Lecture Slides 7
Introduction to
Information Technology
E-Business
(C) 2006 Jim Janossy and Laura McFall, Information Technology Workbook
Course resources
PowerPoint presentations, podcasts, and web
links for readings are available at
www.ambriana.com > IT Workbook
Print slides at 6 slides per page
Homework, quizzes and final exam are based
on slides, lectures, readings and podcasts
Slide 7 - 2
Topics
•
•
•
•
•
•
Definitions: e-business, value chain,
B2B, B2C
Internet era I, collapse, era II
Marketing selling before the web, now
Seven unique features of e-commerce
E-commerce business models
Internet irritations and dangers
Slide 7 - 3
Definitions
•
E-business: the use of the internet and
web to transact business (limited
definition)
•
E-business: any business process
empowered by an information system
(broader definition)
•
Business processes along the whole
value chain
Slide 7 - 4
Definitions
•
Value chain: the generic value-adding
activities of an organization.
•
Manufacturing: purchasing, production
processes, packaging, sales and
marketing, order processing, customer
service, maintenance
•
Internet supports multiple parts of the
value chain
Slide 7 - 5
Types of E-commerce
Distinct types of E-commerce
B2C
B2B
C2C
P2P
Business to consumer
is web sales to retail
consumers. Largest
market in terms of
quantity of customers,
but only 10% of ecommerce revenue.
Slide 7 - 6
Types of E-commerce
Distinct types of E-commerce
B2C
B2B
C2C
P2P
In 2001, was only 1% of
the revenue of the
entire retail market!
There is huge
opportunity for growth
in B2C!
Slide 7 - 7
Types of E-commerce
Distinct types of E-commerce
B2C
B2B
C2C
P2P
Business to business
is web sales between
firms. Total 2001
revenue of $12 trillion
but only $700 billion
was on web, so LOTS
of room to grow!
Slide 7 - 8
Types of E-commerce
Distinct types of E-commerce
B2C
B2B
C2C
P2P
Types:
Inter-business exchanges
e-distributors
service providers
matchmakers
infomediaries
Slide 7 - 9
Types of E-commerce
Distinct types of E-commerce
B2C
B2B
C2C
P2P
Consumer to consumer,
auctions such as e-bay.com.
Consumer prepares product for
sale, relies on market maker for
catalog, search engine, payment
handling.
Slide 7 - 10
Types of E-commerce
Distinct types of E-commerce
B2C
B2B
C2C
P2P
Generic market maker functions:
product display
product discovery
product payment
Slide 7 - 11
Types of E-commerce
Distinct types of E-commerce
B2C
B2B
C2C
P2P
Peer to peer, sharing of files
without a central web server,
like Napster, Gnutella. May be
applied to sharing of other
computer resources in future.
Slide 7 - 12
B2C vs. B2B
•
B2C: business-to-consumer 10%
•
B2B: business-to-business
•
B2C is most visible to the majority of the
population but it is actually dwarfed by
business-to-business transactions
•
B2B via the internet/web is overtaking
EDI (electronic data interchange)
90%
Slide 7 - 13
E-commerce
•
•
1994: $ 0
2000: 60 billion B2C
700 billion B2B
•
1994: Internet use growing 2300% / yr
•
Enormous changes in firms, markets,
consumer behavior
•
Fastest growing type of commerce
Slide 7 - 14
E-commerce growth
•
•
1994: $ 0
2000: 60 billion B2C
+420%
700 billion B2B
•
2006: 250 billion B2C
•
5,400 billion B2C
•
•
4,000,000,000 web pages exist 2003
7,000,000 web pages added daily
Slide 7 - 15
E-commerce growth
•
1994: $ 0
2000: 60 billion B2C
•
700 billion B2B
•
2006: 250 billion B2C
•
•
•
+770%
5,400 billion B2C
4,000,000,000 web pages now exist
7,000,000 web pages added daily
Slide 7 - 16
Growth compared to other
technologies
B2C e-commerce:
Radio took 38 years to achieve 30%
household penetration (1920-58)
Television took 17 years to achieve 30%
household penetration (1946-63)
Web took only 7 years to achieve 30%
household penetration (1994-2001)
Slide 7 - 17
Internet Era I
1995 to 2000
•
Pieces of underlying technology were all
in place by 1994; browsers were last
piece; Mosaic triggered explosion in
users
•
Overly-confident “cowboy” dot.coms
•
Lots of swashbuckling investors
•
Much dot.com activity in B2C area
Slide 7 - 18
Internet Era I
1995 to 2000 - Why?
