Electronic Commerce: Digital

Firm, Digital Goods

DIS 302
E-Business
Laudon & Laudon
 Electronic Business, Electronic Commerce,
and the Emerging Digital Firm

• E-commerce refers to:

– The use of the Internet and the Web to transact
business
– Digitally enabled commercial transactions
between and among organizations and individuals.
GROWTH OF E-COMMERCE
 THE GROWTH OF E-COMMERCE
• The rapid growth of e-commerce since 1995 is due to the
unique features of the Internet and the Web as a
commercial medium:
– Ubiquity: Internet/Web technology is everywhere, at work,
home, and elsewhere, and anytime, providing a ubiquitous
marketspace, a marketplace removed from a temporal and
geographical location.
– Global reach: The technology reaches across national boundaries.
– Universal standards: There is one set of Internet technology
standards, which greatly lower market entry costs (the costs to
bring goods to market) and reduce search costs (the effort to find
products) for the consumer.
THE GROWTH OF E-COMMERCE
– Richness: Information richness refers to the
complexity and content of a message. Internet
technology allows for rich video, audio, and text
messages to be delivered to large numbers of
people.
– Interactivity: The technology works through
interaction with the user.
THE GROWTH OF E-COMMERCE
– Information density: Information density is the
total amount and quality of information available to
all market participants. Internet technology reduces
information costs and raises quality of information,
enabling price transparency (the ease for
consumers of finding a variety of prices) and cost
transparency (the ability of consumers to
determine the actual costs of products).
Information density allows merchants to engage in
price discrimination (selling goods to targeted
groups at different prices).
THE GROWTH OF E-COMMERCE
– Personalization/customization: E-commerce
technologies permit personalization (targeting
personal messages to consumers) and
customization (changing a product or service
based on consumer preference or history.
 Digital Markets
• Digital markets are very flexible and efficient
because they allow:
– Reduced search and transaction costs
– Lower menu costs (merchant's costs of changing prices)
– Price discrimination
– Dynamic pricing (prices changing based on the demand
characteristics of the customer or the seller's supply
situation)
– Disintermediation: Elimination of intermediaries such as
distributors or retailers
 Electronic Commerce
• The three major types of electronic commerce are:
– 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 other consumers.
• m-commerce is a form of E-Commerce but with
the purchase of goods and services using handheld
wireless devices, rather than wired networks
 E-Commerce
• Marketers can use the interactive features of Web
pages to hold consumers' attention or to capture
information about their tastes and interests. This
information may be obtained by asking visitors to
"register" online and provide information about
themselves or by using special software such as
clickstream tracking to track the activities of Web
site visitors. Companies can then analyze this
information to develop more precise profiles of
their customers.
WEB SITE VISITOR TRACKING
 Personalization: tailored products and
services
• Communications and product offerings can also be
tailored precisely to individual customers.
• By using Web personalization technology to
modify Web pages presented to each customer,
marketers can achieve the benefits of using
individual salespeople at dramatically lower costs.
• Personalization can help firms form lasting
relationships with customers by providing
individualized content, information and services.
WEB SITE
PERSONALIZATION
Firms can create unique
personalized Web pages
that display content or ads
for products or services of
special interest to
individual users, improving
the customer experience
and creating additional
value.
 B2B E-Commerce
• Much of B2B e-commerce is still based on
proprietary systems for electronic data
interchange (EDI). Electronic data interchange
(EDI) enables automated computer-to-
computer exchange between two
organizations of standard transactions such as
invoices, bills of lading, shipment schedules,
or purchase orders.
ELECTRONIC DATA INTERCHANGE (EDI)

Companies use EDI to automate transactions for B2B e-

commerce and continuous inventory replenishment.
Suppliers can automatically send data about shipments to
purchasing firms. The purchasing firms can use EDI to
provide production and inventory requirements and
payment data to suppliers.
 B2B E-Commerce
• B2B e-commerce environments include:
– Private industrial networks or private exchanges:
Typically consisting of a large firm using an
extranet to link to its suppliers and other key
business partners.
PRIVATE INDUSTRIAL NETWORK

