look at the impact of e-commerce on the bookselling industry. Before doing so, it is essential to explain e-commerce in general and illustrate its history. To examine its impact on the bookselling business, it is necessary to look at three different groups that are impacted in this business area, i.e. customers, entrepreneurs and existing bookselling companies, which can be very different in size. Since the impact of e-commerce is very dependent on the size of the company, it is appropriate to examine small and big businesses separately. This report will focus very much on the US bookselling industry because the USA are the cradle of most online booksellers. Furthermore, world’s largest bookselling chains are also US based.

2 E-commerce

2.1 What is E-commerce?

Most people think of online shopping when they hear the term e-commerce. But e-commerce is not only selling products on the Internet. In fact it is a very broad term that Phillips defines as “the use of information technology to support the conduct of any business activity” (1998, p. 9). Since e-commerce and traditional commerce differ only in the way, how information is transferred, e-commerce is every commercial transaction, where information is transmitted electronically (Minoli, D. & Minoli, E., 1998, p. 7). As Kalakota outlines, this leads to improvements, that “may result in more effective performance, greater economic efficiency and more rapid exchange” (1997, p. 4). What most people today mean when they talk about e-commerce is Internet e-commerce, i.e. conducting business with the information transferred over the Internet. This report will focus on Internet e-commerce.

Basically, four main forms of Internet e-commerce exist. First of all, there is business-to-consumer (B2C) e-commerce, where either a manufacturer or a retailer sells products or services via the Internet. The second form is business- to-business (B2B) e-commerce, where one company sells its products or services to another company. B2B is responsible for the majority of e- commerce revenues. The projected worldwide B2B revenue for 2004 is US$ 6.3 trillion opposed to a projected worldwide US$ 454 billion B2C revenue (Hobley, 2001, p.13). Internet based transactions between companies and governments, e.g. online government procurement, are referred to as business-to- administration (B2A). The last major form is consumer-to-administration (C2A), which includes all online transactions between consumers and the government, like online applications for new passports.

There are several different revenue models besides online-selling in e- commerce. They range from advertisement sales over paid product placements, e.g. in online games, subscription models for content sites, fees for services and licensing, e.g. for software, code, or content, to affiliate programs, where one company sets up a system to sell its products through links on other companies’ websites. With the help of e-commerce, a company can also save packaging and manufacturing costs by selling digitised products like software, music, or art directly over the Internet. (Kienan, 2000, pp. 48-51)

2.2 The History of E-commerce

Traditional commerce is as old as mankind itself. Even in the Stone Age, people carried out early forms of commerce by bartering food and animal skins. The most important invention that really changed the way of doing commerce is money, which was probably used first at about 4500 BC in Mesopotamia (Westdeutscher Rundfunk, 2001, Das erste Geld section, para. 1). People used silver in the beginning but over the millennia coins, notes and book money came up. With the invention of money, commerce changed from bartering to selling and people could specialise on producing one product instead of producing all they need.

The broad definition of e-commerce mentioned above, implies that the first e- commerce has been done when people first used phones or fax machines to conduct business. Consequently, the first step towards e-commerce was Samuel Morse’s invention of the electric telegraph and the Morse Code around 1838, which he first demonstrated in 1844. The next steps were Alexander Bain’s invention of the facsimile in 1843 and Alexander Graham Bell’s invention of the telephone in 1876. Of course it took some time until telegraph and telephone could be produced in larger numbers and until companies could use them for the first e-commerce. The fax machine was not used very much for over 100 years before it became popular after new standards had been developed in the 1960s. (historical facts concerning the fax machine are quoted from Bissel, 1995; historical facts concerning telegraph and telephone are quoted from Pennings, n.d.)

