e-business by g. schneider - chapter 7 (edition 9)

E- BusinessNinth Edition

Chapter 7Virtual Communities

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E- Business, Ninth Edition 22

Learning Objectives

In this chapter, you will learn about:

• Social networking and online business activities

• Using mobile devices to do business online

• Online auctions and auction-related businesses

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From Virtual Communities to Social Networks

• Online Web communities– Not limited by geography– Individuals and companies with common interests

• Meet online and discuss issues, share information, generate ideas, and develop valuable relationships

• Companies make money by serving as relationship facilitators– Combine Internet’s transaction cost-reduction

potential with a communication facilitator role

3E- Business, Ninth Edition

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Virtual Communities

• Virtual community (Web community, online community)– Gathering place for people and businesses

• No physical existence

• Early virtual communities– Bulletin board systems (BBSs)

• Revenue source: monthly fees and selling advertising

– Usenet newsgroups• Message posting areas on usenets


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Virtual Communities (cont’d.)

• Current forms– Web chat rooms– Sites devoted to specific topics or general exchange

of information, photos, videos– People connect and discuss common issues,

interests– Considerable social interaction– Relationship-forming activities

• Similar to physical communities


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Early Web Communities

• 1985: WELL (“whole earth ‘lectronic link”)– Monthly fee to participate in forums and conferences– 1999 bought by Salon.com

• 1995: Beverly Hills Internet virtual community site– Offered webcams, free Web site space– Grew into GeoCities

• Revenue source: advertising, pop-up pages

• 1999: purchased by Yahoo! ($5 billion)

• Closed in 2009


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Early Web Communities (cont’d.)

• 1995: Tripod virtual community– Offered free Web page space, chat rooms, news,

weather updates, health information pages– Revenue source: sold advertising

• 1995: Theglobe.com Cornell University class project– Included bulletin boards, chat rooms, discussion

areas, personal ads• Added more features

– Revenue source: sold advertising

• Most early Web community businesses closed


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Social Networking in the Second Wave of Online Communities

• As the Internet and Web grew:– Experience of sharing new online communication

faded– New phenomenon in online communication began

• Multiple common bonds joined people with all types of common interests

• Social networking sites– Allow individuals to create and publish a profile,

create a list of other users with whom they share a connection (or connections), control that list, and monitor similar lists made by other users


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Social Networking in the Second Wave of Online Communities (cont’d.)

• Social networking sites– Six Degrees (1997)– Friendster (2002)

• Had features found in today’s social networking sites– LinkedIn: devoted to business connections– Tribe.net– YouTube: popularized video inclusion– MySpace: popular with younger Web users– Twitter

• Users can send short messages to other users who sign up to follow their messages (tweets)


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• Basic idea behind social networking– People invited to join by existing members– Site provides directory

• New members work through friends established in the community


FIGURE 7-1 Social networking Web sites


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• Web logs (Blogs)– Web sites containing individual commentary on

current events or specific issues– Form of social networking site

• Encourages interaction among people• Visitors add comments

• Early blogs focused on technology topics• 2004: blogs used as political networking tool• 2008: all major candidates using blogs

– Communicating messages, organizing volunteers, raising money, meetups


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• Retailers embracing blogs to engage site visitors– Bluefly.com online discount apparel retailer

• Flypaper blog

– Ice.com online jeweler• Blogs may encourage potential customers to visit online

store

• Business uses– CNN

• Blog information included in television newscasts


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• Business uses (cont’d.)– Newspapers

• Inviting information and opinion contributions

• Targeting 18- to 35-year-old generation

– Participatory journalism• Trend toward having readers help write the online

newspaper

• Blogs can become businesses in themselves– Must generate financial support (fees, advertising)


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• Social networking Web sites for shoppers– Social shopping

• Practice of bringing buyers and sellers together in a social network to facilitate retail sales

– Example: craigslist• Operated by not-for-profit foundation

• All postings free (except help wanted ads)

– Example: Etsy Web site• Marketplace for selling handmade items

• We Love Etsy: Etsy buyers, sellers share information


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• Social networking Web sites for shoppers (cont’d.)– Social networking sites form communities based on

connections among people– Idea-based virtual communities

• Communities based on connections between ideas

– Idea-based networking• Participating in idea-based virtual communities

• Examples: del.icio.us site, 43 Things site


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• Virtual learning networks– Distance learning platforms for student-instructor

interaction (Blackboard)– Tools include:

