E-COMMERCE: DIGITAL MARKETS, DIGITAL GOODS Part-I.

E-COMMERCE: DIGITAL MARKETS, DIGITAL GOODS

Part-I

Chapter Objectives

• Describe the unique features of e-commerce, digital markets, and digital goods.

• Analyze how Internet technology has changed value propositions and business

models.

• Describe the various types of e-commerce and how e-commerce has changed

consumer retailing and business-to-business transactions.

• Evaluate the role of m-commerce in business and describe the most important m-

commerce applications.

• Compare the principal payment systems for electronic commerce.

Electronic Commerce and the Internet

• E-commerce:• Digitally enabled commercial transactions between and among organizations

and individuals, primarily over Internet• Began in 1995 and growing exponentially at 25% growth rate annually • Rapid growth led to dot-com bubble (burst in 2001)• Today e-commerce revenues picture is very positive

• E.g. Global annual revenue from ecommerce amounted to $1.3 trillion in 2014.

THE GROWTH OF E-COMMERCE

Eight unique features of e-commerce

1. Ubiquity• Internet technology available anytime and everywhere: work, home,

mobile devices• Business significance:

• Marketplace is extended beyond traditional boundaries.• Marketspace, marketplace extended beyond traditional

geographical boundaries, is being created• Shopping can take place anywhere - customer convenience is

enhanced, shopping costs are reduced

Eight unique features of e-commerce

2. Global reach

• Technology reaches across national boundaries, around Earth

• Business significance:

• Commerce enabled across cultural and national boundaries seamlessly, without modification

• Marketspace includes potentially billions of consumers and millions of businesses worldwide

Eight unique features of e-commerce

3. Universal standards• One set of technology standards: Internet standards• Business significance:

– Disparate computer systems easily communicate with each other– Lower market entry costs—costs merchants must pay to bring goods

to market– Lower consumers’ search costs—effort required to find suitable

products

Eight unique features of e-commerce

4. Richness• Supports video, audio, and text messages• Business significance:

– 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

Eight unique features of e-commerce

5. Interactivity• The technology works through interaction with the user• Business significance:

– Consumers engaged in dialog that dynamically adjusts experience to the individual

– Consumer becomes co-participant in process of delivering goods to market

Eight unique features of e-commerce

6. Information density

• Technology reduces information costs and raises quality

• Business significance:

• Information becomes plentiful, cheap, and more accurate

• Increases price transparency and cost transparency

• Enables price discrimination

Eight unique features of e-commerce

7. Personalization/customization

• Technology allows personalized messages to be delivered to individuals as well as groups

• Permits customization—changing delivered product or service based on user’s preferences or prior behavior

• Business significance

• Personalization of marketing messages and customization of products and services are based on individual characteristics

Eight unique features of e-commerce

8. Social technology• The technology promotes user content generation and social networking • Business significance

– New Internet social and business models enable user content creation and distribution, and support social networks

Key concepts in e-commerce

• Digital markets and digital goods• Internet shrinks information asymmetry

• Information asymmetry: when one party has more information important for transaction

• E.g. Information asymmetry between auto dealers and customers• Digital markets more flexible and efficient

• Reduced search and transaction costs• Lower menu costs (cost of changing prices)• Dynamic pricing

Key concepts in e-commerce

• Internet enables disintermediation

• Disintermediation:

• Removal of organizations or business process layers responsible for intermediary steps in value chain

• Enables selling direct to consumer

Key concepts in e-commerce

• Digital goods

• Goods that can be delivered over network

• E.g. Music tracks, video, e-books, software

• Cost for producing first unit is nearly total cost of product: Cost for producing additional units very low

• Industries with digital goods are undergoing revolutionary changes

• Video rental services

• Record label companies

• Newspapers and magazines

E-commerce Business Models

Internet business modelsVirtual storefront

Information broker

Transaction broker

Online marketplace

Content provider

Online service providerVirtual community

Portal

E-commerce Revenue Models

Advertising Sales

Subscription

Free/Freemium

Transaction Fee

Affiliate

Thank YouEnd of Part-I