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Principal, Xamax Consultancy Pty Ltd, Canberra
Visiting Fellow, Department of Computer Science, Australian National University
Revised Definitions of 3 February 1999 (Categories of Marketspace added 4 October 2000)
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This document is at http://www.rogerclarke.com/EC/ECDefns.html
This document provides definitions of key ideas that I use when discussing electronic commerce. It derives from a long series of publications commencing in the mid-late 1980s, and is subject to continual revision.
In any rapidly evolving field, terms are used in ways that can vary subtly or even substantially. The definitions here are those that I currently find to be most effective in analysing and communicating about electronic commerce. They have been subject to some refinement since I first addressed this field in 1992-93, and references found in the literature to my definitions may be to the current or to an older variant.
Successive sections in this document deal with the following topics:
Electronic business is a useful general term for:
the conduct of business with the assistance of telecommunications and telecommunications-based tools
It comprises many overlapping segments, which are identified in the following sections.
Electronic commerce is usefully defined as:
the conduct of commerce in goods and services, with the assistance of telecommunications and telecommunications-based tools
Some people use the term `electronic trading' to mean much the same thing. Others use 'electronic procurement', 'electronic purchasing' or 'electronic marketing'.
Note, however, that 'EC' is often used in a much broader sense, to mean essentially the same as 'electronic business', as defined above. Examples of EB that are not EC include registration and licensing processes, student enrolment, and court administration.
Note that EC comprises many segments, some of which have their own names. For example:
I use two basic models of the electronic commerce process, which I call 'deliberative purchasing' and 'spontaneous purchasing'. These are described in a later section.
Electronic publishing is usefully defined as:
electronic commerce in digital goods and services that are intended for consumption by the human senses
It encompasses a range of formats, including text, structured data, image, both raster/bit-map and vector, moving image (animation and video), sound, and combinations of the above ('multi-media').
Electronic publishing is directly addressed in Clarke (1997), Clarke (1998), and several other works by this author.
Electronic services delivery is usefully defined as:
electronic commerce in services, i.e. the provision of services with the assistance of telecommunications and telecommunications-based tools
ESD excludes the question of traffic in physical goods, and hence is concerned with applications of electronic business where, at least in principle, the entire activity can be performed electronically.
The term is commonly used to refer to government applications of EC. It is also used in relation to such industry sectors as banking and other financial services, trading in commodities, reservations for travel and entertainment events, and distance education.
ESD is directly addressed in Clarke (1999).
I use the term 'deliberative purchasing' to refer to the kind of process practised by corporations when they undertake major acquisitions. The following diagram provides an abstract (and of course idealised) description of the processes involved.
I depict deliberative purchasing as a succession of phases, described below. In many real-world cases these Phases are readily identifiable, although in some circumstances some of them may be merged, or may occur in a different sequence. Nonetheless this model proves very useful when analysing the application of particular information technologies to electronic commerce.
At the commencement of the process, the buyer and seller are concerned with the gathering of market intelligence.
The buyer seeks information about suppliers of goods and services, about the goods and services themselves, and about the prices, availability, terms and conditions applicable to a purchase.
The seller seeks information about prospective purchasers of their goods and services. This is the area commonly referred to as 'marketing', including advertising.
During this phase, a formal relationship is established between buyer and seller, including terms and conditions to be applied to transactions under the contract.
In some cases, only a single transaction is envisaged, and hence these activities are likely to merge with those of the following phase; in other cases, many orders may be placed within the context of a single 'head' contract, and hence it is useful to separate the activities into two phases.
This involves the placement and processing of purchase orders (or, in contractual terms, an offer), and acknowledgement by the seller of its preparedness to deliver (in contractual terms, an acceptance).
Other transactions which may be involved include purchase order amendments, re-negotiations and cancellations.
This phase deals with the delivery of goods and/or the performance of services. In addition, some post-delivery functions may be involved, in particular inspection, and acceptance or rejection.
During this phase, the goods or services are paid for. Relevant transactions include invoicing, payment authorisation, payment, and remittance advice transmission.
Particularly in the case of contracts which involve cyclical deliveries or service performance (e.g. the hiring of temporary or contract staff for an extended period), a succession of payments may be involved.
Associated with this phase is the provision by financial institutions to their customers of confirmations of transactions affecting their accounts, and statements of transactions and balances.
After the basic transaction has been completed, a number of additional activities may be undertaken. Most commonly, management information is gathered and reported. In some cases, an obligation may exist to store and report trading statistics to an industry association or a national statistical authority.
