Ecommerce Industry Analysis

Today’s industries of Higher Education are witnessing a burgeoning interest in the use of the Internet. The rise of the Internet, by information technologies and business application, represents a large base of potential customers for e-commerce activities. Generally, it can be said that e-commerce is a highly significant way of conducting business. For that very reason, a widespread of universities and colleges actively exploit opportunities created by the growth of e-commerce by initiating on line courses and degrees to accommodate this demand. This industry analysis will capture the principal effects that e-commerce, i.

e. on line courses, may have, as compared to those of conventional Higher Education Industries, as well as explore the barriers and opportunities that may face each. These issues are examined using market research, newspaper articles, and annual industry reports. Higher Education Firms are undertaking growing numbers of e-commerce initiatives and increasingly offering on-line incentives required to participate in the growing online market. A range of on-line incentives includes expedited degrees, decreased tuition fees and minimal face-to-face time with instructors.

However, to realize these gains of on-line courses and the associated incentives requires fundamental Internet knowledge and a high degree of competency with on-line universities in offering adequate resources. Higher Education institutions are producers of information concentrated products, and may face a raft of challenges when instilling these new competencies. The Gartner Group estimates that firms creating e-commerce sites spend $1 million in the first five months, and $20 million for a place in cyberspace that sets them apart from the competition.

These costs are projected to increase at a rate of over 25% per year over the next two years. An examination of the annual reports of Online Higher Education companies reflects the magnitude of these costs. South University’s annual report for 2003 reveals that the firm spent $152 million on advertisement, equipment, and software, amounting to 9% of their annual revenues for the year. This figure for Capella. edu is $34 million (16% of revenue). Once these investments are in place, the costs of entry into virtual universities mainly include considerable marketing expenses.

Activities such as the placement of banner ads in portal sites are $12 million (12% of revenue). Transaction and organizational costs affect every educational institution. The potential of Virtual Universities to reduce these costs is most important, because the cost affect the consumers. Comparisons to campus education also create economic challenges to online institutions. Campus education is a normal good, and on-line courses in part are inferior. Therefore, as incomes rise people will demand more face-to-face Higher Education.

Economic theory insinuates that the introduction of new on-line inducements will be associated with a short-run decline in the demand for campus education. This decline may be caused by a reduced rate of growth. Other variables affecting demand for campus education are also changing, for example, population levels, age composition, income levels and the returns to higher education. Therefore, in the long term the demand for campus education with income and might even rise as the cost of on-line education falls.

In the short term there might be relatively low, or negative, growth in the demand for campus education and rapid growth from a very low base for on-line incentives. Commentators have, among other things, heralded the arrival of a new economy and foretold the total transformation of higher education, including: the rise of the virtual university, global competition in education and the end of campus education. Despite these incentives though, e-universities still may face some challenges. Four broad lessons for higher education can be drawn from the preceding review of the emerging economics of e-commerce.

First, and most importantly, the future of campus education turns, in part, on whether it is a normal or inferior good. This distinction makes it possible to address questions like, what will happen to the demand for the shared, faceto- face, educational experience offered on thousands of different campuses across the globe in light of the alternatives provided by on-line instruction? What initial impact will the new delivery mode have and what will be the longer term effects as incomes rise and the costs of on-line delivery fall?

Economic choice theory modelling suggests that the introduction of a new delivery mode will be associated with a short-run decline in the demand for campus education. This decline might only be in the form of a reduced rate of growth as other variables affecting demand for campus education are also continuously changing like population levels and age composition, income levels and the returns to higher education. As for the longer term, there are strong grounds to see campus education as a normal good, that is demand for campus education rises with income and might even rise as the cost of on-line education falls.

Thus in the short term there might be relatively low, or negative, growth in the demand for campus education and rapid growth from a very low base for on-line delivery. In the medium to longer term this seems likely to reverse with relatively strong growth in the demand for campus education and relatively weak growth in on-line delivery. The second lesson follows from the far-reaching potential of e-commerce as a new way of doing business that can reach into all aspects of our lives. This suggests a correspondingly far-reaching integration into education and training.

Information technology literacy might become as important as numeracy in education at all levels. Indeed, the requirements of change alone, and e-commerce in particular, have far reaching Avenell 1-6 implications for education, training and the labour market in general. Success in the new way of doing business means new skills, new outlooks and a new commitment to lifelong learning. Preparation for success in the new way of doing business is much more than teaching students HTML, or even web competencies. None of us can know how we will be working in five or ten yearOs time.

To take on the new challenges and seize the new opportunities it is more important than ever that members of the workforce have critical and analytical skills, the desire to learn and understand, and the ability to think from different points of view. (In fact, just the sort of things valued in higher education. ) This means that in our desire to prepare for a world in which the web and its technologies are as commonplace and ubiquitous as the telephone we must not forget the existing arts and sciences that provide the myriad other competencies required for a fast changing, vibrant modern economy.

