E-Commerce Fundamentals

Intended Learning Outcomes

• Complete an online marketplace analysis to assess competitor, customer, and
intermediary use of the Internet as part of strategy development,

• Identify the main business and marketplace models for electronic

communications and trading,

• Evaluate the effectiveness of business and revenue models for online businesses.
Situation Analysis and Environmental Scanning
1.Situation analysis: Collection and review of information about an organization’s
external environment and internal processes and resources in order to inform its
strategies.
• Online element of an organization’s environment are the part of situation analysis.

2.Environmental Scanning: The process of continuously monitoring the

environment and events and responding accordingly. SLEPT

3.Online intermediaries: Web sites which help connect web users with content
they are seeking on destination sites, e.g., search engines, shopping comparison
sites and traditional brokers, directories, blogs, social media.
e-Business Environment
e-Business Environment: Constraints and Opportunities
Micro-environment
• Customers
 which services are they offering via their web site that your organization could
support them in?
• Competitors
 need to be benchmarked in order to review the online services they are offering – do
they have a competitive advantage?
• Intermediaries
are new or existing intermediaries offering products or services from your
competitors while you are not represented?
• Suppliers
 are suppliers offering different methods of procurement to competitors that give
them a competitive advantage?
e-Business Environment: Constraints and Opportunities
Macro-environment
• Society
 what is the ethical and moral consensus on holding personal information?
• Country specific, international legal
 what are the local and global legal constraints for example, on holding personal
information, or taxation rules on sale of goods?
• Country specific, international economic
 what are the economic constraints of operating within a country or global
constraints?
• Technology
 what new technologies are emerging by which to deliver online services such as
interactive digital TV and mobile phone-based access?
Strategic Agility
• The capability to respond to environmental opportunities and threats to gain
competitive advantages.
• “The capability to innovative and so gain competitive advantages within a marketplace by
monitoring changes within an organization’s marketplace and then to efficiently evaluate
alternative strategies and then select, review and implement appropriate candidate strategies”.
• Strongly associated with knowledge management theory.

• Why its needed?

• Reviewing opportunities and threats of the marketplace and selecting appropriate strategy option.
Strategic Agility: Requirements and Characteristics?
• Efficient collection, dissemination and evaluation of different information sources from
the micro-and-macro-environment.
• Effective process for generating and reviewing the relevance of new strategies based on
creating new value for customers.
• Efficient research into potential customer value against the business value generated.
• Efficient implementation of prototypes of new functionality to deliver customer value.
• Efficient measurement and review of results from prototypes to revise further to improve
proposition or to end trial.
Online Marketplace Analysis: Elements
1. Customer segments
• Identify and summarize different target segments
• Understand their online media consumption, buyer behavior and type of content they
searched.
2. Search intermediaries
• Different search engines are popular in different country or region.
• Identify which search engine is more effective in harnessing search traffic.
• “Share of Search”: the audience share of Internet searches achieved by a particular
audience in a particular market.
• The precise key phrases used by visitors to actually reach a site from different search
engines.
3. Intermediaries and media sites (see next page)
4. Destination sites
• The sites that the marketer tries to generate traffic to.
An Online Marketplace Map
How do you analyse e-Marketplace?

• Unique visitors
 Individual visitors to a site measured through cookies or IP addresses on an individual computer.

• Resources:
 Alexa (www.alexa.com): Free service, owned by Amazon, provides traffic ranking
of a site.
 Hitwise (www.hitwise.com): Paid service, compare audience size and search and
site usage.
 Comscore (www.comscore.com) : Panel service based on at-home and at-work
users, favorite tool for media planners.
 Forrester (www.forrester.com) : Offers reports on Internet usage & best practice
in different vertical sectors.
 Gartner (www.gartner.com) : Focused on technology adoption.
Marketplace Channel
Structure
It describes the way a manufacture / supplier
delivers products and services to its
customers.

Distribution channel often consist of one or

more intermediaries such as wholesalers and
retailers.

However, manufacturers can bypass retailers

and sell direct to the customers.
A Disintermediation
Process
• Disintermediation
• The removal of intermediaries
such as distributors or brokers
that formerly linked a company
to its customers.
• iTunes for music distribution
• Benefits
• Remove the sales and
infrastructure cost.
• 28% for Case b, 62% for Case c.
Disintermediation of a consumer distribution channel showing (a) the
original situation, (b) disintermediation omitting the wholesaler, and c)
disintermediation omitting both wholesaler and retailer.
Original Situation to Disintermediation to Reintermediation

• Reintermediation
• Significant phenomenon
resulting from Internet-based
communications.
• The creation of new
intermediaries between
customers and suppliers
providing services such as
supplier search and product
evaluation.
• www.Esurance.com
• Countermediation
Where do We Trade?
• Electronic Marketplace
• A virtual marketplace such as the Internet in which no direct contact occurs between
buyers and sellers.
• There could be many alternative virtual locations.

