Transcript Document

Hoofdstuk 10: E-commerce
Overzicht
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Introduceren van e-business
Types
Successen en mislukkingen
Economische impact
Impact op de waardeketen
Bedrijfsmodellen op het web
B2B technologieën en bedrijfsmodellen
On line advertising
Web analytics
E-Commerce and E-Business
• E-Commerce (EC): process of buying and
selling goods and services electronically
– Any electronic means, not just the Internet
– Two sides to consider for a company:
• buying from suppliers
• selling to customers
• E-Business (EB): e-commerce + the use of
Internet and other digital technologies for
performing (internal) business processes and
coordinating with suppliers and partners;
more fashionable term…
Categories of Electronic
Commerce
• In terms of nature of participants
– Business-to-Consumer (B2C): retailing products and services to
individual shoppers
– Business-to-Business (B2B): sales of goods and services
among businesses
– Consumer-to-Consumer (C2C): consumers selling to consumers
• In terms of participants' connection (touch point)
– Through a PC
– Mobile commerce (m-commerce): using handheld wireless
devices (e.g. Internet-enabled mobile phone or PDA)
• Location-based commerce (l-commerce): m-commerce transactions
targeted to individuals in specific locations, at specific times
– Using interactive digital TV (sometimes called “t-commerce”)
E-Business: Related Areas
• E-Learning: use of ICT in learning/teaching (e.g.
web-based distance learning programmes)
• E-Government: use of ICT in government and
public services to improve efficiency and provision
of information and services
– G2C (government-to-citizen)
– G2B (government-to-business)
– G2G (government-to-government)
• The list goes on: e-health, e-culture, …
Commerce in General
BUYER
FINDS
SELLER
SELECTION
OF GOODS
NEGOTIATION
SALE
PAYMENT
DELIVERY
INFORMATION
PHYSICAL+
INFORMATION
POST-SALE
ACTIVITY
E-Commerce
SOME TECHNOLOGIES USED:
SEARCH ENGINE
ON-LINE CATALOG
RECOMMENDER AGENT
SOME INFORMATION GATHERED:
BUYER
FINDS
SELLER
SEARCH BEHAVIOR
BROWSING BEHAVIOR
CUSTOMER PREFERENCES
CONFIGURATOR
SHOPPING BOT
SELECTION
OF GOODS
EFFECTIVENESS OF PROMOTIONS
BARGAINING STRATEGIES
AGGREGATOR
AUTOMATED AGENTS
TRANSACTION PROCESSOR
NEGOTIATION
PRICE SENSITIVITIES
PERSONAL DATA
SALE
MARKET BASKET
DATA INTERCHANGE
CRYPTOGRAPHY
PAYMENT
E-PAYMENT SYSTEMS
TRACKING AGENT
INFORMATION
PHYSICAL+
INFORMATION
CREDIT/PAYMENT INFORMATION
DELIVERY REQUIREMENTS
DELIVERY
ON-LINE PROBLEM REPORTS
ON-LINE HELP
BROWSER SHARING
INTERNET TELEPHONY
POST-SALE
ACTIVITY
CUSTOMER SATISFACTION
FOLLOW-ON SALES OPPORTUNITIES
Electronic Delivery?
• Delivery of services
– Delivery of services can be done 100%
electronically, with considerable cost reduction
potential
 online service industry is growing rapidly
– Examples: electronic banking, online securities
trading, online job markets, travel services, real
estate transactions, etc.
• Delivery of products
– A few “digitised” products: mp3s, e-books, …
– For other types of products, finding a cost-effective
physical delivery strategy is a key issue
Order Fulfilment and Logistics
• Order fulfilment: all of the activities needed to provide
customers with ordered goods and services, including
related customer services
• Logistics: the operations involved in the efficient and
effective flow and storage of goods, services, and related
information from point of origin to point of consumption
• Traditional vs. “e”-logistics
– traditionally: large amounts of materials to a few destinations
– e-logistics: typically small parcels sent to many homes (in B2C)
• Reverse logistics
– The movement of returns from customers to vendors
• Third-party logistics (3PL) suppliers
Types of Companies in the “New
Economy”
• Bricks-and-mortar (or “old-economy”): traditional
companies based in the physical world only.
• Pure-play (or virtual) organisations are companies
that are engaged only in electronic commerce.
• Clicks-and-mortar organisations are those that
conduct some e-commerce activities, yet their
primary business is done in the physical world.
Potential Advantages of B2C ECommerce
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May eliminate need for maintaining physical shop front
Reduced transaction costs; increased transaction speed
Ease of crossing geographical boundaries
Web sites available 24/7
Ease of updating existing and distributing new information
Providing additional value for customers
Internet: universal, easy-to-use set of technologies and
standards
• Empowers smaller companies
… but success is far from guaranteed!
The Dot Com Bubble Burst
• A typical "dot-com" company relied on network effects to justify
losing money to build market share, or even mind share, through
giving their product away in the hope that they could eventually
charge for it.
• Stock market bubble: occurs when speculators note the
fast increase in value and decide to buy in anticipation of further
rises, rather than because the shares are
undervalued.
• The bubble burst in late
NASDAC INDEX
2000 and through 2001.
Dot Com Failures: Pets.com
“You did not need to have a doctorate in economics to see that
many of these dot-com companies wouldn't work. Take Pets.com,
which sold pet supplies online. Imagine you just ran out of dog food
and kitty litter. What do you do? Do you run to the nearest hardware
store and pick some up? Or do you go online, order it, then wait four
to six weeks while your dog starves and your cat shits all over the
living room floor.”
