CHAPTER 10
ELECTRONIC COMMERCE:
DEFINITIONS AND CONCEPTS
•
electronic commerce (EC)
The process of
buying, selling, or exchanging
products, services, or information
via computer
•
e-business
A broader definition of EC that includes not
just the buying and selling of goods and
services, but also
servicing customers,
collaborating with business partners, and
conducting electronic transactions
within an
organization
ELECTRONIC COMMERCE:
ELECTRONIC COMMERCE:
DEFINITIONS AND CONCEPTS
–
Pure Versus Partial EC
•brick-and-mortar (old economy) organizations
Old-economy organizations (corporations) that perform their primary business off-line, selling physical products by means of physical agents
•virtual (pure-play) organizations
Organizations that conduct their business activities solely online
•click-and-mortar (click-and-brick) organizations
Organizations that conduct some e-commerce activities, usually as an additional marketing channel
ELECTRONIC COMMERCE:
DEFINITIONS AND CONCEPTS
•Interorganizational information systems (IOSs)
Communications systems that allow routine transaction processing and information flow between two or more organizations
•Intraorganizational information systems
THE ELECTRONIC COMMERCE FIELD:
CLASSIFICATION, CONTENT, AND HISTORY
EC IS CLASSIFIED BY THE NATURE AND
DIRECTION OF TRANSACTIONS AND
INTERACTIONS
business-to-business (B2B)
E-commerce model in which all of the
participants
are businesses or other organizations
business-to-consumer (B2C)
E-commerce model in which
businesses sell to
individual shoppers
e-tailing
Online retailing, usually B2C
THE ELECTRONIC COMMERCE FIELD:
CLASSIFICATION, CONTENT, AND HISTORY
business-to-business-to-consumer (B2B2C)
E-commerce model in which a
business provides
some product or service to a client business that
maintains its own customers
consumer-to-business (C2B)
E-commerce model in which individuals use the
Internet to
sell products or services to
THE ELECTRONIC COMMERCE FIELD:
CLASSIFICATION, CONTENT, AND HISTORY
intrabusiness EC
E-commerce category that includes all internal
organizational activities that involve the
exchange of goods, services, or information
among various units and individuals in an
organization
business-to-employees (B2E)
E-commerce model in which an organization
delivers services, information, or products to its
individual employees
THE ELECTRONIC COMMERCE FIELD:
CLASSIFICATION, CONTENT, AND HISTORY
consumer-to-consumer (C2C)
E-commerce model in which
consumers sell
directly to other consumers
collaborative commerce (c-commerce)
THE ELECTRONIC COMMERCE FIELD:
CLASSIFICATION, CONTENT, AND HISTORY
e-learning
The online
delivery of information for
purposes of training or education
e-government
E-commerce model in which a
government
entity buys or provides goods, services, or
information from or to businesses or
individual citizens
•
Digital market effects:
•
Decreased information asymmetry
•
Reduced search costs and transaction costs
•
Increased dynamic pricing
•
Increased price discrimination
•
Stronger network effects
•
More disintermediation
THE BENEFITS OF DISINTERMEDIATION TO THE CONSUMER
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.
CHAPTER 10 BY: S. SABRAZ NAWAZ
Digital goods
Goods that can be delivered over a digital network
E.g. Music tracks, 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,
UNIQUE CHARACTERISTICS OF E-COMMERCE
Why e-commerce is different
–
8 unique features
1.
Ubiquity
Internet/Web technology available everywhere:
work, home, etc., anytime.
Effect:
Marketplace removed from temporal, geographic locations
to become “marketspace”
8 unique features (cont.)
2.
Global reach
The technology reaches across national boundaries,
around Earth
Effect:
Commerce enabled across cultural and national boundaries seamlessly and without modification
Marketspace includes, potentially, billions of consumers and millions of businesses worldwide
CHAPTER 10 BY: S. SABRAZ NAWAZ
8 unique features (cont.)
3.
Universal standards
One set of technology standards: Internet standards
Effect:
Different computer systems easily communicate with each other
Lower market entry costs—costs merchants must pay to bring goods to market
8 unique features (cont.)
4.
Richness
Supports video, audio, and text messages
Effect:
Possible to deliver rich messages with text, audio, and video simultaneously to large numbers of people
Video, audio, and text marketing messages can be integrated into single marketing message and consumer experience
CHAPTER 10 BY: S. SABRAZ NAWAZ
8 unique features (cont.)
5.
Interactivity
The technology works through interaction with the
user
Effect:
Consumers engaged in dialog that dynamically adjusts experience to the individual
8 unique features (cont.)
6.
Information density
Large increases in information density
—
the total
amount and quality of information available to all
market participants
Effect:
Greater price transparency
Greater cost transparency
CHAPTER 10 BY: S. SABRAZ NAWAZ
8 unique features (cont.)
7.
Personalization/Customization
Technology permits modification of messages, goods
Effect
Personalized messages can be sent to individuals as well as groups
8 unique features (cont.)
8.