Pattern of technological revolutions, as with
electricity, telephone, radio, TV, cars
1. Explosion of entrepreneurial activity
paves the way (“first mover” start-ups)
2. Retrenchment: weaker, less organized
players exit while stronger take over
3. Continued exploitation by established
firms
Slide 7 - 19
Internet Era I
II
9/11
Slide 7 - 20
Internet Era I
collapse factors
1. Many tech companies profited from Y2K
efforts, suffered when clients were Y2K’d
2. Telecomm industry overbuilt capacity
3. Christmas 1999 had less sales growth
than expected, shows high tech is hard!
4. Valuations of dot.com’s too high, 400 x
earnings (typical companies 10-15 x);
many never showed ANY profit!
Slide 7 - 21
Fallacy of the
“first mover” notion
Common idea in Era I - “first movers” can
gain the market, will lose money first,
then dominate; but it doesn’t work that
way!
Reality: being first isn’t enough. You
need to have a good business plan, act
on it, and need much greater financial
strength to develop mature markets
Slide 7 - 22
Plus… some ideas
just aren’t so good!
Some innovative ideas sounded good but
just weren’t viable (wishful thinking)
There are some things that people feel
comfortable buying at a distance, and
some things people buy in person
Some services are handy, some are too
much trouble or inconvenient online
Slide 7 - 23
B2C E-commerce now…
is alive and well:
“...has moved into the mainstream life of
established business concerns that
have the market brands and financial
muscle required for long-term deployment
of e-commerce technologies and
methods.”
Slide 7 - 24
“Established
companies”
“Bricks and clicks” companies
Existing companies with traditionallydeveloped and serviced markets,
traditional products
Web adds new dimension to their marketing
and customer attraction/retention options
“Pure play” are new Web-only companies
Slide 7 - 25
To understand
e-commerce...
Need to understand:
Relationships between
e-commerce
business interests
technology
social and legal contexts
How do we:
Suppliers
Customers
Competitors
Partners
locate suppliers and items
order
discover prices?
Slide 7 - 26
To understand
e-commerce...
Need to understand:
Relationships between
e-commerce
business interests
technology
social and legal contexts
How do we:
market products
advertise
use brands?
Suppliers
Customers
Competitors
Partners
Slide 7 - 27
To understand
e-commerce...
Need to understand:
Relationships between
e-commerce
business interests
technology
social and legal contexts
How to reduce supply chain costs?
How to increase production efficiency?
How to tighten relationship with customers?
Slide 7 - 28
To understand
e-commerce...
Need to understand:
Payment systems
Security
Relationships between
Marketing
e-commerce
B2B
business interests
Retail
technology
social and legal contexts
Slide 7 - 29
To understand
e-commerce...
Privacy
Need to understand:
Intellectual property
Relationships between
Sovereignty
e-commerce
Web governance
business interests
Fair access
Public welfare
technology
social and legal contexts
Slide 7 - 30
Amazon.com
Founding ideas:
• Audience expanding (Web growth)
• Less need to touch and feel books to buy
them than many other items
• Large source of supply (2,500 publishers)
• Largest stores had only 12% of market
• Major distributors stock books; no need for
local inventory
Slide 7 - 31
Amazon.com
Founding determinations:
• Market exists
• Books can be sold at a distance
• No one else owns the source of supply
• Competition is not unified
• Distributors hold inventory; few premises
needed, few employees: lower cost
Slide 7 - 32
Slide 7 - 33
Amazon.com
Compelling factors for customers:
Selection: Million titles (books, CDs, DVDs)
Convenience: anytime, anywhere,simplified
ordering (“1-click”)
Price: discounts from regular retail price
Service: order confirmation e-mails,
notifications of out of stock situations,
affiliate (used book) vendors
Slide 7 - 34
Amazon.com
performance
Slide 7 - 35
Amazon.com
Yet despite it’s diversification into other
product lines, in 2005 sales of books,
CDs and DVDs still accounted for 70%
of Amazon sales!
