Description
Electronic commerce, commonly known as e-commerce, is a type of industry where buying and selling of product or service is conducted over electronic systems such as the Internet and other computer networks.
E-Commerce
Digital Markets, Digital Goods
Electronic Commerce and the Internet
• E-commerce today
– Have you ever downloaded music from the web? – Have you ever shopped for anything online? – Have you ever used the web to search for information about anything before buying it from a retail store?
Electronic Commerce and the Internet
• E-commerce today
– Online consumer sales will increase by more than 23% in 2007 to an estimated $180 bn, with 106 mn people purchasing online – On an average day, 70 mn people go online, 140 mn send email, 5 mn write their blogs, 4 mn share music on P2P networks and 3 mn use the internet to rate a person, product or service
Electronic Commerce and the Internet
• Do you feel the internet can reduce transaction costs?
Electronic Commerce and the Internet
• Why e-commerce is different
– Ubiquity
• Ubiquitous = Available everywhere, whenever
– Global reach
• Cross cultural, national boundaries! • Potential market size for e-commerce merchants is the world’s internet population • Traditional commerce = local / regional
– Universal standards
• Technical standards of the internet = universal (shared by all nations; everyone) • Reduce market entry costs
Electronic Commerce and the Internet
• Why e-commerce is different
– Richness
• Complexity and content of a message • Prior to the web: Trade-off between richness and reach
– Interactivity
• Huge amounts of user interaction (Traditional… Telephone?)
– Information density
• Information density = amount and quality of information available • Ecommerce reduces info collection, storage, processing and communication costs while increasing currency, accuracy and timeliness of information
– Personalization/customization
Electronic Commerce and the Internet
The Growth of e-commerce
Retail e-commerce revenues have grown exponentially since 1995 and have only recently “slowed” to a very rapid 25 percent annual increase, which is projected to remain the same until 2008. Source: Based on data from eMarketer, 2006; Shop.org and Forrester Research, 2005; and authors.
Electronic Commerce and the Internet
• Key concepts in e-commerce: Digital markets and digital goods
– Let's say you're getting ready to buy a new car. You've already checked out the prices and information on the various Web sites and have managed to get a pretty good deal because of the information you gathered. But now you need a loan and insurance for the new car. Your bank will give you a loan with a 7.5 percent interest rate. You think that's a little high. You call your insurance agent and she tells you the going rate is $1,500 a year.
Electronic Commerce and the Internet
• Key concepts in e-commerce: Digital markets and digital goods
– You get a sinking feeling that the excellent discount you were able to wrangle on the car itself will be quickly eaten up by the insurance and loan fees. But wait. You check out the Web sites offering loans and find out you can get 5 percent. You then discover you can get insurance for only $1,200 a year. Even if you don't use the Web sites you can still take the information to your bank and insurance agent and perhaps get them to renegotiate. – What does this tell you?
Electronic Commerce and the Internet
• Information Asymmetry
– Based on the previous 2 slides, what do you think is information asymmetry? – Because of the information you've gathered from the Web, the bank and insurance company no longer have the advantage of information asymmetry. – That is, the bank and insurance company thought they had more information about the transaction than you did, therefore they had the upper-hand. – But once you gained more information about the transaction than you previously had, you were able to get better rates. – The demise of information asymmetry is a phenomenon that is occurring in many consumer and business transactions and is directly attributable to the Internet.
Electronic Commerce and the Internet
• Richness
– The richness of information that the insurance Web site provided to you, coupled with the information they were able to collect about you, is opening up new opportunities for both businesses and consumers. – You get more information than was previously available. – The business collects more information than they were previously able to.
Electronic Commerce and the Internet
• Reach
– The reach of the financial Web site offering the loan is far greater than previously possible. Think about that for a minute. – If you wanted a loan in the past, usually your only option was to visit the local bank. You were stuck with whatever terms and rates they happened to be offering. – Now you can apply for the loan at financial companies all across the country via the Web and select the best rates and terms. You are no longer limited to the ones in your neighbourhood. – Conversely, the financial institutions offering loans can now reach out to thousands and millions more potential customers than was ever possible before.
Electronic Commerce and the Internet
• FTD.com
– The Internet has also allowed businesses and consumers to establish new types of relationships not previously possible. – FTD.com, the flower Web site, offers you the opportunity to store birthdays, anniversaries, and other special occasions on their computer. – They have a network of approx. 45,000 florists in 154 countries, with 16,000 being in North America! – A few days before the event, FTD.com will send you an e-mail reminder to order flowers. You simply click on the Web site URL in the e-mail, select the flowers you want sent, and enter your credit card information. – The whole transaction takes less than ten minutes and the recipient will love you for being so thoughtful. – That's richness and reach that neither the consumer nor the business was ever able to establish before the Internet.