• Bulletin boards, chat rooms, drawing boards– Moodle and uPortal

• Open-source software projects devoted to virtual learning community development

– Open-source software• Developed by a programmer community• Software available for download at no cost


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• Web portals– Combine portal and social networking features– Typical portal offerings

• Search engines, directories, free e-mail, news stories, weather reports

– Social networking elements• Games and chat rooms

• Allow site visitors to interact with each other

– Examples:• Yahoo!, AOL, MSN


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Revenue Models for Social Networking Sites

• By late 1990s:– Revenue created by selling advertising

• Used by virtual communities, search engine sites, Web directories

• 1998– Purchases and mergers occurred– New sites still used advertising-only revenue-

generation model• Included features offered by virtual community sites,

search engine sites, Web directories, other information-providing and entertainment sites

– Goal: be every Web surfer’s doorway to the Web


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Revenue Models for Social Networking Sites (cont’d.)

• Advertising-supported social networking sites– Smaller sites with specialized appeal

• Can draw enough visitors to generate significant advertising revenue

• Example: I Can Has Cheezburger site

– Recall from Chapter 3:• Sites with higher number of visitors can charge more

• Stickiness: important element in site’s attractiveness

– Rough measure of stickiness• Time user spends at the site


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FIGURE 7-2 Popularity and stickiness of leading Web sites


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• Advertising-supported social networking sites (cont’d.)– Social networking sites

• Members provide demographic information• Potential for targeted marketing: very high

– High visitor counts• Can yield high advertising rates

– Second-wave advertising fees• Based less on up-front site sponsorship payments• Based more on revenue generation from continuing

relationships with people who use the social networking sites


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• Mixed-revenue and fee-for-service social networking sites– Most social networking sites use advertising– Some charge a fee for some services

• Examples: Yahoo! All-Star Games package, Yahoo! premium e-mail service

– Monetizing• Converting site visitors into fee-paying subscribers or

purchasers of services

• Concern: visitor backlash

– More examples: The Motley Fool and TheStreet.com


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• Fee-based social networking– Google Answers site

• Early attempt to monetize social networking• Questions answered for a fee• Google operated service from 2002 to 2006

– Similar free services• Yahoo! Answers, Amazon (Askville)

– Uclue (paid researchers earn 75 percent of total fee)• Advocates claim better quality

– Fee-based Web sites can generate revenue by providing virtual community interaction


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• Microlending sites– Function as clearinghouses for microlending activity– Microlending

• Practice of lending very small amounts of money

• Lend to people starting or operating small businesses (especially in developing countries)

– Microlending key element• Working within social network of borrowers

• Provide support, element of pressure to repay

– Examples: Kiva and MicroPlace


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• Internal virtual communities– Provide social interaction among organization’s

employees– Run on organization’s intranet– Save money (less paper)– Provide easy access to employee information– Good for geographically dispersed employees– Adding wireless connectivity– Combine second-wave technology with first-wave

business strategy • Wireless communications with internal Web portals


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Mobile Commerce

• Short messaging service (SMS)– Allows mobile phone users to send short text

messages to each other

• 2008: United States developments allowing phones as Web browsers– High-speed mobile telephone networks grew

dramatically– Manufacturers offered range of smart phones with

Web browser, operating system, applications


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Mobile Operating Systems and Applications

• Japan and Southeast Asia mobile commerce– Much larger online business activity

• Had high-capacity networks early on

– Mobile wallets• Mobile phones functioning as credit cards

– Japan’s NTT DoCoMo phones combined capabilities• Generate significant business


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Mobile Operating Systems and Applications (cont’d.)

• United States mobile commerce capabilities began in 2008– Smart phone and high-capacity network introductions

• Mobile commerce smart phone examples– Apple iPhone, Palm Pre, several BlackBerry models

• Use the Android operating system

• Provide serious U.S. mobile commerce for the first time


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FIGURE 7-3 Smart phones come in a range of different styles


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• Mobile commerce browser display options– Wireless Application Protocol (WAP)

• Allows Web pages formatted in HTML to be displayed on devices with small screens

– Display a normal Web page on the device• Made possible by increased screen resolution

• Example: Apple iPhone

– Design Web sites to match specific smart phones• Much more difficult to accomplish


