ECommerce The Revolution Is Just Beginning 7 1

E-Commerce : The Revolution Is Just Beginning 7. 1 @ Lalit Sharma, JIM

E-commerce Trends • New business models based on social technologies and user-generated content • Search engine marketing dominates online advertising • More and more people/businesses use Internet to conduct commerce • Broadband wireless Internet access growing • Continued conflict over copyrights, content regulation, taxation, privacy, Internet fraud and abuse. 7. 2 @ Lalit Sharma, JIM

What is E-commerce? • Involves digitally enabled commercial transactions between and among organizations and individuals – Digitally enabled transactions include all transactions mediated by digital technology – Commercial transactions involve the exchange of value across organizational or individual boundaries in return for products or services 7. 3 @ Lalit Sharma, JIM

E-Commerce • Any form of business transaction in which the parties interact electronically rather than by physical exchanges or direct physical contact • E-commerce is usually associated with buying and selling over the Internet, or conducting any transaction involving the transfer of ownership or rights to use goods or services through a computer-mediated network • E-commerce is the use of electronic communications and digital information processing technology in business transactions to create, transform, and redefine relationships for value creation between or among organizations, and between organizations and individuals 7. 4 @ Lalit Sharma, JIM

E-Commerce Vs E-Business • Many discovered that they did not realize the distinction between online selling and using the internet to facilitate trade. The terms e-commerce and e-business are often misused and interchanged • E-commerce is selling things online, and is externally focused. Think Amazon. com. E-business means using the internet and online technologies to create operating efficiencies, and therefore increase value to the customer. It is internally focused. Think swift integration of planning, sourcing, manufacturing, management, execution, and selling using IT infrastructure 7. 5 @ Lalit Sharma, JIM

E-Commerce Vs E-Business • The term “E-business" was introduced as a deliberate attempt to say to people: "Your first understanding of E-commerce was too narrow. To be successful, we need to think more broadly. " • E-business goes far beyond E-commerce or buying and selling over the Internet, and deep into the processes and cultures of an enterprise. It is the powerful business environment that is created when you connect critical business systems directly to customers, employees, vendors, and business partners, using Intranets, Extranets, ecommerce technologies, collaborative applications, and the Web. • “The transformation of an organization’s processes to deliver additional customer value through the application of technologies, philosophies and computing paradigm of the new economy. ” 7. 6 @ Lalit Sharma, JIM

Why Study E-commerce? • Technology is different and more powerful than other technologies • Has challenged much traditional business thinking • Has a number of unique features that help explain why we have so much interest in ecommerce 7. 7 @ Lalit Sharma, JIM

Unique Features of E-commerce Technology / Why E -commerce is different • • 7. 8 Ubiquitous Global reach Universal standards Information richness Interactive Personalization/customization Social technology @ Lalit Sharma, JIM

Features of E-commerce Richness and Reach • Richness: depth and detail of information • Reach: how many people a business can connect with; how many products offered those people • Internet allows much richer communication with farther reach 7. 9 @ Lalit Sharma, JIM

Customer-Centered Retailing Direct Sales Over the Web • Disintermediation: Removal of intermediary steps in a value chain, selling directly to consumers, significantly lowers purchase transaction costs 7. 10 @ Lalit Sharma, JIM

The benefits of disintermediation to the consumer 7. 11 @ Lalit Sharma, JIM

Components of EC To execute these applications, companies need the right information, infrastructure, and support services. As shown: • People: Sellers, buyers, intermediaries, information systems specialists and other employees, and any other participants • Public policy: Legal and other policy and regulating issues, such as privacy protection and taxation • Marketing and advertising: Like any other business, EC usually requires the support of marketing and advertising • Support services: Many services are needed to support EC. They range from payments to order delivery and content creation • Business partnerships: Joint ventures, e-marketplaces, and partnerships are some frequently occurring relationships in e-business 7. 12 @ Lalit Sharma, JIM

E-Commerce Support Services 7. 13 @ Lalit Sharma, JIM

Customization in E-Commerce 7. 14 @ Lalit Sharma, JIM

Types of E-commerce • Classified by nature of market relationship – Business-to-Consumer (B 2 C) – Business-to-Business (B 2 B) – Consumer-to-Consumer (C 2 C) • Classified by type of technology used – Peer-to-Peer (P 2 P) – Mobile commerce (M-commerce) 7. 15 @ Lalit Sharma, JIM

