Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
4-1
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
True-False Questions
1.
Internet technology is the key-enabling technology for the digital integration of the modern
company.
Answer: True
2.
p. 114
Difficulty:
Easy
Reference:
p. 114
Difficulty:
Easy
Reference:
p. 115
Difficulty:
Easy
Reference:
p. 115
Difficulty:
Medium
Reference:
p. 116
Difficulty:
Medium
Reference:
p. 116
Information asymmetry exists when one party in a transaction has more information for the
transaction than the other party.
Answer: True
9.
Reference:
The time and money spent locating a suitable product and determining the best price for that
product defines location costs.
Answer: False
8.
Hard
The Internet shrinks information asymmetry.
Answer: True
7.
Difficulty:
The unbundling of information from traditional channels has enhanced old business models.
Answer: False
6.
p. 114
One advantage of using Internet technology is that it provides the infrastructure to allow
information to flow seamlessly from one part of the organization to another.
Answer: True
5.
Reference:
The Internet’s universal computing platform is the primary infrastructure for the emerging
digital firm.
Answer: True
4.
Easy
Proprietary systems are inexpensive and based on technology standards that most companies
can follow.
Answer: False
3.
Difficulty:
Difficulty:
Medium
Reference:
p. 116
Medium
Reference:
p. 117
Dynamic pricing is online bidding.
Answer: True
Difficulty:
4-2
The Digital Firm: Electronic Business and Electronic Commerce
10.
A banner ad opens automatically and does not disappear until the user clicks on it.
Answer: False
11.
Difficulty:
Medium
Reference:
p. 120
Difficulty:
Easy
Reference:
p. 121
Difficulty:
Medium
Reference:
p. 121
Difficulty:
Medium
Reference:
p. 123
Difficulty:
Medium
Reference:
p. 124
Difficulty:
Easy
Reference:
p. 125
Difficulty:
Hard
Reference:
p. 126
Automobile manufacturing is an example of a vertical market.
Answer: True
20.
p. 119
Direct goods are not directly involved in the production process, and normally serve vertical
markets.
Answer: False
19.
Reference:
Private exchanges are currently the fastest growing type of B2B commerce.
Answer: True
18.
Medium
Web sites cannot currently provide customers with Web page/call center interaction.
Answer: False
17.
Difficulty:
Amazon.com uses Web personalization as a major marketing tool.
Answer: True
16.
p. 118
It is unusual for companies to use Web pages to analyze customer information.
Answer: False
15.
Reference:
Web sites can gather bountiful detailed information about customer behavior and
demographics.
Answer: True
14.
Medium
Disintermediation provides major benefits to the distributor.
Answer: False
13.
Difficulty:
A syndicator is a business that aggregates content or applications from multiple sources,
packaging them for distribution, and reselling them to third-party Web sites.
Answer: True
12.
Chapter 4
Difficulty:
Easy
Reference:
p. 126
Many third-party Net marketplaces provide vertical markets for a single industry.
Answer: True
Difficulty:
Hard
Reference:
p. 127
Chapter 4
21.
The Digital Firm: Electronic Business and Electronic Commerce
Accumulated balance digital payment systems allow consumers to make instant online
payments to merchants and other individuals based on conventional credit card payments.
Answer: False
22.
Difficulty:
Easy
Reference:
p. 129
Difficulty:
Medium
Reference:
p. 130
Difficulty:
Medium
Reference:
p. 130
Difficulty:
Easy
Reference:
p. 131
Difficulty:
Easy
Reference:
p. 131
Difficulty:
Easy
Reference:
p. 133
Difficulty:
Easy
Reference:
p. 134
Major uses of the intranet for the sales and marketing departments are online training and
order tracking.
Answer: False
31.
p. 129
One of the most popular applications for corporate intranets is the coordination of the
activities of the sales force.
Answer: True
30.
Reference:
Traditional TPS are the best way to bring detailed information together from many different
sources for decision making and performance measurement.
Answer: False
29.
Medium
Intranets are useful in all the major functional areas of business.
Answer: True
28.
Difficulty:
Event-driven publishing allows organizations to respond more rapidly to changing conditions
than paper-based publishing.
Answer: True
27.
p. 129
Digital checks are more expensive than credit cards but faster than paper-based checking.
Answer: False
26.
