Minder Chen, Ph.D. Associate Professor of Management Information Systems

1. Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network EconomicsFall 2010for MIS 310 Minder Chen, Ph.D. Associate Professor of Management Information Systems E-Mail: minder.chen@csuci.edu Web site: http://faculty.csuci.edu/minder.chen/

2. Internet: The Virtual Network & Internal Structure T1, T3 ISDN ADSL Cable Modem NAP Telephone Company ISP A Regional Network Computer Router Internet LAN NAP: National Access Point ISP: Internet Service Provider

3. E-Commerce Network

4. Domain Name • DNS (Domain Name Server): Mapping the 32-bit numeric IP address (such as 217.156.3.14) to a name such as vax.cs.uiuc.edu. The formats of a domain name and its corresponding IP address are unrelated. • The master registrar DNS database is managed by Network Solutions at www.networksolutions.com • Register a domain (e.g., GoDaddy.com) The name of a host computer with an IP address edu uiuc cs vax gmu cs vax

5. Electronic Commerce: Introduction E-Business E-Commerce Commerce Internet Commerce

6. Travelocity Microsoft expedia Priceline.com

7. The Low-Friction Market "[The Internet] will carry us into a new world of low friction, low-overhead capitalism, in which market information will be plentiful and transaction costs low." -- Bill Gates, The Road Ahead "Where there is a friction, there is opportunity!" -- Net Ready.

8. EC Business Opportunities Innovative Ideas, Business models, and Business strategies Funding Business and technical talents Technological enablers New business models and ideas are driving EC initiatives. Internet technologies are enablers.

9. The Cycle of Electronic Commerce Access Searches Queries Surfing Follow-on Sales Customers Online Ads Online Orders Standard Orders Distribution Online: soft goods Delivery: hard goods Electronic Customer Support

10. EC and Business Processes Customer Seller Phone, fax, e-mail Send info Procurement Process Selling Process Request info Provide Info Get customer Provide info Fulfill order Support Identify need Find source Evaluate offerings Purchase Operate, Maintain, Repair Data sheets, catalogs, demos Web surfing Web searches, web ads Web site Newsgroups Net communities Corporate Databases Demos, reviews Web site Credit cards, e-cash P.O.s EDI Deliver soft goods electronically Web site, phone, fax, e-mail, e-mailing list

11. Changes in the Net Economy • Business environment • Local / Physical  Global /Virtual • Business assets • Tangible  Intangible • Business change • Periodic  Continuous • Business production • Mass Production  Mass Customization Mass Personalization • Customization is under direct user control: the user explicitly selects between certain options (a "portal" site with headlines from the New York Times or from the Wall St. Journal; enter ticker symbols for the stocks you want to track). • Personalization is driven by the computer which tries to serve up individualized pages to the user based on some form of model of that user's needs. • -- http://www.useit.com/alertbox/981004.html

12. Network and Information Economy • Information is costly to produce but cheap to reproduce. • Price information according to its value not its cost. • Managing intellectual property. • Maximize the value of your intellectual property, not the terms and conditions that maximize the protection. • Information as an “experience good” • Consumers must experience it to value it. • Brand and trust building is critical. • The economics of attention • A wealth of information creates a poverty of attention. Source: Information Rules

13. Popularity Adds Value in a Network Virtuous cycle Positive Network Externality Vicious cycle Value to User • Networks • Real: LAN, Internet, Fax • Virtual: Virtual community, Chat room, Instant messenger, Skype, social network Number of Compatible User

14. Challenge • Consumers: Everything on the Internet should to be free. • Merchant: How can I make a profit if everything is free. • Examples: • Free web browsers: Netscape Communicator and Internet Explorer • Free email: Juno, mail.yahoo.com and hotmail.com • Free Internet Access: Freeserve in Britain • Free PC: eMachine and CompuServe; Free-PC • Free web hosting: Geocities, Angelfire, Zoom • Free ... All tangible and intangible items that can be copied adhere to the law of inverted pricing and become cheaper as they improve. Anticipate this cheapness in your pricing strategy and product/service development strategy Gilder's Law $250 Cost of a 3-minute Long Distance Call Price $0 1999 1930 Year

15. Moving Your Business Online • Companies are motivated by either fear or greed to move to their businesses to the net. • To .com your company is becoming an imperative. • They have to obsolete their current business models and work very hard to search a new business model. • Be aware of internet tax law and interstate/international commerce laws. • http://en.wikipedia.org/wiki/Internet_taxes Your competitor is just one-click away

16. Business Models Based on the Value Chain in the Market Place Raw material producer Exchange • Independent market operators • Consortia Manufacturer Online Procurement Buyer-side EC Model Distributor C2B New Middleman Retailer B2C C2C • Examples: • B2B: alibaba.com • B2C: Amazon.com • C2B: Priceline.com • C2C: eBay.com, craiglist.com Consumer Channel Conflict • Service Providers: • Logistics • Financial B2C

17. Business-to-Business vs. Business-to-Consumer < Business-to-Consumer Business-to-Business • No vendor loyally • No switching costs • Time-insensitive • Short-term • Casual • Many vendors • Products differentiated on price, image • Relationship-based • Very high switching costs • Extremely time-sensitive • Long-term • Mission-critical • Few partners • Partners differentiated on reliability, flexibility

18. Business Channel: Multi-Channel Presence • Brick-and-mortar • Face-to-Face • Mail order • Mail • Printed catalog • Phone order • Telex • Phone • Fax • Electronic commerce • EDI • Email • Web Click and Mortar Seller Buyer Pure Play Multi-channel plays will have extraordinary power if companies elegantly blend and synchronize those channels.

