E-commerce: Digital Markets, Digital Goods - Furman University

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1/25/2014Chapter 10E-commerce: DigitalMarkets, Digital GoodsVideo CasesVideo Case 1: Deals Galore at GrouponVideo Case 2: Etsy: A Marketplace and CommunityVideo Case 3: Ford Manufacturing Supply Chain: B2B Marketplace6.1Copyright 2014 Pearson Education, Inc. publishing as Prentice HallManagement Information SystemsChapterFoundationsof lligenceDigital GoodsLEARNING OBJECTIVES Describe the unique features of e-commerce, digitalmarkets, and digital goods. Describe the principal e-commerce business and revenuemodels. Explain how e-commerce has transformed marketing. Explain how e-commerce has affected business-to-businesstransactions. Describe the role of m-commerce in business and the mostimportant m-commerce applications. Describe the issues that must be addressed when buildingan e-commerce presence.10.26.2Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.1

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsGroupon’s Business Model: Social and Local Problem: Competing with other business modelsutilizing social and local commerce in groupcouponing; large number of competitors Solution: Get big quick to build a brand to preventcompetitors from finding audience Demonstrates use of localization and socialnetworking technologies in generating newbusiness models Illustrates the difficulties many social networkingsites have in showing a profit or monetizing10.36.3Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet E-commerce: Use of the Internet and Web totransact business. Began in 1995 and grew exponentially; stillstable even in a recession. Companies that survived the dot-com bubbleburst and now thrive. E-commerce revolution is still in its earlystages.10.46.4Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.2

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsThe Growth of E-CommerceFigure 10-110.56.5Retail e-commerce revenues grew 15–25 percent per year until the recession of 2008–2009, when they slowedmeasurably. In 2012, e-commerce revenues are growing again at an estimated 15 percent annually.Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Eight unique features of Internet and Web ascommercial medium––––––UbiquityGlobal reachUniversal standardsRichnessInteractivityInformation density– Personalization/customization– Social technology10.66.6Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.3

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet– Ubiquity Internet/Web technology availableeverywhere: work, home, and so on, anytime. Effect:– Marketplace removed from temporal, geographiclocations to become “marketspace”– Enhanced customer convenience and reducedshopping costs Reduces transaction costs– Costs of participating in market10.76.7Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Global reach The technology reaches across national boundaries,around Earth Effect: Commerce enabled across cultural and nationalboundaries seamlessly and without modification. Marketspace includes, potentially, billions ofconsumers and millions of businesses worldwide.10.86.8Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.4

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Universal standards– One set of technology standards: Internet standards– Effect: Disparate computer systems easily communicate withone another Lower market entry costs—costs merchants must payto bring goods to market Lower consumers’ search costs—effort required tofind suitable products10.96.9Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Richness– Supports video, audio, and text messages– Effect: Possible to deliver rich messages with text, audio, andvideo simultaneously to large numbers of people. Video, audio, and text marketing messages can beintegrated into single marketing message andconsumer experience.10.106.10Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.5

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Interactivity– The technology works through interaction with theuser.– Effect: Consumers engaged in dialog that dynamically adjustsexperience to the individual. Consumer becomes co-participant in process ofdelivering goods to market.10.116.11Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Information density– Large increases in information density—the totalamount and quality of information available to allmarket participants– Effect: Greater price transparency Greater cost transparency Enables merchants to engage in price discrimination10.126.12Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.6

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Personalization/Customization– Technology permits modification of messages, goods– Effect: Personalized messages can be sent to individuals aswell as groups. Products and services can be customized to individualpreferences.10.136.13Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Social technology– The technology promotes user contentgeneration and social networking– Effect: New Internet social and business models enableuser content creation and distribution, supportsocial networks Many-to-many model10.146.14Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.7

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Effect of the Internet on the marketplace:– Reduces information asymmetry– Offers greater flexibility and efficiency because of: –––––Reduced search costs and transaction costsLower menu costsGreater price discriminationDynamic pricingMay reduce or increase switching costsMay delay gratification: effects dependent on productIncreased market segmentationStronger network effectsMore disintermediation10.156.15Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsThe Benefits of Disintermediation to the ConsumerFigure 10-210.166.16The typical distribution channel has several intermediary layers, each of which adds to the final cost of aproduct, such as a sweater. Removing layers lowers the final cost to the consumer.Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.8

