Chap 7 E Commerce e-commerce e-commerce e-commerce
Electronic Commerce:
Digital markets and goods
Introduction
• This chapter describes the key features of
electronic commerce.
• Have you ever purchased something
online?
• How many have used their cell phones to
search for products, or purchase products?
• How has e-commerce changed how they
shop and purchase goods and services?
• How many have used a dating site
Internet/interconnectivity Benefits
to Organizations
• The development, expansion and the popularity of
the Internet left many business organizations
scrambling to define a new paradigm in computing
- the network - centric computing.
• Business organizations have realized that the
Internet is a rich source of tools and information
and has enormous potential.
• Therefore, Internet has become an integral
company resource because of the widespread use
and acceptance of the technology, and because of
the ease of use and relatively low cost.
Internet Benefits to Organizations
– Due to Internet capabilities and web technology,
traditional business organization has undergone
change where scope of the enterprise now
includes other company locations, business
partners, customers and vendors.
– The modern organization has no geographic
boundaries as it can extend its operations where
Internet works.
– E-business enterprise is open twenty-four hours,
and being independent, managers, vendors,
customers transact business any time from
anywhere.
– Accelerating the distribution of knowledge
Internet Benefits to Organizations
• Internet capabilities have given E-business enterprise a
advantage to increase the business value.
• It has opened new channels of business as buying and selling
can be done on Internet.
• It enables the organization to reach new markets anywhere in
the world.
• It has empowered customers and vendors / suppliers through
secured access to information to act, wherever necessary.
• The cost of business operations has come down significantly
due to the elimination of paper-driven processes, faster
communication and effective collaborative working.
• The effect of these radical changes is the reduction in
administrative and management costs, reduction in
inventory, faster delivery of goods and services to the
customers and increased customer satisfaction.
Intranets and Extranets
• Intranet: Are computer network, based on
Internet technology, that is accessible to
the members of an organization only.
• Intranets are designed to meet the internal
needs for sharing information within a
single organization or company.
• They are widely used for supporting
employee access to organization
information through Web-based company
information applications sometimes referred
to as a ‘corporate information portal’
Intranets and Extranets
•
For example, Company intranet would include:
– phone directories;
– staff newsletters;
– company procedures and policies
– Announcements
– information about new products
• Communications and collaboration
within the organization
Intranets and Extranets
• Extranet: An extranet is a private network
that uses the Internet technology and it is
accessible to the members of the
organization and limited members outside
the organization e.g. customers.
• Access to the extranet is controlled
through the use of usernames, and
passwords, plus firewalls, security
software programs that keep unauthorized
users out of the network.
Business Value of Extranets
• Web browser technology makes customer
and supplier access to extranets easier and
faster
• Another way to build and strengthen
strategic relationships
• Enables and improves collaboration between
a business, customers, and partners
• Facilitates online, interactive product
development and marketing
6-9
E-business and E-Commerce
• Electronic business (e-business): Refers
to the use of digital technology and the
Internet to execute the major business
processes in the enterprise. E-business
includes activities for the internal management
of the firm and for coordination with suppliers
and other business partners.
• It also includes electronic commerce, or ecommerce. E-commerce is the part of ebusiness that deals with the buying and selling
of goods and services over the Internet.
E-business and E-Commerce
• The technologies associated with e-business have
also brought about similar changes in the public
sector. Governments on all levels are using
Internet technology to deliver information and
services to citizens, employees, and businesses
with which they work.
• E-government refers to the application of the
Internet and networking technologies to digitally
enable government and public sector agencies’ to
interact with citizens, businesses, and other arms
of government. E.g I-tax and e-tendering
WHY E-COMMERCE IS
DIFFERENT
• E-commerce has grown so rapidly
because of the unique nature of the
Internet and the Web.
• Internet and e-commerce
technologies are much more rich and
powerful than previous technology
revolutions like radio, television, and
the telephone.
Digital markets and Goods
• Digital goods
– Goods that can be delivered over a digital network
• E.g. Music, video, software, newspapers, books
– Cost of producing first unit almost entire cost of
product: marginal cost of 2nd unit is about zero
– Costs of delivery over the Internet very low
– Marketing costs remain the same; pricing highly
variable
– Industries with digital goods are undergoing
revolutionary changes (publishers, record labels,
etc.)
