1301383 Electronic Commerce

This presentation is part of : 1301383 Electronic CommerceFaculty of Information and Computer Technology, Mae Fah Luang University. Academic Year 2008

Presentation by:

Supichaya SmerchuarSupichaya Smerchuar

Chapter 2EE--MarketplacesMarketplaces

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ObjectivesDefine e-marketplaces and list their componentsList the major types of e-marketplaces and describe their featuresDescribe the various types of EC intermediaries and their rolesDescribe electronic catalogs, shopping carts, and search engines.Discuss liquidity, quality, and success factors in e-marketplacesDescribe the economic impact of ECDiscuss competition in the digital economyDescribe the impact of e-marketplaces on organizations

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Electronic marketplaces• Electronic marketplace: a space in which sellers and

buyers exchange goods and services for money (or for other goods and services) electronically.

• Functions of markets:– matching buyers and sellers– Facilitating exchanges of goods/services and payments

associated with market transactions– Provide institutional infrastructure

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Changes in Markets Mechanisms• Together with IT, EC has greatly increased market

efficiencies– by expediting or improving the functions of market– And lowering transaction and distribution cost – Leading to a well-organized “friction-free” markets

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Market-space• The area of actual or potential commercial value

in which a company intends to operate

• Market-space can occur for any type of EC e.g. B2C, B2B, C2C etc.

B2C Marketspace: Online storefrontsB2B Marketspace: E-MarketplacesC2C Marketspace: eBay

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Market-space components• Customers: the hundreds of millions of people surfing the web are potential

buyers of goods/services offered on the net. They looking for– good deals– Customized items– Collectors items– Entertainment etc

• Organizations are the major consumers of EC activities. (85%)

• Sellers: millions of storefronts on the Web offering a huge variety of products. ( sells can be done directly from sellers site or from E-marketplaces

• Products: both physical and digital products (what are the advantages of a digital product?)

• Infrastructure: hardware, software, networks etc.

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Market-space components• Front end: the portion of an e-seller’s business processes through which

customers interact, e.g. seller’s portal, e-catalogs, shopping cart, search engine and payment gateway

• Back end: activities that support online order-taking. E.g. order aggregation and fulfillment, inventory management, purchasing from suppliers, payment processing, packaging and delivery

• Intermediaries: create and manage online markets. Match buyers and sellers, provide some infrastructure services to and help buyers/sellers to institute and complete transaction. (mostly operate as computerized systems)

• Other business partners: includes business collaboration mostly along supply chain.

• Support services: ranging from certification to trust services

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Market-space Components

• Customers• Sellers• Products (physical, digital)• Infrastructure

Web, network, bandwidth• Front end

Shopping cart, search engine, e-catalog, payment gateway

• Back endOrder fulfillment, logistics, accounting, procurement, inventory mgt.

• Intermediaries• Business partners• Support services

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Types of electronic markets• There are various types of marketplaces

– B2C• Electronic storefronts• Electronic malls

– B2B• Private e-marketplace

– Sell-side– Buy-side

• Public e-marketplaces• consortia

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Types of electronic markets• B2C

– Electronic storefronts: single company’s Web site where product/services are sold (electronic store)

• A storefront has various mechanism for conducting sale– Electronic catalogs (presentation of product information in an electronic form)– A search engine ( a program that can access a database of Internet

resources, search for specific information/keywords, and report the result)– An electronic shopping cart: order processing technology that allow shoppers

to accumulate items they wish to buy while they continue to shop)– E-auction facilities– A payment gateway etc.

