Lecture Slides 7

1
Lecture Slides 7
Introduction to Information Technology E-Busines
s (C) 2006 Jim Janossy and Laura McFall,
Information Technology Workbook
2
Course resources
PowerPoint presentations, podcasts, and web links
for readings are available at www.ambriana.com gt
IT Workbook Print slides at 6 slides per
page Homework, quizzes and final exam are based
on slides, lectures, readings and podcasts
3
Topics

• Definitions e-business, value chain, B2B, B2C
• Internet era I, collapse, era II
• Marketing selling before the web, now
• Seven unique features of e-commerce
• E-commerce business models
• Internet irritations and dangers

4
Definitions

• E-business the use of the internet and web to
  transact business (limited definition)
• E-business any business process empowered by an
  information system (broader definition)
• Business processes along the whole value chain

5
Definitions

• Value chain the generic value-adding activities
  of an organization.
• Manufacturing purchasing, production processes,
  packaging, sales and marketing, order processing,
  customer service, maintenance
• Internet supports multiple parts of the value
  chain

6
Types of E-commerce
Distinct types of E-commerce B2C B2B C2C P2P
Business to consumer is web sales to retail
consumers. Largest market in terms of quantity
of customers, but only 10 of e-commerce revenue.
7
Types of E-commerce
Distinct types of E-commerce B2C B2B C2C P2P
In 2001, was only 1 of the revenue of the entire
retail market! There is huge opportunity for
growth in B2C!
8
Types of E-commerce
Distinct types of E-commerce B2C B2B C2C P2P
Business to business is web sales between firms.
Total 2001 revenue of 12 trillion but only 700
billion was on web, so LOTS of room to grow!
9
Types of E-commerce
Distinct types of E-commerce B2C B2B C2C P2P
Types Inter-business exchanges e-distributors
service providers matchmakers infomediaries
10
Types of E-commerce
Distinct types of E-commerce B2C B2B C2C P2P
Consumer to consumer, auctions such as e-bay.com.
Consumer prepares product for sale, relies on
market maker for catalog, search engine, payment
handling.
11
Types of E-commerce
Distinct types of E-commerce B2C B2B C2C P2P
Generic market maker functions product
display product discovery product payment
12
Types of E-commerce
Distinct types of E-commerce B2C B2B C2C P2P
Peer to peer, sharing of files without a central
web server, like Napster, Gnutella. May be
applied to sharing of other computer resources in
future.
13
B2C vs. B2B

• B2C business-to-consumer 10
• B2B business-to-business 90
• B2C is most visible to the majority of the
  population but it is actually dwarfed by
  business-to-business transactions
• B2B via the internet/web is overtaking EDI
  (electronic data interchange)

14
E-commerce

• 1994 0 2000 60 billion B2C
• 700 billion B2B
• 1994 Internet use growing 2300 / yr
• Enormous changes in firms, markets, consumer
  behavior
• Fastest growing type of commerce

15
E-commerce growth

• 1994 0 2000 60 billion B2C
• 700 billion B2B
• 2006 250 billion B2C
• 5,400 billion B2C
• 4,000,000,000 web pages exist 2003
• 7,000,000 web pages added daily

420
16
E-commerce growth

• 1994 0 2000 60 billion B2C
• 700 billion B2B
• 2006 250 billion B2C
• 5,400 billion B2C
• 4,000,000,000 web pages now exist
• 7,000,000 web pages added daily

770
17
Growth compared to other technologies
B2C e-commerce Radio took 38 years to achieve
30 household penetration (1920-58) Television
took 17 years to achieve 30 household
penetration (1946-63) Web took only 7 years to
achieve 30 household penetration (1994-2001)
18
Internet Era I1995 to 2000

• Pieces of underlying technology were all in place
  by 1994 browsers were last piece Mosaic
  triggered explosion in users
• Overly-confident cowboy dot.coms
• Lots of swashbuckling investors
• Much dot.com activity in B2C area