Reference:
Digital checks are less expensive than credit cards.
Answer: True
25.
Medium
Sophisticated electronic commerce software has capabilities for processing credit card
purchases on the Web.
Answer: True
24.
Difficulty:
Digital cash can be used for micropayments or larger purchases.
Answer: True
23.
4-3
Difficulty:
Medium
Reference:
p. 134
TransCanada Pipeline employees use the company intranet to process timesheets and
expense reports.
Answer: True
Difficulty:
Medium
Reference:
p. 134
4-4
The Digital Firm: Electronic Business and Electronic Commerce
32.
It is more difficult to develop intranets integrating manufacturing data under a uniform
interface than to develop them in other functional areas.
Answer: True
33.
Reference:
p. 134
Difficulty:
Easy
Reference:
p. 136
Difficulty:
Medium
Reference:
p. 136
Difficulty:
Easy
Reference:
p. 137
Difficulty:
Easy
Reference:
p. 137
Difficulty:
Medium
Reference:
p. 137
The unbundling of information from traditional channels has enhanced old business models.
Answer: False
40.
Easy
The Web provides an unprecedented ability to learn about and target customers.
Answer: True
39.
Difficulty:
In order for electronic commerce to flourish there must be an atmosphere of trust established
among buyers, sellers, and other partners involved in online transactions.
Answer: True
38.
p. 134
Channel conflict can create negative repercussions, especially when commission sales to area
sales representatives are involved.
Answer: True
37.
Reference:
Because of its speed and efficiency, doing business on the Internet is always more costeffective than traditional business methods.
Answer: False
36.
Easy
Internet technology has changed value propositions and business models.
Answer: True
35.
Difficulty:
Intranets and extranets can be used to electronically coordinate cross-functional processes
inside and outside the organization.
Answer: True
34.
Chapter 4
Difficulty:
Easy
Reference:
p. 138
Peer-to-peer payment systems are the principal payment systems for electronic commerce.
Answer: False
Difficulty:
Hard
Reference:
p. 139
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
4-5
Multiple-Choice Questions
41.
Internet technology is providing the infrastructure for electronic business because:
a. it is less complex than traditional infrastructures.
b. its technology and technology standards can be used to make information flow
seamlessly throughout the organization.
c. it is easier to understand.
d. the emergence of the digital firm has created so many new markets.
Answer:
42.
Easy
Reference:
p. 114
the low-cost connectivity and universal standards provided by Internet technology.
new business models.
the emergence of a worldwide global economy, which cannot be affected by politics.
TCP/IP.
Answer:
a
Difficulty:
Medium
Reference:
p. 115
An abstraction of what an enterprise is and how the enterprise delivers a product or
service, showing how the enterprise creates wealth best describes:
a.
b.
c.
d.
business model.
critical success factor.
strategic plan.
information systems plan.
Answer:
44.
Difficulty:
The driving force behind the explosion of electronic business and the emergence of the
digital firm is:
a.
b.
c.
d.
43.
b
a
Difficulty:
Easy
Reference:
p. 115
An __________________ exists when one party in a transaction has more information
that is important for the transaction than the other party.
a.
b.
c.
d.
information bias
information asymmetry
information richness
information source
Answer:
b
Difficulty:
Medium
Reference:
p. 116
4-6
The Digital Firm: Electronic Business and Electronic Commerce
45.
The time and money spent locating a suitable product and determining the best price for
that product best describes:
a.
b.
c.
d.
location costs.
search costs.
research and development costs.
alternative costs.
Answer:
46.
Medium
Reference:
p. 116
d
Difficulty:
Medium
Reference:
p. 117
A measurement of how many people a business can connect with and how many
products it can offer those people best defines:
a.
b.
c.
d.
reach.
intensity.
micromarketing.
richness.
Answer:
a
Difficulty:
Easy
Reference:
p. 117
Easy
Reference:
p. 117
Online bidding is also known as:
a.
b.
c.
d.
multiple selling.
dynamic pricing.
specialized pricing.
Web customization.
Answer:
49.
Difficulty:
reach.
intensity.
micromarketing.
richness.
Answer:
48.
b
A measurement of the depth and detail of information that a business can supply to the
customer as well as information the business collects about the customer best defines:
a.
b.
c.
d.
47.
