MIS Week 9 Lecture Notes PDF

E-commerce: Digital Markets, Digital Goods Week 9 4 Part Dr. Azza Zeinelabdin Karrar  LEARNING OBJECTIVES What are the unique features of e-commerce, digital markets, and digital goods? What are the principal e-commerce busine...

E-commerce: Digital Markets, Digital Goods Week 9 4 Part Dr. Azza Zeinelabdin Karrar  LEARNING OBJECTIVES What are the unique features of e-commerce, digital markets, and digital goods? What are the principal e-commerce business and revenue models? How has e-commerce transformed marketing? What is the role of m-commerce in business and what are the most important m-commerce applications? Week 9: E-commerce PART 1: FEATURES OF E-COMMERCE  Unique Features of E-commerce, Digital Markets, and Digital Goods E-commerce: Use of the Internet and Web to transact business Began in 1995 and grew exponentially The new e-commerce: social, mobile, location based (local) The Growth of E-commerce The New E-Commerce: Social, Mobile and Local  Unique Features of E-commerce, Digital Markets, and Digital Goods Eight unique features of Internet and Web as commercial medium  Ubiquity (available everywhere)  Global reach  Universal standards  Richness  Interactivity  Information density  Personalization/customization  Social technology  Unique Features of E-commerce, Digital Markets, and Digital Goods  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  Unique Features of E-commerce, Digital Markets, and Digital Goods 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  Unique Features of E-commerce, Digital Markets, and Digital Goods Universal standards  One set of technology standards: Internet standards  Effect: Disparate 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  Unique Features of E-commerce, Digital Markets, and Digital Goods 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  Unique Features of E-commerce, Digital Markets, and Digital Goods Interactivity  The technology works through interaction with the user  Effect: Consumers engaged in dialog that dynamically adjusts experience to the individual Consumer becomes co-participant in process of delivering goods to market  Unique Features of E-commerce, Digital Markets, and Digital Goods 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 judgment  Unique Features of E-commerce, Digital Markets, and Digital Goods 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  Unique Features of E-commerce, Digital Markets, and Digital Goods 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 Week 9 : E-commerce PART 2: EFFECT OF THE INTERNET ON THE MARKETPLACE  Unique Features of E-commerce, Digital Markets, and Digital Goods Effect of the Internet on the marketplace Reduces information asymmetry (when one party in a transaction has more information that is important for the transaction than the other party) Offers greater flexibility and efficiency because of: Reduced search costs (the effort to find suitable products) and transaction costs (the cost of participating in a market) Lower menu costs (merchants’ costs of changing prices) Greater price discrimination (selling the same goods, or nearly the same goods, to different targeted groups at different prices) Dynamic pricing (the price of a product varies depending on the demand characteristics of the customer or the supply situation of the seller)  Unique Features of E-commerce, Digital Markets, and Digital Goods Effect of the Internet on the marketplace:  May reduce or increase switching costs  May delay satisfaction: effects dependent on product  Increased market segmentation  Stronger network effects  More disintermediation (the removal of organizations or business process layers responsible for intermediary steps in a value chain)  The Benefits of Disintermediation to the Consumer The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product, such as a sweater. Removing layers lowers the final cost to the consumer  Unique Features of E-commerce, Digital Markets, and Digital Goods Digital goods  Goods that can be delivered over a digital network For example: music tracks, video, software, newspapers, books  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.) Week 9 : E-commerce PART 3: E-COMMERCE MODELS AND IT’S EFFECT ON MARKETING  E-commerce Business and Revenue Models Three major types of e-commerce  Business-to-consumer (B2C) Example: BarnesandNoble.com  Business-to-business (B2B) Example: ChemConnect  Consumer-to-consumer (C2C) Example: eBay E-commerce can be categorized by platform  Mobile commerce (m-commerce)  E-commerce Business and Revenue Models E-commerce business models  Portal: advertising  