|Measuring Electronic Business:
Definitions, Underlying Concepts, and Measurement Plans
Thomas L. Mesenbourg
|1. Electronic economy in perspective 3. E-commerce examples||
The growth, integration, and sophistication of information technology and communications is changing our society and economy. Today, computers and other electronic devices increasingly communicate and interact directly with other devices over a variety of networks, such as the Internet. Consumers and businesses have been particularly quick to recognize the potential and realize the benefits of adopting new computer-enabled networks. Consumers now routinely use computer networks to identify sellers, evaluate products and services, compare prices, and exert market leverage. Businesses use networks even more extensively to conduct and re-engineer production processes, streamline procurement processes, reach new customers, and manage internal operations. This electronic revolution in our economy is spurring additional investments in facilities, hardware, software, services, and human capital. Ultimately, it may change the structure and performance of the American economy as much as the introduction of the computer a generation ago.
While the burgeoning use of electronic devices in our economy is widely acknowledged and discussed, it remains largely undefined and unrecognized in official economic statistics. The terms Internet, electronic commerce, electronic business, and cybertrade are used often. However, they are used interchangeably and with no common understanding of their scope or relationships. Establishing terms that clearly and consistently describe our growing and dynamic networked economy is a critical first step toward developing useful statistics about it. This paper presents definitions and concepts to describe the electronic revolution taking place in our economy. They were developed by the Census Bureau for discussion purposes, are based on reviews of available information and consultations with interested professionals, and are intended to provide a frame of reference for developing useful official statistical measures. The paper also describes Census Bureau related program plans for FY 2000 (October 1999 to September 2000) and concludes with a number of questions seeking interested parties views and comments.
Whatever definitions are used for the electronic revolution taking place in our economy, we must recognize that these changes take place in a larger economic context. For example, global competition, interest rates, laws and regulations, social concerns, industry traditions, and consumer preferences are all part of the broader "environment" which can affect all business activities. Similarly, electronic and non-electronic businesses share an infrastructure of available economic resources, including natural resources, utilities, structures, equipment, telecommunication and other services, employees, and workforce skills. While keeping this larger economic context in mind, the emphasis in this paper is to describe and encourage understanding of the "electronic" portion of our overall economy.
It is useful to think of the electronic economy as having three primary components--supporting infrastructure, electronic business processes (how business is conducted), and electronic commerce transactions (buying and selling). These components are defined and discussed in the following sections, and pictured in Exhibit 1. In addition, it is important to note that a common feature of both electronic business processes and electronic commerce transactions is reliance on the use of computer-mediated networks. It is reliance on the use of computer networks, and the benefits this can provide, that is the "bottom line" difference between electronic and other kinds of business. This important shared feature is also defined and discussed in following sections of this paper.
The three primary components of our electronic economy, and the feature shared by two of them, are defined below. Each definition includes examples of its scope and content. The definitions are intentionally broad to provide an inclusive framework for planning statistical measures, and to allow flexibility to incorporate continuing changes in the electronic economy.
E-business infrastructure is the share of total economic infrastructure used to support electronic business processes and conduct electronic commerce transactions. It includes hardware, software, telecommunication networks, support services, and human capital used in electronic business and commerce. Examples of e-business infrastructure are:
Electronic business (e-business) is any process that a business organization conducts over a computer-mediated network. Business organizations include any for-profit, governmental, or nonprofit entity. Their processes include production-, customer-, and internal or management-focused business processes. Examples of electronic business processes are:
Electronic commerce (e-commerce) is any transaction completed over a computer-mediated network that involves the transfer of ownership or rights to use goods or services. Transactions occur within selected e-business processes (e.g., selling process) and are "completed" when agreement is reached between the buyer and seller to transfer the ownership or rights to use goods or services. Completed transactions may have a zero price (e.g., a free software download). Examples of both e-commerce and non e-commerce transactions are listed below.
Computer-mediated networks are electronically linked devices that communicate interactively over network channels. Generally, both electronic devices will be computer-enabled, but at a minimum at least one device must be computer-enabled as in the case of a typical telephone linking with an computer-enabled interactive telephone system. Typically, the interactive link involves minimal human intervention though someone activates the electronic devices, accesses the network, and may even assist with the process or transaction. For example, many e-commerce businesses are providing shoppers with the on-line capability of "chatting" with customer support representatives or even speaking with them through the use of internet telephony software. Examples of devices and networks are:
Examples of e-commerce transactions are:
Identifying e-commerce transactions often is not as straight forward as the previous examples may make it appear. Some additional examples that demonstrate the complexity of implementing the proposed definition are provided below.
Identifying and measuring e-commerce transactions is new for statistical agencies and it can be complicated. The simple example of an on-line retail book purchase illustrates some of these complexities and points out some of the measurement issues that remain to be addressed.
This simple example involves Bigbook's use of several additional e-business processes, assuming they are conducted over computer-mediated networks. These processes include electronic marketing to reach John, an electronic search to find the obscure title, electronic procurement and payment to obtain the book from a wholesaler or another dealer, electronic authentication of John's credit card information, electronic processing to obtain payment from a financial institution, electronic shipping arrangements for delivery of the book, and electronic customer support to e-mail John an acknowledgment, order number and expected delivery date. Understanding the effects of these processes on Bigbook's business operations and costs, its supplier and customer relationships, and its competitive industry position are a significant measurement challenge.
