Ecommerce Chap 05

1© Prentice Hall, 2000

Chapter 5EC in Service Industries


Learning Objectives

Understand how broker-based services are performed online

Describe online travel tourism services and their benefits

Discuss the impact of EC on the travel industryDescribe the online job market, its drivers and

benefitsDescribe the electronic real estate marketUnderstand how stock trading is done online and

its benefits


Discuss cyberbanking, its drivers and capabilities

Discuss implementation issues of online financial services and its future

Describe electronic auctions, their benefits, implementation, and impacts

Describe some innovative applications in the service industries

Discuss the future of intermediaries and their role in cyberspace

Learning Objectives (cont.)

Opening Vignette:Ordering Journals Electronically

How a large university automated the purchasing of magazines and journals, saving $365,000/year

Direct Marketing: Buyer-to-seller; orders and payments

Market maker charges $5/transaction Vs. about $40 (conventional agents)

Ordering time reduced by up to 80%

4

Electronic Commerce in Magazine Ordering

Opening Vignette:Ordering Journals Electronically (cont.)

5

Publisher

Publisher’sBank

Universityof California

ElectronicCatalogs

Buyer’sBank

BANC ONE

OM Transact

BANC ONE

AutomatedClearing

House (ACH)

Rowe. Com’sAccount

Rowe.Com SystemEDIOrder + Payment

EDI, Internet Order

Browsing

EDI Payments

Fee$5 Fee

Payment

Buyer SellerIntermediary


Broker-Based Services

Brokers work as intermediaries between buyers and sellers

Agents basically make the marketsAgents provide many servicesMost of the value-added tasks of brokers can be

automatedMajor electronic agent-based services

travel employment real estate stocks

electronic auctions at-home banking insurance


Service Industries Vs. Manufacturing and Product’s Retailing

Broker-Based Services (cont.)

Service Industries pure EC substantially reduced costbank and brokerage houses

• possible digitization of the entire processtravel and real estate agents

• viewing an online video clip or seeing photos of a hotel or a house for sale

Manufacturing and Product’s Retailingphysical delivery cost may be high


Travel and Tourism Services

By the year 2000, close to 25 percent of all business-to customer Internet commerce will be related to tourism

The Internet is an ideal place to plan, explore, and arrange almost any trip

IBM’s vision of seamless electronic travel using smart cards


Services Provided

Information and booking of airlines, hotels, cars, and even golf courses

Fare comparisons

360 degree video tours of top destinations

Electronic Travel magazine

Tips provided by people that experienced certain situations (like a visa problem)

Pictures of major attractions

Providing maps

Information about entertainment and ticket purchasing (such as www.ticketmaster.com)

Converting 200 currencies

Travel and Tourism Services (cont.)

Worldwide business and places locator

E-mail to intermediary

Chat rooms and bulletin boards

Major international news

Weather watchExperts’ options

Shopping for travel accessories and books

Special interest vacations

Current status of flights

(real time)

Fare tracker (free e-mail alerts on low fares)

Bed and breakfast recommendations

Restaurant reviewsSpecial discount information

Frequent flier deals

Travel news

Driving directions in the US




Benefits and Limitations

Limitations Not all people use

the Internet It may take a long

time to find what you want

People are still reluctant to provide credit card numbers

Benefits Free information is

tremendous Free information is

accessible anytime Substantial discounts



Corporate Travel: New Business Model

The Impact of EC on the Travel Industry Porter’s framework of competitive advantage (the

five forces) Focus:

environmentcompetitive responsesfirm’s strategy

The industry is clearly transformed Taking away some functions traditionally performed

by travel agents



Impacts on the industry


Multimedia helps customers understand the products

Offering of lower-cost trips Providing a more personalized service Saving money in a paperless environment Increasing the convenience of getting

information at home Supporting a customer-focused strategy (such

as targeted advertisement and integration of products); push information to customers


Travel agencies, as we know them today, will disappear

Only their complex value-added activities will not be automated

These complex activities will be performed by a new breed of intermediates



The Future


Collaborative organizational process performed by multiple organizational intelligent agents

Acting autonomously Work cooperatively Work collectively to achieve the collective goal Example — How will your next vacation be

planned, booked and paid for?