Social technology
The technology promotes user content generation
and social networking
Effect
New Internet social and business models enable user content creation and distribution, and support social networks
CHAPTER 10 BY: S. SABRAZ NAWAZ
BUSINESS MODEL
BUSINESS MODEL
A plan for the successful operation of a
business, identifying sources of revenue, the
intended customer base, products, and details
of financing.
A business model is a set of planned activities
designed to result in a profit in a marketplace.
EIGHT KEY ELEMENTS OF A BUSINESS
MODEL
If you hope to
develop a
successful
business model
in any arena
you must make
sure that the
model
effectively
addresses the
eight elements
shown here.
VALUE PROPOSITION
A value proposition defines how a company’s
product or service fulfills the needs of customers.
We need to answer why customers will choose to do
business with us instead of another company and
what the firm will offer that others can not or do
not.
Successful value proposition will include
Personalization and customization of product offering
Reduction of search costs
Reduction of price discovery costs
Facilitating transaction by managing product delivery
REVENUE MODEL
Describes how a firm will earn revenue,
generate profits, and produce a superior
return on invested capital than alternative
investments.
Many revenue model exist but most companies
rely on one or some combination of the
following
Advertising model
Subscription model
Transaction fee model
Sales model
Affiliate model
REVENUE MODEL:
ADVERTISING REVENUE MODEL
A company provides a forum for
advertisements and receives fees from
advertisers
Yahoo! Derives a significant amount of
revenue from display and video advertising
Typically, fees are generated from
REVENUE MODEL:
SALES REVENUE MODEL
Companies derive revenue by selling
goods, information, or services. Wholesalers
and retailers of goods and services sell
their products online.
The main benefits for the customer are the
convenience, time savings, fast information
etc.
The prices are often more competitive.
AMAZON.COM
REVENUE MODEL:
SUBSCRIPTION REVENUE MODEL
A business model where a customer must pay a subscription price to have access to the product/service.
Companies offer its users content or services and charges a subscription fee for access to some or all of its offerings.
The content offered must be perceived as a high-value-added, premium offering that is not readily available elsewhere nor easily replicated.
Users are charged a periodic (daily, monthly or annual) fee to
REVENUE MODEL:
AFFILIATE REVENUE MODEL
Company steers business to an affiliate and receives a referral fee or percentage of the revenue from any resulting sales.
Merchants advertise and sell their products and services through links to partner-websites.
It is a pay-for-performance model: Commissions are only paid for actual revenue or measurable success.
This model leads to a win-win situation: the merchants sell their products or services and the affiliates get their commissions. Variations include banner exchange, pay-per-click and revenue sharing programs.
MYPOINTS.COM earns by connecting companies with potential customers by offering special deals to its members.
REVENUE MODEL:
TRANSACTION FEE REVENUE MODEL
A company receives commissions based on volume for enabling or executing transactions.
The revenue is generated through transaction fees by the customer paying a fee for a transaction to the operator of a platform.
The company is a market place operator providing the customer with a platform to place his transactions.
During this process the customer may be presented as a buyer as well as a seller.
To actively participate in this e-market, customers must register, so both parties of a transaction taking place are identified.
The amount of the transaction fee can be both – fixed and percentage calculated.
MARKET OPPORTUNITY
A company’s intended marketspace,
the area
of actual or potential commercial value in which
a company intends to operate
, and the overall
potential financial opportunities available to
the firm in that marketspace.
For a market opportunity to exist,
a company must be able to identify who
its potential customers are, the specific needs
that need to be met, the size of the market,
and its capacity to capture market share.
COMPETITIVE ENVIRONMENT
Refers to the other companies selling similar products and operating in the same marketspace
Also refers to the presence of substitute products and potential new entrants to the market.
Influenced by how many companies are active, how large their operations are, what the market share of each
competitor is, how profitable these firms are, etc.
Direct competitors are those that sell products or services that are very similar and into the same market segment. Priceline and Travelocity sell identical products – cheap tickets.
COMPETITIVE ADVANTAGE
Achieved when a company can produce a superior
product and or bring the product to market at a
lower price than most, or all, of their competitors;
e.g.: being able to obtain differential access to the
factors of production that are denied to their
competitors.
Firms can compete on scope: local or global. Firms
that can provide superior products at the lowest
cost on a global basis are truly advantaged.
First mover advantage:
a competitive market
advantage for a firm that results from being the
first into a marketplace with a product or service.
MARKET STRATEGY
Everything a company does to promote its
products and services to potential customers is
known as market strategy.
It is the plan the company puts together that
details exactly how it intends to enter a new
market and attract new customers.
Facebook, Twitter as well as YouTube have
social networking marketing strategy that
encourages users to put their content on the
site for free, build personal profile pages,
ORGANIZATIONAL DEVELOPMENT
All firms need an organization to efficiently
implement their business plans and strategies.
Many e-commerce firms have failed because
they lacked the organizational structures and
supportive cultural values required to support
new forms of commerce.
Companies hoping to grow and thrive need to
have a plan for organizational development
that describes how the company will organize
the work that needs to be accomplished.
