The Digital Firm:
Electronic Business
and Electronic
Commerce
4.1
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Internet Technology and the Digital Firm
• Information technology infrastructure: The
Internet provides a universal and easy-to-use set
of technologies and technology standards that
can be adopted by all organizations.
• Direct communication between trading partners:
Disintermediation removes intermediate layers
and streamlines processes.
4.2
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Internet Technology and the Digital Firm (Continued)
• Round the clock service: Web sites available to
consumers 24 hours
• Extended distribution channels: Outlets created
for attracting customers who otherwise would not
patronize a firm
• Reduced transaction costs: Costs of searching for
buyers declines
4.3
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New Business Models and Value Propositions
Business Model:
• Defines an enterprise
• Describes how the enterprise delivers a product
or service
• Shows how the enterprise creates wealth
4.4
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The Changing Economies of Information
• Information asymmetry: One party in a transaction
has more information than the other. The Internet
decreases information asymmetry.
• Increases richness: The Internet increases the
depth, detail, and scope of information.
• Increases reach: The Internet increases the
number of people who can be contacted
efficiently.
4.5
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The Changing Economics of Information
4.6
Figure 4-1
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Internet Business Models
• Virtual storefront: Sells goods or services online
(Amazon.com)
• Information broker: Provides information on
products or services (Edmunds.com)
• Transaction broker: Provides online transaction
facility (eTrade.com, Expedia.com)
• Online marketplace: Provides a trading platform
for individuals and firms (eBay.com)
4.7
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Internet Business Models (Continued)
• Content provider: Creates revenue by providing
content (WSJ.com, TheStreet.com)
• Online service provider: Provides online services,
including search service. (Google.com,
Xdrive.com)
• Virtual community: Provides an online community
to focused groups (Friendster.com, iVillage.com)
• Portal: Provides initial point of entry to Web,
specialized content, services (Yahoo.com,
MSN.com)
4.8
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Categories of Electronic Commerce
• Business-to-customer (B2C): Retailing of products
and services directly to individual customers
(Wal-Mart.com)
• Business-to-business (B2B): Sales of goods and
services to other businesses (Grainger.com,
Ariba.com)
• Consumer-to-consumer (C2C): Individuals using
the Web for private sales or exchange (eBay.com )
4.9
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Business-To-Consumer
Advantages of E-commerce:
• Customer-centered retailing: Closer and more
personalized relationship with customers is
possible
• Web sites: Provide a corporate-centered portal for
the consumer to quickly find information on
products, services, prices, orders
4.10
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Business-To-Consumer
Advantages of E-Commerce: (Continued)
• Disintermediation: The elimination of
organizations or business process layers
responsible for certain intermediary steps in a
value chain, reducing costs to the consumer
• Reintermediation: The shifting of the intermediary
role in a value chain to a new source, adding
additional value to the consumer
4.11
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The Benefits of Disintermediation to the Consumer
4.12
Figure 4-2
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Interactive Marketing and Personalization
Clickstream tracking tools:
• Collect data on customer activities at Web sites
and store them in a log
4.13
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Web Site Visitor Tracking
4.14
Figure 4-3
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Web Personalization
• Create unique personalized Web pages for each
customer
• Increased closeness to customer increases value
to the customer, while reducing costs of
interacting with the customer
4.15
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Web Site Personalization
4.16
Figure 4-4
© 2006 by Prentice Hall
Collaborative filtering:
• Compares information gathered about a specific
user’s behavior at a Web site to data about other
customers with similar interests to predict what
the user would like to see next. The software then
makes recommendations to users based on their
assumed interests.
4.17
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Customer self-service:
• The use of Web sites to provide customers with
access to information and answers to questions
• Replacing human call center operators and clerks
• UPS.com: Customer tracking of packages
• Orbitz.com: Customer self-help for organizing and
managing a trip
• Dell.com: “My Order Status” facility
4.18
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Business-to-Business Electronic Commerce: New
Efficiencies and Relationships
• Electronic Data Interchange (EDI): Enables the
computer-to-computer exchange between two
organizations of standard transactions. Currently
80% of B2B e-commerce uses this system.
