Chapter 5
EC in Service Industries
© Prentice Hall, 2000
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Learning Objectives
Understand how broker-based services are
performed online
Describe online travel tourism services and
their benefits
Discuss the impact of EC on the travel
industry
Describe the online job market, its drivers
and benefits
Describe the electronic real estate market
Understand how stock trading is done online
and its benefits © Prentice Hall, 2000
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Learning Objectives (cont.)
Discuss cyberbanking, its drivers and
capabilities
Discuss implementation issues of online
financial services and its future
Describe electronic auctions, their benefits,
implementation, and impacts
Describe some innovative applications in the
service industries
Discuss the future of intermediaries and their
role in cyberspace
© Prentice Hall, 2000
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Opening Vignette:
Ordering Journals Electronically
How a large university automated the
purchasing of magazines and journals,
saving $365,000/year
Direct Marketing: Buyer-to-seller; orders and
payments
Market maker charges $5/transaction Vs.
about $40 (conventional agents)
Ordering time reduced by up to 80%
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Opening Vignette:
Ordering Journals Electronically (cont.)
University
of California
EDI
Order +
Payment
Browsing
EDI
Fee
Payment
Payments
Automated
Clearing
House (ACH)
Buyer’s
Bank
Buyer
Publisher
OM Transact
Electronic
Catalogs
BANC ONE
Rowe.Com System EDI,
Internet
BANC ONE Order
Publisher’s
Bank
$5 Fee
Rowe. Com’s
Account
Intermediary
Electronic Commerce in Magazine Ordering
Seller
5
Broker-Based Services
Brokers work as intermediaries between buyers
and sellers
Agents basically make the markets
Agents provide many services
Most of the value-added tasks of brokers can be
automated
Major electronic agent-based services
travel
employment
real estate
stocks
electronic auctions
at-home banking
insurance
© Prentice Hall, 2000
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Broker-Based Services (cont.)
Service Industries Vs. Manufacturing and
Product’s Retailing
Service Industries
pure EC  substantially reduced cost
bank and brokerage houses
• possible digitization of the entire process
travel and real estate agents
• viewing an online video clip or seeing photos of a hotel
or a house for sale
Manufacturing and Product’s Retailing
physical delivery cost may be high
© Prentice Hall, 2000
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Travel and Tourism Services
By the year 2000, close to 25 percent of all
business-to customer Internet commerce will
be related to tourism
The Internet is an ideal place to plan,
explore, and arrange almost any trip
IBM’s vision of seamless electronic travel
using smart cards
© Prentice Hall, 2000
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Travel and Tourism Services (cont.)
Services Provided
Providing maps
Information and booking
of airlines, hotels, cars,
and even golf courses
Pictures of major
attractions
Information about
entertainment and ticket
Fare comparisons
purchasing (such as
360 degree
www.ticketmaster.com)
video tours of
Tips provided by people
top destinations
that experienced certain
situations (like a visa
Electronic Travel
Converting 200 problem)
magazine
currencies
© Prentice Hall, 2000
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Travel and Tourism Services (cont.)
Frequent
Fare tracker (free
flier deals
Special discount
e-mail alerts on
Restaurant reviews
information
low fares)
Current status
Major international news
of flights
Chat rooms
(real time)
and bulletin
Worldwide
boards
Special
business and
Travel news
interest
places locator
Shopping for travel
vacations
Bed and breakfast
accessories and
recommendations E-mail to
books
intermediary
Driving directions
Experts’ options
in the US
Weather watch
© Prentice Hall, 2000
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Travel and Tourism Services (cont.)
Benefits and Limitations
Benefits
Limitations
Free information is
tremendous
Free information is
accessible anytime
Substantial
discounts
Not all people
use the Internet
It may take a
long time to find
what you want
People are still
reluctant to
provide credit
card numbers
© Prentice Hall, 2000
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Travel and Tourism Services (cont.)
Corporate Travel: New Business Model
The Impact of EC on the Travel Industry
Porter’s framework of competitive advantage (the
five forces)
Focus:
environment
competitive responses
firm’s strategy
The industry is clearly transformed
Taking away some functions traditionally performed
by travel agents
© Prentice Hall, 2000
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Travel and Tourism Services (cont.)
Impacts on the industry
Multimedia helps customers understand the
products
Offering of lower-cost trips
Providing a more personalized service
Saving money in a paperless environment
Increasing the convenience of getting
information at home
Supporting a customer-focused strategy (such
as targeted advertisement and integration of
products); push information to customers
© Prentice Hall, 2000
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Travel and Tourism Services (cont.)
