Network Effects behind E-commerce
As online-shopping being the most popular way of shopping among young people, e-commerce is becoming the major field of market for young people, especially females, since it breaks out the limit of shopping areas, saves the ultimate shopping time for the consumers, and visualize the sales and comments for a single product.
According to a recent news from Xinhuanet that Alibaba’s Singles’ Day sales boom breaks records. Few weeks ago, Chinese e-commerce, Alibaba, came into the market. During the last week and this year’s Nov 11, the online buying fiesta smashed record of over 5 millions yuan. Alibaba launched its sale also both on domestic and overseas platforms, and the consumers were from 2017 countries. Many Chinese consumers stayed up until the Singles’ Day to compete with millions of others for the bargain goods, which raised the thread to the thanksgiving shopping spree. Alibaba said the late-night shopping craze drove sales to hit the 10 billion yuan benchmark in 38 minutes, which was much more than last year, 6 hours. Instead of conventional online-shopping on the computer, Alibaba also reported that nearly half of purchases had been completed on mobile devices.
Similar to Alibaba, Jingdong is also a competitive e-commerce company in China. These two companies have similar audience size and are offering similar services. Previously, the ‘Singles’ Day’, also called ‘Bachelors’ Day’, is just a day for people in China who are single, celebrated on 11st November (11/11), since the date consists four ‘1’. In recognition of the day, young singles will organize parties to meet new friends or try their fortunes. However, being the very first e-commerce to decide to offer steep discount on the commercials on the ‘Singles’ Day’ in 2009, Alibaba gained a enormous bonanza in the e-commerce field, and made the ‘Singles’ Day’ sale the largest online shopping spree in the world, which broke the selling records annually, especially this year after Alibaba came into the market.
This can be explained by the class concept of network effect and competition, which said that being the first to introduce a new technology has the opportunity to dominate the market and push the fraction size to the stable point with constant audience.
Information cascades could explain the popularity of online-shopping. While you are browsing the shop online, you can see the number of people who already bought it from the selling history, and total sales of every single product, so consumers may choose to buy the one with more sales over others, without knowing that whether the one with more sales has better quality than other products or not, and the cascades formed.
Another class concept could also be used to explain the popularity of e-commerce, especially Alibaba’s ‘Singles’ Day’ sale. According to the direct-benefit effect, consumers can get direct payoffs from copying the decisions of others. Considering shopping, consumers could either go to the store or shop online, and commercials have similar prices, but they might think that buying cheap things online and paying with only one click are more convenient than going out to the crowded shop and waiting on the endless line to pay, with the information of sales of the commercials.
Link to the article:
http://news.xinhuanet.com/english/china/2014-11/12/c_133782583.htm