Chapter 5 Electronic commerce information's search and selection In physical markets, consumer search activities include reading advertisements, calling endors, and visiting stores. In a virtual marketplace, all these activities seem to converge into Web searches and Web browsing. Not surprisingly, search services are the first market infrastructure to be built in the electronic marketplace 5.1 Consumer Searches and Electronic Commerce Similar to searches in physical markets, online searches can also be carried out either sequentially or simultaneously. Surfing through different Web stores is a sequential search while price search based on price database will be a case of simultaneous search. In either case, online search offers a tremendous advantage over physical search. Besides the lowered costs for time and transportation,computer-based search allows consumers to remember and compare information gathered from many stores. Furthermore online searches enable consumers to process a wide range of information other than pricee g location and name of vendors, terms of sales, quality and performance variables, brand names, sizes and other product characteristics, etc. Comparing prices alone will strain the capacity to process information in physical markets, especially if shopping involves many products. Online search technologies will automate this process and allow consumers to engage in more sophisticated and efficient searches The search and information transmission mechanisms used in the electronic marketplace are too new for researchers to have determined their efficiency. In fact there are contradicting predictions about what that will be. One view is that by using computer technologies such as search engines and intelligent software agents, consumers may be able to search the whole information space at no cost. For example, suppose you want to buy a product. Using a computer program, you initiate a search mechanism that searches all the Web pages on the Internet for a product that matches your needs. The search generates a table of names of sellers, prices, locations and product specifications as well as other relevant information such as seller reputation, past sales records, etc. You then choose a seller among the candidates, and initiate a purchase order While this scenario is close to one of zero search cost, which would produce an efficient market, there are many reasons why the electronic marketplace may not actually be so efficient. In the first place, sellers may not provide relevant information. Second\y,This may be because of access earch algorithms or techniques difficulties-as some Web sites do not allow access-or because all searches inevitably select and process information based on prescribed criteria which may have non-technical problems. Lastly economic analyses indicate that a non-zero search cost, however small it may be, results in noncompetitive pricing. Using electronic media may reduce search costs to an arbitrarily small amount. but the cost will still be non-zero In mathematical models. a reduction in search costs is quite different from an elimination of search costs. In this regard, it may be reasonable to assume that the problems associated with information will persist in electronic commerce as they do in physical markets Consumers may behave differently in the electronic marketplace than in physical markets where search costs are in general positive. This positive-however small- search cost results in higher than competitive prices-popularly known as 'Diamond paradox'(Diamond 1971). Should search costs be always positive? Admittedly, there are shoppers to whom searches seem to be enjoyable instead of costing something. On the Internet, 'surfers often resemble those shoppers happily visit stores and take a look at various merchandises. Armed with ever-present werful archiving programs, online surfers will be able to gather information while enjoying themselves. When they process this information for purchasing decision, the net cost of search may indeed be zero-or certainly not positive-debunking the paradoxical result of monopoly price equilibrium under positive search costs( Stahl 1996)
Chapter 5 Electronic commerce information’s search and selection In physical markets, consumer search activities include reading advertisements, calling vendors, and visiting stores. In a virtual marketplace, all these activities seem to converge into Web searches and Web browsing. Not surprisingly, search services are the first market infrastructure to be built in the electronic marketplace. 5.1 Consumer Searches and Electronic Commerce Similar to searches in physical markets, online searches can also be carried out either sequentially or simultaneously. Surfing through different Web stores is a sequential search while price search based on price database will be a case of simultaneous search. In either case, online search offers a tremendous advantage over physical search. Besides the lowered costs for time and transportation, computer-based search allows consumers to remember and compare information gathered from many stores. Furthermore, online searches enable consumers to process a wide range of information other than price—e.g. location and name of vendors, terms of sales, quality and performance variables, brand names, sizes and other product characteristics, etc. Comparing prices alone will strain the capacity to process information in physical markets, especially if shopping involves many products. Online search technologies will automate this process and allow consumers to engage in more sophisticated and efficient searches. The search and information transmission mechanisms used in the electronic marketplace are too new for researchers to have determined their efficiency. In fact, there are contradicting predictions about what that will be. One view is that by using computer technologies such as search engines and intelligent software agents, consumers may be able to search the whole information space at no cost. For example, suppose you want to buy a product. Using a computer program, you initiate a search mechanism that searches all the Web pages on