Little, if any, of what of universities have traditionally done is less relevant and there is good reason to think that most of it will be more relevant. The third lesson from the economics of e-commerce is that publicly funded institutions of higher education have to expect increased pressure from governments to exploit the new information technologies to reduce costs or do more with the same resources. Governments are under constant pressure to provide more services from a given tax income or the same services at from a smaller tax income.

(Indeed, in Australia the Department of Education Training and Youth Affairs and the National Office of the Information Economy have launched a project to explore the opportunities for businessto- business e-commerce in higher education. (NOIE, 2000)) Combined with this pressure from governments will be demand for information technology competencies from employers and from students with an eye on their employability.

Institutions of higher education will have to thoroughly embrace the new way of doing business: it will be demanded of them by their funders and there will be a demand for it by education consumers, both students and the employers of graduates. The fourth and final lesson derives from the fact that new products are a relatively unimportant part of the wide raft of implications of the development of e-commerce. There is simply not a Onew economyO, in any profound sense, or even the birth of an Oinformation economyO or a Oknowledge economyO. Information and knowledge have always been fundamental to economic activity.

There will be some products and new organisational forms, with the changes perhaps being in the order of those associated with the arrival of the telephone or modern electricity generation and supply systems. The rise of e-commerce is not on a par with, say, the development of equality before the law or the invention of the limited liability joint stock company. There will certainly be a place for on-line delivery of higher education and new partnerships with industry in research and life-long learning but the fundamental place of universities is not at threat from the arrival of new information technologies.

(Bad policy decisions in particular political jurisdictions are, of course, quite another matter. ) If anything, the increased role for information technology, innovation, economic globalisation, and the rapid rate of change all point to a more substantial place for, an\ more, university education and research, not less. To take that place universities will have to seize the nettle, embrace the technologies and the new ways of doing business. The campus educational experience must be enhanced and enriched by the new technologies and practices, not abandoned because of them.

Moreover, this is not just a matter of meeting demand (giving students a campus education because they like it, which is a good thing in itself); it is a strategic matter: campus education can instil many of the traits required in an advanced rapidly changing economy: communication skills, critical thinking, a willingness to subject ideas to the data, the joy in learning, flexibility and the Avenell 1-7 ability to work in a team. Indeed, success in developing these very skills is critical to success in capturing the potential of the new ways of doing business. 4. Conclusion

In summary then, the four lessons for higher education from the economics of e-commerce are: ?? remember that campus education is a normal good; ?? the arrival of e-commerce alone does not provide grounds for significant changes to university offerings; ?? new partnerships and delivery will emerge but not dominate; and ?? expect pressure from a range of sources to enhance campus education in light of the new practices. New virtual universities, or virtual incarnations of established institutions, will not sweep aside their rivals and dominate higher education across the globe.

(If information technology alone could make this sort of difference, then surely the VCR and TV would have already done so. ) Location and the campus educational experience matter and will continue to matter. Indeed, perhaps the most important educational opportunity provided by the new information technologies is in enhancing the on campus experience by allowing more resources to be committed to those elements of the campus experience that matter most to students. The normal good characteristics of on-campus education and falling transaction and organisational costs lend a certain logic to the likely evolution of higher education.

None of this is, however, immune from bad policy decisions. For instance, flying in the face of the normal good nature of campus eduction could be a national disaster, with too few acquiring the skills required for the full realisation of the potential inherent in the new information technologies. Governments can fail, just as markets do in certain circumstances. In light of the apparently dazzling array of new opportunities and the increasing economic importance of university education and research getting higher education policy right has become more important.

As always, the only hope for getting it even approximately right is intense, critical and well informed debate. `1 Reactions in higher education to the opportunities and challenges of the Internet have ranged from naked fear and loathing to pure hype and hope. A balanced assessment of the prospects for Higher Education requires a clear understanding of just what e-commerce is, its likely impact across the whole economy and the nature of the OgoodsO produced in Higher Education.

Using standard economic concepts (easily explained to the non-specialist) it can be seen that e-commerce is a highly significant new way of conducting business but hardly the herald of a New Economy. The principal effects of e-commerce will arise from reductions in both the transaction costs of using the market and the organizational costs of bureaucracy. To realise these gains and the associated opportunities for innovation requires a new fundamental Internet competency and a high degree of cross-competency between business and information technology practitioners.

Producers of information intensive products, like Higher Education institutions, face a whole raft a challenges in the form of instilling these new competencies, new modes of delivery, new providers and shifting market areas. Notwithstanding any of these, traditional face-to-face Higher Education is a normal good. That is, as incomes rise (due in part to the rise in e-commerce itself) people will demand more face-to-face Higher Education, not less.