The Digital Firm: Electronic Business and Electronic Commerce

1
The Digital Firm Electronic Business and
Electronic Commerce
Chapter 4
2

• British Airways Faster, Leaner, and Internet
  Enabled

3
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
Internet Technology and the Digital Firm

• The Internet
• Rapidly becoming infrastructure of choice
• Universal, easy-to-use set of technologies and
  standards
• Web sites available 24/7
• Extended distribution channels
• Reduced transaction costs
• Reduced network and coordination costs

4
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Past Information about products and services
  bundled with their physical value chain
• Today The Internet has unbundled information
  from traditional value chain, creating new
  business models

5
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Internet Business Model Features
• Dynamic pricing
• Banner ad or pop-up ad
• Information sharing
• Virtual community
• Personal web site, on-line discussion group, chat
  room, message board
• Services
• E-mail, Messenger, file storage, subscription

6
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Internet Business Models
• Virtual storefront Sells physical products
  directly to consumers or businesses.
• Amazon.com, EPM.com
• Information broker Provides product pricing and
  availability information generates revenue from
  advertising or directing buyers to sellers.
• Edmunds.com, Kbb.com, Insweb.com,
  IndustrialMall.com
• Transaction Broker Processes online sales
  transactions for fee.
• ETRADE.com, Expedia.com

7
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Internet Business Models
• Online Marketplace Provides digital environment
  where buyers and sellers meet
• eBay (Dynamic Pricing), Priceline.com,
  ChemConnect.com, Pantellos.com
• Content Provider Provides digital content, such
  as news revenue from fees or advertising sales
• WSJ.com, CNN.com, TheStreet.com, Gettyimages.com,
  MP3.com

8
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Internet Business Models
• Online Service Provider Provides connectivity
  revenue from fees, advertising, or marketing
  information
• _at_Backup.com, Xdrive.com, Employease.com,
  Salesforce.com
• Virtual Community Provides online meeting place
  for people of similar interests
• Motocross.com, iVillage.com (banner ad, pop-up
  ad), Sailnet.com (Latin American)

9
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Internet Business Models (cont.)
• Portal Provides initial point of entry to the
  Web, along with specialized content and services
• Yahoo.com, MSN.com, StarMedia.com
• Syndicator aggregates content or applications to
  resell as package to third-party Web sites
• ETRADE (Reuters-news, Bridge Info Sys-quotes,
  BigCharts.com-charts)

10
Electronic Commerce
Categories of Electronic Commerce

• Business-to-consumer (B2C) Retailing products
  and services to individual shoppers
• Business-to-business (B2B) Sales of goods and
  services among businesses
• Consumer-to-consumer (C2C) Consumers selling
  directly to consumers

11
Electronic Commerce
Customer-Centered Retailing

• Direct Sales Over the Web
• Disintermediation Removal of intermediary steps
  in a value chain, selling directly to consumers,
  significantly lowers purchase transaction costs
• Reintermediation Shifting intermediary function
  in a value chain to a new source, such as
  service hubs (Ex. Information broker in Table
  4-2)

12
Electronic Commerce
The benefits of disintermediation to the consumer
Figure 4-2
13
Electronic Commerce
Customer-Centered Retailing

• 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
  and banner ads on Web site to individuals
  profile and purchase history.
• Web sites and marketing shorten sales cycle and
  reduce time spent in customer education.

14
Electronic Commerce
Customer-Centered Retailing

• Interactive Marketing and Presentation
• Combine web visitor data with customer data from
  other sources to create detailed profiles of
  individuals.
• Off-line purchases, customer service records, or
  product registrations.
• Conduct (incentive-driven) on-line market
  research surveys.
• Monitor customer discussions about products that
  are taking place through on-line communities and
  message boards.
• Monitor the online surfing and buying behavior of
  large numbers of customers at many different web
  sites.

15
Electronic Commerce
Customer-Centered Retailing

• Collection of Customer Information
• TravelWeb
• On-line reservation of more than 16,000 hotels in
  138 countries.
• Track origins of users
• Track web pages and links which users click to
  learn about customer preferences.
• Hyatt hotel
• Japanese users are most interested in resorts
  golf facilities.
• Shape market strategies to develop
  hospitality-related products.

16
Electronic Commerce
Customer-Centered Retailing

• Web Personalization Technology
• Amazon.com
• Retain customer purchase and recommendation data.
• Recommend products based on purchase history and
  past purchases from other buyers.
• Bluefly.com
• Display items that a visitor has recently viewed.
• Subaru.com
• Maintenance reminder, configuration of warranty
  repair, notice of recalls and service campaigns,
  service history log, trade-in value calculation,
  link to dealer web site, request a service
  appointment.

