TOPIC 2: E-marketplaces: Economics, Competition
and Competitive Advantage Strategies
2-1
2.1 E-marketplaces and their components.
2.2 Types of E-marketplaces and their features.
2.3 Intermediaries in EC and their roles.
2.4 Electronic catalogs and other market mechanisms
2.5 Auctions, bartering and negotiating online.
2.6 EC in the Wireless Environment: M-Commerce
2.7 Liquidity, quality and success factors in e-marketplaces
2.8 The economic impact of EC.
2.9 Competition and strategies in the digital economy
2.10 Impact of E-markets on business and organisations.
Module: Competing in the Network Economy
2-2
2.1: Marketplaces
• Markets (electronic or otherwise) have three main
functions:
– Matching buyers and sellers
– Facilitating the exchange of information, goods, services,
and payments associated with market transactions
– Providing an institutional infrastructure, such as a legal
and regulatory framework, that enables the efficient
functioning of the market
Module: Competing in the Network Economy
2-3
2.1: Electronic Marketplaces
• Electronic marketplaces (e-marketplaces or
marketspaces), changed several of the processes used
in trading and supply chains
– Greater information richness
– Lower information search costs for buyers
– Diminished information asymmetry between sellers and
buyers
– Greater temporal separation between time of purchase
and time of possession
– Greater temporal proximity between time of purchase
and time of possession
– Ability of buyers and sellers to be in different locations
Module: Competing in the Network Economy
2-4
2.1: Marketspace
• Marketspace
– A marketspace is an electronic marketplace in
which sellers and buyers exchange goods and
services for money (or for other goods and
services).
– While traditional marketplaces are constrained
by their physical locations, marketspaces use
technology to eliminate this constraint (by being
online)
Module: Competing in the Network Economy
2-5
2.1: Marketspace Components
• Customers (most important)
• Sellers
• Products and services,
including
– digital products: goods
that can be transformed
into digital format and
delivered over the Internet,
e.g., e-books, software,
graphics, video clips, etc.
• Infrastructure
• Other business partners
• Front end
– e-seller’s business processes
through which customers
interact, eg. seller’s portal &
e-catalogs
• Back end
– activities that support online
order-taking
• Intermediaries
– Third party that operates
between sellers & buyers
• Support services
Module: Competing in the Network Economy
2-6
Module: Competing in the Network Economy
2-7
2.2: Storefronts
• Electronic storefront:
– A single company’s Web site
where products and services
are sold.
• Most common mechanisms
necessary for conducting
the sale:
–
–
–
–
–
electronic catalog
search engine
electronic cart
e-auction facilities
payment gateway
Module: Competing in the Network Economy
2-8
2.2: Storefronts
• Online Mall (e-mall)
– An online shopping center where many stores
are located
• Types of Stores and Malls
–
–
–
–
General stores/malls
Specialised stores/malls
Regional or global stores
Pure online stores or click-and-mortar stores
Module: Competing in the Network Economy
2-9
2.2: Types of E-Marketplaces
• e-marketplace:
– An online market, usually B2B, in which buyers and
sellers exchange goods or services; the three types
of e-marketplaces are private, public, and consortia
• Private e-marketplaces:
– Online markets owned by a single company; can be
either sell-side or buy-side e-marketplaces
• Sell-side e-marketplace:
– A e-marketplace in which a company sells either
standard or customised products to qualified
companies
Module: Competing in the Network Economy
2-10
2.2: Types of E-Marketplaces
• Buy-side e-marketplace:
– A e-marketplace in which a company makes
purchases from invited suppliers
• Public e-marketplaces:
– B2B marketplaces, usually owned and/or managed
by independent third parties, that include many
sellers and many buyers; also known as exchanges
• Consortia:
– E-marketplaces owned by a small group of large
vendors, usually in a single industry
Module: Competing in the Network Economy
2-11
2.2: Information Portals
• Information Portal:
– A single, personalised online point of access (through a
Web browser) to business information inside an
organisation.