Travel agencies, as we know them today, will
disappear
Only their complex value-added activities will
not be automated
These complex activities will be performed
by a new breed of intermediates
© Prentice Hall, 2000
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Travel and Tourism Services (cont.)
The Future
Collaborative organizational process performed
by multiple organizational intelligent agents
Acting autonomously
Work cooperatively
Work collectively to achieve the collective goal
Example — How will your next vacation be
planned, booked and paid for?
© Prentice Hall, 2000
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The Employment Placement Market
Job markets
Employers are looking for employees with
specific skills, and individuals are looking for a
job
Very volatile market
Moved to the Internet
Millions of job seekers, hundred of thousands of
jobs
© Prentice Hall, 2000
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The Employment Placement Market (cont.)
Shortcomings of the Non-Internet Job Market
Cost—Classified ads are expensive.
Life cycle— Unless renewed, at an additional cost, the
life of the ads is only days or weeks.
Place— Most ads are local. Nationwide ads are very
expensive. International ads are even more expensive.
Minimum information— Because of the high cost, the
information provided is minimal and may not appeal to
some job seekers.
Search— It is very time consuming for individuals to find
all relevant newspapers. A trip to a library results in
finding only major out of town newspapers.
© Prentice Hall, 2000
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The Employment Placement Market (cont.)
Finding applicants— Most job seekers, in the pre Internet
era, did not place ads about their availability. Some sent
unsolicited letters with resumes. This situation made it difficult
for companies to find employees with special skills. They had to
use employment agencies and pay them high commissions.
Matching— It was difficult to match candidates to open jobs
as well as to match supply and demand.
Lost and dated material— Some applications or letters
of response tended to get lost, or arrive late. A letter in a big city
may travel two weeks to arrive at a distance of a few blocks.
Speed— Communication by mail is slow and so is the
processing of a large number of applications. Frequently,
employers lose good employees, since by the time the
application is processed, the applicant had taken another job.
Similarly, applicants accept less desirable jobs because they are
afraid to wait too long.
© Prentice Hall, 2000
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The Employment Placement Market (cont.)
The Internet Job Market
The Internet offers a perfect environment; it
is especially effective for technologyoriented jobs.
Job seekers
Job offerers
Recruiting firms
Government agencies and institutions
© Prentice Hall, 2000
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The Employment Placement Market (cont.)
The Advantage of the Electronic Job Market
For job seekers
Ability to find very detailed and timely information on a
large number of jobs world-wide
Ability to quickly communicate with potential employers
Ability to post resumes for large-volume distribution
Ability to search for jobs quickly from any place at any
time
Obtain several support services at no cost
• writing resume  career development  how to
interview
Find employer profile & industry guides
• www.valuereports.com
© Prentice Hall, 2000
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The Employment Placement Market (cont.)
For employers
Ability to advertise to a large number of job
seekers
Ability to save on advertisement costs
Lower the cost of processing (using electronic
application forms)
Ability to provide greater ‘equal opportunity’ for
job seekers
Ability to find highly skilled employees
Ability to conduct tests quickly, online
Ability to change and update ads quickly
Ability to fill up positions rapidly
Interviewing from distance
© Prentice Hall, 2000
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The Employment Placement Market (cont.)
The Limitations of the Electronic Job Markets
Many people do not use the Internet
Security
Privacy
Lack of face-to-face contact
© Prentice Hall, 2000
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The Employment Placement Market (cont.)
Major Services Available on the Net
Finding a job
Writing and posting resumes
Career planning
Newsgroups
The Intranet Job Market
Most companies organize an internal electronic
job market
Openings are posted for employees to look at,
and search engines enable managers to identify
talents even if the people were not actively
looking for a job change
© Prentice Hall, 2000
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Real Estate: From Virtual Realtors to Virtual
Reality
You can view many properties on the screen
You can sort and organize properties
You can find detailed information about the
properties
You can search, compare and apply for loans
© Prentice Hall, 2000
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Real Estate: From Virtual Realtors to Virtual
Reality (cont.)
Real Estate Applications
International Real Estate Directory and News is
the most comprehensive Web site
www.ired.com
National listing of real estate properties
www.cyberhomes.com
Commercial real estate directory
www.comspace.com
The complete real estate software catalog
www.mnink.com/re/cover.html
© Prentice Hall, 2000
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Real Estate: From Virtual Realtors to Virtual
Reality (cont.)
