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Hunter Graves

Professor Tomasevich
August 10th, 2016
E-Commerce in the 21st Century Economy
With the introduction of computers in the mid-20 th century and the advent of
the internet in the early 90s, computers have revolutionized the global economy by
introducing more efficient and accurate ways of handling business transactions
across a broad international market. Internet generated business transactions are
often referred to as e-commerce (1). The traditional notion of a business
transaction is one involving the trade of an object, in exchange for money, between
a seller and a buyer. In general, business transactions have taken on different forms
over the course of history, with merchants traveling overseas into other countries to
negotiate deals and sell their products, as well as large chunks of land being
purchased with money and officiated through signed documents. Presently,
computers have uprooted much of the traditional framework that defines specific
business transactions, yielding both positive and negative results for certain
markets that are bound by specific rules and regulations. Currently,
maintains the highest sales in the world as an e-retailer, generating over 70 billion
dollars in 2014s fiscal year (2). The immediate contrast between internet related
business transactions and traditional face-to-face transactions is found in the
observation that e-commerce vendors do not require physical browsing locations,
nor do they rely on a physical exchange with their customers. Despite the
significant potential that new online business models provide in areas such as

audience selection and an expedited process of getting a customer in front of a

product, standard physical merchants and vendors still generate more revenue than
companies that focus strictly on e-commerce. Furthermore, e-commerce companies
operate on different business platforms when compared with brick-and-mortar
retailers, and the societies that make up the internet marketplace often function as
determinant elements when measuring the success of e-commerce companies.
Internet vendors similar to modern e-commerce websites such as Amazon
have existed in different forms since the invention of the internet with the internet
commerce model eventually growing to achieve modern and quantitatively
significant numbers of consumers and product sales. As an online retailer, Amazon
serves as a figurehead company when discussing discrepancies between common
brick-and-mortar retailers and internet retailers. It has been observed that
consumers prefer to physically engage in shopping for their products, spend more
time browsing at physical locations, are more likely to buy a product after physically
shopping, shop more frequently at physical locations each month, and make 94% of
their retail purchases physically (3). While these statistics hint at the dominance of
brick-and-mortar businesses, Amazon leads the world in the virtual marketplace as
a single entity rather than as a collection of different companies with different
interests. In fact, by virtue of its existence as an e-commerce company, Amazon has
been able to disrupt and overtake many industries. Amazons capacity to operate
with no single location across a global market with microscopic overhead cost has
allowed it to take precedence in various industries, such as the publishing industry
and the shipping industry. Aside from completely taking over the publishing
industry, Amazon has gained a foothold in video-streaming, grocery shopping,
package delivery, and audio video production (4).

Much of the success experienced by Amazon and companies similar to

Amazon that maintain a predominantly internet-based business model stem from
the innate qualities afforded to the business model in comparison to traditional
physical vendors. Companies operating with an e-commerce structure are capable
of offering a broad array of services because they are not limited to maintaining
physical locations. They have access to a larger pool of consumers and have an
extremely low start-up cost because they do not operate with physical
establishments. E-commerce businesses may grow dynamically with respect to their
offered goods and the costs associated with storing and distributing their goods. In
terms of functionality, traditional business models rely on business management
teams, employees, and business hours (5). Comparable e-commerce merchants and
vendors provide the same goods and services with less employees, management,
and time constraints.
One interesting factor in e-commerce businesses is that pre-existing retail
giants have managed to successfully establish themselves as proponents of ecommerce. These companies managed to adapt the internet retailer business
strategy, and due to their large assets, they were able to successfully work
themselves into high positions in the international online marketplace (2). Walmart
and Macys are examples of large retail corporations that maintain leading spots in
the global rankings as e-retailers. These companies have incorporated e-commerce
business models and they have, in some instances, managed to work themselves
into new markets. Traditional corporations such as BestBuy and Staples have
started to close down retail locations and open up online retail branches in response
to the growth of e-commerce websites and companies. The comparatively low costs
associated with e-commerce establishments and operations are appealing to

