1 lecture 6 e-commerce: digital markets, digital goods

1

Lecture 6Lecture 6

E-Commerce: Digital E-Commerce: Digital Markets, Digital GoodsMarkets, Digital GoodsE-Commerce: Digital E-Commerce: Digital

Markets, Digital GoodsMarkets, Digital Goods

2

Intended Learning Outcomes

• Understand the unique features of e-commerce, digital markets and digital goods.

• Classify the E-commerce business models.

• Study the role of mobile commerce in transforming toady’s business.

• Apply basic features of building an e-commerce site.

Management Information SystemsManagement Information Systems E-Commerce: Digital Markets, Digital GoodsE-Commerce: Digital Markets, Digital Goods

3

What is E-commerce?

• Use of Internet and Web to transact business.

• More formally: Digitally enabled commercial transactions between

and among organizations and individuals. Transactions that occur over the Internet, the Web, and/or

via mobile apps. Commercial transactions, involve the exchange of

value (money) across organizational or individual boundaries in return for products and services.

NO exchange of value, NO commerce.


4

The Growth of E-commerce: B2C & B2B

Management Information SystemsManagement Information SystemsE-Commerce: Digital Markets, Digital GoodsE-Commerce: Digital Markets, Digital Goods

B2C growth B2B growth

5

E-commerce Vs. E-business

E-business Digital enablement of transactions and

processes within a firm, involving information systems under firm’s control.o Mainly deals with business processes of a

firm.o e.g., office automation, IS-based business process,

inventory management.

Does not include commercial transactions involving an exchange of value across organizational boundaries.o No exchange


6

E-commerce Vs. E-business (cont’d)


E-commerce primarily involves transactions that cross firm boundaries.E-business primarily involves the application of digital technologies to business processes within the firm.

7

Features of E-commerce


8

Unique Features of E-commerce Technology

• Ubiquity, available everywhere: at work, at home; reduces transaction costs, saves time & energy.

• Global reach, reaches across cultural, regional & national boundaries conveniently & cost-effectively.

• Universal standards, one set of technology standards,• Information richness, audio, video and text messages

are possible. • Interactivity, two-way communication; merchant to

consumer, among consumers.• Information density, quality & quantity of information;

reduces information cost. • Personalization/customization, personalized

advertisements, customized products/service.• Social technology, user generated content, C2C,

blogging, SNS.


9

Key Concepts in E-commerce: Digital Markets

• Internet shrinks information asymmetry Information asymmetry: when one party has more

information important for transaction e.g. Information asymmetry between auto dealers and

customers

• Digital markets more flexible and efficient Reduced search and transaction costs Lower menu costs (cost of changing prices) Dynamic pricing

• Internet enables disintermediation Disintermediation:

Removal of organizations or business process layers responsible for intermediary steps in value chain

Enables selling direct to consumer


10

The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product, such as a sweater. Removing layers lowers the final cost to the consumer.

The Benefits of Disintermediation to the The Benefits of Disintermediation to the ConsumerConsumer


11

Key Concepts in E-commerce: Digital Goods

• Goods that can be delivered over network

e.g. Music tracks, video, e-books, software

• Cost for producing first unit is nearly total cost of product

Cost for producing additional units very low

• Impact of Internet on market for digital goods is revolutionary

Video rental services

Hollywood studios

Record label companies

Newspapers and magazines


12

Key Ingredients of a Business Model


13

Major Types of Revenue Models

• Advertising revenue model (Yahoo): Offers content, services/products. Receives fee from advertisers.

• Subscription revenue model (consumerreport.com, Match.com, eHarmony): • Charges a subscription fees. Provides detailed ratings, reviews,

recommendation of customer reports.

• Transaction fee revenue model (e Bay, E*Trade): • Receives a transaction fee for each successful transaction.

• Sales revenue model (Amazon, Gap.com)• Selling goods, content or services to customers.

• Affiliate revenue model (MyPoints, Epinions)• Earns money by connecting companies with potential customers by

offerings special deals to its members. Fees for business referrals.


