Has the virtual world become stifled by the comfort and ease of following successful platforms? Gunjan Bhardwaj offers his hopes and suggestions on how to update online business models.

Many years before we all heard the name web 2.0; e-commerce had started in the early 70’s with leading technologies like Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT) powering electronic information exchange. It took some time for the Internet with protocols and other technologies enabling secured and persistent connection by the year 2000 to actually transform the meaning of e-commerce as a way of buying products and services over the Internet using secure connections and electronic payment services. After the virtual world retailers such as Webvan collapsed in the dot com burst of 2000; many brick and mortar retailers such as Albertsons and Safeway started building virtual world capabilities.

Complimentary technologies such as search engines enabled vendors and customers to search competing products at different price points- it was a cheaper way to build a marketing platform where marketing programs could be tailored according to individual preferences and needs. Jeff Bezos’s Amazon and Pierre Omdiyar’s eBay were e-commerce pioneers being the first Internet companies to allow electronic transactions. The five largest and most famous worldwide Internet retailers, Amazon, Dell, Staples, Office Depot and Hewlett Packard sell the most popular categories of products in the World Wide Web such as music, books, computers, office supplies and other consumer electronics.

Today e-commerce is firmly embedded in electronic funds transfers, supply chain management, internet marketing, online transaction processing, electronic data interchange, inventory management systems and data collection systems. Not just in B2C activities like etailing but also in B2B space, e-commerce has helped trade and transactions grow enormously. UK continues to be the leading market for e-commerce spending and emerging markets like China and India are catching up.

eBay put auctioning, Amazon put retailing books on the web. Even Groupon, a group discount platform for which Google made a 6 B$ bid and is now preparing for a 15B$ IPO in 2011; put an idea on web long championed in the real world among others by Quelle Versandhaus and Baur Versand in Germany. The business models themselves are not innovative; it’s the scale and scope created putting those models on the web. Big growth is seen in traditional business model based platforms probably because even though the adopted digital natives of today (Generation X) are slowly getting comfortable using the Internet, they still don’t ‘trust’ virtual platforms the same way as the real ones. However as Generation Y’s wallets will in over a decade become heavy; they will surely endorse innovative business models purely designed and implemented over the web with a considerable part of innovations on the user end.

Although some of the new innovative startups such as Tipzoom from Germany or Bindaas Bargain from India are trying to alter the Craig’s List defined business models in the advertising and classifieds space on the internet as an example; they are coming under increasing pressure to increase usage that aggregated in Silos of established platforms like Facebook or Myspace. E-commerce in the social media enabled by web 2.0 in that sense is just a virtual replica of interest groups and communities that long existed in the real world; it is even with its right intentions not really empowering the consumer in an optimal way but more so the producer or the trader.

It is more of a ‘Me-commerce’ where everybody can take up a business model from the real world, put a computational back end on the web, add search capabilities and hopefully connect to platforms with aggregated demand to generate business. Web2.0, where one finds aggregated demand on a few platforms, does not let consumer groups move from database to database, in between those platforms to seek what they prefer or want. The fear of privacy or identity theft is in a way strengthening those platforms, as users tend to stick to one or a few platforms; hoping for the best for their privacy.

From a complexity science point of view, the network has already acquired a ‘form’ or a ‘state’. Platforms will remain redundant because of their business models, enabling technologies and preferences they can cater to. Some say it is democratization of demand- I would say web 2.0 was a step in that direction but the boundaries in the virtual geographies have already started to be carved out- delimiting the real democratization. As some of these platforms such as Facebook, eBay, Amazon or others aggregate more and more demand, tougher it would be to fundamentally alter the underlying schematic- no matter how enabling the web is or how fast the shock waves of changing preferences on the web can traverse. Users are slowly getting ‘endowed’ with this set mode of consumerism on the web, they are getting ‘locked’ in the virtual boundaries.

There are two hopes that I see which still skew the growth in consumers’ favor and make e-commerce really a kind of ‘We commerce’:

  1. Semantic web combined with web3.0: This next generation of intelligent web should provide users with ‘context’ to what they are searching for. Using natural language processing, machine based learning & reasoning as well as other intelligent web applications, web3.0 should enable users not just to travel freely between various communication platforms but also virtual platforms designed in web. The fear of identity theft would be mitigated by Open identities, Open IDs, Open reputation and the ability of roaming personal identity and personal data. Increasing the dimensions of the web, web 3.0 should be kind of a global database whereby allowing information to be read across different programs on the web. Hence, Semantic web will break the silos of the virtual world, spurring truly innovative business models creating more value for consumers empowering them through their preferences.
  2. Innovations from the emerging countries: Entrepreneurs in India and China with huge growth in online usage can tap the opportunity to fundamentally alter the way business is done online. There are no legacy structures or norms as in the real world, and the population is full of young generation Y digital natives or digital natives in the making. Experience is more of a killer sometimes for innovation as it traps mental models in a particular ‘state’ or ‘way of doing things’, more so in the virtual world. Internet in many of these countries is actually ’empowering’ consumers bored and frustrated of corruption in public as well as private life and are seen to be ‘more trustful’ of virtual life. In this context, innovative business models and truly open virtual platforms should be easier to conceive and adopt.

We need to innovate in order to keep the virtual space free from the malice of the real world consumerism, keep it open and democratic- for the consumers and transform it from a slowly becoming ‘Me commerce’ to a ‘We commerce’ in the near future.

About the author:

Gunjan Bhardwaj is senior editor and a member of the review team at Innovation Management. Gunjan is presently with the Boston Consulting Group and just prior to this he was the leader of the Global Business Performance Think-tank of Ernst&Young. Gunjan is also a guest professor for Growth and Innovation management at European Business School (EBS) in Germany and a member of the scientific advisory board of Plexus Institute in the US which researches on complexity in health sciences. Gunjan has published a number of papers and articles in various Journals and magazines and has been a frequent speaker in conferences on marketing and innovation related topics. The views and ideas expressed by Gunjan on are strictly personal and have no bearing on BCG.