Essentials of Management Information Systems - Chapter 10 PDF

Essentials of Management Information Systems Fourteenth Edition, Global Edition Chapter 10 E-commerce: Digital Markets, Digital Goods Copyright...

Essentials of Management Information Systems Fourteenth Edition, Global Edition Chapter 10 E-commerce: Digital Markets, Digital Goods Copyright © 2020 Pearson Education Ltd. Learning Objectives 10.1 What are the unique features of e-commerce, digital markets, and digital goods? 10.2 What are the principal e-commerce business and revenue models? 10.3 How has e-commerce transformed marketing? 10.4 How has e-commerce affected business-to-business transactions? 10.5 What is the role of m-commerce in business, and what are the most important m-commerce applications? Copyright © 2020 Pearson Education Ltd. E-Commerce Today E-commerce: Use of the Internet and web to transact business Began in 1995 and grew exponentially; still stable even in a recession Companies that survived the dot-com bubble now thrive The new e-commerce: social, mobile, local Move from desktop to smartphone Copyright © 2020 Pearson Education Ltd. Figure 10.1 The Growth of E-Commerce Copyright © 2020 Pearson Education Ltd. Why E-commerce Is Different (1 of 2) Ubiquity – Marketspace is virtual – Transaction costs reduced Global reach – Transactions cross cultural and national boundaries Universal standards – One set of technology standards: Internet standards Richness – Supports video, audio, and text messages Copyright © 2020 Pearson Education Ltd. Why E-commerce is Different (2 of 2) Interactivity Information density – Greater price and cost transparency – Enables price discrimination: the practice of charging different prices to different customers for the same product or service, based on factors such as customer characteristics, purchasing behavior, or demand. Personalization/customization – Technology permits modification of messages, goods Social technology – Promotes user content generation and social networking Copyright © 2020 Pearson Education Ltd. Characteristics of E-commerce (1 of 8) (1) Ubiquity  Internet/Web technology available everywhere: work, home, and so on, anytime.  Effect: – Marketplace removed from temporal, geographic locations to become “marketspace” – Enhanced customer convenience and reduced shopping costs  Reduces transaction costs – Costs of participating in market Copyright © 2020 Pearson Education Ltd. Characteristics of E-commerce (2 of 8) (2) Global reach The technology reaches across national boundaries, around Earth Effect:  Commerce enabled across cultural and national boundaries seamlessly and without modification.  Marketspace includes, potentially, billions of consumers and millions of businesses worldwide. Copyright © 2020 Pearson Education Ltd. Characteristics of E-commerce (3 of 8) (3) Universal standards – One set of technology standards: Internet standards – Effect:  Different computer systems easily communicate with one another  Lower market entry costs—costs merchants must pay to bring goods to market  Lower consumers’ search costs—effort required to find suitable products Copyright © 2020 Pearson Education Ltd. Characteristics of E-commerce (4 of 8) (4) [Media] Richness – Supports video, audio, and text messages – Effect:  Possible to deliver rich messages with text, audio, and video simultaneously to large numbers of people.  Video, audio, and text marketing messages can be integrated into single marketing message and consumer experience. Copyright © 2020 Pearson Education Ltd. Characteristics of E-commerce (5 of 8) (5) Interactivity – The technology works through interaction with the user. – Effect:  Consumers engaged in dialog that dynamically adjusts experience to the individual. (how?)  Consumer becomes co-participant in process of delivering goods to market. Copyright © 2020 Pearson Education Ltd. Characteristics of E-commerce (6 of 8) (6) Information density – Large increases in information density —the total amount and quality of information available to all market participants – Effect:  Greater price transparency  Greater cost transparency  Enables merchants to engage in price discrimination Think about information overload! Copyright © 2020 Pearson Education Ltd. Characteristics of E-commerce (7 of 8) (7) Personalization/Customization – Technology permits modification of messages, goods – Effect:  Personalized messages can be sent to individuals as well as groups.  Products and services can be customized to individual preferences. Copyright © 2020 Pearson Education Ltd. Characteristics of E-commerce (8 of 8) (8) Social technology – The technology promotes user content generation and social networking – Effect:  New Internet social and business models enable user content creation and distribution, support social networks  Many-to-many model Copyright © 2020 Pearson Education Ltd. Key Concepts in E-commerce – Digital Markets and Digital Goods in a Global Marketplace Internet and digital markets have changed the way companies conduct business – Information asymmetry reduced  one party in a transaction has more or better information than the other. This imbalance can affect decision-making, create inefficiencies, and sometimes lead to unfair practices in markets. – Menu costs, search and transaction costs reduced  The cost of changing the prices is much less. – Dynamic pricing enabled  Price optimization based on data collected about demand. Copyright © 2020 Pearson Education Ltd. Key Concepts in E-commerce – Digital Markets and Digital Goods in a Global Marketplace Internet and digital markets have changed the way companies conduct business – Switching costs:  reduce the price for changing from one source to another. – Delayed gratification  resist an immediate reward in favor of a later, often greater reward. – Disintermediation  removing intermediaries or "middlemen" from a supply chain or distribution channel, allowing producers to sell directly to consumers. Copyright © 2020 Pearson Education Ltd. Figure 10.2 The Benefits of Disintermediation to the Consumer Copyright © 2020 Pearson Education Ltd. Digital Goods Goods that can be delivered over a digital network Cost of producing first unit is almost entire cost of product Costs of delivery over the Internet very low Marketing costs remain the same; pricing highly variable Industries with digital goods are undergoing revolutionary changes (publishers, record labels, etc.) Copyright © 2020 Pearson