17
Electronic Commerce
Web site personalization
Figure 4-3
18
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
• Allow interaction at customers convenience
• Web-based customer self-service applications,
  such as airline flight information sites
• Traditional, phone-based customer call centers
  being integrated with Web

19
Electronic Commerce
Customer-Centered Retailing

• Customer Self-Service
• American, Northwest Flight departure and arrival
  times, seating charts, airport logistics, check
  frequent-flyer miles, and purchase tickets
  on-line.
• Yamaha Corp. of America Access to technical
  solutions, send email to live technician.
• UPS, FedEx Track shipment, calculate shipping
  cost, determine time in transit, and arrange for
  package pickup.
• Lends End Push to talk button to request live
  talk with customer services.

20
Electronic Commerce
Window on Technology

• Lightnin Lights Up with the Internet
• What are the benefits of using Web-based order
  configuration software?
• How does this system provide value to Lightnin
  and its customers?

21
Electronic Commerce
Business-to-Business Electronic Commerce

• Web, Internet streamlining procurement process
• E-procurement eliminates inefficient, paper-based
  processes
• Selling through Web sites, private industrial
  networks, or Net marketplaces

22
Electronic Commerce
Before-after diagram of changes in Lightnins
ordering process
Figure 4-4
23
Electronic Commerce
Business-to-Business Electronic Commerce

• Private Industrial Network
• Private exchange typically consists of large
  firm using extranet to link to its suppliers and
  business partners
• Permits firm and partners to share product
  design, development, marketing, scheduling,
  inventory management, and unstructured
  communication
• Fastest-growing type of B2B commerce

24
Electronic Commerce
A private industrial network
Figure 4-5
25
Electronic Commerce
Business-to-Business Electronic Commerce

• Net Marketplace
• E-hub provides single Internet-based marketplace
  for many different buyers and sellers
• Industry owned or independent intermediaries
• Transaction oriented generates revenue from
  purchase and sales transactions and other
  services

26
Electronic Commerce
A Net marketplace
Figure 4-6
27
Electronic Commerce
Business-to-Business Electronic Commerce

• Different Types of Net Marketplace
• Direct goods goods used in a production process,
  e.g., sheet steel for auto production.
• Indirect goods goods not directly involved in a
  production process, e.g., office supplies.
• Contractual purchasing long-term relationships
  with designated suppliers.
• Short-term spot purchasing purchase based on
  immediate needs.
• Vertical markets for specific industries
  automobile, telecommunication, machine tools.
• Horizontal markets with different industries
  office equipment and transportation.

28
Electronic Commerce
Business-to-Business Electronic Commerce

• Different Types of Net Marketplace
• W. W. Grainger Horizontal market for sourcing
  maintenance, repair, and operations (MRO)
  products used in many different industries.
• Customers benefit from low search cost, low
  transaction cost, wide selection, and low price.
  Grainger earns revenue by charging a markup on
  the products it distributes.

29
Electronic Commerce
Business-to-Business Electronic Commerce

• Different Types of Net Marketplace
• Ariba Long-term contractual purchasing of both
  indirect and direct goods.
• For buyers, Ariba automates sourcing, contract
  management, purchase orders, requisitions,
  business rule enforcement, and payment.
• For sellers, Ariba provides services for catalog
  creation and content management, order
  management, invoicing, and settlement.

30
Electronic Commerce
Business-to-Business Electronic Commerce

• Different Types of Net Marketplace
• Covisint industry-owned vertical market for
  automobile manufacturing. Founded by GM, Ford,
  DaimlerChrysler, Renault, and Nissan.
• Focus on long-term contract purchasing
  relationships and on providing common networks
  and computing platforms for reducing supply chain
  inefficiencies.
• Buyers benefit from competitive pricing among
  alternative suppliers.
• Suppliers benefit from stable long-term
  relationships with large firms.

31
Electronic Commerce
Business-to-Business Electronic Commerce

• Exchanges
• Third-party Net marketplaces connecting thousands
  of suppliers and buyers for spot purchasing
• Proliferated during early years of e-commerce
• Exchanges encouraged competitive bidding, driving
  prices down suppliers reluctant to participate

32
Electronic Commerce
Business-to-Business Electronic Commerce

• Exchanges
• Enermetrix Network Online exchange for retail
  natural gas and electricity contracts.
• FoodTrader.com Automate spot purchases among
  buyers and sellers from over 180 countries in the
  food and agriculture industry.

