The Digital Firm: Electronic Business and Electronic Commerce

1
The Digital Firm Electronic Business and
Electronic Commerce
Chapter 4
2
Objectives

• How has Internet technology changed value
  propositions and business models?
• What is electronic commerce? How has electronic
  commerce changed consumer retailing and
  business-to-business transactions?
• What are the principal payment systems for
  electronic commerce?

3
Objectives

• How can Internet technology facilitate management
  and coordination of internal and
  interorganizational business processes?
• What are the major managerial and organizational
  challenges posed by electronic business and
  electronic commerce?

4
Management Challenges

• Digitally integrating the enterprise requires a
  complete change of mind-set.
• Finding a successful Internet business model.

5
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
Internet Technology and the Digital Firm

• The Internet
• Rapidly becoming infrastructure of choice
• Universal, easy-to-use set of technologies and
  standards
• Web sites available 24/7
• Extended distribution channels
• Reduced transaction costs
• Reduced network and coordination costs

6
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Past Information about products and services
  bundled with their physical value chain
• Today The Internet has unbundled information
  from traditional value chain, creating new
  business models

7
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Information Asymmetry
• One party has more information essential to the
  transaction than the other party
• The Internet shrinks information asymmetry
• How this affects to the industry?

8
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Richness and Reach
• Richness depth and detail of information
• Reach how many people a business can connect
  with how many products offered those people
• Internet allows much richer communication with
  farther reach

9
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
The changing economics of information
Trade off
Figure 4-1
10
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Internet Business Models
• Virtual storefront Sells physical products
  directly to consumers or businesses. Amazon.com
• Information broker Provides product pricing and
  availability information generates revenue from
  advertising or directing buyers to sellers.
  Kbb.com
• Transaction Broker Processes online sales
  transactions for fee. ETRADE.com, Expedia.com

Table 4-2
11
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Internet Business Models
• Online Marketplace Provides digital environment
  where buyers and sellers meet, Auctions or
  reverse auctions eBay.com, Priceline.com
• Content Provider Provides digital content, such
  as news revenue from fees or advertising sales
  CNN.com, WSJ.com, MP3.com
• Online Service Provider Provides connectivity
  revenue from fees, advertising, or marketing
  information Xdrive.com, _at_Backup.com

12
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions

• Internet Business Models (cont.)
• Virtual Community Provides online meeting place
  for people of similar interests Motocross.com,
  iVillage.com
• Portal Provides initial point of entry to the
  Web, along with specialized content and services
  Yahoo.com, MSN.com
• Syndicator aggregates content or applications to
  resell as package to third-party Web sites

Pure-play vs. clicks-and-motar
13
Electronic Commerce
Categories of Electronic Commerce

• Business-to-consumer (B2C) Retailing products
  and services to individual shoppers
  BarnesNoble.com
• Business-to-business (B2B) Sales of goods and
  services among businesses Milacron Inc. Web
• Consumer-to-consumer (C2C) Consumers selling
  directly to consumers eBay.com

14
Electronic Commerce
Customer-Centered Retailing

• Direct Sales Over the Web
• Disintermediation Removal of intermediary steps
  in a value chain, selling directly to consumers,
  significantly lowers purchase transaction costs
• Reintermediation Shifting intermediary function
  in a value chain to a new source, such as
  service hubs

Priced as high as 135 of its original cost to
manufacture
15
Electronic Commerce
The benefits of disintermediation to the consumer
Figure 4-2
16
Electronic Commerce
Customer-Centered Retailing

• Interactive Marketing and Presentation
• Collection of customer information using Web site
  auditing tools less expensive than surveys and
  focus groups
• Web personalization technology customizes content
  on Web site to individuals profile and purchase
  history one-to-one marketing
• Web sites and marketing shorten sales cycle and
  reduce time spent in customer education

17
Electronic Commerce
Web site personalization
Amazon.com Bluefly.com
Figure 4-3
18
Electronic Commerce
Customer-Centered Retailing

• Customer Self-Service
• Web-based responses to customer questions cost a
  fraction of telephone costs for live customer
  service representation
• Web-based customer self-service applications,
  such as airline flight information sites
• Traditional, phone-based customer call centers
  being integrated with Web

aa.com, UPS.com
19
Electronic Commerce
Window on Technology

• Lightnin Lights Up with the Internet
• What are the benefits of using Web-based order
  configuration software?
• How does this system provide value to Lightnin
  and its customers?

