Digital Business and Electronic Commerce Strategy, Business Models and Technology (2nd ed) PDF

Springer Texts in Business and Economics Bernd W. Wirtz Digital Business and Electronic Commerce Strategy, Business Models and Technology Second Edition Springer Texts in Business and Economics Springer Texts in Business and Economics (STBE) delivers high-quality instructional content for underg...

Springer Texts in Business and Economics Bernd W. Wirtz Digital Business and Electronic Commerce Strategy, Business Models and Technology Second Edition Springer Texts in Business and Economics Springer Texts in Business and Economics (STBE) delivers high-quality instructional content for undergraduates and graduates in all areas of Business/Management Science and Economics. The series is comprised of self-contained books with a broad and comprehensive coverage that are suitable for class as well as for individual self-study. All texts are authored by established experts in their fields and offer a solid methodological background, often accompanied by problems and exercises. Bernd W. Wirtz Digital Business and Electronic Commerce Strategy, Business Models and Technology Second Edition Bernd W. Wirtz Information and Communication Management German University of Administrative Sciences Speyer Speyer, Germany ISSN 2192-4333     ISSN 2192-4341 (electronic) Springer Texts in Business and Economics ISBN 978-3-031-50288-0    ISBN 978-3-031-50289-7 (eBook) https://doi.org/10.1007/978-3-031-50289-7 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021, 2024 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. 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This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland If disposing of this product, please recycle the paper. Preface The digital economy is characterized by its considerable dynamic and speed of change. The rapid digitization of numerous areas of life has resulted in a shift toward today’s information society. Since the beginning of the twenty-first century, digital business has increasingly gained in importance. Especially the ongoing digitization emphasizes the particular importance of digital business in today’s information society. The contents of this textbook are based on the German textbook Electronic Business, which was first published by Springer Gabler in 2000 and is in its eighth edition in 2024. I received substantive support in translating the English edition of this book. In particular, I am grateful toward the former employees and doctoral students of the chair, as well as my current employees and doctoral students Mr. Pascal R. M. Kubin (LL.M.), Dr. Paul F. Langer, Mr. Manuel R. Mühleisen (M.Sc.), and Ms. Tirza F. Müller (M.A.) for their outstanding commitment and team spirit. The scientific development of a subject area thrives through the critical analysis and discussion of concepts and content. Given this fact I am grateful for every com- ment or suggestion for improvement. Furthermore, lecturers who are interested in using graphics and lecture with materials from this book are welcome to contact the author. Speyer, Germany Bernd W. Wirtz April 2024 v Contents Part I Introduction 1  Foundations of Digital Business   3 1.1 Kondratieff Cycle   4 1.2 Structure of the Textbook   5 1.3 Basics of Digital Business   7 1.4 Actors, Interaction Patterns, and Service Exchange  22 1.5 Development of Digital User Structure 31 1.6 Success Factors of Digital Business  34 1.7 Summary  38 Publication Bibliography  40 2 Mobile Business 43 2.1 Basics of Mobile Business 44 2.2 Definition and Classification of Mobile Business 48 2.3 Applications and User Structure of Mobile Business  50 2.4 Success Factors of Mobile Business  61 2.5 Summary  64 Publication Bibliography  66 3 Social Media Business 71 3.1 Basics of Social Media Business 72 3.2 Definition and Classification of Social Media Business  74 3.3 Applications and User Groups in Social Media Business 78 3.4 Digital Disinformation on Social Media 101 3.5 Success Factors in Social Media Business 110 3.6 Summary  112 Publication Bibliography  115 4 Digital Government 121 4.1 Basics of Digital Government 122 4.2 Open Government and E-Participation  131 4.3 Smart Cities 140 4.4 Services and User Structure of Digital Government 151 vii viii Contents 4.5 Success Factors of Digital Government 162 4.6 Summary  168 Publication Bibliography  169 Part II Technology, Digital Markets and Digital Business Models 5  Foundations of Internet Technology and Human-Machine Applications 177 5.1 Internet and Digital Business Architecture  178 5.2 Web Services and Web Development  186 5.3 Technology at the Human-Machine Interface 195 5.4 Human-Machine Interaction and Success Factors 205 5.5 Summary  209 Publication Bibliography  211 6  Digital Payment Systems, Security, and Regulation  213 6.1 Digital Payment Systems and Applications 214 6.2 Security in Digital Business 222 6.3 Regulation of Digital Business  229 6.4 Summary  235 Publication Bibliography  236 7 Internet of Things 239 7.1 Basics of the Internet of Things 240 7.2 Applications of the Internet of Things 247 7.3 Industrial Metaverse and Digital Twins 256 7.4 IoT User Behavior 262 7.5 Success Factors of IoT 268 7.6 Summary  270 Publication Bibliography  272 8  Artificial Intelligence and Quantum Computing 275 8.1 Artificial Intelligence Concept 276 8.2 AI Applications and Use Cases 303 8.3 Opportunities and Risks of AI 307 8.4 Artificial Intelligence Governance 313 8.5 Quantum Computing 329 8.6 Summary  342 Publication Bibliography  345 9  Data, Cloud Computing, and Blockchain Technology 355 Big 9.1 Big Data 356 9.2 Cloud Computing 363 9.3 Blockchain 369 9.4 Summary  379 Publication Bibliography  381 Contents ix 10 Digital Automation and Robotics 385 10.1 Basics of Digital Automation and Robotics 386 10.2 Development of Digital Automation and Robotics 389 10.3 Applications of Digital Automation and Robotics 397 10.4 Processes and Functionalities of Digital Automation and Robotics 407 10.5 The 5-Component Model of Digital Automation 417 10.6 Opportunities, Risks, and Governance of Digital Automation and Robotics  426 10.7 Summary  429 Publication Bibliography  432 11  Digital Platforms, Sharing Economy, and Crowd Strategies 435 11.1 Basics of Platform Economics 436 11.2 Sharing Economy 446 11.3 Crowd Strategies  452 11.4 Summary  457 Publication Bibliography  459 12  Digital Ecosystem, Disintermediation, and Disruption 461 12.1 Digital Ecosystem  462 12.2 Digital Disintermediation 471 12.3 Digital Disruption  477 12.4 Summary  504 Publication Bibliography  507 13  B2C Digital Business Models 511 13.1 Basics of the Performance System in Digital Business 512 13.2 Content 531 13.3 Commerce  549 13.4 Context 565 13.5 Connection 583 13.6 Hybrid Business Models  598 13.7 Summary  608 Publication Bibliography  610 14  Digital B2B Business Models 617 14.1 Sourcing 619 14.2 Sales 622 14.3 Supportive Collaboration 625 14.4 Service Broker 629 14.5 Summary  632 Publication Bibliography  635 x Contents Part III Digital Strategy, Digital Organization and E-Commerce 15 Digital Business Strategy 639 15.1 Basics of Digital Business Strategy 640 15.2 Convergence 648 15.3 Digitization and Innovation Dynamics  653 15.4 Market Complexity  663 15.5 Customer Empowerment and Social Networking 669 15.6 Digital Business Value Activity System 675 15.7 Strategy Development in Digital Business  681 15.8 Summary  709 Publication Bibliography  710 16  Digital Transformation and Digital Organization 717 16.1 Digital Transformation 719 16.2 Digital Leadership 726 16.3 Digital Organization 729 16.4 Digital Teams 736 16.5 Summary  745 Publication Bibliography  747 17  Digital Marketing and Electronic Commerce  749 17.1 Digital Marketing Strategy 750 17.2 Digital Distribution and Multichannel Marketing 767 17.3 Digital Pricing 796 17.4 Digital Products and Digital Services  814 17.5 Digital Communication 838 17.6 Digital Customer Relationship Management (DCRM) 887 17.7 Summary  903 Publication Bibliography  905 18 Digital Procurement 915 18.1 Basics of Digital Procurement 916 18.2 Structural Framework of Digital Procurement 926 18.3 Potentials of Digital Procurement 950 18.4 Digital Procurement Implementation 956 18.5 Summary  962 Publication Bibliography  964 19 Digital Business Implementation 969 19.1 Pre-implementation Analysis Phase 970 19.2 Implementation Phase 972 19.3 Digital Business 3+3 Audit and Evaluation System  981 19.4 Summary  984 Publication Bibliography  987 Contents xi Part IV Digital Case Studies and Outlook 20 Google/Alphabet Case Study 991 20.1 Google’s Organizational History and Development  992 20.2 Google’s Integrated Business Model 995 20.3 Google’s Market Environment 1005 20.4 Case Analyses and Structure of Solutions 1007 20.5 Google Case: Questions and Solutions  1012 Publication Bibliography  1023 21  The