After incorporating in 1994, Amazon.com sold its first online book in 1995. The company soon emerged as a leading Internet commerce site for the purchase of books and eventually many other products, initiating a new era of e-business.
In 1999, at the age of thirty-four, Jeff Bezos became the fourth-youngest person ever to be named Time magazine’s person of the year. It was not Bezos’s age, however, that made his selection a surprise to most readers. Time magazine usually reserves the distinction of person of the year for newsmakers and celebrities, and, although known as the king of cyberbusiness, Bezos was not a national figure. His creation, Amazon.com, had become a household name, however—credited, in fact, with starting and defining the rapidly expanding field of electronic commerce (e-commerce) through the Internet and the World Wide Web. Through the honor to Bezos, therefore, Time also recognized a novel, powerful cultural force. Although only four years old, the new form of marketplace had not only transformed how companies sell products and services to each other and to consumers but had affected social behavior and politics as well.
Bezos founded Amazon in 1995 to sell books to consumers over the Internet. Many business commentators predicted failure, but the company’s sales skyrocketed. In 1998, its book sales grew 275 percent, followed by another 82 percent the following year, and by then books accounted for only about one-half of Amazon’s total sales. Amazon had expanded to offer so many other retail goods that its Web site amounted to an online mall. Investors, initially skeptical, took note. When Amazon began trading its stock publicly in 1997, shares sold for $1.50 each; by the end of 1999, a share cost $80. In part, Amazon was successful because it was the first company of its kind in cyberspace, but its success also owed a great deal to the emphasis placed on customer service to ensure speed of delivery and customer satisfaction. In addition, Amazon provided browsers with handy consumer information, such as reviews, product ratings, and technical data.
Other innovators soon capitalized on the Internet, too, and some enjoyed success that was nearly as spectacular as Amazon’s. For instance, Ebay, the first business to offer online auctions to general customers, started in late 1995 and had more than four million listings in 4,320 categories by early 2000. Beginning in 1997, Handyman Online
A host of other electronic retailers (e-tailers) joined Amazon, many of them start-up companies that copied Amazon’s sales and customer service methods. The number of small American and Canadian businesses operating on the Internet increased 40 percent between 1996 and 1998. At first large corporations, such as Sears and Whirlpool, shied away from Internet business, worried that it was just a fad. By 2000, so many had joined the trend and opened Web sites that the term “dot-com” (“.com”) was firmly embedded in world business culture and Americans’ vocabulary. Even advertisements in other media included firms’ e-mail and Web site addresses as a matter of course. During the 2000 Super Bowl, more than a dozen “dot-com” companies bought television advertising spots. Meanwhile, other strictly Internet companies, such as Yahoo! and Excite, opened virtual malls of their own in direct competition with Amazon.
Goods offered on the Internet spanned nearly the entire range of the traditional “bricks-and-mortar” retail business stock: books, prescription drugs, toys, electronic equipment and computers, airline tickets, tools and instruments, clothes, and even cars. The convenience, speed, and wealth of information directly accessible online appealed to technologically sophisticated consumers—so much so that e-commerce firms stole customers away from other venues. Bookstores claimed that they were being driven out of business by Amazon and Barnes and Noble, which opened its own Web site. Car dealers began to worry as well when it was found that 5 percent of car purchases in the United States were being conducted over the Internet. Travel agents lost much of their reservation-making business to online self-enrollment reservation services, such as Netscape’s Travelocity, and to Web sites maintained by individual airlines, hotels, and car rental agencies.
Companies also sold services online. Infoseek and AltaVista, for example, conducted information searches, and other Web sites offered professional consultations in such fields as law and insurance, arranged contacts among single men and women, or posted advertisements for job seekers. Banks administered accounts through the Internet, and investment firms sold stocks and bonds. Charles Schwab, in fact, eventually conducted two-thirds of its business on the Web. Auction Web sites became popular almost overnight because they appealed to the American craving for bargains and antiques. Through Ebay
Even though online companies specializing in dealing directly with customers earned $14.9 million in 1999, nearly double the amount of 1998, theirs was the smallest portion of e-commerce profits. Businesses selling to other businesses earned $109 billion during the same period. In fact, business-to-business e-commerce grew so important that it spurred a revolution in American supply and manufacturing procedures. Online catalogs allowed large manufacturers to order parts from suppliers more quickly, and the records of online sales let companies respond to demand more efficiently, saving time and reducing errors. The reduction in overhead expenses, estimated at between 10 and 50 percent, and the reduced waste increased profits. Governments also realized the benefits of e-commerce; they began to distribute benefits and information online and allowed citizens and businesses to file tax returns electronically.
Some fundamental problems with e-commerce emerged during this period of dramatic success, however. Security systems had to be installed to protect Web sites from the vandalism of hackers, and new laws were passed to punish offenders. More important, because credit cards were the usual means of payment for consumer orders, encryption systems had to be devised to ensure that thieves could not intercept credit card numbers.
