ecommerce companies and stock valuations

eCommerce Companies and Stock Valuations

1. Introduction

A hot topic in today’s business culture is eCommerce. Experts argue about whether eCommerce will change business, whether or not it is a fad, and what viable strategies there are in a business world that is changing at the speed of idea generation. One thing that nobody argues about is the fact that eCommerce oriented companies have stock prices and market capitalizations that are enormous. Based on losses rather than earnings, some of these stock prices are inexplicable.

This paper is a thought experiment that attempts to gather and disseminate data regarding these stock prices. Additionally, the paper will attempt to propose solutions and reasons for the current market trends relative to eCommerce companies.

2. Discussion of the eCommerce business models

When discussing eCommerce, it is good to have a frame of reference. As a result, it is interesting to review the common models associated with the field of study.

Generally, there are two widely recognized business models regarding eCommerce. These models include the B2B (Business to Business) model and the B2C (Business to Consumer) model. The fundamental question regarding these models is: is the specific model in question a revolutionary way of doing business, and hence a new business model; or is the specific model in question a facilitation of a mature business model.

Depending on which model you are discussing you may get different answers. The B2B model is much more common. B2B eCommerce is roughly five times more prevalent than B2C eCommerce . Following is a discussion of the models, and answers to the above question.

2.1 B2B (Business to Business)

To reiterate, it is important to decide whether or not B2B is a fundamentally new business model, or a facilitation of existing business models. It is easy to answer this question when one looks at history. The fundamentals of B2B eCommerce have actually been around for decades. B2B eCommerce is the new en vogue term for supply chain management in the majority of forms in which it is implemented.

In reality, supply chain management has been around since the Industrial Revolution. It has just become expedited with the advent of communications technology: the telegraph, the telephone, the computer, easily designed software, LANs and WANs, EDI, and now the Internet and eCommerce .

B2B eCommerce does not change the majority of business models developed for intra-business commerce. It simply facilitates the process by offering information more quickly, more timely, and more accurately. However, there may be an opportunity with B2C to do more than just facilitate old processes.

2.2 B2C (Business to Consumer)

The advent of B2C has created a new competitive landscape. The strength of the Internet is dispersion and dissemination of information on a large expedited scale. Consumers can access information quickly and so can organizations and businesses. B2C eCommerce has the following positive attributes for consumers:

· Consumers can access product and service information quickly and efficiently
· Browsing, ordering and purchasing are virtual and therefore expedited
· Informational asymmetries are broken down and markets are more efficient and competitive
· Time saving allows more time for leisure activities

B2C eCommerce has the following positive attributes for businesses:

· Companies can gather information about their customers easily
· Based on better consumer profiles and information systems, companies can engage in market micro-segmentation
· Costs can be reduced due to less brick and mortar rental and construction expenses, less SG&A, fewer print ads, more focused marketing efforts, better defined advertising, and potentially lower inventory holding costs based on augmented demand predictability
· Companies can reach more and more potential customers because the customer’s ability to purchase is not bounded by geographical parameters associated with traditional business models such as brick and mortar

However, there are negatives aspects of eCommerce for both the consumer and the business proprietor. The customer gives up a certain amount of anonymity when he/she allows information to be collected about him/her. This information can be used for questionable and leveraged positions by businesses. A consumer may experience information overflow. From a business perspective, the availability of information to the customer is dangerous to a certain extent. Perfect information implies perfect competition. Perfect competition implies low or non-existent margins, and therefore minute profits and earnings. This is especially true of commodity-oriented products. Successful eCommerce oriented businesses need to position themselves as an eChain solution in order to compete on bundled goods