Business Studies Scholarship Program – The Future of E-Commerce

Today surrounds the future of E-Commerce. Who will win: the ‘Small Businesses’ or the ‘E-Commerce Giants’? This question is important because E-Commerce has of course caused major disruption to the traditional way of doing business. Correctly answering this question allows us insight into what the future may look like. However, to answer this question, one need to first examine why there is so much disruption and uncertainty in this field.

E-Commerce Giants Peak Season Of E-Commerce
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E-commerce’s disruption is of course apart of a broader phenomenon: The internet is disrupting the way that everything works, and e-commerce is the internet applied to consumer-facing businesses. Because E-Commerce is a result of the internet, to understand what the future may look like, one must first examine the effects of internet disruption as a whole.
Society today is undergoing a revolution. The internet is so life-changing, that even the discovery of metalwork, the printing press and the movement to
industrialization likely pale before it. The main driver of a revolution is the fundamental shift in the way the world works and in this way the internet is likely the most profound revolution of the mall.

Working with Steel or Bronze changed the methods of hunting and battle. The printing press changed the way information was disseminated and the industrial revolution changed the global economy. The internet did all of the above, and much more. In fact, there are almost no industries the internet did not effect. Therefore, one most pause to consider their preconceived conceptions before delving into the future or speculating too much on what the internet can and will do.

This holds true for e-commerce. Before we decide who will be the winner, we must consider if there needs to be a winner in the first place. In actual fact, the need for a ‘winner’ to take over market share is likely a by-gone rule, changed with the advent of the internet. While it is true, there is a finite amount of market share or a particular product (or products in general) it would appear the E-Commerce is taking market share away from brick and mortar. The make-up of the internal market share though, is a lot more complicated.

E-Commerce itself is a new novel concept and while we don’t fully understand all of it (or the internet’s) rules, we can identify that the playing field has changed significantly. Therefore, one would be incorrect to assume E-Commerce’s internal battle will look anything like what occurred when brick and mortar giants competed with smaller businesses. E-Commerce giants are fundamentally different businesses with different goals, objectives abilities and focuses. In fact, in many cases E-commerce Giants actually help smaller businesses to succeed.

Consider how many small businesses came into existence after the very first e-commerce giant ‘Ebay’. Even today, thousands of businesses are able to exist due to the existence of Amazon as a reseller or the marketplace found on Etsy.

The closer one examines this, the more it makes sense. Without the fixed costs of operating a traditional business, e-commerce introduces a new hurdle: customer acquisition. If one owns an e-commerce store they cannot rely on foot-traffic to bring in new customers. They must instead turn to new internet based marketing channels. On one hand, these channels have many advantages to small businesses: they allow granular attribution and the ability to get very detailed with the Return on Ad Spend (ROAS) of each advertising campaign. On the other hand, to effectively utilize these channels many small businesses are faced with a majorly disadvantageous cycle: Without a strong site conversion rate, they are unable to acquire customers inexpensively, without acquiring customers inexpensively, they don’t have social clout nor a user base to optimize or improve their site’s conversion rate. This means they need to spend astronomical amounts to acquire their first customers without enough feedback to improve conversion rates or customers to give them social clout.

The E-Commerce giants, by very definition have these challenges solved. With a strong user base customer acquisition is trivial and possess
have time, money, resources and traffic to optimize perfectly. Not only this, but e-commerce giants also have significant volume of shipments to negotiate and optimize great shipping rates (another new cost for e-commerce businesses). However, with such power and size
comes bureaucracy and the inability for optimization. If you are building a brand to support the many, you are unable to cater to or support the individual.

Fortunately, This is where small businesses thrive. By finding niche markets and developing string brands they are able to fill this needed gap for the consumer. Together, these two businesses succeed. The small business is able to focus on creating a brand, story and mission and to innovate with product. The small business does not need to worry about the traditional cost of a business (location, rent and staff) nor the ‘new’ costs of business- customer acquisition and shipping. At the same time, big businesses can operate at scale without losing credibility amongst its customers. So long as customers can buy mom-and-pop products on Ebay, Amazon or Etsy they’ll never resent these organizations nor feel their products to be ‘watered down’. These Giants are therefore free to optimize on the things they do best: Innovate in shipping, fulfillment, inventory management and facilitating transactions rather than try to fabricate artistry.
In short, the internet has created a system that allows giants and small businesses
to operate in harmony thereby bulldozing the traditional rules of business. It is for this reason that I consider our original question deeply flawed. I do not think there will be a ‘winner’ between Small Businesses and E-Commerce Giants, because I do not think small businesses and e-commerce giants are actual competitive players. I believe ‘small businesses’ and ‘E-Commerce’ Giants are two pieces of the e-commerce puzzle and that sooner or later they will stop competing with each other and join forces. While E-Commerce as a whole competes with brick and mortar stores externally, internally we’ll see a symbiotic relationship emerge.
The future of E-Commerce is Small Business & E-Commerce Giants as opposed to Small Businesses or E-Commerce Giants.


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