Chapter 10 Chapter 10: E Commerce: Digital Markets E Commerce: Digital Markets, Digital Goods Digital Goods

Management Information Systems Management Information Systems
MANAGING THE DIGITAL FIRM, 12TH EDITION CHAPTER 10: E‐COMMERCE: DIGITAL MARKETS, DIGITAL GOODS
Learning Objectives
Chapter 10 • What are the unique features of e‐commerce, digital

markets,
k t and d digital
di it l goods?
d?
• What are the principal e‐commerce business and revenue
EE‐COMMERCE:
COMMERCE: DIGITAL MARKETS
MARKETS, models?
DIGITAL GOODS • How has e‐commerce transformed marketing?
g
• How has e‐commerce affected business‐to‐business
transactions?
• What is the role of m‐commerce in business and what are
VIDEO CASES
the most important m‐commerce
m commerce applications?
Case 1: M‐Commerce: The Past, Present, and Future • What issues must be addressed when building an
Case 2: Ford AutoXchange B2B Marketplace
e‐commerce Web site?
2 © Prentice Hall 2011

CHAPTER 10: E‐COMMERCE: DIGITAL MARKETS, DIGITAL GOODS CHAPTER 10: E‐COMMERCE: DIGITAL MARKETS, DIGITAL GOODS
4FOOD: Burgers Go Social Ecommerce and the Internet
• Problem ‐ Differentiate a burger restaurant’s • E‐commerce today:

services in crowded marketplace (Manhattan)
– Use of the Internet and Web to transact
• Solution – Utilize social networking and business; digitally enabled transactions
crowdsourcing for marketing and services
– Ordering via iPad
iPad, online – Began
ega in 1995
995 aandd ggrew
e eexponentially,
po e a y, sstill
– Customers can create and name own sandwiches growing even in a recession
– Twitter, Facebook, Foursquare integration
– Companies that survived the dot‐com bubble
• Illustrates: Use of information systems to create
new products and services
burst and now thrive
• Demonstrates: Use of social networking – E‐commerce revolution is still in its early
technologies as marketing tool stages
3 © Prentice Hall 2011 4 © Prentice Hall 2011
Ecommerce and the Internet Ecommerce and the Internet

THE GROWTH OF E‐COMMERCE
• Why e‐commerce is different – 8 unique features
1. Ubiquity
• Internet/Web technology available everywhere:
work,, home,, etc.,, anytime.
y
• Effect:
– Marketplace removed from temporal
temporal, geographic
locations to become “marketspace”
– Enhanced
E h d customer
t convenience
i and
d reduced
d d
FIGURE 10‐1 Retail e‐commerce revenues grew 15–25 percent per year until the recession of 2008–2009, when they
shopping costs
slo ed measurably.
slowed meas rabl In 2010,
2010 e‐commerce
e commerce re
revenues
en es are growing
gro ing again at an estimated 12 percent annually.
ann all

• 8 unique features (cont.) • 8 unique features (cont.)
2. Global reach 3. Universal standards

• The technology reaches across national • One set of technology standards: Internet
boundaries,, around Earth standards
• Effect: • Effect:
– Commerce enabled across cultural and national – Disparate computer systems easily communicate with each
boundaries seamlessly and without modification other
– Lower
o e market
a et eentry
t y costs
costs—costs
costs merchants
e c a ts must
ust pay to b
bringg
– Marketspace
M k t iincludes,
l d potentially,
t ti ll billi
billions off goods to market
consumers and millions of businesses worldwide – Lower consumers’ search costs—effort required to find
suitable products
4. Richness 5. Interactivity
• Supports video, audio, and text messages • The technology works through interaction with
• Effect: the user
– Possible to deliver rich messages with text, audio, • Effect:
and video simultaneously to large numbers of – Consumers engaged in dialog that dynamically
people adjusts experience to the individual
– Video,
Vid audio,di and d text
t t marketing
k ti messages can be b – Consumer
C b
becomes co‐participant
ti i t iin process off
integrated into single marketing message and delivering goods to market
consumer experience