In addition, the sale may have resulted in a relationship between the buyer and the seller, relating to the servicing, maintenance, upgrading and eventual replacement of the goods or asset (e.g. a photocopying or fax machine), or the replenishment of supplies used by the asset (e.g. paper and ink-cassettes).
This six-phase model has the advantage of ensuring rational and effective procurement, In return for those advantages, however, it is resource-intensive and expensive.
The model is abstract, and requires specialisation when it is applied in particular settings. One important consideration is the different classes of goods and services, which are outlined later in this paper.
Note: I first presented this model at the annual International Conference on Electronic Commerce, in Bled, Slovenia, in June 1993. See Bled93.html.
A great many acquisitions, by corporations and by individuals alike, involve relatively small amounts of money; and the consequences of paying too high a price, or of buying inappropriately, are unlikely to be dramatic.
Rather than being taken deliberatively, small purchases are generally performed intuitively or spontaneously. The following diagram relates to those kinds of procurement in which the purchaser performs a minimum of rational decision-making.
This model is applicable to situations as diverse as supermarkets and on-line stock exchanges.
I use `traded items' as a collective term for the entities that are purchased and sold. The characteristics of traded items are a major determinant of the form of the trading mechanism. I find it useful to classify those characteristics across the following three dimensions.
Two groups can be readily distinguished, which are conventionally referred to as `goods' and `services'. A good is an identifiable physical entity, which is `delivered', whereas a service is an act, which is `performed'.
It is also valuable to distinguish physical from digital traded items. A `digital item' is one which may be delivered or performed entirely through a telecommunications network. This is further discussed below, under Digital Goods and Services. On the other hand, the delivery or performance of a `physical item' involves logistical activities such as the transportation of goods, or of the person and/or facilities whereby the service will be performed.
This is a separate dimension from the previous one, because both goods and services may be either physical or digital; for example, an audio-CD is a physical good, whereas an audio-file downloaded over the Internet is a digital good; and a haircut is a physical service, whereas the display of an animated graphic on a purchaser's screen is a digital service.
Traded items are valuably distinguished according to the degree to which they are productised. A product is a normal offering by a supplier, which can be ordered simply by nominating a product-identifier.
For the purposes of strategic analysis of electronic commerce, the following four classes need to be considered:
The industrial revolution involved the automation of repetitive processes, and the standardisation of goods and services into a limited number of forms, with pre-determined features. I use the term `standard products' to refer to goods or services that are available in quantity from a particular supplier, and have an identity, such that they can be ordered from the supplier's catalogue. Standard products may be the subject of a Request for Quotation (RFQ), particularly where signficant volumes are involved.
Notwithstanding the onrush of the 'third wave' or 'information economy', it remains common for goods and services to be 'productised', because this generally reduces their unit cost, and hence makes them accessible to a wide range of customers.
A commodity is a particular class of products that exist in identifiable form, in considerable quantity, and in essentially identical form, and that are available from a variety of sources. Common examples are stocks, shares and derivative financial instruments such as futures and options, foreign currency, and primary produce such as coffee and crude oil. Buyers regard commodities as undifferentiated, and are therefore unconcerned as to which ones they receive.
(It is important to distinguish this sense of the word from another that is in common usage among economists, meaning anything that is capable of being traded, as in the hackneyed expression 'information has become a commodity').
These are not products in the accepted sense of the word, because each is a `once-off', designed to meet the specific needs of a specific client for a specific purpose. Factories and ships are examples of custom-built goods, and business consultancy is an example of a custom-built service. They are typically the subject of Requests for Information (RFI), Proposal (RFP), Offer (RFO) or Tender (RFT).
The apparently clear distinction among the above three classes is not sufficient to cope with all forms of trading. Many circumstances exist in which base products are modified to suit a particular customer's requirements, or a standard specification is modified according to customer need and a semi-custom-built good or service constructed. This is particularly common where there is a combination of goods with services. Means whereby customisation may be achieved include:
Customised products are often the subject of a Request for Quotation (RFQ), or Tender (RFT).
These four classes represent points on a dimension, ranging from commodities via standard products and customised products to custom-built products.
The degree of productisation is discussed in greater detail at Clarke R. (1993) `EDI Is But One Element of Electronic Commerce' Proc. 6th International EDI Conference, Bled, Slovenia, June 1993
Electronic commerce can support most of the processes involved in the purchasing of physical goods and services, with the exception of the Logistics phase of the Deliberative model, and the Get phase of the Spontaneous model.
Digital goods and services are those that can be delivered using the information infrastructure. Hence, for digital goods and services, the marketspace provides a context sufficient for the entire procurement process.
Digital goods and services include:
The concept of 'marketspace' is used to distinguish the 'location' in which electronic commerce is conducted, from conventional, physical marketplaces.
