Chapter Twelve

1
Chapter Twelve

• Global E-Commerce An Examination of Issues
  Related to Advertising and Intermediation

2
Agenda

• E-Commerce Future and Success
• Types of Websites, types of E-commerce
• The Richness-Reach Tradeoff
• Intermediation

3
Global E-Commerce Predictions

• Intermediaries will decrease (disintermediation)
• Disintermediation will be more rapid in service
  industry
• Disintermediation is sensitive to product and
  service characteristics
• Promotions will inhibit disintermediation
• New intermediaries will arise (navigators, eg.)
• Logistics and Distribution are enhanced by
  E-commerce (fulfillment functions)

4
Internet Productivity

• Exponential Growth of Internet
• Great potential for economic advantage
• Productivity Paradox
• Lack of observation of productivity gains in
  macroeconomic data
• Resolved by understanding the long gestation
  period
• Changes in human skills and organizational
  structure must occur before true growth is seen
• Learning is important
• People remember

5
Internet Productivity

• Productivity Paradox
• What does IT buy? Lowered transaction costs,
  lowered coordination costs, interoperability,
  increased memory
• What does IT cost? Increased learning, new
  procedures, new ways of thinking

6
Critical Success Factors for Global E-Commerce

• High tech also requires high touch
• Globalize operations, but localize service
• Simplify and expedite transaction process
• Foster trusting relationships with among
  customers
• Focus on convenience, info, intermediation,
  pricing
• Get yourself found often and on top in portals
• Plan to evolve to transactions

7
Types of Websites
8
The Richness-Reach Tradeoff-1
9
The Richness-Reach Tradeoff-2
10
The Richness-Reach Tradeoff-3
Attempting to increase richness incurs costs,
which lower the available distribution reach
11
The Richness-Reach Tradeoff-4
The new media BREAK the relationship between
richness and reach. No reasonable move to
increase richness or reach will have any real
cost and hence no effect on the other
characteristic.
12
Global e-Commerce Transformation

• Connecting the World
• 1st Phase Sharing databases, EFT, EDI
• Very successful!
• 2nd Phase B2C, B2B e-Commerce
• Moving value chain processes to Internet
• Is critical for survival and sustenance of the
  Internet
• Internet Transforming Business
• US Banking Industry 95 online services
• 32 million Americans bank online
• Airlines, Books, etc.

13
Global e-Commerce

• Online Spending Trends
• 2002 e-Commerce Revenues
• Worldwide 623 B., up from 41 B. in 1998
• US 291 B., up from 31 B. in 1998
• What happened to Predictions?

14
Types of E-Commerce
Government
Business
EMPLOYEES
Consumer
15
Familiar Types - 2

• B2C Retailing
• B2B Supply Chain
• G2B Regulation
• B2G Supply/Procurement
• G2C E-government
• C2G ????
• C2C Amateur Business
• B2E Part of Employee Relations

16
Global e-Commerce

• Business to Business (B2B)
• Linking with other members of the value chain
• Less expensive automated transactions
• Enables standards for data transfer
• Extends boundaries
• Streamline operations (JIT)
• Improve customer service
• Reduce Operating Costs
• Opportunities for sales automation and
  self-service purchases
• Allows Manufacturers, wholesalers, retailers, and
  consumers to buy, sell, and barter

17
Global e-Commerce (continued)

• Business to Employee (B2E)
• Linking businesses to their employees
• Keeps everyone up to date
• Download tax forms
• Review benefits
• Signing up for medical
• Buy company product at employee discount
• Automatic deductions from payroll (medical,
  retirement plans)

18
Global e-Commerce (continued)

• Business to Consumer (B2C)
• Linking businesses to customers
• Lets customer buy online
• Improves customer relationship and awareness of
  product and/or service
• Business to Government (B2G)
• Government to Consumer (G2C)
• Thought of as democratizing factor
• Consumer to Consumer (C2C)
• E-bay is current archetype