• Six Types of Portals
–
–
–
–
–
–
Commercial (public) portals - most popular and diverse
Corporate portals
Publishing portals
Personal portals
Mobile portals: a portal accessible via a mobile device
Voice portals: a portal accessed by telephone or cell phone.
Module: Competing in the Network Economy
2-12
2.3: Intermediation in E-Commerce
• Intermediaries (brokers) provide value-added activities
and services to buyers and sellers, such as wholesalers
and retailers
• Infomediaries:
– Electronic intermediaries that control information flow in
cyberspace, often aggregating information and selling it to
others
• Roles and value of intermediaries in e-markets
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–
–
–
–
Reduce search costs
Increase or create privacy
Provide more complete information
Reduce contract risk
Reduce pricing inefficiencies
Module: Competing in the Network Economy
2-13
2.3: Intermediation in E-Commerce
• e-distributor:
– An e-commerce intermediary that connects
manufacturers (suppliers) with buyers by aggregating
the catalogs of many suppliers in a single location - the
intermediary’s Web site
• Disintermediation:
– Elimination of intermediaries between sellers and
buyers
• Reintermediation:
– Establishment of new intermediary roles for traditional
intermediaries that were disintermediated
Module: Competing in the Network Economy
2-14
Case Study: Diamonds Forever—Online
• The age-old business of gem buying is very inefficient:
– Several layers of intermediaries can jack up the price of
a gem 1,000% between wholesale and final retail prices.
• American Don Kogen made his fortune in Chanthaburi
(Thailand) - one of the world’s leading centers for
processing gems
• He started by purchasing low-grade gems from sellers
that arrived early in the morning and then selling them
for a small profit to dealers who arrived late in the day
• This quick turnover of inventory helped him build up
his capital resources
• He reached the U.S. gem market using advertising.
Module: Competing in the Network Economy
2-15
Case Study: Diamonds Forever—Online
• Using faxes, he shortened the order time
• In 1998, Kogen decided to use the Internet establishing thaigem.com and sold his first gem online
• By 2001, the revenue from his online business reached
$4.3 million, and it more than doubled (to $9.8 million)
in 2002
• Online sales account for 85 percent of the revenue
• The buyers are mostly dealers or retailers such as WalMart or QVC
Module: Competing in the Network Economy
2-16
Case Study: Diamonds Forever—Online
• He buys raw or refined gems from all over the world,
some online, catering to the demand of his customers
• Thaigem’s competitive edge is low prices
• The proximity to gem processing factories and the low
labour cost enable prices significantly lower than his
online competitors.
• Unsatisfied customers can return merchandise within
30 days, no questions asked
• Delivery to any place in the world is made via Federal
Express, at about $15 per shipment.
Module: Competing in the Network Economy
2-17
2.4: Electronic Catalogs
• Electronic catalogs:
– The presentation of product information in an electronic
form; the backbone of most e-selling sites.
– They consist of a product database, a directory with search
capabilities, and a presentation function.