Chapter 4
b
Difficulty:
Online communities:
a. provide a place where people of like interests can exchange ideas regardless of their
location.
b. are providing the foundations for new businesses.
c. allow members to post their own Web pages.
d. All of the above
Answer:
d
Difficulty:
Easy
Reference:
p. 117
Chapter 4
50.
The Digital Firm: Electronic Business and Electronic Commerce
Which of the following Internet business models does Amazon.com use?
a.
b.
c.
d.
Information broker
Transaction broker
Online service provider
Virtual storefront
Answer:
51.
Difficulty:
Medium
Reference:
p. 118
Amazon.com
eBay.com
CNN.com
Motocross.com
Answer:
c
Difficulty:
Medium
Reference:
p. 118
Which of the following is an ad that opens automatically and does not disappear until the
user clicks on it?
a.
b.
c.
d.
Banner ad
Controlled ad
Controlled display
Pop-up ad
Answer:
53.
d
Which of the following businesses utilizes the content provider Internet business model?
a.
b.
c.
d.
52.
4-7
d
Difficulty:
Medium
Reference:
p. 118
The content provider Internet business model:
a. generates revenue from advertising or from directing buyers to sellers.
b. saves users money and time by processing online sales dealings.
c. provides a digital environment where buyers and sellers can establish prices for
products.
d. creates revenue by providing digital content over the Web.
Answer:
54.
d
Difficulty:
Medium
Reference:
p. 118
The transaction broker Internet business model:
a. generates revenue from advertising or from directing buyers to sellers.
b. saves users money and time by processing online sales dealings.
c. provides a digital environment where buyers and sellers can establish prices for
products.
d. sells physical products directly to consumers or individual businesses.
Answer:
b
Difficulty:
Easy
Reference:
p. 118
4-8
The Digital Firm: Electronic Business and Electronic Commerce
55.
Chapter 4
The online marketplace Internet business model:
a. saves users money and time by processing online sales dealings.
b. provides a digital environment where buyers and sellers can establish prices for
products.
c. creates revenue by providing digital content over the Web.
d. sells physical products directly to consumers or individual businesses.
Answer:
56.
Reference:
p. 118
d
Difficulty:
Easy
Reference:
p. 119
Reference:
p. 120
eBay is an example of:
a.
b.
c.
d.
a click-and-mortar business.
consumer-to-consumer electronic commerce.
business-to-consumer electronic commerce.
an online exchange
Answer:
b
Difficulty:
Easy
Businesses retailing products and services directly via the Internet to individual
consumers best describes:
a.
b.
c.
d.
business-to-business electronic commerce.
consumer-to-consumer electronic commerce.
mobile commerce.
business-to-consumer electronic commerce.
Answer:
59.
Easy
are an example of business-to-business electronic commerce.
do not sell a physical product.
are extensions of traditional bricks-and-mortar businesses.
did not have an earlier existing bricks-and-mortar business before they went to the
Internet.
Answer:
58.
Difficulty:
Pure-play business models are businesses that:
a.
b.
c.
d.
57.
b
d
Difficulty: Easy
Reference:
p. 120
Consumers selling goods and services electronically to other consumers best describes:
a.
b.
c.
d.
disintermediation.
consumer-to-consumer electronic commerce.
mobile commerce.
business-to-consumer electronic commerce.
Answer:
b
Difficulty:
Easy
Reference:
p. 120
Chapter 4
60.
The Digital Firm: Electronic Business and Electronic Commerce
The shifting of the intermediary role in a value chain to a new source is called:
a.
b.
c.
d.
disintermediation.
reentrance.
reintermediation.
intermediary relocation.
Answer:
61.
Medium
Reference:
p. 121
b
Difficulty:
Medium
Reference:
p. 121
Thanks to the Web, ____________________ have become powerful business tools for
testing and improving products and services.
a.
b.
c.
d.
customers
sales personnel
pop-up advertisements
collaborative competitors
Answer:
a
Difficulty:
Medium
Reference:
p. 123
Reference:
p. 124
Companies are realizing substantial cost savings from:
a.
b.
c.
d.
online storefronts.
Web-based customer self-service applications.
up-to-date competitive analyses.
customer communities.
Answer:
64.
Difficulty:
location tracking.
an individually customized Web presentation page.
individualized computing requirements at each visit.
m-commerce capabilities.