This example not only covers many business processes, these processes also involve multiple e-commerce transactions. These transactions include John Doe's purchase of the book from Bigbook and Bigbook's separate transactions with third parties to obtain order fulfillment services, acquire the book for resale, secure credit authentication services, provide payment processing services, and arrange for delivery of the book to John. While comprehensive measures of e-commerce may be wanted to profile all of these transactions, such detailed business statistics coverage would be unprecedented. In addition, the value of e-commerce transactions, like their brick and mortar counterparts, are aggregated and presented by the industry of the business entity selling the goods or services so the industry classification system will impose additional measurement constraints. For example, Bigbook would be classified in North American Industry Classification System (NAICS) retail industry 454110, Electronic Shopping and Mail-Order Houses along with traditional catalog stores. Data on employment, total sales, or e-commerce sales would be provided for the industry as whole; information would not be broken out between electronic shopping and mail order houses. Understanding the industry classification system and its implications for e-commerce and e-business measures is a must for all prospective data users. Moreover, classifying emerging and rapidly evolving businesses engaged in e-commerce activities will remain a challenge for statistical agencies.
An additional complexity is that the transactions relating to John Doe's simple book purchase involve many parties and some play multiple roles. For example, the parties include John, Bigbook, and at least five third party providers of goods or services to Bigbook. Furthermore, several of these parties play multiple roles, such as Bigbook who is both a seller (to John) and buyer (from a supplier) of the book, and Bigbook's third party payment services provider who is a seller of services to both Bigbook and John's credit card company. As in any measurement program, we need to determine from whom to collect needed transaction data, from the buyer or the seller? While we could estimate e-commerce retail sales of books by surveying households (the buyers), this would require a very large sample and be very expensive. Alternatively, we could survey on-line bookstores (the sellers), this would be a much more cost-effective data collection strategy that could provide timely, high quality estimates from a very small sample.
The above example also points out that any given business-to-consumer transaction will involve a larger number of related business-to-business transactions. This transactions multiplier effect is not unique to e-business; however, its expected growth and continued change will add to the challenge of measuring e-business and e-commerce. Growth in transactions is expected because as e-commerce expands related business-to-business transactions will become more fragmented; participants will concentrate on performing their highest valued-activities and rely increasingly on third parties for lower-value added activities. The measurement challenges of this growth include accounting for the increased volumes, identifying the new e-business players, maintaining up-to-date information for the known players, and avoiding double counting the value of related transactions.
Change in the scope and nature of e-commerce transactions is expected because electronic business methods permit the players to change their roles relatively easily and they increasingly will do so. Examples of changes in roles are today seen in manufacturers and wholesalers who now sell directly to consumers, and in the "virtual" integration of firms through informal alliances that link firms electronically. These new arrangements impose additional measurement challenges including identifying the new players and their roles, maintaining up-to-date information on them and how their roles are changing, and updating data collection methods (such as including direct-sale "manufacturers" in an appropriate "retail" sales survey frame).
This section of the paper poses some questions associated with the proposed definitions presented earlier in the paper and invites comments.
E-business is any process that a business organization conducts over a computer-mediated network.
E-commerce is any transaction completed over a computer-mediated network that involves the transfer of ownership or rights to use goods or services. The definition includes both monetary and non monetary transactions. Some transactions may have a zero price (for example, the download of free software) while other transactions may be paid in-kind or through barter (portal pays for an e-commerce consulting service by providing banner advertising).
E-business infrastructure is the share of total economic infrastructure used to support processes and conduct e-commerce transactions. The definition includes hardware, software, telecommunication networks, support services, and human capital along with associated examples. Measuring the electronic infrastructure will be a daunting task. Since we have no short term plans to begin measuring e-business infrastructure, we have not focused much attention on it to date, but will begin focusing on it during this coming year.
Computer-mediated networks are electronically linked devices that communicate interactively over network channels. Network channels include the Internet, intranets within organizations, extranets and Electronic Data Interchange networks linking trading partners, and telecommunication networks.
Electronic linked devices include computers, personal digital assistants, webTV, Internet-enabled phones, and interactive telephone systems. While the e-commerce examples also include a computer-enabled kiosk and an ATM as linked electronic devices, in our definition we have chosen to go with a short, rather than a long list of electronic devices to minimize possible reporting confusion.
6. NEXT STEPS
Beginning in the Fall 1999, the Census Bureau is testing these definitions and concepts with businesses as we undertake an incremental program to begin providing official measures of e-commerce activities as well as providing some limited information on e-business process usage. A more ambitious measurement program focusing on understanding and measuring e-business process effects and quantifying e-business infrastructure depends on additional funding being appropriated in the FY 2001 budget (October 2000-September 2001).
Our measurement strategy is multi-faceted, yet purposeful and is tempered by the absence of any additional funding for new statistical measures in our FY 2000 budget (October 1999-September 2000). Nonetheless, we believe we must begin measuring and understanding the electronic economy now, rather than later. Faced with resource constraints, our approach leverages our core competencies by focusing first on measuring e-commerce transactions and by exploiting our existing surveys. Since we also do not have the resources or the time to do a comprehensive record keeping practices study, we fully expect during these first collections to encounter unanticipated reporting problems and identify additional measurement issues and complexities. Given these uncertainties, we characterize several of our collections as experimental in nature, but nonetheless believe our efforts will provide invaluable insights for improvements in future surveys.
In FY 2000, we will take the following actions:
The Census Bureau invites comments on this paper. Specifically:
Please forward your comments and suggestions to Thomas L. Mesenbourg, Assistant Director for Economic Programs, United States Bureau of the Census at email@example.com.