14

• Business-to-Consumer (B2C) Model e-tailer, community provider, content provider, portal, transaction

broker, market creator, service provider

• Business-to-Business (B2B) Modeli. Net Marketplace: E-distributor, E-procurement, Exchange, Industry

Consortium

ii. Private Industrial Network

• Consumer-to-Consumer (C2C) Model Provides a way for consumers to sell to each other, with the help of an

online market maker.

• Peer-to-Peer (P2P) Links users, enabling them to share files and common resources without

a common server.

• M-commerce E-commerce business models that use wireless technologies.


Classification of E-Commerce Business Models

15

B2C Model: E-tailer


• Online version of traditional retailer (i.e., online retail store)• Customer can shop at any hour of the day or night without

leaving their home or office.• Similar to ‘bricks-and-mortar’ store, except customers only

have to connect to the Internet or use their smartphones to place an order.

• Types Virtual merchants, e.g., Amazon, Blue Nile, Drugstore (No physical store) Bricks-and-clicks, e.g., JCPenney, Walmart, Barnes & Noble Catalog merchants, e.g., LLBean.com Manufacturer-direct online sales, e.g., Dell.com

• Revenue Sales of goods

16

B2C Model: Community Provider

• Sites that create a digital online environment where people with similar interests can transact (buy & sell), communicate, and receive interest-related information, and even play out fantasies by adopting online personalities called avatars.

• Revenue:o Hybrid revenue model, o Advertising, subscription, affiliate referral fees.

• Example:o iVillageo Babycenter.com (http://www.babycenter.com/) o Rightstart.com (http://www.rightstart.com/)


17

B2C Model: Content Provider

• Information and entertainment companies that provide digital content over the Web.

o Digital content: digital video, music, photos, text, & artwork.

• Revenueo Subscription fee, pay for download, or advertisements.

• Exampleo WSJ.com (Wall Street Journal online newspaper)o CNN.como CBSSports.como ESPN.com


18

B2C Model: Portal

• Offers powerful search tools plus an integrated package of content and social network services.

• Do NOT sell anything directly.

• Serviceso News, e-mail, chat, music, video streaming, etc. o e.g., Google, Yahoo, MSN, Facebook

• Revenueo Advertising, subscription fees, affiliate referral fees

• May be general or specialized (Vortal)o Horizontal portal: Yahoo, MSN target all users of the Internet.o Vertical portal (Vortal): Sailnet.com target specialized

customers


19

B2C Model: Transaction Broker

• Companies that process transactions for consumers normally handled in person, by phone or by mail are transaction brokers.

o Primary value proposition—saving time and moneyo Typical revenue model—transaction fee

• Industries using this model include:o Financial serviceso Travel serviceso Job placement services

• Exampleo E*Tradeo Expediao Tripadvisor (

http://www.tripadvisor.com/Tourism-g294217-Hong_Kong-Vacations.html)


20

B2C Model: Market Creator

• Uses Internet technology to create markets that bring buyers and sellers together.

• Examples:o Amazon.como eBay.com

• Revenue model:o Transaction fees


21

B2C Model: Service Provider

• Companies that make money by selling users a service, rather than a product.

• Value propositiono Valuable, convenient, time-saving, low-cost alternatives to traditional

service providers

• Revenueo Sales of services, subscription fees or one-time payment

• Exampleo VisaNow.como RocketLawyer


22

B2B Model: Net Marketplaces (e-hubs)

• Internet-based marketplace for buyers and sellers

• Industry-owned or independent intermediary

• May establish prices through online negotiations, auctions, requests for quotations or use fixed prices

• Generate revenue from transactions and other services

• May focus on direct goods or indirect goods

• May serve vertical or horizontal markets

• Example: Exostar


Net marketplaces are online marketplaces where multiple buyers can purchase from multiple sellers.

23

B2BModel: E-distributor

• Supplies products and services directly to individual businesses.

• Owned by one company seeking to serve many customers. • The more products and services a company makes available

on its site, the more attractive that site is to potential customers.

