Electronic Commerce Ninth Edition

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Electronic CommerceNinth Edition

• Chapter 6Social Networking, Mobile Commerce, and
  Online Auctions

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Learning Objectives

• In this chapter, you will learn about
• Social networking and online business activities
• Using mobile devices to do business online
• Online auctions and auction-related businesses

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From Virtual Communities to Social Networks

• Online Web communities
• Not limited by geography
• Individuals and companies with common interests
• Meet online and discuss issues, share
  information, generate ideas, and develop valuable
  relationships
• Companies make money by serving as relationship
  facilitators
• Combine Internets transaction cost-reduction
  potential with a communication facilitator role

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Virtual Communities

• Virtual community (Web community, online
  community)
• Gathering place for people and businesses
• No physical existence
• Early virtual communities
• Bulletin board systems (BBSs)
• Revenue source monthly fees and selling
  advertising
• Usenet newsgroups
• Message posting areas on usenets

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Virtual Communities (contd.)

• Current forms
• Web chat rooms
• Sites devoted to specific topics or general
  exchange of information, photos, videos
• People connect and discuss common issues,
  interests
• Considerable social interaction
• Relationship-forming activities
• Similar to physical communities

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Early Web Communities

• 1985 WELL (whole earth lectronic link)
• Monthly fee to participate in forums and
  conferences
• 1999 bought by Salon.com
• 1995 Beverly Hills Internet virtual community
  site
• Offered webcams, free Web site space
• Grew into GeoCities
• Revenue source advertising, pop-up pages
• 1999 purchased by Yahoo! (5 billion)
• Closed in 2009

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Early Web Communities (contd.)

• 1995 Tripod virtual community
• Offered free Web page space, chat rooms, news,
  weather updates, health information pages
• Revenue source sold advertising
• 1995 Theglobe.com Cornell University class
  project
• Included bulletin boards, chat rooms, discussion
  areas, personal ads
• Added more features
• Revenue source sold advertising
• Most early Web community businesses closed

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Social Networking in the Second Wave of Online
Communities

• As the Internet and Web grew
• Experience of sharing new online communication
  faded
• New phenomenon in online communication began
• Multiple common bonds joined people with all
  types of common interests
• Social networking sites
• Allow individuals to create and publish a
  profile, create a list of other users with whom
  they share a connection (or connections), control
  that list, and monitor similar lists made by
  other users

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Social Networking in the Second Wave of Online
Communities (contd.)

• Social networking sites
• Six Degrees (1997)
• Friendster (2002)
• Had features found in todays social networking
  sites
• LinkedIn devoted to business connections
• Tribe.net
• YouTube popularized video inclusion
• MySpace popular with younger Web users
• Twitter
• Users can send short messages to other users who
  sign up to follow their messages (tweets)

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Social Networking in the Second Wave of Online
Communities (contd.)

• Basic idea behind social networking
• People invited to join by existing members
• Site provides directory
• New members work through friends established in
  the community

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FIGURE 6-1 Social networking Web sites
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Social Networking in the Second Wave of Online
Communities (contd.)

• Web logs (Blogs)
• Web sites containing individual commentary on
  current events or specific issues
• Form of social networking site
• Encourages interaction among people
• Visitors add comments
• Early blogs focused on technology topics
• 2004 blogs used as political networking tool
• 2008 all major candidates using blogs
• Communicating messages, organizing volunteers,
  raising money, meetups

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Social Networking in the Second Wave of Online
Communities (contd.)

• Retailers embracing blogs to engage site visitors
• Bluefly.com online discount apparel retailer
• Flypaper blog
• Ice.com online jeweler
• Blogs may encourage potential customers to visit
  online store
• Business uses
• CNN
• Blog information included in television newscasts

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Social Networking in the Second Wave of Online
Communities (contd.)

• Business uses (contd.)
• Newspapers
• Inviting information and opinion contributions
• Targeting 18- to 35-year-old generation
• Participatory journalism
• Trend toward having readers help write the online
  newspaper
• Blogs can become businesses in themselves
• Must generate financial support (fees,
  advertising)

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Social Networking in the Second Wave of Online
Communities (contd.)

