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Management Information SystemsMANAGING THE DIGITAL FIRM, 12TH EDITION
E-COMMERCE: DIGITAL MARKETS,DIGITAL GOODS
Chapter 10
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What are the unique features of e-commerce, digitalmarkets, and digital goods?
What are the principal e-commerce business and revenue
models?
How has e-commerce transformed marketing?
How has e-commerce affected business-to-businesstransactions?
What is the role of m-commerce in business and what arethe most important m-commerce applications?
What issues must be addressed when building ane-commerce Web site?
Learning Objectives
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E-commerce today:
Use of the Internet and Web to transact
business; digitally enabled transactions Began in 1995 and grew exponentially, still
growing even in a recession
Companies that survived the dot-com bubbleburst and now thrive
E-commerce revolution is still in its earlystages
E-commerce and the Internet
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E-commerce and the Internet
THE GROWTH OF E-COMMERCE
Retail e-commerce revenues grew 1525 percent per year until the recession of 20082009, when they
slowed measurably. In 2010, e-commerce revenues are growing again at an estimated 12 percent annually.
FIGURE 10-1
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Electronic Commerce (E-Commerce): Electronic
transactions over the Internet. The buying and selling of goods and services over the public and privatecomputer networks (Kroenke 2011)
Online exchange of goods, services, and money including digital products
(Valacich and Schneider 2011).
The use of the Internet and the Web to transact business.
Digitally enabled commercial transaction. (Laudon and Laudon 2011)
E-COMMERCE
Define electronic commerce and describe how it has changed
consumer retailing and business-to-business transactions
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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
Enhanced customer convenience and reduced
shopping costs
E-commerce and the Internet
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8 unique features (cont.)
2. Global reach
The technology reaches across nationalboundaries, 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
E-commerce and the Internet
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8 unique features (cont.)
3. Universal standards
One set of technology standards: Internetstandards
Effect:
Disparate computer systems easily communicate with each
other
Lower market entry costscosts merchants must pay to bring
goods to market
Lower consumers search costseffort required to find
suitable products
E-commerce and the Internet
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8 unique features (cont.)
4. Richness
Supports video, audio, and text messages video 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
E-commerce and the Internet
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8 unique features (cont.)
5. Interactivity
The technology works through interaction withthe user video
Effect:
Consumers engaged in dialog that dynamically
adjusts experience to the individual
Consumer becomes co-participant in process of
delivering goods to market
E-commerce and the Internet
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8 unique features (cont.)
6. Information density
Large increases in information densitythetotal amount and quality of informationavailable to all market participants
Effect:
Greater price transparency mysimon.com
Greater cost transparency
Disables merchants to engage in price
discrimination
E-commerce and the Internet
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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
Products and services can be customized to
individual preferences (e.g., VW)
E-commerce and the Internet
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8 unique features (cont.)
8. Social technology
The technology promotes user contentgeneration and social networking
Effect
New Internet social and business models enable
user content creation and distribution, and support
social networks
E-commerce and the Internet
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Key concepts in e-commerce
Digital markets reduce
Information asymmetry:One party in a transaction has more information than theother. The Internet decreases information asymmetry
Search costs
Transaction costs
Menu costs
Digital markets enable Price discrimination
Dynamic pricing
Disintermediation
E-commerce and the Internet
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E-commerce and the Internet
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.
FIGURE 10-2
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Key concepts in e-commerce
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 ofproduct: marginal cost of 2nd unit is about zero
Costs of delivery over the Internet very low
Marketing costs remain the same; pricing highlyvariable
Industries with digital goods are undergoingrevolutionary changes (publishers, record labels, etc.)
E-commerce and the Internet
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Types of e-commerce watch the video clip
Business-to-consumer (B2C)
Business-to-business (B2B)
Consumer-to-consumer (C2C)
Mobile commerce (m-commerce)
E-commerce: Business and Technology
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E-Commerce Business Strategies
5-
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Differentiated, based on levels of
physical/virtual presence
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Brick-and-Mortar Business Strategy
Physical locations only
Traditional stores
Cons: Limited geographical reach
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Click-Only Business Strategy
Business conducted in cyberspaceno physical location
Virtual companies
Cons: Customers uncomfortable with online transactions
No face-to-face interaction with customers
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Click-and-Mortar Business Strategy
Bricks-and-clicks business strategy
Hybrid strategy
Cons: Added complexity combining two different environments
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E-commerce business models watch the video clip
Portal yahoo
E-tailer RedEnvelope.com
Content Provider wsj
Transaction Broker hotwire
Market Creator priceline.com
Service Provider visanow
Community Provider doostang
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M t I f ti S t
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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Virtual storefront (e-tailer):
Sells goods or services online (Amazon.com)
Online version of traditional retailer (online retail stores)Types include:
Virtual merchants drugstore.com
Bricks-and-cricks sears
Catalog merchants
Manufacturer-direct
Internet Business Models
Management Information SystemsChapter 4
The Digital Firm: Electronic Business and Electronic Commerce
Management Information Systems
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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Transaction broker: Provides online transaction
facility (eTrade.com, Expedia.com)Processes online transactions for consumers
Primary value propositionsaving of time and money
Typical revenue modeltransaction fee
Industries using this model include:
Financial services
Travel services
Job placement services
Online marketplace (Market Creator):Provides atrading platform for individuals and firms (eBay.com,
Priceline.com)Uses Internet technology to create markets that bring buyers and sellers
together
Typically uses a transaction fee revenue model
Internet Business Models
Management Information SystemsChapter 4
The Digital Firm: Electronic Business and Electronic Commerce
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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Content provider: Creates revenue by providingcontent (WSJ.com, TheStreet.com)Information and entertainment companies that provide digital content
over the Web using PODcasting, and streaming.