19
Internet and Traditional Advertising
Criterion Driver Hyperlinks View
Timing Effectiveness Measures Control over
Exposure Time Interactivity Image Pay for
Performance Targetting
Traditional Advert Advertising None View when
Broadcast None or little based on samples
focus gps. Determined by advertiser except in
print media None Perference for upscale Not
normal Limited
Internet Advert Contents Network of HLs View on
demand All hits recorded based on actual
data Determined by web surfer upon use As much as
desired Preference for relevance Increasingly
tied Multiple paths for targetting
20
Global and E-Commerce Issues

• Cybercrime
• Global Market Exploration
• Internationalization
• Localization
• Payment System
• Legal and Taxation System
• Learning Curve or Quantum Leap
• Intermediation

21
Intermediation
BUYER
SELLER
Owners of the market space get a fee for this
intermediation service.
SIMPLE INTERMEDIATION
22
Intermediation-2
In the traditional marketspace, the owners
provide safety, security, standards,
replicability, recording, transportation, etc. to
increase the confidence of buyers and sellers.

Each of these represents a business opportunity
BUYER
SELLER
These complex interactions result in a hierarchy
made possible by layers of intermediation
COMPLEX INTERMEDIATION
23
Intermediation-3
A more complex form of intermediation is being a
navigator among brokerages
HIERARCHY
One possibility for intermediation is brokerage
BUYER
SELLER
An even more complex form of intermediation is
trraining or consulting in how to use navigators
COMPLEX INTERMEDIATION GIVES RISE TO HIERARCHIES
24
Intermediation-4
The user can take over many of the intermediation
functions, resulting in dis-intermediation
hierarchies are broken down and the market space
is recreated
MARKET SPACE
Assuming the user has the tools and the skills
and the opportunities
As Internet replaces the Hierarchies of the
Marketspace, the user becomes empowered
BUYER
SELLER
DISINTERMEDIATION
25
Intermediation-5
Providers can find niches within the interstices
and reintermediate the market space,
reintroducing hierarchical structures.
MARKET SPACE
However, the complexity of the Internet creates
more interstices.
BUYER
SELLER
REINTERMEDIATION
26
Intermediation E-Commerce

• Anticipated Changes in Market Structure
• Price
• Distribution of profits
• Strategic interactions between market
  participants
• Organizational hierarchies
• Transaction costs
• Value chain composition
• Barriers to entry
• Ecommerce combines the advantages of lowered
  transaction costs with lowered coordination costs
  and other advantages of computer-based systems

27
Traditional Intermediation Marketing Channels
Intermediaries
28
Traditional Intermediary Functions

• Communication, Coordination and Exchange Costs
• Assortment of Product
• Warehousing and Distribution
• Financing and Risk Sharing
• Product Promotions

29
E-Commerce Intermediation

• Digital Networks
• Direct channels between producers and consumers
• Lowers coordination costs for producers and
  retailers
• Lowers physical distribution costs
• Disintermediation - Theorizes the end of the
  middleman

30
Intermediation Contd

• Supporting Disintermediation
• Growing trends in online commerce
• Airline tickets
• Book sales
• Computer Sales
• Auctions
• Securities by discount brokers
• Based mostly on anecdotal evidence

31
Emerging Intermediary Trends

• Theorizes that E-Commerce will not eliminate the
  Middleman
• Selling products direct is not a new phenomenon
• Sherwin-Williams sell directly to customer
• Hart, Shaffner, Marx has about 200 retail outlets
• Gap uses direct retailing
• E-Commerce is evolving new Intermediary functions
• CyberIntermediaries are emerging,
  Hypermediation

32
Intermediary Global Issues

• Cost-Effective Distribution
• If business efforts are concentrated on small
  number of key countries
• More efficient to ship goods from local
  distribution centers than from home country
• Delivery services charge much more in other
  countries
• If business efforts are concentrated on large
  number of foreign countries
• More efficient to negotiate a volume deal with a
  major delivery service

33
Critical Success factors for Global E-Commerce

• Complement High Tech with High Touch
• Globalize Operations, but Segment Geographically
  to Localize Service
• Simplify and Expedite Transaction Process
• Foster Trusting Relationships with Customers
• Reinvent with Focus on Convenience, Information,
  Intermediation and Pricing Strategies
• Get Yourself Found Often and on the Top
• Plan Technology to Evolve for Transactional
  e-Commerce
• Prepare for m-Commerce