E-Commerce & Market Competition Video Lecture | E-Commerce - B Com

hi there in this special division
webinar we're going to focus on some of
the ways in which ecommerce is impacting
on market competition in the markets for
different goods and services so what is
e-commerce well probably the best
definition is that ecommerce involves
digitally enabled commercial
transactions between and among
organizations and individuals some
ecommerce is b2c business to consumer
some ecommerce is business the business
need to be but in this presentation
we're going to focus on business to
consumer because I think that's the most
important thing from The Economist's
point of view ecommerce and unit 3 micro
well there's lots of ways in which we
can think about e-commerce digital
businesses they really are affecting
many different markets 15 years ago
these businesses did not exist indeed in
2002 Qi was bigger than all of those
businesses where did it all go so badly
up one of the instant questions is
whether ecommerce is leading to more
intensive contestability and competition
and therefore enhanced economic
efficiency and welfare or in contrast
are we seeing the emergence of new
digital monopolies scale businesses
eventually highly profitable in other
words new digital monopolies so we're
taking the place of established
businesses with market power just a few
years ago what is clear is that the
percentage of people who have bought
something online has been rising
steadily it's now over three-quarters of
people helped to lead by the fast growth
of broadband and Wi-Fi and of course
people have had increased experience of
buying things online so there's a kind
of hysteresis effect once you become
comfortable and confident with buying
online
you're much more likely of course to
attain that as a as a default method of
purchase business-to-consumer ecommerce
sales again it being growing rapidly
this shows the annual sales in billions
of pounds rising from 55 billion in 2012
to over 80 billion forecast for 2016 and
nearly 90 billion forecast for 2017
certainly rapid growth evident
it and linked with all he commerce of
course is the rise of the digital he
called me the growth of apps need this
chart shows monthly downloads in May
2016 for the world's most popular apps
snapchat for example added nearly a
million users a day in terms of
downloads Facebook over a million users
what's happening for more businesses
just Spotify adding over 300,000
downloads every day and businesses such
as Netflix so what you have here is
clearly a huge growth in the scale of
and the usage of some of these major
apps so in this presentation we're gonna
mention the impact of e-commerce on
contestability link it to economies of
scale identify new forms of non-price
competition link ecommerce to the
widespread increasing use of dynamic
pricing strategies talk about pure
player vs. on the channel and finally
think about the ways in which
established businesses so-called bricks
and mortar businesses are helping will
try to counter the impact of the fast
growth challenger
rivals now market structure is important
and when we think about the structure of
an industry or a sector we think about
its size in terms of revenue for example
in quantity sold we think about the size
distribution of firms how many
businesses are the in the market how how
many big firms are there how many
smaller businesses are there we think
about distribution channels how do we
get products to market how can you sell
to consumers through various channels
and really we're interested in the
profitability of businesses in the
sector
we are focusing on the number of in the
closest of substitute products that's
quite important as we'll see in a second
and crucially when we think about market
structure we're interested in the nature
of the costs of production both in the
short-run and also the long-run to what
extent is a market structure vertically
integrated that's gonna be important and
how significant are the barriers to
entry and exit from a market and finally
what extent is the market open to
international competition that's a
significant structural change
in many sectors in the UK for example
now the point from this webinar is that
ecommerce the lies of globally scaled
ecommerce businesses and many smaller
rivals is affecting almost all of these
factors in most industries and markets
this is a fundamental change in many
sectors so which weights are ecommerce
leading to Joseph Schumpeter famous
creative destruction
well Amazon is involved in lots of ways
shaking up the markets but book and
music book will be telling initially now
increasingly even involved in grocery
retailing and music streaming and Amazon
Prime in terms of TVs and films the
online gambling companies bet365 and
foxy bingo taking on established
bookmakers and betting companies huge
huge growth of digital businesses in
file storage and sharing drop boxes full
of up their the sharing economy of
course uber their baby shaking up their
respective markets and an enormous
increase in intensity of competition in
news publishing online the rise of
Twitter Huffington Post BuzzFeed and
Facebook has effectively
news organizations many people now get
their news direct most frequently from
those those online streams one of the
key things about e-commerce is the
significance of economies of scale one
of the cons of scale links to this kind
of business which is rarely taught and
ailable but it's highly relevant is the
