Opportunities and challenges for ecommerce entrepreneurs

Entrepreneurship is regarded as a major force of innovation in the United States. Throughout history, entrepreneurial activity has helped boost the economy, introduce new ideas to the marketplace and create jobs for Americans. From high-tech start-ups in Silicon Valley to mom and pop stores in small towns, this entrepreneurial spirit has made a profound impact in shaping the country’s economic landscape.

It can be argued that the true mark of the entrepreneur is that of creativity and risk-taking – believing in an idea and carrying it to its hopefully profitable end, and in the process creating new avenues for self-growth and possibly even new ways of doing business. This holds true for many success stories in American enterprise, from the birth of fast food to Google’s ubiquitous search engine.

Therefore it is no surprise that the United States also pioneered the widespread adoption of the Internet as a new tool for entrepreneurs and businesses. That these inter-related networks crossing international boundaries and spanning millions of users can be tapped and used as a platform for selling goods and services and introducing new ideas speaks of a completely new age in doing business. This new activity came to be known as e-commerce.

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Accordingly, many individuals and businesses decided to engage in e-commerce activities, developing their online presence that catered to users and their various needs. Such efforts met with varying degrees of success, with some companies successfully utilizing what e-commerce has to offer and profiting from it as others ultimately fell victim to hype and misguided business models, the companies formed during the dot com bubble being the most notorious example.

Given that e-commerce is a new concept, it is understandable that small and medium businesses and big companies alike will meet struggles along the path of adopting and sustaining e-commerce activities. With this in mind, this paper aims to identify some of the opportunities and challenges presented by e-commerce, and how they can contribute to the success or failure of entrepreneurs hoping to get a piece of the Internet pie.

LITERATURE REVIEW

Development of E-commerce

Kevin Kelly’s August 2005 article for Wired magazine provides a comprehensive history of e-commerce and the Internet as a whole. In it, he describes the initial reluctance and skepticism of big businesses, IT experts and the National Science Foundation (NSF), the organization that runs the Internet’s backbone, in the commercial prospects of the Internet. He notes how many thinkers at the time expressed their doubts about the mainstream appeal and acceptance of the Internet as well as their concerns about the Internet being under the control of a few large companies if it was to be opened to commercial activities.

In his analysis, two events effectively ushered in the era of the Internet as we know it today. The first being the NSF’s removal of the ban against commercial activity within the Internet, and the second, happening just three months later, was the initial public offering of Netscape, developers of the Mosaic browser which was the most advanced Internet browser at the time (Kelly, 2005). These developments effectively sent the message that the Internet is ready for the world, and as Kelly points out (2005), early concerns about the costs of producing content for a huge number of users and the potential usurping of big business were overtaken by the sheer enthusiasm and involvement of consumers in charting their own Internet options.

Since then, the Internet has managed to become a major contributing factor to many advanced economies, particularly the United States and much of Europe (Dholakia, Fritz, Dholakia, & Mundorf, 2002, p. 1). Dholakia et al. also sees the Internet as paving the way to a new ‘infrastructure revolution,’ that has since created new markets and transformed existing ones while altering current marketing concepts and practices (2005, p. 31).

However, Jackson et al. present a much more tempered view and argue that the hype about e-commerce does not match cold hard economic facts, citing the small contribution of e-commerce to overall Gross Domestic Product of advanced countries (Jackson, Harris, & Eckersley, 2003, p. 19).

Forms of E-commerce

According to Jackson et al. (2003, p. 20), there are four main forms or models of e-commerce as defined by the nature of transactions involved. Business-to-Business (B2B) pertains to those between producers. Business-to-Consumer (B2C) refers to the transactions between producers and consumers. Meanwhile, less studied in e-commerce literature are the Consumer-to-Consumer (C2C) and Consumer-to-Business (C2B) models. C2C indicates the exchange of products and services between consumers themselves, often through auction sites such as eBay. C2B involves the sale of goods or properties by consumers to companies, such as cars or real estate. From here on, this paper shall focus mainly on the Business-to-Consumer (B2C) model unless otherwise indicated.