Slide 7 - 36
Information asymmetry is. . .
Any disparity in relevant market
information among the parties in a
transaction.
Slide 7 - 37
Marketing and selling
before the web
Information
Mass marketing
asymmetry
Salesforce driven
Consumers seen as passive targets
Campaigns and brands aimed to influence
consumers product perceptions and
purchasing behavior
Consumers trapped by geographical and
social boundaries
Slide 7 - 38
Information asymmetry
Consumers unable to search widely for best
price and quality
Information about…
prices
costs
fees
…could be hidden from consumer!
Slide 7 - 39
Podcast 44: Internet
advantages for consumers
• Search for competing products and
competing vendors and prices: easier,
more comprehensive “due diligence”
• Can learn of other’s experiences with the
products and vendors
• Disintermediation: better prices because
“middlemen” may be eliminated
Slide 7 - 40
Podcast 45: Internet
advantages for sellers
• Publish larger catalog (more products)
• Reach consumers all hour, everywhere
• Adjust prices instantly
• Disintermediation: cut costs, price more
competitively
• New ways to market, customize offerings
Slide 7 - 41
Marketing and selling - now
Altered by 7 unique features of e-commerce
Ubiquity
Global reach
Universal standards
Richness
Interactivity
Information density
Personalization / customization
Slide 7 - 42
Marketing and selling - now
Altered by 7 unique features of e-commerce
Ubiquity
“Marketspace”
Global reach
extends everywhere,
Universal standards including mobile.
Shopping is 24x7
Richness
and
shopper
costs
Interactivity
are reduced.
Information density
Personalization / customization
Slide 7 - 43
Marketing and selling - now
Altered by 7 unique features of e-commerce
Ubiquity
Commerce enabled
Global reach
across borders
Universal standards without modification
Richness
Interactivity
Information density
Personalization / customization
Slide 7 - 44
Marketing and selling - now
Altered by 7 unique features of e-commerce
Ubiquity
One set of
Global reach
communication
technology,
Universal standards
namely, Internet
Richness
TCP/IP,
HTML,
Interactivity
browsers
Information density
Personalization / customization
Slide 7 - 45
Marketing and selling - now
Altered by 7 unique features of e-commerce
Ubiquity
Message is not
Global reach
limited to text or
audio; video,
Universal standards
audio, and text
Richness
all
possible,
with
Interactivity
visual cues
Information density
Personalization / customization
Slide 7 - 46
Marketing and selling - now
Altered by 7 unique features of e-commerce
Ubiquity
Consumer is
Global reach
engaged in a
dialog, as a coUniversal standards
participant in
Richness
discovering
Interactivity
goods
Information density
Personalization / customization
Slide 7 - 47
Marketing and selling - now
Altered by 7 unique features of e-commerce
Ubiquity
Currency,
Global reach
timeliness,
accuracy of
Universal standards
information
Richness
increases;
price
Interactivity
transparency
Information density
Personalization / customization
Slide 7 - 48
Marketing and selling - now
Altered by 7 unique features of e-commerce
Ubiquity
Messages possible
Global reach
to individuals not
Universal standards just groups; dialog
can be tailored to
Richness
appeal
to
Interactivity
individuals
Information density
Personalization / customization
Slide 7 - 49
Concurrent
Era I visions
Thinking of many was:
Universal access
Everyone would
Info asymmetry reduced have a
computer, web
Middlemen disappear
access, quickly
Extraordinary profits
Easy to segment market
Profit from efficiencies
Deconstruct traditional distribution
Slide 7 - 50
Concurrent
Era I visions
Thinking of many was:
Universal access
Friction-free
Info asymmetry reduced
commerce,
huge
Middlemen disappear
number of
Extraordinary profits
suppliers
Easy to segment market
Profit from efficiencies