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce and the Internet Digital goods– Goods that can be delivered over a digital network For example: music tracks, video, software,newspapers, books– Cost of producing first unit is almost entire cost ofproduct– 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.)10.176.17Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology Three major types of e-commerce– Business-to-consumer (B2C) Example: BarnesandNoble.com– Business-to-business (B2B) Example: ChemConnect– Consumer-to-consumer (C2C) Example: eBay E-commerce can be categorized by platform– Mobile commerce (m-commerce)10.186.18Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.9

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology E-commerce business ction brokerMarket creatorContent providerCommunity providerPortalService providerCopyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsInteractive Session: OrganizationsWalmart, Amazon, and eBay: Who Will Dominate Internet Retailing?Read the Interactive Session and discuss the following questions Analyze each of these companies using the valuechain and competitive forces models. Compare the three companies’ e-commercebusiness models. Which is the strongest? Explainyour answer. Which company is likely to have the strongest retaile-commerce growth in the future? Why?10.206.20Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.10

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology E-commerce revenue models– Advertising– Sales– Subscription– Free/Freemium– Transaction fee– Affiliate10.216.21Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology Social networking and the wisdom of crowds– Most popular Web 2.0 service: social networking Social shopping sites: Swap shopping ideas with friends– Wisdom of crowds– Crowdsourcing Large numbers of people can make better decisionsabout topics and products than a single person.– Prediction markets Peer-to-peer betting markets on specific outcomes(elections, sales figures, designs for new products)10.226.22Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.11

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology E-commerce marketing– Internet provides new ways to identify andcommunicate with customers.– Long tail marketing: Ability to reach a large audience inexpensively– Behavioral targeting: Tracking online behavior of individuals on thousands ofWeb sites– Internet advertising formats Search engine marketing, display ads, rich media,e-mail, and so on10.236.23Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsWeb Site Visitor TrackingE-commerce Websites have tools totrack a shopper’severy step throughan online store.Close examinationof customerbehavior at a Website sellingwomen’s clothingshows what thestore might learn ateach step and whatactions it could taketo increase sales.Figure 10-310.246.24Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.12

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsWeb Site PersonalizationFirms can create uniquepersonalized Web pages thatdisplay content or ads forproducts or services of specialinterest to individual users,improving the customerexperience and creatingadditional value.Figure 10-410.256.25Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsHow an Advertising Network WorksAdvertising networks and theiruse of tracking programs havebecome controversial amongprivacy advocates because oftheir ability to track individualconsumers across the Internet.Figure 10-510.266.26Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.13

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology Social e-commerce:– Based on digital social graph Mapping of all significant online relationships Four features of social e-commerce driving itsgrowth––––Social sign-onCollaborative shoppingNetwork notificationSocial search (recommendations)10.276.27Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology Social media:– Fastest growing media for branding and marketing Social network marketing:– Seeks to leverage individuals influence over others insocial graph– Target is a social network of people sharing interestsand advice– Facebook’s “Like button”– Social networks have huge audiences Facebook: 150 million U.S. visitors monthly10.286.28Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.14

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsInteractive Session: ManagementSocial Commerce Creates New Customer RelationshipsRead the Interactive Session and discuss the following questions Assess the management, organization, and technology issuesfor using social media to engage with customers. What are the advantages and disadvantages of using socialmedia for advertising, brand building, market research, andcustomer service? Give some examples of management decisions that werefacilitated by using social media to interact with customers Should all companies use Facebook and Twitter for customerservice and advertising? Why or why not? What kinds ofcompanies are best suited to use these platforms?10.296.29Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology B2B e-commerce– U.S. B2B trade in 2012 is 16 trillion– U.S. B2B e-commerce in 2012 is 4.1 trillion– Procurement requires significant overhead costs,which Internet and networking helps automate– Variety of Internet-enabled technologies used in B2B Electronic data interchange (EDI) Private industrial networks (private exchanges) Net marketplaces Exchanges10.306.30Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.15

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology Electronic data interchange (EDI) Computer-to-computer exchange of standardtransactions such as invoices, purchase orders. Major industries have EDI standards that definestructure and information fields of electronicdocuments. More companies are increasingly moving towardprivate networks that allow them to link to a widervariety of firms than EDI allows and share a wider rangeof information in a single system.10.316.31Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsElectronic Data InterchangeFigure 10-610.326.32Companies 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 EDIto provide production and inventory requirements and payment data to suppliers.Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.16

