e-commer, digital markets, digital goods

e-commer:digital markets, digital goods

1. 10.1 © 2007 by Prentice Hall
1010ChapterChapter
E-Commerce: Digital E-Commerce: Digital
Markets, Digital GoodsMarkets, Digital Goods

2. 10.2 © 2007 by Prentice Hall
LEARNING OBJECTIVES
Management Information SystemsManagement Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods
•Describe the unique features of e-commerce, digital
markets, and digital goods.
•Analyze how Internet technology has changed value
propositions and business models.
•Describe the various types of e-commerce and how
e-commerce has changed consumer retailing and
business-to-business transactions.

3. 10.3 © 2007 by Prentice Hall
LEARNING OBJECTIVES (cont’d)
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods
•Evaluate the role of m-commerce in business and
describe the most important m-commerce
applications.
•Compare the principal payment systems for electronic
commerce.

4. 10.4 © 2007 by Prentice Hall
Electronic Commerce and the Internet
•E-commerce:
•Digitally enabled commercial transactions between and
among organizations and individuals, primarily over
Internet
•Began in 1995 with Netscape.com’s acceptance of ads
•Rapid growth led to dot-com bubble (burst in 2001)
•Current growth 25% annually
•Today e-commerce revenues picture is very positive
•E.g. Number of people who have purchased something online
expanded to about 106 million in 2007
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The Growth of E-CommerceThe Growth of E-Commerce
Figure 10-1
Retail e-commerce revenues have grown exponentially since 1995 and have only recently “slowed” to
a very rapid 25 percent annual increase, which is projected to remain the same until 2008.
Source: Based on data from eMarketer, 2006; Shop.org and Forrester Research, 2005; and authors.
Electronic Commerce and the Internet
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Electronic Commerce and the Internet
•Seven unique features of e-commerce
1.Ubiquity
•Internet technology available anytime and everywhere:
work, home, mobile devices
•Business significance:
•Marketplace is extended beyond traditional boundaries
and is removed from temporal and geographic location
•Creates marketspace: Marketplace extended beyond
traditional temporal, geographical boundaries
•Shopping can take place anywhere - customer
convenience is enhanced, shopping costs are reduced
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Electronic Commerce and the Internet
2.Global reach
•Technology reaches across national
boundaries, around Earth
•Business significance:
•Commerce enabled across cultural and
national boundaries seamlessly, without
modification
•Marketspace includes potentially billions of
consumers and millions of businesses
worldwide
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Electronic Commerce and the Internet
3.Universal standards
•There is one set of Internet technology standards
•Business significance
•Disparate computer systems can easily
communicate
•Brings lower market entry costs (costs merchants
pay to bring goods to market)
•Lowers search costs for consumers
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Electronic Commerce and the Internet
4.Richness
•Video, audio, text messages are possible
•Business significance: Video, audio, text
integrated into single marketing message and
experience
5.Interactivity
•Technology works through interaction with user
•Business significance: Consumers engaged in
dialog that adjusts to individual; consumer is co-
participant in delivering goods to market
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10. 10.10 © 2007 by Prentice Hall
Electronic Commerce and the Internet
6.Information density
•Technology reduces information costs and
raises quality
•Business significance:
•Information becomes plentiful, cheap, and
more accurate
•Increases price transparency and cost
transparency
•Enables price discrimination
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Electronic Commerce and the Internet
7.Personalization/customization
•Technology allows personalized messages to be
delivered to individuals as well as groups
•Permits customization—changing delivered
product or service based on user’s preferences
or prior behavior
•Business significance
•Personalization of marketing messages and
customization of products and services are
based on individual characteristics
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Electronic Commerce and the Internet
•Key concepts in e-commerce: Digital
markets and digital goods
•Internet shrinks information asymmetry
•Information asymmetry: when one party has more
information important for transaction
•E.g. Information asymmetry between auto dealers and
customers
•Digital markets more flexible and efficient
•Reduced search and transaction costs
•Lower menu costs (cost of changing prices)
•Dynamic pricing
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Electronic Commerce and the Internet
•Key concepts in e-commerce: Digital
markets and digital goods (cont.)
•Internet enables disintermediation
•Disintermediation:
•Removal of organizations or business process
layers responsible for intermediary steps in
value chain
•Enables selling direct to consumer
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The Benefits of Disintermediation to the ConsumerThe Benefits of Disintermediation to the Consumer
Figure 10-2
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.
Electronic Commerce and the Internet
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Electronic Commerce and the Internet
•Digital goods
•Goods that can be delivered over network
•E.g. Music tracks, video, e-books, software
•Cost for producing first unit is nearly total cost of product: Cost
for producing additional units very low
•Impact of Internet on market for digital goods is revolutionary
•Video rental services
•Hollywood studios
•Record label companies
•Newspapers and magazines
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Electronic Commerce and the Internet
•Internet business models
•Virtual storefront
•Information broker
•Transaction broker
•Online marketplace
•Content provider
•Online service provider
•Virtual community
•Portal
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Electronic Commerce and the Internet
•Communication and community
•Some new business models take advantage of Internet’s rich
communication capabilities
•E.g. eBay, iVillage
•Banner ads and pop-up ads are source of revenue for online
communities
•Social networking sites: Link people through their mutual
business or personal connections
•Have become powerful marketing tools for businesses
•Social shopping: Online meeting places where people swap
shopping ideas
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YouTube is a free online
streaming video service
enabling users to upload, tag,
and share videos worldwide.
Members can join and create
video groups to connect to
people with similar interests.
Electronic Commerce and the Internet
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods

