The Digital Firm: Electronic Business and Electronic Commerce

1. Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce

2. Objectives • How has Internet technology changed value propositions and business models? • What is electronic commerce? How has electronic commerce changed consumer retailing and business-to-business transactions? • What are the principal payment systems for electronic commerce?

3. Objectives • How can Internet technology facilitate management and coordination of internal and interorganizational business processes? • What are the major managerial and organizational challenges posed by electronic business and electronic commerce?

4. Management Challenges • Digitally integrating the enterprise requires a complete change of mind-set. • Finding a successful Internet business model.

5. 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

6. 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

7. Electronic Business, Electronic Commerce, and the Emerging Digital Firm New Business Models and Value Propositions Information Asymmetry • One party has more information essential to the transaction than the other party • The Internet shrinks information asymmetry

8. Electronic Business, Electronic Commerce, and the Emerging Digital Firm New Business Models and Value Propositions Richness and Reach • Richness: depth and detail of information • Reach: how many people a business can connect with; how many products offered those people • Internet allows much richer communication with farther reach

9. Electronic Business, Electronic Commerce, and the Emerging Digital Firm The changing economics of information Figure 4-1

10. 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. • Information broker: Provides product pricing and availability information; generates revenue from advertising or directing buyers to sellers. • Transaction Broker: Processes online sales transactions for fee.

11. 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 • Content Provider: Provides digital content, such as news; revenue from fees or advertising sales • Online Service Provider: Provides connectivity; revenue from fees, advertising, or marketing information

12. Electronic Business, Electronic Commerce, and the Emerging Digital Firm New Business Models and Value Propositions Internet Business Models (cont.) • Virtual Community: Provides online meeting place for people of similar interests • Portal: Provides initial point of entry to the Web, along with specialized content and services • Syndicator: aggregates content or applications to resell as package to third-party Web sites

13. 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

14. 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”

15. Electronic Commerce The benefits of disintermediation to the consumer Figure 4-2

16. 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 on Web site to individual’s profile and purchase history • Web sites and marketing shorten sales cycle and reduce time spent in customer education

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 • 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 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

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 Before-after diagram of changes in Lightnin’s ordering process Figure 4-4

22. 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

23. Electronic Commerce A private industrial network Figure 4-5

24. 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

25. Electronic Commerce A Net marketplace Figure 4-6

26. 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

27. 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 • Accumulated balance digital payment systems: Accumulates micropayment purchases as debit balance paid periodically on credit card or telephone bills

28. Electronic Commerce Electronic Commerce Payment Systems • Stored value payment system: Enables consumers to make instant payments based on value stored in digital account • Digital cash: Digital currency that can be used for micropayments or larger purchases • Peer-to-Peer payment systems: Enables payments to vendors not set up for credit-card payments

29. 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

30. Electronic Commerce Electronic commerce information flows Figure 4-7

31. 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

32. 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 • Reduced information distribution costs

33. 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

34. Electronic Business and the Digital Firm Functional applications of intranets Figure 4-8

35. 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

36. Management Challenges and Opportunities Business Process Change Requirements • Unproven business models • Business process change requirements • Channel conflicts • Legal issues • Trust, security, and privacy

37. 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?

38. Chapter 4 Case Study Can the Music Industry Change Its Tune? • Apply the value chain and competitive forces models to the music recording industry. • What role did the Internet play in changing value propositions and the competitive environment? To what extent has it been responsible for declining CD sales? Explain your answer.

39. Chapter 4 Case Study Can the Music Industry Change Its Tune? • Analyze the response of the music recording industry to these changes. What management, organization, and technology issues affected this response? • What is the current business strategy of the music industry? Do you think it is viable? Explain your answer.