Digital Future: A Brief Outlook 1027 Publication Bibliography  1030 About the Author Bernd W. Wirtz studied business administration in Cologne, London and Dortmund, culminating in an MBA (Master of Business Administration). He later served as a lecturer for media management at the Universities of Düsseldorf (Germany) and Zurich (Switzerland). In 1994, he was awarded a doctorate in the field of new media and competition strategies (Doctorate in Business Administration). After finishing his studies, Prof. Wirtz worked as a consultant with Roland Berger & Partners as well as Andersen Consulting/Accenture (Manager in the field of new media/electronic commerce) and as a Lecturer at the University of Zurich. From 1999 to 2004, he was a Full Professor (Deutsche Bank Chair for Strategic Management) at the University of Witten/Herdecke (Germany). Since 2004 he has been a Full Professor (Chair for Information and Communication Management) at the German University of Administrative Sciences Speyer (Germany). Prof. Wirtz published approximately 350 publications to date, including more than 20 books, and is an editorial board member of the journal Long Range Planning, the Journal of Media Business Studies, the International Journal on Media Management, the International Journal of Business Environment, the Public Organization Review and the International Review on Public and Nonprofit Marketing. xiii  Part I Introduction Foundations of Digital Business 1 Contents 1.1 Kondratieff Cycle 4 1.2 Structure of the Textbook 5 1.3 Basics of Digital Business 7 1.4 Actors, Interaction Patterns, and Service Exchange 22 1.5 Development of Digital User Structure 31 1.6 Success Factors of Digital Business 34 1.7 Summary 38 Publication Bibliography 40 Knowledge Objectives By working through this chapter, you will be able to: 1. Outline the development of the most important information and communication applications. 2. Present the five phases of digital transformation. 3. Describe and discuss the development stages of digital business. 4. Describe the service exchange processes of the Internet economy. 5. Identify general success factors of digital business. For some time, there has been an essential change within the economy and society induced by information technology (Wirtz, 1995). This change is mainly caused by increasing digitization: “With the beginning of the ‘digital age’, also called ‘digital revolution’, which evolved throughout the development of the multimedia market, there will be a fundamental change of existing structures in the telecommunication, © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 3 B. W. Wirtz, Digital Business and Electronic Commerce, Springer Texts in Business and Economics, https://doi.org/10.1007/978-3-031-50289-7_1 4 1 Foundations of Digital Business computing, entertainment and media industries” (Denger & Wirtz, 1995). This assessment in 1995 aptly illustrates the impact of digitization.1 Network Internet applications represent a sustainable simplification and indi- vidualization of communication and information brokerage. Already in the year 1970, the Harvard sociologist Daniel Bell has shaped the term “postindustrial soci- ety” describing the, at that time, anticipated change due to technology. In this soci- ety, the secondary sector in the economy loses importance because of an economic system that is primary rather shaped by information technologies than by production. 1.1 Kondratieff Cycle Already in the beginning of the 1980s, Bell’s academic and abstract phrasing has been specified by using the term “information society.” The sociological term describes the transfer of human labor and macroeconomic impact to the tertiary sec- tor of a higher industrialized society. The delineated change is particularly charac- terized by technological development dynamics. The underlying principal of this development can be explained by Kondratieff’s theory of long cycles shown in Fig. 1.1 (adapted source: Nefiodow and Nefiodow (2014). According to Kondratieff, technological innovations essentially determine the status of societal development through sinusoidal innovation phases (Schumpeter, 1939). Innovations such as the steam engine open up new economic opportunities which are reflected in an increase in investment. Industrialized Information Society Society Steam engine Railway Chemical industry Petrochemistry Information technology ? Cotton Steel Electrical Automobile industry engineering 1st Kondratieff 2nd Kondratieff 3rd Kondratieff 4th Kondratieff 5th Kondratieff 6th Kondratieff 1780 1830-1850 1870-1890 1920-1935 1950-1980 2000-2005 20xx Fig. 1.1 Kondratieff cycle. Source: (Wirtz, 2000, 2020, 2024). Adapted source: Nefiodow and Nefiodow (2014) 1 See for the following chapter also Wirtz (2021, 2024). 1.2 Structure of the Textbook 5 As soon as the innovation has established itself in society and industry, the asso- ciated investments decrease considerably. At this stage, however, pioneers are already developing the next technological advance for a further investment boost. This change is currently driven by the dynamics of the development of information and communication technology, resulting in a comprehensive digital information society. 1.2 Structure of the Textbook This textbook intends to contribute to the topic of digital business from the perspec- tive of business administration. It aims to provide a basic overview of the aspects and facets of digital business. In addition to the fundamentals, the implications for management are addressed in particular. For example, the business models of digital business are presented and management success factors are analyzed. Part I begins by outlining the increasing importance of digital business. In addi- tion, the concepts of mobile business and social media business are considered. Subsequently, the topic of digital government is presented. Part II is devoted to the technological foundations of digital business, digital markets, and digital business models. This includes the fundamentals of Internet communication and the information technology applications of the human-machine interface. In addition, this part looks at digital payment systems and the regulation of digital business. With regard to technological developments in digital business, the topics of Internet of things, artificial intelligence and quantum computing, big data, cloud computing, and blockchain technology are presented. Subsequently, the core aspects of automation and robotics are highlighted. In addition, digital platforms, the sharing economy, and crowd strategies are presented, as well as digital ecosystems, disintermediation, and disruption. Finally, the B2C and B2B business models in digital business are explained. Part III deals with digital strategy, digital organization, and e-commerce. Here, the digital business strategy is presented first, followed by digital transformation and organization, digital marketing, and e-commerce. In addition, digital supply chain management, digital procurement, and digital business implementation are presented. In Part IV, the digital business case study of Google/Alphabet is pre- sented and challenges and future prospects for digital development are outlined. Figure 1.2 illustrates the structure of the book. 6 1 Foundations of Digital Business Organization and Strategy, Digital Part 3: Digital E-Commerce 19. Digital Business Implementation 18. Digital Supply Chain Management 4. Digital Government and Digital Procurement 17. Digital Marketing and Electronic Commerce 16. Digital Transformation and Digital Organization 15. Digital Business Strategy Part 4: Digital Case Studies and 14. B2B Digital Business Models 21. The Digital Future: A Brief Outlook 1. Foundations of Digital Business 20. Google/Alphabet Case Study Part 1: Introduction 3. Social Media Business 13. B2C Digital Business Models Outlook 12. Digital Ecosystems, Disintermediation, and Disruption 11. Digital Platforms, Sharing Economy and Crowd Strategies 10. Digital Automation and Robotics 9. Big Data, Cloud Computing and Blockchain Technology 8. Artificial Intelligence and Quantum Computing 2. Mobile Business 7. Internet of Things 6. Digital Payment Systems, Security and Regulation Fig. 1.2 Structure of the textbook 5. Basics of Internet Technology and Human-Machine Applications Digital Markets and Part 2: Technology, Digital Business Models 1.3 Basics of Digital Business 7 1.3 Basics of Digital Business Digital business is one of the most significant fields of application of the new digital information and communication technologies (Schneider, 2015). Before addressing the specific segments of digital business in detail, the following section systemati- cally describes the basics of digital business. In doing so, it first illuminates the historical development of information and communication applications