19
Internet Era I1995 to 2000 - Why?
Pattern of technological revolutions, as with
electricity, telephone, radio, TV, cars 1.
Explosion of entrepreneurial activity paves the
way (first mover start-ups) 2. Retrenchment
weaker, less organized players exit while
stronger take over 3. Continued exploitation by
established firms
20
Internet Era I
II
9/11
21
Internet Era I collapse factors
1. Many tech companies profited from Y2K efforts,
suffered when clients were Y2Kd 2. Telecomm
industry overbuilt capacity 3. Christmas 1999 had
less sales growth than expected, shows high tech
is hard! 4. Valuations of dot.coms too high, 400
x earnings (typical companies 10-15 x) many
never showed ANY profit!
22
Fallacy of the first mover notion
Common idea in Era I - first movers can gain
the market, will lose money first, then dominate
but it doesnt work that way! Reality being
first isnt enough. You need to have a good
business plan, act on it, and need much greater
financial strength to develop mature markets
23
Plus some ideas just arent so good!
Some innovative ideas sounded good but just
werent viable (wishful thinking) There are some
things that people feel comfortable buying at a
distance, and some things people buy in
person Some services are handy, some are too much
trouble or inconvenient online
24
B2C E-commerce now
is alive and well ...has moved into the
mainstream life of established business concerns
that have the market brands and financial muscle
required for long-term deployment of e-commerce
technologies and methods.
25
Established companies
Bricks and clicks companies Existing companies
with traditionally-developed and serviced
markets, traditional products Web adds new
dimension to their marketing and customer
attraction/retention options Pure play are new
Web-only companies
26
To understand e-commerce...
Need to understand Relationships between
e-commerce business interests technology so
cial and legal contexts
Suppliers Customers Competitors Partners
How do we locate suppliers and
items order discover prices?
27
To understand e-commerce...
Need to understand Relationships between
e-commerce business interests technology so
cial and legal contexts
Suppliers Customers Competitors Partners
How do we market products advertise use
brands?
28
To understand e-commerce...
Need to understand Relationships between
e-commerce business interests technology so
cial and legal contexts
How to reduce supply chain costs? How to increase
production efficiency? How to tighten
relationship with customers?
29
To understand e-commerce...
Need to understand Relationships between
e-commerce business interests technology so
cial and legal contexts
Payment systems Security Marketing B2B Retail
30
To understand e-commerce...
Privacy Intellectual property Sovereignty Web
governance Fair access Public welfare
Need to understand Relationships between
e-commerce business interests technology so
cial and legal contexts
31
Amazon.com

• Founding ideas
• Audience expanding (Web growth)
• Less need to touch and feel books to buy them
  than many other items
• Large source of supply (2,500 publishers)
• Largest stores had only 12 of market
• Major distributors stock books no need for local
  inventory

32
Amazon.com

• Founding determinations
• Market exists
• Books can be sold at a distance
• No one else owns the source of supply
• Competition is not unified
• Distributors hold inventory few premises needed,
  few employees lower cost

33
(No Transcript)
34
Amazon.com
Compelling factors for customers Selection
Million titles (books, CDs, DVDs) Convenience
anytime, anywhere,simplified ordering
(1-click) Price discounts from regular retail
price Service order confirmation e-mails,
notifications of out of stock situations,
affiliate (used book) vendors
35
Amazon.com performance
36
Amazon.com
Yet despite its diversification into other
product lines, in 2005 sales of books, CDs and
DVDs still accounted for 70 of Amazon sales!
37
Information asymmetry is. . .
Any disparity in relevant market information
among the parties in a transaction.
38
Marketing and sellingbefore the web
Mass marketing Salesforce driven Consumers seen
as passive targets Campaigns and brands aimed to
influence consumers product perceptions and
purchasing behavior Consumers trapped by
geographical and social boundaries
Information asymmetry
39
Information asymmetry
Consumers unable to search widely for best price
and quality Information aboutpricescostsfees
could be hidden from consumer!
40
Podcast 44 Internet advantages for consumers

• Search for competing products and competing
  vendors and prices easier, more comprehensive
  due diligence
• Can learn of others experiences with the
  products and vendors
• Disintermediation better prices because
  middlemen may be eliminated

41
Podcast 45 Internet advantages for sellers

• Publish larger catalog (more products)
• Reach consumers all hour, everywhere
• Adjust prices instantly
• Disintermediation cut costs, price more
  competitively
• New ways to market, customize offerings