6. Information density 7. Personalization/Customization

• Large increases in information density—the • Technology permits modification of messages,
total amount and q qualityy of information g
goods
available to all market participants • Effect
• Effect: – Personalized messages can be sent to individuals as
– Greater price transparency well as groups
– Greater
G cost transparency – Products
P d t and d services
i can b
be customized
t i d tto
– Enables merchants to engage in price discrimination individual preferences

• 8 unique features (cont.) • Key concepts in e‐commerce

– Digital markets reduce
8. Social technology
• Information asymmetry
• The technology promotes user content
• Search costs
ggeneration and social networkingg
• T
Transaction
ti costst
• Effect • Menu costs
– New Internet social and business models enable – Digital markets enable
user content creation and distribution, and support
social networks • Price discrimination
• Dynamic pricing
s e ed a o
• Disintermediation


THE BENEFITS OF DISINTERMEDIATION TO THE CONSUMER
• Key concepts in e‐commerce
– Digital goods
• Goods that can be delivered over a digital network
– E.g. Music tracks, video, software, newspapers, books
• C
Costt off producing
d i first
fi t unit
it almost
l t entire
ti costt off
product: marginal cost of 2nd unit is about zero
• Costs of delivery over the Internet very low
• Marketing costs remain the same; pricing highly
variable
FIGURE 10‐2 The typical distribution channel has several intermediary layers, each of which adds to the final cost of a
• Industries with digital goods are undergoing
prod ct such
product, s ch as a sweater.
s eater Removing
Remo ing layers
la ers lowers
lo ers the final cost to the consumer.
cons mer revolutionary changes (publishers
(publishers, record labels,
labels etc.)
etc )

Ecommerce: Business and Technology Ecommerce: Business and Technology
• Types of e‐commerce • E‐commerce business models
• Business‐to‐consumer (B2C)
( ) – Portal
– E‐tailer
• Business
Business‐to‐business
to business (B2B) – Content Provider
– Transaction Broker
• Consumer‐to‐consumer
Consumer to consumer (C2C)
– Market Creator
• Mobile
M bil commerce ((m‐commerce)) – Service Provider
– Community Provider

TWITTER SEARCHES FOR A BUSINESS MODEL

Read the Interactive Session and discuss the following questions • E‐commerce revenue models
• Based on your reading in this chapter, how would you
characterize
h t i Twitter’s
T itt ’ business
b i model?
d l?
1. Advertising
• If Twitter
tte iss to have
a e a revenue
e e ue model,
ode , which
c oof tthe
e revenue
e e ue
2. Sales
models described in this chapter would work? 3. Subscription
• What
h iis the
h most iimportant asset that
h Twitter
i h
has and
dhhow 4
4. Free/Freemium
could it monetize this asset?
5. Transaction Fee
• What impact will a high customer churn rate have on
6. Affiliate
Twitter’ss potential advertising revenue?
Twitter

FACEBOOK: MANAGING YOUR PRIVACY FOR THEIR PROFIT

• Most popular Web 2.0 service: social networking Read the Interactive Session and discuss the following questions
– Social networking sites sell banner ads, user preference
information, and music, videos and e‐books • What concepts in the chapter are illustrated in this case?
• Describe the weaknesses of Facebook’s privacy policies and
• Social shopping sites features. What management, organization, and technology factors
– Swap shopping ideas with friends (Kaboodle, ThisNext) have contributed to those weaknesses?
• Wisdom of crowds/crowdsourcing • List and describe some of the options that Facebook managers
– Large numbers
b off people l can makek bbetter d
decisions about
b ha e in balancing privacy
have pri ac and profitability.
profitabilit How
Ho can Facebook
topics and products than a single person better safeguard user privacy? What would be the impact on its
profitability and business model?
• Prediction markets: • Do you anticipate that Facebook will be successful in developing a
– Peer‐to‐peer
p bettingg markets on specific
p outcomes business model that monetizes their site traffic? Why or why not?
(elections, sales figures, designs for new products)


WEB SITE VISITOR TRACKING
• E‐commerce marketing
– Internet provides marketers with new ways of
id if i and
identifying d communicating
i i with i h customers
– Longg tail marketing:
g Abilityy to reach a large
g
audience inexpensively
– Behavioral targeting: Tracking online behavior of
individuals on thousands of Web sites
– Advertising
d fformats include
l d search h engine
marketing, display ads, rich media, and e‐mail
FIGURE 10‐3 E‐commerce Web sites have tools to track a shopper
shopper’ss every step through an online store.
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.
WEB SITE HOW AN