It refers to a virtual context in which buyers and sellers discover one another, and transact business. It is a working environment that arises from the complex of increasingly rich and mature telecommunications-based services and tools, and the underlying information infrastructure.
The origin of the term goes back at least as far as Rayport J. F. & Sviokla J. H. (1994) 'Managing in the Marketspace', Harvard Business Review, November-December 1994, pp.141-150
A convention has arisen that analyses marketspaces into categories, depending on the nature of the buyer and of the seller. Some fairly silly things are said in the popular literature. This section provides a taxonomy that uses the conventional terms, but defines them in meaningful ways.
This kind of marketspace involves one business enterprise selling to another. In practice, even-handed markets are uncommon, and instead the seller(s) seek to structure the process in their own favour, and the buyer(s) seek to do the same. Which achieves how much depends on the degree to which market power exists or can be contrived, whether the available technology fits the needs of one side more than the other, and how the arm-wrestling works out.
Many observers have failed to allow for the fact that business enterprises differ vastly in terms of their size, their capacity to invest in technology, and their adaptability to new threats and opportunities. The conventional distinction between 'SMEs' (small and medium-sized enterprises) and large enterprises is useless. It's advisable to distinguish the following strata of business enterprises:
It's becoming increasingly important to recognise an additional category, orthogonal to the size dimension, for Virtual Business Enterprises (or `dynamic networks').
There's also a need to reflect the manner in which the buyer uses the particular marketspace. The following need to be distinguished:
A further category of organisations, sometimes treated as being business enterprises, and sometimes not, and often just overlooked, is non-profit organisations (in North American english 'not-for-profit' organisations), such as:
Some authors identify a separate category of B2G. In some cases, it is used to refer to sales by business enterprises to government. There are some differences between this and other variants of B2B (e.g. more formality in RFT/RFP/RFQ processes, more emphasis on probity, and contracts entered into with the relevant body politic rather than with the purchasing organisation itself); but there are not necessarily enough differences to warrant significantly different treatment from B2B generally.
In other cases, B2G refers to service delivery by government to business enterprises (for which 'G2B' would make more sense), or is concerned with regulation by government of business enterprises. This may be a more worthwhile distinction from B2B, because it commonly involves different goods and services, different approaches to the transaction, and different requirements of technology (e.g. payment systems, and aspects of security).
Government is frequently presumed to be homogeneous (despite the rarity with which two agencies in the same jurisdiction perform the same function). In practice, there are two particularly important dimensions across which government agencies commonly need to be differentiated:
The term B2C is commonly used to refer to sale by a business enterprise to a person (or `consumer'). The term is misleading, in that a business enterprise may also be a consumer.
As argued in greater detail in relation to the poor performance of net-marketers, and in relation to the privacy aspects of direct marketing, the use of the '2' involves a misunderstanding of the dynamics of Internet commerce that is both fundamental and very significant. Until sellers discover that, on the net, buyers are not inert targets of a mass broadcast medium, consumer e-commerce will continue to develop very slowly.
An often overlooked category of marketspaces is the use of electronic tools to support transactions between individuals.
Some of these are conventionally economic in nature, as in 'classified ads' and auctions of personal possessions. Others involve 'indirect or deferred reciprocity'. Still others involve gifts. All of these various categories of market are capable of being supported by electronic tools.
Information systems are complexes of human and machine-performed activities which together assist an organisation in the performance of its functions. Intra-organisational systems are those that are substantially internal to one organisation.
Electronic commerce involves interaction among the information systems of two or more organisations. As these interactions have matured, it has become increasingly sensible to conceive of a single system that extends beyond the boundaries of a single organisation. I coined the term `supra-organisational systems' in 1988 as the collective term for all of the various forms that such information systems can take.
The following classes of supra-organisational system are usefully distinguished:
These matters are discussed in greater detail in Clarke R. (1992) 'Extra-Organisational Systems: A Challenge to the Software Engineering Paradigm' Proc. IFIP World Congress, Madrid, September 1992.
Organisations can adopt a variety of strategic stances when they implement electronic commerce tools. I identify the following:
These stances are further discussed, in the context of EDI, in Clarke R. (1991) 'A Contingency Model Of EDI's Impact On Industry Sectors' 4th International EDI Conference, held in Bled, Slovenia, in June 1991. Revised version published in J. Strategic Inf. Sys. 1,3 (June 1992)
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Created: 19 January 1997 - Last Amended: 3 February 1999, Categories of Marketspace added 4 October 2000; addition of FfE licence 5 March 2004 by Roger Clarke - Site Last Verified: 15 February 2009
This document is at www.rogerclarke.com/EC/ECDefns.html