(Philip J. Kaplan)
Not the failure of B2C altogether
• At the end of 2002, 40% of surviving dot-coms and 70% of online
retailers in the US were reporting profits (Business Week 2003)
• Amazon started making profits in the 4th quarter of 2001
• Estimated quarterly U.S. retail e-commerce sales as a percent of
total quarterly retail sales, 1999(4Q)-2006(3Q):
Source: http://www.census.gov/mrts/www/ecomm.html [accessed Feb. 2007]
And B2C is just part of the story
Things to bear in mind about e-business:
• Not necessarily with the consumer
B2B: much larger share of overall revenue
“The dollar value of B2B comprises at least 85 percent of the
total transaction value of e-commerce”
(Source: 2003 eMarketer report, quoted in Turban 2006, p.195)
• Not necessarily using Internet & WWW
Majority of B2B still uses EDI technology
How is B2B Different from B2C?
• More complex process that may involve extensive
negotiation over prices, product specifications, etc.
• Often longer-term, higher stickiness
• Need for systems integration buyer/seller;
additional technologies
• Focus on realising process cost efficiencies
• Collaborative commerce
• ...
Key Areas of E-Business:
Example Setting
Build-to-order
(e.g. Dell) or
Ship-to-order
Suppliers
(e.g. computer
components, book
publishers)
(B2B)
SCM world
(e.g. Amazon)
Enterprise
Consumers
(B2C)
CRM world
ERP, EAI, …
Internal Integration
(does Marketing talk to Operations?)
External Integration
(does the firm talk to the outside world?)
Front / Back Office; Systems
Integration
• Back-office operations: the activities that support fulfilment of sales,
such as accounting and logistics
• Front-office operations: the business processes, such as sales and
advertising, that are visible to customers
• Need to integrate front & back office processes and systems
• Examples of systems integration:
– E.g., when a customer browses / orders a product online (front-end
system), the product description, inventory count, and order
information are likely to be retrieved from / stored in one or more
databases (back-end system)
– Integration with ERP, CRM, SCM software, etc.
– Enterprise Application Integration (EAI) software
Limitations & Barriers for EBusiness Adoption
(Source: Turban 2006, p.28)
Reducing Transaction Costs
• The Internet (potentially) reduces transaction costs
– Finding buyers: no mass-mailing of expensive brochures, or
expensive TV and radio ads
– Fully automatic collection of payments
– (in some cases:) Delivering product
– Support: email, FAQ, user forums instead of person-to-person
Economic Impact of Digitisation
• Traditional economic cost structure:
Source: V. Grover & P. Ramanlal, Digital economics and the e-business dilemma, Business Horizons 47(4), 2004, p.71-80
Economic Impact of Digitisation
(contd.)
• Economics of digital production costs:
Source: V. Grover & P. Ramanlal, Digital economics and the e-business dilemma, Business Horizons 47(4), 2004, p.71-80
Economic Impact of Digitisation
(contd.)
• Cost structure of digital products or services:
– Near-unlimited economies of scale; no or few capacity
constraints
– High fixed costs (intellectual capital vs. plant and equipment)
– Fixed costs incurred early and may not be recoverable
– Marginal costs approaching zero
• Four “information age” strategies to create competitive
advantage (Grover & Ramanlal):
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Versioning
Confounding: make it difficult for buyers to compare
Creating network effects (and charge for value derived from it…)
Preemptive pricing
Impact on Value Chain
• The Internet offers a new distribution channel
– Channel conflict vs. cooperation
• The Internet has led to the unbundling of
information from traditional value chain channels
– Disintermediation: getting rid of the “middle-man”
– Reintermediation: new types of middle-men
• The Internet is allowing companies to work more
closely with suppliers and other business
partners
Firm Value Chain and Industry
Value Chain
Firm Value Chain
Industry Value Chain
Disintermediation
• Disintermediation: removal of intermediary steps in a
value chain, e.g., selling directly to consumers
 lower purchase transaction costs
 potential price advantages
Example taken from: Laudon & Laudon, Essentials of Information Systems, 2005
Channel Conflict
• Channel conflict: tension among different distribution
chains for the same product or service
– Channel member perceives another channel to be engaged in
behaviour that prevents or impedes it from achieving its own goals
– Web-based direct sales channel
 Risk of alienating traditional sales reps (internal conflicts),
distributors (external conflicts), …
 Threats may include lockouts or even lawsuits by distributors
– Disintermediation is usually not instantaneous: how to placate
partners in the distribution channel while taking steps toward the
eventual demise of these relationships?
• Channel cooperation
Reintermediation
• Reintermediation: shifting of the
intermediary function in a value chain to a
new source
– Delivery, e.g., becomes a critical part of
overall customer satisfaction (Royal Mail,
DHL, UPS, …)
– New intermediaries: information brokers, net
marketplaces, intelligent agents, …
Porter's Competitive Forces Model
•
Five major forces of
competition
determine industry
structure and how
economic value is
divided among the
industry players in
an industry
•
Analysis of these
forces helps
companies develop
their competitive
strategy
Source: Porter, M. E. (2001), Strategy and the
Internet, Harvard Business Review, 79(3), p. 62-78
suggested reading included in Appendix 8
Impact on Value Chain (contd.)
