Rapid Development of E-commerce

In the last decade, many startup e-commerce companies have rapidly stolen market share from traditional retailers and service providers, pressuring these established traditional players to deploy their own commerce websites or to alter company strategy in retaliation. This effect is most pronounced in travel services and consumer electronics. According to comScore, online leisure travel bookings reached about $51B in 2005, or 44% of all online sales, which were around $122B in the same year. Roughly 30% of all travel bookings currently occur online. Consumer electronics, which includes the purchase of digital cameras, mobile phones, and home PC’s, accounted for nearly $26B of worldwide e-commerce sales occurring in 2006, according to the NPD Group. As traditional brick and mortar firms continue to lose market share to e-commerce players, they will likely see continued declines in their revenues, operating margins, and profits. It is important to note that most e-commerce players are at a competitive advantage to retailers. They have lower operating expenses and better inventory management due to operating in a virtual commerce environment. For example, Amazon.com (AMZN) has revenue per employee of nearly $850k while its retail counterpart, Best Buy (BBY), generates revenue per employee of only $270k. Clearly, e-commerce vendors will have the most to gain if they successfully disrupt retail customer acquisition, disintermediate distributors/resellers, and under-price retail establishments. As a consequence of e-commerce vendor gains, financial transaction processors and parcel shipping companies are among ancillary vendors who will gain.

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