1. Chapter 2 E-Marketplaces: Structures, Mechanisms, Economics, and Impacts

2. 2-2 Learning Objectives 1.Define e-marketplaces and list their components. 2.List the major types of e-marketplaces and describe their features. 3.Describe the various types of EC intermediaries and their roles. 4.Describe electronic catalogs, shopping carts, and search engines. 5.Describe the major types of auctions and list their characteristics.

3. 2-3 Learning Objectives 6.Discuss the benefits, limitations, and impacts of auctions. 7.Describe bartering and negotiating online. 8.Define m-commerce and explain its role as a market mechanism. 9.Discuss competition in the digital economy. 10.Describe the impact of e-marketplaces on organizations and industries.

4. 2-4 E-Marketplaces Marketspace A marketspace is an electronic marketplace in which sellers and buyers exchange goods and services for money (or for other goods and services). While traditional marketplaces are constrained by their physical locations, marketspaces use technology to eliminate this constraint (by being online)

5. Marketplaces Markets (electronic or otherwise) have three main functions: Matching buyers and sellers Facilitating the exchange of information, goods, services, and payments associated with market transactions Providing an institutional infrastructure, such as a legal and regulatory framework, that enables the efficient functioning of the market 2-5

6. 2-6 E-Marketplaces

7. Marketspace Components Customers (most important) Sellers Products and services, including digital products: goods that can be transformed into digital format and delivered over the Internet, e.g., e-books, software, graphics, video clips, etc. Infrastructure ( includes software, hardware, and network) Front end e-seller’s business processes through which customers interact, eg. seller’s portal & e-catalogs Back end activities that support online order-taking Intermediaries Third party that operates between sellers & buyers Other business partners (eg. shippers) Support services (eg. trust and certification services for security) 2-7

8. 2-8 E-Marketplaces front end Customers interact with a marketspace via front end. It is the portion of an e-seller’s business processes through which customers interact, including the seller’s portal, electronic catalogs, a shopping cart, a search engine, and a payment gateway back end The activities that support online order-taking and fulfillment, inventory management, purchasing from suppliers, payment processing, packaging, and delivery

9. EXHIBIT W2.1 Examples of Digital Products 1. Information and entertainment products: Paper-based documents: Books, newspapers, magazine journals, store coupons, marketing brochures, newsletters, research papers, and training materials Product information: Product specifications, catalogs, user manuals Graphics: Photographs, postcards, calendars, maps, posters, and X-rays Audio: Music recordings, speeches, and lectures Video: Movies, television programs, and video clips Software: Programs, games, and development tools 2. Symbols, tokens, and concepts: Tickets and reservations: Airlines, hotels, concerts, sports events, and transportation Financial instruments: Checks, electronic currencies, credit cards, and letters of credit 3. Processes and services: Government services: Forms, benefits, welfare payments, and licenses Electronic messaging: Letters, faxes, and telephone calls Business-value-creation processes: Ordering, bookkeeping, inventorying, and contracting Auctions, bidding, and bartering Remote education, telemedicine, and other interactive services Cybercafes, interactive entertainment, and virtual communities 2-9

10. 2-10 Types of E-Marketplaces: From Storefronts to Portals The Major types of E-Marketplaces in B2C: Electronic Storefronts storefront A single company’s Web site where products or services are sold. It may be belong to manufacture, retailer, individual, or to over type of business. Mechanisms for conducting the sale. e-mall (online mall) An online shopping center where many online stores are located. Some malls are actually large click-and-mortar retailer and some are virtual retailer

11. 2-11 Types of E-Marketplaces: From Storefronts to Portals Types of Stores and Malls General stores/malls Specialized stores/malls Regional versus global stores Pure-play online organizations versus click- and-mortar stores

12. 2-12 Types of E-Marketplaces: From Storefronts to Portals Types of E-Marketplaces in B2B: private e-marketplaces (one to many) Online markets owned by a single company; may be either sell-side and/or buy-side e-marketplaces sell-side e-marketplace A private e-marketplace in which one company sells either standard and/or customized products to qualified companies buy-side e-marketplace A private e-marketplace in which one company makes purchases from invited suppliers

13. 2-13 Types of E-Marketplaces: From Storefronts to Portals Types of E-Marketplaces public e-marketplaces (many to many) B2B marketplaces, usually owned and/or managed by an independent third party, that include many sellers and many buyers; also known as exchanges

14. 2-14 Transactions, Intermediation, and Process in E-Commerce The Roles and Value of Intermediaries in E-marketplaces Infomediaries Electronic intermediaries that provide and/or control information flow in cyberspace, often aggregating information and selling it to others

15. 2-15 Types of E-Marketplaces: From Storefronts to Portals information portal A single point of access through a Web browser to business information inside and/or outside an organization Types of Portals Commercial (public) Corporate Publishing Personal Mobile Voice Knowledge

16. 2-16 Transactions, Intermediation, and Process in E-Commerce

17. 2-17 Transactions, Intermediation, and Process in E-Commerce Intermediaries can address the following five important limitations of direct interaction: 1.Search costs It is may be difficult for buyer and seller to find each other. Intermediaries may have databases of customer preferences and they can predict demand and reduce search cost. 2.Lack of privacy Buyer or seller may wish to remain anonymous or at least protect some information relevant to a trade. Intermediaries can provide such information without revealing the identity of the parties. 3.Incomplete information Buyer may need more information (such as product quality, customer satisfaction) than the seller is able or willing to provide. Intermediaries can gather product information from resources other than product provider.

