Electronic Commerce Ninth Edition

1. Electronic CommerceNinth Edition Chapter 6Social Networking, Mobile Commerce, and Online Auctions

2. Learning Objectives In this chapter, you will learn about: Social networking and online business activities Using mobile devices to do business online Online auctions and auction-related businesses Electronic Commerce, Ninth Edition 2

3. From Virtual Communities to Social Networks Online Web communities Not limited by geography Individuals and companies with common interests Meet online and discuss issues, share information, generate ideas, and develop valuable relationships Companies make money by serving as relationship facilitators Combine Internet’s transaction cost-reduction potential with a communication facilitator role Electronic Commerce, Ninth Edition 3 3

4. Virtual Communities Virtual community (Web community, online community) Gathering place for people and businesses No physical existence Early virtual communities Bulletin board systems (BBSs) Revenue source: monthly fees and selling advertising Usenet newsgroups Message posting areas on usenets Electronic Commerce, Ninth Edition 4

5. Virtual Communities (cont’d.) Current forms Web chat rooms Sites devoted to specific topics or general exchange of information, photos, videos People connect and discuss common issues, interests Considerable social interaction Relationship-forming activities Similar to physical communities Electronic Commerce, Ninth Edition 5

6. Early Web Communities 1985: WELL (“whole earth ‘lectronic link”) Monthly fee to participate in forums and conferences 1999 bought by Salon.com 1995: Beverly Hills Internet virtual community site Offered webcams, free Web site space Grew into GeoCities Revenue source: advertising, pop-up pages 1999: purchased by Yahoo! ($5 billion) Closed in 2009 Electronic Commerce, Ninth Edition 6

7. Early Web Communities (cont’d.) 1995: Tripod virtual community Offered free Web page space, chat rooms, news, weather updates, health information pages Revenue source: sold advertising 1995: Theglobe.com Cornell University class project Included bulletin boards, chat rooms, discussion areas, personal ads Added more features Revenue source: sold advertising Most early Web community businesses closed Electronic Commerce, Ninth Edition 7

8. Social Networking in the Second Wave of Online Communities As the Internet and Web grew: Experience of sharing new online communication faded New phenomenon in online communication began Multiple common bonds joined people with all types of common interests Social networking sites Allow individuals to create and publish a profile, create a list of other users with whom they share a connection (or connections), control that list, and monitor similar lists made by other users Electronic Commerce, Ninth Edition 8

9. Social Networking in the Second Wave of Online Communities (cont’d.) Social networking sites Six Degrees (1997) Friendster (2002) Had features found in today’s social networking sites LinkedIn: devoted to business connections Tribe.net YouTube: popularized video inclusion MySpace: popular with younger Web users Twitter Users can send short messages to other users who sign up to follow their messages (tweets) Electronic Commerce, Ninth Edition 9

10. Social Networking in the Second Wave of Online Communities (cont’d.) Basic idea behind social networking People invited to join by existing members Site provides directory New members work through friends established in the community Electronic Commerce, Ninth Edition 10

11. FIGURE 6-1 Social networking Web sites Electronic Commerce, Ninth Edition 11

12. Social Networking in the Second Wave of Online Communities (cont’d.) Web logs (Blogs) Web sites containing individual commentary on current events or specific issues Form of social networking site Encourages interaction among people Visitors add comments Early blogs focused on technology topics 2004: blogs used as political networking tool 2008: all major candidates using blogs Communicating messages, organizing volunteers, raising money, meetups Electronic Commerce, Ninth Edition 12

13. Social Networking in the Second Wave of Online Communities (cont’d.) Retailers embracing blogs to engage site visitors Bluefly.com online discount apparel retailer Flypaper blog Ice.com online jeweler Blogs may encourage potential customers to visit online store Business uses CNN Blog information included in television newscasts Electronic Commerce, Ninth Edition 13

14. Social Networking in the Second Wave of Online Communities (cont’d.) Business uses (cont’d.) Newspapers Inviting information and opinion contributions Targeting 18- to 35-year-old generation Participatory journalism Trend toward having readers help write the online newspaper Blogs can become businesses in themselves Must generate financial support (fees, advertising) Electronic Commerce, Ninth Edition 14

