E-Commerce: Digital Markets, Digital Goods

1. E-Commerce: Digital Markets, Digital Goods

2. 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.com’s 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. 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. 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. 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. 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. 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. 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. Electronic Commerce and the Internet • Personalization/customization • Technology allows personalized messages to be delivered to individuals as well as groups • Permits customization—changing delivered product or service based on user’s preferences or prior behavior • Business significance • Personalization of marketing messages and customization of products and services are based on individual characteristics

10. 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. 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. 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. 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. 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. Electronic Commerce and the Internet • Communication and community • Some new business models take advantage of Internet’s 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. 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. 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 Apple’s iTunes service and iPod • Enables independent producers • New distribution method

18. 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. 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. 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. 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. Electronic Commerce Web Site Visitor Tracking Figure 10-3 E-commerce Web sites have tools to track a shopper’s every step through an online store. Close examination of customer behavior at a Web site selling women’s clothing shows what the store might learn at each step and what actions it could take to increase sales.

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

33. 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. 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. 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. 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. 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 2006–2009 are estimated.) Figure 10-8

38. 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. 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. 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. 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. 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 • eBay’s PayPal Mobile Text2Buy service allows payments sent to mobile PayPal accounts via texting

43. Questions • Describe how E – Commerce technology will be in the future. Will it raise or not? Explain your answer! • Explain which type digital payment you had used before. Explain your answer. • If you are a leader of a business, explain what kind of business you will choose as your business using e – commerce. Describe how you will use E – commerce for your business.