Introduction to e-commerce

G53DDB

Based in the slides corresponding

to chapters 1-2 of Laurdon & Traver
e- commerce book
 Learning Objectives
 Define e-commerce and describe how it differs
from e-business
 Identify the unique features of e-commerce
technology and their business significance
 Describe the major types of e-commerce
 Understand the visions and forces behind the 1st
E-Commerce era

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 Learning Objectives
 Understand the successes and failures of the 1st
E-Commerce
 Identify several factors that will define the 2nd E-
commerce era
 Describe the major themes underlying the study
of e-commerce
 Identify the major academic disciplines
contributing to e-commerce research

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 Learning Objectives

 Identify the key components of e-commerce

business models.
 Describe the major B2C business models.
 Describe the major B2B business models.
 Recognize business models in other emerging areas
of e-commerce.
 Understand key business concepts and strategies
applicable to e-commerce.

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 Amazon.com: Before and After
 Most well-known e-commerce company
 Conceived by Jeff Bezos in 1994
 Opened in July 1995
 Four compelling reasons to shop
 Selection (1.1 million titles at its opening time)
 Convenience (anytime, anywhere)
 Price (high discounts on bestsellers)
 Service (one-click shopping, automated order
confirmation, tracking, and shipping information)

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 Amazon.com: Before and After

Revenues and Earnings

Revenues Earnings

1996 $15.6 Million ($6.24 Million)

1997 $148 Million ($31 Million)

1998 $610 Million ($125 Million) Losses

1999 $1.6 Billion ($720 Million)

2000 $2.7 Billion ($1.4 Billion) No profit

until 2001:
2008 $19.16 Billion $645 $5M
Million
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 E-commerce vs. E-business
E-commerce involves
 Digitally enabled commercial transactions
between organizations and individuals.
 Digitally enabled transactions include all
transactions mediated by digital technology
 Commercial transactions involve the exchange of
value across organizational or individual
boundaries in return for products or services

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 E-commerce vs. E-business
E-business involves
 Digital enablement of transactions and
processes within a firm, involving
information systems under the control of
the firm
 E-business does not involve commercial
transactions across organizational
boundaries where value is exchanged

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 The Difference Between E-
commerce and E-Business

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 Seven Unique Features of E-commerce
Technology and Their Business Significance

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e-commerce - 10
G53DDB
 The Internet and the Evolution of Corporate Computing

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 Disciplines Concerned with E-
Commerce

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 Major Types of E-Commerce

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 Major Types of E-Commerce
 Market relationships
 Business-to-Consumers (B2C)
 Business-to-Business (B2B)
 Consumer-to-Consumer (C2C)
 Technology-based
 Peer-to-Peer (P2P)
 Mobile Commerce (M-commerce)

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 Business-to-Consumer E-commerce
 Most commonly discussed type
 Online businesses attempt to reach
individual consumers

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 The Growth of B2C E-Commerce

Europe is
expected
to reach
€263M
by 2011
(Forrester
report,
2006)

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 Business-to-Business E-commerce
 Businesses focus on sell to other
businesses
 Largest form of e-commerce
 Primarily involved inter-business exchanges
at first
 Other models have developed
 e-distributors
 infomediaries
 B2B service providers
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 The Growth of B2B E-Commerce

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 Consumer-to-Consumer E-commerce
 Provide a way for consumers to sell to
each other
 Estimated $5 billion market
 Consumer:
 prepares the product for market
 places the product for auction or sale
 relies on market maker to provide
catalog, search engine, and transaction
clearing capabilities
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 Peer-to-Peer E-commerce
 Enables Internet users to share files
and computer resources
 Napster (early example)
 Skype (more modern and successful
example)

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 Mobile E-commerce
 Wireless digital devices enable
transactions on the Web
 Uses personal digital assistants (PDAs)
to connect
 Used most widely in Japan and Europe

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 Web Access Via Wireless Devices in
the United States

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 Technology and E-Commerce in
Perspective

Although e-commerce has grown

explosively, there is no guarantee it will
continue to grow

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 E-Commerce I and II
 E-Commerce I (1995-2000)
 Explosive growth starting in 1995
 Widespread of Web to advertise products
 Ended in 2000 when dot.com began to
collapse
 E-Commerce II (2001-2006)
 Began in January 2001
 Reassessment of e-commerce companies