traditional retail stores, and many of the corporations making the switch already
have state-of-the-art warehouse facilities, equipment, business deals, and
employees. Large corporations who participate in e-commerce ventures and create
internet purchasing websites experience rapid growth, and in 2013, Walmarts
online sales experienced a more rapid growth than Amazons during the fiscal year
A major drawback for employees of companies who are shutting down
physical establishments in response to online retailers is the loss of jobs. Due to the
fact that many online retailers require less employees, many who are employed
through large retailers such as BestBuy and Walmart are faced with the possibility of
losing their jobs. Moreover, the aspect of business to business transactions in the
marketplace have been drastically altered by e-commerce websites. Employees who
function as business to business sales representatives are less necessary because
of the ease and efficiency brought by e-commerce websites who offer automated
services. For internet businesses, the system of low-end order processing is
streamlined. Information is served more rapidly to buyers and the received orders
are placed automatically rather than needing to be processed by a human. It is
estimated that, by 2020, one million business to businesses sales representatives
will lose their jobs (7).
E-commerce has been a central factor in the growth of the gig economy,
which has had a negative impact on many different forms of work, such as the taxi
industry, the hospitality industry, and the food service industry. Cell-phone
applications created by internet businesses connect consumers to gig employees
who are able to choose whether or not they would like to take the customers

request. The unregulated nature and the lack of employment guarantees by the
internet companies defines the term, gig economy, where employment consists of
short gigs. In the taxi-cab industry, for example, companies such as Uber and Lyft
have been able to overtake the traditional taxi companies that are confined to
physical areas and regions. Internet companies such as Uber and Lyft exist on a
platform that is universal and homogenous due to their software that runs on users
cell-phones. The ability of Uber and Lyft to exist in a domain that is completely
unregulated has been an area of controversy for taxi drivers and taxi companies in
the industry. A comparison between the employment prerequisites of taxi
companies in major U.S cities and the internet businesses Uber and Lyft show that
neither of the two internet companies perform drug tests, finger print checks,
medical exams, or training. The lack of regulations for this business model permits
Uber and Lyft to a wider range of employees (because of a lighter baseline
competency requirement), and cheaper hiring costs (there are no drug tests, no
finger print scans, no training).
Another industry that has experienced losses from its traditional enterprises
is the hospitality industry. Internet businesses such as AirBnB have spawned a
sharing economy. The sharing economy is an economy founded on the principal
of capitalizing on leftover resources that would have otherwise been stagnant (10).
Because of the fact that e-commerce companies and businesses make use of an
automated framework, rapid sales of unused assets without the constraints of a
traditional brick-and-mortar vendor is made possible. For businesses such as
AirBnB, users can select from rooms and homes that are posted by other users.
Individuals who lease rooms through AirBnB do not have to obtain a license or abide
by their local governments ordinance rules because the companys business model

is unregulated. Traditional hospitality venues such as hotels have suffered large

losses because the e-commerce model has undermined the traditional model that
features high overhead costs. The scalability of the e-commerce model is essentially
limitless because there is no limit to the amount of total rooms that can be added,
and most importantly, there is no cost for adding these rooms to the market.
The e-commerce model and its features of low overhead cost, scalability,
homogeneity, efficiency, and ease of access have offered employees heightened
freedom compared to the types of freedoms made available to them via
employment through a traditional business (11). The aforementioned limits of the
brick-and-mortar establishment are passed over to employees, limiting the hours for
which they may work, the physical locations at which they may work, the extent of
their criminal background, their meal times, and their break times. Freedoms
afforded to employees via the gig economy and sharing economy are enticing to
potential employees and the lack of regulation ultimately provide these internet
companies with a large hiring pool. The e-commerce platform does not rely on
consistent employee labor, but rather, individual transactions. As a result of the
baseline demand for large volumes of individual transactions and the large pool of
potential hires, pre-existing internet companies and new internet companies alike
are capable of experiencing rapid growth that is unattainable by traditional brickand-mortar establishments. A compounding effect can be seen when the lack of
regulations, lack of training, and lack of background tests are taken into
consideration, further lightening the overhead costs of hiring employees for ecommerce businesses.
In order to counteract any perceived notion of employee disposability, some
e-commerce businesses that rely on making use of the sharing economy and the gig