– Electronic malls: an online shopping center where many stores are located

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Types of electronic markets• B2B

– Private E-Marketplace: owned by a single company • Sell-side E-Marketplace: a private e-market in which a company

sells either standard or customized to qualified companies• Buy-side: a private e-market in which a company buys from

invited suppliers

– Public E-Marketplace: e-market usually owned by am independent 3rd party with many buyers and many sellers (exchanges)

– Consortia: usually owned by a small group of major sellers or buyers usually in the same industry

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Mechanisms Necessary for Conducting Online Sales

• Electronic catalogs• Search engine • E-auction facilities• Payment gateway• Shipment information• Customer services

Your Name Here

Your Name Here

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Electronic Catalogs• The presentation of product information in an electronic

form; the backbone of most e-selling sites• Electronic catalogs considerations:

The dynamics of the information presentationThe degree of customizationIntegration with business process

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Comparison of Online Catalogs with Paper Catalogs

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Other Mechanisms…• Search engine:

A computer program that can access a database of Internet resources, search for specific information or keywords, and report the results

• Software (intelligent) agent:Software that can perform routine tasks that require intelligence

• Electronic shopping cart:An order-processing technology that allows customers to accumulate items they wish to buy while they continue to shop

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Impact of E-Commerce on Value Chain: Disintermediation• The removal of organizations or business process layers

responsible for certain intermediary steps in a given value chain

• Eliminating the traditional intermediaries, such as wholesalers, distributors, and retailers, to reduce the cost

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Impact of E-Commerce on Value Chain: Reintermediation• Reintermediation — the shifting or transfer of the

intermediary functions which creates a new business opportunity

• Reintermediation such as electronic shopping malls, directory and search engine service, and comparison aids using agents create the role of reintermediation

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Intermediation in ECDisintermediationElimination of intermediaries between sellers and buyers

ReintermediationEstablishment of new intermediary roles for traditional intermediaries that have been disintermediated

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Intermediation in E-Commerce• Intermediaries (brokers) provide value-added activities and

services to buyers and sellers• Intermediaries in the physical world are wholesalers and

retailers• E-Commerce Intermediary

Infomediaries: electronic intermediaries that control information flow in cyberspace, often aggregating and manipulating information to add values before selling it to others

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Roles and Values of Intermediaries in E-Markets

• Lower search costs• Improve privacy• More complete information• Reduce pricing inefficiencies

ValuesRoles

IntermediariesIntermediaries

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E-Markets Success Factors Product Characteristics

Digitizable products can be electronically distributed to customers, resulting in very low distribution costs, allowing order-fulfillment cycle time “to be minimal”

Industry CharacteristicsElectronic markets are most useful when they are able to directly match buyers and sellers

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E-Markets Success Factors (cont.)

• Seller CharacteristicsElectronic markets reduce search costs, allowing consumers to find sellers offering lower prices

• Consumer CharacteristicsE-markets require a certain degree of effort on the part of the consumer, e-markets are more conducive to consumers who do some comparison and analysis before buying

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Digital Economy• An economy based on new trading mechanisms

where transactions are more efficient, demands and supplies are more fluid, and information is playing an important role in generating wealth

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Impact of Internet on Industry Structure• E-commerce changes the nature of players in an industry

and their relative bargaining power by changing:the basis of competition among rivalsthe barriers to entrythe threat of new substitute productsthe strength of suppliersthe bargaining power of buyers

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Competition in the Digital Economy• Porter’s Competitive Analysis in an Industry

competitive forces modelModel, devised by Porter, that says that five major forces of competition determine industry structure and how economic value is divided among the industry players in an industry; analysis of these forces helps companies develop their competitive strategy

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Competitive Factors in the Digital Economy

• Lower search costs for buyers• Speedy comparisons• Differentiation and personalization

Differentiation: Providing a product or service that is unique Personalization: The ability to tailor a product, service, or Web content to specific user preferences

• Lower prices• Customer service

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E-commerce Business Models• Business model – set of planned activities

designed to result in a profit in a marketplace• Business plan – document that describes a firm’s

business model• E-commerce business model – aims to use and

leverage the unique qualities of Internet and Web

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Developing a new business model generally requires a consideration of …

Value Proposition

Marketspace

Resource

Financial Model

Products/services to offer

Delivery channels

Revenue generation

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Key Ingredients of a Business Model

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Value Proposition• Defines how a company’s product or service fulfills the needs of

customersTarget customersCustomer benefitsFirm’s competitiveness

• Questions to ask:Why will customers choose to do business with your firm instead of another?What will your firm provide that others do not or cannot?