Digital markets and Goods
• Digital market: Information system that links buyers and
sellers to exchange information, products, services, payments
• Digital markets greatly lower
– Market entry costs—the cost merchants must pay simply to bring
their goods to market.
– Search costs—the effort required to find suitable products
– Transaction costs: The cost of participating in a market
– Information Asymetry: An information asymmetry exists when
one party in a transaction has more information that is important for
the transaction than the other party. That information helps
determine their relative bargaining power
– The Internet reduces information asymmetry. In digital markets,
consumers and suppliers can “see” the prices being charged for
goods, and in that sense digital markets are said to be more
“transparent” than traditional markets
Digital markets and Goods
• Digital markets also enable
– Price discrimination: Selling the same goods, or
nearly the same goods, to different targeted groups
at different prices.
– Disintermediation: The removal of organizations
or business process layers responsible for
intermediary steps in a value chain
– Digital markets provide many opportunities to sell
directly to the consumer, bypassing intermediaries,
such as distributors or retail outlets. Eliminating
intermediaries in the distribution channel can
significantly lower purchase transaction costs.
Electronic Commerce
The benefits of disintermediation to the consumer
Figure 4-2
Digital markets and Goods
• Reintermediation:
– Creation of new intermediaries between
customers and suppliers providing
services such as supplier search and
product evaluation. easyJet created a
price comparison site easyValue
(www.easyvalue.com) to compare
flights and other products.
ECustomer-Centered Retailing
lectronic Commerce
Interactive Marketing and Presentation
• Collection of customer information using
Web site auditing tools less expensive than
surveys and focus groups
• Web personalization technology
customizes content on Web site to
individual’s profile and purchase history
• Web sites and marketing shorten sales
cycle and reduce time spent in customer
education
Electronic Commerce
Customer-Centered Retailing
Customer Self-Service
• Web-based responses to customer
questions cost a fraction of telephone
costs for live customer service
representation
• Web-based customer self-service
applications, such as airline flight
information sites
• Traditional, phone-based customer call
centers being integrated with Web
TYPES OF E-COMMERCE
• There are many ways to classify electronic
commerce transactions.
• One is by looking at the nature of the
participants in the electronic commerce
transaction.
• The three major electronic commerce
categories are:
– business-to-consumer (B2C) e-commerce,
– business-to-business (B2B) e-commerce, and
– consumer-to consumer (C2C) e-commerce.
TYPES OF E-COMMERCE
– Business-to-consumer (B2C): electronic commerce
involves retailing products and services to individual shoppers.
BarnesandNoble.com, which sells books, software, and music to
individual consumers, is an example of B2C e-commerce.
– Business-to-business (B2B) electronic commerce involves
sales of goods and services among businesses. ChemConnect’s
Web site for buying and selling chemicals and plastics is an
example of B2B e-commerce.
– Consumer-to-consumer (C2C) electronic commerce
involves consumers selling directly to consumers. For example,
eBay, the giant Web auction site, enables people to sell their
goods to other consumers by auctioning their merchandise off to
the highest bidder, or for a fixed price. Craigslist is the most
widely used platform used by consumers to buy from and sell
directly to others.
E-commerce business models
•
E-commerce Revenue
models
A firm’s revenue model describes how the firm will earn revenue,
generate profits, and produce a superior return on investment
– Advertising Revenue Model: In the advertising revenue model,
a Web site generates revenue by attracting a large audience of
visitors who can then be exposed to advertisements
– Sales Revenue Model: In the sales revenue model, companies
derive revenue by selling goods, information, or services to
customers. Companies such as Amazon (which sells books, music,
and other products).
– Subscription Revenue Model: In the subscription revenue
model, a Web site offering content or services charges a
subscription fee for access to some or all of its offerings on an
ongoing basis
– Transaction Fee Revenue Model: In the transaction fee
revenue model, a company receives a fee for enabling or
executing a transaction. For example, eBay provides an online
auction marketplace and receives a small transaction fee from a
seller if the seller is successful in selling an item.
– Free/Freemium Revenue Model: In the free/freemium revenue
model, firms offer basic services or content for free, while charging
a premium for advanced or special features. For example, Google
E-business benefits
• The benefits to business of adopting ebusiness are a mix of cost reduction
achieved through lower costs of
information transfer and processing and
the potential for increased revenue
arising from increased reach to a larger
audience.