idea of a network economy of scale our
network economy is both a demand and a
supply-side economist go because they
think about it from the cost point of
view the marginal or the extra cost of
adding one more user to the network is
pretty much zero particular if you're
just adding a name to a database but
then there are significant spillover
benefits because each user to the
network interact buy and sell with all
the existing members or parts of the
network
indeed the networking commerce of scale
are significant if Amazon adds a hundred
thousand customers or hundred thousand
products to its database the cost to
Amazon of doing that is fairly
insignificant relative to the overall
network
to building the platform but the
potential revenue streams are huge and
of course the more users that Amazon has
then the lower is the fixed cost per
user across the network so if you get a
question on the e-commerce think network
economies of scale they really are quite
significant this is evidenced by the
growth for businesses such as Netflix
which has become huge both in the United
States and increasingly overseas notice
here the red areas this is where Netflix
started streaming media cling film over
hundred different clubs everything added
in in January 2016 huge growth for
Netflix we can see that reflected in
their revenues from poultry revenues in
2002 this has almost been exponential
growth - topping 7,000 million dollars
seven billion dollars in 2015 who knows
what the figure will be for 2016 and
beyond so this is a globally scale
rapidly expanding business that uses
economies of scale as part of its
success story so how our ecommerce store
is changing business models well one
really good example is the print and
newspaper industry increasingly people
of course prefer to browse online they
get their news flow from social media
Facebook from Twitter and from online
journalism such as BuzzFeed the impact
has been to reduce the circulation each
day of print newspapers fallen
subscription revenues for magazines and
crucially these newspapers and magazines
therefore can't command the same
advertising rates when they try to sell
classified ads so the independent for
example has now stopped their print
edition their online only and it's
likely that other newspapers and
magazines may follow suit Newsweek
magazine is now online only who knows
what the next big one will be that's
clearly quite a big structural change in
the industry
likewise with data storage devices go
back 5-10 years everybody was buying
memory sticks to carry around with him
and plug into into their computers and
they were carrying these kind of big
hard
mobile hard drives all tomorrow for
those has fallen away of course as
people and businesses choose to store
their data
on cloud-based services such as Dropbox
rather than hold a clunky device which
is easily lost or damaged let me think
about barriers to entry
what are they one of the issues here in
terms of e-commerce here are five of the
significant barriers to entry in the
industry commerce of scale we mentioned
vertical integration the supply chain
control band loyalty important control
of important technologies some of which
may be patented and importantly
increasingly expertise goodwill and
reputation I think this is the key to
understanding the success of some
ecommerce businesses and the relative
failure of others but fundamentally
consumers regard the expertise of the
seller then with will they have and the
business reputation they have as
fundamentally important now this is not
necessarily something you can draw in an
analysis diagram in the exam I think
it's particularly significant especially
if you're trying to persuade consumers
to migrate from but some water shops and
purchases face-to-face if you like
towards buying and selling online
particularly when there are lots of
information and signatures the buyer may
know more than the seller the seller may
they brought them the buyer so has
ecommerce lowered barriers to entry well
in some ways the answer is yes you know
millions of people billions people now
have smartphones and there's a whole app
ecosystem that's developed around it it
makes it just much easier now for small
businesses in particular to develop
existing products and services we've
seen the rapid expansion of an
investment in platforms Amazon eBay
Google Alibaba etc it's now is so much
easier and so much quick quicker for
small businesses to develop a base
online and sell through these platforms
ecommerce has also made it much easier
to expand into international markets
even a relatively small business such as
tutor to you can sell quite happily
products into more than 70 countries
every year simply because we have our
website their website that works but on
the other hand you could argue that
actually e-commerce is not necessarily
lowering barriers to entry particularly
because if you're going to invest
successful in e-commerce systems on a
big scale that still requires a
significant investment you're going to
come with you're going to compete with
some pretty big global domestic players
equally of course existing players they
have the financial resources and
oftentimes the profits to try to protect
their market position so the likes of
Argos and John Lewis and HMV which
itself has been through some problems
recently they're all investing millions
of pounds every year in what's called
omni-channel retailing and we'll come
back to that in a second best performing