Answer:
63.
c
A personalization technique used by many Web sites is the gathering of demographic
information provided by the customer to provide:
a.
b.
c.
d.
62.
4-9
b
Difficulty:
Hard
Sourcing goods and materials, negotiating with suppliers, paying for goods, and making
delivery arrangements best describes:
a.
b.
c.
d.
procurement.
acquisition.
supply chain management.
electronic commerce.
Answer:
a
Difficulty:
Easy
Reference:
p. 125
4-10
The Digital Firm: Electronic Business and Electronic Commerce
65.
When a large firm uses an extranet to link to its suppliers and other key business
partners, a(n) ____________________ is created.
a.
b.
c.
d.
private industrial network
intranet
Web marketplace
channels center
Answer:
66.
a
Difficulty:
Easy
Reference:
p. 125
______________________ are more transaction oriented (and less relationship oriented)
than private exchanges.
a.
b.
c.
d.
Private industrial networks
E-hubs
Intranets
Extranets
Answer:
67.
Chapter 4
b
Difficulty:
Hard
Reference:
p. 126
Net marketplaces are:
a. owned by one central provider, which facilitates transfer of information.
b. more transaction oriented and less relationship oriented than private industrial
networks.
c. useful for determining fixed prices for goods.
d. more relationship oriented and less transaction oriented than private industrial
networks.
Answer:
68.
Difficulty:
Easy
Reference:
p. 126
A third-party Net marketplace that is primarily transaction oriented and that connects
many buyers and suppliers for spot purchasing best describes:
a.
b.
c.
d.
exchange.
online distributor.
syndicator.
content provider.
Answer:
69.
b
a
Difficulty:
Medium
Reference:
p. 127
A system that enables users to make micropayments and purchases on the Web by
accumulating a debit balance on their credit card or telephone bill best describes:
a.
b.
c.
d.
smart card.
accumulated balance digital payment system.
accumulated deferral system.
digital cash.
Answer:
b
Difficulty:
Medium
Reference:
p. 129
Chapter 4
70.
The Digital Firm: Electronic Business and Electronic Commerce
A credit card-size plastic card that stores digital information and that can be used for
electronic payments in place of cash best describes:
a.
b.
c.
d.
digital cash.
stored value payment system.
microcard.
smart card.
Answer:
71.
Easy
Reference:
p. 129
a
Difficulty:
Medium
Reference:
p. 131
Reference:
p. 131
Members of the organization use intranets to create:
a.
b.
c.
d.
a collaborative environment.
new services for customers.
a supply chain.
an organization requiring fewer middle managers.
Answer:
a
Difficulty:
Easy
Intranets can be valuable for finance and accounting because they:
a.
b.
c.
d.
are more secure than traditional methods of record keeping.
provide an integrated view of financial and accounting information online.
are more flexible.
are more accessible to middle management.
Answer:
74.
Difficulty:
portal
collaboration tool
online repository
event-driven interface
Answer:
73.
d
Provides a single point of access to disparate systems used in an intranet::
a.
b.
c.
d.
72.
4-11
b
Difficulty:
Medium
Reference:
p. 133
An example of the use of intranets in human resources is:
a. the use of intranet collaboration tools for contact management, discussion forums,
document management, and calendars.
b. the ability to monitor un-invoiced income or outstanding debt each day.
c. the provision of data on quality measurements, such as defects and rejects, as well as
maintenance and training schedules.
d. allowing employees to manage their own health and pension benefits accounts.
Answer:
d
Difficulty:
Easy
Reference:
p. 133
4-12
The Digital Firm: Electronic Business and Electronic Commerce
75.
Manufacturing and production find intranets to be:
a.
b.
c.
d.
more complicated to implement than in other functional areas.
less useful than in other functional areas.
helpful in updating prices.
All of the above
Answer:
76.
Easy
Reference:
p. 134
b
Difficulty:
Hard
Reference:
p. 134
Businesses can waste thousands and even millions of dollars building and maintaining a
Web site that fails to deliver the desired results if they are unclear about their online
strategy and its relationship to:
a.
b.
c.
d.
the speed with which business is conducted on the Internet.
their overall business strategy.
their security requirements.
their ability to obtain supplies for their products.