the Internet for a product that matches your needs. The search generates a table of names of sellers, prices, locations and product specifications as well as other relevant information such as seller reputation, past sales records, etc. You then choose a seller among the candidates, and initiate a purchase order. While this scenario is close to one of zero search cost, which would produce an efficient market, there are many reasons why the electronic marketplace may not actually be so efficient. In the first place, sellers may not provide relevant information. Secondly, search algorithms or techniques may not be sufficient to gather all the relevant information. This may be because of access difficulties—as some Web sites do not allow access—or because all searches inevitably select and process information based on prescribed criteria which may have non-technical problems. Lastly, economic analyses indicate that a non-zero search cost, however small it may be, results in noncompetitive pricing. Using electronic media may reduce search costs to an arbitrarily small amount, but the cost will still be non-zero. In mathematical models, a reduction in search costs is quite different from an elimination of search costs. In this regard, it may be reasonable to assume that the problems associated with information will persist in electronic commerce as they do in physical markets. Consumers may behave differently in the electronic marketplace than in physical markets where search costs are in general positive. This positive—however small— search cost results in higher than competitive prices—popularly known as 'Diamond paradox' (Diamond 1971). Should search costs be always positive? Admittedly, there are shoppers to whom searches seem to be enjoyable instead of 'costing something'. On the Internet, 'surfers' often resemble those shoppers who happily visit stores and take a look at various merchandises. Armed with ever-present, powerful archiving programs, online surfers will be able to gather information while enjoying themselves. When they process this information for purchasing decision, the net cost of search may indeed be zero—or certainly not positive—debunking the paradoxical result of monopoly price equilibrium under positive search costs (Stahl 1996)
5.2 Feature: Efficiency 5.2.1 Search Market Efficiency A search market consists of three components: content providers, selection process, and access. By separating these components, which may almost simultaneously in a typical sear ch process, we can compare different types of search activities and evaluate their effici fences (1)Content providers. The contents provided by sellers largely defines the informational pace a search can occupy. Understandably, some product information may not yet be available in digital format. Information that does already exist includes primary sources such as company web pages and secondary sources such as bot-generated indexes and evaluation databases. Secondary brokes often filter and reduce the amount of information but add the expertise of the information 2)Selection. The process of electronic selection consists of various forms of information query based on keywords or subjects. Interactive queries result in individualized sorts. A non-interactive selection process includes classified ads, directories, or ot her types of information organized by some preselected criteria and searches on Lycos or Yahoo are this selection process (3)Access. Through selection, consumers have a list of information sites that fit their search criteria. But, to actually view these documents, selected information must be downloaded or accessed by visiting the Web sites. The access occurs in two stages: connecting and retrieving An ideal search market therefore allows consumers a series of filtering process by which they may reduce the universe of available information to a manageable and meaningful size. An efficient Internet search market can be depicted, as in Figure 5.1, as the content space available on the Internet containing the set of selected information. which also contains accessed information space. In this case, even though some product information is only available offline, the online earch market is efficient because all contents that are relevant (the area of the pentagon) exist online(the rounded rectangle). In other words, one is a proper subset of the other in the order of contents,(2)selection, and (3)access. If any or some of them are not a proper subset, the search market is not efficient. For example, if some contents, which are needed in(2) selection process are not available online, the search process cannot be efficient physical market n the Internet Contents pamat and in on the internet in digital physical market Relevant information Accessed and etrieved information Figure5-1 An efficient Internet search market In Figure 5.2,(a) shows a case where some information, although relevant, is not available online. As a result, only the contents accessible online are retrieved. Even when contents are available online, the search market may fail if these contents are not accessible, for example due to access restriction or congestion(see() and(c)in Figure 5.2). Finally, consumers may have to rely on both online and off-line information channels to complete a search(see (d)in Figure 5.2)