The Employment Placement Market

Job markets Employers are looking for employees with

specific skills, and individuals are looking for a job

Very volatile market Moved to the Internet Millions of job seekers, hundred of thousands of

jobs


Shortcomings of the Non-Internet Job Market

The Employment Placement Market (cont.)

Cost—Classified ads are expensive.

Life cycle— Unless renewed, at an additional cost, the life of the ads is only days or weeks.

Place— Most ads are local. Nationwide ads are very expensive. International ads are even more expensive.

Minimum information— Because of the high cost, the information provided is minimal and may not appeal to some job seekers.

Search— It is very time consuming for individuals to find all relevant newspapers. A trip to a library results in finding only major out of town newspapers.


Finding applicants— Most job seekers, in the pre Internet era, did not place ads about their availability. Some sent unsolicited letters with resumes. This situation made it difficult for companies to find employees with special skills. They had to use employment agencies and pay them high commissions.

Matching— It was difficult to match candidates to open jobs as well as to match supply and demand.

Lost and dated material— Some applications or letters of response tended to get lost, or arrive late. A letter in a big city may travel two weeks to arrive at a distance of a few blocks.

Speed— Communication by mail is slow and so is the processing of a large number of applications. Frequently, employers lose good employees, since by the time the application is processed, the applicant had taken another job. Similarly, applicants accept less desirable jobs because they are afraid to wait too long.



The Internet Job Market


The Internet offers a perfect environment; it is especially effective for technology-oriented jobs.Job seekersJob offerersRecruiting firmsGovernment agencies and institutions


The Advantage of the Electronic Job Market


For job seekersAbility to find very detailed and timely information on a

large number of jobs world-wideAbility to quickly communicate with potential employersAbility to post resumes for large-volume distributionAbility to search for jobs quickly from any place at any

timeObtain several support services at no cost

• writing resume career development how to interviewFind employer profile & industry guides

• www.valuereports.com


For employersAbility to advertise to a large number of job seekersAbility to save on advertisement costsLower the cost of processing (using electronic

application forms)Ability to provide greater ‘equal opportunity’ for job

seekersAbility to find highly skilled employeesAbility to conduct tests quickly, onlineAbility to change and update ads quicklyAbility to fill up positions rapidlyInterviewing from distance



The Limitations of the Electronic Job Markets


Many people do not use the Internet Security Privacy Lack of face-to-face contact


Major Services Available on the Net Finding a job Writing and posting resumes Career planning Newsgroups

The Intranet Job Market Most companies organize an internal electronic

job market Openings are posted for employees to look at,

and search engines enable managers to identify talents even if the people were not actively looking for a job change



Real Estate: From Virtual Realtors to Virtual Reality

You can view many properties on the screenYou can sort and organize propertiesYou can find detailed information about the

propertiesYou can search, compare and apply for

loans


Real Estate Applications

Real Estate: From Virtual Realtors to Virtual Reality (cont.)

International Real Estate Directory and News is the most comprehensive Web site

www.ired.com National listing of real estate properties

www.cyberhomes.com Commercial real estate directory

www.comspace.com The complete real estate software catalog

www.mnink.com/re/cover.html


Mortgage comparisons and calculations and other financing information; mortgage application

www.eloan.com ;www.homeshark.com

Searching residential real estate in multiple databaseswww.homescout.com

Real estate related maps are available on:www.mapquest.com

Automating the closing of real estate transactions, which is overwhelmed by paperwork




The National Association of Realtors, www.realtor.com has links to property listings in all major US cities