• The Internet has changed relations with
suppliers and other business partners
– Increased opportunities for integration
– Lower entry barriers (lower setup cost)
– Increased flexibility choosing partners
• Lower switching costs
• Net marketplaces
Common Revenue Models
Source: Turban, E. et al., Electronic Commerce 2006: A Managerial Perspective, Prentice Hall, 2006, p.21
Impact on Business Models
The Internet is changing business models by:
• giving rise to new kinds of business models
Examples: iTunes, Google, …
• reinventing tried-and-true models
Example: eBay
A Classification of Business Models
• Brokerage Model
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–
–
–
Net marketplace
Auction broker
Transaction broker
...
• Advertising Model
– Portal
– Search-based
advertising
–…
• Infomediary Model
• Merchant Model
• Manufacturer
(Direct) Model
• Affiliate Model
• Community Model
• Subscription Model
• Utility Model
Brokerage Model
• Brokers are market-makers: they bring buyers and
sellers together and facilitate transactions
• Usually a broker charges a fee or commission for each
transaction it enables
• Common in B2B, B2C, C2C
• Can take on many forms:
– B2B net marketplace
– Auction Broker
– Transaction Broker: provides a third-party payment mechanism
for buyers and sellers to settle a transaction
• Example: PayPal
– Expedia, Travelocity, Orbitz, ...
E-Auctions
• Auctions (e.g. eBay): market mechanism by which sellers
place offers and buyers make sequential bids; auction
broker charges the seller a listing fee and commission
scaled with the value of the transaction
• Forward vs. reverse auctions
– Forward auctions: auctions that sellers use as a selling channel
to many potential buyers; items are placed at sites for auction and
buyers bid continuously for the items.
– Reverse auctions: have one buyer, usually an organisation, that
wants to buy a product/service; suppliers are invited to submit bids.
• The Internet facilitates dynamic pricing
• Liquidation auctions vs. market efficiency auctions
Proxy Bidding and Sniping Software
• Proxy bidding: allows a bidder to
– state a maximum bid for an item
– place new bids without actually being in front of their computer
eBay's system: http://pages.ebay.com/help/buy/proxy-bidding.html
• Sniping: bidding at the last possible moment, hence
minimising chance of driving up the price during the
auction
• Sniping software/services: handle the actual transaction
– Decide on bid just above what you think will be the highest proxy
bid, and on a time to place the bid, and the software does it for you
– One shot to get it right
– Possibility to bid for the same item at multiple auctions and
automatically retract other outstanding bids if you win one auction
(if allowed…)
Typical Unfair Practices in Online
Auctions
• “Puffing” or “shilling”, which means fake bidding by
initiator or proxy participants to drive the price up/down
• The setting of unrealistic target prices
• Fake/hidden identity of bidders/initiators
• Non acceptance of best bid
• Hidden reserve prices (unless allowed)
• Price dumping
• Auction rings, bid shielding and other collusion
Note: plenty of academic research on auction models!
An Electronic Payment Broker: PayPal
Action
1. Andy logs on to PayPal.com and registers.
2. Andy sends $50 to Betty by entering his credit card
information, her email address, and the amount ($50).
Information entered
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Andy's name
Andy's address
Andy's email
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Andy's credit card
Betty's email
Transaction amount
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Betty's name
Betty's address
•
Betty's bank account
(if withdrawing by
direct deposit)
3. Andy's credit card is charged $50 and a new account in
Betty's name is created and credited with the $50.
4. Betty receives an email notification ("You've got cash!")
and clicks on a link which takes her to her new account.
5. Betty registers by entering her name and address.
6. Betty can withdraw her money by direct deposit to her
bank account or by a personal check from PayPal.
Betty also has the option of sending the money on to
others.
Manufacturer (Direct) Model
• Direct Model: a manufacturer (i.e. a
company that creates a product or service)
reaching buyers directly and thereby
compressing the distribution channel
• Typical example: Dell
Other Examples of Business
Models
• Content Provider
– Provides digital content
– Example: news service (offering streamed video, e.g. CNN)
– Customer usually charged a periodic fee to subscribe to the
service
– Advertising can also provide revenue
• Web Portal
– Initial point of entry to the web
– Often started out as a search engine or directory; includes varied
content or services which can usually be further customised
(e.g. Yahoo!, MSN, AOL, …)
– Attractive for advertisers when the volume of viewer traffic is large
or highly specialised (niche portals serving a particular demographic)
Key Areas of E-Business:
Example Setting
Build-to-order
(e.g. Dell) or
Ship-to-order
Suppliers
(e.g. computer
components, book
publishers)
(B2B)
SCM world
(e.g. Amazon)
Enterprise
Consumers
(B2C)
CRM world
ERP, EAI, …
Internal Integration
(does Marketing talk to Operations?)
External Integration
(does the firm talk to the outside world?)
Supply Chain Management
(SCM)
• “Supply chain management is the coordination
of production, inventory, location, transportation,
and information among the participants in a
supply chain to achieve the best mix of
responsiveness and efficiency for the market
being served.”
(Hugos, Essentials of Supply Chain Management, 2003)
• e-SCM: collaborative use of technology for SCM
Some Predictions Made in 2000…
• A Gartner report estimated that a staggering $7.3 trillion
worth of global corporate spending would go through the
Internet in 2004, up from $145 billion in 1999.
• By 2005, “the entire supply chain between suppliers and
buyers will be automated.” (Geri Spieler, Gartner analyst)
• “Any company will be able to order anything on the Web
and have it customised.” (id.).
