Thoughts on e-commerce, its shortcomings, and a new way forward

Section 1:

Before we start talking about this commerce model, I want to discuss the existing problems in this field and the nature behind the problems.

There are few categories of E-Commerce in the US:

1. Websites with listing styles such as Amazon and JD. These websites organize sellers and assist them in trading with buyers.
2. Websites with bidding styles such as eBay and Taobao. These websites give sellers permission to self-organize. Buyers, on the other hand, can purchase products by bidding.
3. Websites with group-buy styles such as Groupon. These websites organize sellers and a large group of buyers so that there will be a better price.
4. There are other websites which are somewhat less organized, such as Angie's List and Craigslist. These websites give lots of freedom to both sellers and buyers who can trade as they desire.
alt
These models all have their own advantages and disadvantages. We will specifically look at the disadvantages today.

- Amazon: Good protections for buyers, but not sellers. Therefore, sellers are vulnerable to "evil buyers".
alt - eBay: More friendly toward sellers. Sellers could some-what avoid evil buyers through user feedback. However, buyers are not very satisfied. After all, the sources still come from buyers. Thus, I think eBay cannot win the competition with Amazon (in the overlapping fields)
- Groupon: Many customers have the sense the products on sale are either because it's a bad deal, bad quality, or bad service. Customers’ most wanted products do not have discounts, and most of the discounts are not what customers needed the most. Therefore, people may go there once or twice, but may not be a long-term customers. Groupon is mostly targeting on customers who are only eager to find cheap deals. Sellers cannot gain much profit to promote advertisements in Groupon. alt
Besides the websites mentioned above, there are many more new e-commerce models these days. There are some outstanding representatives such as Kickstarter which uses a crowdfunding method and Fab which uses a flash-buy method.

To take Kickstarter as a model, there are also some similar websites such as AngelList and Gust which focus on fund collecting. This type of website has an advantage of making the procedure of C2C more logical: customers bring up the project, sale begins in advance, products are being produced, and delivery occurs. The disadvantage is that the product cycle is too long. Customers have to wait for a long time before finally receiving the products – and the products they finally get normally cannot meet expectations.
Flash-buy websites, on the other hand, have become rather stale. Right now there are so many duplicate websites, and Fab is having significant difficulties now, just as Groupon had.alt

Which one of the e-commerce models is the best? Rather, is there really a best e-commerce model? Before I bring up my opinions, I want to give a more thorough analysis of the nature of e-commerce and the requirements of a good trading model.

Section 2: History of E-commerce

The essence of e-commerce is transferring traditional trades to online trades. Thus, by analyzing e-commerce, we have to look at traditional trading. The behavior of trading could be traced back to thousands of years B.C., with the earliest trading platform being called the marketplace. This model has lasted and evolved into many different kinds of shops, malls, exhibitions, and so on. In the current age, people have moved trading to the internet – thus starting e-commerce.

The earliest marketplace was just a small gathering of local sellers and customers. The demand and supply were at a similar level, so the competitions between sellers were not very intense.

There were not a lot of promotions or advertisement – just crying out about their products was enough. The trading process was a spontaneous behavior that did not have any set of rules.alt
Different stores began to appear afterwards and sellers outnumbered buyers. For the same product, customers could choose from many different sellers. This is when sellers began to promote and advertise themselves in order to gain more customers. Nonetheless, these promotions were somewhat limited by the location. Sellers from different regions – countries, states, or even nearby cities – did not have to compete with each other.

Nowadays, the marketplace has moved onto the internet, which is a global platform. Therefore, all sellers can compete with each other, regardless of location – a shoe-seller from New York could compete with a shoe-seller from Los Angeles. As the world became more globalized, this type of competition even emerged between different countries. Even some international black markets have arisen, such as the illicit Silk Road online marketplace.
alt Intense competition has caused a dramatic increase in advertising expenses. Almost all the websites – including Google, Facebook, eBay, Amazon, and so on – are constantly talking about the topic of “what kind of advertisement should we present to customers”. The common name of this circumstance is “big data” which means digging a customer’s shopping habit from the big data and presenting a certain advertisement they might be interested in. Numberless people have spent their lifetime in this vast database for only one purpose – finding each customer’s interest, so that they can show you specific products or even different prices when you log in to their website the next time. Many websites even give different prices for different zip codes, such as Staples and Best Buy. This phenomenon is irrational, even pathetic – but the industry is very proud of it.
alt Advertising did not just increase the cost of manufacturing a product and wastes productive forces, but it also confuses customers, which eventually lowers the efficiency of the marketplace.
How can we limit – or even take out – advertisements in this e-commerce era? Direct selling has been disproved from many perspectives. The origin of this problem is that one product is often sold by many sellers. Therefore, the question is, how can we make sure customers can find the best seller with the fastest speed, the lowest price and the highest quality?