18. Cont., 4.Contract risk A consumer may refuse to pay after receiving the product, or a producer may provide inferior products Intermediaries have a number of tools to reduce such a risk: a)The broker can disseminate information about the behavior of providers and consumers. b)The broker may accept the responsibility for the behavior of parties in transactions it arranges. c) The broker can provide insurance against bad behavior. 5.Pricing inefficiencies By jockeying to secure a desirable price for a product, providers and consumers may miss opportunities for mutually desirable trade. Intermediaries can use pricing mechanisms that induce the trade. 2-18

19. 2-19 Transactions, Intermediation, and Process in E-Commerce  e-distributor is a special type of intermediary in the B2B. An e-commerce B2B intermediary that connects manufacturers(suppliers) with business buyers (customers) by aggregating the catalogs of many suppliers in one place—the intermediary’s Web site. For buyers, e-distributers offer one-stop location from which to place an order.

20. 2-20 Electronic Catalogs and Other Market Mechanisms  electronic catalogs The presentation of product information in an electronic form; the backbone of most e-commerce sites Consist of pictures with captions, audio explanations, videos, documents, search capabilities and a presentation function. For merchants, the objective is to advertise and promote products. For customer, the purpose is to provide a source of information on products

21. example 2-21

22. Classification of electronic catalog Three dimensions of electronic catalogs: 1.The dynamics of the information presentation static catalogs: information is presented in text and static picture Dynamic catalogs: information is presented in motion pictures or animations possibly with sound 2.The degree of customization Standard catalogs: the same catalog is offered to any customer Customized catalogs: content, pricing and display are tailored to the specific customer 3.Integration with business processes The degree of integration with the following business process 2-22

23. 2-23 Electronic Catalogs and Other Market Mechanisms

24. 2-24 Electronic Catalogs and Other Market Mechanisms Search engine A computer program that can access databases of Internet resources, search for specific information or keywords (e.g. requests for product information or pricing), and report the results Google, Alta Vista, and Lycos are examples for search engines`

25. Electronic Catalogs and Other Market Mechanisms Software (intelligent) agent Software that can perform routine tasks that require intelligence Software agents can be used in e- commerce to support tasks such as shopping, interpreting information, comparison(e.g., mysimon.com), and working as assistants. User can even chat with or collaborate with agents. 2-25

26. 2-26 Electronic Catalogs and Other Market Mechanisms electronic shopping cart An order-processing technology that allows customers to accumulate items they wish to buy while they continue to shop

27. Electronic Catalogs and Other Market Mechanisms 2-27

28. 2-28 Auctions as EC Market Mechanisms auction A market mechanism by which a seller places an offer to sell a product and buyers make bids sequentially and competitively until a final price is reached. Prices are determined dynamically by the bids. Deals with products and services for which conventional marketing channels are ineffective.

29. 2-29 Auctions as EC Market Mechanisms Traditional Auctions versus E-Auctions Limitations of traditional offline auctions rapid process (a few minutes, or even seconds) gives potential buyers little time to make a decision and sellers may not get the highest possible price The bidders do not have much time to examine the goods Bidders must usually be physically present at auctions It is difficult for sellers to move goods to the auction site High costs( rent a place, advertisements, auctioneer and other employees need to be paid)

30. Auctions as EC Market Mechanisms electronic auction (e-auction) Lower cost Wide array of support services Many more sellers and buyers In e-auctions, host sites on the Internet serve as brokers (e.g., see ebay.com, infospace.com), offering services for sellers to post their goods for sale and allowing buyers to bid on those items. 2-30

31. 2-31 Auctions as EC Market Mechanisms Dynamic pricing Refer to the prices that change based on supply and demand relationships at any given time Dynamic pricing appears in several forms such as negotiation and bartering

32. 2-32 Auctions as EC Market Mechanisms Types of Auctions One buyer, one seller popular in B2B –Each party can use negotiation, bargaining, or bartering –The resulting price will be determined by: Bargaining power Supply and demand in the item’s market One seller, many potential buyers forward auction An auction in which a seller entertains bids from buyers. Bidders increase price sequentially

33. Auctions as EC Market Mechanisms One buyer, many potential sellers Two types: reverse auction (bidding or tendering system) Auction in which the buyer places an item for bid (tender) on a request for quote (RFQ) system, potential suppliers bid on the job, with the price reducing sequentially, and the lowest bid wins; primarily a B2B or G2B mechanism “name-your-own-price” model Auction model in which a would-be buyer specifies the price (and other terms) he or she is willing to pay to any willing and able seller. It is a C2B model that was pioneered by Priceline.com 2-33