Digital Markets
• Digital Markets
– Very flexible and efficient because they operate with:
• • • • Reduced search and transaction costs Lower menu costs (merchant’s cost of changing prices) Price discrimination Dynamic pricing (ability to change prices based on market conditions)
– Price of product varies depending on the demand characteristics of the customer or the supply situation of the seller
– Provide opportunities to sell directly to the consumer bypassing intermediaries
• Significantly lowers purchase transaction costs. = Disintermediation
Digital Markets – The Advantage Equation!
MANUFACTURER
DISTRIBUTOR
RETAILER
CUSTOMER
$48.50
MANUFACTURER
RETAILER
CUSTOMER
$40.34
MANUFACTURER
CUSTOMER
$20.45
Digital Markets vs. Traditional Markets
DIGITAL MARKETS Information Asymmetry Search Costs Transaction Costs Delayed Gratification Menu Costs Dynamic Pricing Price Discrimination Market Segmentation Switching Costs Network Effects Disintermediation Asymmetry reduced Low Low (sometimes virtually nothing) High (or lower in case of digital goods) Low Low cost, instant Low cost, instant Low cost, moderate precision Higher / lower (depends on product characteristics) Strong More possible / likely TRADITIONAL MARKETS Asymmetry high High High (time, travel) Lower: purchase now High High cost, delayed High cost, delayed High cost, less precision High Weaker Less possible / unlikely
Digital Goods
• Digital Goods
– – – – – Goods that can be delivered over a digital network Music tracks, video, software, newspapers, magazines, books Marginal cost of producing another unit is about zero! Cost of producing the original first unit is relatively high Cost of delivery over the internet is very low
Digital Goods vs. Traditional Goods
DIGITAL GOODS TRADITIONAL GOODS
Marginal Cost/unit
Cost of production Copying cost Distributed delivery cost Inventory cost Marketing cost Pricing
Zero
High (most of the cost) Approximately 0 Low Low Variable More variable (bundling, random pricing games)
Greater than zero, high
Variable Greater than zero, high High High Variable Fixed, based on unit costs
Internet Business Models
• Internet business models
– Communication and community – Digital content, entertainment, and services
Internet Business Models
CATEGORY Virtual Storefront Transaction Broker DESCRIPTION Sell physical products directly to consumers or to individual businesses Saves user money and time by processing online sales transactions and generating a fee each time a transaction occurs + Information on rates and terms Provides a digital environment where buyers and sellers can meet, search for products, establish prices for those products + Online auctions Creates revenue by providing digital content (news, music, video etc.) over the web. Customer may pay to access the content or revenue is driven by advertising space EXAMPLES Amazon.com Expedia.com
Online Marketplace
eBay.com
Content Provider
iTunes.com Games.com
Internet Business Models
CATEGORY Virtual Community DESCRIPTION Provides an online meeting place where people with similar interests can communicate and find useful information Provides initial point of entry to the Web along with specialized content and other services EXAMPLES YouTube.com MySpace.com
Portal
Yahoo.com MSN.com
Communication and Community
• Banner ads • Pop-up ads • Social networking sites
Pop-up Ads
Digital Content, Entertainment & Services
• Online gaming • Radio channels • Podcasting
Types of Electronic Commerce
• B2C
• • • Retailing products and services to individual shoppers Most visible Barnesandnoble.com Sales of foods and services among businesses Greatest dollar amount of transactions ChemConnect’s website for buying and selling natural gas liquids, refined and intermediate fuels, chemicals and plastics Consumers selling directly to consumers Greater geographic reach eBay
•
B2B
• • •
•
C2C
• • •
Achieving customer intimacy
Interactive marketing, personalization, and self-service
• Clickstream Tracking
Click 1 Click 2 Click 3 Shopper clicks on the homepage. Arrived from the Yahoo! Portal at 14:30 and how long was he/she on the homepage Shopper clicks on “Shirts” and then “Men’s shirts” and then a specific color. Shopper changes color from the default to black. Adds it to his cart
Click 4
From the cart, shopper closes the browser wtihout purchasing the shirt.
Website Personalization
Firms can create unique personalized Web pages that display content or ads for products or services of special interest to individual users, improving the customer experience and creating additional value.