Section 3:

Let’s talk more thoroughly about the disadvantage of advertisements and the harms they brought to e-commerce.
Take the United States as an example – the expense on various types of advertisements last year was over 100 billion dollars – excluding the time people spent on advertising. This amount is equal to the sum of the B2C market six years ago. In another word, a large portion of a product’s price belongs to the cost of its advertisements. For some products, such as cosmetics and luxuries, the advertising costs are even higher than their production costs. We call this the original sin of advertisement: customers wish to pay only for the products, but they are actually paying more for advertisements. The truth is, however, not many customers enjoy seeing numerous advertisements – they even dislike them.
alt Advertisements are harmful to e-commerce in two ways: they confuse customers and diverge sellers from their original focus on product development.
Nevertheless, we cannot entirely reject advertisements. Modern advertisements can be put into two categories depending on their purposes: one is used to establish a brand and the other is to promote products. The first category is necessary and cannot be abolished, whereas the second category should be limited.

Section 4:

Let’s bring back our attention to e-commerce. The nature of e-commerce is to transfer products from sellers (producers) to buyers (customers). The procedure must involve three elements: seller, buyer and product.
A trading process is sustainable only when both the seller and buyer are happy, and how could this happen? From buyers’ perspective, the purchase process must be efficient and easy. They wish to get the lowest price with the fastest speed, with easy return or exchange. From sellers’ perspective, the selling process should give the biggest profit with the fastest speed, with the bare minimum of returns or exchanges. As of now, there is no such platform to satisfy both parties’ needs.
Could you imagine such a perfect e-commerce model that could satisfy all the above conditions?

Section 5:

In the aforementioned paragraphs, I have mentioned the conditions of a perfect trading platform, and I imagine that many people would reckon that this platform does not exist. Especially where “buyers want to return or exchange at ease” and “sellers want the minimum return or exchange” – these two sides contradict each other and it seems impossible to find a midpoint.
alt The e-commerce platforms currently in the marketplace have found it very difficult to compromise between sellers and buyers. If the platform leans toward buyers – like Amazon – sellers will not be satisfied. Vice-versa, if the platform leans toward sellers – like eBay – buyers will not be happy. If we completely set both parties free, new problems will emerge. If you take Craigslist as an example, frauds are found everywhere on this platform. Of course, since every trading activity is triggered by buyers, leaning toward buyers would be a better strategy. However, the best condition is always to find the best compromise between buyers and sellers.
In order to do so, we have to do a deeper analysis.
Take the buyer as an example; this group of people can be divided into two types: good buyers and "evil buyers". In order to make sellers happy, we have to help them to find a way to separate good buyers from evil buyers. Otherwise, the evil buyers will abuse the system if we lean toward the buyers too much. In contrast, if we are too strict on buyers, the shopping experience for good buyers will be negatively influenced.
Besides good buyers and evil buyers, we could also categorize buyers by their sensitivity towards money – in other words, wealthy or poor. When purchasing a product, wealthy people may be willing to spend as much as the sellers ask, whereas the poor people will look for coupons or discounts in order to save money. There is a classic price divergence theory in MBA textbooks which states that sellers hope to apply different pricing strategies on different buyers in order to maximize their profits. Staples has applied this theory in their selling policy. For example, the same office cabinet may be sold at a much higher price in a wealthy community than that in a poor community. The main reason is that the customers from the poor community have a higher possibility of returning the item. Returning, on the other hand, will increase sellers’ cost. As of now, Staples uses zip codes to apply this policy, but zip codes give a low accuracy on the boundary between poor and wealthy. There are certainly good buyers in the poor community, and evil buyers within the wealthy community. Thus, this firm boundary is not as rational or reasonable in reality as in theory. How to scientifically apply the price difference individually is a challenge for a good platform.
alt Besides good and evil, rich and poor, customers also have a great variance of shopping habits. The existing method is to build models using "big data" which is to make some detailed policy by categorizing people into groups. I have some unhappy experiences on this matter. A few months ago I bought some cosmetic products for a friend, and I was put on the customers-with-interests list. I have then constantly received cosmetics magazines that I do not need, which are immediately tossed into the trash, unopened. Of course, the sellers must have applied the cost of these magazines into the price of their products, and passed along this cost to the next customer. Another example is when my colleague bought a baby stroller using my Amazon account, and my account has been filled with baby products since that purchase.

