E-Commerce on Trad Retail

In the competition for getting on the e-commerce's train, it is no easy feat for every traditional brick and mortar stores to have a winning formula to replicate the success such as Amazon and Netflix. Notwithstanding the difficulty of hardware installation or setting up the websites, online businesses still have quite a number of challenges. First of all, not  all type of businesses are suitable for online e-commerce. Groceries and liquor stores may find it difficult to have online website and have groceries delivered to the customers without the scale and IT specialty. 

However, the biggest problem is to replicate brick value propositions in the online world. Conversion rate, which is defined as purchases divided by store visits, are the essence of sales success. For instance, Walmart’s online conversion is still a mere 8%, which means that over 90% of the online visitors visit their website without making any purchases. Traditional retailers need to understand the user experience and the dynamics of online user interactions and reflect that understanding in the design of their e-commerce services. To many consumers and for many transactions, online store has a particular advantage in pricing and convenience, as they can shop at whatever hour they want and comparing websites with several different websites. On the other hand, customer service which involves real person answering, can be hard to be provided online 24/7. And some customers might prefer to hold the products in their hands before buying them. Therefore, retailers must be able to integrate their offline and online channels so that they can satisfy their customers. 

Online group buying sites were among the most popular websites in 2011 beside the social network websites. They offer daily deals to consumers that feature deep discounted gift certificates usable at local restaurants, beauty salons, massage centres, bakeries, and many more businesses. The industry was deemed as the fastest-growing industry last year. The business model works particularly well during recession where consumers constantly look for cheaper deals online. And the biggest of the industry, Groupon, went public last year with a staggering valuation of $14 billion, while they were still making a loss for the fiscal year. From the day one, the business model has been taking a lot of hits, with investors doubting its sustainability and real benefits brought to businesses which advertised on the websites. 

In an industry where the entry barrier is almost to none and has low switching costs. Groupon customers can always easily switch to its competitor, Living Social, if they were to offer better deals than Groupon. Hence, the advertising cost and customer acquisition costs in this industry is surprisingly high, such that in 2010, Groupon’s marketing expense were almost 91% of its revenue. Although it improved slightly in 2011, marketing cost represent a huge concern for daily deal providers. Living Social, which Amazon owned 31% of the company, reported a loss of $558 million from $245 million revenue in 2011. 

To make the matters worse, according to the recent survey by Yipit and Susquehanna Financial Group, it found that 52% of the surveyed merchants are not planning to feature deals  in the next 6 months, as there is not evidence that customers who bought coupons would be a returning customers after spending on the coupons. However, undoubtedly, Groupon remains as a very useful and popular platforms for new businesses to advertise and to gain online traffics in their initial stages. But are they useful in the long run, I am personally not so optimistic, especially reading the HBR article. Groupon and other deals provider websites have to come up with better business model to retain customers and try to differentiate themselves. 

Sources:

The future of Groupon’s business model, http://blogs.reuters.com/felix-salmon/2011/08/27/the-future-of-groupons-business-model/

The Problem with Groupon's Business Model, http://blogs.hbr.org/hbr/mcgrath/2011/07/the-problem-with-groupons-busi.html

How Sustainable Is Groupon's Business Model?, http://knowledge.wharton.upenn.edu/article.cfm?articleid=2784

Groupon: Restated Numbers Reveal Failure of Business, http://www.sequenceinc.com/fraudfiles/2011/09/groupon-restated-numbers-reveal-failure-of-business/

LivingSocial Lost $558 Million In 2011, http://articles.businessinsider.com/2012-02-01/tech/31011853_1_livingsocial-groupon-amazon

The Chart That Will Scare Away Many Groupon Investors, http://blog.yipit.com/2011/10/21/the-chart-that-will-scare-away-many-groupon-investors/

Groupon shares drop on concern about merchants, http://www.reuters.com/article/2012/01/03/us-groupon-merchants-idUSTRE80210020120103

E-Payment Methods

This week I would like to talk about several popular online payments methods, including the ones that are projected to be very popular this year among merchants and consumers. As consumers having more easier access to internet through the surge of smartphones and tablets at home or away, e-commerce sites are poised for grabbing a piece of this previously untapped market. Undoubtedly, credit cards payment method is still the most popular choice used by merchants. In the past few years, we have also seen the increased numbers of private label credit cards, such as BestBuy’s and Future Shop’s own credit cards, which offer some benefits to customers if they were to purchase with their credit cards. 

Another method that started to catch e-commerce’s eyes was Google Wallet, or previously called Google Checkout. It has almost similar functionalities compared to PayPal. Many independent e-commerce sites have switched to Google Wallet since it charges slightly lower cost compared to PayPal. However, Google Wallet is only currently available for U.S. purchases. 

Another trend that is gaining more attention lately is mobile payment method. Several vendors such as ISIS, Intuit, and Square — now support a variety of different ways for mobile payments. It allows small independent merchants who cannot afford the expensive credit cards processing fees by the major credit cards to now accept credit cards transactions, at a much lower cost and more convenient. It is definitely interesting to see how the e-commerce payment methods going to evolve in 2012. All we know is that consumers are just going to spend more online as the payments process get less cumbersome. Not a good news. 