Education Ltd. Types of E-commerce Three major types – Business-to-consumer (B2C)  Example: Barnes and Noble.com – Business-to-business (B2B)  Example: ChemConnect – Consumer-to-consumer (C2C)  Example: eBay E-commerce can also be categorized by platform – Mobile commerce (m-commerce) Copyright © 2020 Pearson Education Ltd. E-commerce Business Models Portal E-tailer Content provider Transaction broker Market creator Service provider Community provider Copyright © 2020 Pearson Education Ltd. Copyright © 2020 Pearson Education Ltd. E-commerce Revenue Models Advertising Sales Subscription Free/Freemium Transaction fee Affiliate Copyright © 2020 Pearson Education Ltd. E-commerce Revenue Models Advertising: Revenue is generated by displaying advertisements on a website. Companies pay the website owner for ad space, typically based on the number of impressions, clicks, or conversions. – Example: Google AdSense, where website owners earn money by displaying ads provided by Google. Sales: Revenue is earned through the direct sale of goods or services to customers. This is the traditional model of e-commerce. – Example: Amazon, where customers purchase products directly from the website. Subscription: Users pay a recurring fee, often monthly or annually, to access a product or service. This model provides a steady stream of income. – Example: Netflix, where users subscribe to access streaming video content. Copyright © 2020 Pearson Education Ltd. E-commerce Revenue Models Free/Freemium: Basic services are provided for free, but users can pay for premium features or content. This model aims to convert free users into paying customers. – Example: Spotify, which offers free music streaming with ads and a premium version without ads and with additional features. Transaction Fee: A fee is charged for each transaction processed through the platform. This fee can be a percentage of the transaction amount or a flat fee. – Example: eBay, which charges sellers a fee for each sale made through its platform. Affiliate: Revenue is earned by promoting other companies' products or services. The e-commerce site earns a commission for each sale generated through their referral links. – Example: Amazon Associates, where affiliates earn a commission by linking to Amazon products. Copyright © 2020 Pearson Education Ltd. How E-commerce Has Transformed Marketing Internet provides new ways to identify and communicate with customers Long tail marketing – Long Tail Marketing focuses on selling many niche products that individually sell in small quantities but collectively make up a large portion of sales. This strategy leverages the power of the internet to reach a vast audience. Different marketing and advertising formats – Search – Display ads – Video and rich media – Email Copyright © 2020 Pearson Education Ltd. Behavioral Targeting Behavioral targeting – Tracking online behavior of individuals – On individual websites/apps and across advertising networks Programmatic ad buying: automated process of purchasing digital advertising space through software, rather than traditional, manual negotiations (uses AI extensively). Native advertising: the ad experience matches the form and function of the platform on which it appears. Has resulted in concerns about online privacy Copyright © 2020 Pearson Education Ltd. Figure 10.3 Website Visitor Tracking Copyright © 2020 Pearson Education Ltd. Figure 10.4 Website Personalization Copyright © 2020 Pearson Education Ltd. Figure 10.5 How an Advertising Network Works Copyright © 2020 Pearson Education Ltd. Social E-Commerce and Social Network Marketing Social network marketing – Seeks to leverage individuals’ influence over others – Targeting a social network of people sharing interests and advice – Facebook’s “Like” button – Social networks have huge audiences Social shopping sites: combine e-commerce with social networking, allowing users to shop online in a social and interactive way (instagram). Wisdom of crowds: aggregated opinions or data from a large group can provide valuable insights. Crowdsourcing: obtaining input, ideas, content, or services from a large group of people (wikipedia). Copyright © 2020 Pearson Education Ltd. How Has E-commerce Affected Business-To Business Transactions? U.S. B2B trade in 2019 is $13.5 trillion – U.S. B2B e-commerce in 2018 is $6.3 trillion Internet and networking helps automate procurement Variety of Internet-enabled technologies used in B2B – Electronic data interchange (ED I) – Private industrial networks (private exchanges) – Net marketplaces – Exchanges Copyright © 2020 Pearson Education Ltd. Electronic Data Interchange (ED I) Computer-to-computer exchange of standard transactions such as invoices, purchase orders Major industries have EDI standards – Define structure and information fields of electronic documents More companies are moving toward web-enabled private networks – Allow them to link to a wider variety of firms than EDI allows – Enable sharing a wider range of information Copyright © 2020 Pearson Education Ltd. Figure 10.6: Electronic Data Interchange (ED I) Copyright © 2020 Pearson Education Ltd. New Ways of B2B Buying and Selling Private industrial networks – Private exchanges – Large firm using a secure website to link to suppliers and partners Net marketplaces (e-hubs) – Single digital marketplace for many buyers and sellers – May focus on direct or indirect goods – May be vertical (focus on specific product) or horizontal marketplaces (focus on many needed product) Exchanges – Independently owned third-party Net marketplaces for spot purchasing Copyright © 2020 Pearson Education Ltd. Figure 10.7 A Private Industrial Network Copyright © 2020 Pearson Education Ltd. Figure 10.8 A Net Marketplace Copyright © 2020 Pearson Education Ltd. What Is the Role of M-commerce in Business, and What Are the Most Important M-commerce Applications? M-commerce in 2019 is 45 percent of all e-commerce Fastest growing form of e-commerce – Growing at 30 percent or more per year Main areas of growth – Mass market retailing (Amazon, eBay, etc.) – Sales of digital content (music, T V, etc.) – In-app sales to mobile devices Copyright © 2020 Pearson Education Ltd. Location-Based Services and Applications Used by 74 percent of smartphone owners Based on G PS map services Geosocial services – Where friends are Geo advertising – What shops are nearby Geo information services – Price of house you are passing Copyright © 2020 Pearson Education Ltd.