Section 6:

In this section I will talk about sellers and products.
Suppose you are interested in a product which is sold by two different sellers – the bigger and more popular brand has a higher price, while the smaller and less popular brand has a lower price. Which seller would you choose?
This brought up the issue of does it matter who we buy from if a product has the same quality, same producer and same production date. Some people may argue: what about the service? What if the service also shares the same quality? The answer is that many customers will still choose the bigger brand, just because they could afford to pay for the advertisements.
alt This scenario applies to what a famous Chinese writer Zhongshu Qian once said – if you ate an egg and you like it, do you need to care about which hen laid this egg? I think an ideal commercial model should be where the sellers only focus on productions, and do not pay a lot of money on promotions. Customers could automatically obtain the lowest price and a high quality service. It does not even matter if the brand is big or small – as long as it could provide the product with the same quality – we will treat them equally. On the customers’ side, they do not even need to know which seller they are buying from.

Section 7:

After analyzing both seller, buyer and products, let’s look at the transaction procedure.
A typical transaction procedure begins with the need of a customer. This need is captured by the seller, and a production is then being made. Through an agent or a dealer, the production finally reaches the hands of the customer. The customer’s need was fulfilled, and the transaction cycle is thus completed. The conclusion is that the pushing force of a transaction procedure is the customer’s need.
When the supply does not meet demand, this transaction is natural and simple. Customers could only buy from certain sellers, and sellers did not have to promote their products. This is the scenario of China during the planned economy time. However, with the progress of production forces, the current situation is exceeding demand. Whatever product you pick, there are numerous sellers waiting to sell this product. Enormous amounts of advertisements are trying to lead customers in their direction, but the problem is that advertisements sometimes are not as accurate as they are promoted to be. The big data cannot be 100% accurate, either. The result could turn out to be very chaotic – not efficient, and a lot of waste. Within the massive amount of advertisements, customers cannot easily find what they really want to buy, receive products that cannot meet their expectations, or buy stuff they do not even want. This does not just cause the waste of productive forces, but also the pollution of the environment.
alt In a word, a good e-commerce model must start off from the needs of customers in order to be the most logical and efficient model.

Section 8:

The keyword we talked about was “need”. In order to understand the origin of e-commerce, we have to understand “need”. In the traditional trading model, sellers use advertisements to analyze, predict, and create customers’ needs. This procedure, however, is not efficient in time or labor force, which increased the costs of the products.
If, in theory, there is an e-commerce model where the needs of customers are already known, then we only need to filter the right sellers to pair up with their needs. Therefore, we could waive the usage of advertisements which could save both money and time.
Two problems came up with this type of e-commerce model:
How can we figure out the needs of the customers, and how can we find the best-match sellers to fulfil customers’ needs?
The first question has an easy answer – let customers tell you. Thus the question became: how to encourage customers to speak out their needs initiatively?
There are an immense number of books about customers’ needs. Different companies are all eager to gain this information. Powerful companies pay tons of money to research big data and promote different advertisements to different audiences accurately. Smaller companies, who cannot afford this research, then send out blasts of advertisements – which overwhelm the customers. These ways, however, are both passive and are not very efficient. Personally, I think customers’ needs can be induced by a new promotions strategy.
This strategy has to focus on customers’ largest interests – the lowest price, the fastest speeds, and the best service, along with the highest quality.
By satisfying the aspects above, I think we can induce customers to intuitively expose their needs.
Here’s a realistic example: John says he wants to buy a television. I promise he can buy the television with the lowest possible price, delivered to him with the speed he wants, and can be returned at his will; in return, I ask him what model of television he wants to buy and how much he wants to pay for it – the possibility that he will give me the information I need is 80% to 90%.alt

