1. 9.1 © 2009 by Prentice Hall 9 Chapter E-Commerce: Digital Markets, Digital Goods Revised by Yu-Hui Tao

2. 9.2 © 2009 by Prentice Hall STUDENT LEARNING OBJECTIVES Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods What are the unique features of e-commerce, digital markets, and digital goods? How has Internet technology changed business models? What are the various types of e-commerce, and how has e-commerce changed consumer retailing and business-to-business transactions?

3. 9.3 © 2009 by Prentice Hall STUDENT LEARNING OBJECTIVES (continued) What is the role of m-commerce in business, and what are the most important m-commerce applications? What are the principal payment systems for electronic commerce? Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

4. 9.4 © 2009 by Prentice Hall Photobucket: The New Face of E-commerce Problem: Building a business model that serves the emerging market for social networking sites. Solutions: Set up a simple, easy to use photo storage site usable at any social networking site. Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

5. 9.5 © 2009 by Prentice Hall Photobucket: The New Face of E-commerce Photobucket pioneered the concept of linking media from one Web Site to multiple online sites. Demonstrates IT’s role in generating new business models. Illustrates digital technology’s importance in reducing the costs of storing photos and video online. Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

6. 9.6 © 2009 by Prentice Hall Photobucket: The New Face of E-commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

7. 9.7 © 2009 by Prentice Hall Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods E-Commerce Today E-commerce: Use of the Internet and Web to transact business; digitally enabled transactions Began in 1995 and grew exponentially; still growing at an annual rate of 25 percent Companies that survived the dot-com bubble burst and now thrive E-commerce revolution is still in its early stages

8. 9.8 © 2009 by Prentice Hall Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Figure 9-1 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 2010. The Growth of E-Commerce

9. 9.9 © 2009 by Prentice Hall Unique Features of E-commerce Technology Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Ubiquity Internet/Web technology available everywhere: work, home, etc., anytime. Effect: Marketplace removed from temporal, geographic locations to become “marketspace” Enhanced customer convenience and reduced shopping costs

10. 9.10 © 2009 by Prentice Hall Unique Features of E-commerce Technology Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Global reach The technology reaches across national boundaries, around Earth Effect: Commerce enabled across cultural and national boundaries seamlessly and without modification Marketspace includes, potentially, billions of consumers and millions of businesses worldwide

11. 9.11 © 2009 by Prentice Hall Unique Features of E-commerce Technology Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Universal standards One set of technology standards: Internet standards Effect: Disparate computer systems easily communicate with each other Lower market entry costs—costs merchants must pay to bring goods to market Lower consumers’ search costs—effort required to find suitable products

12. 9.12 © 2009 by Prentice Hall Unique Features of E-commerce Technology Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Richness Supports video, audio, and text messages Effect: Possible to deliver rich messages with text, audio, and video simultaneously to large numbers of people Video, audio, and text marketing messages can be integrated into single marketing message and consumer experience

13. 9.13 © 2009 by Prentice Hall Unique Features of E-commerce Technology Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Interactivity The technology works through interaction with the user Effect: Consumers engaged in dialog that dynamically adjusts experience to the individual Consumer becomes co-participant in process of delivering goods to market

14. 9.14 © 2009 by Prentice Hall Unique Features of E-commerce Technology Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Information density Large increases in information density—the total amount and quality of information available to all market participants Effect: Greater price transparency Greater cost transparency Enables merchants to engage in price discrimination

15. 9.15 © 2009 by Prentice Hall Unique Features of E-commerce Technology Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Personalization/Customization Technology permits modification of messages, goods Effect Personalized messages can be sent to individuals as well as groups Products and services can be customized to individual preferences

16. 9.16 © 2009 by Prentice Hall Unique Features of E-commerce Technology Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Social technology The technology promotes user content generation and social networking Effect New Internet social and business models enable user content creation and distribution, and support social networks

17. 9.17 © 2009 by Prentice Hall Key Concepts in E-commerce: Digital Markets and Digital Goods In a Global Marketplace Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Digital markets reduce Information asymmetry Search costs Transaction costs Menu costs (costs of changing prices) Digital markets enable Price discrimination Dynamic pricing Disintermediation

18. 9.18 © 2009 by Prentice Hall Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Figure 9-2 The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product, such as a sweater. Removing layers lowers the final cost to the consumer. The Benefits of Disintermediation to the Consumer

19. 9.19 © 2009 by Prentice Hall Key Concepts in E-commerce: Digital Markets and Digital Goods In a Global Marketplace Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Digital goods Goods that can be delivered over a digital network E.g. Music tracks, video, software, newspapers, books Cost of producing first unit almost entire cost of product: marginal cost of producing 2 nd unit is about zero Costs of delivery over the Internet very low Marketing costs remain the same; pricing highly variable Industries with digital goods are undergoing revolutionary changes (publishers, record labels, etc.)

