Basic E-Commerce Concepts CSI 5389 (E-Commerce Technologies)1.
E-Commerce (1)
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Transcript of E-Commerce (1)
Dr. Ehud Reiter, Computing Science, University of Aberdeen 1
E-Commerce (1) What is E-Commerce? Business Models
» Issue: organisational change
Dr. Ehud Reiter, Computing Science, University of Aberdeen 2
What is E-Commerce? Business (commerce) over
Internet/Web Wide range
» E-stores (Amazon)» Auction (EBay)» Business-to-Business (Cisco)» etc
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Benefits to Customer Open 24 hours a day More choices Better prices Product information in seconds Interact with other customers Easy to switch to competitor
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Benefits to Company More potential customers Decrease costs (no shop, less paper) Better supply chain management New services, eg customization
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Challenge: Competition Competition is intense
» Compete with 1000s (1000000s?) of e-retailers around the world, not just other high street shops
» Customers can quickly/easily compare prices, which drives them down
Dr. Ehud Reiter, Computing Science, University of Aberdeen 6Prentice Hall, 2002
Porter’s Five Forces
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Middleman Problem Retailers are “middleman” between
manufacturer/provider and customer Traditionally make money by mark-up
» Buy product from supplier for £10, sell it to customer for £15
» Difference (£5) is profit margin
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Middleman problem Competition drives profit margin down
» If you have a £5 markup, customers will go to competitor with £4 markup
Suppliers may sell direct to customer» If supplier sells product to customer for
£12, he and customer benefit» disintermediation
Hard to make money by mark-up
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Example: Flights Pre-Internet, airlines sold flights to
consumers via travel agents.» Travel agent charged £100, gave airline
£80 and kept £20 as markup» If customer bought directly from airline,
would be charged £100 (same as from travel agent)
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Example: Flights In Internet age, airlines sell flights
directly to customer» Airline sells flight to both customer and
travel agent for £80.» If travel agent sells flight to customer for
£80, he won’t make any money» If travel agent charges £100, customer will
buy direct from airline for £80
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Example: Flights How can travel agent make money in
Internet age?» Especially a small one, not Expedia
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Business Models Sell flight at cost, extras at high markup
» Eg, insurance, delivery Sell advertising space on website
» Sell customer data Niche market
» Specialise in travel to Poland– Flights, hotel, airport transfer, tours
» Specialise in selling flights to universities
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Business Models Branding
» Build up a good reputation, so customers trust you to offer OK deals, good delivery
– If you’re trustworthy and “cheap enough”, it isn’t worth hassle of looking at competitors
– Satisfice– Means trusted shop can charge a bit more
» Marketing helps branding» Customers visiting site helps
– Even if no purchase, just looking
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Long Tail E-commerce makes it much easier to
sell obscure products from obscure suppliers.» Unusual books from small publishers» Can be sold at full price (sometimes even
with a surcharge added)!
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Business Must Change Successful Internet travel agents differ
from successful pre-Internet trav agent» Old: small shop selling generic flights to
local customers with high mark-up– Joe’s travel agency
» New: focus on product niche, high-markup extras, advertising revenue, brand
– Expedia, escape2poland.co.uk
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Internet Business Model Internet requires new business model Management issue, not technology
» But must be resolved in order for e-commerce to really take off
Poor business models one cause of dot-com boom/bust» Pouring in money before business model
issue resolved is a mistake!
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Organisational Change Internet (and most new tech) cannot be
fully exploited unless society changes Change is painful for companies
» Many bankrupt small travel agents» Many bankrupt dot-com investors
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Organisational Change Change is painful for individuals
» Loss of skills: Joe has worked for 30 years selling generic hols to Spain, does this well
– Must ditch this, learn new skills» Dislike model: Joe dislikes “encouraging”
customers to buy overpriced insurance» Loss of income: average income of travel
agents may go down, even if they adapt