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• Mobile commerce browser display options (cont’d.)– Apple, BlackBerry, Palm

• Use proprietary operating systems

– HTC, Motorola, Nokia• At one time created their own operating systems and

software applications

• Now use a standard operating system provided by a third party

– Most common third-party operating systems• Android, Windows Mobile, Symbian


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• Common operating systems emergence– Occurred due to a change in the way software

applications developed and sold

• Old U.S. mobile phone company revenue strategy– Control application software

• Apple turned old revenue strategy on its head– Apple Apps for iPhone online store

• Independent developers create apps and sell them

• BlackBerry and Palm followed Apple’s lead


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The Future of Mobile Commerce

• Companies wanting mobile user commerce– Review Web sites for compatibility

• May create separate Web sites for mobile users

• Mobile phones for online banking– In early stages in the United States

• Physicians using smart phones

• Phones’ global positioning satellite (GPS) service capabilities– Allow mobile business opportunities



Online Auctions

• Business opportunity perfect for the Web

• Auction site revenue sources– Charging both buyers and sellers to participate– Selling advertising

• Targeted advertising opportunities available

• Online auctions capitalize on Internet’s strength– Bring together geographically dispersed people

sharing narrow interests


Auction Basics

• From Babylon to the Roman Empire to Buddhists

• Common activity of 17th century England– Sotheby’s (1744), Christie’s (1766), colonial auctions

• Auction: seller offering item for sale – Bids: price potential buyer willing to pay– Bidders: potential buyers– Private valuations: amounts buyer willing to pay– Auctioneer: manages auction process– Shill bidders: work for seller or auctioneer

• May artificially inflate price


Auction Basics (cont’d.)

• English auctions– Bidders publicly announce successively higher bids

• Item sold to highest bidder (at bidder’s price)

– Also called ascending-price auction– Open auction (open-outcry auction)

• Bids publicly announced

– Minimum bid• Beginning price

• If not met: item removed (not sold)



• English auctions (cont’d.)– Reserve price (reserve)

• Seller’s minimum acceptable price• Not announced• If not exceeded: item withdrawn (not sold)

– Yankee auction• Multiple item units offered for sale (bidders specify

quantity)• Highest bidder allotted bid quantity• Remaining items allocated to next highest bidders until

all items distributed• Bidders pay lowest successful bidder price



• English auctions (cont’d.)– Seller drawback

• May not obtain maximum possible price

– Buyer drawback• Winner’s curse psychological phenomenon

– Bidder gets caught up in competitive bidding excitement– Bids more than their private valuation



• Dutch auctions– Open auction

• Bidding starts at a high price

• Drops until bidder accepts price

– Also called descending-price auctions– Seller offers number of similar items for sale– Common implementation

• Use a clock (price drops with each tick)

• Bidders stop clock and take items at the given price

• If items remain: clock restarted



• Dutch auctions (cont’d.)– Often better for the seller– Quickly move large numbers of commodity items– Successful examples:

• Google initial public offering stock sale (2004)

• LookSmart stock repurchase



• First-price sealed-bid auctions– Sealed-bid auctions

• Bidders submit bids independently

• Prohibited from sharing information

– First-price sealed-bid auction• Highest bidder wins

• If multiple items auctioned: next highest bidders awarded remaining items at their bid price



• Second-price sealed-bid auction– Same as first-price sealed-bid auction– Except highest bidder awarded item at second-

highest bidder price– Commonly called Vickrey auctions

• William Vickrey: 1996 Nobel Prize in Economics– Findings:

• Yields higher seller returns

• Encourages all bidders to bid private valuation amounts

• Reduces tendency for bidder collusion



• Open-outcry double auctions– Example: Chicago Board of Trade auctions of

commodity futures and stock options– Buy and sell offers shouted by traders in trading pit

• Each commodity, stock option traded in own pit

• Quite frenzied

• Double auctions (either sealed bid or open outcry)– Good for items of known quality traded in large

quantities– No item inspection before bidding



• Double auctions– Buyers, sellers submit combined price-quantity bids

• Auctioneer – Matches sellers’ offers

• Starts with lowest price and then goes up– To buyers’ offers

• Starts with highest price and then goes down until all quantities offered are sold

• Operation format– Sealed bid or open-outcry

• Example: New York Stock Exchange



• Reverse (seller-bid) auction– Multiple sellers submit price bids

• Auctioneer represents single buyer

– Bids for given amount of specific item to purchase– Prices go down as bidding continues:

• Until no seller willing to bid lower

– Occasionally operated for consumers– Most involve businesses as buyers and sellers


FIGURE 7-4 Key characteristics of seven major auction types


Online Auctions and Related Businesses

• Online auction business: rapidly changing

• Three auction Web site categories– General consumer auctions– Specialty consumer auctions– Business-to-business auctions

• Varying opinions on categorizing consumer auctions– Business-to-consumer– Consumer-to-consumer– Consumer-to-business


Online Auctions and Related Businesses (cont’d.)