e-commerce businesses are increasingly
the biggest - so our barriers to entry
coming down yes in some senses but scale
still matters particularly networking
commerce of scale amazon's market
dominance of course has become a
competition issue in terms of to what
extent could anybody really now rival
Amazon in terms of online retail I think
the point I want to stress here is that
the barriers to entry may be low but
they're not necessarily the same as the
barriers to profitable entry in markets
and many ecommerce firms of course don't
survive because they never make a profit
Amazon is huge of course
relative to other retailers in Europe
it's absolutely enormous compare for
example Amazon here with this chart at
the state is 2014 - the size for example
of a quarter which many of you would
have come across in the UK and a sauce
of course so Amazon's absolutely
enormous a word or two about the sharing
economy I think this is where people are
getting really quite interested the ways
in which platform businesses are
challenging the existing market power of
other businesses of the been around for
donkey's years so uber and Airbnb Amazon
flex blahblah car they are basically
platform businesses
well that means is they they they
provide a platform for goods and
services to be transacted people can can
order a cab and the journey can happen
but Airbnb doesn't own any hotel rooms
basically uber doesn't own any vehicles
of course that reduces the amount of
capital that these businesses need to
operate for some of this gives them a
significant cost advantage and they can
break in to market successfully other
people think this is an unfair advantage
and risks creating a distortion in the
market a word or two about non-price
competition I think that e-commerce is
actually creating new variants of
non-price competition which will become
increasingly common almost ubiquitous in
the months and years to come
so non-price competition is a way of
trying to target higher sales increase
market share protect your position in
the market by focusing on things other
than the direct financial cost of buying
the products the device if you like so
the traditional non price competitive
factors are things like innovation
particularly in for example in the
Netflix versus Amazon Prime in terms of
the quality range of films and box sets
and series available so lots of these
business is now investing heavily in new
programming and you writing a new series
quality of service matters particularly
have to sell service that's especially
the case in dishes such as car repairs
and food retail and restaurants clearly
a free upgrade to product two important
loyalty schemes exclusivity of
particular products importance the
quality of the Blanding and the
reputation that is the business plan is
significant and so two sales promotions
getting the goods to the consumer in
particular the final mile getting goods
safely and quickly to the consumer so of
course ecommerce businesses are heavily
focused on all of these things but
they're doing some other things as well
we're going to focus here just briefly
on mass customization so you can now
design your own eminence
there is successful promotion there moon
pick of course customizable cards
customizable birthday gifts Berber you
can now customize the clothing that you
buy off their website Nike likewise
increasingly ecommerce businesses are
recognizing the importance of mass
customization
a product is mass-produced but that's
individually customized
to meet the needs of the consumer and
crucially not only is this non non price
competition it also allows businesses to
charge a premium on the usual price and
add to margins many ecommerce businesses
are pretty savvy when it comes to
dynamic pricing the Lobeck pricing is a
form of price discrimination
it's where the price you charge for a
particular good or service there is
frequently and widely according to
changing market circumstances Amazon
perhaps the one of the biggest online
retailers now on the planet uses dynamic
pricing it's been said that it changed
its prices every 10 minutes on average
uber the platform taxi app certainly
uses dynamic pricing in particular surge
pricing where at peak times the price
can be one and a half to two and a half
times the average designed in theory to
get more drivers onto the roads but
clearly a way of boosting revenues the
key point I want to make is that
businesses ecommerce businesses
increasingly have access to big data ok
they have access to the operating system
you use your browser history your
purchase previous purchase history etc
and real-time big data makes automatic
dynamic pricing a reality which means
that firms can now move towards first
degree price discrimination in their
markets sometimes called hyper targeting
or personalized prices and all apologies
for the type of that just change up ok
personalized pricing and this is where
businesses can use the digital profile
you build up as a customer often times
to offer you a bespoke or personalized
price being Q testing electronic price
tax for people as they walk into the
store individualized deals for people
booking liens on late leaves etc again
this raises ethical questions but it's
certainly a way in which businesses can
absolutely nail the particular
purchasing behavior and willingness
ability to pay of individual groups and
individual people some people argue that
ecommerce is good for the consumer
because it increases price transparency