Customer Self-Service
• Airline Websites
– – – – – – Review flight departure / arrival times Seating charts Check airport logistics Check frequent flier miles Purchase tickets online Cancel / reschedule journeys
Electronic Commerce
• Business-to-business (B2B) electronic commerce: New efficiencies and relationships
– – – – – EDI Procurement Private industrial networks (private exchanges) Net marketplaces Exchanges
Electronic Data Exchange (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.
Procurement
• Business use the internet to:
– – – – – locate the most low cost suppliers search online catalogs negotiate with suppliers place orders make payments, etc.
Private Industrial Networks (Private Exchanges)
More…
• Net Marketplaces
– Online marketplaces where multiple buyers can purchase from multiple suppliers
• Exchanges
– Independently owned 3rd party net marketplaces that connect 1000s of suppliers and vendors for spot purchasing
M-Commerce
• M-Commerce services and applications
– Content and location-based services
• Subscribers to NTT DoCoMo wireless services in Japan can access wireless websites to check train schedules, obtain movie listings, browse restaurant guides, purchase airline tickets, trade stocks, view cartoons and read Japan’s largest daily newspaper
– Banking and financial services
• Citibank offers wireless alerts about changes in account information • Other banks offer facilities to check balances, transfer funds, manage accounts
M-Commerce
• M-Commerce services and applications
– Wireless advertising
• Yahoo! And Go2 – When users are using any of Go2’s services on the mobile (e.g. checking directory listings), the Yahoo! Ads will come up
– Games and entertainment
M-Commerce
• M-Commerce Challenges
– Mushrooming wi-fi hotspots – Keyboard and screens still tiny (Umm…. That’s debatable!)
M-Commerce
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.
E-Commerce Payment Systems
• Types of electronic payment systems
– – – – – – – Digital credit card payment systems Digital wallet Micropayment (< $10) Accumulated balance digital payment systems (debits accumulated) Stored value payment systems Digital cash P2P Payment Systems (Paypal)
E-Commerce Payment Systems
• Digital payment systems for m-commerce
– Any Wi-Fi connection should be good! – Majorly used for micropayments
• Europe and Asia – Because any small transactions can then be reported in the mobile bill
– In London, you can buy a Virgin Cola by simply dialing a number and providing inputs – Automatically debited from your mobile phone account
doc_533466864.pptx
Electronic commerce, commonly known as e-commerce, is a type of industry where buying and selling of product or service is conducted over electronic systems such as the Internet and other computer networks.
E-Commerce
Digital Markets, Digital Goods
Electronic Commerce and the Internet
• E-commerce today
– Have you ever downloaded music from the web? – Have you ever shopped for anything online? – Have you ever used the web to search for information about anything before buying it from a retail store?
Electronic Commerce and the Internet
• E-commerce today
– Online consumer sales will increase by more than 23% in 2007 to an estimated $180 bn, with 106 mn people purchasing online – On an average day, 70 mn people go online, 140 mn send email, 5 mn write their blogs, 4 mn share music on P2P networks and 3 mn use the internet to rate a person, product or service
Electronic Commerce and the Internet
• Do you feel the internet can reduce transaction costs?
Electronic Commerce and the Internet
• Why e-commerce is different
– Ubiquity
• Ubiquitous = Available everywhere, whenever
– Global reach
• Cross cultural, national boundaries! • Potential market size for e-commerce merchants is the world’s internet population • Traditional commerce = local / regional
– Universal standards
• Technical standards of the internet = universal (shared by all nations; everyone) • Reduce market entry costs
Electronic Commerce and the Internet
• Why e-commerce is different
– Richness
• Complexity and content of a message • Prior to the web: Trade-off between richness and reach
– Interactivity
• Huge amounts of user interaction (Traditional… Telephone?)
– Information density
• Information density = amount and quality of information available • Ecommerce reduces info collection, storage, processing and communication costs while increasing currency, accuracy and timeliness of information
– Personalization/customization
Electronic Commerce and the Internet
The Growth of e-commerce
Retail e-commerce revenues have grown exponentially since 1995 and have only recently “slowed” to a very rapid 25 percent annual increase, which is projected to remain the same until 2008. Source: Based on data from eMarketer, 2006; Shop.org and Forrester Research, 2005; and authors.
Electronic Commerce and the Internet
• Key concepts in e-commerce: Digital markets and digital goods
– Let's say you're getting ready to buy a new car. You've already checked out the prices and information on the various Web sites and have managed to get a pretty good deal because of the information you gathered. But now you need a loan and insurance for the new car. Your bank will give you a loan with a 7.5 percent interest rate. You think that's a little high. You call your insurance agent and she tells you the going rate is $1,500 a year.
