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Chapter 2. E-commerce Fundamentals. Learning outcomes. Evaluate changes in business relationships between organizations and their customers enabled by e-commerce Identify the main business and marketplace models for electronic communications and trading
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Chapter 2 E-commerce Fundamentals
Learning outcomes • Evaluate changes in business relationships between organizations and their customers enabled by e-commerce • Identify the main business and marketplace models for electronic communications and trading • Describe different revenue models and transaction mechanisms available through online services.
Management issues • What are the implications of changes in marketplace structures for how we trade with customers and other partners? • Which business models and revenue models should we consider in order to exploit the Internet? • What will be the importance of online intermediaries and marketplace hubs to our business and what actions should we take to partner these intermediaries?
E-commerce environment • Needs of customers • Local and international economic conditions • Legislation • Technological innovations
Figure 2.1The environment in which e-business services are provided
Environment constraints and opportunities • Customers – which services are they offering via their web site that your organization could support them in? • Competitors – need to be benchmarked in order to review the online services they are offering – do they have a competitive advantage? • Intermediaries – are new or existing intermediaries offering products or services from your competitors while you are not represented? • Suppliers – are suppliers offering different methods of procurement to competitors that give them a competitive advantage? • Macro-environment • Society – what is the ethical and moral consensus on holding personal information? • Country specific, international legal – what are the local and global legal constraints for example on holding personal information, or taxation rules on sale of goods? • Country specific, international economic – what are the economic constraints of operating within a country or global constraints? • Technology – what new technologies are emerging by which to deliver online services such as interactive digital TV and mobile phone-based access?
Lack of Privacy = Lack of Sales “Consumer privacy apprehensions continue to plague the Web. These fears will hold back roughly $15 billion in e-commerce revenue.” -Forrester Research, September 2001 “Privacy and security concerns could cost online sellers almost $25 billion by 2006.” -Jupiter Research, May 2002 “Online retail sales could be 25% higher by 2006 if consumer’s fears about privacy and security were addressed.” -Jupiter Research, 2002
Figure 2.2B2B and B2C interactions between an organization, its suppliers and its customers
Marketplace channel structures Figure 2.3Disintermediation of a consumer distribution channel showing(a) the original situation, (b) disintermediation omitting the wholesaler, and(c) disintermediation omitting both wholesaler and retailer
Marketplace channel structures • Describes the way a manufacturer delivers products and services to its customers
Figure 2.4From original situation (a) to disintermediation (b) and reintermediation (c)
Reintermediation • Creation of a new intermediary • Example: • B&Q www.diy.com • Opodo www.opodo.com • Boots www.wellbeing.comwww.handbag.com • Ford, Daimler (www.covisint.com) • Partnering with existing intermediary – Mortgage broker Charcol and Freeserve
Online Intermediaries • Directories • Search Engines • Malls • Virtual resellers • Financial Intermediaries • Forums, fan clubs and user groups • Evaluators
Figure 2.6Yahoo! Shopping Australia, a price comparison site based on theKelkoo.com shopping comparison technology (http://shopping.yahoo.com.au)
Blogs • Give an easy method of regularly publishing web pages, e.g. online journals, diaries or event listing • Include feedback or comments
Importance of multi-channel marketplace models • Customer journey – modern multi-channel behavior as consumers use different media • Offline • Mixed-mode • Online
Figure 2.7Example channel chain map for consumers selecting an estate agentto sell their property
Meta services Search engines Portal ‘A gateway to information resources and services’ Directories News aggregators MR aggregators Comparers Exchanges
Figure 2.8Variations in the location and scale of trading on e-commerce sites
Figure 2.9Priceline Hong Kong service (www.priceline.com.hk)
Business model Timmers (1999) defines a ‘business model’ as: An architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenue.
Business models on the web • E-shop • E-procurement • E-malls • E-auctions • Virtual communities • Collaboration platforms • Third-party marketplace • Value-chain service providers • Information brokerage • Trust and other services
Revenue models – publisher example 1. Subscription access to content. 2. Pay-per-view access. 3. CPM on site display advertising. 4. CPC advertising on site. 5. Sponsorship of site sections, content or widgets. 6. Affiliate revenue (CPA or CPC). 7. Subscriber data access for e-mail marketing. 8. Access to customers for research purposes.
Figure 2.11Alex Tew’s Million Dollar Home Page (www.milliondollarhomepage.com)
Summary • The constantly changing e-business environment should be monitored by all organizations in order to be able to respond to changes in social, legal, economic, political and technological factors together with changes in the immediate marketplace that occur through changes in customer requirements and competitors’ and intermediaries’ offerings • The e-business marketplace involves transactions between organizations and consumers (B2C) and other businesses (B2B). Consumer-to-consumer (C2C) and consumer-to-business categories (C2B) can also be identified
Summary • The Internet can cause disintermediation within the marketplace as an organization’s channel partners such as wholesalers or retailers are bypassed. Alternatively, the Internet can cause reintermediation as new intermediaries with a different purpose are formed to help bring buyers and sellers together in a virtual marketplace or marketspace. Evaluation of the implications of these changes and implementation of alternative countermediation strategies is important to strategy
Summary • Trading in the marketplace can be sell-side (seller-controlled), buy-side (buyer-controlled) or at a neutral marketplace • A business model is a summary of how a company will generate revenue identifying its product offering, value-added services, revenue sources and target customers. Exploiting the range of business models made available through the Internet is important to both existing companies and start-ups
Summary • The Internet may also offer opportunities for new revenue models such as commission on affiliate referrals to other sites or banner advertising • The opportunities for new commercial arrangements for transactions include negotiated deals, brokered deals, auctions, fixed-price sales and pure spot markets, and barters should also be considered • The success of dot-com or Internet start-up companies is critically dependent on their business and revenue models and traditional management practice
Homework • Describe your dream e-commerce website • Write details of your website: • What are the transaction actors (B2B, B2C, or others) • If you are to create intermediaries, specify what kind of intermediaries are you going to create • What are the trading mechanisms • Explain the marketplace position • Explain the revenue model