• Social networking Web sites for shoppers
• Social shopping
• Practice of bringing buyers and sellers together
  in a social network to facilitate retail sales
• Example craigslist
• Operated by not-for-profit foundation
• All postings free (except help wanted ads)
• Example Etsy Web site
• Marketplace for selling handmade items
• We Love Etsy Etsy buyers, sellers share
  information

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Social Networking in the Second Wave of Online
Communities (contd.)

• Social networking Web sites for shoppers
  (contd.)
• Social networking sites form communities based on
  connections among people
• Idea-based virtual communities
• Communities based on connections between ideas
• Idea-based networking
• Participating in idea-based virtual communities
• Examples del.icio.us site, 43 Things site

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Social Networking in the Second Wave of Online
Communities (contd.)

• Virtual learning networks
• Distance learning platforms for
  student-instructor interaction (Blackboard)
• Tools include
• Bulletin boards, chat rooms, drawing boards
• Moodle and uPortal
• Open-source software projects devoted to virtual
  learning community development
• Open-source software
• Developed by a programmer community
• Software available for download at no cost

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Social Networking in the Second Wave of Online
Communities (contd.)

• Web portals
• Combine portal and social networking features
• Typical portal offerings
• Search engines, directories, free e-mail, news
  stories, weather reports
• Social networking elements
• Games and chat rooms
• Allow site visitors to interact with each other
• Examples
• Yahoo!, AOL, MSN

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Revenue Models for Social Networking Sites

• By late 1990s
• Revenue created by selling advertising
• Used by virtual communities, search engine sites,
  Web directories
• 1998
• Purchases and mergers occurred
• New sites still used advertising-only
  revenue-generation model
• Included features offered by virtual community
  sites, search engine sites, Web directories,
  other information-providing and entertainment
  sites
• Goal be every Web surfers doorway to the Web

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Revenue Models for Social Networking Sites
(contd.)

• Advertising-supported social networking sites
• Smaller sites with specialized appeal
• Can draw enough visitors to generate significant
  advertising revenue
• Example I Can Has Cheezburger site
• Recall from Chapter 3
• Sites with higher number of visitors can charge
  more
• Stickiness important element in sites
  attractiveness
• Rough measure of stickiness
• Time user spends at the site

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FIGURE 6-2 Popularity and stickiness of leading
Web sites
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Revenue Models for Social Networking Sites
(contd.)

• Advertising-supported social networking sites
  (contd.)
• Social networking sites
• Members provide demographic information
• Potential for targeted marketing very high
• High visitor counts
• Can yield high advertising rates
• Second-wave advertising fees
• Based less on up-front site sponsorship payments
• Based more on revenue generation from continuing
  relationships with people who use the social
  networking sites

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Revenue Models for Social Networking Sites
(contd.)

• Mixed-revenue and fee-for-service social
  networking sites
• Most social networking sites use advertising
• Some charge a fee for some services
• Examples Yahoo! All-Star Games package, Yahoo!
  premium e-mail service
• Monetizing
• Converting site visitors into fee-paying
  subscribers or purchasers of services
• Concern visitor backlash
• More examples The Motley Fool and TheStreet.com

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Revenue Models for Social Networking Sites
(contd.)

• Fee-based social networking
• Google Answers site
• Early attempt to monetize social networking
• Questions answered for a fee
• Google operated service from 2002 to 2006
• Similar free services
• Yahoo! Answers, Amazon (Askville)
• Uclue (paid researchers earn 75 percent of total
  fee)
• Advocates claim better quality
• Fee-based Web sites can generate revenue by
  providing virtual community interaction

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Revenue Models for Social Networking Sites
(contd.)

• Microlending sites
• Function as clearinghouses for microlending
  activity
• Microlending
• Practice of lending very small amounts of money
• Lend to people starting or operating small
  businesses (especially in developing countries)
• Microlending key element
• Working within social network of borrowers
• Provide support, element of pressure to repay
• Examples Kiva and MicroPlace

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Revenue Models for Social Networking Sites
(contd.)

