FE rapport 2002-389 Investment in Electronic Commerce – Financial Perspectives and Profit Conditions

Electronic Commerce (“eCommerce”) is a concept for trade based upon products and services that are being marketed, contracted, and paid for over the Internet. Consequently, electronic commerce demands for the investment in computer systems, marketing, logistics and payments. This paper will focus on the profitability of investments in eCommerce with a special focus on outlays for information technology systems and sales management. If the services are made more standardized, if they do not change that often, or if they are well known to the customers so that there is little need for supplementary information, then the less costly will the information technology system become. The investment in marketing depends on how well known the brand name is to the customer. eCommerce firms “Born on the Net” have to spend substantially more resources on marketing than firms that “Move to the Net”. These investments may be seen as parts of a process, which aims to generate larger revenues to the firm, better services to the customers, a more efficient logistic system, and lower payment costs. These costs and benefits are analysed and used in order to develop principles for investment evaluations. Finally, the analysis is applied to five case studies from the sectors of capital goods, financial services, food, ornamental horticulture, and books and stationeries, where the given background from practice and conditions for success are developed in terms of a customer-base, margins, and sales growth.