• Examples of successful value propositions include:Personalization/customizationReduction of product search costsReduction of price discover costsFacilitation of transactions by managing product delivery

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Value Proposition

Target SegmentsTarget

Segments

Definition : The result of a combination of choices about the customers, the benefits offered and the unique capabilities of the firm:

“The special occasion segment”

Key Benefits Offered

Key Benefits Offered

Unique Capabilities

Unique Capabilities

Value Proposition

Value Proposition+ +

• Online experience• Unique, broad product line of complementary gifts

MisslilyMisslily• Fresh flowers• Complementary gifts• Low prices

“Misslily serves the special occasion segment by providing fresh flowers and unique complementary gifts”

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Revenue Model• Describes how the firm will earn revenue, generate profits,

and produce a superior return on invested capital• Terms financial model and revenue model often used

interchangeably• Major types:

Advertising revenue modelSubscription revenue modelTransaction fee revenue modelSales revenue modelAffiliate revenue model

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Advertising Revenue Model

• Web site that offers content, services and/or products also provides a forum for advertisements and receives fees from advertisers

• Example: Yahoo.com

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Subscription Revenue Model

• Web site that offers users content or services charges a subscription fee for access to some or all of its offerings

• Examples: Consumer Reports Online

Yahoo! Platinum

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Transaction Fee Revenue Model

• Company that receives a fee for enabling or

executing a transaction

• Examples:

eBay.com

E-Trade.com

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Sales Revenue Model

• Company derives revenue by selling goods, information, or services to customers

• Examples:Amazon.comLLBean.comGap.com

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Affiliate Revenue Model

• Sites that steer business to an “affiliate” receive a referral fee or percentage of the revenue from any resulting sales

• Example:MyPoints.com

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Market Opportunity• Refers to a company’s intended marketspace and the

overall potential financial opportunities available to the firm in that marketspace

• Marketspace – the area of actual or potential commercial value in which a company intends to operate

• Realistic market opportunity is defined by revenue potential in each of market niches in which company hopes to compete

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Competitive Environment• Refers to the other companies selling similar products and

operating in the same marketspace• Influenced by:

how many competitors are activehow large their operations arewhat market share for each competitor ishow profitable these firms are how they price their products

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Competitive Environment (cont) • Direct competitors – companies that sell products or

services that are very similar and into the same market segment

Example: Priceline.com and Travelocity.com

• Indirect competitors – companies that may be in different industries but that still compete indirectly because their products can substitute for one another

Example: CNN.com and ESPN.com

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Competitive Advantage• Achieved when firm can produce a superior product and/or

bring product to market at a lower price than most, or all, of competitors

• Firms achieve competitive advantage when they are able to obtain differential access to the factors of production that are denied to competitors

• Asymmetry – when one participant in a market has more resources than others

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Competitive Advantage (cont)• Types of competitive advantage include:

First mover advantage – results from a firm being first into a marketplaceUnfair competitive advantage – occurs when one firm develops an advantage based on a factor that other firms cannot purchase

• Companies leverage their competitive assets when they use their competitive advantages to achieve more advantage in surrounding markets

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Market Strategy

• A plan that details how a company intends to enter a new market and attract customers

• Best business concepts will fail if not properly marketed to potential customers

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• Describes how the company will organize the work that needs to be accomplished

• Work is typically divided into functional departments

• Move from generalists to specialists as the company grows

Organizational Development

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Management Team• Employees of the company responsible for making the

business model work• Strong management team gives instant credibility to

outside investors• A strong management team may not be able to salvage a

weak business model, but should be able to change the model and redefine the business as it becomes necessary