• Internal virtual communities
• Provide social interaction among organizations
  employees
• Run on organizations intranet
• Save money (less paper)
• Provide easy access to employee information
• Good for geographically dispersed employees
• Adding wireless connectivity
• Combine second-wave technology with first-wave
  business strategy
• Wireless communications with internal Web portals

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Mobile Commerce

• Short messaging service (SMS)
• Allows mobile phone users to send short text
  messages to each other
• 2008 United States developments allowing phones
  as Web browsers
• High-speed mobile telephone networks grew
  dramatically
• Manufacturers offered range of smart phones with
  Web browser, operating system, applications

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Mobile Operating Systems and Applications

• Japan and Southeast Asia mobile commerce
• Much larger online business activity
• Had high-capacity networks early on
• Mobile wallets
• Mobile phones functioning as credit cards
• Japans NTT DoCoMo phones combined capabilities
• Generate significant business

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Mobile Operating Systems and Applications
(contd.)

• United States mobile commerce capabilities began
  in 2008
• Smart phone and high-capacity network
  introductions
• Mobile commerce smart phone examples
• Apple iPhone, Palm Pre, several BlackBerry models
• Use the Android operating system
• Provide serious U.S. mobile commerce for the
  first time

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FIGURE 6-3 Smart phones come in a range of
different styles
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Mobile Operating Systems and Applications
(contd.)

• Mobile commerce browser display options
• Wireless Application Protocol (WAP)
• Allows Web pages formatted in HTML to be
  displayed on devices with small screens
• Display a normal Web page on the device
• Made possible by increased screen resolution
• Example Apple iPhone
• Design Web sites to match specific smart phones
• Much more difficult to accomplish

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Mobile Operating Systems and Applications
(contd.)

• Mobile commerce browser display options (contd.)
• Apple, BlackBerry, Palm
• Use proprietary operating systems
• HTC, Motorola, Nokia
• At one time created their own operating systems
  and software applications
• Now use a standard operating system provided by a
  third party
• Most common third-party operating systems
• Android, Windows Mobile, Symbian

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Mobile Operating Systems and Applications
(contd.)

• Common operating systems emergence
• Occurred due to a change in the way software
  applications developed and sold
• Old U.S. mobile phone company revenue strategy
• Control application software
• Apple turned old revenue strategy on its head
• Apple Apps for iPhone online store
• Independent developers create apps and sell them
• BlackBerry and Palm followed Apples lead

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The Future of Mobile Commerce

• Companies wanting mobile user commerce
• Review Web sites for compatibility
• May create separate Web sites for mobile users
• Mobile phones for online banking
• In early stages in the United States
• Physicians using smart phones
• Phones global positioning satellite (GPS)
  service capabilities
• Allow mobile business opportunities

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Online Auctions

• Business opportunity perfect for the Web
• Auction site revenue sources
• Charging both buyers and sellers to participate
• Selling advertising
• Targeted advertising opportunities available
• Online auctions capitalize on Internets strength
• Bring together geographically dispersed people
  sharing narrow interests

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Auction Basics

• From Babylon to the Roman Empire to Buddhists
• Common activity of 17th century England
• Sothebys (1744), Christies (1766), colonial
  auctions
• Auction seller offering item for sale
• Bids price potential buyer willing to pay
• Bidders potential buyers
• Private valuations amounts buyer willing to pay
• Auctioneer manages auction process
• Shill bidders work for seller or auctioneer
• May artificially inflate price

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Auction Basics (contd.)

• English auctions
• Bidders publicly announce successively higher
  bids
• Item sold to highest bidder (at bidders price)
• Also called ascending-price auction
• Open auction (open-outcry auction)
• Bids publicly announced
• Minimum bid
• Beginning price
• If not met item removed (not sold)

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Auction Basics (contd.)

• English auctions (contd.)
• Reserve price (reserve)
• Sellers minimum acceptable price
• Not announced
• If not exceeded item withdrawn (not sold)
• Yankee auction
• Multiple item units offered for sale (bidders
  specify quantity)
• Highest bidder allotted bid quantity
• Remaining items allocated to next highest bidders
  until all items distributed
• Bidders pay lowest successful bidder price

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Auction Basics (contd.)

