Transcript E-COMMERCE: DIGITAL MARKETS, DIGITAL GOODS Chapter 10 (10 Ed.)
Chapter 10 (10
th
Ed.) E-COMMERCE: DIGITAL MARKETS, DIGITAL GOODS
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E-BUSINESS AND E-COMMERCE
E-commerce
concerns the processes for buying and selling goods and services electronically
E-business
is the use of the Internet and IT to execute all of the business processes for the firm. E-business includes e commerce, all internal processes, and coordination with business partners such as customers and suppliers 2
E-COMMERCE TODAY
Some statistics 2007 consumer sales about $180 billion In the US over 160 million people are online (over 50 percent); worldwide 1 billion are connected On an average day 70 million go online, 140 million send email, 5 million write on their blogs, 4 billion share music About 1 in every 3 Americans has purchased something online.
B2B commerce is more than $2 trillion 3
NEW DEVELOPMENTS IN E-COMMERCE
Business transformation First wave and second wave Breadth of e-commerce Technology changes Wireless Online demographics Small business involvement Podcasting Expansion of broadband connections RSS as form of information distribution Falling prices of computing and networking components New business models User-generated content in the form of blogs and social networks Newspapers and other media adopt, online, interactive models Half the Internet population joins a social group on the Internet 4
WHY E-COMMERCE IS DIFFERENT
Ubiquity (unbundling of product and product info) Global reach Universal standards Reduction in entry costs and search costs Richness Interactivity Information density (information asymmetry) Price and cost transparency Price discrimination Personalization/customization 5
KEY CONCEPTS IN E-COMMERCE
Information asymmetry in digital markets versus traditional markets Costs of changing prices (menu costs) in digital markets versus traditional markets Dynamic pricing (or differential pricing) in digital markets versus traditional markets Disintermediation Pure-play business versus clicks-and-mortar 6
DIGITAL MARKETS (DM) VERSUS TRADITIONAL MARKETS (TM)
Information asymmetry Search costs Transaction costs Delayed gratification Menu costs Dynamic pricing Price discrimination Market segmentation Switching costs Network effects Disintermediation Favors DM Favors DM Favors DM Favors TM (except for digital prod) Favors DM Favors DM Favors DM Favors DM About equal Favors DM Favors DM 7
DIGITAL PRODUCTS
Digital products can be delivered over a digital network. Examples include music, video, software, newspapers, magazines, books, photographs, and video.
Major advantages of digital products Zero marginal cost/unit Zero copying costs Low delivery costs Low inventory costs Easy to provide variable pricing (e.g., bundling) 8
INTERNET BUSINESS MODELS
Virtual storefront: Sells goods or services online ( Amazon.com
) and RedEnvelope.com
) Information broker: Provides information on products or services ( Edmunds.com
) Transaction broker: Provides online transaction facility ( eTrade.com
, Expedia.com
) Online marketplace: Provides a trading platform for individuals and firms ( eBay.com
, alibaba.com
, priceline.com
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MORE INTERNET BUSINESS MODELS
Content provider: Creates revenue by providing content ( WSJ.com
, TheStreet.com
, itunes.com) Online service provider: Provides online services, including search service. ( Google.com
, Xdrive.com
) Virtual community: Provides an online community to focused groups ( YouTube.com
, MySpace.com
, iVillage .com) Portal: Provides initial point of entry to Web, specialized content, services ( Yahoo.com
, MSN.com
) 10
SPECIAL ASPECTS OF THE BUSINESS MODELS: COMMUNICATION
Examples of communication E-bays use of email iVillage is an online community of women who share common interests Corporations target these communities with ads.