42
Marketing and selling - now
Altered by 7 unique features of
e-commerce Ubiquity Global reach Universal
standards Richness Interactivity Information
density Personalization / customization
43
Marketing and selling - now
Altered by 7 unique features of
e-commerce Ubiquity Global reach Universal
standards Richness Interactivity Information
density Personalization / customization
Marketspace extends everywhere, including
mobile. Shopping is 24x7 and shopper costs are
reduced.
44
Marketing and selling - now
Altered by 7 unique features of
e-commerce Ubiquity Global reach Universal
standards Richness Interactivity Information
density Personalization / customization
Commerce enabled across borders without
modification
45
Marketing and selling - now
Altered by 7 unique features of
e-commerce Ubiquity Global reach Universal
standards Richness Interactivity Information
density Personalization / customization
One set of communication technology, namely,
Internet TCP/IP, HTML, browsers
46
Marketing and selling - now
Altered by 7 unique features of
e-commerce Ubiquity Global reach Universal
standards Richness Interactivity Information
density Personalization / customization
Message is not limited to text or audio video,
audio, and text all possible, with visual cues
47
Marketing and selling - now
Altered by 7 unique features of
e-commerce Ubiquity Global reach Universal
standards Richness Interactivity Information
density Personalization / customization
Consumer is engaged in a dialog, as a
co-participant in discovering goods
48
Marketing and selling - now
Altered by 7 unique features of
e-commerce Ubiquity Global reach Universal
standards Richness Interactivity Information
density Personalization / customization
Currency, timeliness, accuracy of information
increases price transparency
49
Marketing and selling - now
Altered by 7 unique features of
e-commerce Ubiquity Global reach Universal
standards Richness Interactivity Information
density Personalization / customization
Messages possible to individuals not just groups
dialog can be tailored to appeal to individuals
50
ConcurrentEra I visions
Thinking of many was Universal access Info
asymmetry reduced Middlemen disappear Extraordin
ary profits Easy to segment market Profit from
efficiencies Deconstruct traditional distribution
Everyone would have a computer, web access,
quickly
51
ConcurrentEra I visions
Thinking of many was Universal access Info
asymmetry reduced Middlemen disappear Extraordin
ary profits Easy to segment market Profit from
efficiencies Deconstruct traditional distribution
Friction-free commerce, huge number of suppliers
52
ConcurrentEra I visions
Thinking of many was Universal access Info
asymmetry reduced Middlemen disappear Extraordin
ary profits Easy to segment market Profit from
efficiencies Deconstruct traditional distribution
Disintermediation manufacturers deal directly
with consumers
53
ConcurrentEra I visions
Thinking of many was Universal access Info
asymmetry reduced Middlemen disappear Extraordin
ary profits Easy to segment market Profit from
efficiencies Deconstruct traditional distribution
Lots of ways to profit from large new markets and
marketing strategies
54
ConcurrentEra I visions
Thinking of many was Universal access Info
asymmetry reduced Middlemen disappear Extraordin
ary profits Easy to segment market Profit from
efficiencies Deconstruct traditional distribution
Identify groups with different needs and price
sensitivities
55
ConcurrentEra I visions
Thinking of many was Universal access Info
asymmetry reduced Middlemen disappear Extraordin
ary profits Easy to segment market Profit from
efficiencies Deconstruct traditional distribution
Price very low to grab market share, enable low
pricing through new efficiencies
56
ConcurrentEra I visions
Gain visibility fast, first movers seek to
replace traditional distribution channels
Thinking of many was Universal access Info
asymmetry reduced Middlemen disappear Extraordin
ary profits Easy to segment market Profit from
efficiencies Deconstruct traditional distribution
57
Internet Era II

• 2001 and onward
• New technological capabilities
• E-commerce learns from failures and successes of
  Era 1
• Predictions for the future?
• The impact of wireless (WiFi) access?