Electronic Commerce and the Internet
• Key concepts in e-commerce: Digital markets and digital goods
– You get a sinking feeling that the excellent discount you were able to wrangle on the car itself will be quickly eaten up by the insurance and loan fees. But wait. You check out the Web sites offering loans and find out you can get 5 percent. You then discover you can get insurance for only $1,200 a year. Even if you don't use the Web sites you can still take the information to your bank and insurance agent and perhaps get them to renegotiate. – What does this tell you?
Electronic Commerce and the Internet
• Information Asymmetry
– Based on the previous 2 slides, what do you think is information asymmetry? – Because of the information you've gathered from the Web, the bank and insurance company no longer have the advantage of information asymmetry. – That is, the bank and insurance company thought they had more information about the transaction than you did, therefore they had the upper-hand. – But once you gained more information about the transaction than you previously had, you were able to get better rates. – The demise of information asymmetry is a phenomenon that is occurring in many consumer and business transactions and is directly attributable to the Internet.
Electronic Commerce and the Internet
• Richness
– The richness of information that the insurance Web site provided to you, coupled with the information they were able to collect about you, is opening up new opportunities for both businesses and consumers. – You get more information than was previously available. – The business collects more information than they were previously able to.
Electronic Commerce and the Internet
• Reach
– The reach of the financial Web site offering the loan is far greater than previously possible. Think about that for a minute. – If you wanted a loan in the past, usually your only option was to visit the local bank. You were stuck with whatever terms and rates they happened to be offering. – Now you can apply for the loan at financial companies all across the country via the Web and select the best rates and terms. You are no longer limited to the ones in your neighbourhood. – Conversely, the financial institutions offering loans can now reach out to thousands and millions more potential customers than was ever possible before.
Electronic Commerce and the Internet
• FTD.com
– The Internet has also allowed businesses and consumers to establish new types of relationships not previously possible. – FTD.com, the flower Web site, offers you the opportunity to store birthdays, anniversaries, and other special occasions on their computer. – They have a network of approx. 45,000 florists in 154 countries, with 16,000 being in North America! – A few days before the event, FTD.com will send you an e-mail reminder to order flowers. You simply click on the Web site URL in the e-mail, select the flowers you want sent, and enter your credit card information. – The whole transaction takes less than ten minutes and the recipient will love you for being so thoughtful. – That's richness and reach that neither the consumer nor the business was ever able to establish before the Internet.
Digital Markets
• Digital Markets
– Very flexible and efficient because they operate with:
• • • • Reduced search and transaction costs Lower menu costs (merchant’s cost of changing prices) Price discrimination Dynamic pricing (ability to change prices based on market conditions)
– Price of product varies depending on the demand characteristics of the customer or the supply situation of the seller
– Provide opportunities to sell directly to the consumer bypassing intermediaries
• Significantly lowers purchase transaction costs. = Disintermediation
Digital Markets – The Advantage Equation!
MANUFACTURER
DISTRIBUTOR
RETAILER
CUSTOMER
$48.50
MANUFACTURER
RETAILER
CUSTOMER
$40.34
MANUFACTURER
CUSTOMER
$20.45
Digital Markets vs. Traditional Markets
DIGITAL MARKETS Information Asymmetry Search Costs Transaction Costs Delayed Gratification Menu Costs Dynamic Pricing Price Discrimination Market Segmentation Switching Costs Network Effects Disintermediation Asymmetry reduced Low Low (sometimes virtually nothing) High (or lower in case of digital goods) Low Low cost, instant Low cost, instant Low cost, moderate precision Higher / lower (depends on product characteristics) Strong More possible / likely TRADITIONAL MARKETS Asymmetry high High High (time, travel) Lower: purchase now High High cost, delayed High cost, delayed High cost, less precision High Weaker Less possible / unlikely
Digital Goods
• Digital Goods
– – – – – Goods that can be delivered over a digital network Music tracks, video, software, newspapers, magazines, books Marginal cost of producing another unit is about zero! Cost of producing the original first unit is relatively high Cost of delivery over the internet is very low
Digital Goods vs. Traditional Goods
DIGITAL GOODS TRADITIONAL GOODS
Marginal Cost/unit
Cost of production Copying cost Distributed delivery cost Inventory cost Marketing cost Pricing
Zero
High (most of the cost) Approximately 0 Low Low Variable More variable (bundling, random pricing games)