(Source: NY Times, May 7, 2003)
In reality:
• Not all industries similarly affected by B2B e-commerce
• Computer, automotive, aerospace and defence, and
industrial equipment industries probably moving fastest
The Traditional Supply Chain
• A chain is something linear...
• Point-to-point B2B
Tier 3
Suppliers
Tier 2
Suppliers
Tier 1
Suppliers
The Future Internet-Driven Supply
“Network”
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•
•
Chains evolving into collaborative networks
Virtual companies
Exchanges
Not quite there yet...
(Picture taken from: Laudon & Laudon, Essentials of MIS)
B2B Technologies
• Traditional EDI
• Internet/XML-based frameworks
Traditional B2B Technologies: EDI
• Electronic Data Interchange (EDI):
– Transfer of electronic data from one organisation's computer system
to another's in a commonly agreed format
– To be processed by the receiver's computer system without the
need for human interpretation
– Set of hardware and software that accommodate the EDI process
– Often involves third-party service provider (‘value-added networks’)
– International standards bodies and proposed standards
Europe: UN/EDIFACT (EDI for Administration, Commerce and Transport); US: X12
– Used since 1980s to automate routine transactions between
established trading partners
– Long-term, point-to-point, and tightly coupled relationships
– Still widely used in B2B integration practice
B2B Technologies: EDI (contd.)
• Examples of EDI relationships
– Manufacturer(s) working together with supplier(s)
– Large EDI groups (e.g. SWIFT: international financial
transfers)
B2B Technologies: EDI (contd.)
Company A
EDI to Internal
Middleware
Internal to EDI
Middleware
Company B
Internal to EDI
Middleware
EDI
EDI to Internal
Middleware
Company C
EDI to Internal
Middleware
Internal to EDI
Middleware
Example EDI Message
NAD: Name and Address of partner; QTY: quantity; DTM: date/time/period, …
Original Benefits of EDI
Compared to not engaging in electronic B2B:
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•
•
•
Speed of transaction
Reduced transaction costs
Less errors
Just-in-time support: lower inventory costs
 Competitive advantage over other companies in
the sector
But...
• Advantage for supplier/customer depends heavily
on balance of power
Disadvantages of EDI
• Long-term, point-to-point, and tightly coupled relationships;
less suitable for networked, collaborative environment
(need to agree on vocabulary/syntax)
• EDI syntax not very programmer or Web friendly
• Not that attractive for SMEs
– High initial investment
– Risk of being locked in
• Risk of EDI vendor lock-in
 Shift away from using private communication networks
and proprietary hardware/software towards using Internet
technologies
HTML?
Company 1
Web
Browser
HTML
Web
pages
Company 2
Internet
eCommerce
Server
ERP/
Accounting
Systems
•
HTML encoding not suited to carry the information that
is needed for automated B2B e-commerce
(Glushko, 2001)
Disadvantages of HTML
• Presentation-oriented
– Simple structures: headings, lists, link
• No structural or semantic (content) information
• No content-based encoding means that HTML cannot be
effectively searched or processed by business
applications
– Meant for human consumption (B2C)
<html>
<title>business card</title>
<body>
<h1>John Doe</h1>
<h3><i>CEO, Widget Inc.</i></h3>
<p>email: <a href="mailto:[email protected]">
<tt>[email protected]</tt></a></p>
<p>phone: (202) 456-1414</p>
</body>
</html>
Extensible Markup Language
(XML)
• Focus on content
• No embedded formatting information!
– Use of separate “style sheets”
• Meta-markup language
– No fixed set of tags; group of users can define their own tags for
particular domain or purpose
– Schemas used to formally define an agreed tag set and structure
for a collection of XML documents
• Can serve as a uniform data exchange format between
B2B applications
• E.g., XML tags for catalogues, price lists, purchase
orders, invoices, inventory reports, bill of materials, …
Example Catalog Entry in XML
<computer type="Notebook">
<oem series="Armada300">Compaq</oem>
<specs>
<partno>165288-002</partno>
<display type="CTFT" unit="in">12.1</display>
<processor>Intel Mobile Pentium III</processor>
<weight unit="lb">3.2</weight>
<price currency="USD">2399</price>
<os>Windows 2000 Professional</os>
</specs>
</computer>
• <computer> and <specs> provide logical containers for extracting
and manipulating product information as a unit
• Could sort products by <oem>, <processor>, <price>, etc.
• Explicit identification of each part enables its automated processing
without “scraping and hoping”
• Convert <price> from USD units to Euro, Yen, etc.
Exchanging XML
Company 1
eCommerce
Server
ERP/
Accounting
Systems
XML
Documents
Internet
Company 2
eCommerce
Server
ERP/
Accounting
Systems
• Benefit: XML can be processed automatically;
generic tools available to support XML document
transformation and processing
E-Business Frameworks
• XML: in itself only a data format
• What about business processes and messaging?
e.g., how to chain electronic messages (invoice for every order,
or monthly invoice?), what security to put in place, etc.
• B2B e-business frameworks: technical and business
aspects of what information share, when to share
information and how to share information
– ebXML (initiative by UN/CEFACT and OASIS)
– RosettaNet
• Web services (using WSDL, UDDI and SOAP protocols)
• Future promise: “plug and play” business partners?