• Revenueo Sales of goods

• Example o Grainger.com (distributor of maintenance, repair & operations)o Partstore.com


24

B2BModel: E-procurement

• Single firm creating digital markets where sellers and buyers transact for indirect inputs.

• Revenue• Fees for market-making services, supply change management

• Application service providerso A company that sells access to Internet-based software applications to

other companies.o Finding new customers for software, increasing market size and

achieving scale economics. o Scale economics Efficiencies that arise from increasing the size of a

business. • Example

o Ariba (http://www.ariba.com/) o Create software where large firms organize their procurement processo Creates custom-integrated online catalogs (suppliers list their offerings) for

purchasing firms. o PerfectCommerce


25

B2BModel: Exchange

• Electronic digital marketplace where suppliers and commercial purchasers can conduct transactions.

• Usually owned by independent firms whose business is making a market.

• Usually serve a single vertical industry.

• Revenue Commission fees and transaction fees.

• Example FoodTrader.com


26

B2BModel: Industry Consortia

• Industry-owned vertical marketplaces that serve specific industries, such as the automobile, aerospace, chemical, floral, or logging industries.

• Horizontal marketplaces, in contrast, sell specific products and services to a wide range of industries, such as marketing-related, financial and computing services.

• Exampleo Exostar, online trading exchange for the aerospace & defense industry.


27

B2BModel: Private Industrial Networks

• Digital networks designed to coordinate the flow of communications among firms engaged in business together.

• The network is owned by a single large purchasing firm.

• Participation is by invitation only to trusted long-term suppliers of direct inputs. e.g, Walmart


A private industrial network, also known as a private exchange, links a firm to its suppliers, distributors, and other key business partners for efficient supply chain management and other collaborative commerce activities.

28

B2B E-commerce: New Efficiencies

• EDI (Electronic Data Interchange) Automated exchange of standard business documents

(e.g. invoices) Each major industry has EDI standards Internet used increasingly for EDI instead of private networks Internet broadens circle of trading partners

o e.g. For procurement, firms can use Internet to locate most low-cost suppliers


Companies use EDI to automate transactions for B2B e-commerce and continuous inventory replenishment. Suppliers can automatically send data about shipments to purchasing firms. The purchasing firms can use EDI to provide production and inventory requirements and payment data to suppliers.

29

E-commerce Web sites have tools to track a shopper’s every step through an online store.

Close examination of customer behavior at a Web site selling women’s clothing shows what the store might learn at each step and what actions it could take to increase sales.

E-commerce Marketing: Web Site Visitor Tracking


30

Firms can create unique personalized Web pages that display content or ads for products or services of special interest to individual users, improving the customer experience and creating additional value.

E-commerce Marketing: Web Site Personalization


31

• Corporate blogs • Used as new channel for reaching customers, maintaining

existing customers

• Provide personal and conversational way for businesses to present information to the public and prospective customers about new products and services

• Customer self service• Web sites and e-mail used to answer customer questions

or to provide customers with product information, reducing need for human customer-support experts• e.g., A Web-based Postal Service can calculate postage, print

shipping labels, schedule package pickups, and track shipments. Web sites for customer self-service are convenient for customers and help firms lower their customer service and support costs.


E-commerce Marketing: Achieving Customer Intimacy

32

• Popular for services that are time-critical, that appeal to people on the move, or that accomplish task more efficiently than other methods

• Especially popular in Europe, Japan, South Korea, and countries where fees for conventional Internet usage are very expensive

1. Location-based services Wikitude.com a browser with GPS and Compass, helps users to

identify locations and addresses.

2. Baking and Financial Services Wireless alerts about changes in account information

3. Wireless advertising & retailing Wireless service providers including advertising for local

restaurants, movie theaters on cell phones and Wi-Fi devices

4. Games and entertainment downloading ringtones, movie clips

M-Commerce Services and Applications


33

1. Online credit card transactions, most popular, often default choice of payment for e-commerce.

2. Digital Wallets, use NFC technology. User may pay by simply tapping his phone to a compatible POS terminal with a secret PIN. e.g., Google Checkout.