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Electronic Commerce and the Internet
•Digital content, Entertainment, and
Services
•Internet has created new alternatives to
traditional print, broadcast media
•Online versions of newspapers, online games, radio,
TV, music downloads
•Podcasting: Publishing audio broadcasts via
Internet; inspired by Apple’s iTunes service and
iPod
•Enables independent producers
•New distribution method
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods

20. 10.20 © 2007 by Prentice Hall
Electronic Commerce and the Internet
•Digital content, Entertainment, and
Services
•Portals
•“Supersites” that provide comprehensive entry point for
huge array of resources and services on Internet, e.g.
Yahoo!
•Syndicators
•Aggregate content or applications from multiple
sources, package them for distribution, and resell them
to third-party Web sites
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods

21. 10.21 © 2007 by Prentice Hall
Electronic Commerce and the Internet
•Pure-play business models
•Based purely on Internet
•Do not have bricks-and-mortar portion of business
•E.g. Amazon.com, eBay.com, YouTube.com
•Clicks-and-mortar models
•Internet presence is extension of bricks-and-mortar
businesses
•E.g. L.L.Bean, Office Depot, Wall Street Journal
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods

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•Three major e-commerce categories
•Business-to-consumer (B2C)
•E.g. Barnesandnoble.com
•Business-to-business (B2B)
•E.g. ChemConnect.com
•Consumer-to-consumer (C2C)
•E.g. eBay.com
•M-commerce
•Use of handheld wireless devices for purchasing goods
and services from any location
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

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•Achieving customer intimacy
•Interactive marketing and personalization
•Enabled by gathering customer data from Web site
registrations or activities
•Clickstream tracking tools
•Web pages can be tailored to customer preferences or
interests
•Collaborative filtering
•Compares user information to data about other
customers to make recommendations based on
assumed interests
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

24. 10.24 © 2007 by Prentice Hall
Web Site Visitor TrackingWeb Site Visitor Tracking
E-commerce Web
sites have tools to
track a shopper’s
every step through an
online store. Close
examination of
customer behavior at a
Web site selling
women’s clothing
shows what the store
might learn at each
step and what actions
it could take to
increase sales.
Figure 10-3
Electronic Commerce
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Web Site PersonalizationWeb Site Personalization
Figure 10-4
Firms can create unique
personalized Web pages that
display content or ads for
products or services of special
interest to individual users,
improving the customer
experience and creating
additional value.
Electronic Commerce
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods

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•Achieving customer intimacy
•Corporate blogs:
•Used as new channel for reaching customers,
maintaining existing customers
•Provide personal and conversational way for
businesses to present information to the
public and prospective customers about new
products and services
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

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•Achieving customer intimacy
•Customer self service:
•Web sites and e-mail used to answer
customer questions or to provide customers
with product information, reducing need for
human customer-support experts
•New software products can integrate Web
with customer call centers
•E.g. by directing representative to phone
user regarding query
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

28. 10.28 © 2007 by Prentice Hall
Visitors to the United
States Postal Service
Web site can calculate
postage, print shipping
labels, schedule package
pickups, and track
shipments. Web sites for
customer self-service are
convenient for customers
and help firms lower their
customer service and
support costs.
Electronic Commerce and the Internet
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29. 10.29 © 2007 by Prentice Hall
Electronic Commerce
•Business-to-business (B2B) electronic
commerce: New efficiencies and relationships
•EDI (Electronic Data Interchange)
•Automated exchange of standard business documents
(e.g. invoices)
•Each major industry has EDI standards
•Internet used increasingly for EDI instead of private
networks
•Internet broadens circle of trading partners
•E.g. For procurement, firms can use Internet to locate most
low-cost suppliers
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30. 10.30 © 2007 by Prentice Hall
Electronic Data Interchange (EDI)Electronic Data Interchange (EDI)
Figure 10-5
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.
Electronic Commerce
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods

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Electronic Commerce
•Private industrial networks (private exchanges)
•Large firm using extranet to link to its suppliers and other key
business partners
•Privately owned by buyer
•Permits firm and suppliers, distributors, partners to share:
•Product design and development
•Marketing
•Production scheduling
•Inventory management
•Unstructured communication
•Example: VWGroupSupply.com
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A Private Industrial NetworkA Private Industrial Network
Figure 10-6
A private industrial network, also known as a private exchange, links a firm to its suppliers, distributors, and other
key business partners for efficient supply chain management and other collaborative commerce activities.
Electronic Commerce
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods

33. 10.33 © 2007 by Prentice Hall
Electronic Commerce
•Net marketplaces (e-hubs)
•Internet-based marketplace for buyers and sellers
•Industry-owned or independent intermediary
•May establish prices through online negotiations,
auctions, requests for quotations or use fixed prices
•Generate revenue from transactions and other services
•May focus on direct goods or indirect goods
•May serve vertical or horizontal markets
•Example: Exostar
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A Net MarketplaceA Net Marketplace
Figure 10-7
Net marketplaces
are online
marketplaces where
multiple buyers can
purchase from
multiple sellers.
Electronic Commerce
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35. 10.35 © 2007 by Prentice Hall
Electronic Commerce
•Exchanges
•Independently owned third-party Net marketplaces
•Connect thousands of suppliers and buyers for spot
purchases
•Many provide vertical markets for single industry
•Primarily deal with direct goods
•Proliferated during early years of e-commerce, but many
have failed
•Exchanges encourage competitive bidding, driving prices
down, and do not offer long-term relationships
•Example: FoodTrader.com
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36. 10.36 © 2007 by Prentice Hall
FoodTrader.com is a
Net marketplace
serving the food and
agricultural
industries. Over
100,000 growers,
packers, processors,
and retail chains in
170 countries use
the site as a one-
stop source to buy
and sell food
products directly.
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

37. 10.37 © 2007 by Prentice Hall
•M-Commerce services and applications
•Popular for services that are time-critical, that appeal to
people on the move, or that accomplish task more efficiently
than other methods
•Especially popular in Europe, Japan, South Korea, and
countries where fees for conventional Internet usage are very
expensive
•Content and location-based services
•Example: checking train schedules, searching for local
businesses
M-Commerce
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•Banking and financial services
•Example: Wireless alerts about changes in account information
•Wireless advertising
•Example: Wireless service providers including advertising for local
restaurants, movie theaters on cell phones and Wi-Fi devices
•Games and entertainment
•Example: downloading ringtones, movie clips
•Wireless portals
•Feature content optimized for mobile devices to steer users to
information most likely to need
M-Commerce
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39. 10.39 © 2007 by Prentice Hall
Global M-Commerce Revenue, 2000-2009Global M-Commerce Revenue, 2000-2009
Figure 10-8
M-commerce sales represent a small fraction of total e-commerce sales, but that percentage is
steadily growing. (Totals for 2006–2009 are estimated.)
M-Commerce
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40. 10.40 © 2007 by Prentice Hall
•M-Commerce challenges
•Keyboards and screens tiny and awkward to use
•Data transfer speeds (2G networks) slow compared to Internet
connections for PCs
•Time-based connection fees
•Limited memory and power supplies
•M-commerce will benefit from:
•3G networks and other broadband services
•Standardized mobile payment systems
M-Commerce
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•Types of electronic payment systems
•Digital credit card payment systems
•Extend functionality of credit cards for online shopping
payments
•Provide mechanisms for authentication and transferring money
from bank to seller
•Digital wallets
•Software stores credit card and other information to facilitate
form completion and payment for goods on Web.
•Example: Google CheckOut
Electronic Commerce Payment Systems
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42. 10.42 © 2007 by Prentice Hall
•Micropayment systems: For purchases of less
than $10, such as downloads of individual articles
or music clips
•Accumulated balance digital payment systems:
Accumulate debit balance that users pay periodically on
credit card or telephone bills
•Stored value payment systems: Allow instant online
payments based on value stored in digital account (e.g.
checking, credit card accounts
•May require use of digital wallet
•Example: Smart cards and devices like EZ Pass
Electronic Commerce Payment Systems
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43. 10.43 © 2007 by Prentice Hall
•Digital cash: “Currency” represented in electronic form that
moves outside normal network of money. Not regulated and not
legal tender
•Client software allows exchange of money with other e-cash user
over Internet or with retailer accepting e-cash
•Peer-to-peer payment systems: Serve people who want to
send money to vendors or individuals who are not set up to
accept credit card payments
•Digital checking payment systems: Electronic check with
secure digital signature
•Electronic billing presentment and payment systems: Used
for paying routine monthly bills from bank or credit card accounts
Electronic Commerce Payment Systems
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44. 10.44 © 2007 by Prentice Hall
•Digital payment systems for m-commerce
•Utilize any form of e-commerce payment systems
•Many payments are small purchases (soft drinks, mobile games,
sports scores) requiring micropayment systems
•In Europe/Asia, mobile payments often added and presented on
single bill such as mobile phone bill
•Virgin Mobile phone can dial Virgin Cola vending machine in
London
•eBay’s PayPal Mobile Text2Buy service allows payments sent to
mobile PayPal accounts via texting
Electronic Commerce Payment Systems
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Chapter 10 E-Commerce: Digital Markets, Digital GoodsChapter 10 E-Commerce: Digital Markets, Digital Goods