Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce
Objectives • How has Internet technology changed value propositions and business models? • What is electronic commerce? How has electronic commerce changed consumer retailing and business-to-business transactions? • What are the principal payment systems for electronic commerce?
Objectives • How can Internet technology facilitate management and coordination of internal and interorganizational business processes? • What are the major managerial and organizational challenges posed by electronic business and electronic commerce?
Management Challenges • Digitally integrating the enterprise requires a complete change of mind-set. • Finding a successful Internet business model.
Electronic Business, Electronic Commerce, and the Emerging Digital Firm Internet Technology and the Digital Firm The Internet • Rapidly becoming infrastructure of choice • Universal, easy-to-use set of technologies and standards • Web sites available 24/7 • Extended distribution channels • Reduced transaction costs • Reduced network and coordination costs
Electronic Business, Electronic Commerce, and the Emerging Digital Firm New Business Models and Value Propositions • Past: Information about products and services bundled with their physical value chain • Today: The Internet has unbundled information from traditional value chain, creating new business models
Electronic Business, Electronic Commerce, and the Emerging Digital Firm New Business Models and Value Propositions Information Asymmetry • One party has more information essential to the transaction than the other party • The Internet shrinks information asymmetry
Electronic Business, Electronic Commerce, and the Emerging Digital Firm New Business Models and Value Propositions 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
Electronic Business, Electronic Commerce, and the Emerging Digital Firm The changing economics of information Figure 4-1
Electronic Business, Electronic Commerce, and the Emerging Digital Firm New Business Models and Value Propositions Internet Business Models • Virtual storefront: Sells physical products directly to consumers or businesses. • Information broker: Provides product pricing and availability information; generates revenue from advertising or directing buyers to sellers. • Transaction Broker: Processes online sales transactions for fee.
Electronic Business, Electronic Commerce, and the Emerging Digital Firm New Business Models and Value Propositions Internet Business Models • Online Marketplace: Provides digital environment where buyers and sellers meet • Content Provider: Provides digital content, such as news; revenue from fees or advertising sales • Online Service Provider: Provides connectivity; revenue from fees, advertising, or marketing information
Electronic Business, Electronic Commerce, and the Emerging Digital Firm New Business Models and Value Propositions Internet Business Models (cont.) • Virtual Community: Provides online meeting place for people of similar interests • Portal: Provides initial point of entry to the Web, along with specialized content and services • Syndicator: aggregates content or applications to resell as package to third-party Web sites
Electronic Commerce Categories of Electronic Commerce • Business-to-consumer (B2C): Retailing products and services to individual shoppers • Business-to-business (B2B): Sales of goods and services among businesses • Consumer-to-consumer (C2C): Consumers selling directly to consumers
Electronic Commerce 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 • Reintermediation: Shifting intermediary function in a value chain to a new source, such as “service hubs”
Electronic Commerce The benefits of disintermediation to the consumer Figure 4-2
Electronic Commerce Customer-Centered Retailing Interactive Marketing and Presentation • Collection of customer information using Web site auditing tools less expensive than surveys and focus groups • Web personalization technology customizes content on Web site to individual’s profile and purchase history • Web sites and marketing shorten sales cycle and reduce time spent in customer education
Electronic Commerce Web site personalization Figure 4-3
Electronic Commerce Customer-Centered Retailing Customer Self-Service • Web-based responses to customer questions cost a fraction of telephone costs for live customer service representation • Web-based customer self-service applications, such as airline flight information sites • Traditional, phone-based customer call centers being integrated with Web
Electronic Commerce Business-to-Business Electronic Commerce • Web, Internet streamlining procurement process • E-procurement eliminates inefficient, paper-based processes • Selling through Web sites, private industrial networks, or Net marketplaces
Electronic Commerce Window on Technology Lightnin Lights Up with the Internet • What are the benefits of using Web-based order configuration software? • How does this system provide value to Lightnin and its customers?
