Electronic Commerce Term Paper

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e-Commerce

This project is about e-commerce and how it has helped Apple in its business objectives. The purpose is of the paper is to illustrate the wide-ranging ways in which e-commerce can provide opportunity to corporate entities. Apple makes a good case study because it has successfully emerged as an e-commerce powerhouse in recent years. It was able to gain market entry into music sales using e-commerce and the company has now become one of the world's largest online retailers as well.

The project will cover Apple's successes in e-commerce, both as a player in the entertainment industry and as a player in the personal electronics and software industries. The scope will include some brief analysis of Apple's financials, as the numbers will support the discussion of Apple's e-commerce strategy. There are articles both in the business press and in academic journals that outline a lot of what Apple has done to earn its success over the past decade or so. The first section of the report will be a literature review.

Literature Review

E-commerce is defined as doing business electronically. Typically, this is shorthand for using the Internet, although other intermediating media such as SMS could also be used. There are several different models for e-commerce, including virtual merchants, bricks and clicks, catalog merchants and manufacturer direct (Laudon & Traver, 2007). The latter category consists of firms that are "single or multi-channel manufacturers who sell directly online to consumers without intervention of retailers" (Ibid). While Apple is not strictly a manufacturer -- it designs and markets its devices while offshoring the actual manufacturing -- the definition still applies. This description of the type of business model that Apple has adopted with respect to e-commerce is critical to understanding how Apple's e-commerce strategy evolved and how it enhanced Apple's value.

One of the critical drivers of e-commerce is the use of intelligent agents, which is technology that helps guide the consumer decision-making process, typically based on the consumer's own inputs (search queries, etc.). Amazon is a leader in intelligent agency, but Apple also makes use of this technology. Ito, Ochi and Shintai (2002) discuss both artificial intelligence and agent-mediated electronic commerce in this context. The authors outline how such technology can be put to work. Their study focused on group buying. While this is not a large part of Apple's e-commerce strategy, Apple does make some institutional and business sales. Further, there are lessons to be learned from this report because it highlights some of the methodologies where e-commerce has competitive advantage over conventional, offline business. E-commerce software has unique capabilities for being able to understand consumers, and therefore deliver to the consumers the products and services most needed. The interface of such software with the consumer can be as simple as a recommendation, say for a new song on iTunes, based on previous downloads.

Another article relevant to the subject of e-commerce as it pertains to Apple is Zhu and Kramer (2002). In this article, the authors identified four key metrics that measure the e-commerce capability of Internet-enhanced organizations. These metrics are based in four dimensions: information, transaction, customization and supplier connection. The authors found that e-commerce capability was strongly associated with things like inventory turnover and some other internal metrics. Being able to identify e-commerce capability and understand how it affects organizations is critical to understanding how a company like Apple can benefit from building e-commerce capability. Indeed, Apple appears to have benefitted significantly from managing its inventory levels and being able to offer a degree of certainty with regards to shipping times (via its relationship with FedEx). The authors also found that cost of goods sold would increase for manufacturing companies but decrease for technology companies -- it would be interesting to see where Apple falls in that respect, being a bit of both.

Webb (2002) discusses the management of different channels in the age of electronic commerce. The author here highlights the issue of resource complementarity for allowing e-commerce to enhance value. Not every company, the author argues, will be able to yield positive results from investment in e-commerce. This is an interesting issue for Apple because the company has typically used a number of different distribution methods. One issue that comes up when doing something like this is the issue of cannibalization, where Apple might enjoy e-commerce success only if selling via that channel does not steal sales from existing channels. Apple sells via third-party retailers and thorough its own stores, so there is considerable risk that e-commerce success is not complementary, at least with respect to the company's hardware.

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The literature review items discuss how a company like Apple can succeed -- by developing e-commerce strategies that are complementary to the existing business and that are well-executed. Apple took this one step further and entered a new business that was not being served at the time by existing e-commerce entities, at least ones that were legal.

Analysis

The literature review, in particular Webb's discussion about complementarity, is important in considering that there are two distinct e-commerce initiatives that can be discussed with respect to Apple. These are iTunes and the online Apple Store. The latter puts Apple more or less in the clicks and mortar category where the company simultaneously sells online and offline, while the former is an e-tailing venture where there is no offline corollary to the e-commerce business.

With the computer and personal electronics business, Apple has seen great sales increases over the past little while. The point of e-commerce within the framework of the clicks and mortar strategy is to complement the mortar part of the business. E-commerce allows customers to purchase who otherwise do not have access to a store. This is commonplace for Apple, which has only a couple hundred stores in the United States and maybe another hundred globally but competes around the world. They have retail partners, but ultimately, Apple needs to be able to reach consumers who cannot visit a store. The online business also helps Apple to reach consumers whose preference in shopping online. Apple provides a fairly streamlined online shopping experience in the B-to-C environment that is not unlike the in-store shopping experience. Apple therefore has a complementary e-commerce operation that gives it reach to consumers who might otherwise have difficulty making the purchase. This is different than, say, a company like Wal-Mart that already has saturation on the ground.

For iTunes, Apple competes only in the online space. What Apple did with iTunes was that it entered a billion-dollar industry (music retailing) that was beginning to struggled enormously as consumers moved either to online purchase of physical music or to online acquisition by legal or illegal means. Apple provided a new twist by offering the ability to purchase not only a wide range of music, but to do so legally and to do so in a single song format that appeals to consumers. Apple quickly took a multi-million dollar stake in the industry, and this has only increased over time. Apple went from being nothing in the music industry to being one of the largest retailers of music and being the most influential company in the music retailing business. This move has done nothing but help Apple, because it contributes to the company's overall strategy. Apple thinks in terms of big picture concepts, none more than the role that e-commerce in music retailing plays in the development of Apple as a whole. Basically, iTunes is a complement to the iPod, which was the hottest thing in personal electronics for a few years in the early to mid-2000s. The company used the iPod and its dominant market share as a wedge to get into more consumers' homes, and from there convinced them to purchase other Apple products. Eventually, this morphed into the broad strategy with the iPhone, and iPad. Apple basically started with a simple e-commerce initiative to enter a new industry and this lead to a chain reaction that brought Apple billions of dollars in sales and profits in the past few years.

Recommendations and Conclusions

Apple has done an exceptional job of becoming an e-commerce powerhouse. When the company launched its major e-commerce initiatives, the current e-commerce business models and major companies were already established. While Apple did not innovate a new business model, it did deal well with the established players. Apple was able to enter a new business, and build its hardware business into one of the largest e-commerce businesses in the world in just a few years. The problem for Apple is to figure out what to do from here. My recommendation is actually to do nothing. Apple is doing well, and there does not appear to be any reason to change strategy mid-stream. The major impetus for Apple to change its e-commerce strategy would be if its strategy in general changed.

If anything, the one area where there could be some improvement is in servicing overseas customers. Apple's website sometimes either cannot service an overseas customer or….....

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