• English auctions (contd.)
• Seller drawback
• May not obtain maximum possible price
• Buyer drawback
• Winners curse psychological phenomenon
• Bidder gets caught up in competitive bidding
  excitement
• Bids more than their private valuation

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Auction Basics (contd.)

• Dutch auctions
• Open auction
• Bidding starts at a high price
• Drops until bidder accepts price
• Also called descending-price auctions
• Seller offers number of similar items for sale
• Common implementation
• Use a clock (price drops with each tick)
• Bidders stop clock and take items at the given
  price
• If items remain clock restarted

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Auction Basics (contd.)

• Dutch auctions (contd.)
• Often better for the seller
• Quickly move large numbers of commodity items
• Successful examples
• Google initial public offering stock sale (2004)
• LookSmart stock repurchase

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Auction Basics (contd.)

• First-price sealed-bid auctions
• Sealed-bid auctions
• Bidders submit bids independently
• Prohibited from sharing information
• First-price sealed-bid auction
• Highest bidder wins
• If multiple items auctioned next highest bidders
  awarded remaining items at their bid price

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Auction Basics (contd.)

• Second-price sealed-bid auction
• Same as first-price sealed-bid auction
• Except highest bidder awarded item at
  second-highest bidder price
• Commonly called Vickrey auctions
• William Vickrey 1996 Nobel Prize in Economics
• Findings
• Yields higher seller returns
• Encourages all bidders to bid private valuation
  amounts
• Reduces tendency for bidder collusion

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Auction Basics (contd.)

• Open-outcry double auctions
• Example Chicago Board of Trade auctions of
  commodity futures and stock options
• Buy and sell offers shouted by traders in trading
  pit
• Each commodity, stock option traded in own pit
• Quite frenzied
• Double auctions (either sealed bid or open
  outcry)
• Good for items of known quality traded in large
  quantities
• No item inspection before bidding

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Auction Basics (contd.)

• Double auctions
• Buyers, sellers submit combined price-quantity
  bids
• Auctioneer
• Matches sellers offers
• Starts with lowest price and then goes up
• To buyers offers
• Starts with highest price and then goes down
  until all quantities offered are sold
• Operation format
• Sealed bid or open-outcry
• Example New York Stock Exchange

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Auction Basics (contd.)

• Reverse (seller-bid) auction
• Multiple sellers submit price bids
• Auctioneer represents single buyer
• Bids for given amount of specific item to
  purchase
• Prices go down as bidding continues
• Until no seller willing to bid lower
• Occasionally operated for consumers
• Most involve businesses as buyers and sellers

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FIGURE 6-4 Key characteristics of seven major
auction types
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Online Auctions and Related Businesses

• Online auction business rapidly changing
• Three auction Web site categories
• General consumer auctions
• Specialty consumer auctions
• Business-to-business auctions
• Varying opinions on categorizing consumer
  auctions
• Business-to-consumer
• Consumer-to-consumer
• Consumer-to-business

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Online Auctions and Related Businesses (contd.)

• General consumer auctions
• eBay registration required, seller fees, rating
  system
• Sellers risk stolen credit cards buyer fails
  to conclude transaction
• Buyers risk no item delivery misrepresented
  item
• Most common auction format English auction
• Seller may set reserve price
• Bidders listed bids not disclosed (until auction
  end)
• Continually updated high bid amount displayed
• Private auction option available

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Online Auctions and Related Businesses (contd.)

• General consumer auctions (contd.)
• Another eBay auction format Dutch auction
• Both formats require minimum bid increment
• Amount by which one bid must exceed previous bid
• Proxy bid
• Bidder specifies maximum bid
• May cause bidding to rise rapidly
• eBay stores
• Integrated into auction site
• Sellers generate additional profits

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Online Auctions and Related Businesses (contd.)

