LA SAGESSE UNIVERSITY MIS400 – Business 

Information Systems
Faculty of Business Administration and Finance

CHAPTER 10
E-COMMERCE: DIGITAL MARKETS, DIGITAL GOODS

Twenty-four/seven–the mantra of the Internet. Whether it’s buying, selling, gathering information,
managing, or communicating, the driving force behind the evolutionary and revolutionary business is the
Internet and its technological advances.

10.1 E-commerce and the Internet

Perhaps you simply used the Internet to research the cost of products without actually purchasing a
product or service online. Perhaps you emailed a company to get an answer to a question you had about a
product after you purchased it at a regular brick-and-mortar store. Or, maybe you compared prices
between two businesses to get the best deal. If you did any of these you are among the growing legions
that rely on the Internet as a new way of conducting business and commerce.

E-Commerce Today

E-commerce refers to the use of the Internet and the Web to transact business. More formally, e-
commerce is about digitally enabled commercial transactions between and among organizations and
individuals.

Why E-commerce is Different

Why has e-commerce grown so rapidly? The answer lies in the unique nature of the internet and the web.
The internet and e-commerce technologies are much more rich and powerful than previous technology
revolutions like radio, television, and the telephone. Eight features make e-commerce so different:

Ubiquity:
E-commerce is ubiquitous, meaning that is available just about everywhere, at all times. It makes it
possible to shop from the desktop, at home, at work, or even from the car, using mobile commerce. The
result is called a marketspace – a marketplace extended beyond traditional boundaries and removed from
geographic location. From a consumer point of view, ubiquity reduces transaction costs – to transact
business, it is no longer necessary to spend time or money traveling to a market, and mush less mental
effort is required to make a purchase.

Global Reach:
The Internet opens markets to new customers. The technology reaches across national boundaries, around
earth. As a result, marketspace includes, potentially, billions of consumers and millions of businesses
worldwide

Universal standards:
One of the primary reasons e-commerce has grown so quickly and has become so wide-spread is due to
the universal standards upon which the technology is built. Businesses don’t have to build proprietary
hardware, software, or networks in order to reach customers (lower market entry costs). Customers can
use the universally accepted Internet tools to find new products and services quickly and easily (lower
search costs).
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Richness:
The Web makes it possible to deliver rich messages with text, audio, and video simultaneously to large
numbers of people. The richness of information available to customers, coupled with information that
merchants are able to collect about them, is opening up new opportunities for both businesses and
consumers.

Interactivity:
E-commerce technologies are interactive, meaning they allow for two-way communication between
merchant and consumer. Interactivity allows an online merchant to engage a consumer in ways similar to
face-to-face experience but on a massive, global scale.

Information Density:
The internet and the web vastly increase information density – the total amount and quality of information
available to all market participants, consumers, and merchants. Information density in e-commerce
markets make prices and costs more transparent.

Personalization/Customization:
E-commerce technologies permit personalization: modification of messages. Personalized messages can
be sent to individuals as well as groups. The technology also permits customization – changing the
delivered product or service based on a user’s preferences.

Social Technology:
The Internet and e-commerce technologies have evolved to be much more social by allowing users to
create and share with their personal friends the content in the form of text, videos, music, or photos.

Key Concepts in E-commerce: Digital Markets and Digital Goods in a Global Marketplace

Disintermediation: removing the middleman, has allowed many companies to improve their profits
while reducing prices. In other words, the removal of organizations or business process layers responsible
for intermediary steps in a value chain is called disintermediation.

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Digital Goods

Digital goods are goods that can be delivered over a digital network. Music, tracks, video, movies,
software, newspapers, magazines, and books can all be expressed, stored, delivered, and sold as purely
digital products

10.2 E-commerce: Business and Technology

Types of E-commerce

E-commerce is divided into three major categories:

 Business-to-consumer (B2C): E-commerce involves retailing products and services to individual

shoppers.
 Business-to-business (B2B): E-commerce involves sales of goods and services among businesses.
 Consumer-to-consumer (C2C): E-commerce involves consumers selling directly to consumers.

The use of handheld wireless devices for purchasing goods and services from any location is termed
mobile commerce or m-commerce.

E-Commerce Business Models

Some of the most important internet business models:

 Portal: Provides initial point of entry to the Web along with specialized content and other
services. Ex.: Yahoo, Bing, Google.
 E-tailer: Sells physical products directly to consumers or to individual businesses. Ex.:
Amazon.
 Content provider: Creates revenue by providing digital content, such as news, music, photos,
or video, over the Web. The customer may pay to access the content, or revenue may be
generated by selling advertising space. Ex.: ITunes.com, games.com.
 Transaction broker: Saves users money and time by processing online sales transactions and
generating a fee each time a transaction occurs. Ex.: Expedia, ETrade.com.
 Market creator: Provides a digital environment where buyers and sellers can meet, search for
products, display products, and establish prices for those products. Ex.: eBay, Priceline.com.
 Service provider: Provides applications such as photo sharing, video sharing, and user-
generated content as services. Provides other services such as online data storage and backup.
Ex.: Google Apps, Xdrive.com.
 Community provider: Provides an online meeting place where people with similar interests
can communicate and find useful information. Ex.: Facebook, MySpace, Twitter.

There are dozens of examples of each of these business models that you probably use all the time. Some
of them overlap each other and that’s okay. The idea is that you have to create a site that gives people
what they want, when they want it, and make it convenient and easy to use. The more difficult aspect of
the business model you choose is how to generate revenue from it.

E-Commerce Revenue Models

A firm’s revenue model describes how the firm will earn revenue, generate profits and produce a
superior return on investment. Although there are many different e-commerce revenue models that have

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been developed, most companies rely on one, or some combination of the following six revenue models:
advertising, sales, subscription, free/freemium, transaction fee, and affiliate.

 Advertising revenue: Charge advertisers the right to place ads on the site. It’s the most widely
used method of generating revenue.
 Sales revenue: Sell products, information or services directly to users. You’ll need a viable,
secure micropayment system that processes high volumes of very small monetary
transactions.
 Subscription revenue: Charge an ongoing fee for content or services like magazines and
newspapers already do offline.
 Free/Freemium revenue: Provide basic content or services free but charge a premium for
special features.
 Transaction Fee revenue: Charge a fee for enabling or executing a transaction. You don’t have
to physically own the service or content. Rather, you act as the middleman.
 Affiliate revenue: send visitors to other web sites in return for a referral fee or percentage of
the revenue from any resulting sales.

B2B E-Commerce: New Efficiencies and Relationships

Electronic Data interchange (EDI) enables the computer-to-computer exchange between two
organizations of standard transactions such as invoices, bills, shipment schedules, or purchase orders.
Transactions are automatically transmitted from one information system to another through a network,
eliminating the printing and handling of paper at one end and the inputting of data at the other. Although
many organizations still use private networks for EDI, they are increasingly Web-enabled because
internet technology provides a much more flexible and low-cost platform for linking to other firms.

10.3 Building an E-commerce Web Site

Building a successful e-commerce site requires an understanding of business, technology, and social
issues. The two most important management challenges in building a successful e-commerce site are:
- Developing a clear understanding of your business objectives
- Knowing how to choose the right technology to achieve those objectives.

Building the Web Site: In-house Versus Outsourcing

There are many choices for building and maintaining Web sites. Much depends on how much money the
firm is willing to spend. Choices range from outsourcing the entire Web site development to an external
vendor to building everything in-house. There is also a second decision to make: will the organization
host (operate) the site on the firm’s own servers or will it outsource the hosting to a web host provider?

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