Electronic Commerce Before-after diagram of changes in Lightnin’s ordering process Figure 4-4
Electronic Commerce Business-to-Business Electronic Commerce Private Industrial Network • Private exchange; typically consists of large firm using extranet to link to its suppliers and business partners • Permits firm and partners to share product design, development, marketing, scheduling, inventory management, and unstructured communication • Fastest-growing type of B2B commerce
Electronic Commerce A private industrial network Figure 4-5
Electronic Commerce Business-to-Business Electronic Commerce Net Marketplace • E-hub; provides single Internet-based marketplace for many different buyers and sellers • Industry owned or independent intermediaries • Transaction oriented; generates revenue from purchase and sales transactions and other services
Electronic Commerce A Net marketplace Figure 4-6
Electronic Commerce Business-to-Business Electronic Commerce Exchanges • Third-party Net marketplaces connecting thousands of suppliers and buyers for spot purchasing • Proliferated during early years of e-commerce • Exchanges encouraged competitive bidding, driving prices down; suppliers reluctant to participate
Electronic Commerce Electronic Commerce Payment Systems • Digital credit card payment systems: Secure credit card payment over Web • Digital wallet: Stores credit card and owner identification, shipping information, to facilitate payment process • Accumulated balance digital payment systems: Accumulates micropayment purchases as debit balance paid periodically on credit card or telephone bills
Electronic Commerce Electronic Commerce Payment Systems • Stored value payment system: Enables consumers to make instant payments based on value stored in digital account • Digital cash: Digital currency that can be used for micropayments or larger purchases • Peer-to-Peer payment systems: Enables payments to vendors not set up for credit-card payments
Electronic Commerce Electronic Commerce Payment Systems • Digital checking: Electronic check with secure digital signature • Electronic billing presentment and payment system: Supports electronic payment for online and physical store purchases after purchase has taken place
Electronic Commerce Electronic commerce information flows Figure 4-7
Electronic Business and the Digital Firm How Intranets Support Electronic Business • Connectivity: accessible from most platforms • Can be tied to internal corporate systems and core transaction data • Can create interactive applications with text, audio, and video
Electronic Business and the Digital Firm How Intranets Support Electronic Business • Scalable to larger or smaller computing platforms as requirements change • Easy to use, universal Web interface • Low start-up costs • Rich, responsive information environment • Reduced information distribution costs
Electronic Business and the Digital Firm Intranet Applications for Electronic Business • Finance and Accounting: Integrated view of financial and accounting information online • Human Resources: Rapid delivery of information to employees; online publishing • Sales and Marketing: Collaborative place to coordinate activities of sales force • Manufacturing and Production: Distribute manufacturing information to different parts of organization
Electronic Business and the Digital Firm Functional applications of intranets Figure 4-8
Electronic Business and the Digital Firm Business Process Integration • Pre-Internet, integration costly and difficult • Internet technology less expensive than building enterprise systems • Intranets: improve coordination among internal business processes • Extranets: coordinate processes shared with customers and partners • Intranet promotes collaborative commerce
Management Challenges and Opportunities Business Process Change Requirements • Unproven business models • Business process change requirements • Channel conflicts • Legal issues • Trust, security, and privacy
Electronic Business and the Digital Firm Window on Organizations Can Online Brokers Survive in Europe? Is providing online financial services over the Internet a viable business model? Why or why not?
Chapter 4 Case Study Can the Music Industry Change Its Tune? • Apply the value chain and competitive forces models to the music recording industry. • What role did the Internet play in changing value propositions and the competitive environment? To what extent has it been responsible for declining CD sales? Explain your answer.
Chapter 4 Case Study Can the Music Industry Change Its Tune? • Analyze the response of the music recording industry to these changes. What management, organization, and technology issues affected this response? • What is the current business strategy of the music industry? Do you think it is viable? Explain your answer.