A private industrial network, also known as a private exchange, links a firm to

its suppliers, distributors, and other key business partners for efficient supply-
chain management and other collaborative commerce activities.
 B2B E-Commerce
– Net marketplaces or e-hubs: Internet-based
marketplaces for many different buyers and
sellers. Net marketplaces are industry owned or
operate as independent intermediaries between
buyers and sellers, generating revenue from
transaction fees or services to clients. Net
marketplaces may sell direct goods (used in a
production process) and some sell indirect goods.
 B2B E-Commerce
– They may support contractual purchasing based
on long-term relationships with designated
suppliers, and others support short-term spot
purchasing, where goods are purchased based on
immediate needs, often from many different
suppliers. Some net marketplaces may serve
vertical markets for specific industries or
horizontal markets, with goods and services for
many industries.
 A NET MARKETPLACE

Net marketplaces
are online
marketplaces
where multiple
buyers can
purchase from
multiple sellers.
 B2B E-Commerce
– Exchanges: Independently owned third-party Net
marketplaces that can connect thousands of
suppliers and buyers for spot purchasing. Many
exchanges provide vertical markets for a single
industry. However, many exchanges have failed
because they encourage competitive bidding that
drove prices down without offering long-term
relationships.
 M-Commerce
• Although m-commerce represents a small
fraction of total e-commerce transactions,
revenue has been steadily growing.
• Africa has been particularly fast due to greater
reliance on mobile phones
GLOBAL M-COMMERCE REVENUE, 2000-2009

M-commerce sales represent a small fraction of total e-commerce sales, but that
percentage is steadily growing.
Source: Jupiter Research; eMarketer, 2006; eMarketer, 2005; authors.
 M-Commerce
• M-commerce applications have taken off for
services that are time-critical, that appeal to
people on the move, or that accomplish a task
more efficiently than other methods. Popular
m-commerce applications include:
– Content and location-based services: For checking
travel information, schedules, news, movie times,
weather forecasts, etc
– Banking and financial services: For checking
account balances, transferring funds, paying bills
 M-Commerce
– Wireless advertising: Selling of advertising space in m-
commerce applications, such as sponsored search
results from the go2Directory search site
– Games and entertainment: Downloadable digital
games, movies, music, and ringtones
• Because handheld mobile devices can only display
small amounts of information at a time, m-
commerce enabled Web sites are being designed
as special wireless portals (mobile portals) with
content optimized for smaller screens.
 M-Commerce Challenges
• Although Wi-Fi hotspots are increasing, m-
commerce faces challenges such as:
– Awkwardness and small screens of handheld
devices
– Security risks
– Slow transfer speeds with second generation cell
networks
– Lack of standardized payment systems
 Payment Systems
• Digital credit card payment systems: These systems extend the
functionality of credit cards so they can be used for online shopping
payments, providing mechanisms authentication and money transfers.
• Digital wallets: Digital wallets store credit card, electronic cash, and
owner identification information and provide that information at an e-
commerce site's checkout page, making paying for purchases over the
Web more efficient by eliminating the need for shoppers to repeatedly
enter their information into order forms.
• Micropayment systems: These systems use accumulated balance or
stored value payment systems for purchases of less than $10. Many m-
commerce transactions are small, frequent purchases for items such as
soft drinks, sports scores, newspapers, or mobile games that require
special micropayment systems.
 Payment Systems
• Accumulated balance digital payment systems allow users to
make payments on the Web, accumulating a debit balance on
their credit card or telephone bills.
• Stored value payment systems, including smart cards, enable
users to make instant payments based on the value stored in a
digital account.
• Smart cards (plastic cards that store digital information, such
as health records, identification, or financial data) can be used
for micropayments in a stored value system. A smart card
requires use of a special card reading and writing device to
recharge the card with cash or to transfer cash either to an
online or offline merchant.
 Payment Systems
• Digital cash is currency represented in electronic form that is
moving outside the normal network of money. Users are
supplied with client software and can exchange money with
another e-cash user.
• Peer-to-peer payment systems serve people who want to
send money to vendors or individuals who are not set up to
accept credit card payments.
• Digital checking systems extend existing checking accounts by
using a digital signature that can be verified and can be used
for payments in electronic commerce.
• Electronic bill presentment and payment services are used for
paying and managing routine monthly bills electronically.
 Discussion
• M-Commerce in Kenya
– M-Pesa
– Zap
– KCB
– Opportunities and challenges
The End