20. 9.20 © 2009 by Prentice Hall Internet Business Models Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Pure-play models: Based purely on Internet Clicks-and-mortar models: Extensions of bricks-and- mortar businesses Communication and Social Networking Some new business models take advantage of Internet’s rich communication capabilities Social networking sites Social shopping Can provide ways for corporate clients to target customers through banner ads and pop-up ads

21. 9.21 © 2009 by Prentice Hall Internet Business Models Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Digital content, entertainment, and services Ability to deliver digital goods and content has created new alternatives to traditional print and broadcast media Online games, radio channels, films and television, music downloads, and podcasts Portal: “Supersite” that provides comprehensive entry point for huge array of resources and services on the Internet Online syndicators: Aggregate content from multiple sources, package for distribution, and resell to third-party Web sites

22. 9.22 © 2009 by Prentice Hall Internet Business Models Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Virtual storefront: Sells physical products directly to consumers or to individual businesses Information broker: Provides product, pricing, and availability information to individuals and businesses Transaction broker: Saves users money and time by processing online sales transactions and generating a fee for each transaction

23. 9.23 © 2009 by Prentice Hall Internet Business Models Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Online marketplace: Provides a digital environment where buyers and sellers can meet, search for products, display products, and establish prices for those products Content provider: Creates revenue by providing digital content, such as digital news, music, photos, or video, over the Web

24. 9.24 © 2009 by Prentice Hall Internet Business Models Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Social network: Provides an online meeting place where people with similar interests can communicate and find useful information Portal: Provides initial point of entry to the Web along with specialized content and other services Service provider: Provides Web 2.0 applications such as photo sharing, video sharing, and user-generated content as services

25. 9.25 © 2009 by Prentice Hall Interactive Session: Organizations Can eBay Continue Growing? Read the Interactive Session and then discuss the following questions: What is eBay’s business model and business strategy? How successful has it been? What are the problems that eBay is currently facing? How is eBay trying to solve these problems? Are these good solutions? Are there any other solutions that eBay should consider? What people, organization, and technology factors play a role in eBay’s response to its problems? Will eBay be successful in the long run? Why or why not? Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

26. 9.26 © 2009 by Prentice Hall Interactive Session: People The Allure of MySpace Read the Focus on Organizations and then discuss the following questions: How do businesses benefit from MySpace? How do MySpace members benefit Does MySpace create an ethical dilemma? Why or why not? Do parents’ and schools’ objections to MySpace have any merit? Should a site such as MySpace be allowed to operate? Why or why not? Is there anything that MySpace management can do to make the site less controversial? Electronic Commerce Payment Systems Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

27. 9.27 © 2009 by Prentice Hall Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Toyota set up a MySpace profile for the Yaris to attract the attention of young buyers and gather marketing data.

28. 9.28 © 2009 by Prentice Hall Types of Electronic Commerce Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Business-to-consumer (B2C) Business-to-business (B2B) Consumer-to-consumer (C2C) Mobile commerce (m-commerce)

29. 9.29 © 2009 by Prentice Hall Achieving Customer Intimacy: Interactive Marketing, Personalization, and Self-Service Interactive marketing and personalization Web sites are bountiful source of details about customer behavior, preferences, buying patterns used to tailor promotions, products, services, and pricing Clickstream tracking tools: Collect data on customer activities at Web sites Used to create personalized Web pages Collaborative filtering: Compares customer data to other customers to make product recommendations Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

30. 9.30 © 2009 by Prentice Hall Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Figure 9-3 E-commerce Web sites have tools to track a shopper’s every step through an online store. Close examination of customer behavior at a Web site selling women’s clothing shows what the store might learn at each step and what actions it could take to increase sales. Web Site Visitor Tracking

31. 9.31 © 2009 by Prentice Hall Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Figure 9-4 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. Web Site Personalization

32. 9.32 © 2009 by Prentice Hall Achieving Customer Intimacy: Interactive Marketing, Personalization, and Self-Service Blogs Personal web pages that contain series of chronological entries by author and links to related Web pages Has increasing influence in politics, news Corporate blogs: New channels for reaching customers, introducing new products and services Customer self-service Web sites and e-mail to answer customer questions or to provide customers with product information Reduces need for human customer-support expert Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

33. 9.33 © 2009 by Prentice Hall Electronic Commerce and the Internet Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Stonyfield Farms’ Baby Babble blog provides a channel for the company to talk to customers with young children directly and hear back from them.

