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

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
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.
• Information broker Provides product pricing and
  availability information generates revenue from
  advertising or directing buyers to sellers.
• Transaction Broker Processes online sales
  transactions for fee.

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
• Content Provider Provides digital content, such
  as news revenue from fees or advertising sales
• Online Service Provider Provides connectivity
  revenue from fees, advertising, or marketing
  information

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
• Portal Provides initial point of entry to the
  Web, along with specialized content and services
• Syndicator aggregates content or applications to
  resell as package to third-party Web sites

13
Electronic Commerce
Categories of Electronic Commerce

• Business-to-consumer (B2C) Retailing products
  and services to individual shoppers
• Business-to-business (B2B) Sales of goods and
  services among businesses
• Consumer-to-consumer (C2C) Consumers selling
  directly to consumers

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

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
• Web sites and marketing shorten sales cycle and
  reduce time spent in customer education

17
Electronic Commerce
Web site personalization
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

19
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

20
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?

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

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

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

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
• Peer-to-Peer payment systems Enables payments to
  vendors not set up for credit-card payments

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

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.