and then defines and classifies the term digital business. On this basis, the following delibera- tions address the actors, interaction patterns, and service exchange in the field of digital business. Development of Information and Communication Applications The development of information and communication applications looks back on a long history (see for the following Wirtz, 2013, 2024). The basic preconditions for today’s information and communication applications have been created back in ancient times and the Middle Ages. Development of Information and Communication Applications until 1956 About 250 B.C., the first algorithm to determine prime numbers was introduced, known as “Sieve of Eratosthenes.” This algorithm defines a rule that consists of a finite number of steps and serves to solve problems. Algorithms represent the theo- retical foundation of calculation by means of a computer. In 1623, the astronomer and mathematician Wilhelm Schickard invented the first four-function calculator for the addition and subtraction of numbers. Approximately 50 years later, in the year 1672, Gottfried Leibnitz created the first mechanical calculating machine, capable of the four standard calculation methods. In the year 1854, George Boole published the “Boolean algebra” for the por- trayal of logical operators and set theory, which form the theoretical foundation of electronic technology. In the course of developing technological communication infrastructures, Alexander Graham Bell put the first telephone into operation in the year 1854 based on the fundamental research of Philipp Reis. After a patent for wireless energy transfer, Nikola Tesla patented electrical circuits in the year 1903. These achievements laid the groundwork for radio technology and thus the wireless transmission of signals via electro-magnetic waves. 33 years later, a decisive start- ing point for the theoretical informatics was set. With the Turing machine, Alan M. Turing developed a model for calculating functions for the solution of different decision problems. In 1941, the construction engineer Konrad Ernst Otto Zuse built the first fully automated, program-controlled, and freely programmable computer in the world, which primarily served for processing numbers. Only a few years later, in the year 1946, the first mobile network worldwide went into operation in the USA as an 8 1 Foundations of Digital Business extension of radio technology. The increasing digitization of information and com- munication technologies was characterized by the further support of new communi- cation tools and improved information transmission. In the year 1948, William Bradford Shockley patented the transistor, capable of switching and amplifying electrical signals. In the year 1953, color television was introduced in the USA, and in the year 1956, IBM introduced the magnetic hard drive (IBM 350) for storing data. This technical improvement not only enabled a quicker access time and greater storage capacity but also laid the foundation for secure data storage. Figure 1.3 illustrates the development of information and com- munication applications until 1956. Development of Information and Communication Applications until 1994 The Disk Operating System/360 (DOS) introduced in 1966 has been provided as operating system for IBM mainframes. Therefore, the potential of the magnetic hard drive IBM 350 could be fully exploited for the first time. DOS facilitated a quasi-parallel diffusion of computer operations based on the directly addressable magnetic disk storage media. As a precursor of today’s Internet, Paul Baran and Donald Watts Davies created the cross-linked decentral network ARPANET in the year 1969. In the year 1971, Intel launched the first microprocessor 4004, which was produced in series. Ten years later, in the year 1981, IBM introduced the first personal computer and opened up new possibilities for developing information and communication applications. In 1983, Motorola introduced the world’s first commercial mobile phone DynaTAC 8000×. Soon after, Microsoft released Windows 1.0 for a simplified use of different devices. In the year 1985, Steve Case founded the online service Quantum Computer Services, which was renamed AOL 3 years later. With the establishment of the World Wide Web in 1989, the Internet increasingly influenced the media and initiated a trend toward digital technologies that persists until today. An advancement of the enterprise software became necessary, leading SAP to offer its ERP software SAP R/3. Since that time, companies have been able to connect different business areas by means of this software. In the same year, Toshiba introduced the first tablet PC DynaPad T100X. In the year 1994, Jeff Bezos founded the Internet shopping platform Amazon revolutionizing the global online trade in goods. One year after the introduction of Amazon, Pierre Omidyar founded the Internet auction house eBay Inc., which quickly became the world’s largest online marketplace for private and commercial distributors. By this time, a wide range of services from the fields of electronics, electrical engineering, information technology, and computer science can already be grouped together as information and communication applications and are often character- ized by digitization of their components and the possibility of interactive use (Wirtz, 1995). Figure 1.4 depicts the development of information and communication applications from 1966 until 1994.  Matrix of Eratosthenes Infinite Tape Recorder 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 21 22 23 24 25 26 27 28 29 Record-/Decoding head 31 32 33 34 35 36 37 38 39 41 42 43 44 45 46 47 48 49 Program Gottfried Leibnitz Eratosthenes constructs the first Alexander With the Turing Implementation of Introduction of develops an mechanical calculating Graham Bell machine, Alan M. Turing 1.3 Basics of Digital Business the first mobile color television algorithm for machine that is capable puts the first develops a basic network in the United determining of the four standard telephone into foundation of States prime numbers calculation methods operation theoretical informatics worldwide in the U.S. 250 B.C. 1623 1672 1854 1867 1903 1936 1941 1946 1948 1953 1956 Wilhelm Schickard George Boole Nikola Tesla Konrad Zuse builds the William Bradford IBM introduces the constructs the first publishes the patents the first fully automated, Shockley patents magnetic hard drive 4-function Boolean algebra electrical circuits program-controlled and the transistor (IBM 350) calculator freely programmable computer Fig. 1.3 Development of information and communication applications (250 B.C. until 1956). Source: Wirtz (2013, 2021, 2022, 2024) 9  10 Disk Operating Aol. SAP System/360 (DOS) is Steve Case founds the Internet introduced as Intel launches the Motorola introduces the service Quantum Computer SAP releases the operating system for first microprocessor first cell phone worldwide Services (renamed to AOL 3 ERP-Software IBM mainframes 4004 (Dynatac 8000x) years later) SAP R/3 1966 1969 1971 1981 1983 1985 1989 1993 1994 Paul Baran und Donald Watts Introduction of Microsoft Start of the Jeff Bezos founds 1 Davies create the first IBM „Personal releases World Wide the Internet mail decentral network ARPANET Computer“ Windows 1.0 Web order business Amazon amazon.com Fig. 1.4 Development of information and communication applications (1966 until 1994). Source: Wirtz (2013, 2021, 2022, 2024) Foundations of Digital Business 1.3 Basics of Digital Business 11 Recent Developments of Information and Communication Applications The information society is in a dynamic stage of development, which places high demands on the operating companies with regard to their innovative power and flex- ibility. An important trend regarding the development of information and communi- cation technologies began with the introduction of the first smartphone, developed and distributed by Nokia in 1996. While at the beginning of the smartphone era, the phones were rarely dispersed, and they are now a mobile companion and very important for everyday life. In the year 1998, Lawrence Edward Page and Sergei Brin founded the Internet service provider Google Inc. and started offering a far-reaching search engine with the same name. In 1999, AT&T started to market broadband in the USA and thus enabled high data transmission rates. The company launched its service including digital subscriber line (DSL), cable modem, and wireless Internet access for corpo- rate customers. Since the end of the 1990s, the information society has significantly gained in importance, particularly due to the further development of mobile networks and the ubiquitous diffusion of the Internet. For instance, the implementation of the first UMTS network on the Isle of Man by the local company Manx Telecom in 2001 was an