• General consumer auctions• eBay: registration required, seller fees, rating

system– Seller’s risk: stolen credit cards; buyer fails to

conclude transaction – Buyer’s risk: no item delivery; misrepresented item– Most common auction format: English auction

• Seller may set reserve price• Bidders listed: bids not disclosed (until auction end)• Continually updated high bid amount displayed• Private auction option available



• General consumer auctions (cont’d.)– Another eBay auction format: Dutch auction– Both formats require minimum bid increment

• Amount by which one bid must exceed previous bid

– Proxy bid• Bidder specifies maximum bid

• May cause bidding to rise rapidly

– eBay stores• Integrated into auction site

• Sellers generate additional profits



• eBay’s success due to unspecified audience– Also spends $1 billion each year to market and

promote Web site

• Major determinants of Web auction site success– Attracting enough buyers and sellers

• Yahoo! Auction operation closed in 2007

• Amazon.com with “Auctions Guarantee”– Offered buyer protection through escrow service– Closed in 2006

• Overstock.com (still active)


• Future challengers to eBay– Must overcome lock-in effect

• New auction participants inclined to patronize established marketplaces

– Example: Japanese general consumer auction• Yahoo! first to enter market

– Now dominates (more than 90% market share)

• eBay maintains low market share (less than 3%)



• Specialty consumer auctions– Identify special-interest market targets– Create specialized Web auction sites

• No need to compete with eBay

– Examples:• JustBeads.com, Cigarbid.com, Winebid



• Consumer reverse auctions

• Reverse bid– Visitor describes desired items or services– Site routes visitor to participating merchants

• Reply to visitor by e-mail

• Offer item at particular price

– Buyer accepts• Lowest offer

• Offer best matching buyer’s criteria

• All these types of sites now closed



• Consumer reverse auctions (cont’d.)

• Priceline.com– Considered a seller-bid auction site– Visitor states desired airline ticket, car rental, hotel

room price• If sufficiently high price: transaction completed

– Many transactions come from inventory• Priceline operates more as a liquidation broker



• Group shopping sites– Seller posts item with tentative price– Individual buyers enter bids

• Agreement to buy one unit (no price provided)

• Site negotiates with seller for lower price

– Posted price decreases• As number of bids increases (only if number of bids

increases)

– Result: buyers force seller to reduce price• Similar to consumer reverse auction



• Group shopping sites (cont’d.)• Well-suited product types

– Branded products, well-established reputations• Produces buyer confidence of good bargain

– High value-to-size ratio, non-perishable• Disadvantages

– Difficulty attracting sellers’ interest– Well-suited companies

• Find no advantage, fear sites cannibalize product sales, reluctant to offend current distributors

• Group purchasing sites closed



• Business-to-business auctions– Evolved to meet specific existing need

• Excess inventory disposal (manufacturing)

– Two methods• Liquidation specialists: find buyers for unusable items

• Liquidation broker: firm that finds buyers for items

– Online auctions• Logical extension of these inventory liquidation

activities to a new and more efficient channel (Internet)


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• Business-to-business auctions (cont’d.)– Emerging business-to-business Web auction models

• Large-company model: creates own auction site

• Small-company model: uses third-party Web auction site instead of liquidation broker

• Both are direct descendants of traditional methods




• Business-to-business auctions (cont’d.)– Third emerging business-to-business Web auction

model• New business entity enters market lacking efficiency

and creates a site at which buyers and sellers who have not historically done business with each other can participate in auctions

• Resembles consumer online auctions

• Example: hospitals using online auctions to fill temporary employment openings



• Business-to-business reverse auctions– Example: Owens Corning purchases– Examples: Agilent, Bechtel, Boeing, Raytheon, Sony– Potential disadvantage