Deconstruct traditional distribution
Slide 7 - 51
Concurrent
Era I visions
Thinking of many was:
Universal access
Info asymmetry reduced Disintermediation;
Middlemen disappear manufacturers
deal directly with
Extraordinary profits
consumers
Easy to segment market
Profit from efficiencies
Deconstruct traditional distribution
Slide 7 - 52
Concurrent
Era I visions
Thinking of many was:
Universal access
Lots of ways to
Info asymmetry reduced profit from large
new markets
Middlemen disappear
and marketing
Extraordinary profits
strategies
Easy to segment market
Profit from efficiencies
Deconstruct traditional distribution
Slide 7 - 53
Concurrent
Era I visions
Thinking of many was:
Universal access
Identify
Info asymmetry reduced
groups with
different needs
Middlemen disappear
and price
Extraordinary profits
sensitivities
Easy to segment market
Profit from efficiencies
Deconstruct traditional distribution
Slide 7 - 54
Concurrent
Era I visions
Thinking of many was:
Universal access
Price very low
Info asymmetry reduced
to grab market
share, enable
Middlemen disappear
low pricing
Extraordinary profits
through
new
Easy to segment market
efficiencies
Profit from efficiencies
Deconstruct traditional distribution
Slide 7 - 55
Concurrent
Era I visions
Gain visibility
Thinking of many was:
fast, “first
Universal access
movers” seek
Info asymmetry reduced to replace
Middlemen disappear
traditional
Extraordinary profits
distribution
Easy to segment market channels
Profit from efficiencies
Deconstruct traditional distribution
Slide 7 - 56
Internet Era II
•
2001 and onward
•
New technological capabilities
•
E-commerce learns from failures and
successes of Era 1
•
Predictions for the future?
•
The impact of wireless (WiFi) access?
Slide 7 - 57
Understandings needed
•
Nature of electronic markets
•
E-commerce business models
•
Firm and industry value chains
•
Consumer behavior in e-markets
•
Privacy, regulation, taxation issues
Slide 7 - 58
Business model
• Set of planned activities designed to
make a profit
• Business models apply to all types of
business, not just e-commerce
• 8 ingredients of all business models
• Business plan: document describing
the business model
Slide 7 - 59
Business plan
All factors of the
1. Value proposition
business
2. Revenue model
model are
3. Market opportunity
4. Competitive environment important to
document in a
5. Competitive advantage
business plan
6. Market strategy
7. Organizational development
8. Management team
Slide 7 - 60
Business plan
Heart of model.
1. Value proposition
How the product
2. Revenue model
or service fulfills
3. Market opportunity
the needs of
4. Competitive environment customers.
5. Competitive advantage What is unique?
Why use us?
6. Market strategy
7. Organizational development
8. Management team
Slide 7 - 61
Business plan
How will the
1. Value proposition
business earn
2. Revenue model
revenue,
3. Market opportunity
generate profit,
4. Competitive environment produce a return?
5. Competitive advantage
6. Market strategy
7. Organizational development
8. Management team
Slide 7 - 62
Five major E-commerce
revenue models
Advertising model
Subscription model
Transaction fee model
Sales model
Affliliate model
Site content and
services draw hits.
Sell advertising,
banners, links.
User retention is
called “stickiness”.
One of earliest
models, now
copied and diluted.
Slide 7 - 63
Five major E-commerce
revenue models
Advertising model
Subscription model
Transaction fee model
Sales model
Affliliate model
Subscription
charge for content
or service.
Content must
have high added
value, not readily
available
elsewhere, no easy
substitutes.
Slide 7 - 64
Five major E-commerce
revenue models
Advertising model
Subscription model
Transaction fee model
Sales model
Affliliate model
Fee for enabling
or executing a
transaction.
Like Ebay.com for
auction, or
E-trade.com for a
stock buy or sell.