5.2 Feature: Efficiency 5.2 .1 Search Market Efficiency A search market consists of three components: content providers, selection process, and access. By separating these components, which may occur almost simultaneously in a typical search process, we can compare different types of search activities and evaluate their efficiencies. (1) Content providers. The contents provided by sellers largely defines the informational space a search can occupy. Understandably, some product information may not yet be available in digital format. Information that does already exist includes primary sources such as company web pages and secondary sources such as bot-generated indexes and evaluation databases. Secondary sources often filter and reduce the amount of information but add the expertise of the information brokers. (2) Selection. The process of electronic selection consists of various forms of information query based on keywords or subjects. Interactive queries result in individualized sorts. A non-interactive selection process includes classified ads, directories, or other types of information brokers, where entries are organized by some preselected criteria and presented as such. Internet searches on Lycos or Yahoo are this selection process. (3) Access. Through selection, consumers have a list of information sites that fit their search criteria. But, to actually view these documents, selected information must be downloaded or accessed by visiting the Web sites. The access occurs in two stages: connecting and retrieving processes. An ideal search market, therefore, allows consumers a series of filtering process by which they may reduce the universe of available information to a manageable and meaningful size. An efficient Internet search market can be depicted, as in Figure 5.1, as the content space available on the Internet containing the set of selected information, which also contains accessed information space. In this case, even though some product information is only available offline, the online search market is efficient because all contents that are relevant (the area of the pentagon) exist online (the rounded rectangle). In other words, one is a proper subset of the other in the order of (1) contents, (2) selection, and (3) access. If any or some of them are not a proper subset, the search market is not efficient. For example, if some contents, which are needed in (2) selection process, are not available online, the search process cannot be efficient. Figure5-1 An efficient Internet search market In Figure 5.2, (a) shows a case where some information, although relevant, is not available online. As a result, only the contents accessible online are retrieved. Even when contents are available online, the search market may fail if these contents are not accessible, for example due to access restriction or congestion (see (b) and (c) in Figure 5.2). Finally, consumers may have to rely on both online and off-line information channels to complete a search (see (d) in Figure 5.2)
as is th ith today's market. The obvious implication is that the information available in physical market must also be available online to prevent search problems such as(a) and(d)in Figure 5.2 Intern Physical market Physical market 尖 Physical market Physical market Intern Figure5-2 Examples of an inefficient search market a) Some information relevant to selection is not available online (b)Access problem, where relevant information is not accessible (c)Access problem, where only some relevant informationis accessible (d) Traditional information access, where both online and off-linemethods have to be used Despite some reservations, search services play an important role by aiding consumers in the selection process. In this way, search services are in fact intermediaries who broker product information between sellers and buyers. According to the theory of disintermediation, electronic commerce represents a market where intermediaries will disappear because consumers can interact directly with producers. In such a market, consumers will not need search intermediaries since, for example, consumers will be able to use a powerful search program of their own. Todays search services in fact send out intelligent programs or automated robots to gather information about Web documents. Consumers, in theory, can employ their own agents who roam the cyberspace with a predetermined mission and report back to their owners. On the other hand search intermediaries may continue to serve in the electronic marketplace for several reasons 5.2.2 Search Efficiency in Intermediaries In terms of network traffic, individual agent-based searches will generate much duplication of accessing and downloading information since each consumer must send their own query over the network. This duplicative traffic can be minimized by using intermediaries who collect, process, and store the information The efficiency in intermediating potentially duplicative and wasteful information access on the Internet resembles that of wholesaling and retailing in physical markets. By handling products in bulk, wholesalers and retailers in physical markets minimize transportation costs in distributing these products to geographically dispersed end users. For digital products, however, a producer needs only to send one copy to a wholesaler or a retailer, and thus there is no reason to be
as is the case with today's market. The obvious implication is that the information available in physical market must also be available online to prevent search problems such as (a) and (d) in Figure 5.2. A B C D Figure5-2 Examples of an inefficient search market (a) Some information relevant to selection is not available online. (b) Access problem, where relevant information is not accessible. (c) Access problem, where only some relevant informationis accessible. (d) Traditional information access, where both online and off-linemethods have to be used. Despite some reservations, search services play an important role by aiding consumers in the selection process. In this way, search services are in fact intermediaries who broker product information between sellers and buyers. According to the theory of disintermediation, electronic commerce represents a market where intermediaries will disappear because consumers can interact directly with producers. In such a market, consumers will not need search intermediaries since, for example, consumers will be able to use a powerful search program of their own. Today's search services in fact send out intelligent programs or automated robots to gather information about Web documents. Consumers, in theory, can employ their own agents who roam the cyberspace with a predetermined mission and report back to their owners. On the other hand, search intermediaries may continue to serve in the electronic marketplace for several reasons. 5.2.2 Search Efficiency in Intermediaries In terms of network traffic, individual agent-based searches will generate much duplication of accessing and downloading information since each consumer must send their own query over the network. This duplicative traffic can be minimized by using intermediaries who collect, process, and store the information. The efficiency in intermediating potentially duplicative and wasteful information access on the Internet resembles that of wholesaling and retailing in physical markets. By handling products in bulk, wholesalers and retailers in physical markets minimize transportation costs in distributing these products to geographically dispersed end users. For digital products, however, a producer needs only to send one copy to a wholesaler or a retailer, and thus there is no reason to be
