A Perspective on E-Commerce

We talked last week about 3 different ecomm models, direct sales, disintermediated sales, and digital sales. It's not hard to find the huge pros associated with ecomm. I LOVE being able to shop JCrew factory with free shipping, craigslist for getting tickets, and amazon's kindle for buying digital content. We are priveleged to have unprecedented thresholds of price, efficiency, and choice. It certainly has created new types of jobs, for example in data entry, website creation and maintenance, credit card processing, Internet security, and inventory management, and it allows people to shop from the privacy of their own home. Additionally, it significantly lowers the barriers to entry and gives small shops many otherwise lost opportunities. Most obvious, is that ecomm allows business owners to cast a wider net while reducing some traditional costs associated with retailing (i.e. operational costs, transaction costs, etc.

Because the pros of ecomm are so obvious, especially to us as users, I thought I'd summarize below some of the adverse effects of ecomm that have been written about, so that we can all have some knowledge of both sides of the coin.

Cons of Ecommerce:

On the consumer side, obviously we deal with loss of privacy, consumer protection issues (sophiscated fraud or abuse of personal information), displacement of workers, and negative impact on quality of work life.

On the business side, companies are forced to reduce profit margins, and there is tremendous pressure to force price down, small players might actually be killed by large players (think EBay) subduing the market more so to "winner takes all" scenarios, and e-commerce could have tremendous impact on tax policy. Some papers suggest that ecomm could lead to erosion of tax bases since it transcends national boundaries. In terms of labor market, yes ecomm will create new jobs in IT type services, but it will displace the more traditional workforce and probably contribute to higher rates of turnover in a fast-paced, technology based world that will be ruled by innovation. An article by S. Sharma and J. Gupta suggests hones in on this point by stating that the world will shift from mass labor to knowledge labor.

So in summary, while we fawn over the convenience of ecommerce in the short-term, it behooves us to understand and prepare for the future changes it will bring to price, composition of trade, and labor markets.