Chapter 10

Electronic Business and

E-Commerce
Digital Markets,Digital Goods

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Chapter 10
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OBJECTIVES

• Analyze how Internet technology has changed

value propositions and business models

• Define electronic commerce and describe how it

has changed consumer retailing and business-to-
business transactions

• Compare the principal payment systems for

electronic commerce

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Internet Technology and the Digital Firm

• Information technology infrastructure: The

Internet provides a universal and easy-to-use set
of technologies and technology standards that
can be adopted by all organizations.

• Direct communication between trading partners:

Disintermediation removes intermediate layers
and streamlines processes.

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Internet Technology and the Digital Firm (Continued)

• Round the clock service: Web sites available to

consumers 24 hours

• Extended distribution channels: Outlets created

for attracting customers who otherwise would not
patronize a firm

• Reduced transaction costs: Costs of searching for

buyers declines

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New Business Models and Value Propositions

Business Model:

• Defines an enterprise

• Describes how the enterprise delivers a product or

service

• Shows how the enterprise creates wealth

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COMMERCE, AND THE INTERNET

New Business Models and Value Propositions

New Business Model:
• In the past information about the products tightly
bundled with physical store value chain

• Because of internet, information is available to

everyone. Customers can buy directly from
internet bypassing retails stores.

• This unbundling of information creates new

business model
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The Changing Economies of Information

• Information asymmetry: One party in a transaction
has more information than the other. The Internet
decreases information asymmetry.

• Increases richness: The Internet increases the

depth, detail, and scope of information.

• Increases reach: The Internet increases the

number of people who can be contacted
efficiently.

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The Changing Economics of Information

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Internet Business Models – (pure play )

• Virtual storefront: Sells goods or services online
(Amazon.com)

• Information broker: Provides information on

products or services
(Edmunds.com,Insweb.com,Kbb.com,Realtor.com

• Transaction broker: Provides online transaction

facility (eTrade.com, Expedia.com)

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Internet Business Models (Continued)

• Online marketplace: Provides a trading platform
for individuals and firms
(eBay.com,priceline.com,ChemConnect.com)

• Content provider: Creates revenue by providing

content
(WSJ.com, TheStreet.com,GettyImages.com)

• Online service provider: Provides online services,

including search service. (Google.com,
Xdrive.com,Employease.com,backup.com)

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Internet Business Models (Continued)

• Virtual community: Provides an online community
to focused groups (Friendster.com, iVillage.com)

• Portal: Provides initial point of entry to Web,

specialized content, services (Yahoo.com,
MSN.com)

• Specialized portal: Helps users with specific

interest
(StarMedia.com,Sina.com)

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• The source of revenue for this web sites are

through

• Banner-ads

• Pop-up ads

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Categories of Electronic Commerce

• Business-to-customer (B2C): Retailing of products

and services directly to individual customers
(BarnesandNoble.com,Amazon.com)

• Business-to-business (B2B): Sales of goods and

services to other businesses (Grainger.com,
Ariba.com,Milacron.com)

• Consumer-to-consumer (C2C): Individuals using the

Web for private sales or exchange (eBay.com )
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Business-To-Consumer
Direct sales over the web:

• Customer-centered retailing: Closer and more

personalized relationship with customers is
possible

• Web sites: Provide a corporate-centered portal for

the consumer to quickly find information on
products, services, prices, orders

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Business-To-Consumer

Direct sales over the web: (Continued)

• Disintermediation: The elimination of

organizations or business process layers
responsible for certain intermediary steps in a
value chain, reducing costs to the consumer

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The Benefits of Disintermediation to the Consumer

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Interactive Marketing and Personalization

Interactive Marketing

Clickstream tracking tools:

• Collect data on customer activities at Web sites

and store them in a log

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Web Site Visitor Tracking

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Web Personalization

• Create unique personalized Web pages that

display contents and ads for products or services
of special interest to each user

• Increased closeness to customer increases value

to the customer, while reducing costs of
interacting with the customer

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Web Site Personalization

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Techniques for web personalization is collaborative

filtering

Collaborative filtering:

• Compares information gathered about a specific

user’s behavior at a Web site to data about other
customers with similar interests to predict what
the user would like to see next. The software then
makes recommendations to users based on their
assumed interests.
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Blogs
Web based tools for marketing-where individuals
can publish,stories,opinions

Example
Macro media uses web logs to nurture ties with
customer and introduce them to new features in the
software.

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Customer self-service:

• The use of Web sites to provide customers with

access to information and answers to questions

• Replacing human call center operators and clerks

• UPS.com: Customer tracking of packages

• Orbitz.com: Customer self-help for organizing and

managing a trip

• Dell.com: “My Order Status” facility

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Business-to-Business Electronic Commerce: New

Efficiencies and Relationships
• Electronic Data Interchange (EDI): Enables the
computer-to-computer exchange between two
organizations of standard transactions. Currently
80% of B2B e-commerce uses this system.