Real Estate Applications
Mortgage comparisons and calculations and other
financing information; mortgage application
www.eloan.com ;
www.homeshark.com
Searching residential real estate in multiple databases
www.homescout.com
Real estate related maps are available on:
www.mapquest.com
Automating the closing of real estate transactions,
which is overwhelmed by paperwork
© Prentice Hall, 2000
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Real Estate: From Virtual Realtors to Virtual
Reality (cont.)
Real Estate Applications
The National Association of Realtors,
www.realtor.com has links to property listings in all
major US cities
To find how much house you can afford,
consult: www.replace.com/links.html
Mortgage brokers can pass on loan
applications over the Net and receive bids from
lenders that want to issue the mortgages
© Prentice Hall, 2000
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Real Estate: From Virtual Realtors to Virtual
Reality (cont.)
Real Estate Applications
To find mortgage interest rates online use:



www.bankrate.com
www.eloan.com
www.quickenmortgage.com
To rent an apartment or a house try www.rent.net
Several additional services are available
including a virtual walk through of some listings
© Prentice Hall, 2000
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Trading Stocks Online
Costs between $7 and $20 per transaction (Vs.
$30 - $100 in traditional brokerage)
No waiting on busy telephone lines
No oral communication, less chance for errors
Place orders from anywhere, any time, day or
night
No biased broker to push you
Considerable amount of free information
© Prentice Hall, 2000
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Trading Stocks Online (cont.)
E*Trade, Schwab Online
Order is placed, as
described earlier, on an
electronic form from
any computer with
access to the Web,
anywhere in the world.
The order is routed to
Schwab’s host computer
in San Francisco and,
within a split second,
forwarded to the trading
floor of the New York
Sock Exchange (NTSE).
Yes
Order is transferred to
Schwab’s floor brokers
at the NYSE, who take
it to the specialist, who
finds the best price and,
if satisfactory, the
order is fulfilled.
Is the order larger than
30,000 shares?
No
Order is automatically
transferred to a
specialist and fulfilled
based on the bid and ask
prices.
In a few seconds, (most
cases), Schwab
confirms that trade and
the price, relaying the
information to the
investor’s PC.
© Prentice Hall, 2000
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Trading Stocks Online (cont.)
Investment Information
For municipal bond pricing see :
www.bondmarkets.org and www.investinbonds.com
For overall market information and many links
see: www.cyberinvest.com
For free Gurus’ advice see:
www.upside.com
For stock screening and evaluation try:
www.marketguide.com
www.aaii.com provides articles from the Journal of
the American Association of Individual Investors
© Prentice Hall, 2000
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Trading Stocks Online (cont.)
pomaven.com reports the latest findings and
pricing of IPOs
For chart lovers try www.bigcharts.com
For mutual funds evaluation and other
interesting investment information see
www.morningstar.net
Almost anything that you need will be provided
to you by www.yahoo.com
www.firstcall.com provides earning estimates and
much more
Initial public Offerings (IPOs)
Spring Street Brewing
© Prentice Hall, 2000
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Cyberbanking and Personal Finance
Electronic banking
Saves time and
money for users
Offers an inexpensive
alternative to branch
banking
Application Case:
Cyberbanking at
Wells Fargo
© Prentice Hall, 2000
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Cyberbanking and Personal Finance (cont.)
Implementation Issues in Banking and Online
Trading
Securing Financial Transactions
Application Case: Security at NationsBank
B of A
Web Site
Customer’s
Computer
Encrypted
SSL Session
& Digital
Certificate
Verification
Initiated
External
Firewall
Logon Screen
•User ID
•User Password
B of A
Web Server
Internal
B of A
Firewall Application
Server
Bank of America Security System
© Prentice Hall, 2000
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Cyberbanking and Personal Finance (cont.)