Answer:
b
Difficulty:
Hard
Reference:
p. 136
Companies pursuing electronic commerce must be especially vigilant about:
a.
b.
c.
d.
maintaining updated transaction files.
establishing a well-designed Web site.
maintaining a shopping cart and online credit transactions.
establishing trust, security, and consumer privacy.
Answer:
79.
Difficulty:
sales and marketing intranet
manufacturing and production intranet
human resources intranet
finance and accounting intranet
Answer:
78.
a
Which of the following is most likely to deal with massive amounts of rapidly-changing
data:
a.
b.
c.
d.
77.
Chapter 4
d
Difficulty:
Medium
Reference:
p. 137
Reference:
p. 137
Internet technology alone:
a.
b.
c.
d.
allows better management for any company.
makes older business strategies obsolete.
can be a substitute for an effective business strategy.
is not a substitute for an effective business strategy.
Answer:
d
Difficulty:
Medium
Chapter 4
80.
The Digital Firm: Electronic Business and Electronic Commerce
4-13
Internet-based systems are more vulnerable to penetration by outsiders than private
networks because:
a.
b.
c.
d.
so many people see each message.
most Internet companies do not have adequate firewalls.
the Internet was designed as an open environment.
a computer in the home environment is insecure.
Answer:
c
Difficulty:
Medium
Reference:
p. 137
Fill In the Blanks
81.
A(n) business model is an abstraction of what an enterprise is and how the enterprise delivers
a product or service, thus creating wealth.
Difficulty: Medium
82.
Reference:
p. 116
Reference:
pp. 116-117
The term reach describes the measurement of how many people a business can connect with
and how many products it can offer those people.
Difficulty: Medium
86.
p. 116
Richness is the measurement of the depth and detail of information that a business can
supply to the customer as well as information business collects about the customer.
Difficulty: Medium
85.
Reference:
Information asymmetry defines a situation where the relative bargaining power of two
parties in a transaction is determined by one party in the transaction possessing more
information essential to the transaction than the other party.
Difficulty: Hard
84.
p. 115
Search costs are the time and money spent locating a suitable product and determining the
best price for that product.
Difficulty: Medium
83.
Reference:
Reference:
p. 117
Dynamic pricing is based on real-time interactions between buyers and sellers that determine
what an item is worth at any particular moment.
Difficulty: Hard
Reference:
p. 117
4-14
The Digital Firm: Electronic Business and Electronic Commerce
87.
iVillage is an Internet business based on an online community for women sharing similar
interests.
Difficulty: Medium
88.
p. 118
Reference:
p. 118
Reference:
p. 118
Reference:
p. 119
Reference:
p. 119
A(n) clicks-and-mortar business model has the Web site as an extension of a traditional
bricks-and-mortar business.
Difficulty: Easy
96.
Reference:
Pure-play is a business model based purely on the Internet.
Difficulty: Medium
95.
p. 118
A(n) syndicator is a business that aggregates content or applications from multiple sources,
packaging them for distribution, and reselling them to third-party Web sites.
Difficulty: Medium
94.
Reference:
A(n) pop-up ad is an ad that opens automatically and does not disappear until the user clicks
on it.
Difficulty: Easy
93.
p. 118
A(n) banner ad is a graphic display on a Web page used for advertising.
Difficulty: Easy
92.
Reference:
A(n) portal provides the initial point of entry to the Web along with specialized content and
other services.
Difficulty: Easy
91.
p. 117
A(n) virtual community provides an online meeting place where people with similar interests
can communicate and find useful information.
Difficulty: Easy
90.
Reference:
A(n) virtual storefront sells physical products directly to consumers or individual businesses.
Difficulty: Easy
89.
Chapter 4
Reference:
p. 119
A(n) business-to-consumer model is the electronic retailing of products and services directly
to individual consumers.
Difficulty: Easy
Reference:
p. 120
Chapter 4
97.
The Digital Firm: Electronic Business and Electronic Commerce
A(n) business-to business model is the electronic sales of goods and services among
businesses.
Difficulty: Easy
98.
Reference:
p. 120
A(n) consumer-to consumer model involves consumers selling goods and services
electronically to other consumers.
Difficulty: Easy
99.
4-15
Reference:
p. 120
Mobile commerce is the use of wireless devices to conduct e-commerce transactions over the
Internet.