58
Understandings needed

• Nature of electronic markets
• E-commerce business models
• Firm and industry value chains
• Consumer behavior in e-markets
• Privacy, regulation, taxation issues

59
Business model

• Set of planned activities designed to make a
  profit
• Business models apply to all types of business,
  not just e-commerce
• 8 ingredients of all business models
• Business plan document describing the business
  model

60
Business plan
1. Value proposition 2. Revenue model 3. Market
opportunity 4. Competitive environment 5.
Competitive advantage 6. Market strategy 7.
Organizational development 8. Management team
All factors of the business model are important
to document in a business plan
61
Business plan
1. Value proposition 2. Revenue model 3. Market
opportunity 4. Competitive environment 5.
Competitive advantage 6. Market strategy 7.
Organizational development 8. Management team
Heart of model. How the product or service
fulfills the needs of customers. What is
unique? Why use us?
62
Business plan
1. Value proposition 2. Revenue model 3. Market
opportunity 4. Competitive environment 5.
Competitive advantage 6. Market strategy 7.
Organizational development 8. Management team
How will the business earn revenue, generate
profit, produce a return?
63
Five major E-commerce revenue models
Advertising model Subscription model Transaction
fee model Sales model Affliliate model
Site content and services draw hits. Sell
advertising, banners, links. User retention is
called stickiness. One of earliest models, now
copied and diluted.
64
Five major E-commerce revenue models
Advertising model Subscription model Transaction
fee model Sales model Affliliate model
Subscription charge for content or
service. Content must have high added value, not
readily available elsewhere, no easy substitutes.
65
Five major E-commerce revenue models
Advertising model Subscription model Transaction
fee model Sales model Affliliate model
Fee for enabling or executing a transaction. Like
Ebay.com for auction, or E-trade.com for a stock
buy or sell.
66
Five major E-commerce revenue models
Advertising model Subscription model Transaction
fee model Sales model Affliliate model
Sell goods. Physical office supplies, books,
crafts, foods, anything that could be sold mail
order. Electronic product is downloaded.
Services software usage is rented
67
Five major E-commerce revenue models
Advertising model Subscription model Transaction
fee model Sales model Affliliate model
Referral fee or commission for steering hits to
a site. Maybe give points incentive to
customers to shop via the site links instead of
directly to sites.
68
Business plan
1. Value proposition 2. Revenue model 3. Market
opportunity 4. Competitive environment 5.
Competitive advantage 6. Market strategy 7.
Organizational development 8. Management team
Intended marketspace. Realistic opportunity
defined by revenue potential of each niche.
69
Business plan
1. Value proposition 2. Revenue model 3. Market
opportunity 4. Competitive environment 5.
Competitive advantage 6. Market strategy 7.
Organizational development 8. Management team
How many competitors? How large? Market
share? How profitable? Their price?
70
Business plan
1. Value proposition 2. Revenue model 3. Market
opportunity 4. Competitive environment 5.
Competitive advantage 6. Market strategy 7.
Organizational development 8. Management team
Having a superior product, lower price, wider
market, branding.
71
Business plan
Plan that shows how you intend to enter a new
market and attract customers. Partnering? Advertis
ing? Samples?
1. Value proposition 2. Revenue model 3. Market
opportunity 4. Competitive environment 5.
Competitive advantage 6. Market strategy 7.
Organizational development 8. Management team
72
Business plan
Plan that shows how the business is going to be
staffed as it grows, and how management leads.
1. Value proposition 2. Revenue model 3. Market
opportunity 4. Competitive environment 5.
Competitive advantage 6. Market strategy 7.
Organizational development 8. Management team
73
Lets look at these Internet business models

• B2C - business to consumer
• B2B -business to business
• C2C - consumer to consumer
• P2P - peer to peer

