Electronic Business and Commerce - Chapter 4

Chapter 4: The Digital Firm: Electronic Business and Electronic Commerce

• Chapter 4 focuses on the digital firm, electronic business, and electronic commerce.
• Objectives include understanding how internet technology has changed value propositions and business models.
• It also explores electronic commerce's impact on consumer retailing and business-to-business transactions.
• The chapter clarifies the key payment systems for electronic commerce.
• It examines how internet technology assists in internal and interorganizational business process management and coordination.
• Studying the major managerial and organizational challenges posed by electronic business and commerce is important.

Management Challenges

• Digitally integrating the enterprise demands a significant mindset shift.
• Developing a successful internet business model is crucial.

Internet Technology and the Digital Firm

• The internet is rapidly becoming the primary infrastructure choice.
• The internet provides a universal, user-friendly set of technologies and standards.
• Web sites are readily available 24/7.
• Distribution channels are broadened.
• Transaction costs and network/coordination costs decrease.

New Business Models and Value Propositions

• In the past, information about products/services was bundled with the physical value chain.
• Today, the internet has decoupled information from the traditional value chain, leading to new business models.
• Information asymmetry, where one party holds more essential information than the other, exists.
• The internet has reduced information asymmetry.
• Richness refers to the depth and detail of information available.
• Reach refers to the number of people a business can connect with and the number of products offered to those individuals.
• The internet fosters richer communication and broader reach.
• Internet technology's impact on the economics of information brings new levels of richness and reach.

Internet Business Models

• Virtual storefront: Direct selling of physical products to consumers/businesses.
• Information broker: Provides pricing/availability information, generating revenue from advertising or guiding buyers towards sellers.
• Transaction broker: Processes online transactions for a fee.
• Online marketplace: A digital platform where buyers and sellers converge.
• Content provider: Offers digital content (e.g., news) generating revenue from fees or advertising.
• Online service provider: Offers connectivity, leveraging revenue from fees, advertising, and informational resources.
• Virtual community: Facilitates online interactions among like-minded individuals.
• Portal: A primary entry point to the internet, providing specialized content and services.
• Syndicator: Aggregates content/applications for resale on third-party websites.

Electronic Commerce

• Categories of electronic commerce include business-to-consumer (B2C), business-to-business (B2B), and consumer-to-consumer (C2C).

Customer-Centered Retailing

• Disintermediation involves removing intermediaries in a value chain, leading to reduced customer costs.
• Reintermediation involves transferring intermediary functions to a new source, such as service hubs.
• Benefits of disintermediation for consumers showcase the cost savings from eliminating middlemen.
• Interactive marketing and presentation allows collection of customer information efficiently through website auditing tools, which are less expensive than surveys/focus groups.
• Personalization technologies offer customized content based on customer profiles and purchase histories, reducing the time spent in educating customers.

Customer Self-Service

• Web-based customer support is cheaper than phone support.
• Web-based self-service applications, like airline flight information websites are helpful.
• Traditional call centers are integrating with web-based technologies.

Business-to-Business Electronic Commerce

• Private industrial networks connect large firms with suppliers and partners via extranets, enabling sharing of product design, development, marketing, scheduling, inventory management, and communication.
• Private industrial networks are rapidly expanding B2B commerce.
• Net marketplaces (e-hubs) provide centralized Internet-based platforms for various buyers and sellers.
• Net marketplaces are industry owned or independent intermediaries, operating transaction-oriented models and deriving revenue from transaction and other services.
• Exchanges are third-party marketplaces connecting many suppliers and buyers, encouraging spot purchasing.

Electronic Commerce Payment Systems

• Digital credit card systems facilitate secure credit card transactions over the internet.

• A digital wallet stores credit card information, facilitating payment processes.

• Accumulated balance digital payment systems aggregate micropayments as a debit balance to be later paid on credit cards/phone bills.

• Stored value systems enables consumers to make instant payments using value stored in a digital account.

• Digital cash is a digital form of currency used for micro-transactions and larger purchases.

• Peer-to-peer payment systems facilitate payments to vendors that do not accept credit cards.

• Digital checking enables electronic check processing/transactions using secure digital signatures.

• Electronic billing systems allow for online and physical purchases to be processed electronically.

Electronic Commerce Information Flows

• Retailers communicate with the buyer through information, orders, service and support.
• Manufacturers/suppliers/distributors interact with their counterparts via purchases and bids.
• Banks facilitate credit/payment authorization, and electronic payment transfers.

How Intranets Support Electronic Business

• Intranets offer broad accessibility from various devices.
• Intranets can integrate with internal corporate systems and transaction data.
• Intranets foster interactive applications utilizing text, audio, and video.
• Intranets scale to accommodate larger or smaller computing demands.
• Intranets feature easy-to-use web interfaces.
• Intranets have low startup costs.
• Rich, dynamic information environments are characterized by intranets.
• Intranets reduce information distribution costs.
• Intranet application examples include finance/accounting, human resources, sales/marketing, and manufacturing/production.

Business Process Integration

• Pre-internet integration methods were costly and complex.
• Internet technology provides a more affordable approach to enterprise system design.
• Intranets foster improved coordination within internal business processes.
• Extranets aid in coordinating processes shared between businesses and external stakeholders, like customers/partners.
• Intranets support collaborative commerce

Management Challenges and Opportunities

• Unproven business models pose challenges.
• Business process requirements present integration complexities.
• Channel conflicts can arise from integrating new systems.
• Legal issues are inevitable during the transition to online business models.
• Issues regarding online trust, security, and privacy warrant considerations.

Case Study: Can the Music Industry Change Its Tune?

• The impact of the internet on the music industry and declining CD sales are subject to this case study.
• Students apply value chain and competitive forces models to the music recording industry.
• Assessing the internet’s role in the shifting value propositions/competitive landscapes of the music industry.
• Determining how much the internet has contributed to the decline of CD sales.
• Analyzing the industry's response to these changes, identifying management, organizational, and technological issues influenced by that response.
• Examining the industry's present business strategy to determine its viability.

Chapter 4 delves into the digital firm, focusing on electronic business and commerce. You will explore the transformation of business models through internet technology, its effects on consumer retailing, and the essentials of key payment systems. The chapter also highlights managerial challenges and the impact of digital integration on enterprises.