E-commerce Ethics and Regulations

Just as in traditional businesses, e-commerce entrepreneurs are subject to business ethics and laws. Peeples (2002) suggests that complete regulation of the Internet and the activities that exist within it may just be impossible. However, she reports that there are several ethical guides and standards that are being developed by organizations such as the Better Business Bureau, Electronic Retailing Association and Online Privacy Alliance as basis for business activities online and covers such hotly debated issues as customer privacy, security of financial transactions, identity theft and fraud.

Jackson et al. (2003, p. 149) make some recommendations on how entrepreneurs can form their own codes of conduct in e-commerce. They suggest consultation among all stakeholders, balancing between rights, duties and individual interests and freedoms, anticipation of future conflicts, allowance for exemptions and future review, consistency with old policies and strategies, ease of application and clear ethical rules. Peeples (2002) also suggests hiring a dedicated ethics officer within the business to oversee all ethical issues that may surface.

DISCUSSION & ANALYSIS

After identifying the development, forms and ethical issues of e-commerce, this section of the paper will now focus on the relevant e-commerce opportunities and challenges for entrepreneurs.

E-commerce Opportunities for Entrepreneurs

Karjaluoto and Huhtamaki (2010) sees e-commerce as a valuable tool in helping existing businesses to develop relationships with new customers and enhance existing ones. They believe that a particular long-term benefit for the adoption of e-commerce is its capacity to reduce future human and financial resources, which is especially important for small and medium-sized enterprises. They also argue that small firms are much more flexible and are more adaptable to changes due to their lean organizational structure and simpler decision-making processes. As such, these firms have considerable advantage in the adoption of e-commerce business models. Epstein (2004) also believes that e-commerce offers strong potential for value-creation among businesses, and argues for the adoption and implementation of e-commerce based on sound business concepts and principles.

Quader (2007) agrees with these observations and suggests the ways in which customer value may be increased, as when e-commerce enables companies to easily track their customers’ buying habits and preferences, store them in a database, and use this information to tailor their offerings. He also cites Timmer’s work in identifying e-commerce business models (1998). Most of these models have been adopted successfully and can be applied by entrepreneurs as they see fit. Some of the most relevant are:

E-Shop – a direct e-commerce model between a business and its customers, which can potentially increase customer demand while lowering sales and marketing costs.

E-Auction – an online bidding mechanism usually among individuals but may also involve businesses. Ebay is a famous example.

E-Mall – a collection of E-Shops which offers strategic alliances with other firms to combine strengths in increasing traffic, enforcing their brands, using a uniform payment system, and even lowering costs of online transactions.

Virtual Communities – companies may choose to participate in one, and share experiences with other industry players or develop their own for their customers which may help increase brand loyalty and repeat business.

Dennis et al. (2004, p. 206-207) expand on these models further by identifying firms that have established themselves online as virtual retailers or E-retailers, which have allowed customers to conveniently and quickly ‘participate in retailing activities previously restricted to store-based retailers’ such as price comparisons and different payment options. The authors also identify the clicks and bricks retailers as those who have both physical stores and web presences. They cite Amazon and UK’s Harrod’s as among the most famous examples of E-retailers and click and bricks retailers.

Harris and Dennis (2002, p. 244), meanwhile, identifies some of the advantages of e-retailing over traditional retailing forms. They believe that e-commerce wipes out the limits of firm size and territorial boundaries as it allows the firm to reach a larger audience and be literally open for business 24 hours a day. They also see crucial opportunities for strengthening customer relationships, reducing costs in marketing and more upselling and cross-selling activities.