PERSONALIZATION ADVERTISING
Firms can create unique NETWORK SUCH
personalized Web pages that AS DOUBLECLICK
display content or ads for
products or services of special WORKS
interest to individual users,
improving the customer Advertising networks
experience and creating have become
additional
dd l value.
l controversiall among
privacy advocates
because of their ability
FIGURE 10‐4
to track individual
consumers across the
Internet.
FIGURE 10‐5


ELECTRONIC DATA INTERCHANGE (EDI)
• Business‐to‐business e‐commerce
– Electronic data interchange (EDI)
• Computer‐to‐computer exchange of standard
transactions such as invoices, purchase orders
• Major industries have EDI standards that define
structure and information fields of electronic
documents for that industry
• More companies increasingly moving away from private
networks to Internet for linking to other firms
– E.g. Procurement: Businesses can now use Internet to locate FIGURE 10‐6 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
most low‐cost supplier, search online catalogs of supplier EDI to provide production and inventory requirements and payment data to suppliers.
products,
d negotiate
i with
i h suppliers,
li place
l orders,
d etc.

A PRIVATE
• Business‐to‐business e‐commerce (cont.) INDUSTRIAL
NETWORK
– Private industrial networks (private exchanges) A private industrial network,
• LLarge firm
fi using
i extranet
t t to
t lilinkk tto it
its suppliers,
li also known as a private
exchange, links a firm to its
distributors and other key business partners suppliers, distributors, and
other key business partners for
• Owned by buyer efficient supply chain
management and other
collaborative commerce
• Permits sharing of: activities.
– Product design and development FIGURE 10‐7
– Marketing
– Production scheduling and inventory management
– Unstructured communication (graphics and e‐mail) e mail)

A NET
• Business‐to‐business e‐commerce (cont.) MARKETPLACE
– Net marketplaces (e‐hubs) Net marketplaces are online
marketplaces where multiple
buyers can purchase from
• Single
Si l market
k t for
f many buyers
b and
d sellers
ll multiple sellers.
• Industry‐owned or owned by independent intermediary FIGURE 10‐8
• Generate revenue from transaction fees, other services

• U
Use prices
i established
t bli h d th
through
h negotiation,
ti ti auction,
ti
RFQs, or fixed prices
• May focus on direct or indirect goods
• Mayy be vertical or horizontal marketplaces
p

Ecommerce: Business and Technology The Mobile Digital Platform and Mobile Ecommerce
• Business‐to‐business e‐commerce (cont.) • M‐commerce

– Exchanges
– Although m‐commerce represents small
• Independently owned third‐party Net marketplaces
f
fraction
i off totall e‐commerce transactions,
i
• Connect thousands of suppliers and buyers for spot
purchasing revenue has been steadily growing
• Typically provide vertical markets for direct goods for • Location‐based services
single industry (food, electronics)
• Banking
B ki and d fi
financial
i l services
i
• Proliferated during early years of e‐commerce; many
have failed • Wireless advertisingg and retailingg
– Competitive bidding drove prices down and did not offer long‐ • Games and entertainment
term relationships with buyers or services to make lowering
prices worthwhile

The Mobile Digital Platform and Mobile Ecommerce Building an Ecommerce Web Site
CONSOLIDATED MOBILE COMMERCE REVENUES
• Assembling a team with the skills required to
make decisions about:
– Technology
– Site design
– Social and information policies
– Hardware,
Hardware software
software, and telecommunications
infrastructure
• Customer’s demands should drive the site’s
FIGURE 10‐9 Mobile e‐commerce is the fastest growing type of B2C e‐commerce although it represents only a small
part of all e‐commerce in 2010. technology and design
Building an Ecommerce Web Site Building an Ecommerce Web Site
• Business decisions drive the technology – not the • Alternatives in building the Web site
reverse
– Completely in‐house
– Business objectives
– Mixed
Mi d responsibility
ibili
• Capabilities the site should have
• E.g.
E g execute a transaction payment – Completely
p y outsourced
– System functionality • Co‐location
• Technological capability to achieve this objective • Web
b site b
budgets
d
• E.g. a shopping cart or other payment system
– Several thousand to millions / year
– Information requirements
– 50% of a budget is system maintenance and
• E.g.
.g. secure credit card clearing, multiple payment
options content
t t creation
ti