Revenue from ads support the sponsors of the online community 11
SPECIAL ASPECTS OF THE BUSINESS MODELS: COMMUNITY
Types of online communities (social networking) Common interests (iVillage.com) Extending friendships MySpace.com or Facebook.com
Job networking LinkedIn.com
Sharing videos MomSong USN PumpIt Business uses of MySpace.com
See Interactive Session in the text book Social shopping ( Kaboodle.com
) 12
SPECIAL ASPECTS OF THE BUSINESS MODELS: CONTENT PROVIDERS
Digital versions of print publications Online games Radio channels Full length films Television shows Podcasting Syndicators A business that aggregates content from multiple sources and sells it to other parties Application service providers (ASP) Remote storage 13
TYPES OF E-COMMERCE
Business-to-customer (B2C): Retailing of products and services directly to individual customers (Amazon.com, Wal-Mart.com) Business-to-business (B2B): Sales of goods and services to other businesses (Grainger.com, Ariba.com) Consumer-to-consumer (C2C): Individuals using the Web for private sales or exchange (eBay.com
Government-to-consumer (G2C), government-to-business (G2B) and government-to-government (G2G) 14
UNIQUENESS OF E-COMMERCE: INTERACIVE MARKETING AND PERSONALIZATION
Direct sales via the Web (a new channel) Eliminate intermediaries (disintermediation) New roles for intermediaries (reintermediation); information brokers (edmunds.com) Interactive marketing and personalization Richness of information at the Web site Ability to capture customers’ Web behavior at low cost (clickstream tracking) Ability to customize/personalize for each customer (Land’s End shirts/pants or VistaPrint (stationary products) Collaborative filtering (Amazon.com recommendations) Corporate blogs to reach customers Customer survey and focus groups 15
UNIQUENESS OF THE E-COMMERCE: CUSTOMER SELF SERVICE
Customer self-service Find information Ask questions Review transactions Track shipments Push to talk links Online chats with tech support Requesting phone call from a firm’s Web site 16
B2B E-COMMERCE
VAN EDI 80 % of buying and selling in B2B is supported by proprietary networks using traditional EDI (available since 70’s as VAN EDI) EDI is the computer-to-computer exchange of standard business documents such as invoices, bills of lading, shipment schedules, or purchase orders.
Transactions are automatically sent from one system to another through a proprietary network.
Major industries in the US and other parts of the world have defined the structure and standards for these documents X.12 in North America, EDIFACT for Europe Web-enabled EDI More flexible and much cheaper than VAN EDI In addition to buying and selling procurement (includes buying, sourcing, negotiating with suppliers, paying for goods, and delivery) Expands the number of partners way beyond those in EDI networks An EDI tutorial for a Web based EDI product 17
AUCTIONS AND EXCHANGES
An exchange is a public/private electronic market with buyers and sellers; there may or may not be bidding.
Auction – an electronic market mechanism where a seller places an offer to sell a product and buyers make bids sequentially and competitively until a final price is reached (dynamic pricing) A reverse auction is when sellers invite prospective buyers to bid on product or service (e.g., Priceline is a B2C reverse auction). The seller has the option of accepting or declining the bid.
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TYPES OF ELECTRONIC MARKETS
A private exchange (
private industrial networks
) usually involve a large firm that sets up an extranet with suppliers, distributors, and other partners to share product design, marketing, production scheduling, inventory management, etc (e.g., VWGroupSupply.com
) Net marketplaces (e
-hubs
) are designed for many buyers and sellers usually owned by an industry or run by a third party. Revenue is generated by the owner taking a percentage of the transaction or providing services to network participants Exostar MLS Orbitz.com
ChemConnect.com
Exchanges are independent third party electronic marketplaces that connect thousands of suppliers and buyers for spot purchasing FoodTrader.com or Alibaba.com
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SERVICES PROVIDED BY INTERMEDIARIES IN AN EXCHANGE
Services for buyers Automate buying, contract management, purchase orders, requisitions, business rules enforcement, and payment Services for sellers Catalog creation and content management, order management, invoicing, and settlement 20
TECHNOLOGIES THAT SUPPORT B2B
Intranets Extranets Electronic data interchange Proprietary Web-enabled Electronic payment systems Electronic funds transfer New methods of electronic payment Digital signatures and digital certificates 21
INFORMATION MOST FREQUENTLY FOUND IN CORPORATE INTRANETS
Customer databases Corporate policies and procedures (Winthrop) Corporate phone directories Human resource forms (Winthrop) Training programs Product catalogs and manuals (Winthrop) Data warehouse and decision support access Internal purchase orders (Winthrop) Travel reservations 22
Functional Applications of the Intranet Idea
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THE EXTRANET CONCEPT
An extranet is created when authorized users from outside the firm have access to the firm’s intranet Extranets enable the external entities to coordinate their business processes with the internal processes of a given firm The extranet may or may not be involved with direct sales.