A Classification of B2B Models
• Sell-side B2B
– One seller, many buyers
– Seller usually provides a “shopping”
Web site with an e-catalogue
(or sells via auctions)
– Buyers usually shop directly on the
seller's Web site
• Buy-side B2B
– One buyer, many sellers
– Aggregate multiple sellers' catalogues
and trade using reverse auctions
and/or negotiations
– Integrate with the company's back-end
applications
Example of a Sell-Side Model
•
•
bigboXX.com: Hong Kong-based sell-side B2B site supplying a
comprehensive range of office products (stationeries, paper, computer
supplies, etc.) and services (printing, sourcing gift items, etc.)
Facilities for customer companies to manage group/individual accounts,
track order progress, receive customised purchase reports, etc.
Example of a Buy-Side Model
•
•
•
•
Click2procure: Siemens e-procurement system, build on technology provided by
Commerce One and SAP
One of world's largest private buy-side B2B sites
A Web-based platform for standardising and automating purchasing activities
Has over 1000 suppliers who pay a subscription fee for opportunity to sell goods to
Siemens
A Classification of B2B Models
(contd.)
• (Public) e-marketplace (net marketplace,
exchange, …)
– Intermediary hub where many buyers and
many sellers connect
– Virtual marketplace
B2B Net Marketplace Example: Covisint
• Covisint: B2B net marketplace for the automobile
manufacturing industry: exchange of parts and equipment
• Founded by General Motors, Ford, DaimlerChrysler, Renault
and Nissan
• Technology providers involved: Oracle and Commerce One
• Brings these together with large number of preselected
suppliers
• A Web-based system allows participants to work across
computer platforms and operating systems without requiring
participating companies, especially the smaller ones, to
invest in special systems
Covisint's Problems
•
•
•
•
•
Split mission
Distrust between partners
Lack of leadership
Reluctance from suppliers
Rival technology providers
Suggested reading (Appendix 10): R. Meredith, Harder than the
hype, Forbes Global, 16 April 2001.
How is www.supplyon.com approaching things differently?
Example of an e-Marketplace
•
•
•
SupplyOn: Established in mid 2000 by leading companies within the
automotive supply industry (e.g. Bosch, Continental, INA and ZF), along
with SAP as a technology partner.
More than 1000 automotive industry suppliers use this e-Marketplace daily.
Suppliers from more than 30 countries are registered, of which 60% are
German, 21% are based in Europe (excluding Germany), 15% are in the
USA and a further 4% are in countries outside Europe or the USA.
SupplyOn: Buy-/Sell-Side
(Web)EDI & SCM
Source: www.SupplyOn.com [accessed 19 Feb 2006]
Types of e-Marketplaces
• Types of transactions:
– Spot buying: the purchase of goods and services as they are
needed, usually at prevailing market prices
– Strategic (systematic) sourcing: purchases involving long-term
contracts that usually are based on private negotiations between
sellers and buyers, with agreed upon terms and quality
• Types of materials traded:
– Direct materials: materials used in the production of a product (e.g.,
steel in a car or paper in a book)
– Indirect materials: materials used to support production (e.g.
office supplies or light bulbs)
– MRO (maintenance, repair, and operation): indirect materials used
in activities that support production
Types of e-Marketplaces
(contd.)
• Direction of trade:
– Vertical marketplaces: markets that deal with
one industry or industry segment (e.g. steel,
chemicals)
– Horizontal marketplaces: markets that
concentrate on a service, materials, or a
product that is used in all types of industries
(e.g. office supplies, PCs)
• Degree of openness
Types of e-Marketplaces (contd.)
Note: several of these examples are
sadly no longer with us today...
•
•
•
•
Founded in Feb. 2000, in Hamburg, Germany
Connecting airlines, OEMs and aviation repair facilities to streamline the
overhaul and repair business using the Internet
Focused on optimising the information flow on subcontracted parts and the
scheduling of overhaul events
Developed together with launching customers Lufthansa Technik AG,
Praxair Aviation Services Inc., and some smaller companies.
•
•
European e-Marketplace for the sale and purchase of electricity and related
equipment.
Set up in March 2001 by 11 of Europe's leading utility companies including
Electrabel, Electricité de France, Endesa, National Grid Company, RWE,
Vattenfall and Nuon.
•
•
•
eMerge's original business plan was to set up an online cattle exchange
In 2001, unprofitable online operations forced new management to
downsize and focus on other activities (e.g. carcass scanning software)
Filed for bankruptcy protection on Feb. 14, 2007.
URL: http://www.emergeinteractive.com/ [accessed 19 Feb. 2006]
E-Marketplaces vs. Private Industrial
Networks
• e-Marketplaces: bring together potentially thousands of
sellers and buyers in a single digital marketplace
• Private industrial networks: bring together a small
number of strategic business partner firms that
collaborate to develop highly efficient supply chains
– Relationship-based
– Private
– Permits firm and partners
to share product design,
development, marketing,
scheduling, inventory
management (cf. VMI), and
unstructured communication
(“collaborative commerce”)
Example 1: Procter & Gamble
monitor movement of goods
Goals are to reduce product cycle time and inventory levels
Bullwhip Effect
• Bullwhip effect: observed increase in
variability as demand and/or stock
fluctuations travel up the supply chain
Vendor Managed Inventory
• Vendor Managed Inventory (VMI):
– A company managing inventory levels of its (usually
downstream) value-chain partners based on forecasted
demand and prior agreements on minimum and
maximum stock levels
– Seller: able to optimise production planning and overall
supply chain efficiency
• Counters bullwhip effect
– Buyer: relinquishes control in return for cost savings
 more competitive end-consumer price
Demand Forecasting Problems
at Nike
• Nike's $400 million introduction of demand forecasting
software caused their stock value to plummet 9 months
later
• Relying exclusively on the automated projections, Nike
ended up ordering $90 million worth of shoes, such as
the Air Garnett II, that turned out to be very poor sellers.