15. Social Networking in the Second Wave of Online Communities (cont’d.) Social networking Web sites for shoppers Social shopping Practice of bringing buyers and sellers together in a social network to facilitate retail sales Example: craigslist Operated by not-for-profit foundation All postings free (except help wanted ads) Example: EtsyWeb site Marketplace for selling handmade items We Love Etsy:Etsy buyers, sellers share information Electronic Commerce, Ninth Edition 15

16. Social Networking in the Second Wave of Online Communities (cont’d.) Social networking Web sites for shoppers (cont’d.) Social networking sites form communities based on connections among people Idea-based virtual communities Communities based on connections between ideas Idea-based networking Participating in idea-based virtual communities Examples: del.icio.us site, 43 Things site Electronic Commerce, Ninth Edition 16

17. Social Networking in the Second Wave of Online Communities (cont’d.) Virtual learning networks Distance learning platforms for student-instructor interaction (Blackboard) Tools include: Bulletin boards, chat rooms, drawing boards Moodle and uPortal Open-source software projects devoted to virtual learning community development Open-source software Developed by a programmer community Software available for download at no cost Electronic Commerce, Ninth Edition 17

18. Social Networking in the Second Wave of Online Communities (cont’d.) Web portals Combine portal and social networking features Typical portal offerings Search engines, directories, free e-mail, news stories, weather reports Social networking elements Games and chat rooms Allow site visitors to interact with each other Examples: Yahoo!, AOL, MSN Electronic Commerce, Ninth Edition 18

19. Revenue Models for Social Networking Sites By late 1990s: Revenue created by selling advertising Used by virtual communities, search engine sites, Web directories 1998 Purchases and mergers occurred New sites still used advertising-only revenue-generation model Included features offered by virtual community sites, search engine sites, Web directories, other information-providing and entertainment sites Goal: be every Web surfer’s doorway to the Web Electronic Commerce, Ninth Edition 19

20. Revenue Models for Social Networking Sites (cont’d.) Advertising-supported social networking sites Smaller sites with specialized appeal Can draw enough visitors to generate significant advertising revenue Example: I Can Has Cheezburger site Recall from Chapter 3: Sites with higher number of visitors can charge more Stickiness: important element in site’s attractiveness Rough measure of stickiness Time user spends at the site Electronic Commerce, Ninth Edition 20

21. FIGURE 6-2 Popularity and stickiness of leading Web sites Electronic Commerce, Ninth Edition 21

22. Revenue Models for Social Networking Sites (cont’d.) Advertising-supported social networking sites (cont’d.) Social networking sites Members provide demographic information Potential for targeted marketing: very high High visitor counts Can yield high advertising rates Second-wave advertising fees Based less on up-front site sponsorship payments Based more on revenue generation from continuing relationships with people who use the social networking sites Electronic Commerce, Ninth Edition 22

23. Revenue Models for Social Networking Sites (cont’d.) Mixed-revenue and fee-for-service social networking sites Most social networking sites use advertising Some charge a fee for some services Examples: Yahoo! All-Star Games package, Yahoo! premium e-mail service Monetizing Converting site visitors into fee-paying subscribers or purchasers of services Concern: visitor backlash More examples: The Motley Fool and TheStreet.com Electronic Commerce, Ninth Edition 23

24. Revenue Models for Social Networking Sites (cont’d.) Fee-based social networking Google Answers site Early attempt to monetize social networking Questions answered for a fee Google operated service from 2002 to 2006 Similar free services Yahoo! Answers, Amazon (Askville) Uclue (paid researchers earn 75 percent of total fee) Advocates claim better quality Fee-based Web sites can generate revenue by providing virtual community interaction Electronic Commerce, Ninth Edition 24

25. Revenue Models for Social Networking Sites (cont’d.) Microlending sites Function as clearinghouses for microlending activity Microlending Practice of lending very small amounts of money Lend to people starting or operating small businesses (especially in developing countries) Microlending key element Working within social network of borrowers Provide support, element of pressure to repay Examples: Kiva and MicroPlace Electronic Commerce, Ninth Edition 25