19. EC Strategies: 4 Cs Customers Commerce Community Content

20. Customers • Obsess over your customers • Remember that the Web is an infant • What do you have to offer that the physical world cannot in order to attract customers? • If you make one customer unhappy, he won't tell five friends -- he'll tell 5,000 on newsgroups, list servers, and so on. • "Word of mouth" (WOM) factor gets amplified on the Net • The shifts of balance of power away from business and toward customer. - Jeff Bezos

21. Self Assessment: Customer Caring What do your customers need? What requests do they make of you? How do you respond to customer’s requests? What kind of information can they get from you? What process do they go through? How do you produce and distribute it to them? What are the steps that your customers have to take to complete a purchase transactions? How do they get shipment status? How are exceptions handled? What do you need from customer? What do you know about customer preferences? What information could you use to better target your product and service offerings? What to build relationships? How can you engage customers in an ongoing dialog? How can you continue to provide information, products, and services to reinforce your ongoing relationships?

22. Is EC Appropriate for You? Industries who set up virtual storefronts

23. Technology-Fit: Customer and Product High Second Wave Earlier Adopter AA FedExp Microsoft Jenny Craig Chrysler Customer Need for Product Information Second Wave Web Laggards Nike Pepsi Tide Denny's Low Customer Demographics Match Poor High Source: Forrester Research

24. Virtual Communities Virtual Community • Content • Hard goods • Games • Services • Money • Content • Demographics Providers Users • Advertising Other Websites Advertisers

25. www.parentsoup.com http://parenting.ivillage.com/ -- Community Web Site

26. Revenue Streams • Advertising / Sponsorship • Transaction • Subscription / Listing Fee • Value-added services

27. Multifaceted Model for Web-Based EC Design • ATTRACT: Hits • Communities of interest • Changing topics for repeat customers • Features that encourage customers to explore • ENGAGE: Leads • Special areas encourage customer to register (i.e. selection of articles customized for visitors interests) • PARTICIPATE: Sales revenue • Free download (video, audio, & software) • Shopping • Chat and News • Subscription • JUMP: Advertising revenue • Other products of interest to customer • Other sites of interest to customer Attract Jump Engage Participate Adapted from Netscape Communications Inc., 1996.

28. Objectives Of An eCommerce Site Advertising Engage Manage Lead generation Transact Customer service Fulfillment Merchandising Order processing Payment

29. EC Site Life Cycle

30. Opening Online Business • Identify a need and a niche • Determine what you have to offer (products/services) • Set your business goals • Design your EC architecture • Assemble your EC teams • Build your web site • Set up a system to handle sales • Provide customer services • Advertise/promote your online business (online and offline) • Evaluate site performance & improve continuously

31. EC Hosting • Yahoo!Small Business • http://smallbusiness.yahoo.com/ecommerce/ • Ebay • http://pages.ebay.com/help/sell/sell-getstarted.html • Amazon Marketplace • http://www.amazon.com/gp/help/customer/display.html?nodeId=1161232 • Drupal.org • http://drupal.org/hosting

32. Web Site Architecture Design Example

33. Site Elements • Home page • Menu-driven, News-oriented • Path-based, Splash screens or image maps • Graphics and texts • Submenus pages and subsites (alternative home pages for special audiences) • Tables of contents, site indexes, site maps • Product/service/information pages • "What's new" pages • Search features • Contact information • Street address, phone number, fax numbers, maps, travel directions, parking information • User feedback and victual community pages • Bibliographies and appendixes • FAQ (Frequently Asked Questions) pages • Customized server error pages Source: Web Style Guide

34. Cross-Selling and Up-Selling Amazon’s Collaborative Filtering/Recommendation system

35. Personalization

36. The Evolution of EC Implementation Extension eCRM eProcurement / SCM eMarketplace / Auction Process Integration Fulfillment Settlement Workflow Real-time organizations Communities of Interests Marketplace creator Web-based Transaction Product database queries / Search Electronic Payments Fund transfer 1:1 Relationship Functionality Customer Interactivity Registration / Forms Email Games / Chat room / eForum Publishing (Brochure-ware) Advertising Marketing Information Maturity

37. Future EC Trends • Broadband internet connection: I.e., ADSL, Cable modem • Streaming media and web-based learning • More interactive virtual community • Customization and personalization • Mini-portal and corporate portal • Affiliate partner • Multiple-channel integration • E-commerce is driving E-business • Affordable EC software and hosting service for small-medium-size companies • Emerging standards such as XML to enable Business-to-Business electronic commerce