Using the Extranet
Imaging Systems
Pricing Online Vs. Offline Services
The Future of Banking
building alliances quickly with banks, and
software vendors, and information providers
effective outsourcing without neglecting to build
in-house skills, particularly with respect to
customer information systems
focusing on the profitable customers to provide
broad channels for services and products
keeping a central role in the payment
environment © Prentice Hall, 2000
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Alternative Strategies for Banking
Customers’ Agents—
banks unable to achieve economies of scale
Offer customers the widest possible choices, including products
from multiple sources, and provide the customers with integrated
information services
Product Manufacturers—
banks able to achieve economies of
scale
It will strengthen a trend that can already be seen in a number of
product segments and in core processing services for small and
medium sized institutions
Integrated Players—
banks with a strong brand and position from
manufacturing to delivery
Many banks will adopt a hybrid strategy, but every player needs
to make crucial decisions about which areas are strategically too
risky to outsource and which capabilities need to be built up inhouse
© Prentice Hall, 2000
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Billing Online
Automatic transfer of mortgages
This method has existed for several years. The
payer authorizes its bank to pay the mortgage,
including tax escrow payments.
Automatic transfer of funds to pay monthly
utility bills
As of fall 1997, the city of Long Beach has
allowed its customers to pay their gas and water
bills automatically form their bank accounts.
In 1999, many utility companies worldwide,
including those in Hong Kong, allow customers to
pay from bank accounts, or ATMs.
© Prentice Hall, 2000
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Billing Online (cont.)
Paying bills from online banking account
Such payments can be made into any bank
account. Many people pay their monthly rent and
other bills directly into the payee’s bank
accounts.
Bill Consolidator
Billers
Phone
Credit Card
Utility
Consumer
© Prentice Hall, 2000
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Billing Online (cont.)
A merchant-to-customer direct billing
Under this model, a merchant like American Express
posts bills on its Web site, where customers can
view and pay them . This means that the customers
have to go to many Web sites to pay all their bills.
Several utilities in Los Angeles allow customers to
pay bills on the utilities’ Web site, charging
customers 20 cents per transaction, which is less
than the price of a postage stamp.
© Prentice Hall, 2000
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Billing Online (cont.)
Using an intermediary
According to this model, a third party like
MSFDS (Microsoft and First Data Corporation)
consolidates all bills related to each customer in
one site, and in a standard format. Collecting a
certain commission, this intermediary makes it
convenient both for the payee and payer to
complete transactions. This model is of interest
to vendors such as E*Trade, and Intuit.
Personal finance online
Available from many banks and other financial
institutions, frequently free of charge.
© Prentice Hall, 2000
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Auctions: From Theory to Practice
Used when the conventional marketing
channels are ineffective or inefficient
Offer trading opportunities for both buyers and
sellers which are not available in the
conventional channels
Internet provides much cheaper infrastructure
with many more involved sellers and buyers
Individual consumers and corporations alike can
participate in this rapidly growing and very
convenient form of electronic commerce
© Prentice Hall, 2000
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Auctions: From Theory to Practice (cont.)
Types of Auctions
Auction
Type
Co-ordination
Mechanism
Price
Discovery
Buyer
Role
Short term acquisition
of resources, e.g. for
demand peaks, auction
as a mechanism to
achieve an equilibrium
Supplier
Role
Short term allocation of Exposing items for
resources, load balance sale to a sufficient
breadth of demand,
hope for a high price
Auctioneer/ Often electronic auction
Intermedi- without auctioneer
ary
Role
Allocation
Mechanism
Often experts/
Bargain hunting,
professional collectors gambling motive
trying to acquire rare
items at a reasonable
price
Achieve high breadth
and depth of the
auctions, high trading
volume results in high
returns, competitive
advantage over other
auctions
Distribution
Mechanism
Bargain hunting,
gambling motive;
possible side motive:
charity
Clearance of
inventory
Attention, direct
sales channel, public
relations; possible
side motive: charity
Achieve high breadth
and depth of the
auctions, high trading
volume results in high
returns, competitive
advantage over other
auctions
Limited role because
of 1:n supplier buyer relation;
possible function as
service provider for
the supplier side
© Prentice Hall, 2000
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Auctions: From Theory to Practice (cont.)
Limitations of traditional auctions
Last only a few minutes for each item sold
Give buyers little time to make a decision
The bidders do not have much time to
examine the goods
Exclude many potential bidders
May be complicated for sellers to move
goods to the auction site
Commissions are fairly high (rent,
advertising, auctioneer and other employees)
© Prentice Hall, 2000
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Auctions: From Theory to Practice (cont.)