Difficulty: Easy
Reference:
p. 120
100. Disintermediation is the removal of organizations or business process layers responsible for
certain middleman steps in a value chain.
Difficulty: Medium
Reference:
p. 120
101. Reintermediation is the shifting of the middleman role in a value chain to a new source.
Difficulty: Medium
Reference:
p. 121
102. Web personalization is the tailoring of Web content directly to a specific user.
Difficulty: Easy
Reference:
p. 121
103. A(n) call center is an organizational department responsible for handling customer service
issues by telephone and other channels.
Difficulty: Medium
Reference:
p. 124
104. A(n) private exchange is another term for a private industrial network.
Difficulty: Medium
Reference:
p. 125
105. A(n) Net marketplace is a single digital selling arena based on Internet technology, linking
many buyers to many sellers.
Difficulty: Easy
Reference:
p. 126
106. A(n) exchange is a third-party Net marketplace that is primarily transaction oriented and that
connects many buyers and suppliers for spot purchasing.
Difficulty: Medium
Reference:
p. 127
4-16
The Digital Firm: Electronic Business and Electronic Commerce
Chapter 4
107. A(n) electronic payment system allows the use of digital technologies to pay for products
and services electronically.
Difficulty: Easy
Reference:
p. 127
108. A(n) digital credit card payments system provides secure services for credit card payments
on the Internet.
Difficulty: Easy
Reference:
p. 129
109. A(n) digital wallet stores credit card and owner identification information and provides these
data automatically during electronic commerce purchase transactions.
Difficulty: Medium
Reference:
p. 129
110. A(n) micropayment is a payment for very small sum of money, often less than $10.
Difficulty: Medium
Reference:
p. 129
111. A(n) accumulated balance digital payment system enables users to make small payments
and purchases on the Web, accumulating a debit balance on their credit card or telephone
bills.
Difficulty: Medium
Reference:
p. 129
112. A(n) stored value payments system enables a consumer to make instant online payments to
merchants and other individuals based on value stored in the digital account.
Difficulty: Medium
Reference:
p. 129
113. A(n) smart card is a credit-card-size plastic card that stores digital information and can be
used for electronic payments in place of cash.
Difficulty: Medium
Reference:
p. 129
114. Digital cash represents currency in electronic form moving outside the normal money
network.
Difficulty: Medium
Reference:
p. 129
115. A(n) peer-to-peer payment system allows people to send money to the vendors or individuals
who are not set up to accept credit card payments.
Difficulty: Medium
Reference:
p. 129
116. A(n) digital checking system extends the functionality of existing checking accounts so they
can be used for online shopping payments.
Difficulty: Medium
Reference:
p. 130
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
4-17
117. A(n) electronic billing presentment and payment system allows users to view their bills
electronically and pay them through electronic funds transfer from banks or credit card
accounts.
Difficulty: Medium
Reference:
p. 130
118. A(n) intranet is a private network based on Internet technology that is contained within an
enterprise.
Difficulty: Medium
Reference:
p. 131
119. The use of digital technologies to enable multiple organizations to design, develop, move,
and manage products collaboratively through their life cycles is called collaborative
commerce.
Difficulty: Easy
Reference:
p. 134
120. A(n) channel conflict occurs when competition between two or more different distribution
chains are used to sell the same products or services from the same company.
Difficulty: Medium
Reference:
p. 137
Essay Questions
121.
"Knowledge increases exponentially," is a phrase with which we are all familiar. Does this
concept apply to electronic business and the emergence of the digital firm? Support your
contentions.
One answer might be:
As we learn anything, we build a construction or trellis of information that we use as support
to add more information, each piece connected to and dependent upon others. Data arranged
in a meaningful format lead to information, information in use leads to knowledge,
knowledge examined leads to wisdom. Everything that humanity has learned can be traced
back to something learned earlier. It has taken us tens of thousands of years of building
knowledge to create the Internet itself. Knowledge was increasing exponentially all along,
but it is with the low-cost conductivity and universal standards provided by Internet
technology that we see in our lifetime, indeed it unfolds week-by-week.
The Internet enables us, for the first time in human history, to see the potential for all human
knowledge to be connected and available to anyone with access to a computer.
Businesspeople use this capacity to increase business, of course, and this connectivity allows
businesses to connect with each other at speeds and in ways heretofore unimagined. Two
things make the digital firm possible: speed and data availability. Without the Internet, these
would not be available.