essential milestone for the mobile information and communication technolo- gies. This development increasingly facilitated new Internet services. For example, the Internet is now established as a distribution channel for the music industry. In this context, Apple’s introduction of iTunes in the year 2001 represented an impor- tant cornerstone. By the end of the year 2000, however, it had already become apparent that many of the business models found in digital business had significant strategic and struc- tural deficits (Wirtz, 2000c). After the market shakeout in the Internet economy until 2002, a gradual growth phase took place again. In the year 2004, Marc Zuckerberg founded the social network Facebook. The second big boom of the Web 2.0 and social media applications then began in 2005, with Internet platforms like Facebook and Twitter reflecting the emerging network growth of the Internet. Today, social media has become an integral part of the infor- mation society. In 2006, AT&T launched its brand U-verse, offering triple-play telecommunica- tions services in 21 states of the USA and using the FTTP, VDSL, and ADSL com- munication protocols. Already in the year 2009, the Swedish company TeliaSonera put the first commercial LTE network in Stockholm and Oslo into operation. In 2016, Oculus VR launched its virtual reality headset for customers. In addi- tion, 5G broadband Internet partially already accessible in the USA in 2018 was offered on a broad scale for the first time in 2019. Here, the number of users is assumed to reach 4.3 billion by 2027 (Ericsson, 2022). The artificial intelligence ChatGPT, a language model, was made available to the public by OpenAI at the end of 2022. This powerful AI application was used very intensively after only a short time and shows the perspective of future AI develop- ment. Figure 1.5 shows the development of information and communication appli- cations from 1995 until 2022.  12 TeliaSonera manx telecom Lawrence Edward Page Implementation of the first IBM Quantum System ebay Pierre Omidyar und Sergei Brin found Manx Telecom implements Marc Zuckerberg commercial LTE-network One currently the founds the Internet the Internet service one of the first UMTS founds the social of TeliaSonera in most powerful quantum auction site eBay provider Google Inc. networks at the Isle of Man network Facebook Stockholm and Oslo computer in Europe 1995 1996 1998 1999 2001 2004 2006 2009 2016 2021 2022 2019 Nokia develops Introduction of DSL, Apple introduces AT&T launches Oculus VR launches AI service ChatGPT and distributes the cable modem, and the first version of U-verse using the first VR glasses for by OpenAI 1 first smartphone wireless Internet access in iTunes software FTTP, VDSL, and ADSL customers the United States communication protocols iTunes OpenAI Fig. 1.5 Development of information and communication applications (1995 until 2022). Source: Wirtz (2013, 2021, 2022, 2024) Foundations of Digital Business 1.3 Basics of Digital Business 13 It is evident that technological innovations have shaped the field of information and communication applications to a considerable extent. Digitalization and the associated digital transformation of the economy and society in the last two decades are of considerable relevance for the future development of digital business, which can be illustrated by the five phases of digital transformation. The Five Phases of Digital Transformation The development of the digital transformation began around 1985 and has gained considerable speed since then. It can be divided into five phases, whereby the last phase is still open to change. Also, further developments in the areas of artificial intelligence and biotechnology are not foreseeable. Figure 1.6 shows the different phases and important technological developments and innovations. First Phase of Development: Development of Digital Technologies and Service Innovations The first phase lasted from about 1985 to 2000 and focused on the technological development of digital technology and the provision of basic digital service innova- tions including the probably most important, the World Wide Web. Innovations based on this, such as email or location-based services that provide users with location-­based information—often via the Internet—are now established standards in everyday life. Digital corporations whose business models have a formative influ- ence on the economy and on the online behavior of the population, such as Amazon and Google, were also founded in this first phase. Second Phase of Development: Mobile and Social Media Diffusion The second phase was shaped by the emergence of mobile technology and the social component of the digital transformation and was of great importance for the first decade after the turn of the millennium. In particular, the establishment of Web 2.0, i.e., the possibility for users of the Internet to provide information themselves and thus network socially with each other, became important here. The founding of the free Internet encyclopedia Wikipedia in 2001 falls into this period. There was also the increasing availability of mobile devices that could offer digital services beyond the telephony. The introduction of the iPhone and the estab- lishment of Facebook as a global social network characterize this second develop- ment phase of the digital transformation. With the establishment of automatic speech recognition and machine learning, important innovations that will be deci- sive for later phases fall into this second development phase. Third Phase of Development: Connectivity and Network Diffusion The third phase is primarily to be understood as a deepening phase in which all end devices are increasingly connected to the global information network. It lasted from approx. 2010 to around 2015 and prepared the ground for the triumph of the mobile Internet and IoT concepts.  5. Phase of Development: 14 1. Phase of Development: 2. Phase of 3. Phase of 4. Phase of Development of Digital Development: Development: Development: Independent AI and Technology and Service Connectivity and Robotics Diffusion Mobile and Social IoT, Big Data and Cloud Innovations Media Diffusion Network Diffusion Diffusion 1985: ASP 2000: 3G / UMTS 1989: Invention of the WWW 2000: GPS for the public 2010: 4G / LTE+ 1990: 2G / GSM 2000: Voice recognition 2010: Blockchain 1993: WWW for public 2001: Wikipedia 2010: Cryptocurrency 1994: Amazon 2003: Wi-Fi hotspots 2010: Smart city 1994: First online services (AOL, etc.) 2004: 3D printing 2010: Tablets 1994: Mosaic browser 2004: Social networks 2011: Deep learning 1994: Voice over IP 2005: E-books 2011: Question answering 1994: Yahoo 2005: User generated content 2012: Augmented reality 1995: Email 2006: Crowdsourcing 2013: Biometric identification 1995: Digital payment service 2006: Internet TV est. 2025: 4D printing 1995: Internet explorer 2006: Machine learning est. 2025: 6G 1995: Semantic web 2007: Cloud/Web platforms est. 2025: AI PaaS 1995: Virtual reality 2007: iPhone est. 2025: Neuromorphic hardware 1996: Google 2015: Smart home est. 2026: Autonomous driving level 5 2008: SaaS 1999: Blackberry 2016: Cloud predicted analytics est. 2028: Quantum computing 2009: Video conferencing 1999: Bluetooth 2016: Gamification est. 2030: Hologram computing 1999: Location-based services 2016: Home health monitoring est. 2030: Smart robots 1999: RFID 2016: Smart clothing est. 2034: Quantum internet 1 1999: WAP 2016: Smart textiles est. 2035: Biomimetic materials 2017: Deep reinforced learning est. 2036: Brain computer interface 2019: 5G est. 2040: Cyborgs 2021: Autonomous net intelligence est. 2040: Digital twin 2022: Autonomous driving level 4 est. 2045: Genetic computing 1985 2000 2010 2015 2025 2045 est. = estimated Foundations of Digital Business Fig. 1.6 Five phases of digital transformation. Source: Wirtz (2000a, 2021, 2024) 1.3 Basics of Digital Business 15 The mobile phone standard 4G enabled higher data transmission rates and, espe- cially in combination with concepts such as Smart City, ensured that the digital transformation is changing increasingly broader areas of the economy and society. The introduction of blockchain and the further development of deep learning pro- vide the basis for many innovations in the fourth development phase. Fourth Phase of Development: IoT, Big Data, and Cloud Diffusion The fourth phase is the phase of structural adjustment and the use of the possibilities of improved infrastructure and computing capacity. It starts around 2015 and may last for at least a decade. This phase is characterized by advanced and automated data analysis approaches that are implemented in decentralized server centers. In this phase of the digital transformation, autonomous processes are increasingly implemented. For example, smart home devices have become an indispensable