• Types of location where we can trade:

• Seller-controlled: home site of organization selling products, e.g., www.dell.com
• Seller-oriented: intermediaries, controlled by third party, but seller-focused, e.g.,
www.opodo.com
• Neutral: independent evaluator intermediaries that enable price and product comparison,
e.g., eBay, CNET.
• Buyer-oriented: Intermediaries, controlled by buyers, e.g., www.covisint.com
• E-Buyer-controlled: Web-site procurement posting on company’s own site, buyers initiates
the market making, e.g., GE
Where do we trade (cont’d)
Variations in the location and scale of trading on e-commerce sites

Most e-tailers, e.g., Amazon, Dell

Many suppliers to a single customer,

e.g., www.gxs.com (GE Subsidiary
Global eXchange Services)

Many suppliers to many customers,

e.g., www.vetmarkets.com
Commercial Mechanisms & Online Transactions
1. Negotiated deal: Negotiation-bargaining between single seller and
buyer, e.g., www.commerceone.net)
2. Brokered deal: Intermediaries offering auction, e.g.,
www.screentrade.co.uk
3. Auction: e.g., www.eBay.com
4. Fixed-price sale: Online catalogue with fixed prices, e.g., all e-tailers.
5. Pure markets: e.g., electronic seller dealing, buyers’ and sellers’ bids
instantly
6. Barter: Buyers and sellers exchanges goods, e.g.,
www.bartercard.co.uk , www.intaglio.com
 Multi-channel
Marketplace Model
Consumers use a combination
of channels for their
purchases.

M-Channel Defines how

different marketing
channels should integrate
and support each other.
Channel chain map for consumers selecting an estate agent to sell their property.
Business model
• Timmers (1999) defines a ‘business model’ as:
• “An architecture for product, service and information flows, including a description of the various business actors and
their roles; and a description of the potential benefits for the various business actors; and a description of the sources of
revenue”.
• Alternatively, it’s a summary of how a company
• will generate a profit
• identifies its core product or service value proposition,
• target customer
• Position in competitive marketplace or value chain
• projection for revenue and costs.
Business model: Key Elements
• Key elements: 8
1. Value proposition: which products & services will the company offer?
2. Market or audience: which audience will the company serve and target?
3. Revenue models and cost base: How will company generate its income?
4. Competitive environment: who are the direct and indirect competitors and their
possession in the marketplace?
5. Value chain and marketing positioning: How is the company and its service
positioned compare to its competitors?
6. Representation in the physical & virtual world (Market Strategy): relative
representation in the offline and online market, e.g., high-street presence, online only,
intermediary, mixture?
7. Organizational structure: internal structure to create, promote, deliver services.
8. Management: experience, skills and expertise of a management team.
Value Proposition
• “Why should the customer buy from you?”
• Successful e-commerce value propositions:
• Personalization/customization
• Reduction of product search, price discovery costs
• Facilitation of transactions by managing product delivery
Market Opportunity
• “What marketspace do you intend to serve and what is its size?”
• Marketspace: Area of actual or potential commercial value in which company
intends to operate
• Realistic market opportunity: Defined by revenue potential in each market
niche in which company hopes to compete
• Market opportunity typically divided into smaller niches
Revenue Model
• “How will you earn money?”
• Major types of revenue models:
• Advertising revenue model
• Subscription revenue model
• Freemium strategy
• Transaction fee revenue model
• Sales revenue model
• Affiliate revenue model
Competitive Environment
• “Who else occupies your intended marketspace?”
• Other companies selling similar products in the same marketspace
• Includes both direct and indirect competitors
• Influenced by:
• Number and size of active competitors
• Each competitor’s market share
• Competitors’ profitability
• Competitors’ pricing
Competitive Advantage
• “What special advantages does your firm bring to the marketspace?”
• Is your product superior to or cheaper to produce than your competitors’?
• Important concepts:
• Asymmetries
• First-mover advantage, complementary resources
• Unfair competitive advantage
• Leverage
• Perfect markets
Market Strategy
• “How do you plan to promote your products or services to attract
your target audience?”
• Details how a company intends to enter market and attract customers
• Best business concepts will fail if not properly marketed to potential
customers
Organizational Structure
• “What types of organizational structures within the firm are necessary
to carry out the business plan?”
• Describes how firm will organize work
• Typically, divided into functional departments
• As company grows, hiring moves from generalists to specialists
Management Team
• “What kind of backgrounds should the company’s leaders have?”
• A strong management team:
• Can make the business model work
• Can give credibility to outside investors
• Has market-specific knowledge
• Has experience in implementing business plans
Raising Capital
• Seed capital
• Elevator pitch
• Traditional sources
• Incubators, angel investors
• Commercial banks, venture capital firms
• Strategic partners
• Crowdfunding
• JOBS Act
How to Assess the dot.com
1. Concept: potentiality to generate revenue, value proposition, realistic market
size.
2. Innovation: whether company merely imitates the existing real-world or online
model.
3. Execution: promotion, performance, availability, security, fulfilment
4. Traffic: Page impression (no. of visitors, no. of pages visited, no. of transactions
made).
5. Financing: company’s ability to attract venture capital or other funding to help
execute the idea. Important for promoting new business ideas.
6. Profile: company’s ability to generate favorable publicity and to create
awareness within its target market.
Questions?