3. Digital Cash, “currency” represented in an electronic form. e.g., Octopus Card in Hong Kong, Ez-link Card in Singapore.

4. Electronic Cheques

5. Online Stored Value System, e.g., PayPal.

6. Digital Accumulating Balance Payment Systems, similar to “digital Wallets”, ideal for micro-transaction payments, allows user to make multiple purchases, which will be totaled up & billed for at the end of a time period.

7. Mobile Commerce, “Wallet phone” No need card authentication or customer signature. e.g., Osaifu Keitai in Japan.

Electronic Payment Systems: Types


34

• Most important management challenges: Developing a clear understanding of business objectives

Identification of target audience Characteristics of market space Strategic analysis Revenue model Types and sources of contents Conduct a SWOT analysis

Knowing how to choose the right technology to achieve those objectives

Building a Web Presence: A systematic Approach


35

Web Site Systems Development Life Cycle


36

• Outsourcing: • hiring vendors to provide services involved in building site

• Build: Own Vs. Outsourcing:• Build your own requires team with diverse skill set; choice of software tools; both

risks and possible benefits• Use pre-built template, e.g., Yahoo Merchant Solutions, Amazon Stores, eBay• WordPress: a blogging tool with a sophisticated content management system

(CMS).• CMS: A database software program specifically designed to manage structured

and unstructured data and objects in a Web site environment. • Risks: Shopping carts, credit card authentication, inventory and order processing.

• Host: Own Vs. Outsourcing Hosting: hosting company responsible for ensuring site is accessible 24/7, for

monthly fee, e.g., Amazon EC2, Bluehost, GSI Commerce, Verizon/Terremark, etc. Co-location: firm purchases or leases Web server (with control over its

operation), but server is located at vendor’s facility.


Build/Host Your Own Vs. Outsourcing

37


Choices in Building and Hosting

38

i. Build from scratch HTML Dreamweaver Expression CGI Scripts SQL Database

ii. Use Packaged site-building tools Commerce Server 10 (commerce-Sever.net) IBM WebSphere

iii. Use prebuilt templates Google Sites Yahoo Merchant Solutions/Yahoo Small Business Amazon Webstore WordPress


Building Own E-Commerce Site: Tools

39

• Why is needed? Answer requests from customers for HTML and XML pages.

• Software: Apache

o Leading Web server software (52% of market)o Works only with UNIX, Linux Osso Unix, is the original programming language of the Internet & Webo Linux, is a derivative of Unix designed for the personal computer. o Apache is free & can be downloaded from many sites

Microsoft’s Internet Information Server (IIS)o Second major Web server software (20% of market)o Windows-based, compatible with a wide selection of Microsoft

utility and support programs.


Web Server Software

40

Tools for Interactivity and Active Content

• CGI (Common Gateway Interface), a set of standards for communication between a browser and a program running on a server that allows for interaction between the user and the server.

• ASP (Active Server Pages), a software development tool that enables programmers using Microsoft’s IIS package to build dynamic pages.

• Java, JSP, and JavaScript: o Java: create interactivity & active content on the client computero JSP: dynamically generate Web pages in response to user requests o JavaScript: control the objects on an HTML page & handle interactions with the

browser

• ActiveX and VBScript: invented by Microsoft, ActiveX competes with Java, VBScript competes with JavaScript.

• Coldfusion, an integrated server-wide environment for developing interactive Web applications.

• Web 2.0 design elements: Widgets, Mashups. o Widget a small, prebuilt chunk of code that executes automatically in your HTML

Web page; capable of performing a wide variety of tasks. o Mashups data pulling functionality. Pull data from one program and include in

another program. e.g., Google Map mashups.


41

• Laudon, K.C. & Traver, C.G. 2014. E-commerce: Business, Technology, Society, (10th ed.): Pearson, India.

• Laudon, K.C. & Laudon, J.P. 2013. Management Information Systems: Managing the Digital Firm (12th ed.): Pearson, India.


References

1 lecture 6 e-commerce: digital markets, digital goods

Documents