part of every- day life for many people, and with 5G, an even more powerful mobile communica- tions standard is becoming popular. In addition, highly automated vehicles have been on the road on German motorways since 2022, and in the USA, it is already possible in some states to be transported by driverless robot taxis (Rudschies & Kroher, 2022). However, the diffusion of largely autonomous artificial intelligence and robotization is not expected until the fifth development phase. Fifth Phase of Development: Independent AI and Robotics Diffusion The fifth phase of the digital transformation is expected to begin in the mid to late twenties and will entail the establishment of artificial intelligence. Artificial intelli- gence will fundamentally challenge many existing frameworks and bring humans into a new role. It is quite likely that quantum computing and biotechnology will also be heavily involved in the digital transformation during this phase. With the brain-computer interface, it is expected that an interface between the human brain and the computer will be established. A wide range of possible applications are conceivable here, especially in the medical field. Relevance of the Internet Economy and Digital Business In the course of the societal change from the postmodern industrial society to the information society, the quantity and quality of information enter entirely new dimensions. Information has never been available that extensive and at the same time concentrated before. Particularly, the Internet is the focal point in this context, enabling time and location-independent, as well as accurate access to a previously unimagined extent of knowledge. In the postmodern industrial society, knowledge was available solely dispersed. Through the dynamic development of information and communication technolo- gies, access to information has become inexpensive or even free of charge. 16 1 Foundations of Digital Business Digital Collaboration Digital Communication Electronic Internet Information Digital Business Economy Society Commerce Digital Information/ Entertainment Digital Education Fig. 1.7 Dimensions of the information society. Source: Wirtz (2000a, 2021, 2024) Dimensions of the Information Society and Internet Economy The ubiquity of information and knowledge has become the main identifying char- acteristic of the information society. The fact that the information society is a mul- tidimensional and very complex entity is illustrated by Fig. 1.7, which depicts the dimensions of the information society. In this context, the Internet economy and digital business represent the two main dimensions that constitute today’s information society. Digital business includes electronic commerce, digital communication, digital information/entertainment, digital collaboration, and digital education. This shows that sociopolitical, eco- nomic, and managerial areas are increasingly affected by the information society. The Internet economy strongly changes existing structures and interdependencies through the rapid diffusion of information and communication technologies (Webster, 2014). Familiar structures and interdependences are being questioned because transactions and interactions between actors partly follow new or changed rules and processes. The rapid development of new Internet hosts and the growing Internet usage reflects the continuously increasing importance of information and communication technologies for the information society. The influence of the Internet as a global networking and communication system is ubiquitous. Its rapid spread on a world- wide level connecting state, economy, society, and individuals also across national borders made it an unprecedented medium. Figure 1.8 illustrates the development of worldwide Internet hosts, namely domain names that are assigned to an IP address. Along with the rising number of Internet hosts, the Internet usage increases steadily among the populations around the world. At the end of 2019, the Internet already had more than 4.5 billion users. This means that almost six out of ten people worldwide used the Internet in 2019, representing a growth of 1167% since the year 1.3 Basics of Digital Business 17 Internet hosts in millions 1200 1000 800 600 400 200 0 1993 1996 1999 2002 2005 2008 2011 2014 2017 2019 Fig. 1.8 Development of the number of Internet hosts since 1993. Data source: ISC (2019) 2000 (Internet World Stats, 2020). The respective development and diffusion of modern information and communication technologies, as well as the respective repositioning and use of these technologies, were key drivers of the shift from an industrial to an information society. Figure 1.9 reflects this development by showing recent worldwide Internet usage and population statistics. While the Internet penetration rate is particularly high in North America (93.4%) and Europe (89.2%), Africa and Asia are subject to digital divide with compara- tively low penetration rates of 43.2% and 67.0%, respectively. In Latin America, the Middle East, and Australia, about three out of four people use the Internet (Internet World Stats, 2022). In view of the abovementioned developments, digital business and the information society have significantly gained importance. The following section presents the basics of digital business. Internet Usage from a Consumer Perspective Internet use has an influence on a broad spectrum of areas of daily life. This is illus- trated in Fig. 1.10 by means of a user survey in Germany on the use of the Internet in everyday life from a consumer perspective for a variety of applications. Consumers are increasingly being offered new and predominantly information-­ based products and services originating in the innovations of modern information and communication technology. 18 1 Foundations of Digital Business Millions 5000 4500 4352 4000 3500 3000 2917 2500 2000 1500 1394 1000 837 747 602 664 534 500 372 348 268 206 43 31 0 Africa Asia Europe Latin America Middle East North America Australia Population Internet Users Fig. 1.9 Worldwide Internet usage and population statistics. Data source: Internet World Stats (2022) Media use 50% Communication 47% Search for information 13% Gaming 11% Transactions 5% Multiple answers possible Fig. 1.10 Use of the Internet in everyday life from a consumer perspective. Data source: Beisch and Schäfer (2020) 1.3 Basics of Digital Business 19 Furthermore, the conditions in which, for example, people and organizations interact with each other are increasingly determined by modern technologies. Interactions take place predominantly electronically, networked and in real time. These trends can be traced back to the three essential characteristics of the Internet economy: digitality, networking, and globality. With the advance of the Internet economy, economic structures in particular are changing as well. New forms of business relationships are developing which affect both strategic and operational aspects. This results in a potential for action or reaction due to a variety of developments: Due to the entry of new market participants and globaliza- tion, the established local and regional markets are in danger of losing importance. Strategic alliances are increasingly being set up and expanded at the international level. In addition, Internet technology is now a prerequisite for all companies, even if they offer traditional offline services, as it is nowadays fundamentally anchored at various levels in business processes. Definition and Classification of Digital Business Digital business is one of the most important application areas of the new digital information and communications technologies. The compound annual growth rate (CAGR) of e-commerce alone, a subsegment of digital business, is estimated to be 12.7% for the period between 2017 and 2027 (Statista, 2022). Against a background of considerable growth, the volume of traffic on the Internet has increased significantly. The constant increase in performance, increas- ing penetration, and falling costs in the area of broadband and fiber-optic cabling have ensured that completely new products and services can be offered. Figure 1.11 shows a forecast of the business Internet data traffic volume in the USA. 250 224.08 200 Business Internet traffic in billion gigabytes 178.21 150 141.73 112.72 100 89.65 71.3 56.7 50 45.1 0 * Forecast 2016 2017 2018 2019* 2020* 2021* 2022* 2023* Fig. 1.11 Business Internet data traffic volume in the USA from 2016 to 2023. Data source: Telecom Advisory Services (2018) 20 1 Foundations of Digital Business The growth in the volume of data implies the increasing importance of electronic networks for companies and at the same time shows the need to adapt to the new market situation. Technical innovations therefore influence the market, but can also arise from it. Against this background, the