E-Commerce: Digital Markets, Digital Goods: Managing The Digital Firm, 12 Edition Global Edition

Management Information Systems
MANAGING THE DIGITAL FIRM, 12TH EDITION GLOBAL EDITION
Chapter 10
E-COMMERCE: DIGITAL MARKETS,
DIGITAL GOODS
VIDEO CASES
Case 1: M-Commerce: The Past, Present, and Future
Case 2: Ford AutoXchange B2B Marketplace
CHAPTER 10: E-COMMERCE: DIGITAL MARKETS, DIGITAL GOODS
Learning Objectives
• What are the unique features of e-commerce, digital markets,

and digital goods?
• What are the principal e-commerce business and revenue
models?
• How has e-commerce transformed marketing?
• How has e-commerce affected business-to-business
transactions?
• What is the role of m-commerce in business and what are the
most important m-commerce applications?
• What issues must be addressed when building an
e-commerce Web site?
2 © Pearson Education 2012

E-commerce and the Internet
• Why e-commerce is different – 8 unique features
1. Ubiquity
• Internet/Web technology available everywhere:
work, home, etc., anytime.
• Effect:
– Marketplace removed from temporal, geographic
locations to become “marketspace”
– Enhanced customer convenience and reduced
shopping costs

• 8 unique features (cont.)
2. Global reach
• The technology reaches across national
boundaries, around Earth
• Effect:
– Commerce enabled across cultural and national
boundaries seamlessly and without modification
– Marketspace includes, potentially, billions of
consumers and millions of businesses worldwide

3. Universal standards
• One set of technology standards: Internet
standards
• Effect:
– Disparate computer systems easily communicate with each other
– Lower market entry costs—costs merchants must pay to bring
goods to market
– Lower consumers’ search costs—effort required to find suitable
products

4. Richness
• Supports video, audio, and text messages
• Effect:
– Possible to deliver rich messages with text, audio,
and video simultaneously to large numbers of people
– Video, audio, and text marketing messages can be
integrated into single marketing message and
consumer experience

5. Interactivity
• The technology works through interaction with
the user
• Effect:
– Consumers engaged in dialog that dynamically
adjusts experience to the individual
– Consumer becomes co-participant in process of
delivering goods to market

6. Information density
• Large increases in information density—the
total amount and quality of information
available to all market participants
• Effect:
– Greater price transparency
– Greater cost transparency
– Enables merchants to engage in price discrimination

7. Personalization/Customization
• Technology permits modification of messages,
goods
• Effect
– Personalized messages can be sent to individuals as
well as groups
– Products and services can be customized to
individual preferences

8. Social technology
• The technology promotes user content
generation and social networking
• Effect
– New Internet social and business models enable
user content creation and distribution, and support
social networks

THE BENEFITS OF DISINTERMEDIATION TO THE CONSUMER
FIGURE 10-2 The typical distribution channel has several intermediary layers, each of which adds to the final cost of a
product, such as a sweater. Removing layers lowers the final cost to the consumer.

• Key concepts in e-commerce

– Digital goods
• Goods that can be delivered over a digital network
– E.g. Music tracks, video, software, newspapers, books
• Cost of producing first unit almost entire cost of
product: marginal cost of 2nd unit is about zero
• Costs of delivery over the Internet very low
• Marketing costs remain the same; pricing highly variable
• Industries with digital goods are undergoing
revolutionary changes (publishers, record labels, etc.)

E-commerce: Business and Technology
• Types of e-commerce
• Business-to-consumer (B2C)
• Business-to-business (B2B)
• Consumer-to-consumer (C2C)
• Mobile commerce (m-commerce)

• E-commerce business models

– Portal
– E-tailer
– Content Provider
– Transaction Broker
– Market Creator
– Service Provider
– Community Provider

• E-commerce revenue models

1. Advertising
2. Sales
3. Subscription
4. Free/Freemium
5. Transaction Fee
6. Affiliate

• Most popular Web 2.0 service: social networking

– Social networking sites sell banner ads, user preference
information, and music, videos and e-books
• Social shopping sites
– Swap shopping ideas with friends (Kaboodle, ThisNext)
• Wisdom of crowds/crowdsourcing
– Large numbers of people can make better decisions about
topics and products than a single person
• Prediction markets:
– Peer-to-peer betting markets on specific outcomes (elections,
sales figures, designs for new products)

FACEBOOK: MANAGING YOUR PRIVACY FOR THEIR PROFIT

Read the Interactive Session and discuss the following questions
• What concepts in the chapter are illustrated in this case?

• Describe the weaknesses of Facebook’s privacy policies and
features. What management, organization, and technology factors
have contributed to those weaknesses?
• List and describe some of the options that Facebook managers
have in balancing privacy and profitability. How can Facebook
better safeguard user privacy? What would be the impact on its
profitability and business model?
• Do you anticipate that Facebook will be successful in developing a
business model that monetizes their site traffic? Why or why not?

