MIS Lecture Note 8

7/22/2019 MIS Lecture Note 8

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Management Information SystemsMANAGING THE DIGITAL FIRM, 12TH EDITION

E-COMMERCE: DIGITAL MARKETS,DIGITAL GOODS

Chapter 10


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Management Information Systems

What are the unique features of e-commerce, digitalmarkets, and digital goods?

What are the principal e-commerce business and revenue

models?

How has e-commerce transformed marketing?

How has e-commerce affected business-to-businesstransactions?

What is the role of m-commerce in business and what arethe most important m-commerce applications?

What issues must be addressed when building ane-commerce Web site?

Learning Objectives

CHAPTER 10: E-COMMERCE: DIGITAL MARKETS, DIGITAL GOODS

Prentice Hall 20112


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E-commerce today:

Use of the Internet and Web to transact

business; digitally enabled transactions Began in 1995 and grew exponentially, still

growing even in a recession

Companies that survived the dot-com bubbleburst and now thrive

E-commerce revolution is still in its earlystages

E-commerce and the Internet


3 Prentice Hall 2011


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THE GROWTH OF E-COMMERCE

Retail e-commerce revenues grew 1525 percent per year until the recession of 20082009, when they

slowed measurably. In 2010, e-commerce revenues are growing again at an estimated 12 percent annually.

FIGURE 10-1


Prentice Hall 20114


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Electronic Commerce (E-Commerce): Electronic

transactions over the Internet. The buying and selling of goods and services over the public and privatecomputer networks (Kroenke 2011)

Online exchange of goods, services, and money including digital products

(Valacich and Schneider 2011).

The use of the Internet and the Web to transact business.

Digitally enabled commercial transaction. (Laudon and Laudon 2011)

E-COMMERCE

Define electronic commerce and describe how it has changed

consumer retailing and business-to-business transactions


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Why e-commerce is different 8 unique features

1. Ubiquity

Internet/Web technology available everywhere:work, home, etc., anytime.

Effect:

Marketplace removed from temporal, geographic

locations to become marketspace

Enhanced customer convenience and reduced

shopping costs





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8 unique features (cont.)

2. Global reach

The technology reaches across nationalboundaries, around Earth

Effect:

Commerce enabled across cultural and national

boundaries seamlessly and without modification

Marketspace includes, potentially, billions of

consumers and millions of businesses worldwide





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3. Universal standards

One set of technology standards: Internetstandards

Effect:

Disparate computer systems easily communicate with each

other

Lower market entry costscosts merchants must pay to bring

goods to market

Lower consumers search costseffort required to find

suitable products





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4. Richness

Supports video, audio, and text messages video Effect:

Possible to deliver rich messages with text, audio,

and video simultaneously to large numbers of

people

Video, audio, and text marketing messages can be

integrated into single marketing message and

consumer experience



http://web.vw.com/all-new-passat-experiencehttp://web.vw.com/all-new-passat-experience


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5. Interactivity

The technology works through interaction withthe user video

Effect:

Consumers engaged in dialog that dynamically

adjusts experience to the individual

Consumer becomes co-participant in process of

delivering goods to market



http://configurator.vw.com/ihdcc/model/passat.html?context=passat-subnavigationhttp://configurator.vw.com/ihdcc/model/passat.html?context=passat-subnavigation


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6. Information density

Large increases in information densitythetotal amount and quality of informationavailable to all market participants

Effect:

Greater price transparency mysimon.com

Greater cost transparency

Disables merchants to engage in price

discrimination



http://www.mysimon.com/http://www.mysimon.com/


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7. Personalization/Customization

Technology permits modification of messages,goods

Effect

Personalized messages can be sent to individuals as

well as groups

Products and services can be customized to

individual preferences (e.g., VW)



http://configurator.vw.com/ihdcc/configurator.htmlhttp://configurator.vw.com/ihdcc/configurator.html


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8. Social technology

The technology promotes user contentgeneration and social networking

Effect

New Internet social and business models enable

user content creation and distribution, and support

social networks





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Key concepts in e-commerce

Digital markets reduce

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

Search costs

Transaction costs

Menu costs

Digital markets enable Price discrimination

Dynamic pricing

Disintermediation





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THE BENEFITS OF DISINTERMEDIATION TO THE CONSUMER

The typical distribution channel has several intermediary layers, each of which adds to the final cost of a

product, such as a sweater. Removing layers lowers the final cost to the consumer.