26. Revenue Models for Social Networking Sites (cont’d.) Internal virtual communities Provide social interaction among organization’s employees Run on organization’s intranet Save money (less paper) Provide easy access to employee information Good for geographically dispersed employees Adding wireless connectivity Combine second-wave technology with first-wave business strategy Wireless communications with internal Web portals Electronic Commerce, Ninth Edition 26

27. Mobile Commerce Short messaging service (SMS) Allows mobile phone users to send short text messages to each other 2008: United States developments allowing phones as Web browsers High-speed mobile telephone networks grew dramatically Manufacturers offered range of smart phones with Web browser, operating system, applications Electronic Commerce, Ninth Edition 27

28. Mobile Operating Systems and Applications Japan and Southeast Asia mobile commerce Much larger online business activity Had high-capacity networks early on Mobile wallets Mobile phones functioning as credit cards Japan’s NTT DoCoMo phones combined capabilities Generate significant business Electronic Commerce, Ninth Edition 28

29. Mobile Operating Systems and Applications (cont’d.) United States mobile commerce capabilities began in 2008 Smart phone and high-capacity network introductions Mobile commerce smart phone examples Apple iPhone, Palm Pre, several BlackBerry models Use the Android operating system Provide serious U.S. mobile commerce for the first time Electronic Commerce, Ninth Edition 29

30. FIGURE 6-3 Smart phones come in a range of different styles Electronic Commerce, Ninth Edition 30

31. Mobile Operating Systems and Applications (cont’d.) Mobile commerce browser display options Wireless Application Protocol (WAP) Allows Web pages formatted in HTML to be displayed on devices with small screens Display a normal Web page on the device Made possible by increased screen resolution Example: Apple iPhone Design Web sites to match specific smart phones Much more difficult to accomplish Electronic Commerce, Ninth Edition 31

32. Mobile Operating Systems and Applications (cont’d.) Mobile commerce browser display options (cont’d.) Apple, BlackBerry, Palm Use proprietary operating systems HTC, Motorola, Nokia At one time created their own operating systems and software applications Now use a standard operating system provided by a third party Most common third-party operating systems Android, Windows Mobile, Symbian Electronic Commerce, Ninth Edition 32

33. Mobile Operating Systems and Applications (cont’d.) Common operating systems emergence Occurred due to a change in the way software applications developed and sold Old U.S. mobile phone company revenue strategy Control application software Apple turned old revenue strategy on its head Apple Apps for iPhone online store Independent developers create apps and sell them BlackBerry and Palm followed Apple’s lead Electronic Commerce, Ninth Edition 33

34. The Future of Mobile Commerce Companies wanting mobile user commerce Review Web sites for compatibility May create separate Web sites for mobile users Mobile phones for online banking In early stages in the United States Physicians using smart phones Phones’ global positioning satellite (GPS) service capabilities Allow mobile business opportunities Electronic Commerce, Ninth Edition 34

35. Online Auctions • Business opportunity perfect for the Web • Auction site revenue sources • Charging both buyers and sellers to participate • Selling advertising • Targeted advertising opportunities available • Online auctions capitalize on Internet’s strength • Bring together geographically dispersed people sharing narrow interests Electronic Commerce, Ninth Edition

36. Auction Basics • From Babylon to the Roman Empire to Buddhists • Common activity of 17th century England • Sotheby’s (1744), Christie’s (1766), colonial auctions • Auction: seller offering item for sale • Bids: price potential buyer willing to pay • Bidders: potential buyers • Private valuations: amounts buyer willing to pay • Auctioneer: manages auction process • Shill bidders: work for seller or auctioneer • May artificially inflate price Electronic Commerce, Ninth Edition

37. Auction Basics (cont’d.) • English auctions • Bidders publicly announce successively higher bids • Item sold to highest bidder (at bidder’s price) • Also called ascending-price auction • Open auction (open-outcry auction) • Bids publicly announced • Minimum bid • Beginning price • If not met: item removed (not sold) Electronic Commerce, Ninth Edition

38. Auction Basics (cont’d.) • English auctions (cont’d.) • Reserve price (reserve) • Seller’s minimum acceptable price • Not announced • If not exceeded: item withdrawn (not sold) • Yankee auction • Multiple item units offered for sale (bidders specify quantity) • Highest bidder allotted bid quantity • Remaining items allocated to next highest bidders until all items distributed • Bidders pay lowest successful bidder price Electronic Commerce, Ninth Edition