Content provider: access fees, advertising  Service provider: subscription fees, advertising  Community provider (could be Facebook) revenue: sales of virtual goods, display ads  Transaction broker  Market creator  E-tailer E-commerce Business Models  E-commerce Revenue Models A firm’s revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on investment Six common types:  Advertising: banner ads, popup ads and search engine text ads (Yahoo, Google, Facebook)  Sales: selling goods, information, or services to customers Micropayment systems (Amazon)  Subscription: subscription fees on an ongoing bases (The Wall Street Journal)  E-commerce Revenue Models  Free/Freemium: offer basic services or content for free, while charging a premium for advanced or special features One problem with this model is converting people from being “free loaders” into paying customers (Google)  Transaction fee: company receives a fee for enabling or executing a transaction (eBay)  Affiliate: affiliate Web sites send visitors to other Web sites in return for a referral fee or percentage of the revenue from any resulting sales (Amazon)  How Has E-commerce Transformed Marketing? E-commerce marketing  Internet provides new ways to identify and communicate with customers  Long tail marketing: Ability to reach a large audience inexpensively  Internet advertising formats  Behavioral targeting: Tracking online behavior of individuals on thousands of Web sites and within apps Privacy concerns  Web Site Visitor Tracking E-commerce Web sites have tools to track a shopper's every step through an online store. Close examination of customer behavior at a Web site selling women's clothing shows what the store might learn at each step and what actions it could take to increase sales Web Site Personalization  Social e-commerce:  Based on digital social graph: a mapping of all significant online social relationships. Features of social e-commerce driving its growth  Newsfeed  Timelines  Social sign-on  Collaborative shopping  Network notification  Social search (recommendations)  Social e-commerce and Marketing Social media:  Fastest growing media for branding and marketing Social network marketing:  Seeks to leverage individuals influence over others in social graph  The target is a social network of people sharing interests and advice  Facebook’s “Like button”  Social networks have huge audiences Facebook: 137 million U.S. visitors monthly  How Has E-commerce Transformed Marketing? Social shopping sites Wisdom of crowds : a phenomenon where large numbers of people can make better decisions about a wide range of topics or products than a single person or even a small committee of experts. Crowdsourcing  Large numbers of people can make better decisions about topics and products than a single person Prediction markets  Peer-to-peer betting markets on specific outcomes (elections, sales figures, designs for new products) Week 9 : E-commerce PART 4: M-COMMERCE  M-commerce and M-commerce Applications M-commerce  In 2021 is 66% percent of all B2C e-commerce  Fastest growing form of e-commerce Some areas growing at 50 percent or more  Main areas of growth (exclusive of location-based services) Retail sales at top Mobile 400 (Amazon, eBay, etc.) Sales of digital content (music, TV, etc.)  Consolidated Mobile Commerce Revenues Mobile e-commerce is the fastest growing type of B2C e-commerce and represents about 19 percent of all e-commerce in 2014.  M-commerce and M-commerce Applications Location-based services  Used by 74 percent of smartphone owners  Based on GPS map services  Types Geosocial services – where your friends are meeting Geoadvertising – What shops are nearby : can tell you where to find the nearest Italian restaurant Geoinformation services – Price of house you are passing  In 2020, the fastest-growing and most popular location-based services are on-demand economy firms such as Uber  M-commerce and M-commerce Applications Other mobile commerce services  Banks, credit card companies provide account management apps  Mobile display advertising Ads embedded in games, videos, and mobile apps Connecting people to local merchants in the form of geoadvertising is the economic foundation for mobile commerce. Geoadvertising sends ads to users based on their GPS locations.  55 percent of online retailers have m-commerce Web sites Mobile App Payment Systems  References First Reference: (Main Reference ) Management Information Systems: managing the digital firm (17th edition), Kenneth C. Laudon and Jane P. Laudon, Prentice Hall – Soft copy available. Today lecture references: Ref 1: Chapter 10 Recommended Video Cases