• Apparent problem causes:
– “Garbage in, garbage out”: availability of POS data
– Poor integration with existing systems
– Management's naïve belief in the system's predictive abilities
Suggested reading: http://www.cio.com/archive/071503/future.html
Example 2: Wal-Mart
• Late 1980s: Developed beginning of collaborative
commerce using EDI-based supply chain management
system that required large suppliers to use Wal-Mart's
proprietary EDI network
• 1991: Introduced Retail Link, which connected Wal-Mart's
largest suppliers to Wal-Mart's inventory management
system
• 1997: Moved Retail Link to an extranet that allowed
suppliers to directly link over the Internet into Wal-Mart's
inventory management system
• 2000: Upgraded Retail Link to more of a CFPR system
(collaborative resource planning, forecasting, and
replenishment)
Advertising & the Internet
The Internet has led to new types of advertising:
• E-mail advertising
– Note: spam (unsolicited email)
• Display advertising: banner ads, pop-ups, rich media,
etc.
– Advertisement shown on a web page, which provides link to the
web site of the advertiser
• Search-based advertising
• Viral marketing
• Online promotions and coupons
How “Big” is Online Advertising?
• eMarketer predicts that US online advertising spending will in 2006,
for the first time, exceed 5% of total media spending
Source: http://www.emarketer.com/Report.aspx?
em_ad_spend_oct06 [accessed Feb. 2007]
Source: http://www.emarketer.com/
Article.aspx?1003773 [accessed Jan. 2005]
Web Advertising Model: Display
Advertising
• Extension of the traditional media publishing model
– The publisher, in this case, a web site, provides content (usually,
but not necessarily, for free) and services (like email, IM, blogs)
mixed with advertising messages in the form of e.g. banner ads.
– Works best when the volume of viewer traffic is large or highly
specialised.
• Examples
– Portal: point of entry to the web; usually includes a search engine
and may include varied content or services (e.g. Yahoo!, MSN, …)
– Social networks, user-generated content sites, etc.
– …
Problem: Internet Ad Avoidance
• Internet ad avoidance (banner ads, pop-up ads, …)
– Low click-through rates (typically less than 1%!)
– Banner blindness: Internet users' tendency to avoid fixing their
eyes on anything that looks like a banner ad
• Empirical study by Cho & Cheon, 2004
– Causal Factors
• Perceived goal impediment: strongest factor!
• Perceived ad clutter
• Prior negative experience
– Components of ad avoidance: cognitive, affective, behavioural
Ad Formats and Pricing Models
• Ad formats:
– From simple text ads to banner ads, sky scrapers, etc. (can be
static or rich media)
– Popups, popunders
– Interstitials: usually full-page add loaded before actual page
– Layer ads (e.g. ValueClick/FastClick's InVues)
Note: IAB standard units: http://www.iab.net/standards/adunits.asp
• Pricing models based on:
– CPM: cost per thousand impressions (i.e. number of times an ad
is served); e.g. you buy a guaranteed number
– CPC: cost per click; fixed prices or auction
Note: only pay once per click per user in specified time period (e.g. 24 hrs)
– CPA: cost per action – generated lead (e.g. visitor registers or
requests info via online form) or actual sale (lead conversion)
Advertisers, Publishers, and Ad
Networks
• Online sponsorship: an advertiser sponsoring an entire site,
online event or e-mail message
• Ad network: intermediary between advertisers and publishers
– Network and publisher each get share of revenue;
– Benefits for advertiser / publisher:
•
•
•
•
Ad network brings in entire group of advertisers and publishers at once
Quality control of accepted partners
Automatic ad rotation
Allows publisher/advertiser to control various campaign parameters (volume
capping, ad format, blocking, etc.)
• Support for various forms of targeting
• Tracking and (customisable) reporting of campaign performance
– Each network has its own profile, e.g. size of publishers (minimum traffic),
sector(s) it focuses on, etc.
– Examples: Advertising.com, ValueClick, Tribal Fusion, Google AdSense, etc.
Forms of Targeted Online Advertising
• Types of targeting:
– Geographic (US: Nielsen's DMAs – Designated Market Areas)
– Demographic (e.g. males aged 18-34) or psychographic (e.g. travel
enthusiasts)
– Dayparting (e.g. only business hours), day of week, etc.
– Bandwidth (e.g. rich media only on broadband)
– Pixel targeting
– Contextual: based on Web page content (e.g. through keyword
matching and/or analysis of page content)
• Examples: Google's AdSense, Yahoo!/Overture's ContentMatch
– Behavioural: based on past browsing behaviour (site to site!)