• eBays success due to unspecified audience
• Also spends 1 billion each year to market and
  promote Web site
• Major determinants of Web auction site success
• Attracting enough buyers and sellers
• Yahoo! Auction operation closed in 2007
• Amazon.com with Auctions Guarantee
• Offered buyer protection through escrow service
• Closed in 2006
• Overstock.com (still active)

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Online Auctions and Related Businesses (contd.)

• Future challengers to eBay
• Must overcome lock-in effect
• New auction participants inclined to patronize
  established marketplaces
• Example Japanese general consumer auction
• Yahoo! first to enter market
• Now dominates (more than 90 market share)
• eBay maintains low market share (less than 3)

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Online Auctions and Related Businesses (contd.)

• Specialty consumer auctions
• Identify special-interest market targets
• Create specialized Web auction sites
• No need to compete with eBay
• Examples
• JustBeads.com, Cigarbid.com, Winebid

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Online Auctions and Related Businesses (contd.)

• Consumer reverse auctions
• Reverse bid
• Visitor describes desired items or services
• Site routes visitor to participating merchants
• Reply to visitor by e-mail
• Offer item at particular price
• Buyer accepts
• Lowest offer
• Offer best matching buyers criteria
• All these types of sites now closed

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Online Auctions and Related Businesses (contd.)

• Consumer reverse auctions (contd.)
• Priceline.com
• Considered a seller-bid auction site
• Visitor states desired airline ticket, car
  rental, hotel room price
• If sufficiently high price transaction completed
• Many transactions come from inventory
• Priceline operates more as a liquidation broker

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Online Auctions and Related Businesses (contd.)

• Group shopping sites
• Seller posts item with tentative price
• Individual buyers enter bids
• Agreement to buy one unit (no price provided)
• Site negotiates with seller for lower price
• Posted price decreases
• As number of bids increases (only if number of
  bids increases)
• Result buyers force seller to reduce price
• Similar to consumer reverse auction

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Online Auctions and Related Businesses (contd.)

• Group shopping sites (contd.)
• Well-suited product types
• Branded products, well-established reputations
• Produces buyer confidence of good bargain
• High value-to-size ratio, non-perishable
• Disadvantages
• Difficulty attracting sellers interest
• Well-suited companies
• Find no advantage, fear sites cannibalize product
  sales, reluctant to offend current distributors
• Group purchasing sites closed

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Online Auctions and Related Businesses (contd.)

• Business-to-business auctions
• Evolved to meet specific existing need
• Excess inventory disposal (manufacturing)
• Two methods
• Liquidation specialists find buyers for unusable
  items
• Liquidation broker firm that finds buyers for
  items
• Online auctions
• Logical extension of these inventory liquidation
  activities to a new and more efficient channel
  (Internet)

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Online Auctions and Related Businesses (contd.)

• Business-to-business auctions (contd.)
• Emerging business-to-business Web auction models
• Large-company model creates own auction site
• Small-company model uses third-party Web auction
  site instead of liquidation broker
• Both are direct descendants of traditional methods

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Online Auctions and Related Businesses (contd.)

• Business-to-business auctions (contd.)
• Third emerging business-to-business Web auction
  model
• New business entity enters market lacking
  efficiency and creates a site at which buyers and
  sellers who have not historically done business
  with each other can participate in auctions
• Resembles consumer online auctions
• Example hospitals using online auctions to fill
  temporary employment openings

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Online Auctions and Related Businesses (contd.)

• Business-to-business reverse auctions
• Example Owens Corning purchases
• Examples Agilent, Bechtel, Boeing, Raytheon,
  Sony
• Potential disadvantage
• Suppliers compete on price alone
• Cut corners on quality or miss scheduled delivery
  dates
• Potential advantage
• Useful for nonstrategic commodity items with
  established quality standards

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Online Auctions and Related Businesses (contd.)