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology Private industrial network (private exchange)– Large firm using extranet to link to its suppliers,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)10.336.33Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsA Private Industrial NetworkA private industrial network,also known as a privateexchange, links a firm to itssuppliers, distributors, andother key business partners forefficient supply chainmanagement and othercollaborative commerceactivities.Figure 10-710.346.34Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.17

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology Net marketplaces (e-hubs)– Single market for many buyers and sellers– Industry-owned or owned by independentintermediary– Generate revenue from transaction fees, otherservices– Use prices established through negotiation, auction,RFQs, or fixed prices– May focus on direct or indirect goods– May be vertical or horizontal marketplaces10.356.35Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsA Net MarketplaceNet marketplaces are onlinemarketplaces where multiplebuyers can purchase frommultiple sellers.Figure 10-810.366.36Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.18

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsE-commerce: Business and Technology Exchanges Independently owned third-party Net marketplaces Connect thousands of suppliers and buyers for spot purchasing Typically provide vertical markets for direct goods for singleindustry (food, electronics) Proliferated during early years of e-commerce; many havefailed Competitive bidding drove prices down and did not offer longterm relationships with buyers or services to make lowering pricesworthwhile.10.376.37Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsThe Mobile Digital Platform and Mobile E-commerce M-commerce– In 2012 is 10% of all e-commerce– Fastest growing form of e-commerce Some areas growing at 50%– Four billion mobile phone users worldwide– Main areas of growth Retail sales at top Mobile 400 (Amazon, eBay, etc.) Sales of digital content (music, TV, etc.) Local search for restaurants, museums, stores10.386.38Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.19

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsConsolidated Mobile Commerce RevenuesFigure 10-910.396.39Mobile e-commerce is the fastest growing type of B2C e-commerce although it represents only a small part ofall e-commerce in 2011.Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsThe Mobile Digital Platform and Mobile E-commerce Location-based services– Used by 74% of smartphone owners– Based on GPS map services– Types Geosocial services– Where friends are Geoadvertising– What shops are nearby Geoinformation services– Price of house you are passing10.406.40Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.20

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsThe Mobile Digital Platform and Mobile E-commerce Other mobile commerce services– Banks, credit card companies provide accountmanagement apps– Mobile display advertising iAd, AdMob, Facebook– Games and entertainment Downloadable and streamable services Games Video, short films, movies, TV shows Music and ring tones10.416.41Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsBuilding an E-commerce Web Site Pieces of the site-building puzzle– Assembling a team with the skills required to makedecisions about: Technology Site design Social and information policies Hardware, software, and telecommunicationsinfrastructure– Customer’s demands should drive the site’stechnology and design.10.426.42Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.21

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsBuilding an E-commerce Web Site Business objectives– The capabilities the site should have Business decisions should drive technology– Example: execute a transaction payment System functionality– Technology needed to achieve objective– Example: a shopping cart or other payment system Information requirement– Specific data and processes needed– Example: secure credit card clearing, multiplepayment options10.436.43Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsBuilding an E-commerce Web Site Alternatives in building the Web site:– Completely in-house– Mixed responsibility– Completely outsourced– Co-location Web site budgets– Several thousand to millions per year– 50% of budget is system maintenance and contentcreation10.446.44Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.22

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital GoodsChoices in Building and Hosting Web SitesFigure 10-1010.456.45You have a number of alternatives to consider when building and hosting an e-commerce site.Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.Management Information SystemsChapterFoundationsof lligenceDigital GoodsComponents of a Web Site BudgetFigure 10-1110.466.46Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.23

1/25/2014Management Information SystemsChapterFoundationsof lligenceDigital Goods10.476.47Copyright 2013 PearsonCopyrightEducation, Inc.2014publishingPearson Education,aInc.24

Chapter 10: E-commerce: Digital Markets, Digital Goods E-commerce: Use of the Internet and Web to transact business. Began in 1995 and grew exponentially; still stable even in a recession. Companies that survived the dot-com bubble burst and now thrive. E-commerce revolution is still in its early stages. E-commerce and the Internet

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