E - commerce As a part of information sys

E-commerce business. technology. society.

Chapter 1

The Revolution Is Just Beginning

E-commerce Developments and Themes—2006

More and more people and businesses are using the Internet to conduct commerce

The e-commerce channel is deepening as more products and services come online

Broadband and wireless Internet access are growing

E-commerce business models are being refined to achieve higher levels of profitability

E-commerce Defined

E-commerce involves digitally enabled commercial transactions between and among organizations and individuals

Digitally enabled transactions include all transactions mediated by digital technology

Commercial transactions involve the exchange of value across organizational or individual boundaries in return for products or services

E-commerce vs. E-business

We use the term e-business to refer primarily to the digital enablement of transactions and processes within a firm, involving information systems under the control of the firm

E-business does not include commercial transactions involving an exchange of value across organizational boundaries

Why Study E-commerce? E-commerce technology is different and

more powerful than any of the other technologies that we have seen in the past century.

E-commerce has challenged much traditional business thinking

Information asymmetry From mass marketing to customization

E-commerce has a number of unique features that help explain why we have so much interest in e-commerce

Seven Unique Features of E-commerce Technology and Their Significance

Is ubiquitous (available everywhere, all the time) Offers global reach (across cultural/national

boundaries) Operates according to universal standards (lowers

market entry for merchants and search costs for consumers)

Provides information richness (more powerful selling environment)

Is interactive (can simulate face-to-face experience, but on a global scale)

Increases information density (amount and quality of information available to all market participants)

Permits personalization/customization

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Seven Unique Feature of E-Commerce Technology

Ubiquity Alters industry structure by creating new

marketing channels and expanding size of overall market

Creates new efficiencies in industry operations and lowers cost of firms’ sales operations

Enables new differentiation strategies Global Reach

Changes industry structure by lowering barriers to entry, but greatly expands market at the same time

Lowers cost of industry and firm operations through production and sales efficiencies

Enables competition on global scale

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Seven Unique Features of E-Commerce Technology

Universal Standards Changes industry structure by lowering

barriers to entry and intensifying competition within an industry

Lowers costs of industry and firm operations by lowering computing and communications costs

Enables broad-scope strategies Richness

Alters industry structure by reducing strength of powerful distribution channels

Change industry and firm operations costs by lessening reliance on sales force

Enhances post-sale support strategies

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Interactivity Alters industry structure by reducing threat

of substitutes through enhanced customization

Reduces industry and firm costs by lessening reliance on sales force

Enable differentiation strategies Personalization/Customization

Alters industry structure by reducing threats of substitutes, raising barriers to entry

Reduces value chain costs in industry and firm by lessening reliance on sales forces

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Information Density Changes industry structure by

weakening powerful sales channels, shifting bargaining power to consumer

Reduces industry and firm operations costs by lowering costs of obtaining, processing, and distributing information about suppliers and consumers

Types of E-commerce

Classified by nature of market relationship Business-to-Consumer (B2C)

Amazon.com Business-to-Business (B2B)

Alibaba.com Consumer-to-Consumer (C2C)

Ebay.com

Classified by type of technology used Peer-to-Peer (P2P) Mobile commerce (M-commerce)

Potential Limitations on the Growth of B2C E-commerce

Expensive technology Complex software interface Sophisticated skill set Persistent cultural attraction of

physical markets and traditional shopping experiences

Persistent global inequality limiting access to telephones and computers

Assessing E-commerce: Successes, Surprises and Failures

E-commerce has been a stunning technological success

Early years of e-commerce have been a mixed success from a business perspective

Many visions developed during early days of e-commerce not fulfilled

Predictions for the Future

Technology of e-commerce will continue to propagate through all commercial activity

E-commerce prices will rise to cover the real cost of doing business on the Web and pay investors reasonable rate of return

E-commerce margins and profits will rise to levels more typical of all retailers

In B2C and B2B, traditional Fortune 500 companies will play growing and dominant role

Number of successful pure online companies will decline and most successful e-commerce firms will adopt mixed “clicks and bricks” strategies

Growth of regulatory activity worldwide

Amazon @ 15

Story of Amazon in many ways mirrors story of e-commerce itself

Jeff Bezos, VP, D.E SHAW Started in July 1995 Process of continuous change and exploration for

profits What are the reasons why people shop at Amazon? Why wasn’t it profitable from Day 1? When did it become profitable? How many of you have used Amazon recently? What was your experience? Do you think Amazon will remain profitable?