A milestone on the way towards modern e-commerce was Electronic Data Exchange (EDI). EDI is the exchange of information between organizations in a standardized way. As Minoli, D. and Minoli, E. indicate, its aim “is to reduce the amount of data capture and transcription”, which leads to “decreased incidence of errors, reduced time spent on exception handling, and fewer data-caused delays in the business process” (1998, p. 65). EDI was first used in the 1960s in the USA. In its beginnings EDI standards were specific for special industry sectors, special countries or even pairs of companies. Over the years two EDI standards became widely accepted. These are the X12 standard, which was developed by the American National Standards Institute (ANSI) in 1978 and the Electronic Data Interchange for Administration, Commerce and Transport (EDIFACT) standard, which was developed by the United Nations Joint European and North American working party (UN-JEDI) in 1988. (EDI historical facts are quoted from History, n.d.) Although EDI is a very well working technology with many advantages, it was not very successful. In 1996, only 100,000 companies were using EDI (Minoli, D. & Minoli, E., 1998, p.69), probably because EDI systems are quite expensive to implement.

The development of Internet e-commerce obviously goes hand in hand with the development of the Internet. The forerunner of the Internet was the ARPANET, which went online in 1969 and was basically a network between four universities, used for research projects. In 1974 the Transmission Control Protocol (TCP) was developed and the term Internet was used for the first time. Together with the Internet Protocol (IP), TCP became the core Internet protocol in 1983. The Domain Name System (DNS) was created in the same year. In 1990 Tim Berners-Lee invented the hypertext system that, together with the invention of the first browser Mosaic for X in 1993, marks the beginning of the World Wide Web (WWW). (Internet historical facts are quoted from Kristula, 1997) The WWW really set the stage for modern e-commerce because it has attracted both, many business users and private users. Due to its hyperlinks it is so user-friendly, that everybody can use it without any special knowledge. Consequently, the Internet has grown very fast. In the end of 2000 there were already 7.1 million websites worldwide and 407.1 million Internet users. 120 million of them had already made a purchase or another transaction online and total revenues of e-commerce were US$ 657 billion. (Hobley, 2001, p. 12) The development of modern e-commerce can be divided into four stages. In the first years of the WWW companies launched pure information websites that often contained their product catalogue. The next step started round about 1995 and included sell-side solutions, where vendors sell products or services through their website. This was followed by buy-side solutions, which started in 1997. Here, buyers use web-solutions for procurement, where suppliers compete in an electronically open marketplace. The last stage began in 1999 and consists of marketplaces, that enable buyers and sellers to do business. (Baldi, 2001, p. 4) Today we find all four levels when surfing the WWW.

The first online booksellers were Computer Literacy’s clbooks.com in 1991 and books.com in 1992. They started their business by using a bulletin board system (BBS), but in 1993 books.com started using the Internet. Users could log in via Telnet to search a database of available titles. Finally, in 1994 they launched their first website, where they offered about 400,000 titles. (Spector, 2000, p. 29) Amazon.com was incorporated in 1994 but did not start selling books until 1995 (Spector, 2000, p.36).

3 The Impact of E-commerce on Booksellers

3.1 Positive Impacts of E-commerce on Booksellers in General

The following advantages of e-commerce apply to all different groups of booksellers as well as most other retail companies.

A very good way to save costs and improve efficiency with the help of e- commerce is to handle a company’s communication with suppliers and customers electronically. Not only is communication much faster and cheaper this way, but it can also save lots of paper.

Every bookselling company has to procure inventory and goods, needed for keeping up business activity. Thus, e-procurement can save lots of money when suppliers have to compete in an electronically open marketplace (Minoli, D. & Minoli E., 1998, p. 28). Since electronic information processing across the whole value chain avoids re-entering data, it prevents errors, saves costs for personnel and speeds up the entire process. Furthermore, it eases a company’s inventory management, which can again save money for additional staff.

Another advantage of e-commerce is the fact, that booksellers can publish the titles in stock on an Internet website. This prevents disappointed customers, who walk to the store only to find out, that the book, they wanted to purchase, is not available. This information website can also be combined with advertisements for the own store and an online selling system that gives the bookseller the possibility to reach a huge number of new potential customers. Furthermore, advertisement space on the website can be sold to other companies to create extra revenue.

Selling e-books can save costs for transport, package and printing, since customers can simply download the books. Despite the advantages of e-books like portability, inbuilt dictionaries and ease of use, surveys have shown that they are generally not accepted by book-buyers, because e-books lack the experience of holding a real book in your hands (Rent, 2000, p. 39).

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