Section 9:

Now let’s look at the side of the sellers and think about if they could satisfy these conditions.
The lowest price:
The final price of a product consists of three parts: self-cost, marketing (advertisements) and service (loss from return). In order to decrease the final price, we can only start with reducing the costs of advertisements and returning. Reducing the costs of advertisements means sellers have to reduce the production of advertisements; and reducing returning means we have to try to avoid evil buyers. If both goals can be reached, the final price of a product can be reduced by 10% - 50% – which is probably the lowest price in the whole market.
Fast delivery:
Some customers only want an immediate purchase and refuse to wait. Waiting can always influence a purchasing experience, and I think this is also the main reason why eBay cannot defeat Amazon. Still, this condition can be satisfied by technological methods.
Easy return:
Returning will dramatically increase the cost of sellers. In order to promise customers they can return at their will while saving money at the same time, the only way is to find the evil buyers and leave them out of the system – the returns of normal customers are acceptable. The question then becomes: how to find the evil buyers.alt

It is quite difficult to stop a customer from buying. The common method is to create a black list, but it is hard to operate. There are many ways to bypass the limitation. Plus, there are many black markets nowadays, and there is almost no way to stop them.
In conclusion, the three problems became two: first is to reduce the cost of advertisements, and second is to reduce the cost of evil buyers. The traditional commerce model cannot solve these problems, but our new commerce model can almost perfectly solve these problems.

Section 10:

If a commerce model could satisfy the above two conditions: low cost of advertisements and low cost of evil buyers – then the original costs of a product can be decreased to a great extent, along with a decrease in price. The advantage of the low price plus a qualified service will greatly induce customers to intuitively expose their needs. Once customers’ needs are known, sellers could automatically avoid making lots of advertisements. This process then becomes a positive response. The final result will be that customers have gained benefits, and sellers have decrease the cost and time of selling.
This is a chain reaction which involves both customers’ needs and sellers' needs. The problem then becomes – if we should ask the customers to make the first step (for example, expose their needs), or ask the sellers to make the first step (for example, reduce the prices). In other words, should customers look for sellers or should sellers look for customers? This is a typical “egg first or chicken first” conundrum and a fundamental question.
The earliest marketplace had both forms. Normally, when customers have something to buy in mind (have needs), they will go to the market and purchase with sellers. This scenario is the first form: customers look for sellers. There are also some sellers who travel with their products, and customers may buy their products when they see something they like. This scenario is the second form: sellers look for customers. Both forms were effective in the early marketplace, because both buyers and sellers required/produced small quantities and they were limited to a small region.
For the modern marketplace, especially in the e-commerce era – both the quantity of sellers and customers have risen dramatically. One customer may face numerous sellers, and one seller may have to deal with massive amount of customers. Which form is better?
Apparently it is easier to start the research from the side with less quantity (sellers). Choosing one seller from 100 sellers is definitely much easier from choosing one customer from 1 million customers.
However, the current commerce models are all focusing on looking for customers instead of looking for sellers. The method sellers use to find customers are to spread a blast of advertisements, analyze big data, and utilize different selling tricks. These tricks, nonetheless, did not just increase the costs of the products, but also lowered the efficiency of the whole market. Therefore, this phenomenon has to be changed.
alt This also becomes the first principle of this new commerce model:
Look for sellers, not customers.

Section 11:

About advertisements:
There are two categories of advertisements: one is used to establish a brand and the other is to promote products. The first category is necessary. For example, the advertisements you saw when watching the World Cup. These advertisements cannot be abolished. The second category is the advertisements that popped up when you search from Google and you see links from Best Buy, Amazon or eBay. These advertisements should be limited.
About returning:
Normal returns, including those who bought the products but did not like them anymore, belong to a high service quality. These returns cannot and should not be limited. However, evil buyers are those who return products with "evil" purposes. For example, some people may purchase products from Amazon and post them on eBay; some people may buy products from official websites and sell them on the black markets. When they cannot sell the products, they will just return them. Some people even buy products to use for a few months, and return them after they are done using them – these people are called serial returners. These evil buyers have caused a lot of troubles for sellers, and sellers have been trying to avoid these types of customers (see http://www.dailymail.co.uk/femail/article-2236501/Beware-serial-returners-How-retailers-joining-forces-catch-shoppers-bring-purchases.html).alt

