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E-Commerce: Digital Markets, Digital Goods

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Title: E-Commerce: Digital Markets, Digital Goods


1
10
Chapter
E-Commerce Digital Markets, Digital Goods
2
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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.coms 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

3
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
The Growth of E-Commerce
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.
Figure 10-1
4
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
  • Seven unique features of e-commerce
  • 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

5
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
  • 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

6
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
  • 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

7
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
  • Richness
  • Video, audio, text messages are possible
  • Business significance Video, audio, text
    integrated into single marketing message and
    experience
  • 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

8
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
  • 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

9
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
  • Personalization/customization
  • Technology allows personalized messages to be
    delivered to individuals as well as groups
  • Permits customizationchanging delivered product
    or service based on users preferences or prior
    behavior
  • Business significance
  • Personalization of marketing messages and
    customization of products and services are based
    on individual characteristics

10
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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

11
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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

12
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic 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
13
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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

14
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
  • Internet business models
  • Virtual storefront
  • Information broker
  • Transaction broker
  • Online marketplace
  • Content provider
  • Online service provider
  • Virtual community
  • Portal

15
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
  • Communication and community
  • Some new business models take advantage of
    Internets 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

16
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
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.
17
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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 Apples iTunes service and
    iPod
  • Enables independent producers
  • New distribution method

18
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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

19
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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

20
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
  • 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

21
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
  • 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

22
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
Web Site Visitor Tracking
Figure 10-3
E-commerce Web sites have tools to track a
shoppers every step through an online store.
Close examination of customer behavior at a Web
site selling womens clothing shows what the
store might learn at each step and what actions
it could take to increase sales.
23
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
Web Site Personalization
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.
Figure 10-4
24
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
  • 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

25
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
  • 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

26
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce and the Internet
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.
27
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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

28
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
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 10-5
29
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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

30
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
A Private Industrial Network
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.
Figure 10-6
31
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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

32
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
A Net Marketplace
Figure 10-7
Net marketplaces are online marketplaces where
multiple buyers can purchase from multiple
sellers.
33
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
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

34
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce
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.
35
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
M-Commerce
  • 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

36
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
M-Commerce
  • 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

37
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
M-Commerce
Global M-Commerce Revenue, 2000-2009
M-commerce sales represent a small fraction of
total e-commerce sales, but that percentage is
steadily growing. (Totals for 20062009 are
estimated.)
Figure 10-8
38
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
M-Commerce
  • 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

39
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce Payment Systems
  • 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

40
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce Payment Systems
  • 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

41
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce Payment Systems
  • 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

42
Management Information Systems Chapter 10
E-Commerce Digital Markets, Digital Goods
Electronic Commerce Payment Systems
  • 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
  • eBays PayPal Mobile Text2Buy service allows
    payments sent to mobile PayPal accounts via
    texting
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