Chapter 2 E-commerce Models

Components of e-commerce Business Models

Business Model-Customer value- Scope- Price- Resources- Capabilities- Implementations

Business Model-Customer value- Scope- Price- Resources- Capabilities- Implementations

EnvironmentEnvironment

InternetInternet PerformancePerformance

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E-Commerce Business Models

Business model a set of planned activities designed

to result in a profit in a marketplace E-commerce business model

a business model that aims to use and leverage the unique qualities of the Internet and the World Wide Web.

Eight Key Ingredients of a Business Model

Key QuestionsBusiness Model Components

Value Proposition Why should the customer buy from you?

Revenue model How will you earn money?Market opportunityWhat marketspace do you intent to serve, and what is its size?

Competitive environmentWho else occupies your intended marketspace?

Competitive advantage What special advantages does your firm bring to the marketspace?

Market strategy How do you plan to promote your products to attract customer?

Organizationaldevelopment

What types of organizational structures within the firm arenecessary to carry out the business plan?

Management teamWhat kinds of experiences and background are important for the company’s leaders to have?

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Value Position Defines how a company’s product

or service fulfills the needs of customers.

Questions Why will customers choose to do

business with your firm instead of another company?

What will your firm provide that other firms do not and cannot?

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Revenue Model Describes how the firm will earn

revenue, produce profits, and produce a superior return on invested capital.

E-commerce revenue models include: advertising model – Yahoo.com subscription model –wsj.com transaction fee model –ebay.com sales model – Doubleclick.net affiliate model – Mypoints.com

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Revenue Model Advertising revenue model

a company provides a forum for advertisements and receives fees from advertisers (Yahoo)

Subscription revenue model a company offers it users content or

services and charges a subscription fee for access to some or all of it offerings (Consumer Reports or Wall Street Journal)

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Revenue Model Transaction fee revenue model

a company receives a fee for enabling or executing a transaction (eBay or E-Trade)

Sales revenue model a company derives revenue by selling

goods, information, or services (Amazon or DoubleClick)

Affiliate revenue model a company steers business to an

affiliate and receives a referral fee or percentage of the revenue from any resulting sales (MyPoints)

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Market Opportunity Market opportunity

refers to the company’s intended marketspace and the overall potential financial opportunities available to the firm in that market space

defined by the revenue potential in each of the market niches where you hope to compete

Marketspace the area of actual or potential

commercial value in which a company intends to operate

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Competitive Environment Refers to the other companies

operating in the same marketplace selling similar products

Influenced by: how many competitors are active how large are their operations the market share of each competitor how profitable these firms are how they price their products

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Competitive Advantage Achieved by a firm when it can

produce a superior product and/or bring the product to market at a lower price than most, or all, of its competitors

Achieved because a firm has been able to obtain differential access to the factors of production that are denied their competitors -- at least in the short term

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Competitive Advantage Asymmetry

exists whenever one participant in a market has more resources than other participants

First mover advantage a competitive market advantage for a

firm that results from being the first into a marketplace with a serviceable product or service

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Competitive Advantage Unfair competitive advantage

occurs when one firm develops an advantage based on a factor that other firms cannot purchase

Brand name Perfect Market

a market in which there are no competitive advantages or asymmetries because all firms have equal access to all the factors of production

when a company uses its competitive advantage to achieve more advantage in surrounding markets

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Market Strategy The plan you put together that

details exactly how you intend to enter a new market and attract new customers

Best business concepts will fail if not properly marketed to potential customers

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Organizational Development Describes how the company will

organize the work that needs to be accomplished

Work is typically divided into functional departments

Move from generalists to specialists as the company grows

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Management Team Employees of the company responsible

for making the business model work Strong management team gives instant

credibility to outside investors A strong management team may not be

able to salvage a weak business model Should be able to change the model

and redefine the business as it becomes necessary

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Major Business-to-Consumer (B2C) Business Models

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Portal offers powerful search tools plus an

integrated package of content and services

typically utilizes a combines subscription/advertising revenues/transaction fee model

may be general or specialize (vortal)