• EDI is being replaced by more powerful Webbased alternatives.
4.19
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Net Marketplaces (1)
Four different types of Net Marketplaces:
• Distributors: B2B online catalogs provide buyers with
access to thousands of parts and other goods
(Grainger.com)
• Procurement platforms: Platforms for purchasing
goods and materials and also sourcing, negotiating
with suppliers, paying for goods, and making delivery
arrangements (Ariba.com)
4.20
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Net Marketplaces (2)
Four different types of Net Marketplaces: (Continued)
• Independent exchanges: Third-party Net marketplace
that is primarily transaction-oriented and that connects
many buyers and suppliers for spot purchasing
(Freemarkets.com, GEPolymerland.com)
• Industry consortia: Industry-owned Net marketplaces
used primarily for long-term sourcing of direct inputs
to production (ChemConnect.com)
4.21
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Electronic Data Interchange (EDI)
4.22
Figure 4-5
© 2006 by Prentice Hall
Private Industrial Networks
• The largest Web-based form of B2B commerce
• Private B2B extranets that focus on continuous
business process coordination between a small group
of companies for collaboration and supply chain
management. Wal-Mart uses its own private network
to coordinate more than 15,000 suppliers to its stores.
4.23
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A Private Industrial Network
4.24
Figure 4-6
© 2006 by Prentice Hall
A Net Marketplace
4.25
Figure 4-7
© 2006 by Prentice Hall
Electronic Commerce Payment Systems
4.26
Credit cards
The most common form of payment. $50 Limited customer liability.
Digital wallets
Electronic storage of I.D. and digital cash. Not widely used.
Accumulated balance
Used for micro payments. Similar to monthly telephone bills.
Stored value
Used for micro payments. Pre-payment of funds, debited on use.
Smart Cards
I.D. and credit information stored on a chip attached to a card. Used in Europe.
Digital cash
Electronic currency that can be transferred over the Web.
Peer-to-Peer payment
Interpersonal transfer of funds such as PayPal.
Digital checking
Electronic checks with digital signatures, used most often in B2B commerce.
Electronic billing presentment
and payment
Used by consumers to pay bills online, provided by many banks.
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How Intranets Support Electronic Business
• Benefits
• Functional applications
• Good examples: CARE and Mitre Corporation
4.27
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Benefits of Intranets
• Connectivity: Accessible from most computing
platforms
• Can be tied to internal corporate systems and
core transaction databases
• Platforms for interactive applications
• Scalable to larger or smaller computing platforms
4.28
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Benefits of Intranets (Continued)
• Easy to use, universal standard Web interface
• Low start-up costs
• Richer, more responsive information environment
than corporate manuals
• Reduced information distribution costs
4.29
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Functional Applications of Intranets
• Finance and accounting
• Human resources
• Sales and marketing
• Manufacturing and production
4.30
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Functional Applications of Intranets
4.31
Figure 4-8
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4.32
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4.33
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Business Process Integration
The Internet and collaborative commerce:
• Collaborative commerce: When firms use the
Internet to cooperate closely in the development,
production, and distribution of products and
services
• GE Plastics maintains an Intranet where its
customers (selected fabricators) can find
information on product design and new
developments.
4.39
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Collaborative Commerce
4.40
Figure 4-9
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Management Opportunities:
The Internet provides firms with extraordinary
opportunities to develop new products and
services, new distribution channels, new avenues
for marketing and sales, and even entirely new
business models.
4.41
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Management Challenges:
• Finding a successful Internet business model
• Organizational change challenges
• Trust, Security, and Privacy
4.42
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Solution Guidelines:
• Determining how Internet technology can provide
value for the business
• Managing business process changes
• Safeguarding security and privacy
4.43
© 2006 by Prentice Hall