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SPECIFIC EXTRANET EXAMPLES
AMP is an electronic-connectors distribution company; customers use AMP Connect to access an electronic catalog with product descriptions, 3-D models, and comparative charts for all products; customers can place orders Receives 100,000 hits daily from 15,000 business customers worldwide CSX (railroad) developed an extranet that allows CSX customers to trace shipments, initiate work orders, and view pricing data over the Internet 25
DIGITAL SIGNATURES AND DIGITAL CERTIFICATES
A digital signature is a digital code attached to an electronically transmitted message (e.g., an EDI document) that is used to verify the origin and contents of the message. It provides a way to associate a message with a sender similar to a written signature.
Digital certificates verify (off line) that the holder of a digital signature is who he/she claims to be. Third parties called certificate authorities issue digital certificates. One company that does this is VeriSign.
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M-COMMERCE
M-commerce refers to the use of hand-held devices to purchase goods and services from any location (includes both B2C and B2B can take place using m-commerce technology) Types of services Access wireless Web sites to check train schedules, obtain movie listings, trade stocks, or purchase airline tickets, obtain driving instructions, weather forecasts etc.
Banking and financial service offer alerts about changes in account information. Users can also use devices to cheek account balances, transfer funds, and pay bills.
Web sites for mobile phones feature ads Web sites are specifically designed for hand-held devices 27
Electronic Commerce Payment Systems
PAYMENT SYSTEM DESCRIPTION DIGITAL CREDIT CARD PAYMENT DIGITAL WALLET SECURE SERVICES FOR CREDIT CARD PAYMENTS ON INTERNET SOFTWARE STORES CREDIT CARD AND OTHER INFORMATION ACCUMULATED BALANCE PAYMENT SYSTEM ACCUMULATES MICROPAYMENT PURCHASES AS DEBIT BALANCE TO BE PAID PERIODICALLY STORED VALUE PAYMENT SYSTEMS ENABLES CONSUMERS TO MAKE INSTANT PAYMENTS BASED ON VALUE STORED IN DIGITAL ACCOUNT DIGITAL CASH DIGITAL CURRENCY USED FOR MICROPAYMENTS OR LARGER PURCHASES PEER-TO-PEER PAYMENT SYSTEMS SENDS MONEY VIA WEB TO PERSONS OR VENDORS NOT SET UP TO ACCEPT CREDIT CARD PAYMENTS DIGITAL CHECKING PROVIDES ELECTRONIC CHECK WITH SECURE DIGITAL SIGNATURE ELECTRONIC BILLING PRESENTMENT & PAYMENT SUPPORTS ELECTRONIC PAYMENT FOR ONLINE AND PHYSICAL STORE PURCHASES
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ELECTRONIC DATA EXCHANGE
How does EDI work?
Supplier’s proposal sent electronically to buyer organization.
Electronic contract approved over network.
Supplier manufactures and packages goods, attaching shipping data recorded on a bar code.
Quantities shipped and prices entered in system and flow to invoicing program; shipping data and invoices are transmitted electronically to buyer organization.
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ELECTRONIC DATA EXCHANGE (HOW DOES IT WORK?)
Supplier ships the order.
Buyer organization receives packages, scans bar code, and compares data to invoices actual items received.
Payment approval transferred electronically from the buyer’s accounts payable dept. to buyer’s bank .
Bank transfers funds from buyer to supplier’s account using electronic fund transfer (EFT).
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ELECTRONIC DATA INTERCHANGE
Figure 11.5
How EDI works
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AN EXAMPLE OF PROCESS CHANGES
Winthrop University processes Online applications Online course registration Online payments Online grade reporting Online transcript access Impact of process changes at Winthrop University Role of traditional print media and web site Need for managing consistency Increased security for online grading 32