• Business-to-business reverse auctions (contd.)
• Companies opting out
• Cisco, Cubic, IBM, Solar Turbines
• If suppliers do not participate
• Impossible to conduct reverse auctions
• If competition high among suppliers
• Reverse auctions provide efficient way to
  conduct, manage price bidding

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FIGURE 6-5 Supply chain characteristics and
reverse auctions
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Auction-Related Services

• Entrepreneurs encouraged by eBay and other
  auction site growth
• Provide various kinds of auction-related services
• Escrow services
• Auction directory and information services
• Auction software for sellers and buyers
• Auction consignment services

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Auction-Related Services (contd.)

• Auction escrow services
• Buyers common concern seller reliability
• Buyers protect interests in high-value items
• Independent party holds payment until
• Buyer receives item
• Buyer satisfied item is as expected
• May take delivery of item from seller
• Perform buyer inspection (qualified to do so)
• Charge fees
• Percent of items cost subject to minimum fee

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Auction-Related Services (contd.)

• Auction escrow services (contd.)
• Examples Escrow.com, eDeposit, Square Trade
• May sell auction buyers insurance
• Protect buyers from nondelivery and quality risks
• Avoid escrow fraud
• Determine if licensed, bonded (licensing agency)
• Avoid offshore escrow companies entirely
• Other buyer protections
• Check sellers rating
• Use Web site listings of unreliable sellers

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Auction-Related Services (contd.)

• Auction directory and information services
• Example Auctionguide.com
• Guidance for new auction participants
• Helpful hints and tips for experienced
  participants
• Directories of online auction sites
• Example AuctionBytes
• Publishes e-mail newsletter
• Online auction industry articles

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Auction-Related Services (contd.)

• Auction directory and information services
  (contd.)
• Example PriceWatch
• Advertiser-supported site
• Advertisers post current selling prices
• Computer hardware, software, electronics
• Example PriceSCAN
• Similar price-monitoring service
• Also includes books, movies, music, sporting goods

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Auction-Related Services (contd.)

• Auction software
• Target sellers
• Helps manage online auctions
• Example AuctionHawk and Vendio
• Seller management software and services
• Automate tasks
• Create attractive page layouts
• Manage hundreds of auctions

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Auction-Related Services (contd.)

• Auction software (contd.)
• Target buyers
• Helps manage online auctions
• Sniping software
• Observes auction progress until last second
• As auction expires places bid high enough to win
  (unless bid exceeds sniping software owners
  limit)
• Snipe act of placing winning bid at the last
  second
• Almost always wins out over human bidder

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Auction-Related Services (contd.)

• Auction software (contd.)
• Example Cricket Sniping Software site
• Created in 1997 by David Eccles
• Companies offer sniping service
• Sniping software runs on company Web site
• Customer enters instructions on site
• Company may offer subscriptions
• Company may offer mixed-revenue model
• Sniping software and services business
  information
• AuctionBytes Web site

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FIGURE 6-6 AuctionBytes home page
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Auction-Related Services (contd.)

• Auction consignment services
• Target people and small businesses
• Want to use online auction
• Do not have skills, time to become a seller
• Auction consignment services
• Take item and create online auction for that item
• Handle transaction
• Remit proceeds balance (after deducting fee)
• Main auction consignment businesses
• ePowerSellers, iSold It, USA AuctionDrop

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Auction-Related Services (contd.)

• Auction consignment services (contd.)
• Key to success
• Convenient locations for customer drop off
• Open own stores, franchise stores
• Electronic commerce first wave
• Online auction business made possible by the Web
• Electronic commerce second wave
• Online auction business created opportunities
• For even more entirely new types of business

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Summary

• Companies using the Web for entirely new things
• Creating social networks
• Using mobile technologies to make sales and
  increase operational efficiency
• Operating auction sites
• Conducting related businesses
• Businesses creating online communities to connect
  with customers and suppliers
• Individuals using social networking sites
• Personal and business-related interactions
• Mobile commerce opportunities emerging

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Summary (contd.)

• Companies internal social networking sites
• Facilitate employee communication
• Online auctions used to sell goods to customers
  and buy from suppliers
• Seven major auction types
• Consumer online auction business dominated by
  eBay (United States)
• Ancillary service businesses support auctions
• B2B auctions and reverse auctions
• New methods of inventory disposal, procurement