Slide 7 - 65
Five major E-commerce
revenue models
Advertising model
Subscription model
Transaction fee model
Sales model
Affliliate model
Sell goods.
Physical: office
supplies, books,
crafts, foods,
anything that could
be sold mail order.
Electronic: product
is downloaded.
Services: software
usage is “rented”
Slide 7 - 66
Five major E-commerce
revenue models
Advertising model
Subscription model
Transaction fee model
Sales model
Affliliate model
Referral fee or %
commission for
steering hits to a
site.
Maybe give
“points” incentive to
customers to shop
via the site links
instead of directly
to sites.
Slide 7 - 67
Business plan
Intended
1. Value proposition
marketspace.
2. Revenue model
Realistic
3. Market opportunity
opportunity
4. Competitive environment defined by
5. Competitive advantage revenue potential
of each niche.
6. Market strategy
7. Organizational development
8. Management team
Slide 7 - 68
Business plan
How many
1. Value proposition
competitors?
2. Revenue model
How large?
3. Market opportunity
Market share?
4. Competitive environment How profitable?
5. Competitive advantage
Their price?
6. Market strategy
7. Organizational development
8. Management team
Slide 7 - 69
Business plan
Having a:
1. Value proposition
superior
2. Revenue model
product,
3. Market opportunity
lower price,
4. Competitive environment wider market,
5. Competitive advantage branding.
6. Market strategy
7. Organizational development
8. Management team
Slide 7 - 70
Business plan
1. Value proposition
2. Revenue model
3. Market opportunity
4. Competitive environment
5. Competitive advantage
6. Market strategy
7. Organizational development
8. Management team
Plan that
shows how
you intend to
enter a new
market and
attract
customers.
Partnering?
Advertising?
Samples?
Slide 7 - 71
Business plan
Plan that shows
1. Value proposition
how the business
2. Revenue model
is going to be
3. Market opportunity
staffed as it
4. Competitive environment grows, and how
5. Competitive advantage
management
leads.
6. Market strategy
7. Organizational development
8. Management team
Slide 7 - 72
Let’s look at these Internet
business models
•
B2C - business to consumer
•
B2B -business to business
•
C2C - consumer to consumer
•
P2P - peer to peer
Slide 7 - 73
B2C
1. Portal
2. E-tailer
3. Content provider
4. Transaction broker
5. Market creator
6. Service provider
7. Community provider
Integrated package
of content and
services, also ISP.
E-mail, news, chat
rooms, personals,
shopping. No
longer a “gateway”
but a destination.
Slide 7 - 74
B2C
1. Portal
2. E-tailer
3. Content provider
4. Transaction broker
5. Market creator
6. Service provider
7. Community provider
Online retail store.
Convenience of larger
selection, shop as
needed at home or
work, ease of
searching and locating
vendors. Clicks and
mortar (BestBuy) or
pure play (I-Tunes,
Amazon)
Slide 7 - 75
B2C
1. Portal
2. E-tailer
3. Content provider
4. Transaction broker
5. Market creator
6. Service provider
7. Community provider
Digital news, photos,
video, artwork. Almost
15% of total online
sales in 2000.
Revenue from
subscription fee.
WSJ.com, e-zines.
Slide 7 - 76
B2C
1. Portal
2. E-tailer
3. Content provider
4. Transaction broker
5. Market creator
6. Service provider
7. Community provider
Financial services,
travel services, job
placement, retail
stock transactions.
Web vs. phone.
Convenience and
currency. Revenue
per transaction.
Slide 7 - 77
B2C
1. Portal
2. E-tailer
3. Content provider
4. Transaction broker
5. Market creator
6. Service provider
7. Community provider
eBay auctions, or
reverse auctions like
PriceLine.com,
where buyers
proactively indicate
interest to buy and
what they are willing
to pay, negotiate,
tradeoff, “deal”.
Slide 7 - 78
B2C
1. Portal
2. E-tailer
3. Content provider
4. Transaction broker
5. Market creator
6. Service provider
7. Community provider
Advice and consulting
service, grocery
shopping like PeaPod,
vacation or
investment planning.
