Chapter 10

E-commerce, Digital Markets, Digital Goods

Why E-commerce is different?

Eight Unique Features of E-commerce

1. Ubiquity- internet/web is available anytime, everywhere
Effects:
a. Marketplace becomes marketspace (no physical location)
b. Enhanced customer convenience
c. reduced shopping costs
2. Global reach- the technology is worldwide
Effects:
a. Commerce (trade) across any nationalities or cultures
b. Marketspace includes billions of consumers and millions of businesses worldwide
3. Universal standards- only Internet standards are used
Effects:
a. Disparate (different) computer systems easily communicate with each other
b. Lower market entry costscosts merchants must pay to bring goods to market
c. Lower consumers search costseffort required to find suitable products
4. Richness- supports video, audio, and text messages
Effects:
a. Can deliver rich messages with text, audio, and video to large numbers of people at the same time
b. Video, audio, and text marketing messages can be combined to make one marketing message
5. Interactivity- the user can interact with internet
Effects:
a. Consumers can actively engage in dialogs about products or services
b. Consumer becomes co-participant in process of delivering goods to market
6. Information density- amount and quality of information available to market increases (dense)
Effects:
a. Greater price transparency
b. Greater cost transparency
c. Enables merchants to engage in price discrimination (telling which price is better)
7. Personalization/Customization -technology permits user to modify his/her messages, goods
Effects:
a. Personalized messages can be sent to individuals as well as groups
b. Products and services can be customized to individual preferences
c. Street journal allows customization of news you want to read
8. Social technology- the technology promotes social networking and user content generation (you can create your own
content)
Effects:
a. New internet models enable user content creation and distribution, and support social networks
b. The conventional -> one to many; at a centralized place; but e-commerce -> many to many; social networks
Key concepts in e-commerce
1. Digital markets reduce
a. Information asymmetry (inaccurate information)
b. Search costs
c. Transaction costs (135% of the original cost to manufacturer)
d. Menu costs (cost of information) -> updating computer systems, re-tagging items, hiring consultants to develop
new pricing
strategies, and costs of printing menus
2. Digital markets enable
a. Price discrimination- to tell which price is better
b. Dynamic pricing- a user can ask for discounts/lower the price
c. Disintermediation- no need for agents to sell the product to you

3. Digital goods
a. Goods that can be delivered over a digital network
E.g. Music tracks, video, software, newspapers, books
b. Cost of producing first unit almost entire cost of product: marginal cost of 2nd unit is about zero
c. Costs of delivery over the Internet very low
d. Dynamic pricing is possible
Types of e-commerce
1. Business-to-consumer (B2C)
2. Business-to-business (B2B)
3. Consumer-to-consumer (C2C)
4. Mobile commerce (m-commerce)
E-commerce business models
1. Portal Google, Yahoo, MSN, Bing
2. E-tailer Amazon
3. Content Provider Podcasting , streaming, Deep eye view.
4. Transaction Broker Sites that process transactions for consumers; Travel agencies.
5. Market Creator build a market where sellers and buyers meet; E-bay, Amazon (in a specific portion on the website) will
keep some fees for the books read on Kindle, royalty goes to author.
6. Service Provider SaaS
7. Community Provider
E-commerce revenue models
1. Advertising
2. Sales
3. Subscription
4. Free/Freemium
5. Transaction Fee
6. Affiliate
E-commerce marketing- Internet provides marketers with new ways of identifying and communicating with customers
-Advertising formats include search engine marketing, display ads, rich media, and e-mail
1. Long tail marketing: Ability to reach a large audience inexpensively
2. Behavioral targeting: Tracking online behavior of individuals on thousands of Web sites

Business-to-business e-commerce
1. Electronic data interchange (EDI)- computer-to-computer exchange of std transactions such as invoices, purchase orders
2. Private networks- Large firm using extranet to link to its suppliers, distributors and other key business partners
Owned by buyer and permits sharing of:
Product design and development
Marketing
Production scheduling and inventory management
Unstructured communication (graphics and e-mail)
3. Net marketplace (hub)- a site that enables communities of buyers and sellers to meet on the Internet and to conduct trade
Single market for many buyers and sellers
Industry-owned or owned by independent intermediary
4. Exchanges- World Wide Web site where goods and services can be bought from a wide range of suppliers.
Independently owned third-party Net marketplaces
Connect thousands of suppliers and buyers for spot purchasing (purchase of good for one year)
M-commerce (B2C)
Although m-commerce represents small fraction of total e-commerce transactions, revenue has been steadily
growing
Location-based services use GPS to offer services; point your camera and get details superimposed on the picture
Banking and financial services
Wireless advertising and retailing -> Yahoo displays ads of products
Games and entertainment