Intellectual property (digital video, music, photo, artwork, text, etc)
Typically utilizes a subscription, pay for download, or advertising
revenue model
Syndication a variation of standard content provider model
(Online) Service provider: Provides online
services such as data backups and storage. (Google
Appls, visanow, photobucket.com)Value proposition: valuable, convenient, time-saving, low-cost alternatives to
traditional service providers
Revenue models: subscription fees or one-time payment
Management Information SystemsChapter 4
The Digital Firm: Electronic Business and Electronic Commerce
Management Information Systems
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AND THE EMERGING DIGITAL FIRM
Virtual community provider: Provides an onlinecommunity to focused groups (Facebook,MySpace, twitter, iVillage)Sites that create a digital online environment where people with similarinterests can transact, communicate, and receive interest-related information.Typically rely on a hybrid revenue model
Portal: Provides initial point of entry to Web,specialized content, services (Yahoo, Being,Google, MSN)Offers powerful search tools plus an integrated package of content and
services
Typically utilizes a combines subscription/advertising revenues/transaction fee
model
May be general or specialized (vortal)
Management Information SystemsChapter 4
The Digital Firm: Electronic Business and Electronic Commerce
Internet Business Models (Continued)
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E-commerce revenue models
1. Advertising
2. Sales
3. Subscription
4. Free/Freemium
5. Transaction Fee
6. Affiliate
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Typical Revenue Models for EC
Most important ingredient of business modelHow will the firm earn revenue?
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Most popular Web 2.0 service: social networking Social networking sites sell banner ads, user preference
information, and music, videos and e-books
Social shopping sites Swap shopping ideas with friends (Kaboodle, ThisNext)
Wisdom of crowds/crowdsourcing Large numbers of people can make better decisions about
topics and products than a single person
Prediction markets: Peer-to-peer betting markets on specific outcomes
(elections, sales figures, designs for new products)
E-commerce: Business and Technology
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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 enginemarketing, display ads, rich media, and e-mail
E-commerce: Business and Technology
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Business-to-business e-commerce
Electronic data interchange (EDI) watch the video clip
Computer-to-computer exchange of standard
transactions such as invoices, purchase orders
Major industries have EDI standards that definestructure and information fields of electronicdocuments for that industry
More companies increasingly moving away from privatenetworks to Internet for linking to other firms
E.g. Procurement: Businesses can now use Internet to locate
most low-cost supplier, search online catalogs of supplier
products, negotiate with suppliers, place orders, etc.
E-commerce: Business and Technology
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E-commerce: Business and Technology
ELECTRONIC DATA INTERCHANGE (EDI)
Companies use EDI to automate transactions for B2B e-commerce and continuous inventory replenishment.
Suppliers can automatically send data about shipments to purchasing firms. The purchasing firms can use
EDI to provide production and inventory requirements and payment data to suppliers.
FIGURE 10-6
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Business-to-business e-commerce (cont.)
Private industrial networks (private exchanges)
Large firm using extranet (demo video) to link to itssuppliers, distributors and other key business partners
Owned by buyer
Permits sharing of:
Product design and development
Marketing
Production scheduling and inventory management
Unstructured communication (graphics and e-mail)
E-commerce: Business and Technology
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E-commerce: Business and Technology
A PRIVATE
INDUSTRIAL
NETWORK
A private industrial network,
also known as a private
exchange, links a firm to itssuppliers, distributors, and
other key business partners for
efficient supply chain
management and other
collaborative commerce
activities.
FIGURE 10-7
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Business-to-business e-commerce (cont.)
Net marketplaces (e-hubs): example exostar (video)exostar.com
Single market for many buyers and sellers
Industry-owned or owned by independent intermediary
Generate revenue from transaction fees, other services
Use prices established through negotiation, auction,RFQs, or fixed prices
May focus on direct or indirect goods
May be vertical or horizontal marketplaces
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E-commerce: Business and Technology
A NET
MARKETPLACE
Net marketplaces are online
marketplaces where multiple
buyers can purchase from
multiple sellers.
FIGURE 10-8
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Business-to-business e-commerce (cont.)
Exchanges example, farms.com
Independently owned third-party Net marketplaces
Connect thousands of suppliers and buyers for spotpurchasing
Typically provide vertical markets for direct goods forsingle industry (food, electronics)
Proliferated during early years of e-commerce; manyhave failed
Competitive bidding drove prices down and did not offer long-
term relationships with buyers or services to make lowering
prices worthwhile
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M-commerce
Although m-commerce represents small
fraction of total e-commerce transactions,revenue has been steadily growing
Location-based services
Banking and financial services
Wireless advertising and retailing
Games and entertainment
The Mobile Digital Platform and Mobile E-commerce
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