• The Internet also offers opportunities for
building relationships with existing
customers through providing online
services and e-mail communications.
E-business benefits
• Increased sales from new sales leads,
giving rise to increased revenue from:
– new customers, new markets. You benefit
from new markets previously not available,
– existing customers (repeat-selling)
• Marketing cost reductions from:
– reduced time in customer service
– online sales
– reduced printing and distribution costs of
marketing communications
E-business benefits
• Supply-chain cost reductions from:
– reduced levels of inventory
– increased competition from suppliers
– shorter cycle time in ordering
• Administrative cost reductions from
– more efficient routine business processes such as
recruitment, invoice payment and holiday authorization
• Improved customer service.
– Consumers can access more information than was previously
available and businesses collect more information from
customers than they were previously able to.
• Better management of marketing information and
customer information
How Intranets Support Electronic
Business
– Improved information sharing: Intranets
are designed to meet the internal needs for
sharing information within a single organization
or company.
– Human Resources department may also
give access to documents needed for
employee management such as internal
rules, collective bargaining and working
duration agreements through the
intranet
• Connectivity: Accessible from most computing
platforms Can be tied to legacy systems and core
transaction databases. Intranets are especially useful
for allowing geographically separated collaborative
teams to work together. As long as you're careful to
use firewalls to secure your Intranet from outside
interference, they are a cheaper, quicker method of
sharing data and files among many workers.
• Can create interactivity: The company isn't limited
to text; it can include audio and video files which
employees can use for training or communicating
with distant colleagues and customers.
How Intranets Support Electronic
Business
• A very nice feature of Intranets in organizations is
their ability to connect different types of
computers with different operating systems. Let's
say that one department has a base of Apple
computers and just loves the way they work.
Another department has PCs that it refuses to
give up. Now it doesn't matter what type of
computer hardware or operating system is being
used: they can all communicate through Web
sites. The company doesn't have to buy new
hardware, and the software cost is restricted to a
browser application.
How Intranets Support Electronic
Business
• Scalable to larger or smaller computing
platforms as requirements change
• Easy to use, universal Web browser interface
• Low start-up costs: Businesses can defray lots
of the cost of establishing an Intranet because
they don't have to create the interface
programs for users
• Richer, more responsive information
environment
• Reduced information distribution costs
How Intranets Support Electronic
Business
• Coordination and Supply Chain Management: An Intranet
can drastically reduce an organization's supply chain costs
and management through improved coordination between
various departments. It's possible that the production and
shipping departments are located in one building, and the
engineering department is located across town. The engineers
can waste a lot of time traveling back and forth across town or
simply fail to coordinate with production altogether.
• An Intranet offers much improved coordination between these
departments Outside suppliers have an advantage if they
have access to the company's Intranet because they stay upto-date on the latest design changes. They can also process
deliveries easier and faster by having access to information
that communicates the company's needs..
WEB 2.0: SOCIAL NETWORKING
• One of the fastest growing areas of e-commerce
revenues are Web 2.0 online Services.
• The most popular Web 2.0 service is social
networking, like Facebook, MySpace, Twitter, LinkedIn,
and hundreds of others.
• Social networking sites link people through their
mutual business or personal connections, enabling
them to mine their friends (and their friends’ friends)
for sales leads, job-hunting tips, or new friends.
• Social networking sites and online communities offer
new possibilities for e-commerce.
• Networking sites like Facebook and MySpace sell
banner, video, and text ads; sell user preference
information to marketers; and sell products such as
music, videos, and e-books.
WEB 2.0: SOCIAL
NETWORKING
• Corporations set up their own Facebook and
MySpace profiles to interact with potential
customers.
• Business firms can also “listen” to what social
networkers are saying about their products, and
obtain valuable feedback from consumers.
• At user-generated content sites like YouTube,
high-quality video content is used to display
advertising, e.g. Hollywood studios have set up
their own channels to market their products.
Management Information Systems
E-commerce: Business and Technology
• E-commerce marketing
– Internet provides marketers with
new ways of identifying and
communicating with customers
– Long tail marketing: Ability to reach a
large audience inexpensively
– Behavioral targeting: Tracking online
behavior of individuals on thousands of
Web sites
– Advertising
formats include
search
36
© Pearson
Education
Digital markets and goods
Introduction
• This chapter describes the key features of
electronic commerce.
