New commercial uses of electronic media have proliferated over the past few years, as has the volume of electronic transactions. The value of hard goods purchased online grew at about 25 percent between 1993 and 1994, while subscriptions to online services increased by about 50 percent. The use of electronic data interchange (EDI) between companies has continued to rise.

While technology providers are actively promoting electronic commerce (E-commerce), much is still at the test stage. Understanding what electronic commerce means, how key technologies will evolve, and what roles players might adopt will be critical to the strategies of companies in a wide range of businesses in the future.

Domains and application categories

Electronic commerce can be defined as the exchange of information, goods, services, and payments by electronic means. It has two primary domains: business-to-business and business-to-consumer. Within each domain there are three subcategories: messaging/EDI; online information services; and marketplaces/transactions (Exhibit 1).

Several enabling trends suggest that there will be a decisive acceleration in E-commerce over the next few years. They include bandwidth availability and affordability; penetration of modem-equipped PCs; and availability of user-friendly graphical browsers and agent software. In addition, new alliances between gateways, transport providers, financial intermediaries, and Internet access providers are struck every day.

With these developments, however, have come some issues: the adequacy of network speed; transaction security; and billing and payment systems. Internet-based networks have transmission bottlenecks at numerous points that make commercial transactions impractical for many users at present; several transaction security protocols are competing to become the E-commerce standard; and a variety of online payments systems are now being piloted.

The industry landscape

The complexity of E-commerce makes an industry landscape a useful aid to understanding competitor dynamics (Exhibit 2). The horizontal axis on the exhibit models the electronic marketing and sales flow as information and products move between vendors and customers. The vertical axis outlines the provider roles that support E-commerce functions. By plotting the services and products offered by competitors, a company can map the strategies of key players and outline the roles that it might adopt. The exhibit highlights seven distinct roles that are likely to capture a disproportionate share of the value of E-commerce over time.

As these roles continue to evolve, business leaders should be asking themselves four fundamental questions about the possible impact of electronic commerce on their companies:

• To what extent will E-commerce threaten my position, eg, is my company likely to be rapidly disintermediated by electronic channels/marketplaces?
• In what parts of my business is E-commerce likely to provide improvement opportunities, eg, lower costs, better customer service, potential for new revenue streams?
• How capable is my organization of rapid, iterative experimentation and "learning by doing" in these new technologies/channels? What types of alliance partners could help ll our skills gaps?
• Given the uncertainties regarding the direction and pace of E-commerce developments, what should our portfolio of initiatives be, eg, in which roles should we make major investments to build position versus low-risk experiments for the purpose of exposure?