Page 39 - Electronic Commerce

Chapter 1

Online advertising was the main intended revenue source of many failed dot-com
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businesses in the first wave. After a pronounced dip in online advertising activity and
revenues near the end of the first wave, companies began the second wave with a renewed
interest in making the Internet work as an effective advertising medium. Some categories
of online advertising, such as employment services (job-wanted ads) have grown rapidly
and have replaced traditional advertising outlets. Companies such as Google have devised
ways of delivering specific ads to Internet users who are most likely to be interested in the
products or services offered by those ads. You will learn about these advertising strategies
in Chapter 4.
The sale of digital products was fraught with difficulties during the first wave of
electronic commerce. The music recording industry was unable (or, some would say,
unwilling) to devise a way to distribute digital music on the Web. This created an
environment in which digital piracy—the theft of musical artists’ intellectual property—
became rampant. The promise of electronic books was also unfulfilled. The second wave
fulfilled the promise of available technology by supporting the legal distribution of music,
video, and other digital products on the Web. Apple Computer’s iTunes Web site is an
example of a second-wave digital product distribution business that is meeting the needs
of consumers and its industry. You will learn more about digital product distribution
strategies in Chapter 3 and about the related legal issues in Chapter 7.
Another group of technologies emerged in the second wave that made new online
businesses possible. The general term for these technologies is Web 2.0, and they include
software that allows users of Web sites to participate in the creation, editing, and
distribution of content on a Web site owned and operated by a third party. Sites such as
Wikipedia, YouTube, and Facebook use Web 2.0 technologies. Customer relationships
management software that runs from the Web, such as Salesforce.com, also uses Web 2.0
technologies. You will learn about Web 2.0 business opportunities throughout this book
and you will learn about the technologies used to implement them in Chapter 9.
In the first wave of electronic commerce, many companies and investors believed that
being the first Web site to offer a particular type of product or service would give them an
opportunity to be successful. This strategy is called the first-mover advantage. As business
researchers studied companies who had tried to gain a first-mover advantage, they
learned that being first did not always lead to success (see the Suarez and Lanzolla article
reference in the For Further Study and Research section at the end of this chapter). First
movers must invest large amounts of money in new technologies and make guesses about
what customers will want when those technologies are functioning. The combination of
high uncertainty and the need for large investments makes being a first mover very risky.
As many business strategists have noted, “It is the second mouse that gets the cheese.”
First movers that were successful tended to be large companies that had an
established reputation (or brand) and that also had marketing, distribution, and
production expertise. First movers that were smaller or that lacked the expertise in these
areas tended to be unsuccessful. Also, first movers that entered highly volatile markets or
in those industries with high rates of technological change often did not do well. In the
second wave, fewer businesses relied on a first-mover advantage when they took their
businesses online. A good example of a company that was successful in the second wave
by not being a first mover is illustrated in the opening case for this chapter about Google.

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