The Mobile Digital Platform and Mobile Ecommerce The Mobile Digital Platform and Mobile Ecommerce
CHOICES IN BUILDING AND HOSTING WEB SITES COMPONENTS OF A WEB SITE BUDGET
FIGURE 10‐10 You have a number of alternatives to consider when building and hosting an e‐commerce site.
FIGURE 10‐11

Management Information Systems
CHAPTER 10: E‐COMMERCE: DIGITAL MARKETS, DIGITAL GOODS
All rights reserved. No part of this publication may be reproduced, stored

in a retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording, or otherwise, without the
prior written permission of the publisher.
P i t d iin th
Printed the U
United
it d St
States
t off A
America.
i
Copyright © 2011 Pearson Education, Inc.
P bli hi as Prentice
Publishing P ti HallH ll
41 © Prentice Hall 2011

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Management Information Systems Management Information Systems

Chapter 10 • What are the unique features of e‐commerce, digital

Management Information Systems Management Information Systems

4FOOD: Burgers Go Social E­commerce and the Internet

• Problem ‐ Differentiate a burger restaurant’s • E‐commerce today:

E­commerce and the Internet E­commerce and the Internet

5 © Prentice Hall 2011 6 © Prentice Hall 2011

Management Information Systems Management Information Systems

E­commerce and the Internet E­commerce and the Internet

• 8 unique features (cont.) • 8 unique features (cont.)

2. Global reach 3. Universal standards

E­commerce and the Internet E­commerce and the Internet

• 8 unique features (cont.) • 8 unique features (cont.)

Management Information Systems Management Information Systems

E­commerce and the Internet E­commerce and the Internet

• 8 unique features (cont.) • 8 unique features (cont.)

6. Information density 7. Personalization/Customization

11 © Prentice Hall 2011 12 © Prentice Hall 2011

E­commerce and the Internet E­commerce and the Internet

• 8 unique features (cont.) • Key concepts in e‐commerce

13 © Prentice Hall 2011 14 © Prentice Hall 2011

Management Information Systems Management Information Systems

E­commerce and the Internet E­commerce and the Internet

15 © Prentice Hall 2011 16 © Prentice Hall 2011

E­commerce: Business and Technology E­commerce: Business and Technology

• Types of e‐commerce • E‐commerce business models

17 © Prentice Hall 2011 18 © Prentice Hall 2011

Management Information Systems Management Information Systems

E­commerce: Business and Technology E­commerce: Business and Technology

TWITTER SEARCHES FOR A BUSINESS MODEL

19 © Prentice Hall 2011 20 © Prentice Hall 2011

E­commerce: Business and Technology E­commerce: Business and Technology

FACEBOOK: MANAGING YOUR PRIVACY FOR THEIR PROFIT

Management Information Systems Management Information Systems

E­commerce: Business and Technology E­commerce: Business and Technology

E­commerce: Business and Technology E­commerce: Business and Technology

WEB SITE HOW AN

25 © Prentice Hall 2011 26 © Prentice Hall 2011

Management Information Systems Management Information Systems

E­commerce: Business and Technology E­commerce: Business and Technology

27 © Prentice Hall 2011 28 © Prentice Hall 2011

E­commerce: Business and Technology E­commerce: Business and Technology

– Product design and development FIGURE 10‐7

29 © Prentice Hall 2011 30 © Prentice Hall 2011

Management Information Systems Management Information Systems

E­commerce: Business and Technology E­commerce: Business and Technology

• Industry‐owned or owned by independent intermediary FIGURE 10‐8

• Generate revenue from transaction fees, other services

31 © Prentice Hall 2011 32 © Prentice Hall 2011

• Business‐to‐business e‐commerce (cont.) • M‐commerce

Management Information Systems Management Information Systems

Building an E­commerce Web Site Building an E­commerce Web Site

Management Information Systems Management Information Systems

39 © Prentice Hall 2011 40 © Prentice Hall 2011

All rights reserved. No part of this publication may be reproduced, stored

41 © Prentice Hall 2011

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