Laudon Ch10

10.1

1010ChapterChapter

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

Markets, Digital GoodsMarkets, Digital Goods

10.2

LEARNING OBJECTIVES

Management Information SystemsManagement Information SystemsChapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods

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

• Analyze how Internet technology has changed value propositions and business models.

• Describe the various types of e-commerce and how e-commerce has changed consumer retailing and business-to-business transactions.

10.3

LEARNING OBJECTIVES (cont’d)


• Evaluate the role of m-commerce in business and describe the most important m-commerce applications.

• Compare the principal payment systems for electronic commerce.

10.4

Major League Baseball Hits a Home Run with Information Systems

• Problem: Declining revenue from traditional sales channels, declining customer base, increasing costs.

• Solutions: MLB Web sites and cell phone ticketing enable electronic ticketing and delivery of online information and games, which increase sales.

• SAS customer analysis software and Web site tracking tools help identify good sales prospects.

• Demonstrates IT’s role in reducing cost, opening new sales channels, and building community with customers.

• Illustrates the emerging digital firm landscape where businesses can use tools to analyze critical data and leverage expertise in emerging technologies to offer services to other businesses.


10.5

Electronic Commerce and the Internet

• E-commerce:• Digitally enabled commercial transactions between and

among organizations and individuals, primarily over Internet

• Began in 1995 with Netscape.com’s acceptance of ads

• Rapid growth led to dot-com bubble (burst in 2001)

• Current growth 25% annually

• Today e-commerce revenues picture is very positive• E.g. Number of people who have purchased something online

expanded to about 106 million in 2007


10.6

The Growth of E-CommerceThe Growth of E-Commerce

Figure 10-1

Retail e-commerce revenues have grown exponentially since 1995 and have only recently “slowed” to a very rapid 25 percent annual increase, which is projected to remain the same until 2008.

Source: Based on data from eMarketer, 2006; Shop.org and Forrester Research, 2005; and authors.



10.7


• Seven unique features of e-commerce

1. Ubiquity• Internet technology available anytime and everywhere:

work, home, mobile devices

• Business significance:

• Marketplace is extended beyond traditional boundaries and is removed from temporal and geographic location

• Creates marketspace: Marketplace extended beyond traditional temporal, geographical boundaries

• Shopping can take place anywhere - customer convenience is enhanced, shopping costs are reduced


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2. Global reach

• Technology reaches across national boundaries, around Earth


• Commerce enabled across cultural and national boundaries seamlessly, without modification

• Marketspace includes potentially billions of consumers and millions of businesses worldwide


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3. Universal standards

• There is one set of Internet technology standards

• Business significance

• Disparate computer systems can easily communicate

• Brings lower market entry costs (costs merchants pay to bring goods to market)

• Lowers search costs for consumers


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4. Richness• Video, audio, text messages are possible

• Business significance: Video, audio, text integrated into single marketing message and experience

5. Interactivity• Technology works through interaction with user

• Business significance: Consumers engaged in dialog that adjusts to individual; consumer is co-participant in delivering goods to market


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6. Information density

• Technology reduces information costs and raises quality


• Information becomes plentiful, cheap, and more accurate

• Increases price transparency and cost transparency

• Enables price discrimination


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7. Personalization/customization

• Technology allows personalized messages to be delivered to individuals as well as groups

• Permits customization—changing delivered product or service based on user’s preferences or prior behavior

• Business significance

• Personalization of marketing messages and customization of products and services are based on individual characteristics


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• Key concepts in e-commerce: Digital markets and digital goods• 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


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• Key concepts in e-commerce: Digital markets and digital goods (cont.)

• Internet enables disintermediation

• Disintermediation:

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

• Enables selling direct to consumer


10.15

The Benefits of Disintermediation to the ConsumerThe Benefits of Disintermediation to the Consumer

Figure 10-2

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.