33
Electronic Commerce
Electronic Commerce Payment Systems

• Digital credit card payment systems Secure
  credit card payment over Web
• Digital wallet Stores credit card and owner
  identification, shipping information, to
  facilitate payment process
• Amazon.com 1-Click, Gator, MSN Wallet, MasterCard
  Wallet, American Onlines Quick Checkout.

34
Electronic Commerce
Electronic Commerce Payment Systems

• Micropayment Payment for a very small sum of
  money, often less than 10.
• Accumulated balance digital payment systems
  Accumulates micropayment purchases as debit
  balance paid periodically on credit card or
  telephone bills
• PaymentOne and Trivnet.

35
Electronic Commerce
Electronic Commerce Payment Systems

• Stored value payment system Enables consumers
  to make instant payments based on value stored in
  digital account
• Ecount, RocketCash (aimed at teenagers).
• Smart Card A credit-card size plastic card that
  stores digital information and that can be used
  for electronic payments in place of cash.
• Mondex, American Express Blue.

36
Electronic Commerce
Electronic Commerce Payment Systems

• Digital cash Digital currency that can be used
  for micropayments or larger purchases
• eCoin.net.
• Peer-to-Peer payment systems Enables payments to
  vendors not set up for credit-card payments
• The recipient picks up the payment by visiting
  the web site and supplying information about
  where to send the payment (a bank account or a
  physical address).

37
Electronic Commerce
Electronic Commerce Payment Systems

• Digital checking Electronic check with secure
  digital signature
• Electronic billing presentment and payment
  system Supports electronic payment for online
  and physical store purchases after purchase has
  taken place

38
Electronic Commerce
Electronic commerce information flows
Figure 4-7
39
Electronic Business and the Digital Firm
How Intranets Support Electronic Business

• Connectivity accessible from most platforms
• Can be tied to internal corporate systems and
  core transaction data
• Can create interactive applications with text,
  audio, and video

40
Electronic Business and the Digital Firm
How Intranets Support Electronic Business

• Scalable to larger or smaller computing platforms
  as requirements change
• Easy to use, universal Web interface
• Low start-up costs
• Rich, responsive information environment
• Product catalogs, employee handbooks, telephone
  directories, and benefit information.
• Reduced information distribution costs

41
Electronic Business and the Digital Firm
Intranet Applications for Electronic Business

• Finance and Accounting Integrated view of
  financial and accounting information online
• Human Resources Rapid delivery of information to
  employees online publishing
• Sales and Marketing Collaborative place to
  coordinate activities of sales force
• Manufacturing and Production Distribute
  manufacturing information to different parts of
  organization

42
Electronic Business and the Digital Firm
Functional applications of intranets
Figure 4-8
43
Electronic Business and the Digital Firm
Window on Organizations

• Can Online Brokers Survive in Europe?
• Is providing online financial services over the
  Internet a viable business model? Why or why not?

44
Electronic Business and the Digital Firm
Business Process Integration

• Pre-Internet, integration costly and difficult
• Internet technology less expensive than building
  enterprise systems
• Intranets improve coordination among internal
  business processes
• Extranets coordinate processes shared with
  customers and partners
• Intranet promotes collaborative commerce

45
Management Challenges and Opportunities
Management Challenges and Opportunities

• Unproven business models
• Only 43 of the independent exchanges that were
  operating in the spring of 2000 survived to July
  2002, and less than 200 remained by mid-2003.
• Heavy outlays for web site maintenance, supply
  chain management, customer service call centers,
  and customer acquisition.
• Large payroll expense for skilled technical staff
  and additional shipping expense to ensure on-time
  delivery.

46
Management Challenges and Opportunities
Management Challenges and Opportunities

• Business process change requirements
• Fail, if badly managed or poorly executed.
• Channel conflicts
• Competition between distributors to sell the same
  products or services.
• Current solutions to offer only partial products
  on web or pay full commission to online sales
  rep.

47
Management Challenges and Opportunities
Management Challenges and Opportunities

• Legal issues
• Which law to apply, if company is in Thailand,
  server in Singapore, and buyer in Hungary.
• Trust, security, and privacy
• Hesitate to buy from unfamiliar vendors.
• Security and confidentiality of personal date
  through subscription and credit card transactions.