Geographic and Socially Embedded B2C and B2B E-Commerce

Abstract

The term electronic commerce (e-commerce) provides visions of anonymous online transactions with companies like Amazon or Buy.com, where personal contact need not exist and locations of purchasers and sellers are irrelevant. Much business to consumer (B2C) e-commerce occurs this way, and the approach was prevalent among firms in the ‘dot.com’ era, e.g., Verticalnet and biz2biz.com. Such visions reflect the dominant perception of the role of e-commerce in economic exchange prior to the widespread failure of dot.com firms in 2000 and 2001. That is, e-commerce enables firms to access new markets, replace outmoded or inefficient supply chains and distribution channels, and achieve substantial growth in customer reach (Wigand and Benjamin 1995; Cairncross 1997; Choi et al. 1997). These perceived opportunities stem from maintained assumptions held at that time. (2003b) describes the primitive beliefs that shaped corporate e-commerce practice and strategy: a) Geography is irrelevant. Electronic exchange costs are the same regardless of distance (Cairncross 1997). Indeed, unless a Web site explicitly identifies the geographical location of the firm, the physical address remains unknown to most users. An implication for economic exchange is that purchasers and sellers are not required to be geographically close. The Internet had reduced transaction costs for transacting with geographically distant partners to the extent that distant sellers are competitive with local sellers (Bakos 1997, 1998). b) Internet transactions are substitutes for transactions formerly conducted in person or through other forms of direct communication. Enhanced graphics and multimedia enable highly complex products to be sold through this medium. Customization and personalized features substitute for the activity of sales personnel who formerly interacted directly with customers (Rayport and Sviokla 1995). Modern logistics and transport systems ensure rapid fulfillment of online orders, hence the essential elements needed to effectively automate transactions are present, and enable on-line transactions that are perfect substitutes for physical transactions (Choi et al. 1997). c) E-commerce orientated firms experience network effects. Hence, firms that accumulate a substantial customer base will achieve a sustainable competitive advantage (Choi et al. 1997; Shapiro and Varian 1999; Kaplan and Sawhney 2000; Afuah and Tucci 2001). The presence of a network effect translates into increased customer marginal utility the greater is Web site patronage. Such effects are thought crucial for sites that provide intermediary services, e.g., brokerage. To improve market liquidity such sites must attract a critical mass, or minimum efficient scale, of customers. The more customers attracted to a market, the greater the probability a customer has of finding a desired match.1