The Rise and Demise of Ecommerce

January 24, 2016

2:00 pm

Since the end of the 1990s, ecommerce has gone from minor curiosity to full-blown economic powerhouse. Amazon started out selling books by mail and then took over the e-book market with its Kindle devices and AZW e-book format. A few years ago, most people still thought of Amazon as a book seller, and they probably spent as much time or more shopping for books at Barnes and Noble as they did browsing online retailers. Today, most people know that Amazon is the biggest online retailer and that it sells everything from electronics and kitchen gadgets to auto parts.

The Effect of Ecommerce on the Retail Industry

A few years ago, when Walmart was putting mom-and-pop stores out of business, people bemoaned the demise of independent brick-and-mortar retailers. It’s impossible for small retailers to compete with Walmart’s automated warehouses and global fleets of cargo barges and big rigs that enable huge price cuts. Since Amazon came to the online shopping world, it has taken over where Walmart left off, making it difficult even for established physical retailers to stay in business. Malls are shutting down, conveyor systems are downsizing, and ecommerce websites are booming.

Not all brick-and-mortar retailers are going out of business, however. The ones with the salesforce integration software and other resources needed to make the move to Web-based retail are starting to thrive again. Barnes and Noble created the Nook to compete with the Kindle, and Walmart has a huge share of the e-commerce market. Another traditional department store that has been in the news recently over its economic woes, J.C. Penney, is making a comeback due to its online sales.

Amazon isn’t the only major player in the ecommerce industry, but it’s the biggest. It occupies 14 percent of the market, which is more than any other company by a wide margin. It’s a certainty that online commerce is where retail trade is headed, although there are some challenges on the horizon. Brick-and-mortar stores probably won’t become completely extinct anytime soon, but what happens in 30 or 40 years is anyone’s guess.

How to Deal with the Rising Cost of Fuel

The main challenge confronting the e-commerce industry is the rising cost of oil, which makes shipping charges cost more. This issue is the same problem faced by the flight industry and motorists in general. It has many possible solutions, and some of the big names in the business are conducting the first experiments to find the best ways to reduce fuel costs.

Amazon has raised the possibility of delivering packages by robotic drones rather than using traditional shipping carriers. It’s an interesting idea, and if company CEO Jeff Bezos sees a way to put it into action, it could have large economic benefits. Deliveries could take about 30 minutes rather than several days, and eventually, when the cost of the technology comes down, fuel expenses could be much lower. Also, since no one has to operate a drone, the cost of paying a courier is eliminated.

There are a few legal issues standing in the way of this plan going into action, although Congress has left the possibility open for the future. In a few years, drone deliveries are a definite possibility, if Amazon believes it can increase its profits with them. The technology needs to get a little more reliable so that delivery drones don’t crash into houses or hurt people by dropping packages on them. In a few decades, a drone that costs $50,000 today should cost only a few hundred dollars, and all online retailers will be able to afford to offer nearly instant deliveries.

The Future Role of Brick-And-Mortar Retailers

When engineers have worked out how to cheaply and efficiently power vehicles with batteries and how to make the Internet accessible by anyone from any location, the retail industry will look completely different than it does today. People may never stop wanting to shop at a store in person. It allows them to see and feel a product before they buy it, and it gives them a chance to go out into the world and be around other people. Humans want things to be easy, not necessarily efficient. They will choose the shopping method that saves them the most time, money and effort.

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Dennis Hung is an entrepreneur and product analyst specializing in mobile technology and IoT. He’s spent most of his career consulting for businesses in North America.

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