• Suppliers compete on price alone

• Cut corners on quality or miss scheduled delivery dates

– Potential advantage• Useful for nonstrategic commodity items with

established quality standards


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• Business-to-business reverse auctions (cont’d.)– Companies opting out

• Cisco, Cubic, IBM, Solar Turbines

– If suppliers do not participate:• Impossible to conduct reverse auctions

– If competition high among suppliers:• Reverse auctions provide efficient way to conduct,

manage price bidding




FIGURE 7-5 Supply chain characteristics and reverse auctions


Auction-Related Services

• Entrepreneurs encouraged by eBay and other auction site growth

• Provide various kinds of auction-related services– Escrow services– Auction directory and information services– Auction software for sellers and buyers– Auction consignment services


Auction-Related Services (cont’d.)

• Auction escrow services – Buyers’ common concern: seller reliability

• Buyers protect interests in high-value items

– Independent party holds payment until:• Buyer receives item

• Buyer satisfied item is as expected

– May take delivery of item from seller • Perform buyer inspection (qualified to do so)

– Charge fees• Percent of item’s cost; subject to minimum fee



• Auction escrow services (cont’d.)– Examples: Escrow.com, eDeposit, Square Trade– May sell auction buyer’s insurance

• Protect buyers from nondelivery and quality risks

– Avoid escrow fraud• Determine if licensed, bonded (licensing agency)

• Avoid offshore escrow companies entirely

– Other buyer protections• Check seller’s rating

• Use Web site listings of unreliable sellers



• Auction directory and information services– Example: Auctionguide.com

• Guidance for new auction participants

• Helpful hints and tips for experienced participants

• Directories of online auction sites

– Example: AuctionBytes• Publishes e-mail newsletter

• Online auction industry articles



• Auction directory and information services (cont’d.)– Example: PriceWatch

• Advertiser-supported site

• Advertisers post current selling prices

• Computer hardware, software, electronics

– Example: PriceSCAN• Similar price-monitoring service

• Also includes books, movies, music, sporting goods



• Auction software– Target: sellers

• Helps manage online auctions

– Example: AuctionHawk and Vendio• Seller management software and services

• Automate tasks

• Create attractive page layouts

• Manage hundreds of auctions



• Auction software (cont’d.)– Target: buyers

• Helps manage online auctions

– Sniping software• Observes auction progress until last second

• As auction expires: places bid high enough to win (unless bid exceeds sniping software owner’s limit)

• Snipe: act of placing winning bid at the last second

• Almost always wins out over human bidder



• Auction software (cont’d.)– Example: Cricket Sniping Software site

• Created in 1997 by David Eccles

– Companies offer sniping service• Sniping software runs on company Web site

• Customer enters instructions on site

• Company may offer subscriptions

• Company may offer mixed-revenue model

– Sniping software and services business information• AuctionBytes Web site


FIGURE 7-6 AuctionBytes home page



• Auction consignment services– Target: people and small businesses

• Want to use online auction

• Do not have skills, time to become a seller

– Auction consignment services• Take item and create online auction for that item

• Handle transaction

• Remit proceeds balance (after deducting fee)

– Main auction consignment businesses• ePowerSellers, iSold It, USA AuctionDrop



• Auction consignment services (cont’d.)– Key to success

• Convenient locations for customer drop off

• Open own stores, franchise stores

• Electronic commerce first wave– Online auction business made possible by the Web

• Electronic commerce second wave– Online auction business created opportunities:

• For even more entirely new types of business

Summary

• Companies using the Web for entirely new things– Creating social networks

– Using mobile technologies to make sales and increase operational efficiency

– Operating auction sites

– Conducting related businesses

• Businesses creating online communities to connect with customers and suppliers

• Individuals using social networking sites– Personal and business-related interactions

• Mobile commerce opportunities emerging



Summary (cont’d.)

• Companies’ internal social networking sites– Facilitate employee communication

• Online auctions used to sell goods to customers and buy from suppliers– Seven major auction types– Consumer online auction business dominated by

eBay (United States)– Ancillary service businesses support auctions

• B2B auctions and reverse auctions– New methods of inventory disposal, procurement

e-business by g. schneider - chapter 7 (edition 9)

Technology

early web communities

online business activities

waveof online communities

wave of online communities

social networking people

business connections

usenetse business

userse business