structure of digital business is described and ana- lyzed. To this end, a definitional classification of digital business is provided first, followed by a description of the actors, interaction patterns, and the exchange of services in digital business. On this basis, specific activities of digital business and user behavior are described, and finally, success factors are analyzed. Definition of Digital Business In the context of the Internet economy, there are various terms and definitions. In general, the current literature has a heterogeneous understanding of the term digital business. Although there is no uniform terminological treatment, there is a trend to use the terms digital business, e-business, and e-commerce synonymously. In addi- tion, the existing definitions frequently overlap to some extent, which is exemplary for the terminological inconsistency of the term’s application. Table 1.1 presents some important definitions of digital business. To systematically deduce a definition of the term digital business, it is necessary to subdivide these definitions into subject-related, functional, and teleological aspects. While subject-related aspects deal with the subject and structure of the respective content of the term, functional aspects refer to its effectiveness and teleo- logical aspects to its aim and purpose. In the context of subject-related definitions, the consistency of some characteris- tics is predominant. Most definitions consider the creation of business processes and transactions as the focus of digital business. Several definitions refer to the usage of innovative information technologies. For instance, IBM (1997) used the term of “Internet technology” in their original definition of digital business, which has been unified to “information technology” or “information and communication technology” in several subsequent definitions. In addition, the expressions “use of electronic means” and “by means of electronic communication networks” have been used synonymously for electronic information technology (Jelassi & Enders, 2005). In general, there is a clear consensus with regard to the creation of business pro- cesses and transactions through the usage of innovative information technology (Zhu & Kraemer, 2005). The latest subject-related definitions involve the applica- tion of digital business via emerging technologies, such as wireless transmissions on mobile telephone networks and applications. In contrast, when looking at the functional aspects, there is a lack of clarity regarding the extent and the intensity of certain aspects. For instance, some defini- tions restrict the number of actors involved by constraining digital business to the interorganizational business domain. This results in a narrow comprehension of the term. Other definitions expand the circle of actors by including interorganizational and customer-related perspectives. Furthermore, there is no clear consensus 1.3 Basics of Digital Business 21 Table 1.1 Selected definitions of e−/digital business Author(s) Definition IBM (1997) “A secure, flexible and integrated approach to delivering differentiated business value by combining the systems and processes that run core business operations with the simplicity and reach made possible by Internet technology.” PricewaterhouseCoopers “Hereafter, e-business will be defined as the application of (1999) information technologies to facilitate buying and selling of products, services and information over public standard-based networks.” Wirtz (2000b) E-business [...] is defined as the initiation, negotiation and/or transaction of a business between economic subjects which is electronically realized through telecommunication networks.a Rayport and Jaworski “E-business can be formally defined as technology-mediated (2001) exchanges between parties (individuals, organizations, or both) as well as the electronical based intra- or inter-organizational activities that facilitates such exchange.” Jelassi and Enders (2005) “The use of electronic means to conduct an organization’s business internally and/or externally.” Chen (2005) “Business that is conducted using electronic networks or electronic media. Sometimes used synonymously with e-commerce and sometimes used more widely to include other business activities in addition to buying and selling.” Papazoglou and Ribbers “E-business can be defined as the conduct of automated business (2006) transactions by means of electronic communications networks (e.g. via the Internet and/or possibly private networks) end-to-end.” Chaffey (2009) “All electronically mediated information exchanges, both within an organization and with external stakeholders supporting the range of business processes.” Laudon and Traver “[...] is the use of Internet, the World Wide Web (Web) and mobile (2014) apps to transact business.” Schneider (2017) “The term electronic commerce or (e-commerce) [...] includes all business activities that use Internet technologies. Internet technologies include the Internet, the World Wide Web and other technologies such as wireless transmissions on mobile telephone networks.” Source: Wirtz (2000a, 2021, 2024) a Translated regarding the extent of business processes in digital business. The spectrum of defi- nitions ranges from solely supporting activities via electronic networks to electronic implementation and execution of all business activities. Regarding the teleological aspects, the definitions show a certain heterogeneity. PricewaterhouseCoopers (1999), for example, emphasizes the support of buying and selling processes of products, services, and information. In contrast, Wirtz (2000a) offers a more specific definition. The author extends the teleological aspects by involving the initiation, negotiation, and/or transaction of a business regarding the aim and purpose of digital business. 22 1 Foundations of Digital Business ccDefinition of Digital Business (Wirtz, 2000a, 2021, 2024) Digital business is the initiation and the partial or full support, transaction, and maintenance of service exchange processes between economic partners through information technology (electronic networks). The aim is to perform economic processes more efficiently and effectively. In this context, service exchange processes refer to those processes, in which tangible and intangible goods and services are transferred in exchange for compen- satory consideration. In the case of electronic networks, it is the combination and agglomeration of physical and mobile connections through which electronic data are transferred. Developments in the field of information and communications technology in par- ticular are taking place with considerable dynamism and have now become of cen- tral importance both in scientific discussions and in business practice. The multifunctional communication and transaction forms especially are what make the Internet so attractive. Against this background, the following remarks on digital business focus on the Internet and its most frequently used application, the World Wide Web (WWW). Based on the above-deduced definition, the following chapters present a system- atization and classification of digital business by observing actors, interaction pat- terns, and service exchange and the development of digital user structure and the respective success factors. 1.4 Actors, Interaction Patterns, and Service Exchange Actors of digital business include all providers and recipients of electronic-based or electronic-induced service exchange processes (Schneider, 2017). Consequently, essentially businesses, administrations, and customers appear as actors that interact with each other and hence form the matrix of interaction patterns, which may be complemented by an intra-level. The intra-level represents the service exchange within a single group of actors. Figure 1.12 presents the respective matrix (content based on Hermanns & Sauters, 1999). Interaction Patterns in Digital Business The providers of service exchange processes facilitate a service exchange within electronic networks. They provide goods and services that recipients use on their own initiative or request. In practice, the B2B and B2C sectors are the most impor- tant. The B2B sector summarizes digital service transactions between companies. In this context, both the role of the buyer and that of the seller are taken by companies. Business activity opportunities in the context of B2B are diverse, ranging from online shops to B2B marketplaces and integration of customers and suppliers (Timmers, 1998).  