concerned with minimizing distribution costs. And since no online retailer is closer to consumers than their suppliers, we need not consider the distributive efficiency. Nevertheless, an online intermediary minimizes distribution costs in its own way by reducing costs associated with network traffic. If we compare intermediated and disintermediated markets(see Figure 5.3), the similarity is striking The stylized diagram, Figure 5.3, shows how consumers access product information In(a) each buyer sends a query to all sellers to get product information, whereas in(b), buyers can get information from the intermediary who receives information packages from all these sellers. In a similar delivery scheme in physical markets, such an intermediated structure may not be efficient if some sellers are located closer to buyers than is the intermediary. A significant inefficiency can occur in the hub-and-spoke system used by airlines if some passengers(buyers)are forced to go through the hub (intermediary) regardless of the extra distance involved. In the virtual environment of the electronic marketplace, however, an intermediated search market dramatically reduces duplicated traffic and enhances network efficienc This network efficiency has little to do with the intermediary's role in assisting consumers' selection process, the efficiency resulting simply from providing a centralized outlet for all sellers But, this centralization needs not require the same contents to be stored in both producers and the intermediary's Web sites-a wasteful duplication. Instead, the product information at the intermediary's Web site will have only the necessary information for buyers to make purchase decisions. In a way, the intermediary also acts as an information filtering agent, which is the second type of efficiency in intermediation Besides intermediaries, consumers have many tools to filter information, and for this reason, we discuss information filtering in the next section elle B Sellers Buvers <○ ntermediary Figure5-3 Information access with and without an intermediary (a)Disintermediation (b) Intermediation In an extreme case, proper selection and evaluation of a product may require full information contained in the seller's Web site instead of a summary provided by an intermediary. In that case face-to-face information exchanges can actually be more efficient than intermediation because of the latter's unnecessary duplication. But this will be more of an exception than the rule in electronic commerce because the quality of a digital product is difficult to evaluate even with full information or the product itself. More importantly, intermediaries also resolve the quality uncertainty problem. If buyers were to contact sellers directly, the accessed information might not be reliable unless the content providers were trust worthy. As we examined, by using a simpl contract, intermediaries often become trusted third parties in electronic commerce even without verifying all products they broker 5.3 Search Services on the Internet In this and the next two sections, we examine various search services on the Internet in terms of the search market and information efficiencies we just discussed. In addition, we compare the network efficiency of information search channels and discuss some implications of this on market organization and advertising
concerned with minimizing distribution costs. And since no online retailer is closer to consumers than their suppliers, we need not consider the distributive efficiency. Nevertheless, an online intermediary minimizes distribution costs in its own way by reducing costs associated with network traffic. If we compare intermediated and disintermediated markets (see Figure 5.3), the similarity is striking. The stylized diagram, Figure 5.3, shows how consumers access product information. In (a), each buyer sends a query to all sellers to get product information, whereas in (b), buyers can get information from the intermediary who receives information packages from all these sellers. In a similar delivery scheme in physical markets, such an intermediated structure may not be efficient if some sellers are located closer to buyers than is the intermediary. A significant inefficiency can occur in the hub-and-spoke system used by airlines if some passengers (buyers) are forced to go through the hub (intermediary) regardless of the extra distance involved. In the virtual environment of the electronic marketplace, however, an intermediated search market dramatically reduces duplicated traffic and enhances network efficiency. This network efficiency has little to do with the intermediary's role in assisting consumers' selection process, the efficiency resulting simply from providing a centralized outlet for all sellers. But, this centralization needs not require the same contents to be stored in both producers' and the intermediary's Web sites—a wasteful duplication. Instead, the product information at the intermediary's Web site will have only the necessary information for buyers to make purchase decisions. In a way, the intermediary also acts as an information filtering agent, which is the second type of efficiency in intermediation. Besides intermediaries, consumers have many tools to filter information, and for this reason, we discuss information filtering in the next section. Figure5-3 Information access with and without an intermediary (a) Disintermediation (b) Intermediation In an extreme case, proper selection and evaluation of a product may require full information contained in the seller's Web site instead of a summary provided by an intermediary. In that case, face-to-face information exchanges can actually be more efficient than intermediation because of the latter's unnecessary duplication. But this will be more of an exception than the rule in electronic commerce because the quality of a digital product is difficult to evaluate even with full information or the product itself. More importantly, intermediaries also resolve the quality uncertainty problem. If buyers were to contact sellers directly, the accessed information might not be reliable unless the content providers were trust worthy. As we examined, by using a simple contract, intermediaries often become trusted third parties in electronic commerce even without verifying all products they broker. 