MANAGEMENT TEAM
The single most important element of a
business model is the management team
responsible for making the model work.
KEY ELEMENTS OF A BUSINESS MODEL
MAJOR BUSINES-TO-CONSUMER (B2C)
BUSINESS MODELS
Online businesses seek to reach individual
consumers. This is the most well-known and
familiar type of e-commerce
E-tailer
Community provider (social network)
Content provider
Portal
Transaction broker
Market creator
Service provider
E-TAILER
These are online retail stores. They come in all sizes varying from giant Amazon to small tiny stores that have web presence.
Similar to typical brick-and-mortar storefronts except that customers only have to connect to the Internet to check their inventory and place orders.
Some have solely online presence and others have complementary web presence (brick-and-click)
Extremely competitive sector since the barrier to entry is very low and hundreds of thousands of small e-tail
COMMUNITY PROVIDER
Sites where individuals with particular interests, hobbies, common experiences, or social networks can come
together and “meet” online, where
People with similar interests can transact (buy and sell goods)
Share interests, photos, and videos
Communicate with like minded people and receive interest related information
The social network sites Facebook, LinkedIn, Twitter, and Pinterest, and hundreds of other similar, niche sites all offer users community-building tools and services
Revenue model is hybrid including subscription fees, sales revenues, transaction fees, affiliate fees, and
advertising fees from other firms that are attracted by tightly focused audience
CONTENT PROVIDER
Information and entertainment providers such as
newspapers, sports sites, and other sources that offer customers up-to-date news and special interest how-to guidance and tips and or information sales.
Content providers distribute information content, such as digital video, music, photos, text, and artworks, over the Web.
Any e-commerce start-up that intends to make money by providing content is likely to face difficulties unless it has a unique information source that others cannot access.
PORTAL
Offers an integrated package of content,
content-search, and social network services:
news, e-mail, chat, music downloads, video
streaming, calendars, etc. and they seek to
be a user’s home base
Business model: advertising, subscription
fees, transaction fee
Yahoo, AOL, MSN, Facebook
TRANSACTION BROKER
Processors of online sales transactions, such
as stockbrokers and travel agents, that
increase customers’ productivity by helping
to get things done faster and more cheaply.
Hotels.com, Travelocity.com
MARKET CREATOR
Web-based businesses that use Internet technology to create markets buyers and sellers can meet, display products, search for products and establish prices. eBay, the online auction site, is utilized by both businesses and consumers. Its model is to create a
digital electronic environment for buyers and sellers to meet, agree on a price, and transact.
In Priceline.com consumers are allowed to set the price they are willing to pay for various travel
accommodations and other products (sometimes called reverse auction)
Business model: transaction fees eBay, Amazon, Priceline
SERVICE PROVIDER
Companies that make money by selling users a
service, rather than a product
Web 2.0 applications such as photo sharing
video sharing, etc. are all services provided to
customers.
Google delivers online application services
such as Google Docs and Gmail
visanow.com (immigration service),
MAJOR
BUSINESS-TO-BUSINESS (B2B) BUSINESS-TO-BUSINESS
MODELS
MAJOR BUSINESS-TO-BUSINESS (B2B)
BUSINESS MODELS
E-Commerce in which businesses sell to
other businesses.
More than 10 times the size of B2C
e-commerce
E-distributor
E-procurement
Exchange
Industry consortium
E-DISTRIBUTOR
Companies that
supply product and services directly
to individual businesses
E-distributors are owned by one company seeking
to serve many customers.
The more products and services a company makes
available on its site, the more attractive that site is
to potential customers.
W.W. Grainger, for example, is the largest
distributor of maintenance, repair, and operations
(MRO) supplies.
Business model: sale of goods
Grainger.com, Partstore.com
E-PROCUREMENT
Just as e-distributors provide products to other companies, e-procurement firms create and sell access to digital electronic markets.
Procurement is the act of buying goods, services or works from an external source
E-procurement is the business-to-business purchase and sale of services through the Internet as well as other information and networking systems, such as electronic data interchange.
Firms such as Ariba (ariba.com) have created software (eg:
EXCHANGES
An independent digital electronic marketplace where hundreds of suppliers meet a smaller number of very large commercial purchasers.
They serve single vertical industry such as steel, polymers, etc.
For buyers, B2B exchanges make it possible to gather information, check out suppliers, collect prices, and keep up to date on the latest happenings all in one place.
Sellers benefit from expanded access to buyers.
Business model: fees and commissions on transactions. Eg.: go2paper.com
PRIVATE INDUSTRIAL NETWORK
Also referred to as Private Trading Exchange is a digital
network designed to coordinate the flow of
communications among firms engaged in business together owned by a single large purchasing firm.
Participation is by invitation only to trusted long-term suppliers of direct inputs.
Eg: Walmart operates one of the largest industrial networks in the world for its suppliers, who on a daily basis use Walmart’s network to monitor the sales of their goods, the status of shipments, and the actual inventory level of their goods.