Subscription fees,
one-time charge, or
commission;
micropayments
(PayPal)
Slide 7 - 79
B2C
1. Portal
2. E-tailer
3. Content provider
4. Transaction broker
5. Market creator
6. Service provider
7. Community provider
Establish
communities of
people through a
common interest,
like parenting,
gender, technology
forums, like
specialized chat
rooms, blog sites.
Slide 7 - 80
B2B
1. Marketplace / Exchange (hub)
2. E-distributor
Digital marketplace,
Like open air market
3. Service provider Horizontal - by product
Vertical - by industry
4. Matchmaker
Eg., Covisint (auto parts)
5. Infomediary
Slide 7 - 81
B2B
1. Marketplace / Exchange (hub)
2. E-distributor
Like an e-tailer, but the
customer audience is
3. Service provider other companies who
buy in quantity at
4. Matchmaker
wholesale. Catalog
online, orders and
5. Infomediary
payment arrangements
are more complex.
Slide 7 - 82
B2B
1. Marketplace / Exchange (hub)
2. E-distributor
3. Service provider
4. Matchmaker
5. Infomediary
Traditional
Accounting, financial
services, HR
management, payroll
outsourcing.
Slide 7 - 83
B2B
1. Marketplace / Exchange (hub)
Transaction broker, hooks
buyers up with sellers,
3. Service provider much like a real estate
broker. Find cheapest
4. Matchmaker
shipper, like iShip.com, or
other commodity or unique
5. Infomediary
item online; Amazon used
book links.
2. E-distributor
Slide 7 - 84
B2B
1. Marketplace / Exchange (hub)
2. E-distributor
Custodian of customer
information, providing it
3. Service provider to others as requested.
Now also includes firms
4. Matchmaker
that gather customer
data and provide it to
5. Infomediary
others for marketing.
Slide 7 - 85
Business models
1. B2C - business to consumer
2. B2B -business to business
3. C2C - consumer to consumer
4. P2P - peer to peer Consumer sells to
consumer, facilitated
by market creator like
eBay.com or
Half.com. Profitable.
Slide 7 - 86
Business models
1. B2C - business to consumer
2. B2B -business to business
3. C2C - consumer to consumer
4. P2P - peer to peer Information sharing
between consumers.
Runs into legal
problems when
sharing things that
don’t belong to you!
Slide 7 - 87
Internet dangers
•
Con artists exploiting the gullible,
innocent, or “unaware”
•
Real dangers of encouraging naïve
users (“newbies”) to reveal too much
personal information
•
“The world’s biggest bathroom wall.”
Slide 7 - 88
Internet dangers
•
Blogs,
“community”
sites easily
exploited by
criminals
•
How is this to be
prevented?
Slide 7 - 89
Spam, spoofing, phishing
•
Spam: unsolicited advertising e-mail
•
Spoofing: manipulating the apparent
sender’s name to make spam look like
•
Phishing: spam that spoofs an address
of a bank or organization and asks you
to “confirm” account details by entering
personal information
Slide 7 - 90
Opt-in, permission marketing
•
Opt-in: you agree to receive
advertising, sales promotions, e-mails
from a preferred vendor
•
Permission marketing: a synonym for
this phenomenon
•
Term was coined 1997 by Seth Godin in
a book of this name
Slide 7 - 91
Opt-out, dangers
•
Opt-out: offers you a way to stop
receiving more of the same
•
Believable from a reputable vendor,
especially one you have opted-in with
•
Dangerous to accept the “opt out”
button click on spam, since it just
confirms that your address is “live”!
Slide 7 - 92
Internet inequalities
•
“Digital Divide” is the gap between
those who can participate meaningfully
in the digitized world and those who are
isolated from it
•
What are the impacts of lack of access?
•
What are the cultural impacts of
modernization?
Slide 7 - 93
Internet displacements
•
State governments and cities derive a
portion of their revenues from sales
taxes on goods sold; vendors collect
and remit to state
•
Commerce “hides” from state taxes
•
As e-commerce has grown, has
negatively affected sales tax revenue
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End
Slide 7 - 96