5.3 Search Services on the Internet In this and the next two sections, we examine various search services on the Internet in terms of the search market and information efficiencies we just discussed. In addition, we compare the network efficiency of information search channels and discuss some implications of this on market organization and advertising
5.3.1 Search or Surf? Searching on the Internet starts with a need or a motive to find something, in a stark contradiction to the popular Internet surfing which implies a random, aimless hopping through hyperlinks for fun. Less than five years ago, 'surfing the net was the main activity for man Internet users. Today, online users begin by visiting their bookmarked sites or by searching for specific sites. The growth in search activity on the Internet represents a new phase in the development of the virtual space. What used to be something equivalent to taking a stroll has become more of an organized mission compiling a list of links, bookmarks, recommended sites and ultimately an organized personal directory. Such a directory would be extremely useful in mapping out the virtual space. To avoid unnecessary visits, then, a directory should be complete, ccurate, meaningful and objective. Current search services are lacking in these aspects 5.3.2 Inadequacies of Search Services A complete listing of Web sites and their documents currently does not exist. Instead consumers need to visit different search sites or relevant Web sites which might have useful links This lack of a complete directory is not in itself a new problem. In physical markets, a Yellow Page directory only lists local businesses, and there are a number of specialized directories for different industries and markets. However, there is no reason why all information housed in a library's reference section can not be combined into one database, especially on the Internet Combining different Internet search databases will further alleviate the hassle of having to use several search services and the duplicative costs of collecting the same information. To recover the cost of compiling an Internet database, more and more search services are preoccupied with soliciting advertisers instead of improving data integrity and search efficiency. Search service may be one of a few Internet services which are truly essential in enhancing the usability and usefulness of the Internet for commerce. An incomplete search service will be as useful as a partial phone directory Internet search databases are also inaccurate and out-dated since Web sites are constantly changing. They often give consumers those links that no longer exist. In such an environment updating may require as much effort as compiling the initial database. An alternative may be to accept-or require-submissions by site owners about changes. Another inaccuracy stems from Web sites misrepresenting and pretending to be something that it is not. That possibility compels data compilers to verify each site manually, further increasing costs of maintaining an accurate database. A more coordinated system of feedback between content providers, users and search services is needed a third inadequacy of current search services is the irrelevancy of some sites matching search keywords. One problem stems from the lack of sophisticated and complex search mechanisms to weed out irrelevant information. Equally lacking is a proper description for each Web site and its materials upon which to base a search. As a result, a simple search often produces tens of thousands of meaningless links. digital document metadata standards need to be established and accepted by content providers, and become part of content creation Finally, search results need to be objective. Results can be skewed if the database itself consists of information which is pre-selected based on arbitrary criteria Some search services do not include personal homepages or materials residing on university Web sites. Others reject Web sites which are considered offensive, indecent, or frivolous by their own standards. Also, with the increasing commerc alization, some search service providers may give preference to paying advertisers Although all these are reasonable behaviors for private enterprises, what would be the use of a phone directory if it omits all Smiths'or those living in an area with a particular zip code? An Internet search service is no longer just a spring board for Internet surfing Rather, as an essential infrastructure, its database needs to be complete and accurate to foster an efficient information exchange Finally, search results need to be objective. Results can be skewed if the database itself consists of information which is pre-selected based on arbitrary criteria. Some search services do not include personal homepages or materials residing on university Web sites. Others reject Web sites which are considered offensive, indecent, or frivolous by their own standards. Also, with the increasing commercialization, some search service providers may give preference to paying dvertisers. Although all these are reasonable behaviors for private enterprises, what would be the use of a phone directory if it omits all 'Smiths or those living in an area with a particular zip code?
