1 CHAPTER 4: ELECTRONIC COMMERCE & ELECTRONIC BUSINESS CHAPTER 4: ELECTRONIC COMMERCE & ELECTRONIC BUSINESS

2 Management Challenges Internet provides many opportunities, but also challenges, such as: Electronic commerce & electronic business require a new way of thinking Finding a successful Internet business model

3 New Business Models and Value Propositions Business Model: How an organization delivers a product or service Changing Economics of Information –The Internet reduces information asymmetry –The Internet eliminates the tradeoff between richness and reach of information

4 Business Models Bricks and Mortar Clicks and Mortar (Bricks and Clicks) –Canadian Tire Pure Play –Amazon

5 Internet Business Models: Selling Virtual Storefront –Sells goods and /or services online – Aggregator –groups come together to gain volume discounts

6 Internet Business Models: Auctions Auction –Dynamic pricing – Reverse Auction –Consumers submit a bid to multiple sellers –

7 Business Models: Online Delivery, Products & Services Digital Product Delivery –Sell and deliver software, multimedia, etc. – Content provider –creates revenue through providing content for a fee, and through advertising –

8 Internet Business Models: Brokers Information Broker –Provides information about products – Transaction Broker –Buyers view rates and terms & completes transaction –

9 Internet Business Models: Web Entries & Communities Virtual community –Provides an online meeting place for people with common interests – Portal –Initial point of entry to Web, specialized content, services –

10 Electronic Commerce BusinessConsumers BusinessB2BC2B ConsumersB2CC2C Business Originating From: And Selling to:

11 Electronic Commerce BusinessConsumers BusinessPublishers order paper supplies from paper companies Amazon orders from publishers Consumers aggregate to bulk purchase from Amazon Consumers Consumers buy thousands of Harry Potter Books from Amazon Consumers resell copies on eBay Business Originating From: And Selling to:

12 Customer-Centric Retailing Direct sales over the Web Interactive Marketing and Personalization M-Commerce and Next Generation Marketing Customer Self-Service

13 B2B: Business to Business Exchanges: commercial online market; many buyers, many sellers VERTICAL EXCHANGES Set up for specific industries e.g. Steel and Chemical Industries HORIZONTAL EXCHANGES Address functions that occur cross industry e.g. purchasing office equipment

14 E-commerce Payment Systems Digital wallet E-cash Smart card Person-to-person payments Credit Cards

15 Security: Credit Cards Transfer of data from customer to vendor Transfer of data from vendor to payment processor Protection of customer data in stored in merchant’s database Secure Socket Layers (SSL)

16 Intranets Using Internet technology to support internal organizational needs – –Document sharing –Online repositories of information –Remote access to resources –Group collaboration

17 Example: Sun Microsystems Intranet to support Sales Team “The good news is there’s lots of information” “The bad news is there’s lots of information”

18 Intranets: Organizational Benefits Cross platform availability Can be tied to internal & transaction processing systems Interactive applications with text, audio, video Scalable as required Easy to use Web interface Low start-up costs Improved information sharing Reduced cost of distributing information

19 Challenges & Opportunities Unproven business models Business processes require change –channel conflicts Legal Issues Security and Privacy

20 E-commerce in Canada There is a higher percentage of Canadians than Americans using the Internet But... Canadian businesses are underrepresented on the Internet –Only 6 percent of Canadian businesses selling online in 2000, down from 10% in 1999 –In 2000, e-commerce sales accounted for 0.4 % of revenues, up from 0.2% in 1999 –Canadians purchase from US companies

21 Barriers to e-commerce in Canada High percentage of SMEs in Canada –May not have adequate resources to develop e-commerce strategy & solution Shortage of skilled IT workers Lack of sense of urgency Conservative investor culture Tax structure

22 E-commerce Taxation Issues Cross-border shopping Digital downloads

23 Who is Making Money on the Web? 190 companies split into 7 categories –Portals –Transaction –Commerce –Content –ISP –Enablers –Advertising Evaluated on financial metrics

24 Who is Making Money on the Web? Ctd. Results –Winner: Transaction (8/11 cos. had positive earnings) Why: solid revenue model –Losers: Content Providers and ISPs (4/34 CPs had positive earnings) –Commerce (0/26 had positive earnings) –Conclusion: <1/5 that met necessary requirements to go public had positive earnings. Transaction companies making money; others are investing in building brands and customer bases. Only a fraction of these cos. will succeed. Source: Scherbakovsky and Siegal