so if you're looking to take out some
car insurance
or perhaps find the best way to find a
savings account or the price of a
particular product
there are many price comparison websites
out there which in theory provide the
consumer with better information and the
chance to buy things that are lower
parts however the evaluation point is
that not every brand allows their prices
mislead on to be displayed on such sites
that's particularly the case with
insurance for example so consumers may
be given the illusion or the veneer of
price transparency but in fact in
reality they're not getting much choice
at all first mover advantage is an
important idea in game theory we can
link it to e-commerce first mover
advantage is the idea that if you're the
first into and becomes scaled in or one
of the early entrants into a market you
can achieve kamas of scale consumer
loyalty learning by doing which gives
you a significant competitive advantage
if compared to firms who come in later
Spotify is a good example now over 20
billion users well before the
competition arrived effectively
competition from Apple and Amazon in
2050 Spotify clearly doing very well
Dropbox knew another good example they
weren't the first into the file sharing
business not the first by any means but
to Dropbox on onedrive both launched in
2008 well several years before Google
Drive and iCloud were launched and I
wonder how many of you listening to this
presentation use Dropbox but don't use
for example iCloud even though of course
it's linked to the Apple bat Dropbox is
a big success story again this is
Network economies of scale here the
number of users registered just some of
last year just topped 400 million people
globally a word on pure-play ecommerce
so pure-play businesses are ecommerce
businesses that originate and do
business purely over the internet they
don't carry any physical stores they
don't have any books and mortar
distribution channels where
people can go and visit and shop these
are pure online players the trademark
aam bet365 eBay Amazon although for
sam'l is now opening its own bookstores
just eight in the UK
uber so there's a lot of pure play
retailers development so with uber force
of targeting some very well-established
traditional rivals uber challenging the
city taxi firms in particular London
black cabs a sauce the online clothes
retailer targeting the likes of H&M and
next Airbnb a thorn in the side of many
hotel groups best bet365 the online
bookmaker tacking William Hill and lab
books and Amazon basically a threat to
anything that exists and lives and
breathes
now although pure-play businesses have
done extremely well let's baqia you
clear here established firms can and
they do fight back this is not a one-way
street three things to make it three
points to make one is that existing
firms have ban loyalty that brand
loyalty that consumer loyalty is built
up over many years often decades
particularly in consumer facing
businesses such as retail John Lewis
Nike Domino's Hyatt Hotels these are
businesses with substantial reputation
and although some businesses have gone
to the wall including the likes of
Blockbuster Video and will recently
British home stores there are some
Signet significant successful face to
face book some water businesses that are
meeting the digital challenge head-on
secondly a physical store network can be
an advantage yes
it adds to cost but if you have an
extensive network of stores now that
allow us to support non-price
competition through devices that is
click and Collect which have become
extremely important as well as providing
customers with all-important
face-to-face advice and crucially a lot
of the existing established businesses
are moving towards omni-channel
retailing on the channel distributions
this is where you have an integrated
approach you have books and water
you have online you have joint ventures
Apple have done it they have lots of
retail stores in over 15 different
countries of course they have their own
apps
store and they have retail partners such
as PC world and Domino's has done it
successfully many many years of course
Domino's growth was based on opening
more Pizza stores oftentimes in suburban
areas and towns and cities with a
network of people delivering pizzas the
final mile to the consumer and that
growth story was important for them but
a few years ago Domino's decided that
ecommerce was going to be a significant
part of their business and as you can
see in the first half of 2014 online
sales in the UK accounted for nearly 67
percent of total sales Domino's has
become a significant ecommerce business
if you like it's pivoted indeed within
their own words Domino's is now an
e-commerce company that sells Pizza so
here are some key terms disruptive
technologies clearly destruction sure we
play e-commerce dynamic pricing a mass
customization first mover advantage
these are terms which are really linked
specifically to e-commerce but I think
from an a to micro point of view stick
your confidence to the concepts and the
ideas that are relevant to your course
ecommerce of scale barriers to entry
supernormal profits elasticity of demand
those kind of ideas what is the case is
that ecommerce is having a significant
effect on many of the markets it's an
absolutely fascinating aspect of the
course to study and hopefully this
presentation has given you some good
examples to think about which you might
be able to include in an exam question
thank you thanks for listening