To find how much house you can afford, consult: www.replace.com/links.html

Mortgage brokers can pass on loan applications over the Net and receive bids from lenders that want to issue the mortgages




To find mortgage interest rates online use: www.bankrate.com www.eloan.com www.quickenmortgage.com

To rent an apartment or a house try www.rent.net Several additional services are available including a virtual walk through of some listings




Trading Stocks Online

Costs between $7 and $20 per transaction (Vs. $30 - $100 in traditional brokerage)

No waiting on busy telephone lines

No oral communication, less chance for errors

Place orders from anywhere, any time, day or night

No biased broker to push you

Considerable amount of free information


E*Trade, Schwab OnlineThe order is routed to Schwab’s host computer in San Francisco and, within a split second, forwarded to the trading floor of the New York Sock Exchange (NTSE).

In a few seconds, (most cases), Schwab confirms that trade and the price, relaying the information to the investor’s PC.

Order is transferred to Schwab’s floor brokers at the NYSE, who take it to the specialist, who finds the best price and, if satisfactory, the order is fulfilled.

YesOrder is automatically transferred to a specialist and fulfilled based on the bid and ask prices.

No

Trading Stocks Online (cont.)

Is the order larger than 30,000 shares?

Order is placed, as described earlier, on an electronic form from any computer with access to the Web, anywhere in the world.


Investment Information


For municipal bond pricing see : www.bondmarkets.org and www.investinbonds.com

For overall market information and many links see: www.cyberinvest.com

For free Gurus’ advice see: www.upside.com

For stock screening and evaluation try: www.marketguide.com

www.aaii.com provides articles from the Journal of the American Association of Individual Investors


pomaven.com reports the latest findings and pricing of IPOs

For chart lovers try www.bigcharts.com

For mutual funds evaluation and other interesting investment information see www.morningstar.net

Almost anything that you need will be provided to you by www.yahoo.com

www.firstcall.com provides earning estimates and much more

Initial public Offerings (IPOs) Spring Street Brewing



Cyberbanking and Personal Finance

Electronic banking Saves time and

money for users Offers an inexpensive

alternative to branch banking

Application Case: Cyberbanking at Wells Fargo


Implementation Issues in Banking and Online Trading

Cyberbanking and Personal Finance (cont.)

Encrypted SSL Session & Digital Certificate Verification Initiated

External Firewall

B of AWeb Server

Internal Firewall

B of A Application

Server

Bank of America Security System

Logon Screen•User ID•User Password

B of AWeb Site

Customer’sComputer

Securing Financial TransactionsApplication Case: Security at NationsBank


Using the Extranet Imaging Systems Pricing Online Vs. Offline Services The Future of Banking

building alliances quickly with banks, and software vendors, and information providers

effective outsourcing without neglecting to build in-house skills, particularly with respect to customer information systems

focusing on the profitable customers to provide broad channels for services and products

keeping a central role in the payment environment

Cyberbanking and Personal Finance (cont.)


Alternative Strategies for Banking

Customers’ Agents— banks unable to achieve economies of scale

Offer customers the widest possible choices, including products from multiple sources, and provide the customers with integrated information services

Product Manufacturers— banks able to achieve economies of scale

It will strengthen a trend that can already be seen in a number of product segments and in core processing services for small and medium sized institutions

Integrated Players— banks with a strong brand and position from manufacturing to deliveryMany banks will adopt a hybrid strategy, but every player needs

to make crucial decisions about which areas are strategically too risky to outsource and which capabilities need to be built up in-house


Billing Online

Automatic transfer of mortgages This method has existed for several years. The payer

authorizes its bank to pay the mortgage, including tax escrow payments.

Automatic transfer of funds to pay monthly utility bills As of fall 1997, the city of Long Beach has allowed its

customers to pay their gas and water bills automatically form their bank accounts.

In 1999, many utility companies worldwide, including those in Hong Kong, allow customers to pay from bank accounts, or ATMs.