economy have, in some instances, incentivized their employees with exclusive

company stocks. A New York Times article by Katie Benner details the actions of
AirBnB, who recently offered certain employees the option to sell their exclusive
start-up stocks to investors (12). The significance of the move by internet
businesses to incentivize their employees with pre-IPO stocks is important because
it demonstrates the unstructured nature of these internet businesses and the
atmosphere in which they have come to exist. Due to the unregulated nature of
many of the iterations of the e-commerce platform, a level of volatility and
uncertainty exists that can often lead to overvaluation by investors before a
companys stocks become publically tradeable. A key feature of some e-commerce
platforms is one of short-lived immediacy, where a low-overhead start-up business
can briefly thrive in a previously unfilled gap making profits before vanishing due to
regulation or competition.
Uncertainty in the market stability of a given product is a prime driving force
determining the success of an internet business. E-retailers such as Amazon exist to
serve a role that is similar to the role served by traditionally formatted retail
corporations such as Walmart, Staples, and BestBuy, whereas niche-market-filling
internet businesses can become inhibited and profitless upon encountering
regulation or legislation. Companies operating within the gig economy and sharing
economy are liable to legislation and regulation that can ultimately impact their
ability to procure transactions and maintain employees. In San Franscisco, Mayor
Ed. Lee has defended the citys recent April 2016 move to demand that Uber and
Lyft drivers obtain a business license, and pay for the business license registration
fees for all of the previous years for which they drove with Uber and Lyft (13). This
reaction from the local city government of San Francisco could foreshadow ensuing

laws and regulations that are likely to have a negative impact on the operational
abilities of these two growing internet companies who have been able to make use
the low hiring costs, wide hiring pool, and a centralized uncompetitive market.
E-commerce companies who fill niche rolls in service industries are, in many
cases, financially dependent on legislative interpretations of their business
practices, and they are also financially dependent on maintaining employees that
are recognized as independent contractors. An independent contractor is a selfemployed citizen who files their own self-employment taxes, following the
respective tax guidelines (14). Independent contractors, as a standard, do not
participate in employer-based services such as healthcare and do not have the
ability, at a federal level, to unionize - unless otherwise granted by local
municipalities. Internet businesses benefit from employing independent contractors
because the costs associated with hiring labor are reduced when there is no
requirement to provide the independent contractors with insurance plans or
retirement packages. When compared to traditional pre-existing business models
that already exist in certain sectors, such as the taxi industry, e-commerce
platforms offer cheaper hiring costs, and cheaper labor. Aside from the ability to
harness consistently cheaper labor, these internet enterprises do not offer
employment on the condition of being held liable for their employees because their
employees are independent contractors.
Although e-commerce as a business model has numerous immediate
advantages over the traditional brick-and-mortar store, much of the success in the
traditional physical business is unique to its concept and this is occasionally
impossible to recreate via an online retailer. Certain region-specific luxury items and
commodities are too difficult to sell online because consumers desire to inspect an

item prior to making a purchase. Items such as groceries and other perishable
goods that exist in the consumer market with a degree of immediacy are generally
only sellable through traditional physical outlets such as grocery stores, restaurants,
street vendors, pop-up markets, and others. Goods that are unique to a specific
location or region are also prized by travelers from around the world that demand a
level of authenticity and a physical experience to coincide with their purchase of a
product, which is a goal that an online business platform cannot accomplish.
Competition as a subset of an individual market is relative to the type of
business that is being run, and e-commerce businesses are exposed to a much
larger backdrop of rival vendors and products. Online distributors cannot accurately
predict the total number of primary competitors that exist between a target
audience and their product. For traditional models, information about competitors is
readily available. Restaurants, grocery stores, retailers, gas stations, and other
standard businesses compete with each other based on physical proximity (15).
Consumers aim to strike a balance between their desired purchase and the
convenience of making a purchase, and they choose accordingly. This consistent
struggle for consumers, between businesses, provides a steady flow of business
that is, in most cases, controlled by proximity and consumer motivation. Ecommerce companies have no way to identify the exact number of competitors in
their market and so they rely predominantly on marketing strategies and price
matching in order to attempt to secure transactions with customers.
Consumer retention is pivotal in predicting the success of an e-commerce
business model. Individuals who are looking to make a purchase will not venture far
beyond their comfort-zone unless they are enticed by sales or other marketing
techniques such as online registration bonuses. Brick-and-mortar retail companies