• E-commerce marketing
– Internet provides marketers with new ways of
identifying and communicating with customers
– Long tail marketing: Ability to reach a large
audience inexpensively
– Behavioral targeting: Tracking online behavior of
individuals on thousands of Web sites
– Advertising formats include search engine
marketing, display ads, rich media, and e-mail

HOW AN
ADVERTISING
NETWORK SUCH
AS DOUBLECLICK
WORKS
Advertising networks have
become controversial
among privacy advocates
because of their ability to
track individual consumers
across the Internet.
FIGURE 10-5

• Business-to-business e-commerce
– Electronic data interchange (EDI)
• Computer-to-computer exchange of standard
transactions such as invoices, purchase orders
• Major industries have EDI standards that define
structure and information fields of electronic documents
for that industry
• More companies increasingly moving away from private
networks to Internet for linking to other firms
– E.g. Procurement: Businesses can now use Internet to locate
most low-cost supplier, search online catalogs of supplier
products, negotiate with suppliers, place orders, etc.

ELECTRONIC DATA INTERCHANGE (EDI)
FIGURE 10-6 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.

The Mobile Digital Platform and Mobile E-commerce
• M-commerce
– Although m-commerce represents small
fraction of total e-commerce transactions,
revenue has been steadily growing
• Location-based services
• Banking and financial services
• Wireless advertising and retailing
• Games and entertainment

Building an E-commerce Web Site
• Assembling a team with the skills required to

make decisions about:
– Technology
– Site design
– Social and information policies
– Hardware, software, and telecommunications
infrastructure
• Customer’s demands should drive the site’s
technology and design
• Business decisions drive the technology – not the

reverse
– Business objectives
• Capabilities the site should have
• E.g. execute a transaction payment
– System functionality
• Technological capability to achieve this objective
• E.g. a shopping cart or other payment system
– Information requirements
• E.g. secure credit card clearing, multiple payment options

• Alternatives in building the Web site

– Completely in-house
– Mixed responsibility
– Completely outsourced
• Co-location
• Web site budgets
– Several thousand to millions / year
– 50% of a budget is system maintenance and
content creation
CHOICES IN BUILDING AND HOSTING WEB SITES
FIGURE 10-10 You have a number of alternatives to consider when building and hosting an e-commerce site.

COMPONENTS OF A WEB SITE BUDGET
FIGURE 10-11

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electronic, mechanical, photocopying, recording, or otherwise, without the
prior written permission of the publisher.
Printed in the United States of America.
Copyright © 2012 Pearson Education

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Management Information Systems

MANAGING THE DIGITAL FIRM, 12TH EDITION GLOBAL EDITION

• What are the unique features of e-commerce, digital markets,

2 © Pearson Education 2012

E-commerce and the Internet

• Why e-commerce is different – 8 unique features

3 © Pearson Education 2012

E-commerce and the Internet

• 8 unique features (cont.)

4 © Pearson Education 2012

E-commerce and the Internet

• 8 unique features (cont.)

5 © Pearson Education 2012

E-commerce and the Internet

• 8 unique features (cont.)

6 © Pearson Education 2012

E-commerce and the Internet

• 8 unique features (cont.)

7 © Pearson Education 2012

E-commerce and the Internet

• 8 unique features (cont.)

8 © Pearson Education 2012

E-commerce and the Internet

• 8 unique features (cont.)

9 © Pearson Education 2012

E-commerce and the Internet

• 8 unique features (cont.)

10 © Pearson Education 2012

E-commerce and the Internet

THE BENEFITS OF DISINTERMEDIATION TO THE CONSUMER

11 © Pearson Education 2012

E-commerce and the Internet

• Key concepts in e-commerce

12 © Pearson Education 2012

E-commerce: Business and Technology

• Mobile commerce (m-commerce)

13 © Pearson Education 2012

E-commerce: Business and Technology

• E-commerce business models

14 © Pearson Education 2012

E-commerce: Business and Technology

• E-commerce revenue models

15 © Pearson Education 2012

E-commerce: Business and Technology

• Most popular Web 2.0 service: social networking

16 © Pearson Education 2012

E-commerce: Business and Technology

FACEBOOK: MANAGING YOUR PRIVACY FOR THEIR PROFIT

• What concepts in the chapter are illustrated in this case?

17 © Pearson Education 2012

E-commerce: Business and Technology

18 © Pearson Education 2012

E-commerce: Business and Technology

19 © Pearson Education 2012

E-commerce: Business and Technology

20 © Pearson Education 2012

E-commerce: Business and Technology

ELECTRONIC DATA INTERCHANGE (EDI)

21 © Pearson Education 2012