• Example: Tacoda Audience Networks
• Claria's PersonalWeb: downloadable personalised homepage application;
Web-wide tracking! (http://www.clickz.com/showPage.html?page=3595996)
The Limitations of Contextual Ads…
Source: http://www.adrants.com/images/product_placement_toyota_teacher.jpg
Search-based Advertising & Google
• Search-based advertising: payment to a
search service to display a sponsored link to a
company's web site next to search results for
particular term(s)
• Example: Google AdWords
• Paid placement rather than paid inclusion (fee
to be indexed: out of favour)
• Google's ad network: Google AdSense
Source: adwords.google.com [accessed Nov. 2005]
Online demo: http://services.google.com/tutorial/awsignup/awsignup.html
Spending on Online Advertising Categories
•
•
•
•
•
Search ads: 40%
Banner ads: 20%
Classified listings: 18%
Streaming video/audio ads: 8% (fast growing segment)
Online sponsorship (an advertiser sponsoring an entire
site, online event or e-mail message): 5%
Source: Gilbert, A., Internet ad revenue climbs 26 percent, CNET
News.com, Sept. 26, 2005, available at:
http://news.com.com/Internet+ad+revenue+climbs+26+percent/21001024_3-5882670.html
Google AdWords
Google AdWords
Google AdSense
Google AdSense
Screen capture taken from: www.psu.com
Click Fraud
• Possible threat to pay-per-click model: click fraud
Source: http://www.emarketer.com/Article.aspx?1004525 [accessed Feb. 2007]
Viral Marketing Example
•
•
•
•
•
Launch:
10 emails were sent out to friends of beer.com from their office to beta test
“Virtual Bartender”. No other form of marketing was used and there weren’t
any links from the home page or any other sites. No search engine
marketing, banner ads or offline media have been used to promote it.
Day 1:
More than 15,000 sessions. The first “Fan Forum” appeared from the UK
where young DJs talked about the commands they discovered.
Day 2:
Sessions began doubling – 30,000. More “Fan Forums” appeared around the
world (Holland, Italy, Japan, USA)
Day 6:
Over 500,000 sessions. Still going viral – The only way to get the Virtual
bartender was through forwarded emails and the increasing number of 'Fan
Forums' appearing in search engines.
Average length of visit: 7 minutes; Page views: 7,980,000
By day 28 the site had reached 10 million sessions. It is still getting hundreds
of thousands of visitors each week.
Source: http://en.wikipedia.org/wiki/VirtualBartender.beer.com [accessed April 2005]
Incentive Marketing: Coupon Sites
• Incentive marketing model: customer loyalty program
that provides incentives to customers such as
redeemable points or coupons for making purchases
from associated retailers.
• Consumers need to register and provide key
demographics so that targeted offers and promotions
can be made based on their household information.
• Clients may be online or traditional shops.
• Example: CoolSavings
URL: www.coolsavings.com
Search Engine Optimisation (SEO)
• SEO: how to improve ranking in search results?
• Submit URL to search engines and directories
• Climb up the ranks:
– Make sure good specific keywords are included in titles, meta tags,
ALT tags, <h1>, <b>, etc.
– Keep it easy for spiders to search your site
– Popularity: find sites to link to you! (Google's PageRank algorithm)
– Regular updates
– Spamming? (e.g. link farms)
• Google's “sandbox”
– penalising link abuse by excluding site from search results
– waiting period for new sites to climb up the search ranking
• Thriving industry!
Google Bombing
The First Ever Google Bomb
URL: http://uber.nu/2001/04/06/ [accessed Nov. 2005]
Web Analytics
• Web analytics is the monitoring and
reporting of actual web site usage so as to
improve its effectiveness
Web Analytics: Main Goals
• Help optimise server infrastructure and performance
– e.g. avg./max. number of visitors, patterns, …
• Improve web site design
– e.g. where/why are visitors leaving my site?
• Measure the effectiveness of marketing strategies, SEO
activities, and advertising campaigns
– e.g. monitor effect of new strategy on traffic and (more
importantly) conversion rate, effectiveness of banner campaigns,
search engine visibility, etc.
• Personalisation: deliver content specific to each user
– e.g. recommender systems (customers who bought this book
also bought…), targeted offers, etc.
Web Analytics: Server Log Analysis
• Common data collection technique: server log analysis
– Every HTTP request produces an entry in the web server log
(“clickstream” data), containing following data:
• Remote host: IP address or domain name that identifies the location
of the computer network you are using
• Date/time stamp
• Resource requested
• Referrer: web page with hyperlink you clicked on to arrive here
• Browser and platform
195.162.218.155 [27/Jun/2002:00:01:54 +0200]
"GET /dutch/shop/detail.html HTTP/1.1" 200 38890
"http://www.msn.be/shopping/food/" "Mozilla/4.0 (MSIE 6.0)"
(Note: sequence of HTTP requests for every hyperlink clicked
 less detailed unit of analysis than eye movement)
Server Log Analysis (contd.)
• Examples of useful web usage information that can be
extracted from web server logs
– IP address: origin of our visitors (geographical area, ISP or
company domain)
– Information on referrer
• Most popular search queries
 Understand why we attract visitors (what were they looking for?),
monitor search engine visibility, …
• Top referrers
 Measure the effectiveness of online advertising campaigns,
identifying which e-business partners to work with, …
– Hits per hour/day/week/month reports and time series analyses
 Optimising server infrastructure for average and peak loads, plan
capacity to handle anticipated future growth, …
Server Log Analysis (contd.)
• Examples of useful web usage information that can be
extracted from web server logs (contd.)
– Errors loading pages
 Repair
– Most common browsers
 Which ones to support (the most…)
– Navigation information
•
•
•
•
•
Most/least requested pages
Which paths the visitors take
How much time visitors spend on each page
The most common starting page
Where visitors are leaving your site
 How to improve web site design
Web Analytics: Individual User Behaviour
• How to identify users during & across sessions?
