The traditional commerce is where all three components are physical.
In contrast, these components are all digital at the core of electronic
commerce, where not only production, but also delivery, payment, and
consumption (reading online or processing by a computer program) occur
online. The remaining white areas are part of conventional electronic
commerce, in which some of the components are digital. For example,
products may be physical, but marketing and payment may be conducted
online; products may be digital, but payments could be made via checks,
or buyers may be reading printouts instead of screen outputs. The growing
use of digital processes for business-to-business transactions and consumer
marketing is evident in the figure, which shows that electronic commerce
dominates the traditional market. Most of current electronic commerce
applications and issues fall within the white areas of figure 1.3, dealing
with one aspect on a particular axis, for example, setting up a web
store, content digitization, electronic payments, online marketing,
and so on. Later chapters in this book also tackle these issues one
by one, and consumers are not limited to digital product sellers. However,
in each chapter, every effort to analyze an issue in a broader context
that includes all three components of a market is made. Therefore, product
digitization (of the product axis) is discussed in connection with online
consumption and digital marketing (of the process axis) and the role
of web store sales representatives (of the player axis).
Market activities, from production to consumption, occurring online, bypassing all paper-based transactions and traditional communications media, represent the future of electronic commerce. The Internet becomes not only an alternative communication medium, but a microcosm, or an electronic version, of physical markets with characteristics that are fundamentally different from physical markets. This digital world of business, in which market institutions, agents, and products are becoming "virtual" and native to the Internet, is also at the core of electronic commerce economics. The main difference between the digital world of business and the traditional, physical business world stems from the very nature of digitized products. However, there are many reasons why consumers too will behave differently in a networked market. For example, access to product information via the network using sophisticated computer programs will certainly affect the way consumers compare prices. In turn, efficient shopping will affect product choices, pricing strategies, and competitive efforts among sellers. Business organizations and relationships will also be affected as spatial and temporal limitations of the market are removed and replaced by different considerations of costs, efficiencies, and the mode of interaction on a network. In other words, the market environment, enabled by the open distributed Internet, resembles no other physical market. The physical distance and geographical topology of a market are replaced with network architectures and preference-based market territories. Thus, the objective is to investigate the economic aspects of this newly emerging market of electronic commerce by applying standard economic tools and by evaluating qualitative differences in economic efficiencies and organizational changes.