Sources:

The Changing Online-Payments Landscape, Gagan Mehra, http://www.practicalecommerce.com/articles/3257-The-Changing-Online-Payments-Landscape

Google Checkout vs. PayPal, http://www.bestshoppingcartreviews.com/content/google-vs-paypal.html

Square Partners with Visa, Gaining Advantage in Mobile Payments Race, Julia Borstin, http://www.cnbc.com/id/42783124/Square_Partners_with_Visa_Gaining_Advantage_in_Mobile_Payments_Race

Cloud

For the past two years, cloud computing has been one of the most popular terms in the technology and business industries. Consumers like me sure has benefitted tremendously in terms of data accessibility, ease and storage with services like Dropbox and Box.net. Furthermore recently the Skydrive by Microsoft, offering a whopping 25gb and allowing online documents editing just raise the standard bar even higher. But the main question lies within whether that cloud computing can really benefit the businesses. E-mail was one of the most basic forms of cloud computing where the emails exchange and data are all stored online. With storage and servers becoming much cheaper, it’s no accident that data-based cloud technology would slowly taking over the IT industry. SaaS (Software as a service) and PaaS (platform as a service) started to gain more attention more businesses as they allow them to purchase units of service and treat them as variable cost depending on their usage, rather than undertake large capital investments and constant maintenance fees. This is a new form of outsourcing, where companies contract the specialized companies namely SAP or SAS, to handle their customer relationship managements (CRM). With cloud computing, companies can now better access to their data without having the physical access to the their server. With more and more companies looking into outsourcing some of their processes into cloud computing. 

A survey by Accenture shows that over 50% of the businesses believed that cloud computing would enable them to focus more on business strategies and not their IT related business processes. However, security and data compliance remain as the biggest concern for cloud computing. For example, an European company which outsource to a US-based cloud provider, the data should be subjected to European’s or US’s data protection regulations, as data is usually companies’ most important asset which contains all the information about products and customers. Therefore, it is of no doubt that cloud-based technologies opens up new business opportunities without businesses having to commit to heavy investments and expertise. But there are also questions regarding the security of data and their reliance as compared to self-owned or local server. 

The figure below pretty much summed up all the numbers related to "cloud".

Sources:

Clouds, big data, and smart assets: Ten tech-enabled business trends to watch, McKinsey Quarterly, August 2010, https://www.mckinseyquarterly.com/Clouds_big_data_and_smart_assets_Ten_tech-enabled_business_trends_to_watch_2647

Storing Data In The Cloud Raises Compliance Challenges, Alan Murphy, 2012, Forbes Tech, http://www.forbes.com/sites/ciocentral/2012/01/19/storing-data-in-the-cloud-raises-compliance-challenges/

Eight ways that cloud computing will change business, Dion Hinchcliffe, 2009, http://www.zdnet.com/blog/hinchcliffe/eight-ways-that-cloud-computing-will-change-business/488

Cloud Future Business Costs Innovation, Accenture Research & Insights, Accenture, 2011

Encryption

Web-commerce has been one of the most highlighted and fastest-growing sectors in the past few years, which is even significant after the emergence of small communication devices, like smartphones or tablets which allow access to the internet way more conveniently. And of course, the stakes are even higher now than ever in terms of online security, in order to make sure the online transactions are secured. 

Encryption plays an incredibly vital part in online transactions’ security. Encryption refers to the act of encoding data. It serves as a digital authentication which allows both the customers and the merchant to verify each other’s identities. It is often used in credit card transactions which involves the credit card and security number, allowing merchants to verify if the customer is the real owner. On the other hand and more importantly, encryption prevents third parties from accessing and reading the information in the course of data transmission. Encryption also verifies the integrity of the data, ensuring that it is not modified in any way. 

The most basic example of encryption is a symmetric cryptosystem. Using the example from an article from Harvard Cyber Law, the messages can be encrypted according to a scheme where each number, from 1 to 26, refers to a letter of the alphabet (so that 1 = A, 2 = B, 3 = C, etc)”. These are obviously very easy to crack. In real world we need a much more powerful encryption system, which is like Public Key Encryption or asymmetric encryption. It relies on 2 keys, one of which is public and another one is private. If you have one key, you cannot infer the other key. 

Example of how it works: I have a public key which I make available to everyone. Anyone can take my public key and encode a message and send it over the network in coded form. Only me who has the private key at my end can decode the message, turning zeros and ones into readable text.

Sources:

John Palfrey, Security and Basics of Encryption in E-Commerce, Retrieved from http://cyber.law.harvard.edu/ecommerce/encrypt.html

Oracle ThinkQuest, Use of Data Encryption in Today’s Context: E-Commerce, Retrieved from http://library.thinkquest.org/27158/today.html