5.3.1 Search or Surf? Searching on the Internet starts with a need or a motive to find something, in a stark contradiction to the popular Internet surfing which implies a random, aimless hopping through hyperlinks for fun. Less than five years ago, 'surfing the net' was the main activity for many Internet users. Today, online users begin by visiting their bookmarked sites or by searching for specific sites. The growth in search activity on the Internet represents a new phase in the development of the virtual space. What used to be something equivalent to taking a stroll has become more of an organized mission compiling a list of links, bookmarks, recommended sites, and ultimately an organized personal directory. Such a directory would be extremely useful in mapping out the virtual space. To avoid unnecessary visits, then, a directory should be complete, accurate, meaningful and objective. Current search services are lacking in these aspects. 5.3.2 Inadequacies of Search Services A complete listing of Web sites and their documents currently does not exist. Instead, consumers need to visit different search sites or relevant Web sites which might have useful links. This lack of a complete directory is not in itself a new problem. In physical markets, a Yellow Page directory only lists local businesses, and there are a number of specialized directories for different industries and markets. However, there is no reason why all information housed in a library's reference section can not be combined into one database, especially on the Internet. Combining different Internet search databases will further alleviate the hassle of having to use several search services and the duplicative costs of collecting the same information. To recover the cost of compiling an Internet database, more and more search services are preoccupied with soliciting advertisers instead of improving data integrity and search efficiency. Search service may be one of a few Internet services which are truly essential in enhancing the usability and usefulness of the Internet for commerce. An incomplete search service will be as useful as a partial phone directory. Internet search databases are also inaccurate and out-dated since Web sites are constantly changing. They often give consumers those links that no longer exist. In such an environment, updating may require as much effort as compiling the initial database. An alternative may be to accept—or require—submissions by site owners about changes. Another inaccuracy stems from Web sites misrepresenting and pretending to be something that it is not. That possibility compels data compilers to verify each site manually, further increasing costs of maintaining an accurate database. A more coordinated system of feedback between content providers, users and search services is needed. A third inadequacy of current search services is the irrelevancy of some sites matching search keywords. One problem stems from the lack of sophisticated and complex search mechanisms to weed out irrelevant information. Equally lacking is a proper description for each Web site and its materials upon which to base a search. As a result, a simple search often produces tens of thousands of meaningless links. Digital document metadata standards need to be established and accepted by content providers, and become part of content creation. Finally, search results need to be objective. Results can be skewed if the database itself consists of information which is pre-selected based on arbitrary criteria. Some search services do not include personal homepages or materials residing on university Web sites. Others reject Web sites which are considered offensive, indecent, or frivolous by their own standards. Also, with the increasing commercialization, some search service providers may give preference to paying advertisers. Although all these are reasonable behaviors for private enterprises, what would be the use of a phone directory if it omits all 'Smiths' or those living in an area with a particular zip code? An Internet search service is no longer just a spring board for Internet surfing. Rather, as an essential infrastructure, its database needs to be complete and accurate to foster an efficient information exchange. Finally, search results need to be objective. Results can be skewed if the database itself consists of information which is pre-selected based on arbitrary criteria. Some search services do not include personal homepages or materials residing on university Web sites. Others reject Web sites which are considered offensive, indecent, or frivolous by their own standards. Also, with the increasing commercialization, some search service providers may give preference to paying advertisers. Although all these are reasonable behaviors for private enterprises, what would be the use of a phone directory if it omits all 'Smiths' or those living in an area with a particular zip code?