1.4 Actors, Interaction Patterns, and Service Exchange 23 Administration Administration Administration Provider of Service Exchange Administration to to to Intra- Administration Business Consumer Administration Consumer Consumer Consumer Consumer to to to Business Consumer Administration Business Business Business Intra- Business to to to Business Business Consumer Administration Business Consumer Administration Intra Recipient of Service Exchange Fig. 1.12 Matrix of interaction patterns in digital business. Source: Wirtz (2000a, 2021, 2024) Regarding the value creation in the B2C segment, there are companies on the supply side and customers on the demand side. The service exchange may involve physical goods, digital goods, or services, just as in the B2B sector. An example of a service exchange with regard to physical goods is the purchase of textiles through an online shop. For digital goods, the service exchange, for instance, may include the provision of a voice-over-IP call and the additional sale of paid content. Services, in contrast, could be consulting services, purchase recommendations, or processing of user comments, for instance. In the context of digital business, B2A refers to the performance of administra- tive processes between businesses and public entities via electronic information and communication media. These include, for example, transactions with government bodies, such as the processing of companies’ tax matters (e.g., VAT, income tax). Intra-business refers to internal digital business applications of a company. An example in this context may be the offer of a network-based, intraorganizational advanced training. For instance, employees of Volkswagen can visit e-learning cen- ters to improve their foreign language skills. C2B, C2C, and C2A The C2B constellation is mainly characterized by the individuals’ voluntary exchange or disclosure of data to a company. This, for example, may happen by means of databases for job applications, such as monster.com or craigslist.org, through which individuals offer their manpower to companies. Another application is the threadless.com platform, where people can submit their design proposals for T-shirts, which are evaluated and then possibly printed and sold by the platform. In this business model, the interactive value creation comes from the customer. 24 1 Foundations of Digital Business Transactions between private individuals in the digital business domain refer to C2C. These transactions are not necessarily only direct purchase-sale processes, like eBay transactions; they also capture the exchange of digital goods. The Web 2.0 or social media are particularly relevant in this context. For example, a digital exchange of goods between individuals takes place on the video portal YouTube that allows its users to upload free video clips and to watch videos of other users. In general, the Internet is increasingly influenced by the interaction and networking of the users (Wirtz et al., 2014). In the area of C2A, the government is the recipient of a service exchange. The customers, who in this case represent citizens, use electronically networked resources in order to transmit information to government institutions. An example is the electronic tax return (e-file) of income tax. Especially in this area, the accep- tance of C2A has increased steadily in recent years. In the year 2023, more than 134 million income tax returns for the tax year 2023 have been submitted electronically in the USA (e-File, 2023). A2B, A2C, and A2A In the area of A2B, the online tendering of public-sector orders can serve as an example. Companies are enabled to initiate a service exchange process by obtaining the conditions and specifics of the tender online. One example is the legally required public invitation to tender for construction contracts on the website of a public authority. Transactions in the A2C area are rather noncommercial. A supplier of customer services in A2C is the Federal Labor Office, for instance. It offers a job exchange and supports and manages the interaction between the applicants and employers regarding job vacancies online. Nevertheless, in A2C, there are also fee-based offers, for instance, customer information regarding specific products or companies. The A2A area in digital business refers to the electronic handling of certain information tasks between national and international authorities. Some public authorities, for example, are service providers for other authorities. Individual pub- lic authorities are also increasingly interconnected internationally. For example, national police forces are working under the direction of Europol and mutually exchange information electronically. The intra-administration constellation refers to internal activities of public authorities, such as network-based, intraorganizational training opportunities for administrative staff. The role of the provider and recipient of the service exchange process is not determined a priori. Customer Integration In particular, the emergence of Web 2.0 or social media applications leads to an abandonment of traditional business structures. While formerly customers were solely recipients of the Internet, they are now able to be service providers by provid- ing problem-solving information in the course of customer integration. Since digital 1.4 Actors, Interaction Patterns, and Service Exchange 25 business affects all areas of the value chain, its actors may be both provider and recipient of the service exchange at the same time. A private consumer is initially the provider of a service exchange process in the area of C2B, for example, when he proactively sends a company an unsolicited job application via email. In this context, the company is the recipient of the service. If the company responds electronically by sending a detailed online application form, the applicant, and the company switch roles. Stages of Digital Business Development The integration of digital business in organizations and institutions includes four stages of development that particularly differ with regard to their complexity and added value. In its simplest form, a digital business solution is limited to a purely organizational and product/service presentation, as well as to the publication of information for relevant target groups, such as potential customers or investors. In a further stage of development, the Internet service is personalized, as in the case of commercial companies that add pre- and after-sales activities to their business offers. These include customer inquiries, communication via email, general offers, or sending information. In the third stage, there is further the possibility of completing transactions online. Finally, at the fourth stage of development, there is the possibil- ity of electronically integrating transaction partners in the value-added processes. Figure 1.13 illustrates the various stages of development of digital business (content based on KPMG, 1999; AMS, 2000). The individual development stages of digital business are characterized by dif- ferent coordination or transaction phases. A basic distinction can be made between four different phases. Coordination or Transaction Phases of Digital Business The first phase can be described as the information phase (initiation). Here, the matching of supply and demand presentation, as a user interface for enabling inter- action between suppliers and consumers, plays a superordinate role. The subsequent phase is referred to as the agreement phase (negotiation). This essentially involves the negotiation of two sub-problems. On the one hand, the par- ties to the transaction must agree on the services to be rendered and the consider- ation to be paid, as well as on other contractual terms and conditions. On the other hand, the conclusion of a legally binding contract must also be ensured. In the agreement phase, the role of a third-party institution (e.g., certification bodies, trust- ees, or intermediaries, such as eBay’s cooperation with PayPal) in the digital coor- dination/transaction process is given special significance. Finally, the settlement phase concludes the electronic transaction and involves the settlement of the electronic contracts. This can be carried out electronically on the supplier side for digital goods or by using logistics services for goods that 26 1 Foundations of Digital Business Stage of Development Economic 4: Activity/ Value and Partner Value Creation Integration Electronic integration Stage of Development of transaction 3: partners into value Commercial creation processes Transaction Highest stage of Online transaction, interactivity Stage of Development e.g., conclusion of 2: sales contracts Communicational Interaction Back office integration Pre- and aftersales Stage of Development services 1: Customer request, Static Presentation e.g., via email Sending information Product and business description Static content No personalization Publication of company information Complexity Fig. 1.13 Stages of digital business development. Source: Wirtz (2000a, 2021, 2024) cannot be digitized. Electronic payment systems, such as credit