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Electronic Data Interchange (EDI)

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Private Industrial Networks or private exchange

• The largest Web-based form of B2B commerce

• Private B2B extranets that focus on continuous

business process coordination between a small group
of companies for collaboration and supply chain
management. Wal-Mart uses its own private network
to coordinate more than 15,000 suppliers to its stores.

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Extranets

Private intranets extended to authorized users outside

the company.

B2B use extranets for linking to other business

for purchase and sales transactions.

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A Private Industrial Network

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• Companies use internet than private network for EDI

Example

• E-Procurement: Platforms for purchasing goods and

materials and also sourcing, negotiating with suppliers,
paying for goods, and making delivery arrangements
(Ariba.com)

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A Net Marketplace

-Single digital market place based on Internet technology for

many different buyers and sellers

-Generating revenue from purchase and sale transactions

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Types of net marketplace

1.Sells direct goods

2.Sells indirect goods

3.Contractual purchasing based on long-time

4.Short term spot puchasing

5.Vertical markets

6. Horizontal markets

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Industry owned Net market place

Focus on long-term contract purchasing relationships and

on providing common networks and computing

platforms for reducing supply chain inefficiencis.

Example – Exostar

This aerospace and defence industry-sponsored Net

Marketplace to connect these companies to their suppliers

and facilitate collaboration on major projects.

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Independently owned third-party or Exchanges

Net marketplaces that can connect thousands of suppliers

and buyers for spot purchasing.Many exchanges provide

vartical markets for a single industry, such as

food,electronics.

Eg: FoodTrader.com

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A Net Marketplace

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10.4 Electronic Commerce Payment Systems

Credit cards The most common form of payment. $50 Limited customer liability.

Digital wallets Electronic storage of I.D. and digital cash. Not widely used.

Accumulated balance Used for micro payments. Similar to monthly telephone bills.

Stored value Used for micro payments. Pre-payment of funds, debited on use.

Smart Cards I.D. and credit information stored on a chip attached to a card. Used in Europe.

Digital cash Electronic currency that can be transferred over the Web.

Peer-to-Peer payment Interpersonal transfer of funds such as PayPal.

Digital checking Electronic checks with digital signatures, used most often in B2B commerce.

Electronic billing presentment Used by consumers to pay bills online, provided by many banks.
and payment

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Electronic Commerce Payment Systems

1.Digital Credit card Payment System

Extends the functionality of Credit card payment for on-line
purchasing. Capability for processing Credit card purchases on
the web.

Authenticating the purchaser's credit card to make sure

that it is valid and arranging for the bank that issued the
credit card to deposit in seller's bank account.

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2. Digital wallet
Eliminating the need for entering address and Credit card
information.A digital wallet securely stores Credit card
and owner identification information and provides that
information at an E-Commerce site's “Checkout counter”

A digital wallet enters the shopper's name,credit card

number and shipping information automatically when
invoked to complete the purchase.
Example: Amazon,MSN wallet.
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3. Micropayments
Developed for purchases of less than $10,such us downloads of
individual articles or music clips

(a) Accumulated balance digital payment systems

accumulating a debit balance that they must pay periodically on
their credit card or telephone bills
Example
PaymentOne and Trivnet enable consumers to charge small
purchases to their monthly telephone bill.
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(b) Stored value payment systems
Enables the consumers to make instant online payments to
merchants and other individuals based on value stored in a
digital account. On-line value systems rely on the value stored in
a consumer's bank or credit card
Example
Ecount offers a prepaid debit account for online purchases
RocketCash

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(c) Smart card

Another type of stored value system for micropayments. It is a
plastic card stores digital information.It can store health records,
identification data or telephone number or it can serve as
'electronic purse' in the place of cash.But it needs a Smart card
reader
Example

Mondex and American Express Blue Smart cards.

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4. Digital cash
Also known as electronic cash used for micropayments or
larger purchases. Digital cash is currency represented in
electronic form.Exchange money with other e-cash user.

useful for people who do not have credit card and wish to
make web purchases

example

eCoin.net

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Electronic Commerce Payment Systems

5.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.

The party sending money uses his credit card to create an account
with the designated payment at a web site dedicated to peer-to-peer
payments.

The recipient 'picks up' the payment by visiting the web site and supplying
information about where to send the payment
(a bank account or physical address)
Example PayPal
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6. Digital checking payment systems

Extend the functionality of existing checking accounts so

they can be used for on-line shopping payments.

These checks are encrypted with a digital signature that can be

verified and used for payments in E-commerce. It is useful in
B2B E-commerce.

Example
Western Union MoneyZap
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Electronic Commerce Payment Systems

7. Electronic billing presentment and payment systems
used for paying monthly routine bills. They enable users to view
their bills electronically and pay them through electronic fund
transfers from bank or credit card accounts. These services
support payment for on-line and physical store purchases about
bills that are due, present the bills, and process the payments

Example
CheckFree consolidate subscribers bills from various sources so
that they can all be paid at one time.

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