74
B2C
1. Portal 2. E-tailer 3. Content provider 4.
Transaction broker 5. Market creator 6. Service
provider 7. Community provider
Integrated package of content and services, also
ISP. E-mail, news, chat rooms, personals,
shopping. No longer a gateway but a
destination.
75
B2C
1. Portal 2. E-tailer 3. Content provider 4.
Transaction broker 5. Market creator 6. Service
provider 7. Community provider
Online retail store. Convenience of larger
selection, shop as needed at home or work, ease
of searching and locating vendors. Clicks and
mortar (BestBuy) or pure play (I-Tunes, Amazon)
76
B2C
1. Portal 2. E-tailer 3. Content provider 4.
Transaction broker 5. Market creator 6. Service
provider 7. Community provider
Digital news, photos, video, artwork. Almost 15
of total online sales in 2000. Revenue from
subscription fee. WSJ.com, e-zines.
77
B2C
1. Portal 2. E-tailer 3. Content provider 4.
Transaction broker 5. Market creator 6. Service
provider 7. Community provider
Financial services, travel services, job
placement, retail stock transactions. Web vs.
phone. Convenience and currency. Revenue per
transaction.
78
B2C
1. Portal 2. E-tailer 3. Content provider 4.
Transaction broker 5. Market creator 6. Service
provider 7. Community provider
eBay auctions, or reverse auctions like
PriceLine.com, where buyers proactively indicate
interest to buy and what they are willing to pay,
negotiate, tradeoff, deal.
79
B2C
Advice and consulting service, grocery shopping
like PeaPod, vacation or investment planning.
Subscription fees, one-time charge, or
commission micropayments (PayPal)
1. Portal 2. E-tailer 3. Content provider 4.
Transaction broker 5. Market creator 6. Service
provider 7. Community provider
80
B2C
1. Portal 2. E-tailer 3. Content provider 4.
Transaction broker 5. Market creator 6. Service
provider 7. Community provider
Establish communities of people through a common
interest, like parenting, gender, technology
forums, like specialized chat rooms, blog sites.
81
B2B
1. Marketplace / Exchange (hub) 2.
E-distributor 3. Service provider 4.
Matchmaker 5. Infomediary
Digital marketplace, Like open air
market Horizontal - by product Vertical - by
industry Eg., Covisint (auto parts)
82
B2B
1. Marketplace / Exchange (hub) 2.
E-distributor 3. Service provider 4.
Matchmaker 5. Infomediary
Like an e-tailer, but the customer audience is
other companies who buy in quantity at wholesale.
Catalog online, orders and payment arrangements
are more complex.
83
B2B
1. Marketplace / Exchange (hub) 2.
E-distributor 3. Service provider 4.
Matchmaker 5. Infomediary
Traditional Accounting, financial services, HR
management, payroll outsourcing.
84
B2B
1. Marketplace / Exchange (hub) 2.
E-distributor 3. Service provider 4.
Matchmaker 5. Infomediary
Transaction broker, hooks buyers up with
sellers, much like a real estate broker. Find
cheapest shipper, like iShip.com, or other
commodity or unique item online Amazon used book
links.
85
B2B
1. Marketplace / Exchange (hub) 2.
E-distributor 3. Service provider 4.
Matchmaker 5. Infomediary
Custodian of customer information, providing it
to others as requested. Now also includes firms
that gather customer data and provide it to
others for marketing.
86
Business models
1. B2C - business to consumer 2. B2B -business to
business 3. C2C - consumer to consumer 4. P2P -
peer to peer
Consumer sells to consumer, facilitated by market
creator like eBay.com or Half.com. Profitable.
87
Business models
1. B2C - business to consumer 2. B2B -business to
business 3. C2C - consumer to consumer 4. P2P -
peer to peer
Information sharing between consumers. Runs into
legal problems when sharing things that dont
belong to you!
88
Internet dangers

• Con artists exploiting the gullible, innocent, or
  unaware
• Real dangers of encouraging naïve users
  (newbies) to reveal too much personal
  information
• The worlds biggest bathroom wall.

89
Internet dangers

• Blogs, community sites easily exploited by
  criminals
• How is this to be prevented?

90
Spam, spoofing, phishing

• Spam unsolicited advertising e-mail
• Spoofing manipulating the apparent senders name
  to make spam look like
• Phishing spam that spoofs an address of a bank
  or organization and asks you to confirm account
  details by entering personal information

91
Opt-in, permission marketing

• Opt-in you agree to receive advertising, sales
  promotions, e-mails from a preferred vendor
• Permission marketing a synonym for this
  phenomenon
• Term was coined 1997 by Seth Godin in a book of
  this name

92
Opt-out, dangers

• Opt-out offers you a way to stop receiving more
  of the same
• Believable from a reputable vendor, especially
  one you have opted-in with
• Dangerous to accept the opt out button click on
  spam, since it just confirms that your address is
  live!

93
Internet inequalities

• Digital Divide is the gap between those who can
  participate meaningfully in the digitized world
  and those who are isolated from it
• What are the impacts of lack of access?
• What are the cultural impacts of modernization?

94
Internet displacements

• State governments and cities derive a portion of
  their revenues from sales taxes on goods sold
  vendors collect and remit to state
• Commerce hides from state taxes
• As e-commerce has grown, has negatively affected
  sales tax revenue

95
(No Transcript)
96
End