Categories of Electronic Commerce • Business-to-business (B 2 B): Both the sellers and the buyers are business organizations • Collaborative commerce (c-commerce): In ccommerce, business partners collaborate electronically • Business-to-consumers (B 2 C): The sellers are organizations, and the buyers are individuals • Consumers-to-businesses (C 2 B): Consumers make known a particular need for a product or service, and suppliers compete to provide it 7. 16 @ Lalit Sharma, JIM

Contd… • Consumer-to-consumer (C 2 C): Individuals sell products or services to other individuals • Intrabusiness (intraorganizational) commerce: An organization uses EC internally to improve its operations. A special case is known as B 2 E (business to its employees) • Government-to-citizens (G 2 C): A government provides services to its citizens via EC technologies • Mobile commerce (m-commerce): When e-commerce is done in a wireless environment 7. 17 @ Lalit Sharma, JIM

Assessing E-commerce: Successes, Surprises and Failures • A stunning technological success • Early years have been a mixed success from a business perspective • Many visions developed during early days of e -commerce not fulfilled 7. 18 @ Lalit Sharma, JIM

Predictions for the Future • E-commerce technology will continue to propagate through all commercial activity • E-commerce prices will rise to cover the real cost of doing business on the Web and pay investors reasonable rate of return • E-commerce margins and profits will rise to levels more typical of all retailers • In B 2 C and B 2 B, traditional Fortune 500 companies will play growing and dominant role • Number of successful pure online companies will decline and most successful e-commerce firms will adopt mixed “clicks and bricks” strategies • Growth of regulatory activity worldwide 7. 19 @ Lalit Sharma, JIM

Managerial Issues • Managing resistance to change. Electronic commerce can result in a fundamental change in how business is done. Resistance to change from employees, vendors, and customers may develop. Education, training, and publicity over an extended time period offer possible solutions to the problem. • Integration of e-commerce into the business environment. E-commerce needs to be integrated with the rest of the business. Integration issues involve planning, competition for corporate resources with other projects, and interfacing EC with databases, existing IT applications, and infrastructure. • Lack of qualified personnel. Very few people have expertise in ecommerce. There are many implementation issues that require expertise, such as when to offer special promotions on the Internet, how to integrate an e-market with the information systems of buyers and sellers, and what kind of customer incentives are appropriate under what circumstances. • Privacy. In electronic payment systems, it may be necessary to protect the identity of buyers. Other privacy issues may involve tracking of Internet user activities by intelligent agents and cookies, and in-house monitoring of employees’ Web activities. 7. 20 @ Lalit Sharma, JIM

Managerial Issues (Continued) • Alliances. It is not a bad idea to join an alliance or consortium of companies to explore e-commerce. Alliances can be created at any time. Some EC companies (e. g. , Amazon. com) have thousands of alliances. The problem is which alliance to join, or what kind of alliance to form and with whom. • Choosing the company’s strategy toward e-commerce. Generally speaking there are three major options: (1) Lead: Conduct large-scale innovative e-commerce activities. (2) Watch and wait: Do nothing, but carefully watch what is going on in the field in order to determine when EC is mature enough to enter it. (3) Experiment: Start some ecommerce experimental projects (learn by doing). • Justifying e-commerce by conducting a cost-benefit analysis is very difficult. Many intangible benefits and lack of experience may produce grossly inaccurate estimates of costs and benefits. Nevertheless, a feasibility study must be done, and estimates of costs and benefits must be made. 7. 21 @ Lalit Sharma, JIM

Chapter 2 E-Commerce Business Models 7. 22 @ Lalit Sharma, JIM

E-commerce Business Models—Definitions • Business model – Set of planned activities designed to result in a profit in a marketplace • Business plan – Describes a firm’s business model 7. 23 @ Lalit Sharma, JIM