• Have you ever purchased something
online?
• How many have used their cell phones to
search for products, or purchase products?
• How has e-commerce changed how they
shop and purchase goods and services?
• How many have used a dating site
Internet/interconnectivity Benefits
to Organizations
• The development, expansion and the popularity of
the Internet left many business organizations
scrambling to define a new paradigm in computing
- the network - centric computing.
• Business organizations have realized that the
Internet is a rich source of tools and information
and has enormous potential.
• Therefore, Internet has become an integral
company resource because of the widespread use
and acceptance of the technology, and because of
the ease of use and relatively low cost.
Internet Benefits to Organizations
– Due to Internet capabilities and web technology,
traditional business organization has undergone
change where scope of the enterprise now
includes other company locations, business
partners, customers and vendors.
– The modern organization has no geographic
boundaries as it can extend its operations where
Internet works.
– E-business enterprise is open twenty-four hours,
and being independent, managers, vendors,
customers transact business any time from
anywhere.
– Accelerating the distribution of knowledge
Internet Benefits to Organizations
• Internet capabilities have given E-business enterprise a
advantage to increase the business value.
• It has opened new channels of business as buying and selling
can be done on Internet.
• It enables the organization to reach new markets anywhere in
the world.
• It has empowered customers and vendors / suppliers through
secured access to information to act, wherever necessary.
• The cost of business operations has come down significantly
due to the elimination of paper-driven processes, faster
communication and effective collaborative working.
• The effect of these radical changes is the reduction in
administrative and management costs, reduction in
inventory, faster delivery of goods and services to the
customers and increased customer satisfaction.
Intranets and Extranets
• Intranet: Are computer network, based on
Internet technology, that is accessible to
the members of an organization only.
• Intranets are designed to meet the internal
needs for sharing information within a
single organization or company.
• They are widely used for supporting
employee access to organization
information through Web-based company
information applications sometimes referred
to as a ‘corporate information portal’
Intranets and Extranets
•
For example, Company intranet would include:
– phone directories;
– staff newsletters;
– company procedures and policies
– Announcements
– information about new products
• Communications and collaboration
within the organization
Intranets and Extranets
• Extranet: An extranet is a private network
that uses the Internet technology and it is
accessible to the members of the
organization and limited members outside
the organization e.g. customers.
• Access to the extranet is controlled
through the use of usernames, and
passwords, plus firewalls, security
software programs that keep unauthorized
users out of the network.
Business Value of Extranets
• Web browser technology makes customer
and supplier access to extranets easier and
faster
• Another way to build and strengthen
strategic relationships
• Enables and improves collaboration between
a business, customers, and partners
• Facilitates online, interactive product
development and marketing
6-9
E-business and E-Commerce
• Electronic business (e-business): Refers
to the use of digital technology and the
Internet to execute the major business
processes in the enterprise. E-business
includes activities for the internal management
of the firm and for coordination with suppliers
and other business partners.
• It also includes electronic commerce, or ecommerce. E-commerce is the part of ebusiness that deals with the buying and selling
of goods and services over the Internet.
E-business and E-Commerce
• The technologies associated with e-business have
also brought about similar changes in the public
sector. Governments on all levels are using
Internet technology to deliver information and
services to citizens, employees, and businesses
with which they work.
• E-government refers to the application of the
Internet and networking technologies to digitally
enable government and public sector agencies’ to
interact with citizens, businesses, and other arms
of government. E.g I-tax and e-tendering
WHY E-COMMERCE IS
DIFFERENT
• E-commerce has grown so rapidly
because of the unique nature of the
Internet and the Web.
• Internet and e-commerce
technologies are much more rich and
powerful than previous technology
revolutions like radio, television, and
the telephone.
Digital markets and Goods
• Digital goods
– Goods that can be delivered over a digital network
• E.g. Music, video, software, newspapers, books
– Cost of producing first unit almost entire cost of
product: marginal cost of 2nd unit is about zero
– Costs of delivery over the Internet very low
– Marketing costs remain the same; pricing highly
variable
– Industries with digital goods are undergoing
revolutionary changes (publishers, record labels,
etc.)