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• 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


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• Internet business models• Virtual storefront

• Information broker

• Transaction broker

• Online marketplace

• Content provider

• Online service provider

• Virtual community

• Portal


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• Communication and community• Some new business models take advantage of Internet’s rich

communication capabilities

• E.g. eBay, iVillage

• Banner ads and pop-up ads are source of revenue for online communities

• Social networking sites: Link people through their mutual business or personal connections

• Have become powerful marketing tools for businesses

• Social shopping: Online meeting places where people swap shopping ideas


10.19

YouTube is a free online streaming video service enabling users to upload, tag, and share videos worldwide. Members can join and create video groups to connect to people with similar interests.



10.20

• Read the Interactive Session: Management, and then discuss the following questions:

• How do businesses benefit from MySpace? How do MySpace members benefit?

• Does MySpace create an ethical dilemma? Why or why not?

• Do parent and schools’ objections to MySpace have any merit? Should a site like MySpace be allowed to operate? Why or why not?

• Is there anything that MySpace management can do to make the site less controversial?

The Allure of MySpace



10.21


• Digital content, Entertainment, and Services

• Internet has created new alternatives to traditional print, broadcast media

• Online versions of newspapers, online games, radio, TV, music downloads

• Podcasting: Publishing audio broadcasts via Internet; inspired by Apple’s iTunes service and iPod

• Enables independent producers

• New distribution method


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• Digital content, Entertainment, and Services• Portals

• “Supersites” that provide comprehensive entry point for huge array of resources and services on Internet, e.g. Yahoo!

• Syndicators

• Aggregate content or applications from multiple sources, package them for distribution, and resell them to third-party Web sites


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• Pure-play business models

• Based purely on Internet

• Do not have bricks-and-mortar portion of business

• E.g. Amazon.com, eBay.com, YouTube.com

• Clicks-and-mortar models

• Internet presence is extension of bricks-and-mortar businesses

• E.g. L.L.Bean, Office Depot, Wall Street Journal


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• Three major e-commerce categories• Business-to-consumer (B2C)

• E.g. Barnesandnoble.com

• Business-to-business (B2B)• E.g. ChemConnect.com

• Consumer-to-consumer (C2C)• E.g. eBay.com

• M-commerce• Use of handheld wireless devices for purchasing goods

and services from any location


Electronic Commerce

10.25

• Achieving customer intimacy

• Interactive marketing and personalization

• Enabled by gathering customer data from Web site registrations or activities

• Clickstream tracking tools

• Web pages can be tailored to customer preferences or interests

• Collaborative filtering

• Compares user information to data about other customers to make recommendations based on assumed interests


Electronic Commerce

10.26

Web Site Visitor TrackingWeb Site Visitor Tracking

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.

Figure 10-3

Electronic Commerce


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Web Site PersonalizationWeb Site Personalization

Figure 10-4

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.

Electronic Commerce


10.28

• Achieving customer intimacy

• 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


Electronic Commerce

10.29

• Read the Interactive Session: Organizations, and then discuss the following questions:

• How are Unilever executives’ wireless handhelds related to the company’s business performance?

• Discuss the potential impact of a security breach at Unilever.

• What management, organization, and technology factors had to be addressed in developing security policies and procedures for Unilever’s wireless handhelds?

• Is it a good idea to allow Unilever executives to use both BlackBerrys and cell phones? Why or why not?

Stonyfield Farm Blogs for Organic Communication

Electronic Commerce


10.30

• Achieving customer intimacy• 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

• New software products can integrate Web with customer call centers

• E.g. by directing representative to phone user regarding query


Electronic Commerce

10.31

Visitors to the United States Postal Service Web site 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.



10.32

Electronic Commerce

• Business-to-business (B2B) electronic commerce: New efficiencies and relationships

• 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• E.g. For procurement, firms can use Internet to locate most

low-cost suppliers


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Electronic Data Interchange (EDI)Electronic Data Interchange (EDI)

Figure 10-5

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.