34. 9.34 © 2009 by Prentice Hall Business-to-Business Electronic Commerce: New Efficiencies and Relationships Electronic data interchange (EDI) Computer-to-computer exchange of standard transactions such as invoices, purchase orders Major industries have EDI standards that define structure and information fields of electronic documents for that industry More companies increasingly moving away from private networks to Internet for linking to other firms E.g. Procurement: Businesses can now use Internet to locate most low-cost supplier, search online catalogs of supplier products, negotiate with suppliers, place orders, etc. Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

35. 9.35 © 2009 by Prentice Hall Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Figure 9-5 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. Electronic Data Interchange (EDI)

36. 9.36 © 2009 by Prentice Hall Business-to-Business Electronic Commerce: New Efficiencies and Relationships Private industrial networks (private exchanges) 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) Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

37. 9.37 © 2009 by Prentice Hall Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Figure 9-6 A private industrial network, also known as a private exchange, links a firm to its suppliers, distributors, and other key business partners for efficient supply chain management and other collaborative commerce activities. A Private Industrial Network

38. 9.38 © 2009 by Prentice Hall Business-to-Business Electronic Commerce: New Efficiencies and Relationships Net marketplaces (e-hubs) Single market for many buyers and sellers Industry-owned or owned by independent intermediary Generate revenue from transaction fees, other services Use prices established through negotiation, auction, RFQs, or fixed prices May focus on direct or indirect goods May be vertical or horizontal marketplaces Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

39. 9.39 © 2009 by Prentice Hall Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Figure 9-7 Net marketplaces are online marketplaces where multiple buyers can purchase from multiple sellers. A Net Marketplace

40. 9.40 © 2009 by Prentice Hall Business-to-Business Electronic Commerce: New Efficiencies and Relationships Exchanges Independently owned third-party Net marketplaces Connect thousands of suppliers and buyers for spot purchasing Typically provide vertical markets for direct goods for single industry (food, electronics) Proliferated during early years of e-commerce; many have failed Competitive bidding drove prices down and did not offer long-term relationships with buyers or services to make lowering prices worthwhile Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

41. 9.41 © 2009 by Prentice Hall M-Commerce Services and Applications M-Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Although m-commerce represents small fraction of total e-commerce transactions, revenue has been steadily growing Location-based services Banking and financial services Wireless Advertising Games and entertainment

42. 9.42 © 2009 by Prentice Hall Electronic Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Figure 9-8 M-commerce sales represent a small fraction of total e- commerce sales, but that percentage is steadily growing. (Totals for 2007– 2008 are estimated.) Global M-commerce Revenue 2000-2009

43. 9.43 © 2009 by Prentice Hall Cell phones and mobile handhelds Data limitations Display size Wireless portals (mobile portals) Feature content and services optimized for mobile devices to steer users to information they are most likely to need Accessing Information from the Wireless Web M-Commerce Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods

44. 9.44 © 2009 by Prentice Hall Types of Electronic Payment Systems Electronic Commerce Payment Systems Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Digital wallet Stores credit card and owner identification information and enters the shopper’s name, credit card number, and shipping information automatically when invoked to complete a purchase (Google Checkout) Micropayment systems: Developed for purchases of less than $10 Accumulated balance digital payment systems Accumulating debit balance that is paid periodically on credit card or telephone bills

45. 9.45 © 2009 by Prentice Hall Types of Electronic Payment Systems Electronic Commerce Payment Systems Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Stored value payment systems Enable online payments based on value stored in online digital account May be merchant platforms or peer-to-peer (PayPal) Digital checking Extend functionality of existing checking accounts to be used for online payments Electronic billing presentment and payment systems Paying monthly bills through electronic fund transfers or credit cards

46. 9.46 © 2009 by Prentice Hall Digital Payment Systems for M-Commerce Electronic Commerce Payment Systems Essentials of Business Information Systems Chapter 9 E-Commerce: Digital Markets, Digital Goods Three types of mobile payment systems in use in Japan Stored value system charged by credit cards or bank accounts Mobile debit cards Mobile credit cards In the U.S., the cell phone has not yet evolved into a mobile payment system