Greater than zero, high
Variable Greater than zero, high High High Variable Fixed, based on unit costs
Internet Business Models
• Internet business models
– Communication and community – Digital content, entertainment, and services
Internet Business Models
CATEGORY Virtual Storefront Transaction Broker DESCRIPTION Sell physical products directly to consumers or to individual businesses Saves user money and time by processing online sales transactions and generating a fee each time a transaction occurs + Information on rates and terms Provides a digital environment where buyers and sellers can meet, search for products, establish prices for those products + Online auctions Creates revenue by providing digital content (news, music, video etc.) over the web. Customer may pay to access the content or revenue is driven by advertising space EXAMPLES Amazon.com Expedia.com
Online Marketplace
eBay.com
Content Provider
iTunes.com Games.com
Internet Business Models
CATEGORY Virtual Community DESCRIPTION Provides an online meeting place where people with similar interests can communicate and find useful information Provides initial point of entry to the Web along with specialized content and other services EXAMPLES YouTube.com MySpace.com
Portal
Yahoo.com MSN.com
Communication and Community
• Banner ads • Pop-up ads • Social networking sites
Pop-up Ads
Digital Content, Entertainment & Services
• Online gaming • Radio channels • Podcasting
Types of Electronic Commerce
• B2C
• • • Retailing products and services to individual shoppers Most visible Barnesandnoble.com Sales of foods and services among businesses Greatest dollar amount of transactions ChemConnect’s website for buying and selling natural gas liquids, refined and intermediate fuels, chemicals and plastics Consumers selling directly to consumers Greater geographic reach eBay
•
B2B
• • •
•
C2C
• • •
Achieving customer intimacy
Interactive marketing, personalization, and self-service
• Clickstream Tracking
Click 1 Click 2 Click 3 Shopper clicks on the homepage. Arrived from the Yahoo! Portal at 14:30 and how long was he/she on the homepage Shopper clicks on “Shirts” and then “Men’s shirts” and then a specific color. Shopper changes color from the default to black. Adds it to his cart
Click 4
From the cart, shopper closes the browser wtihout purchasing the shirt.
Website Personalization
Firms can create unique personalized Web pages that display content or ads for products or services of special interest to individual users, improving the customer experience and creating additional value.
Customer Self-Service
• Airline Websites
– – – – – – Review flight departure / arrival times Seating charts Check airport logistics Check frequent flier miles Purchase tickets online Cancel / reschedule journeys
Electronic Commerce
• Business-to-business (B2B) electronic commerce: New efficiencies and relationships
– – – – – EDI Procurement Private industrial networks (private exchanges) Net marketplaces Exchanges
Electronic Data Exchange (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.
Procurement
• Business use the internet to:
– – – – – locate the most low cost suppliers search online catalogs negotiate with suppliers place orders make payments, etc.
Private Industrial Networks (Private Exchanges)
More…
• Net Marketplaces
– Online marketplaces where multiple buyers can purchase from multiple suppliers
• Exchanges
– Independently owned 3rd party net marketplaces that connect 1000s of suppliers and vendors for spot purchasing
M-Commerce
• M-Commerce services and applications
– Content and location-based services
• Subscribers to NTT DoCoMo wireless services in Japan can access wireless websites to check train schedules, obtain movie listings, browse restaurant guides, purchase airline tickets, trade stocks, view cartoons and read Japan’s largest daily newspaper
– Banking and financial services
• Citibank offers wireless alerts about changes in account information • Other banks offer facilities to check balances, transfer funds, manage accounts
M-Commerce
• M-Commerce services and applications
– Wireless advertising
• Yahoo! And Go2 – When users are using any of Go2’s services on the mobile (e.g. checking directory listings), the Yahoo! Ads will come up
– Games and entertainment
M-Commerce
• M-Commerce Challenges
– Mushrooming wi-fi hotspots – Keyboard and screens still tiny (Umm…. That’s debatable!)
M-Commerce
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.
E-Commerce Payment Systems
• Types of electronic payment systems
– – – – – – – Digital credit card payment systems Digital wallet Micropayment (< $10) Accumulated balance digital payment systems (debits accumulated) Stored value payment systems Digital cash P2P Payment Systems (Paypal)
E-Commerce Payment Systems
• Digital payment systems for m-commerce
– Any Wi-Fi connection should be good! – Majorly used for micropayments
• Europe and Asia – Because any small transactions can then be reported in the mobile bill
– In London, you can buy a Virgin Cola by simply dialing a number and providing inputs – Automatically debited from your mobile phone account
doc_533466864.pptx