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 E-Commerce II 2001-2006
 Crash in stock market values of E-commerce I
companies throughout 2000 is an end to E-
commerce I
 Led to a sobering reassessment of the prospects
of e-commerce and the methods of achieving
business success.
 E-commerce II begins in 2001 and ends five year
later -- the limit for making technology and
business projections

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 E-Commerce II 2001-2006
 Reasons for the end of E-Commerce I
 run-up in technology stocks due to enormous information
technology capital expenditure of firms rebuilding their internal
business systems to withstand Y2K
 telecommunications industry had built excess capacity in high-
speed fiber optic networks
 1999 e-commerce Christmas season provided less sales growth that
anticipated and demonstrated e-commerce was not easy
(eToys.com)
 valuations of technology companies had risen so high supporters
were questioning whether earnings could justify the prices of the
shares.

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 E-Commerce I and E-Commerce II
Compared

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 E-Commerce Business Models

• Business model
– a set of planned activities designed to result in a
profit in a marketplace
• E-commerce business model
– a business model that aims to use and leverage the
unique qualities of the Internet and the World Wide
Web.

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 Eight Key Ingredients of a Business Model
Page 58, Table 2.1

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 Eight Key Ingredients of a Business Model:
Value Proposition
 Defines how a company’s product or
service fulfills the needs of customers.
 Questions
 Why will customers choose to do business
with your firm instead of another company?
 What will your firm provide that other firms
do not and cannot?

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 Eight Key Ingredients of a Business Model:
Revenue Model
 Describes how the firm will earn revenue,
produce profits, and produce a superior
return on invested capital.
 E-commerce revenue models include:
 advertising model
 subscription model
 transaction fee model
 sales model
 affiliate model
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 Eight Key Ingredients of a Business Model:
Revenue Model
 Advertising revenue model
 a company provides a forum for
advertisements and receives fees from
advertisers (Yahoo)
 Subscription revenue model
 a company offers it users content or services
and charges a subscription fee for access to
some or all of it offerings (Consumer Reports
or Wall Street Journal)

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 Eight Key Ingredients of a Business Model:
Revenue Model
 Transaction fee revenue model
 a company receives a fee for enabling or executing a
transaction (eBay or E-Trade)
 Sales revenue model
 a company derives revenue by selling goods,
information, or services (Amazon or DoubleClick)
 Affiliate revenue model
 a company steers business to an affiliate and receives
a referral fee or percentage of the revenue from any
resulting sales (MyPoints)

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 Five Primary Revenue Models
Page 61, Table 2.2

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 Eight Key Ingredients of a Business Model:
Market Opportunity
 Market opportunity
 refers to the company’s intended marketspace and
the overall potential financial opportunities available
to the firm in that market space
 defined by the revenue potential in each of the
market niches where you hope to compete
 Marketspace
 the area of actual or potential commercial value in
which a company intends to operate

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 Eight Key Ingredients of a Business Model:
Competitive Environment
 Refers to the other companies operating in
the same marketplace selling similar
products
 Influenced by:
 how many competitors are active
 how large are their operations
 the market share of each competitor
 how profitable these firms are
 how they price their products
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 Marketspace and Market Opportunity in
the Software Training Market
Page 62, Figure 2.1

Your realistic market opportunity will focuss on one or a few market segments

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 Eight Key Ingredients of a Business Model:
Competitive Advantage
 Achieved by a firm when it can produce a
superior product and/or bring the product
to market at a lower price than most, or
all, of its competitors
 Achieved because a firm has been able to
obtain differential access to the factors of
production that are denied their
competitors -- at least in the short term

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 Eight Key Ingredients of a Business Model:
Competitive Advantage
 Asymmetry
 exists whenever one participant in a market
has more resources than other participants
 First mover advantage
 a competitive market advantage for a firm
that results from being the first into a
marketplace with a serviceable product or
service

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 Eight Key Ingredients of a Business Model:
Competitive Advantage
 Unfair competitive advantage
 occurs when one firm develops an advantage based on a factor
that other firms cannot purchase
 Perfect Market
 a market in which there are no competitive advantages or
asymmetries because all firms have equal access to all the
factors of production
 Leverage
 when a company uses its competitive advantage to achieve more
advantage in surrounding markets