such as Walmart, Target, BestBuy, and Staples already have a large consumer base
from which they can earn sales. New e-commerce companies have no pre-existing
customers because they do not exist as a business through any other domain,
unlike standard retail corporations. The lack of pre-existing consumer base makes
selling the product much more difficult at each time for companies that are using an
online platform. For online websites operating on a standard e-commerce business
model, retraining customers and harnessing their interest in the product is
important and difficult. Companies that already have a consumer base dont have
as much of a challenge when trying to follow through with customer retention.
These companies that are publishing their explorations in e-commerce offshoots
and branches tend to have their entire international audience at their disposal.
Because consumers already feel trustful of the large retail corporations, they are
more likely to take an interest in an online business branch of an already
established company such as Walmart, Target, Staples, BestBuy, or other large
traditional retail store.
When discussing the potential pros and cons of different business strategies
such as the differences between e-commerce business platforms and traditional
brick-and-mortar platforms, it is important to take into consideration the type of
general theme that is present within a company or brand, in order to better
understand the platform to use. For most products, starting an online business
seems to be more advantageous rather than saving money to put down a downpayment on a building to rent and investing in enough to keep a shelved physical
store completely stocked. Unless the concept that is to be used is one revolving
around immediacy, perishable goods or specialized goods, it is recommended that
an online e-commerce approach is used. The e-commerce model offers low

overhead costs, a quick set-up, more flexibility, and doesnt rely on traditional
employee labor. Developing a website and adopting an e-commerce software
payment system such as PayPal will allow for a business to be created on the fly,
and the dynamic nature of the online business will allow for it to sufficiently grow
with respect to the increase or decrease in number and/or types of items sold. In
the event that the e-commerce company is to serve as a means of filling a sort of
niche market space in the economy, an e-commerce business model is still ideal
because so long as the employees that work for you are recognized as independent
contractors, you will not have to pay for these employees to have medical benefits
or any type of workers rights or legal liability.
Because of the volatility surrounding the nature of many fresh e-commerce
businesses, and the lack of guarantees that are made by creators of new ecommerce businesses to their employees, it could be very difficult to retain both
consumer interest, and a labor force. Furthermore, regulations that can negatively
impact the growth and operational capacity of the business need to be researched
prior to investing large amounts of money into a project, because many internet
companies experience large losses when previously unfilled loop-holes are filled
and their product no longer has the type of relevance and freedom that it once had.
In the event that the product that is to be sold would be best suited in a traditional
brick-and-mortar environment, focusing all resources on procuring a physical
location to create the business would have to become the highest priority, and the
traditional approach will be the best and most intelligent route.
Each style of business operation will have its own ups and downs, with
traditional businesses maintaining priority over key markets such as food service,
maintaining high levels of integrity amongst its labor force through the

establishment of common labor practices, and through the simple traditional

competition by proximity. The traditional brick-and-mortar approach will be more
costly up front, but the stability and security of the approach will be both familiar for
business owners, and practical for consumers and employees. An e-commerce
approach will work best in most situations because of the low overhead costs, the
large and immediately reachable audience, and cheap labor costs (if any at all).
Companies who decide to take advantage of an e-commerce business platform will
find themselves capable of quickly getting their product and/or service sold for cash
very rapidly, though the sales achieved by the standard e-commerce business will
not be as consistent as those of a traditional start-up businesses with a physical
location. Ultimately, the platform for an e-commerce company will revolve heavily
around an employers freedom and a companys right to exist on a free-market with
limited regulations and oversight. This can serve as a double-ended sword in the
event that a regulatory measure is enacted, and in some instances a product or
service cannot be replicated through an online company and must remain a
derivative of a traditional business model. Businesses looking to start out on a
traditional path will find themselves offering different goods and services that are
likely food related, and while they will not be capable of the having the potential for
as rapid of growth as an e-commerce startup, they will inevitably have more
consistent business flow than the average e-commerce startup, they will have less
competition because of a competitive market dependent on physical proximity, and
they will be more likely to retain workers because of the demand that they abide by
state and federal regulatory practices concerning employment.