Electronic Auctions
Early auctioning done on local area networks
the auctioning of pigs in Taiwan and Singapore
the auctioning of flowers in Holland
the auctioning of cars in Japan
 Auctions on the Internet started in 1995
similar to offline auctions, except for the fact that they are
done on a computer
some last days, others a short time
detailed information is available
start bidding by sending e-mail or filling out an electronic
form
names of bidders are kept coded to maintain privacy
© Prentice Hall, 2000
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Auctions: From Theory to Practice (cont.)
Electronic Auctions
Auctioning methods
Yankee method
Dutch (Reverse bidding) method
“Straight sale” method
 Examples
www.usaweb.com/auction.html ; a directory of
sites, search
Onsale, eBay, uBid
© Prentice Hall, 2000
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Auctions: From Theory to Practice (cont.)
Benefits and Limitations
Benefits
For seller
• Sells goods efficiently
• Sells goods with little action
or effort
• Creates a greater range of
potential buyers
• Sells excess inventories
quickly via this process
For buyers
Limitations
Inability to
physically see the
items
Possibility of
fraud
Less competitive
atmosphere may
prevail on the Net
• Gets a huge variety of goods
• Finds quality goods for largely
discounted prices
© Prentice Hall, 2000
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Impacts
Parameter
Impact of the Web
Auctioneer
Lower entry barriers, opportunity for direct sales
Access rules
Customizable, theoretically millions of potential customers
can be reached
Items
auctioned
Focused product segments can be auctioned off, the
technology extends the complexity of the product
description
Trading rules
The trading rules reflect the lack of a guaranteed service
Execution
process
For digital products the entire trading cycle can be
handled on the Web; for physical products the trading
process and the physical logistics of the trade objects can
be separated, leading to a reduction of costs
© Prentice Hall, 2000
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Online Publishing
The electronic delivery of newspapers,
magazines, news, and other information
through the Internet
Online Publishing Today and Tomorrow
Today— mainly used for disseminating
information and for conducting sales
transactions interactively
Tomorrow— include more customized material
that the reader will receive free, or will pay for
© Prentice Hall, 2000
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Online Publishing (cont.)
Publishing Modes
newspapers, magazines, news, textbooks,
music, artwork, video clips, and movies
Publishing Methods
online archive approach— a digital archive such
as library catalogs and bibliographic databases
new medium approach— add extra
comprehensiveness to any issue or topic
publishing intermediation approach— an online
directory for news services
dynamic or just-in-time approach— create
content in real-time and transmitted on the fly
© Prentice Hall, 2000
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Knowledge Dissemination
Virtual Teaching and Universities
Many universities are offering limited courses
and degrees but use innovative teaching
methods and multimedia support
MBA program in Hong Kong
lectures are delivered as an interactive TV (iTV)
students can decide what and when they want to
‘attend’ the lecture
lecture, support material, exercises etc. are
provided on the Web
© Prentice Hall, 2000
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Knowledge Dissemination (cont.)
Online Consulting
Medical advice— provide consultation with top
experts
Management consulting— provide accumulated
expertise from knowledge bases
Legal advice— delivery of legal consultation services
to business has considerable prospects
Financial advice— offer extensive financial advice
Other service online
insurance, healthcare, future exchanges,
matchmaking, venture capital, finding a college, digital
delivery of documents, and electronic stamps
© Prentice Hall, 2000
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The Impact on Intermediaries and
Their Changing Roles
Change the role of agents to :
Assist in comparison shopping from
multiple sources
Providing total solutions by combining
services from several vendors
Providing certifications and trusted third
party control and evaluation systems
© Prentice Hall, 2000
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The Impact on Intermediaries and
Their Changing Roles (cont.)
Issues that could impact the future of the
intermediaries
The success of intelligent agents— In addition to
the travel intelligent agents, there are agents to
support job matching and to interpret resumes.
The more intelligent the software agents will be,
the less you will need human agents.
Customer attitudes and behavior are important—
If you have good experience with online
insurance or stock purchasing, or with virtual
travel agencies would you ever return to use a
human agent?
© Prentice Hall, 2000
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The Impact on Intermediaries and
Their Changing Roles (cont.)
New roles of electronic marketing intermediaries
To extend what we are familiar with in physical
markets to the virtual world (e.g., search services
and electronic malls)
To extend payment clearing functions into the
Internet (e.g. electronic cash and digital credit card
services)
© Prentice Hall, 2000
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Managerial Issues
Effectiveness of out-of-town recruitment
Privacy may be in danger
International legal issues may impact services
more than products
Ethical issues are prevalent in services
The intermediaries and their roles are changing
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