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 Eight Key Ingredients of a Business Model:
Market Strategy
 The plan you put together that details
exactly how you intend to enter a new
market and attract new customers
 Best business concepts will fail if not
properly marketed to potential customers

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 Eight Key Ingredients of a Business Model:
Organizational Development
 Describes how the company will organize
the work that needs to be accomplished
 Work is typically divided into functional
departments
 Move from generalists to specialists as the
company grows

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 Eight Key Ingredients of a Business Model:
Management Team
 Employees of the company responsible for
making the business model work
 Strong management team gives instant
credibility to outside investors
 A strong management team may not be able to
salvage a weak business model
 Should be able to change the model and
redefine the business as it becomes necessary

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 Major Business-to-Consumer (B2C)
Business Models
Page 67, Table 2.3

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 Major Business-to-Consumer (B2C)
Business Models
Page 68, Table 2.3 continued

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 Major Business-to-Consumer (B2C)
Business Models
 Portal
 offers powerful search tools plus an
integrated package of content and services
 typically utilizes a combines
subscription/advertising revenues/transaction
fee model
 may be general or specialize (vortal)

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 Major Business-to-Consumer (B2C)
Business Models
 E-tailer
 online version of traditional retailer
 includes
 virtual merchants (online retail store only)
 clicks and mortar e-tailers (online distribution
channel for a company that also has physical
stores)
 catalog merchants (online version of direct mail
catalog)
 online malls (online version of mall)
 Manufacturers selling directly over the Web
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 Major Business-to-Consumer (B2C)
Business Models
 Content Provider
 information and entertainment companies
that provide digital content over the Web
 typically utilizes an advertising, subscription,
or affiliate referral fee revenue model
 Transaction Broker
 processes online sales transactions
 typically utilizes a transactions fee revenue
model

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 Major Business-to-Consumer (B2C)
Business Models
 Market Creator
 uses Internet technology to create markets that bring buyers and
sellers together
 typically utilizes a transaction fee revenue model
 Service Provider
 offers services online
 Community Provider
 provides an online community of like-minded individuals for
networking and information sharing
 revenue is generated by referral fee, advertising, and
subscription

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 Insight on Technology:
Goggle.com -- Searching for Profits
 Web’s hottest search engine
 Started in 1998 by two enterprising
Stanford grad students
 Uses outside criteria to validate that a
search result is likely to be relevant
 the more outside links there are to a
particular page, the higher it jumps in
Google’s ranking structure

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 Major Business-to-Business (B2B) Business
Models
Page 78, Table 2.4

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 Major Business-to-Business (B2B) Business
Models
 B2B Hub
 also known as marketplace/exchange
 electronic marketplace where suppliers and
commercial purchasers can conduct
transactions
 may be a general (horizontal marketplace) or
specialized (vertical marketplace)
 E-distributor
 supplies products directly to individual
businesses
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 Major Business-to-Business (B2B) Business
Models
 B2B Service Provider
 sells business services to other firms
 Matchmaker
 links businesses together
 charges transaction or usage fees
 Infomediary
 gather information and sells it to businesses

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 Insight on Business:
E-Steel.com Breaks the Mold
 B2B marketplace
 3,500 member companies trading globally
 Uses private negotiation model rather
than auction model

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 Business Models in Other Emerging Areas
of E-Commerce
Page 82, Table 2.5

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 Business Models in Other Emerging Areas
of E-Commerce
 C2C Business Models
 connect consumers with other consumers
 most successful has been the market creator
business model
 P2P Business Models
 enable consumers to share file and services
via the Web without common servers
 a challenge to find a revenue model that work
 Skype !!

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 Business Models in Other Emerging Areas
of E-Commerce
Page 84, Figure 2.2

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 Business Models in Other Emerging Areas
of E-Commerce
 M-commerce Business Models
 traditional e-commerce business models
leveraged for emerging wireless technologies
to permit mobile access to the Web
 E-commerce Enablers’ Business Models
 focus on providing infrastructure necessary
for e-commerce companies to exist, grow, and
prosper

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 E-commerce Enablers
Page 86, Table 2.6

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