39. Auction Basics (cont’d.) • English auctions (cont’d.) • Seller drawback • May not obtain maximum possible price • Buyer drawback • Winner’s curse psychological phenomenon • Bidder gets caught up in competitive bidding excitement • Bids more than their private valuation Electronic Commerce, Ninth Edition

40. Auction Basics (cont’d.) • Dutch auctions • Open auction • Bidding starts at a high price • Drops until bidder accepts price • Also called descending-price auctions • Seller offers number of similar items for sale • Common implementation • Use a clock (price drops with each tick) • Bidders stop clock and take items at the given price • If items remain: clock restarted Electronic Commerce, Ninth Edition

41. Auction Basics (cont’d.) • Dutch auctions (cont’d.) • Often better for the seller • Quickly move large numbers of commodity items • Successful examples: • Google initial public offering stock sale (2004) • LookSmart stock repurchase Electronic Commerce, Ninth Edition

42. Auction Basics (cont’d.) • First-price sealed-bid auctions • Sealed-bid auctions • Bidders submit bids independently • Prohibited from sharing information • First-price sealed-bid auction • Highest bidder wins • If multiple items auctioned: next highest bidders awarded remaining items at their bid price Electronic Commerce, Ninth Edition

43. Auction Basics (cont’d.) • Second-price sealed-bid auction • Same as first-price sealed-bid auction • Except highest bidder awarded item at second-highest bidder price • Commonly called Vickrey auctions • William Vickrey: 1996 Nobel Prize in Economics • Findings: • Yields higher seller returns • Encourages all bidders to bid private valuation amounts • Reduces tendency for bidder collusion Electronic Commerce, Ninth Edition

44. Auction Basics (cont’d.) • Open-outcry double auctions • Example: Chicago Board of Trade auctions of commodity futures and stock options • Buy and sell offers shouted by traders in trading pit • Each commodity, stock option traded in own pit • Quite frenzied • Double auctions (either sealed bid or open outcry) • Good for items of known quality traded in large quantities • No item inspection before bidding Electronic Commerce, Ninth Edition

45. Auction Basics (cont’d.) • Double auctions • Buyers, sellers submit combined price-quantity bids • Auctioneer • Matches sellers’ offers • Starts with lowest price and then goes up • To buyers’ offers • Starts with highest price and then goes down until all quantities offered are sold • Operation format • Sealed bid or open-outcry • Example: New York Stock Exchange Electronic Commerce, Ninth Edition

46. Auction Basics (cont’d.) • Reverse (seller-bid) auction • Multiple sellers submit price bids • Auctioneer represents single buyer • Bids for given amount of specific item to purchase • Prices go down as bidding continues: • Until no seller willing to bid lower • Occasionally operated for consumers • Most involve businesses as buyers and sellers Electronic Commerce, Ninth Edition

47. FIGURE 6-4 Key characteristics of seven major auction types Electronic Commerce, Ninth Edition

48. Online Auctions and Related Businesses • Online auction business: rapidly changing • Three auction Web site categories • General consumer auctions • Specialty consumer auctions • Business-to-business auctions • Varying opinions on categorizing consumer auctions • Business-to-consumer • Consumer-to-consumer • Consumer-to-business Electronic Commerce, Ninth Edition

49. Online Auctions and Related Businesses (cont’d.) • General consumer auctions • eBay: registration required, seller fees, rating system • Seller’s risk: stolen credit cards; buyer fails to conclude transaction • Buyer’s risk: no item delivery; misrepresented item • Most common auction format: English auction • Seller may set reserve price • Bidders listed: bids not disclosed (until auction end) • Continually updated high bid amount displayed • Private auction option available Electronic Commerce, Ninth Edition

50. Online Auctions and Related Businesses (cont’d.) • General consumer auctions (cont’d.) • Another eBay auction format: Dutch auction • Both formats require minimum bid increment • Amount by which one bid must exceed previous bid • Proxy bid • Bidder specifies maximum bid • May cause bidding to rise rapidly • eBay stores • Integrated into auction site • Sellers generate additional profits Electronic Commerce, Ninth Edition