E-Commerce: Digital Markets, Digital Goods

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E-Commerce Digital Markets, Digital Goods
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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

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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
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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

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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

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Management Information Systems Chapter 10
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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

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Management Information Systems Chapter 10
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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

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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

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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

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Management Information Systems Chapter 10
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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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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
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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

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Management Information Systems Chapter 10
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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
  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

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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.
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Management Information Systems Chapter 10
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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 Apples iTunes service and
  iPod
• Enables independent producers
• New distribution method

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Management Information Systems Chapter 10
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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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Management Information Systems Chapter 10
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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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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

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Management Information Systems Chapter 10
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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

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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.
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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
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Management Information Systems Chapter 10
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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

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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

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Management Information Systems Chapter 10
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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.
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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

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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
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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

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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
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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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Electronic Commerce
A Net Marketplace
Figure 10-7
Net marketplaces are online marketplaces where
multiple buyers can purchase from multiple
sellers.
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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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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.
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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

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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

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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
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Management Information Systems Chapter 10
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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

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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

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Management Information Systems Chapter 10
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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

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Management Information Systems Chapter 10
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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

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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