Some companies found that their supply and shipping systems could not keep up with the rapidly accumulating orders posted on their Web sites. In order to support expansion, Amazon itself had to borrow $1.25 billion in bonds to pay for new warehouses, a distribution system, acquisition costs, and operating expenses in 1999, which gave it a $611 million net loss. Nevertheless, Bezos believed that the company would soon become profitable again, and he was proved right.
Most inhibiting of all, however, was the scarcity of workers with the technical skills for e-commerce. An estimated 360,000 jobs in this field were waiting to be filled in the United States and Canada alone in the year 2000.
Bezos’s recognition by Time magazine symbolized the sudden emergence of e-commerce as a significant part of American life. With approximately 2.2 million Web sites available to the public, and 300 million pages of information, the Internet presented a vast commercial potential. Increasing numbers of Americans took advantage of it through the late 1990’s, and industry experts confidently expected large upswings in holiday sales in 1999. They were not disappointed: Between Thanksgiving and New Year’s Day, 26.4 million shoppers spent more than $5 billion online, a threefold increase from 1998.
The successes of 1999 attracted ever more firms to e-commerce, especially after studies found that online small businesses brought in an average of nearly one-third more revenue than traditional companies. Moreover, companies often modified their corporate structures to accommodate the new type of market. Many found that they had to expand customer service departments because customers contacted retailers directly more frequently by phone or e-mail to ask questions or arrange for replacements or refunds. Companies doing substantial business online could eliminate “middleman” distributors and offer differential pricing for small items as well as for such big items as cars. Even small businesses found that they suddenly could sell products worldwide. At the same time, e-companies saw some expenses rise, especially in training to keep workers abreast of evolving Internet capabilities and in purchases of sophisticated hardware and software.
Meanwhile, e-commerce became deeply involved in other sectors of the economy. For example, the increase in direct shipping of goods to customers multiplied the demand on commercial shippers, such as the U.S. Postal Service, United Parcel Service, and Federal Express.
The implications of e-commerce for society, first studied in the late 1990’s, promised to be profound. Stanford University researchers found that Internet use in general tended to isolate people, even from other family members, an antisocial trend abetted by e-commerce: Most online shoppers said that they resorted to the Web to avoid crowded shopping malls and traffic. There was also concern that the ease of shopping online would tempt people to overspend, which could lead to a risky general increase in personal debt and bankruptcies.
A clear relation existed in 2000 between income and online shopping. The likelihood of a household having a computer that was connected to the Internet rose with income level. Because the level of education also rose with income, the wealthy and well educated were the people who used the Internet most often. This phenomenon threatened to intensify divisions between rich and poor, and social observers called for more public-financed Internet facilities at such places as libraries and schools. Public schools were urged to increase instruction devoted to computers and information technology.
Concerns arose also over issues of nationalism. The Internet could internationalize commerce in a way that was difficult for local governments to control, opening traditionally closed markets to global products and affecting nations’ economies and their autonomy. Countries with extensive technological infrastructure and research and development would certainly dominate developing countries online, increasing global economic stratification. Moreover, global connectiveness through the Internet created an autonomous behavioral milieu, which could erode cultural differences—a possibility as disturbing to nationalists as it was pleasing to e-commerce companies.
Proponents and critics alike predicted that e-commerce could to some degree reconstruct society in the twenty-first century. Accordingly, politicians anticipated that local and federal government policies would require reshaping as well, but exactly how remained controversial as the century began. Business leaders resisted any regulation of e-commerce, fearing it would cripple their operations; they wanted governmental involvement only in the form of support for developing new technology. Starting in 2000, the U.S. Census Bureau began collecting data on e-commerce to help the government address related policy issues.
The collapse of the NASDAQ and technical sector that occurred in the spring of 2000 took a little of the bloom off the rose of e-commerce, and many companies took a financial bath during that year. Such a shakeout of the less successful companies was inevitable after the first blush of success, however; despite the setbacks that some experienced, the concept of e-commerce was here to stay.
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Burnham, Bill. How to Invest in E-Commerce Stocks. New York: McGraw-Hill, 1999. Presents a concise introduction to e-commerce as well as a practical guide to the advantages and dangers of investing through the Internet. -
Fellenstein, Craig, and Ron Wood. Exploring E-Commerce, Global E-Business, and E-Society. Upper Saddle River, N.J.: Prentice Hall, 2000. Explains e-commerce for business owners and considers the future influence of e-commerce on government, medicine, and education. -
Ramo, Joshua Cooper. “Why the Founder of Amazon .com Is Our Choice for 1999.” Time, December 27, 1999, 50-51. Article announcing the choice of Bezos as person of the year is accompanied by articles about e-retailing and prominent cybermerchants. -
Schiller, Dan. Digital Capitalism: Networking the Global Marketing System. Cambridge, Mass.: MIT Press, 1999. Analyzes market-driven policies, economic potentiality, and influence on the educational and social policy of cyberspace. Warns that powerful corporations could misuse it. -
Tiernan, Bernadette. E-Tailing. Chicago: Dearborn, 2000. Provides a guide to the basics of e-commerce structure and procedures, Internet psychology, online merchants, and likely products and technology of the future.
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