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The Digital Firm: Electronic Business and Electronic Commerce
122.
Chapter 4
List and describe at least four ways that the Internet can reduce transaction costs.
Because of its speed and the availability of information, the Internet makes it possible to
reduce the time expenditure in such transactions as checking a bank account balance,
answering the customer question, trading shares of stock, correcting an employee record,
processing customer orders, making advertising information available, or paying a bill.
Because time and effort is reduced, transaction costs are reduced. The Internet also reduces
search and communication costs.
123.
How .has the Internet made both richness and reach readily available to digital businesses?
Using the Internet and Web multimedia capabilities, companies can quickly and
inexpensively provide detailed product information and detailed information specific to each
customer to very large numbers of people simultaneously.
124.
List and describe at least five different Internet business models. Which of these models do
you think is the most risky for a dot-com business? Support your answer.
The eight models are: virtual storefront, information broker, transaction broker, online
marketplace, content provider, online service provider, virtual community, and portal. The
choice of riskiest model will depend on the individual student.
125.
“Using Web personalization technology, companies are moving into customer-centered
retailing.” Discuss this concept, defining relevant terms, as it applies to the digital firm.
Web personalization is the art of gathering enough information about visitors to your Web
site that you can present that site to returning visitors, hopefully new customers, by name and
by interest area.
Customer-centered retailing allows a company to tailor products individually to many
customers at the same time. In Internet terms, this is referred to as ”mass customization.” In
the past, because it could not know each of its customers individually, a company had to
create a product aimed at a broad variety of needs and hope that the needs of enough
customers could be met with that product to create a profit. Customers, on the other hand,
had to choose among products that already existed, or pay an increased price for a product
tailored individually to them.
The Internet, by making it possible for companies and their customers to interact
individually, has changed this equation. Companies can now use the capacities of the
Internet to provide ongoing information, service, and support to individuals, which will
create positive interactions with customers that can serve as the foundations for long-term
relationships and repeat purchases.
Chapter 4
126.
The Digital Firm: Electronic Business and Electronic Commerce
4-19
Discuss why trust, security, and privacy are so important in electronic commerce.
Electronic commerce cannot flourish unless there is an atmosphere of trust among buyers,
sellers, and other partners involved in online transactions. Because online relationships are
more impersonal perhaps than those in bricks-and-mortar commerce, some consumers
remain hesitant to make purchases over the Web from unfamiliar vendors. Consumers worry
about the security and confidentiality of the credit card number and other personal data that
they supply over the Internet. Internet-based systems are even more vulnerable to
penetration by outsiders than private networks because the Internet was designed to be open
to everyone.
127.
List and describe at least three ways in which the individual consumer may pay for
purchases on the Internet.
The principal electronic payment systems for electronic commerce for the individual are
credit card, digital wallet, accumulated balance digital payment systems, stored value
systems, digital cash, peer-to-peer payment systems, and electronic checks. Most consumers
use their credit card.
128.
What is channel conflict, and in what ways do you think it can be avoided? Be sure to
support your answer.
Channel conflict occurs when an individual consumer can skip the middleman and purchase
goods directly from the manufacturer at less cost. This obviously creates a problem for the
middleman because it means that his supplier is also his competitor. The Internet has made it
possible for the consumer to gather information hitherto available only to the distributor,
which makes it possible to make the decision to purchase without the help or intervention of
said distributor. Furthermore, the Internet has made it possible for the customer to
comparison-shop quickly and easily without leaving his or her home.
Business processes must therefore be redesigned to include the middleman, or to enable the
middleman to participate in ways previously not considered.
129.
List and describe the three major types of electronic commerce. Which do you think is the
most valuable to the individual consumer? Support your answer.
Business-to-consumer, business-to-business, and consumer-to-consumer. All three are
valuable to the consumer, but in the long run, business-to-business may be the most valuable
to the individual consumer because it will reduce prices and increase both goods and
services. (Other opinions, of course, are supportable.)
130.
List and discuss at least three ways in which an intranet uses Internet technology.
Intranets create collaborative environments for coordinating work and information sharing.
Using the Internet technologies of e-mail, Web interfaces, HTML, multimedia, and data
sharing allows the firm to connect functional areas and business processes.