FIGURE 10-2


Prentice Hall 201115


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Key concepts in e-commerce

Digital goods

Goods that can be delivered over a digital network

E.g. Music tracks, video, software, newspapers, books

Cost of producing first unit almost entire cost ofproduct: marginal cost of 2nd unit is about zero

Costs of delivery over the Internet very low

Marketing costs remain the same; pricing highlyvariable

Industries with digital goods are undergoingrevolutionary changes (publishers, record labels, etc.)





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Types of e-commerce watch the video clip

Business-to-consumer (B2C)

Business-to-business (B2B)

Consumer-to-consumer (C2C)

Mobile commerce (m-commerce)

E-commerce: Business and Technology


http://www.youtube.com/watch?v=JK1-6jswWpchttp://www.youtube.com/watch?v=JK1-6jswWpc


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E-Commerce Business Strategies

5-

18

Differentiated, based on levels of

physical/virtual presence


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Brick-and-Mortar Business Strategy

Physical locations only

Traditional stores

Cons: Limited geographical reach


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Click-Only Business Strategy

Business conducted in cyberspaceno physical location

Virtual companies

Cons: Customers uncomfortable with online transactions

No face-to-face interaction with customers


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Click-and-Mortar Business Strategy

Bricks-and-clicks business strategy

Hybrid strategy

Cons: Added complexity combining two different environments

f i


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E-commerce business models watch the video clip

Portal yahoo

E-tailer RedEnvelope.com

Content Provider wsj

Transaction Broker hotwire

Market Creator priceline.com

Service Provider visanow

Community Provider doostang




M t I f ti S t
http://www.youtube.com/watch?v=_EueZ0Pbobo&feature=relatedhttp://www.yahoo.com/http://redenvelope.com/http://online.wsj.com/home-pagehttp://www.hotwire.com/http://www.priceline.com/http://www.visanow.com/http://en.wikipedia.org/wiki/Doostanghttp://en.wikipedia.org/wiki/Doostanghttp://www.visanow.com/http://www.priceline.com/http://www.hotwire.com/http://online.wsj.com/home-pagehttp://redenvelope.com/http://www.yahoo.com/http://www.youtube.com/watch?v=_EueZ0Pbobo&feature=related


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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,

AND THE EMERGING DIGITAL FIRM

Virtual storefront (e-tailer):

Sells goods or services online (Amazon.com)

Online version of traditional retailer (online retail stores)Types include:

Virtual merchants drugstore.com

Bricks-and-cricks sears

Catalog merchants

Manufacturer-direct

Internet Business Models

Management Information SystemsChapter 4

The Digital Firm: Electronic Business and Electronic Commerce

http://amazon.com/http://drugstore.com/http://sears.com/http://sears.com/http://drugstore.com/http://amazon.com/


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Transaction broker: Provides online transaction

facility (eTrade.com, Expedia.com)Processes online transactions for consumers

Primary value propositionsaving of time and money

Typical revenue modeltransaction fee

Industries using this model include:

Financial services

Travel services

Job placement services

Online marketplace (Market Creator):Provides atrading platform for individuals and firms (eBay.com,

Priceline.com)Uses Internet technology to create markets that bring buyers and sellers

together

Typically uses a transaction fee revenue model

Internet Business Models



http://etrade.com/http://ebay.com/http://ebay.com/http://etrade.com/


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Content provider: Creates revenue by providingcontent (WSJ.com, TheStreet.com)Information and entertainment companies that provide digital content

over the Web using PODcasting, and streaming.

Intellectual property (digital video, music, photo, artwork, text, etc)

Typically utilizes a subscription, pay for download, or advertising

revenue model

Syndication a variation of standard content provider model

(Online) Service provider: Provides online

services such as data backups and storage. (Google

Appls, visanow, photobucket.com)Value proposition: valuable, convenient, time-saving, low-cost alternatives to

traditional service providers

Revenue models: subscription fees or one-time payment



http://thestreet.com/http://www.semo.edu/sepr/podcasts/goingpublic_34046.htmhttp://www.visanow.com/http://www.visanow.com/http://www.semo.edu/sepr/podcasts/goingpublic_34046.htmhttp://thestreet.com/


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Virtual community provider: Provides an onlinecommunity to focused groups (Facebook,MySpace, twitter, iVillage)Sites that create a digital online environment where people with similarinterests can transact, communicate, and receive interest-related information.Typically rely on a hybrid revenue model

Portal: Provides initial point of entry to Web,specialized content, services (Yahoo, Being,Google, MSN)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 specialized (vortal)



Internet Business Models (Continued)

M t I f ti S t


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E-commerce revenue models

1. Advertising

2. Sales

3. Subscription

4. Free/Freemium

5. Transaction Fee

6. Affiliate





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Typical Revenue Models for EC

Most important ingredient of business modelHow will the firm earn revenue?