Digital markets and Goods
• Digital market: Information system that links buyers and
sellers to exchange information, products, services, payments
• Digital markets greatly lower
– Market entry costs—the cost merchants must pay simply to bring
their goods to market.
– Search costs—the effort required to find suitable products
– Transaction costs: The cost of participating in a market
– Information Asymetry: An information asymmetry exists when
one party in a transaction has more information that is important for
the transaction than the other party. That information helps
determine their relative bargaining power
– The Internet reduces information asymmetry. In digital markets,
consumers and suppliers can “see” the prices being charged for
goods, and in that sense digital markets are said to be more
“transparent” than traditional markets
Digital markets and Goods
• Digital markets also enable
– Price discrimination: Selling the same goods, or
nearly the same goods, to different targeted groups
at different prices.
– Disintermediation: The removal of organizations
or business process layers responsible for
intermediary steps in a value chain
– Digital markets provide many opportunities to sell
directly to the consumer, bypassing intermediaries,
such as distributors or retail outlets. Eliminating
intermediaries in the distribution channel can
significantly lower purchase transaction costs.
Electronic Commerce
The benefits of disintermediation to the consumer
Figure 4-2
Digital markets and Goods
• Reintermediation:
– Creation of new intermediaries between
customers and suppliers providing
services such as supplier search and
product evaluation. easyJet created a
price comparison site easyValue
(www.easyvalue.com) to compare
flights and other products.
ECustomer-Centered Retailing
lectronic Commerce
Interactive Marketing and Presentation
• Collection of customer information using
Web site auditing tools less expensive than
surveys and focus groups
• Web personalization technology
customizes content on Web site to
individual’s profile and purchase history
• Web sites and marketing shorten sales
cycle and reduce time spent in customer
education
Electronic Commerce
Customer-Centered Retailing
Customer Self-Service
• Web-based responses to customer
questions cost a fraction of telephone
costs for live customer service
representation
• Web-based customer self-service
applications, such as airline flight
information sites
• Traditional, phone-based customer call
centers being integrated with Web
TYPES OF E-COMMERCE
• There are many ways to classify electronic
commerce transactions.
• One is by looking at the nature of the
participants in the electronic commerce
transaction.
• The three major electronic commerce
categories are:
– business-to-consumer (B2C) e-commerce,
– business-to-business (B2B) e-commerce, and
– consumer-to consumer (C2C) e-commerce.
TYPES OF E-COMMERCE
– Business-to-consumer (B2C): electronic commerce
involves retailing products and services to individual shoppers.
BarnesandNoble.com, which sells books, software, and music to
individual consumers, is an example of B2C e-commerce.
– Business-to-business (B2B) electronic commerce involves
sales of goods and services among businesses. ChemConnect’s
Web site for buying and selling chemicals and plastics is an
example of B2B e-commerce.
– Consumer-to-consumer (C2C) electronic commerce
involves consumers selling directly to consumers. For example,
eBay, the giant Web auction site, enables people to sell their
goods to other consumers by auctioning their merchandise off to
the highest bidder, or for a fixed price. Craigslist is the most
widely used platform used by consumers to buy from and sell
directly to others.
E-commerce business models
•
E-commerce Revenue
models
A firm’s revenue model describes how the firm will earn revenue,
generate profits, and produce a superior return on investment
– Advertising Revenue Model: In the advertising revenue model,
a Web site generates revenue by attracting a large audience of
visitors who can then be exposed to advertisements
– Sales Revenue Model: In the sales revenue model, companies
derive revenue by selling goods, information, or services to
customers. Companies such as Amazon (which sells books, music,
and other products).
– Subscription Revenue Model: In the subscription revenue
model, a Web site offering content or services charges a
subscription fee for access to some or all of its offerings on an
ongoing basis
– Transaction Fee Revenue Model: In the transaction fee
revenue model, a company receives a fee for enabling or
executing a transaction. For example, eBay provides an online
auction marketplace and receives a small transaction fee from a
seller if the seller is successful in selling an item.
– Free/Freemium Revenue Model: In the free/freemium revenue
model, firms offer basic services or content for free, while charging
a premium for advanced or special features. For example, Google
E-business benefits
• The benefits to business of adopting ebusiness are a mix of cost reduction
achieved through lower costs of
information transfer and processing and
the potential for increased revenue
arising from increased reach to a larger
audience.
