Notes Jan 28th
Agenda
What is ecommerce?
Types of ecommerce business models
Changes brought by it
Long Tail

How to access and exploit this industry
Jeff Bezos
 Amazon.com is a “thrift Shop” online
 Electronic commerce defined
 Electronic Commerce
 The exchange of goods, service, and money among firms, between
individuals, blah blah blah” In short, selling stuff online.
 Most Common Types
 B2C Business to Consumer - 3% of wealth is located here
 B2B- Business to Business - 97% of wealth is located here
Rise of Internet gives firms capabilities such as…
 Information Dissemination
 Information can easily and quickly reach audiences around the world
 Information integration
 Allows you integrate different things simultaneously
 Mass Customization
 Buying off the Rack doesn’t always work- Now firms can have clothing in
every size imaginable, customizable for each customer
 Interactive Communication
 Firms can now add ‘Live Support” Real time Support, Example Pearson
 Transactional Support
 Firms can now give more information during the purchasing phase when
online
 Example: Old Catalog, having to phone in, vs buying computer online
with all the ease and options
 Disintermediation
 Reduction of use of intermediaries between source and customer
 Cuts out the middle man- Removes the profit demands middle men
put on an item sold
 Benefits Customer- Lower Price, Because no middle men
 Benefits Suppliers- They can artificially inflate price, but still sell for
less than before.

 (See Slide for Graphic)
This gives rise to newly possible business strategies
 Brick and Mortar- Old Example- The local store

Click and Mortar- Stores that have online buying, and real world
stores

Click Only
 What is the Internet? (Conceptually)
 A Network of interconnected devices that can seamlessly communicate with
each other
 Hardware- Servers, Computers, Tablets, Mobiles, Etc
 The Infrastructure- Wireless routers modems , etc.
 The software -Protocols that make communication possible TCI/IP
 Web Services
 See Slide for graphic
 Stages of B2C Ecommerce
 Passive
 Ex: Mercedes.com
 Active
 Ex: Facebook.com, Amazon
 They actively look into what the customer may want, and then
recommends, or advertises towards those preferences

Three Stages of Evolution
 e-Information
 Dissemination of marketing material and product info
 e-Integration
 Dynamic access to customized information
 Changing Custom Info on the fly. Ex: amazon looking at shopping
cart, recommending other options
 Ex: Online Banking
 e-Transactions
 Real Time access to trading and markets for exchange
 Ex: Following stock ticker, Scottrade.com, eBay
 Updating Dynamically the product it is recommending

Leads Naturally to electronic Retail
 Benefits?
 Product- Can have Unlimited number of products
 Place- Virtual Store Fronts unconstrained
 Price- Frictionless pricing is an option
Ease of search should allow lower prices and drive to price to
equilibrium
 Doesn’t Happen- Amazon can charge extra
Drawbacks?
 Delivery-Delayed acquisition
 Direct Product Experience- Can’t hold it, no tactile experience
The Long Tail
 Recall that in Information Goods our MC 0
 The other benefit is that shelf space becomes infinite
 Amazon can offer anything, no limit offerings
 Before Digitization
 After Digitization

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

Physical Economy
 Limitations
 We Need to find Local Audiences
 We Are constrained by the physics of the world
 People have varying tastes
 How to harness the long Tail
 Three Rules


Make everything available
 Increasing variety for various tastes

Reduce the price by half and lower it

Help people find it
Is there Value in the Long Tail??

The Cello Suites: Johan Sebastian Bach
 More than 200 versions on iTunes
 Does this actually grow the market?

Reducing search costs…
 If Customer Cant find it, does it matter that it exists
 First 6 options on Netflix account for 96%, next 6=1.5%

Consolidating the Market
 If the blockbuster is all people want why go through the effort
spending the money to get everything else?

Purchase Regret- More Options Doesn’t Help, More Choices=Less
satisfaction
 Mobility- Immediate-ubiquitous access to the internet
 Example UBER- Wouldn’t work if it wasn’t available on the phone
 Mobile Commerce
 In Addition to influencing the products firms can carry the internet has
influenced consumer access
 i.e. exploiting the “always on” society
 Banner ads on Facebook vs Google
 Google you are searching, actively giving out info, vs facebook,
which is mining your account and bugging you
 Mobile Ecommerce- Types
 Location Based M-Commerce
 Services can be offered tailored to a person’s needs based on their
current location
 Information on the Go
 Consumers can get further info about products wherever they are,
including the store, but this can lead to “showrooming”.
 “Showrooming”- Going into a store to touch an object, just to then
purchase it online
 Product and Content Sales
 Consumers use mobile apps to make purchases on the go
 When will these items increase revenue for the firm?


E-Auctions
 Allows retailers (or sellers) to get maximum willingness to pay possible
 E-Auctions changed auctions from being mostly, art, furniture, high
end items for the rich, to being a venue to sell just about anything
 Forward Auction
 English or Dutch
 English- Starting bid, goes up until hits max
 Dutch- Based on tulip auctions, Set the Price High, and then slowly
drop until someone jumps
 Highest Bid Wins
 Reverse Auction
 Buyers post a request for quote (RFQ)
 Sellers make proposal
 Lowest Bidder wins
 This is how B2B sales often work
E-Banking
 Rise online Banking
 Convenience
 Security Concerns
 Accessing internet is risky, but now carrying cash is less often
needed
 Mobile Banking

Online Investing
 Increased access to financial information and analytical tools
 Online investing
 Mobile Invest
 Used to have to pay a brick and mortar firm fees and trades,
consultant offers, etc
 Now you can pay just for one or the other

Payment Services
 Online transactions without sharing personal info with seller
 Payment service keeps info secure
 Conceptually an online Escrow service
 Makes sure the buyer gets his product, and the seller gets his
money

Securing Payments in the Digital Work
 Credit and Debit Cards
 Simple Mechanism
 Consumers have to give personal info to seller
 Managing Risk
 Business are liable for fraudulent transactions
 Legal issues
 Digital Rights Management (DRM)
 Preventing unauthorized duplication
 Taxation
 Out of state- not tax
 Internet tax freedom act 1998
 Internet tax nondiscrimination act 2004
 Internet sales treated as mail-order
Progressive or Regressive tax? (as a result of the above)
 Progressive- More income, higher tax rates, steps up
 Regressive- Taxed more at lower, less as income rises
 THIS is Regressive- As wealthy buy more stuff online but
they aren’t taxed on it!
E Government
 Government to Citizens- e-filling and taxes, Licensure, parking tickets
etc
 Government to Business- Tax, Procurement- RFQ done electronically,
increases transparency
 Government to Government
 Good for police- Interpol with FBI, FBI with State Police, Local
 Health- Sharing info from CDC with foreign Governments
 CRITICAL THINKING

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Who is Amazons biggest competitor? Alibaba.com Online Shop for Asia
Trust issues
 US Government is predictable and trustworthy
 Allows US Based companies to penetrate new markets easier