34. 2-34 Auctions as EC Market Mechanisms

35. 2-35 Auctions as EC Market Mechanisms Many sellers, many buyers double auction Auctions in which multiple buyers and their bidding prices are matched with multiple sellers and their asking prices, considering the quantities on both sides

36. Auctions as EC Market Mechanisms 2-36

37. 2-37 Auctions as EC Market Mechanisms Benefits of E-Auctions Benefits to Sellers Benefits to Buyers Benefits to E-Auctioneers Limitations of E-Auctions Minimal security Possibility of fraud Limited participation

38. 2-38 Bartering and Negotiating Online Online Bartering bartering The exchange of goods or services The problem is that it is difficult to find trading partners. Therefore, e-classified ads may be used for advertisements. e-bartering (electronic bartering) Bartering conducted online, usually in a bartering exchange  E-bartering can improve the matching process by attracting more customers to the barter. In addition, matching can be done faster, and as a result, better matches can be found.  Bartering Web sites include itex.com and u- exchange.com

39. Online Bartering bartering exchange A marketplace in which an intermediary arranges barter transactions The bartering process works like this: 1.You tell the bartering exchange what you want to offer 2.The exchange assesses the value of the your products and offers you a certain points 3.You use the points to buy things from a participating members in the exchange 2-39

40. 2-40 Online Negotiating E-Negotiation is the process of conducting negotiations between business partners using electronic means. Electronic negotiation, usually supported by software (intelligent) agents that performs searches and comparisons; Negotiated pricing is commonly used for expensive or specialized products In contrast with auctions, negotiations also deal with non-pricing terms, such as shipment, warranties, and payment methods

41. 2-41 E-Commerce in the Wireless Environment Mobile computing Use of portable devices, including smart cell phones, usually in a wireless environment. It permits real-time access to information, applications, and tools that, until recently, were accessible only from a desktop computer

42. 2-42 E-Commerce in the Wireless Environment mobile commerce (m-commerce) E-commerce conducted via wireless devices m-business The broadest definition of m-commerce, in which e-business is conducted in a wireless environment

43. 2-43 Impacts of EC on Business Processes and Organizations

44. 2-44 Impacts of EC on Business Processes and Organizations Improving direct marketing (i.e., direct reach to customers): the following impacts of e-marketplaces on B2C direct marketing: Product promotion (increased, more information-rich, and interactive) New sales channel (new distribution channels) Direct savings (reduce the cost of delivering the information and digitized products such as music and software) Reduced cycle time (the time of delivering digitized products and services can be reduced to seconds, cutting the cycle time by more than 90%) Improved customer service ( enabling customers to find detailed information online, for example FedEx, and software (intelligent) can answer standard questions in seconds)

45. Impacts of EC on Business Processes and Organizations Brand or corporate image Customization (EC enables customization of products and services like cars, computers, jewelry..) Personalization. Personalization refers to “get-it-your-way” in services and digital information (e.g., news, stock prices, weather in your city, and so forth). Advertising (cost can be reduced, richness of format, personalization) Ordering systems (ordering online can reduce the processing time and mistakes. Customers can configure their own orders) Market operations (direct e-marketing is changing the traditional markets. Goods can be delivered directly to buyers instead of intermediaries) Accessibility. The ability to access a market anytime from any place (especially with wireless devices) enhances direct e- marketing. 2-45

46. 2-46 Impacts of EC on Business Processes and Organizations Transforming Organizations Technology and organizational learning To survive, companies will have to learn and adapt quickly to the new technologies. Will offer them an opportunity to experiment with new products, services, and business models, which may lead to strategic and structural changes. The changing nature of work The nature of some employment will be restructured in the Digital Age

47. Impacts of EC on Business Processes and Organizations Redefining Organizations New and improved product capabilities E-markets allow for new products to be created and/or for existing products to be customized. Such changes may redefine the manner in which organizations operate. New industry order and business models e.g., airlines are moving to electronic ticketing and stocks are moving to online trading New business models are used (e.g. name-your-own- price model) 2-47

48. 2-48 Impacts of EC on Business Processes and Organizations

49. Improving the supply chain Self-Service. One of the major changes in the supply chain is to transfer some activities to customers and/or employees through self- service. This strategy is used extensively in call centers (e.g., track your package at UPS or FedEx), with self configuration of products (e.g., Dell, Nike), by having customers use FAQs and by allowing employees to update personal data online. Shifting activities to others in the supply chain saves money and increases data accuracy 2-49

50. 2-50 Impacts of EC on Business Processes and Organizations Impacts on manufacturing Build-to-Order Manufacturing build-to-order A manufacturing process that starts with an order (usually customized). Once the order is paid for, the vendor starts to fulfill it Impacts on Finance and Accounting Use of electronic payment systems rather than the traditional systems Impact on Human Resources Management and Training EC is changing how people will recruited, evaluated, promoted, and trained ( distance learning)

51. 2-51 Managerial Issues 1.What about intermediaries? 2.Should we auction? 3.Should we barter? 4.What m-commerce opportunities are available? 5.How do we compete in the digital economy? 6.What organizational changes will be needed?