card-based pro- cesses, online payment systems, or gift cards, are primarily used by customers to provide the service in return. Digital Market Model of Internet Economy In addition to the specific attributes of service exchange processes and the develop- ment stages of digital business, there are also fundamental changes in the process structure compared to traditional economy (Chesher et al., 2013). Figure 1.14 shows a highly simplified service exchange process. The digital marketplace is at the cen- ter of digital business transactions and the place where supply and demand merge, just like in the traditional economy. The market access in the digital business domain, in contrast, partly differs from the one of traditional business. On the one hand, suppliers of products and services require market access in order to interact in the digital marketplace. Here, particularly technical aspects are important. Product-specific information has to be processed in a manner that makes them transferable to the market. This requires special hardware and software. If these conditions are met, the supplier may choose between a direct market entry, an intermediary agent, or aggregator in order to operate in the digital market. In the 1.4 Actors, Interaction Patterns, and Service Exchange 27 Handling of Payments Creditworthiness management Debt collection Authorization Security Agent/ Market Market Agent/ Digital Market Aggregator Access Access Aggregator Place customer/ customer/ supply side supply side user side user side Addressa- Generation of Merging supply Requesting Addressa- Customer/User bility customer and demand and bility Informa- needs Trading structuring Informa- Provider tion Bundling Authentication quotes tion proces- consumer Privacy/ Search proces- sing and profiles integrity support sing and trans- Customer trans- Order manage- mission service mission ment direct access direct access Distribution and Logistics Distribution Logistics services Customer service Fig. 1.14 Digital market model of Internet economy. Source: Wirtz (2000a, 2021, 2024) former case, the supplier himself has to create customer needs, bundle customer profiles, or offer customer service. In the latter case, the agent or aggregator is responsible for these tasks. On the other hand, customers also require market access. In this context, there are several service providers, who offer Internet access to individuals. For custom- ers, it is also important to transmit information such as product needs into the mar- ket. Just like the supply side, they can also choose between different options for market access (Papazoglou & Ribbers, 2011). The intermediary agent or aggregator undertakes the task of collecting and struc- turing offers, as well as supporting the customers in their product and service search. Payment processing and distribution require third-party involvement to some extent. Distributors such as FedEx deliver the ordered products to the customers. Payment processing includes creditworthiness management, debt collection authorization, and security. Credit card companies and online payment services such as PayPal or Amazon Payments undertake these tasks. Digital Intermediaries Both the development stages and the coordination/transaction phases make it clear that the Internet is highly complex, with a large number of players and services. In many cases, the coordination of the various demand and supply elements is only achieved through trading or information intermediaries, so-called digital intermedi- aries or cybermediaries. 28 1 Foundations of Digital Business These include search tools (especially catalogs and search engines), such as Google and Bing, and content packagers (especially online services and electronic shopping centers), such as T-Online and AOL. In addition, intelligent software agents can also serve as intermediaries (in particular search bots, news analyzers, purchasing agents, and price search engines), such as PriceGrabber.com. These trading or information intermediaries fulfill the functions of complexity reduction, optimization, confidence building, transparency building, and standard- ization in order to support the coordination of supply and demand in electronic markets in the long term. Activities of Digital Business Activities of digital business systematize the concept in functional respects. According to this, digital business consists of the activities e-commerce, digital col- laboration, digital communication, digital education, and digital information/enter- tainment. This functional division results from the divergent characteristics and intentions of the respective activities. Figure 1.15 combines these activities with the actors of digital business. E-Commerce E-commerce includes the service exchange processes of initiation, negotiation, and conclusion of trading transactions between economic agents by means of electronic networks. The actors use the opportunities of information and communication Actors Activities Enterprises/ Digital Education Digital Institutions Transfer of edu- Collaboration cation and training Interactive, inter (public/ services and/or intra- private) organizational collaboration e-Commerce Digital Initiation, nego- Communication tiation and/or Provision of Digital e-Commerce conclusion of communication Information/ Initiation, nego- trading platforms and Entertainment tiation and/or transactions opportunities for Provision of conclusion of data/information informative and/or trading exchange entertaining transactions contents and concepts Digital Education Digital Transfer of edu- Communication cation and training Provision of services communication platforms and opportunities for data/information Consumers exchange Fig. 1.15 Actors and activities of digital business. Source: Wirtz (2000a, 2021, 2024) 1.4 Actors, Interaction Patterns, and Service Exchange 29 technologies to sell goods and services, as well as to simultaneously avoid the costs of physical presence (Turban et al., 2015). The aim of e-commerce is to realize efficiency gains, potentials for cost reduction, and convenience benefits during a (trading) transaction (Hsu et al., 2006). This does not only apply to the intraorgani- zational and interorganizational fields, but also pertains to the efficient arrangement of company-­to-end customer relationships. E-commerce activities, for example, refer to electronic price negotiations or signing supplier invoices by means of digital signatures. Digital business enter- prises therefore often engage in e-commerce. However, digital business is the broader concept since it also includes processes that go beyond the purchase and sale of products, for instance, the provision of product-related information and the exchange of (costless) teaching material by means of electronic networks. Thus, e-commerce may be subsumed under the broader term of digital business. ccDefinition of E-Commerce (Wirtz, 2000a, 2021, 2024) E-commerce involves the digital support of activities that are directly related to the purchase and sale of products or services through electronic networks. Digital Collaboration Digital collaboration enables time and distance-independent cooperation by sup- porting processes of cooperation and adapting them to business activities (Wirtz & Vogt, 2003). Furthermore, the possibility of intermediate storage allows to coordi- nate the results of cooperation and to transfer information-based components. The aim of digital collaboration is to optimize processes, applications, and data transfers that are associated with service provision or service exchange processes. Here, companies seek to achieve economies of scale and economies of scope by integrating and using complementary organization-specific resources. Unbundling existing goods and services and recombining them in changed profiles further pro- mote digital collaboration (Warkentin et al., 2001). ccDefinition of Digital Collaboration (Wirtz, 2000a, 2021, 2024) Digital collaboration refers to digital, network-based, interactive, and intraorganizational or interorganizational cooperation. Digital Communication Digital communication aims at providing communication opportunities for task-­ related or interest-based understanding. The possibility of intermediate storage allows to coordinate communication and makes it more flexible. Communication may not only occur at the intraorganizational and interorganizational levels but also at the retail level. The one-way or two-way communication process takes place by means of information and communication technologies, such as email, video con- ferencing, and the new opportunities of social media. 30 1 Foundations of Digital Business ccDefinition of Digital Communication (Wirtz, 2000a, 2021, 2024) Digital communication refers to the paid and nonpaid provision and use of network-based and digital communication