Section 12:

Right now we know there are some methods to lower sellers’ original costs, with the condition that customers propose their needs. Nevertheless, the precondition that customers are willing to bring up their needs is that sellers are willing to reduce the price and provide good service.
In order to form this circle, we have to waive some interference and uncertainty.
Interference: Evil buyers
Evil buyers can greatly influence the good quality a seller can provide to customers (easy returns). Therefore we must try to avoid evil buyers. As of now, some organizations are building up a central database for sellers’ inquiry. This project is facing a lot of problems. The main reason is that different sellers have very weak connections, which makes it impossible to share sales data.
In this new commerce model, we will give each buyer a "buying credit record." If a buyer consistently builds up a bad credit rating, we will banish them from buying products from our website. This is similar to eBay, where sellers will care about their feedback scores. Sellers with low scores will find it hard to sell products. This model can be reversed and used on buyers – with low credit records, they cannot purchase products. This idea is similar to credit scores used by banks and lending institutions. People with low credits score cannot obtain loans. In other words, we can provide the best price and best service, but at the same time, only people with good credits can obtain this privilege. It is similar to Sam’s Club and Costco, where only members can shop there, and evil buyers will be automatically excluded.
Uncertainty: authenticity of buyers’ needs
Will buyers really buy the products they said they want? This problem is rather easy to solve. When you go to buy a car, the dealer will not trust you if you tell him you will "definitely buy" a particular car. They will only tell you to put down some money as a deposit. In this new ecommerce model, in order to keep the authenticity of buyers’ needs, we must ask them to pay in advance.
alt Once we get rid of the interference and uncertainty, the process of “from buyers’ needs to sellers needs” can then be actualized. The next step is to design a trading system based on this idea.
Last but not least: although sellers’ costs were lowered, it does not guarantee that sellers are willing to sell the products with a lower price as well. If sellers refuse to do so, customers’ needs cannot be exposed – then this business model will not work as expected. How can we make sure sellers offer their lowest price?
The only way to ensure this happens is to follow the second rule of this business model: competition.

Section 13:

Buckete has the following business model:
Every need or product in the marketplace can be packed into a virtual product called “intention”. This virtual product first has to go through a process called “quantize” (standardization). The next step is to let the vendors bid on the product – which is similar to eBay, but the bidding process is from the vendor’s side. The lower the price a vendor offers, the easier the deal may be to reach a successful conclusion.
The key to understanding this ecommerce model is to understand the idea of “intention”.
Intention means the willingness a person has to do something. For example, Tim wants to buy a television, Susan wants to hire a tutor, the National Science Foundation (NSF) wants to invest in an environmentally-friendly program, and Stanford University wants to buy some computers, etc. All of these can be called intentions, which is the urge to spend money on anything.
Thus, this commerce model consists of two parts:
1. The quantize progress of intention
2. Reverse bidding on each intention
Take Tim and his television as an example. When he comes to this platform, he will look up the model he wants to buy – and this product has already been quantized. Tim has to pay in advance in order to make sure this is his true need. The platform then will pass this information to the certified sellers of this TV. Different sellers will reverse bid on this intention, and the seller with the lowest price will win. The seller will then deliver the TV to Tim. After receiving the television, Tim will be asked to rate the seller. Our website then will give the money to the seller, and the trading is completed.
alt The advantages of this model for customers: low price, high quality service, and the ability to do a reverse group buy.
The advantages of this model for sellers: they can sell at will, they can sell to whomever they want to, they can know how many orders they get in advance, and there is a very low selling expense.
Why are there so many benefits? The first reason is that we can filter away the "evil buyers," and the second reason is that we can minimize advertisements.
alt On this platform, buyers first need to bring up their needs. Before sellers decide to step in, they can filter out all the evil buyers (the process is automatic). Furthermore, sellers do not need to make any advertisements, and advertisements will not bring benefits because all the sellers are bidding on the intention anonymously. No matter if the seller is popular or not, as long as they can provide same products, we will trade them equally and give them the same opportunity to compete.
The special characteristics of this platform are: anonymous bidding, where sellers can sell their products at the lowest price without affecting their brand image; and immediate/automatic bidding, so that buyers do not need to wait (because we will ask sellers to put their lowest price into the system).