• The Internet also offers opportunities for
building relationships with existing
customers through providing online
services and e-mail communications.
E-business benefits
• Increased sales from new sales leads,
giving rise to increased revenue from:
– new customers, new markets. You benefit
from new markets previously not available,
– existing customers (repeat-selling)
• Marketing cost reductions from:
– reduced time in customer service
– online sales
– reduced printing and distribution costs of
marketing communications
E-business benefits
• Supply-chain cost reductions from:
– reduced levels of inventory
– increased competition from suppliers
– shorter cycle time in ordering
• Administrative cost reductions from
– more efficient routine business processes such as
recruitment, invoice payment and holiday authorization
• Improved customer service.
– Consumers can access more information than was previously
available and businesses collect more information from
customers than they were previously able to.
• Better management of marketing information and
customer information
How Intranets Support Electronic
Business
– Improved information sharing: Intranets
are designed to meet the internal needs for
sharing information within a single organization
or company.
– Human Resources department may also
give access to documents needed for
employee management such as internal
rules, collective bargaining and working
duration agreements through the
intranet
• Connectivity: Accessible from most computing
platforms Can be tied to legacy systems and core
transaction databases. Intranets are especially useful
for allowing geographically separated collaborative
teams to work together. As long as you're careful to
use firewalls to secure your Intranet from outside
interference, they are a cheaper, quicker method of
sharing data and files among many workers.
• Can create interactivity: The company isn't limited
to text; it can include audio and video files which
employees can use for training or communicating
with distant colleagues and customers.
How Intranets Support Electronic
Business
• A very nice feature of Intranets in organizations is
their ability to connect different types of
computers with different operating systems. Let's
say that one department has a base of Apple
computers and just loves the way they work.
Another department has PCs that it refuses to
give up. Now it doesn't matter what type of
computer hardware or operating system is being
used: they can all communicate through Web
sites. The company doesn't have to buy new
hardware, and the software cost is restricted to a
browser application.
How Intranets Support Electronic
Business
• Scalable to larger or smaller computing
platforms as requirements change
• Easy to use, universal Web browser interface
• Low start-up costs: Businesses can defray lots
of the cost of establishing an Intranet because
they don't have to create the interface
programs for users
• Richer, more responsive information
environment
• Reduced information distribution costs
How Intranets Support Electronic
Business
• Coordination and Supply Chain Management: An Intranet
can drastically reduce an organization's supply chain costs
and management through improved coordination between
various departments. It's possible that the production and
shipping departments are located in one building, and the
engineering department is located across town. The engineers
can waste a lot of time traveling back and forth across town or
simply fail to coordinate with production altogether.
• An Intranet offers much improved coordination between these
departments Outside suppliers have an advantage if they
have access to the company's Intranet because they stay upto-date on the latest design changes. They can also process
deliveries easier and faster by having access to information
that communicates the company's needs..
WEB 2.0: SOCIAL NETWORKING
• One of the fastest growing areas of e-commerce
revenues are Web 2.0 online Services.
• The most popular Web 2.0 service is social
networking, like Facebook, MySpace, Twitter, LinkedIn,
and hundreds of others.
• Social networking sites link people through their
mutual business or personal connections, enabling
them to mine their friends (and their friends’ friends)
for sales leads, job-hunting tips, or new friends.
• Social networking sites and online communities offer
new possibilities for e-commerce.
• Networking sites like Facebook and MySpace sell
banner, video, and text ads; sell user preference
information to marketers; and sell products such as
music, videos, and e-books.
WEB 2.0: SOCIAL
NETWORKING
• Corporations set up their own Facebook and
MySpace profiles to interact with potential
customers.
• Business firms can also “listen” to what social
networkers are saying about their products, and
obtain valuable feedback from consumers.
• At user-generated content sites like YouTube,
high-quality video content is used to display
advertising, e.g. Hollywood studios have set up
their own channels to market their products.
Management Information Systems
E-commerce: Business and Technology
• E-commerce marketing
– Internet provides marketers with
new ways of identifying and
communicating with customers
– Long tail marketing: Ability to reach a
large audience inexpensively
– Behavioral targeting: Tracking online
behavior of individuals on thousands of
Web sites
– Advertising
formats include
search
36
© Pearson
Education