• Electronic catalogs can be classified by the following
dimensions:
– The dynamics of the information presentation
– The degree of customisation
– Integration with business processes
• Customised catalogs
– A catalog assembled specifically for a company, usually a
customer of the catalog owner
Module: Competing in the Network Economy
2-18
Module: Competing in the Network Economy
2-19
2.4: E-Catalogs, Search Engines & Shopping Carts
• Search engine
– A computer program that can access a database of
Internet resources, search for specific information or
keywords, and report the results
• Software (intelligent) agent:
– Software that can perform routine tasks that require
intelligence
• Electronic shopping cart:
– An order-processing technology that allows customers to
accumulate items they wish to buy while they continue
to shop
Module: Competing in the Network Economy
2-20
Case Study: Electronic Catalogs at Boise Cascade
• Boise Cascade Office Products
– $4-billion office products wholesaler customer base includes
over 100,000 large corporate customers and 1 million small
ones
– 900-page paper catalog used to be mailed to customers once
each year
– Boise also sent mini-catalogs tailored to customers’
individual needs based on past buying habits and purchase
patterns
• In 1996, the company placed its catalogs online
– Customers view the catalog at boiseoffice.com and can order
straight from the site or submit orders by e-mail
– The orders are shipped the next day
– Customers are then billed
Module: Competing in the Network Economy
2-21
Case Study: Electronic Catalogs at Boise Cascade
• In 1997, the company generated 20 percent of its sales
through the Web site
• Now the process of producing a Web catalog that is
searchable, rich in content, and available in a variety of
formats takes only 1 week
• One major advantage of customised catalogs is pricing
• Boise estimates that electronic orders cost
approximately 55 percent less to process than paperbased orders
Module: Competing in the Network Economy
2-22
2.5: Auctions
• Auction:
– A market mechanism by which a seller places an offer to sell
a product and buyers made bids sequentially and
competitively until a final price is reached.
• Auctions can be done:
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online
off-line
at public sites (eBay)
at private sites (by invitation)
Module: Competing in the Network Economy
2-23
2.5: Auctions
• Electronic auction (e-auction):
– Traditional auctions are limited by the short duration of the
auction itself and the physical location of the auction.
– Electronic auctions (conducted online) can occur over greater
time periods and are not limited by location since they take
place in electronic marketspaces.
• Dynamic pricing
– Prices that change based on supply and demand relationships
at any given time
– Dynamic pricing has the advantage of being constantly
updated and moving towards the true market price.
– The disadvantages: its constant variability and possibility that
the market price is below the sellers expected price.
Module: Competing in the Network Economy
2-24
2.5: Auctions
• Types of auctions:
– One buyer-one seller
– On seller-many buyers
• Forward auctions used for fast liquidation and as a selling
channel. Price is increasing; the highest bidder wins.
(Forward auction: An auction in which a seller entertains
bids from buyers).
– One buyer-many potential sellers
• Reverse auction (bidding or tendering system) in which
the buyer places an item for bid (tender) on a request for
quote (RFQ) system, potential suppliers bid, with price
reducing sequentially, and the lowest bid wins; primarily a
B2B or G2B mechanism
Module: Competing in the Network Economy
2-25
2.5: Auctions
• Types of auctions (cont’d):
– One buyer-many sellers (special mode)
• “name-your-own-price” model:
– An auction model in which a would-be buyer specifies the
price (and other terms) they are willing to pay to any
willing and able seller.
– It is a C2B model, pioneered by Priceline.com
– Many buyers-many sellers
• Double auction:
– Auctions in which multiple buyers and their bidding prices
are matched with multiple sellers and their asking prices,
considering the quantities on both sides.
Module: Competing in the Network Economy
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Module: Competing in the Network Economy
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2.5: Auctions: Benefits to Buyers, Sellers & Auctioneers
• Auctions provide several advantages to buyers because they
allow them to purchase goods from a wide variety of sellers
without the constraint of time or place.
• The wide variety of different auctions styles meets the needs of a
wide variety of different purchasers.
• Auctions benefit sellers by allowing them to sell to a huge
potential marketplace not constrained by time or place.
– Additionally, it allows them to sell goods that may only have a very small
target market.
– Sellers are able to sell their goods at the prevailing global market price.
• Auctioneers benefit from auctions because it provides a business
model that allows their firms to stay in business.
– They are able to benefit from usage by both buyers and sellers.
Module: Competing in the Network Economy
2-28
2.5: Auctions: Limitations and Impacts
• Limitations of e-auctions
– Lack of security
– Possibility of fraud
– Limited participation
• Impacts of auctions
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Auctions as a coordination mechanism
Auctions as a highly visible distribution mechanism.
Auctions as a component in e-commerce
By bringing together many potential buyers in a given
location, online auctions provide the liquidity necessary to
create a marketplace for unique items.
Module: Competing in the Network Economy