Key Ingredients of a Business Model 7. 24 @ Lalit Sharma, JIM

Value Proposition • Defines how a company’s product or service fulfills the needs of customers • Questions to ask: – Why will customers choose to do business with your firm instead of another? – What will your firm provide that others do not or cannot? • Examples of successful value propositions: 7. 25 – Personalization/customization – Reduction of product search, price discovery costs – Facilitation of transactions by managing product delivery @ Lalit Sharma, JIM

Revenue Model • Describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital • Major types: – – – 7. 26 Advertising revenue model Subscription revenue model Transaction fee revenue model Sales revenue model Affiliate revenue model @ Lalit Sharma, JIM

Market Opportunity • Refers to a company’s intended marketspace and the overall potential financial opportunities available to the firm in that marketspace – Marketspace: area of actual or potential commercial value in which company intends to operate – Realistic market opportunity: defined by revenue potential in each of market niches in which company hopes to compete 7. 27 @ Lalit Sharma, JIM

Competitive Environment • Refers to the other companies selling similar products and operating in the same marketspace • Influenced by: – – – how many competitors are active how large their operations are the market share for each competitor how profitable these firms are how they price their products • Includes both direct competitors and indirect competitors 7. 28 @ Lalit Sharma, JIM

Competitive Advantage • Achieved when a firm can produce a superior product and/or bring product to market at a lower price than most, or all, of competitors • Types of competitive advantage include: – First mover advantage – Unfair competitive advantage 7. 29 @ Lalit Sharma, JIM

Market Strategy • Plan that details how a company intends to enter a new market and attract customers • Best business concepts will fail if not properly marketed to potential customers 7. 30 @ Lalit Sharma, JIM

Organizational Development • Describes how the company will organize the work that needs to be accomplished • Work is typically divided into functional departments • Move from generalists to specialists as company grows 7. 31 @ Lalit Sharma, JIM

Management Team • Employees of the company responsible for making the business model work • Strong management team gives instant credibility to outside investors • Strong management team may not be able to salvage a weak business model, but should be able to change the model and redefine the business as it becomes necessary 7. 32 @ Lalit Sharma, JIM

Categorizing E-commerce Business Models: Some Difficulties • No one correct way • We categorize business models according to ecommerce sector (B 2 C, B 2 B, C 2 C) • Type of e-commerce technology used can also affect classification of a business model • Some companies use multiple business models 7. 33 @ Lalit Sharma, JIM

B 2 C Business Models: Portal • Offers powerful search tools plus an integrated package of content and services • Typically utilizes a combined subscription/advertising revenues/transaction fee model • May be general or specialized 7. 34 @ Lalit Sharma, JIM

B 2 C Business Models: E-tailer • Online version of traditional retailer • Types include: – – 7. 35 Virtual merchants Bricks-and-clicks Catalog merchants Manufacturer-direct @ Lalit Sharma, JIM

B 2 C Business Models: Content Provider • Information and entertainment companies that provide digital content over the Web • Typically utilizes a subscription, pay for download, or advertising revenue model • Syndication a variation of standard content provider model 7. 36 @ Lalit Sharma, JIM

B 2 C Business Models: Transaction Broker • Processes online transactions for consumers • Primary value proposition—saving time and money • Typical revenue model—transaction fee • Industries using this model include: – Financial services – Travel services – Job placement services 7. 37 @ Lalit Sharma, JIM

B 2 C Business Models: Market Creator • Uses Internet technology to create markets that bring buyers and sellers together • Examples: – Priceline. com – e. Bay. com • Typically uses a transaction fee revenue model 7. 38 @ Lalit Sharma, JIM

B 2 C Business Models: Service Provider • Offers services online • Value proposition: valuable, convenient, timesaving, low-cost alternatives to traditional service providers • Revenue models: subscription fees or one-time payment 7. 39 @ Lalit Sharma, JIM

B 2 C Business Models: Community Provider • Sites that create a digital online environment where people with similar interests can transact, communicate, and receive interestrelated information. • Typically rely on a hybrid revenue model • Examples: – i. Village – Friendster – About. com 7. 40 @ Lalit Sharma, JIM

Insight on Technology: Search, Ads, and Apps: The Future For Google (and Microsoft) Class Discussion • How many of you use Google, Yahoo, or MSN search engines? Does the class differ from the overall Web population? • Why do you use a particular search engine? • Why are search engines so profitable? • Why do people stay longer at Yahoo and MSN. com when compared to Google? Does this give them an advantage? 7. 41 @ Lalit Sharma, JIM