20
Electronic Commerce
Before-after diagram of changes in Lightnins
ordering process
Figure 4-4
21
Electronic Commerce
Business-to-Business Electronic Commerce

• Web, Internet streamlining procurement process
• E-procurement eliminates inefficient, paper-based
  processes
• Selling through Web sites, private industrial
  networks, or Net marketplaces

22
Electronic Commerce
Business-to-Business Electronic Commerce

• Private Industrial Network
• Private exchange typically consists of large
  firm using extranet to link to its suppliers and
  business partners
• Permits firm and partners to share product
  design, development, marketing, scheduling,
  inventory management, and unstructured
  communication
• Fastest-growing type of B2B commerce

23
Electronic Commerce
A private industrial network
Figure 4-5
24
Electronic Commerce
Business-to-Business Electronic Commerce

• Net Marketplace
• E-hub provides single Internet-based marketplace
  for many different buyers and sellers
• Industry owned or independent intermediaries
• Transaction oriented generates revenue from
  purchase and sales transactions and other services

Covisint.com, Ariba.com
25
Electronic Commerce
A Net marketplace
Figure 4-6
26
Electronic Commerce
Business-to-Business Electronic Commerce

• Exchanges
• Third-party Net marketplaces connecting thousands
  of suppliers and buyers for spot purchasing
• Proliferated during early years of e-commerce
• Exchanges encouraged competitive bidding, driving
  prices down suppliers reluctant to participate

FoodTrader. com
27
Electronic Commerce
Electronic Commerce Payment Systems

• Digital credit card payment systems Secure
  credit card payment over Web
• Digital wallet Stores credit card and owner
  identification, shipping information, to
  facilitate payment process
• Accumulated balance digital payment systems
  Accumulates micropayment purchases as debit
  balance paid periodically on credit card or
  telephone bills

PaymentOne.com, Trivnet.com
28
Electronic Commerce
Electronic Commerce Payment Systems

• Stored value payment system Enables consumers
  to make instant payments based on value stored in
  digital account
• Digital cash Digital currency that can be used
  for micropayments or larger purchases
• Client software to exchange money with other
  e-cash users
• Peer-to-Peer payment systems Enables payments to
  vendors who do not set up for credit-card
  payments

Ecount.com, RocketCash.com
eCoin.net, Smart Card
PayPal.com
29
Electronic Commerce
Electronic Commerce Payment Systems

• Digital checking Electronic check with secure
  digital signature
• Electronic billing presentment and payment
  system Supports electronic payment for online
  and physical store purchases after purchase has
  taken place, Routine monthly bills

eCheck.org
30
Electronic Commerce
Electronic commerce information flows
Figure 4-7
31
Electronic Business and the Digital Firm
How Intranets Support Electronic Business

• Connectivity accessible from most platforms
• Can be tied to internal corporate systems and
  core transaction data
• Can create interactive applications with text,
  audio, and video

32
Electronic Business and the Digital Firm
How Intranets Support Electronic Business

• Scalable to larger or smaller computing platforms
  as requirements change
• Easy to use, universal Web interface
• Low start-up costs
• Rich, responsive information environment
• Reduced information distribution costs

33
Electronic Business and the Digital Firm
Intranet Applications for Electronic Business

• Finance and Accounting Integrated view of
  financial and accounting information online
• Human Resources Rapid delivery of information to
  employees online publishing
• Sales and Marketing Collaborative place to
  coordinate activities of sales force
• Manufacturing and Production Distribute
  manufacturing information to different parts of
  organization

34
Electronic Business and the Digital Firm
Functional applications of intranets
Figure 4-8
35
Electronic Business and the Digital Firm
Business Process Integration

• Pre-Internet, integration costly and difficult
• Internet technology less expensive than building
  enterprise systems
• Intranets improve coordination among internal
  business processes
• Extranets coordinate processes shared with
  customers and partners
• Intranet promotes collaborative commerce

36
Management Challenges and Opportunities
Business Process Change Requirements

• Unproven business models
• Business process change requirements
• Channel conflicts
• Legal issues
• Trust, security, and privacy

37
Electronic Business and the Digital Firm
Window on Organizations

• Can Online Brokers Survive in Europe?
• Is providing online financial services over the
  Internet a viable business model? Why or why not?

38
Chapter 4 Case Study
Can the Music Industry Change Its Tune?

• Apply the value chain and competitive forces
  models to the music recording industry.
• What role did the Internet play in changing value
  propositions and the competitive environment? To
  what extent has it been responsible for declining
  CD sales? Explain your answer.

39
Chapter 4 Case Study
Can the Music Industry Change Its Tune?

• Analyze the response of the music recording
  industry to these changes. What management,
  organization, and technology issues affected this
  response?
• What is the current business strategy of the
  music industry? Do you think it is viable?
  Explain your answer.