The Challenges of E-commerce Adoption for Entrepreneurs

Karjaluoto and Huhtamaki (2010) reports that while small firms are inherently more flexible and adaptable than large firms, they will also invariably face many hurdles in trying to adopt and implement e-commerce in their businesses. Factors such as limited time, resources and know-how that can be devoted and applied to e-commerce activities are major challenges for entrepreneurs. Meanwhile, Rodríguez-Ardura (and Meseguer-Artola & Vilaseca-Requena, 2008) define some of the external factors that may hinder large-scale adoption of e-commerce among entrepreneurs, such as the degree of involvement of government and regulatory bodies in developing legal, financial and marketing frameworks for e-commerce development. They argue for the importance of establishing clear and enforcible legal and business frameworks to effectively address the concerns of businesses and consumers on issues of online privacy, data protection and financial security, among others.

Epstein (2004) also identifies several factors within the business that may affect the adoption and implementation of e-commerce activities. Corporate culture, for example, will play a huge part in determining the extent of e-commerce activities. The owner, manager and employees all have to be engaged and unified in any e-commerce undertaking. The competitive standing of the firm in regards to e-commerce is also quite difficult to ascertain especially given the dynamic nature of the business of selling online. The decision to cater to overseas customers is also a crucial point in any e-commerce, as international distribution, payment systems and achieving customer satisfaction can potentially complicate matters for a small firm. Finally, and perhaps most important, the IT capabilities of the employees have to be taken into account.

Another major challenge for entrepreneurs who want to engage in e-commerce is attaining customer trust and loyalty. Karake-Shalhoub (2002, p. 191) sees customer trust and loyalty as the marketplace currency of this new century. They argue that there are still critical gaps that exist in understanding customer behaviors that contribute to developing trust and loyalty, especially among online service providers that offer intangible products with subjective performance indicators.

CONCLUSION

There is no denying the power of the Internet in shaping current and future trends in business. E-commerce, in particular, has attracted and frustrated entrepreneurs of all sizes and industries due to its potentially huge benefits and increasingly sophisticated, and often, complicated business models.

It can be sufficiently argued that e-commerce is a concept still in its infancy, prone to major shifts in dynamics and sensitive to increasingly sophisticated and savvy market tastes. As such, any attempt at utilizing e-commerce either as the sole focus or part of a business strategy must be flexible enough to accommodate new and passing market trends while remaining grounded in good old fashioned business sense and practices gained from traditional business forms.

Further, there is no limit, at least at this point, in the growth opportunities presented by e-commerce. Even with the young age of the Internet, there is already a diverse and expansive international market spanning various demographics such as age, race, gender and income level that exists side by side with the opportunity to cater to increasingly specific and smaller niche markets. Other business activities such as marketing, advertising, sales, customer relations, procurement and strategic alliances are also finding new applications and developing new principles as they are applied online. Entrepreneurs keen on maximizing the potential benefits of these developments must keep abreast of them, continually evaluate the applicability to their firms and apply as necessary.

On the other hand, there are also plenty of challenges and hurdles that may hinder and even damage e-commerce adoption and development among entrepreneurs. External factors such as government regulations and ethical issues that should protect businesses and consumers still need to be refined, expanded and explained to all stakeholders. Also, small and medium-sized businesses, in particular, face considerable challenges in leveraging on their size and limiting the negative impact of limited resources, time and technical know-how available to their e-commerce efforts. There can be considerable advantage for these smaller firms to explore financial and technical help from government and non-government organizations in implementing their e-commerce ventures.

Meanwhile, the big-picture issues that confront businesses, consumers, governments and all Internet users – online privacy, e-commerce ethics, transaction and data security – all require a concerted effort among stakeholders in order to come up with viable, effective and workable solutions. They may come in the form of stricter and more comprehensive e-commerce laws and privacy legislation, technology improvements such as encryption to safeguard sensitive personal data, widespread adoption of ethical protocols and best practices, self-regulation among businesses, increased vigilance and good old-fashioned common sense among Internet users. For if the Internet is to remain a viable business platform, all stakeholders need to contribute to maintain and improve its integrity.