B 2 B Business Models: E-distributor • Supplies products and services directly to individual businesses • Owned by one company seeking to serve many customers • Example: Grainger. com 7. 42 @ Lalit Sharma, JIM

B 2 B Business Models: E-procurement • Creates and sells access to digital electronic markets • B 2 B service provider is one type – Application service providers: a subset of B 2 B service providers • Example: Ariba 7. 43 @ Lalit Sharma, JIM

B 2 B Business Models: Exchanges 7. 44 • Electronic digital marketplace where suppliers and commercial purchasers can conduct transactions • Usually owned by independent firms whose business is making a market • Generate revenue by charging transaction fees • Usually serve a single vertical industry • Number of exchanges has fallen dramatically @ Lalit Sharma, JIM

• • 7. 45 Insight on Business: Onvia Evolves Class Discussion Why did Onvia have a difficult time with its early business model? What type of B 2 B business model is Onvia using now? Is it still an “exchange? ” Why is the government market succeeding? What services does Onvia provide to government buyers? To small business sellers? How does Onvia make money? @ Lalit Sharma, JIM

B 2 B Business Models: Industry Consortia • Industry-owned vertical marketplaces that serve specific industries • Horizontal marketplaces, in contrast, sell specific products and services to a wide range of industries • Example: Exostar 7. 46 @ Lalit Sharma, JIM

B 2 B Business Models: Private Industrial Networks • Digital networks designed to coordinate the flow of communications among firms engaged in business together • Single firm network: the most common form (Example: Wal-Mart) • Industry-wide networks: often evolve out of industry associations (Example: Agentrics) 7. 47 @ Lalit Sharma, JIM

Business Models in Emerging E-commerce Areas • Consumer-to-Consumer (C 2 C): Provides a way for consumers to sell to each other, with the help of an online marketmaker • Peer-to-Peer (P 2 P): Links users, enabling them to share files and common resources without a common server • M-commerce: E-commerce business models that use wireless technologies – To date, m-commerce a disappointment in the United States; however, technology platform continues to evolve 7. 48 @ Lalit Sharma, JIM

Insight on Society: Is Privacy Possible in a Wireless World? Class Discussion • Why should you care if companies and government agencies track your cell phone? What is the threat if you are not doing anything wrong? • What is the “opt-in” principle and how does it protect privacy? • Should business firms be allowed to call cell phones with advertising messages based on location? • Should customer location information be protected from government agencies? 7. 49 @ Lalit Sharma, JIM

E-commerce Enablers: The Gold Rush Model • Internet infrastructure companies – Provide hardware, software, networking, security, ecommerce software systems, payment systems, databases, hosting services, etc. 7. 50 @ Lalit Sharma, JIM

How the Internet and the Web Change Business: Strategy, Structure, and Process • E-commerce changes the nature of players in an industry and their relative bargaining power by changing: – – – 7. 51 the basis of competition among rivals the barriers to entry the threat of new substitute products the strength of suppliers the bargaining power of buyers @ Lalit Sharma, JIM

Industry Value Chains • Set of activities performed in an industry by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services • Reduces the cost of information and other transactional costs 7. 52 @ Lalit Sharma, JIM

E-commerce and Industry Value Chains 7. 53 @ Lalit Sharma, JIM

Firm Value Chains • Set of activities that a firm engages in to create final products from raw inputs • Increases operational efficiency 7. 54 @ Lalit Sharma, JIM

E-commerce and Firm Value Chains 7. 55 @ Lalit Sharma, JIM

Firm Value Webs • Networked business ecosystem that uses Internet technology to coordinate the value chains of business partners within an industry, or within a group of firms • Coordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management system 7. 56 @ Lalit Sharma, JIM

Internet-Enabled Value Web 7. 57 @ Lalit Sharma, JIM

Business Strategy • Set of plans for achieving superior longterm returns on the capital invested in a business firm (i. e. , a plan for making a profit in a competitive environment) • Four generic strategies – – 7. 58 Differentiation Cost Scope Focus @ Lalit Sharma, JIM