Electronic Commerce


10.34

Electronic Commerce

• Private industrial networks (private exchanges)

• Large firm using extranet to link to its suppliers and other key business partners

• Privately owned by buyer

• Permits firm and suppliers, distributors, partners to share:

• Product design and development

• Marketing

• Production scheduling

• Inventory management

• Unstructured communication

• Example: VWGroupSupply.com


10.35

A Private Industrial NetworkA Private Industrial Network

Figure 10-6

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.

Electronic Commerce


10.36

Electronic Commerce

• 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


10.37

A Net MarketplaceA Net Marketplace

Figure 10-7Net marketplaces are online marketplaces where multiple buyers can purchase from multiple sellers.

Electronic Commerce


10.38

Electronic Commerce

• Exchanges

• Independently owned third-party Net marketplaces

• Connect thousands of suppliers and buyers for spot purchases

• Many provide vertical markets for single industry

• Primarily deal with direct goods

• Proliferated during early years of e-commerce, but many have failed

• Exchanges encourage competitive bidding, driving prices down, and do not offer long-term relationships

• Example: FoodTrader.com


10.39

FoodTrader.com is a Net marketplace serving the food and agricultural industries. Over 100,000 growers, packers, processors, and retail chains in 170 countries use the site as a one-stop source to buy and sell food products directly.


Electronic Commerce

10.40

• M-Commerce services and applications

• 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

• Content and location-based services

• Example: checking train schedules, searching for local businesses

M-Commerce


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• Banking and financial services

• Example: Wireless alerts about changes in account information

• Wireless advertising

• Example: Wireless service providers including advertising for local restaurants, movie theaters on cell phones and Wi-Fi devices

• Games and entertainment

• Example: downloading ringtones, movie clips

• Wireless portals

• Feature content optimized for mobile devices to steer users to information most likely to need

M-Commerce


10.42

Global M-Commerce Revenue, 2000-2009Global M-Commerce Revenue, 2000-2009

Figure 10-8

M-commerce sales represent a small fraction of total e-commerce sales, but that percentage is steadily growing. (Totals for 2006–2009 are estimated.)

M-Commerce


10.43

• M-Commerce challenges

• Keyboards and screens tiny and awkward to use

• Data transfer speeds (2G networks) slow compared to Internet connections for PCs

• Time-based connection fees

• Limited memory and power supplies

• M-commerce will benefit from:

• 3G networks and other broadband services

• Standardized mobile payment systems

M-Commerce


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• Types of electronic payment systems

• Digital credit card payment systems

• Extend functionality of credit cards for online shopping payments

• Provide mechanisms for authentication and transferring money from bank to seller

• Digital wallets

• Software stores credit card and other information to facilitate form completion and payment for goods on Web.

• Example: Google CheckOut

Electronic Commerce Payment Systems


10.45

• Micropayment systems: For purchases of less than $10, such as downloads of individual articles or music clips

• Accumulated balance digital payment systems: Accumulate debit balance that users pay periodically on credit card or telephone bills

• Stored value payment systems: Allow instant online payments based on value stored in digital account (e.g. checking, credit card accounts

• May require use of digital wallet

• Example: Smart cards and devices like EZ Pass



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• Digital cash: “Currency” represented in electronic form that moves outside normal network of money. Not regulated and not legal tender

• Client software allows exchange of money with other e-cash user over Internet or with retailer accepting e-cash

• Peer-to-peer payment systems: Serve people who want to send money to vendors or individuals who are not set up to accept credit card payments

• Digital checking payment systems: Electronic check with secure digital signature

• Electronic billing presentment and payment systems: Used for paying routine monthly bills from bank or credit card accounts



10.47

• Digital payment systems for m-commerce

• Utilize any form of e-commerce payment systems

• Many payments are small purchases (soft drinks, mobile games, sports scores) requiring micropayment systems

• In Europe/Asia, mobile payments often added and presented on single bill such as mobile phone bill

• Virgin Mobile phone can dial Virgin Cola vending machine in London

• eBay’s PayPal Mobile Text2Buy service allows payments sent to mobile PayPal accounts via texting



Laudon Ch10

Business

Transcript of Laudon Ch10