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E-tailer online version of traditional retailer includes

virtual merchants (online retail store only) clicks and mortar e-tailers (online

distribution channel for a company that also has physical stores)

online malls (online version of mall) Manufacturers selling directly over the

Web

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Content Provider information and entertainment

companies that provide digital content over the Web

typically utilizes an advertising, subscription, or affiliate referral fee revenue model

Transaction Broker processes online sales transactions typically utilizes a transactions feel

revenue model

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Market Creator uses Internet technology to create

markets that bring buyers and sellers together

typically utilizes a transaction fee revenue model

E.g. Auction English auction Dutch auction Sealed-bid auction Double auction

English Auctions

The bidders announce their bids until no higher bid is forthcoming ‘going . . . going . . . gone!’ Ascending-price auctions Typically set a closing time in advance

Minimum bid plus a reserve price Early buyout price

Dutch Auctions

Bidding starts at a high price and drops until a bidder accepts the price Descending price auctions

Sealed-Bid Auctions

Bidders submit their bids independently and are usually prohibited from sharing information with each other

First-price sealed-bid auction The winner pays his amount

Second-price sealed-bid auction The winner pays one increment over the

second-highest bid received

Double Auctions

Buyers and sellers submit bids to an auctioneer

The auctioneer matches the seller’s offers to the buyer’s offer E.g. New York Stock Exchange

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Service Provider offers services online

Community Provider provides an online community of like-

minded individuals for networking and information sharing

revenue is generated by referral fee, advertising, and subscription

e-Business Models

Dynamic Pricing Models Name-Your-Price Model Comparison-Pricing Model Demand-Sensitive Pricing Model

Name-Your-Price Model

Allows customers to state the price they are willing to pay

Priceline.com Demand collect systems

Use shopping bot that takes customer’s bid to the Priceline partners to see whether they will accept the prices for the requested products/services

Intelligent agents

Comparison-Pricing Model

Allows customers to poll a variety of merchants and find a desired product/service at the lowest price

Mysimon.com Uses intelligent-agent technology Offers discussion groups, customer

ratings, and comparison shopping

Demand-Sensitive Pricing Model

Group purchasing Individual buyers to shop in large groups to

obtain group discount The more people who buy a product in a single

purchase, the lower the cost per person becomes Mercata.com, mobshop.com, demandline.com

How it works Buyers create requests for quotes (RFQs) Purchasing manager monitors all aggregated

RFQs Manager negotiates through suppliers.

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Major Business-to-Business (B2B) Business Models

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B2B Hub also known as marketplace/exchange electronic marketplace where

suppliers and commercial purchasers can conduct transactions

may be a general (horizontal marketplace) or specialized (vertical marketplace)

E-distributor supplies products directly to

individual businesses

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B2B Service Provider sells business services to other firms

Matchmaker links businesses together charges transaction or usage fees

Infomediary gather information and sells it to

businesses

Case Studies

Should we integrate our Internet business with our traditional business or should we keep the two separate?

Seamless Model: Office Depot

Two reasons Existing catalog-sales support an Internet

store Existing information systems made it easy

to coordinate online stores and physical stores

Customers’ Benefit Make shopping simple and convenient

Company’s Benefit Cheaper to reach customers

Seamless Model: Office Depot

Added Value Each customer has its own specialized

view of the OfficeDepot.com site authorization

Provide additional discount for larger customers if they place order on online

Actually increased the traffic at its physical outlet

Joint Venture Model: KB Toy

Reasons Don’t have much experience with

catalog retailing Tend to focus exclusively on their

physical stores KB Toy and Kbkids.com

KB Toy joined with BrainPlay.com to create Kbkids.com

$80 million

Joint Venture Model: KB Toy

Operation Separation

Kbkids headquarter: Denver KB Toy headquarter: MA

Integration Share brand: promotion Customer service Purchasing function

Virtual Partnership

Rite Aid and Drugstore.com Customer benefit

Customers can pick up their Drugstore.com prescriptions at their local Rite Aid

A Spectrum of Choices

Model Brand Management Operation

Seamless Fully integrated Fully integrated Fully integrated

Joint VentureMostly

integratedSlightly

integratedModerately integrated

Partnership SeparateSlightly

integratedModerately integrated

Documents

E - commerce As a part of information sys