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10Chapter

E-Commerce: DigitalE-Commerce: Digital Market and Digital Market and Digital

GoodsGoods

E-Commerce: DigitalE-Commerce: Digital Market and Digital Market and Digital

GoodsGoods

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OBJECTIVES

• Analyze how Internet technology has changed value propositions and business models

• Define electronic commerce and describe how it has changed consumer retailing and business-to-business transactions

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• Compare the principal payment systems for electronic commerce

• Evaluate the role of Internet technology in facilitating management and coordination of internal and interorganizational business processes

• Assess the challenges posed by electronic business and electronic commerce and management solutions

OBJECTIVES (Continued)

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• Challenge: trillions of product configurations, short lead times, many competitors

• Solution: Web extranet for order entry, customization, inventory, change orders, and shipping

• Demonstrates how IT and the Web coordinate the flow of information about orders, production, inventory and shipment

• Illustrates how systems in the digital firm connect demand, supply, and fulfillment to achieve operational excellence

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Corrugated Supplies Case

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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

Internet Technology and the Digital Firm

• Information technology infrastructure: The Internet provides a universal and easy-to-use set of technologies and technology standards that can be adopted by all organizations.

• Direct communication between trading partners: Disintermediation removes intermediate layers and streamlines processes.

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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

• Round the clock service: Web sites available to consumers 24 hours

• Extended distribution channels: Outlets created for attracting customers who otherwise would not patronize a firm

• Reduced transaction costs: Costs of searching for buyers declines

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Internet Technology and the Digital Firm (Continued)

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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

Business Model:

• Defines an enterprise

• Describes how the enterprise delivers a product or service

• Shows how the enterprise creates wealth

New Business Models and Value Propositions

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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

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

• Increases richness: The Internet increases the depth, detail, and scope of information.

• Increases reach: The Internet increases the number of people who can be contacted efficiently.

The Changing Economies of Information

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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

• Virtual storefront: Sells goods or services online (Amazon.com)

• Information broker: Provides information on products or services (Edmunds.com)

• Transaction broker: Provides online transaction facility (eTrade.com, Expedia.com)

• Online marketplace: Provides a trading platform for individuals and firms (eBay.com)

Internet Business Models

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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

• Content provider: Creates revenue by providing content (WSJ.com, TheStreet.com)

• Online service provider: Provides online services, including search service. (Google.com, Xdrive.com)

• Virtual community: Provides an online community to focused groups (Friendster.com, iVillage.com)

• Portal: Provides initial point of entry to Web, specialized content, services (Yahoo.com, MSN.com)

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Internet Business Models (Continued)

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ELECTRONIC COMMERCE

Categories of Electronic Commerce

• Business-to-customer (B2C): Retailing of products and services directly to individual customers (Wal-Mart.com)

• Business-to-business (B2B): Sales of goods and services to other businesses (Grainger.com, Ariba.com)

• Consumer-to-consumer (C2C): Individuals using the Web for private sales or exchange (eBay.com )

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Business-To-Consumer

Advantages of E-commerce:

• Customer-centered retailing: Closer and more personalized relationship with customers is possible

• Web sites: Provide a corporate-centered portal for the consumer to quickly find information on products, services, prices, orders

ELECTRONIC COMMERCE

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• Disintermediation: The elimination of organizations or business process layers responsible for certain intermediary steps in a value chain, reducing costs to the consumer

• Reintermediation: The shifting of the intermediary role in a value chain to a new source, adding additional value to the consumer

ELECTRONIC COMMERCE

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Business-To-Consumer

Advantages of E-Commerce: (Continued)

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The Benefits of Disintermediation to the Consumer

Figure 4-2

ELECTRONIC COMMERCE

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Clickstream tracking tools:

• Collect data on customer activities at Web sites and store them in a log

ELECTRONIC COMMERCE

Interactive Marketing and Personalization

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Web Site Visitor Tracking

Figure 4-3

ELECTRONIC COMMERCE

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• Create unique personalized Web pages for each customer

• Increased closeness to customer increases value to the customer, while reducing costs of interacting with the customer

ELECTRONIC COMMERCE

Web Personalization

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Web Site Personalization

Figure 4-4

ELECTRONIC COMMERCE

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• Compares information gathered about a specific

user’s behavior at a Web site to data about other

customers with similar interests to predict what

the user would like to see next. The software then

makes recommendations to users based on their

assumed interests.

ELECTRONIC COMMERCE

Collaborative filtering:

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• The use of Web sites to provide customers with access to information and answers to questions

• Replacing human call center operators and clerks

• UPS.com: Customer tracking of packages

• Orbitz.com: Customer self-help for organizing and managing a trip

• Dell.com: “My Order Status” facility

ELECTRONIC COMMERCE

Customer self-service:

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• Electronic Data Interchange (EDI): Enables the computer-to-computer exchange between two organizations of standard transactions. Currently 80% of B2B e-commerce uses this system.

• EDI is being replaced by more powerful Web-based alternatives.

Business-to-Business Electronic Commerce: New Efficiencies and Relationships

ELECTRONIC COMMERCE

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ELECTRONIC COMMERCE

• Distributors: B2B online catalogs provide buyers with access to thousands of parts and other goods (Grainger.com)

• Procurement platforms: Platforms for purchasing goods and materials and also sourcing, negotiating with suppliers, paying for goods, and making delivery arrangements (Ariba.com)

Four different types of Net Marketplaces:

Net Marketplaces

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ELECTRONIC COMMERCE

• Independent exchanges: Third-party Net marketplace

that is primarily transaction-oriented and that connects

many buyers and suppliers for spot purchasing

(Freemarkets.com, GEPolymerland.com)

• Industry consortia: Industry-owned Net marketplaces

used primarily for long-term sourcing of direct inputs

to production (ChemConnect.com)

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Net Marketplaces

Four different types of Net Marketplaces: (Continued)

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ELECTRONIC COMMERCE

Electronic Data Interchange (EDI)

Figure 4-5

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ELECTRONIC COMMERCE

Private Industrial Networks

• The largest Web-based form of B2B commerce

• Private B2B extranets that focus on continuous

business process coordination between a small group

of companies for collaboration and supply chain

management. Wal-Mart uses its own private network

to coordinate more than 15,000 suppliers to its stores.

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ELECTRONIC COMMERCE

A Private Industrial Network

Figure 4-6

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ELECTRONIC COMMERCE

A Net Marketplace

Figure 4-7

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ELECTRONIC COMMERCE

Electronic Commerce Payment Systems

Digital wallets Electronic storage of I.D. and digital cash. Not widely used.

Accumulated balance Used for micro payments. Similar to monthly telephone bills.

Stored value Used for micro payments. Pre-payment of funds, debited on use.

Smart Cards I.D. and credit information stored on a chip attached to a card. Used in Europe.

Digital cash Electronic currency that can be transferred over the Web.

Peer-to-Peer payment Interpersonal transfer of funds such as PayPal.

Digital checking Electronic checks with digital signatures, used most often in B2B commerce.

Electronic billing presentmentand payment

Used by consumers to pay bills online, provided by many banks.

Credit cards The most common form of payment. $50 Limited customer liability.

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