– Implicit:
• Identification of visitor may be based on combination of IP address (duration
of session) and cookies
• Visitor remains anonymous (unless he/she registers or buys)
• Allows to distinguish between new and repeat visitors (evolution in both
numbers important for monitoring marketing strategy)
• Repeat visitors: you know what they looked at during previous visits! 
profiling based on online behaviour
– Explicit:
• Through registration / log-in mechanism, or when purchase made (conversion)
• No longer anonymous: identity can be established
• May now be linked with data from offline channels, external data, … 
additional opportunities for customer profiling
Cookies
• Cookies
– Small text file that a web server can deposit on a
user's hard disk (often containing a unique user ID)
– When the user returns to the site, the web server
retrieves the cookie (thus identifying the user as a
repeat visitor)
– A web site cannot look at cookies from other sites
• Uses for cookies
– Provide a better user experience
– Easier to gather accurate information about the site's
visitors
– May be used to implement virtual shopping carts
Cookies (contd.)
• Problems with cookies
– People often share machines
– Cookies get erased
– Multiple machines
 Cookies often combined with registration /
log-in mechanism
• Privacy concerns
– Third-party cookies and “Web bugs”
Page Tagging
• Page tagging: alternative to server log analysis
– Client-side as opposed to server-side data collection
– Usually involves “tagging” web page with reference to JavaScript
program that:
• Drops cookie to further track visitor
• Sends additional data through to server (ranging from client's
browser configuration, screen size, etc. to tracking client-side
events)
– Often third-party server, i.e. that of analytics provider (hosted
solution), or setup/run at own site
• Server log analysis and page tagging can complement
each other (each has its advantages/disadvantages)
 hybrid solution!
Google Analytics & Page Tagging
http://www.google.com/analytics [accessed when I tried to register last year… :-)]
Note: New beta software by Google (http://services.google.com/websiteoptimizer/):
AdWords landing site optimisation – try design variations & test differences in conversion
Google's New Patents
• In the not-so-far future, Google may include web
analytics data for search results ranking (cf. recent
patent):
“[0093] According to an implementation consistent with the
principles of the invention, information corresponding to individual or
aggregate user behavior relating to a document over time may be
used to generate (or alter) a score associated with the document.
For example, search engine 125 may monitor the number of times
that a document is selected from a set of search results and/or the
amount of time one or more users spend accessing the document.
Search engine 125 may then score the document based, at least in
part, on this information.”
Source: http://appft1.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=/netahtml/PTO/searchbool.html&r=1&f=G&l=50&co1=AND&d=PG01&s1=20050071741&OS=20050071741&RS=20050071741
Web Personalisation
• Online customer identification
• Personal data and preferences explicitly provided by
customer
• Clickstream data (implicit)
• Customer's online purchase history
• Data collected from off-line channels (back-office or external)
 Very rich individual customer profiles
 Huge opportunities for mass personalisation: one-to-one
channels with customers over mass communication medium
– “If I have two million customers on the web, I should have two million
stores on the web” (Jeff Bezos, Amazon)
– Customised delivery and presentation of content, and targeting offers
and campaigns, specific to individual users
VirginWines
http://www.bluemartini.com
Web Analytics & E-Mail Advertising
• Similar techniques can be used to monitor whether emails
sent to customer base are:
– Opened?
<img src="" width="1" height="1" alt="Web Bug from http://as1.emv2.com/
S?28a029acf4eeb895a4e5b0372593af03-A-482114-444000.gif" />
– Clicked?
<a href="/exchweb/bin/redir.asp?URL=http://as1.emv2.com/I?X=f8c3bb3a03fb46a3fae0
20c414e2934d46544bcbb0e61036" target=_blank><img src="/exchweb/img/clear1x1.gif"
alt="Live a little in Lille Eurostar + 1 night 3 star from &pound;85* Book now" width="177"
height="59" border="0"></a>
– Led to conversion?
• Can be used to monitor effectiveness of different
strategies (e.g. different treatment of different segments
based on demographic data, last sent/opened, etc.)
Web Analytics: Usability Studies
• Web analytics can also refer to usability studies
• Goal: evaluate and improve Web site design
• Can be applied earlier in the life cycle
• “Web analytics is the assessment of a variety of data,
including web traffic, web-based transactions, web
server performance, usability studies, user submitted
information [i.e. surveys], and related sources to help
create a generalised understanding of the visitor
experience online.” (Eric Peterson, Web Analytics
Demystified)
Qualitative Usability Studies
• Qualitative usability studies: let some
people use the web-site and observe them
or ask them about their experiences
(Source: http://www.useit.com/alertbox/20000319.html)
Quantitative Usability Studies
• Quantitative usability studies: set up
usability experiments and (statistically)
analyse the results
– Basic examples of usability metrics are:
• success rate (whether users can perform the task at
all)
Original Design Redesign
• time on task
Task 1
12 sec.
6 sec.
• error rate
Task 2
75 sec.
15 sec.
Task 3
9 sec.
8 sec.
• user satisfaction
Task 4
Satisfaction
140 sec.
40 sec.
44.75
74.50
(http://www.macromedia.com/software/flash/productinfo/usability/usability_test/)
Usability Experiments: EyeTracking
• Eye-tracking: participants are set up with
a physical head gear to track their eye
movements as they browse through a
site