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Most popular Web 2.0 service: social networking Social networking sites sell banner ads, user preference

information, and music, videos and e-books

Social shopping sites Swap shopping ideas with friends (Kaboodle, ThisNext)

Wisdom of crowds/crowdsourcing Large numbers of people can make better decisions about

topics and products than a single person

Prediction markets: Peer-to-peer betting markets on specific outcomes

(elections, sales figures, designs for new products)






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E-commerce marketing

Internet provides marketers with new ways of

identifying and communicating with customers Long tail marketing: Ability to reach a large

audience inexpensively

Behavioral targeting: Tracking online behavior of

individuals on thousands of Web sites

Advertising formats include search enginemarketing, display ads, rich media, and e-mail






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Business-to-business e-commerce

Electronic data interchange (EDI) watch the video clip

Computer-to-computer exchange of standard

transactions such as invoices, purchase orders

Major industries have EDI standards that definestructure and information fields of electronicdocuments for that industry

More companies increasingly moving away from privatenetworks to Internet for linking to other firms

E.g. Procurement: Businesses can now use Internet to locate

most low-cost supplier, search online catalogs of supplier

products, negotiate with suppliers, place orders, etc.




http://www.youtube.com/watch?v=vPPI70LckP4http://www.youtube.com/watch?v=vPPI70LckP4


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ELECTRONIC DATA INTERCHANGE (EDI)

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

EDI to provide production and inventory requirements and payment data to suppliers.

FIGURE 10-6





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Business-to-business e-commerce (cont.)

Private industrial networks (private exchanges)

Large firm using extranet (demo video) to link to itssuppliers, distributors and other key business partners

Owned by buyer

Permits sharing of:

Product design and development

Marketing

Production scheduling and inventory management

Unstructured communication (graphics and e-mail)




http://www.youtube.com/watch?v=UVzkTrvRmHIhttp://www.youtube.com/watch?v=UVzkTrvRmHIhttp://www.youtube.com/watch?v=UVzkTrvRmHIhttp://www.youtube.com/watch?v=UVzkTrvRmHI


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A PRIVATE

INDUSTRIAL

NETWORK

A private industrial network,

also known as a private

exchange, links a firm to itssuppliers, distributors, and

other key business partners for

efficient supply chain

management and other

collaborative commerce

activities.

FIGURE 10-7





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Net marketplaces (e-hubs): example exostar (video)exostar.com

Single market for many buyers and sellers

Industry-owned or owned by independent intermediary

Generate revenue from transaction fees, other services

Use prices established through negotiation, auction,RFQs, or fixed prices

May focus on direct or indirect goods

May be vertical or horizontal marketplaces




http://www.youtube.com/watch?v=P_MwtykLHmkhttp://exostar.com/http://exostar.com/http://www.youtube.com/watch?v=P_MwtykLHmk


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A NET

MARKETPLACE

Net marketplaces are online

marketplaces where multiple

buyers can purchase from

multiple sellers.

FIGURE 10-8





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Exchanges example, farms.com

Independently owned third-party Net marketplaces

Connect thousands of suppliers and buyers for spotpurchasing

Typically provide vertical markets for direct goods forsingle industry (food, electronics)

Proliferated during early years of e-commerce; manyhave failed

Competitive bidding drove prices down and did not offer long-

term relationships with buyers or services to make lowering

prices worthwhile




http://farms.com/Home/tabid/37/Default.aspxhttp://farms.com/Home/tabid/37/Default.aspx


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M-commerce

Although m-commerce represents small

fraction of total e-commerce transactions,revenue has been steadily growing

Location-based services

Banking and financial services

Wireless advertising and retailing

Games and entertainment

The Mobile Digital Platform and Mobile E-commerce


Documents

MIS Lecture Note 8