Paying bills from online banking account

Billing Online (cont.)

Consumer

Bill Consolidator Billers

Phone

Credit Card

Utility

Such payments can be made into any bank account. Many people pay their monthly rent and other bills directly into the payee’s bank accounts.


A merchant-to-customer direct billing


Under this model, a merchant like American Express posts bills on its Web site, where customers can view and pay them . This means that the customers have to go to many Web sites to pay all their bills. Several utilities in Los Angeles allow customers to pay bills on the utilities’ Web site, charging customers 20 cents per transaction, which is less than the price of a postage stamp.


Using an intermediary According to this model, a third party like MSFDS

(Microsoft and First Data Corporation) consolidates all bills related to each customer in one site, and in a standard format. Collecting a certain commission, this intermediary makes it convenient both for the payee and payer to complete transactions. This model is of interest to vendors such as E*Trade, and Intuit.

Personal finance online Available from many banks and other financial

institutions, frequently free of charge.



Used when the conventional marketing channels are ineffective or inefficient

Offer trading opportunities for both buyers and sellers which are not available in the conventional channels

Internet provides much cheaper infrastructure with many more involved sellers and buyers

Individual consumers and corporations alike can participate in this rapidly growing and very convenient form of electronic commerce

Auctions: From Theory to Practice


Types of Auctions

Auctions: From Theory to Practice (cont.)

Auction Type

Co-ordination Mechanism

Price Discovery

Allocation Mechanism

Distribution Mechanism

BuyerRole

Short term acquisition of resources, e.g. for demand peaks, auction as a mechanism to achieve an equilibrium

Often experts/ professional collectors trying to acquire rare items at a reasonable price

Bargain hunting, gambling motive

Bargain hunting, gambling motive; possible side motive: charity

SupplierRole

Short term allocation of resources, load balance

Exposing items for sale to a sufficient breadth of demand, hope for a high price

Clearance of inventory

Attention, direct sales channel, public relations; possible side motive: charity

Auctioneer/Intermedi-aryRole

Often electronic auction without auctioneer

Achieve high breadth and depth of the auctions, high trading volume results in high returns, competitive advantage over other auctions

Achieve high breadth and depth of the auctions, high trading volume results in high returns, competitive advantage over other auctions

Limited role because of 1:n supplier - buyer relation; possible function as service provider for the supplier side


Limitations of traditional auctions Last only a few minutes for each item sold Give buyers little time to make a decision The bidders do not have much time to examine

the goods Exclude many potential bidders May be complicated for sellers to move goods to

the auction site Commissions are fairly high (rent, advertising,

auctioneer and other employees)



Electronic Auctions


Early auctioning done on local area networksthe auctioning of pigs in Taiwan and Singaporethe auctioning of flowers in Hollandthe auctioning of cars in Japan

Auctions on the Internet started in 1995similar to offline auctions, except for the fact that they are

done on a computersome last days, others a short timedetailed information is availablestart bidding by sending e-mail or filling out an electronic

formnames of bidders are kept coded to maintain privacy


Auctioning methodsYankee methodDutch (Reverse bidding) method“Straight sale” method

Exampleswww.usaweb.com/auction.html ; a directory of

sites, searchOnsale, eBay, uBid


Electronic Auctions


Benefits

For seller• Sells goods efficiently• Sells goods with little action

or effort• Creates a greater range of

potential buyers• Sells excess inventories

quickly via this process

For buyers• Gets a huge variety of goods• Finds quality goods for largely

discounted prices

LimitationsInability to

physically see the items

Possibility of fraud

Less competitive atmosphere may prevail on the Net

Benefits and Limitations



Impacts

Parameter Impact of the Web

Auctioneer Lower entry barriers, opportunity for direct sales

Access rules Customizable, theoretically millions of potential customers can be reached

Itemsauctioned

Focused product segments can be auctioned off, the technology extends the complexity of the product description

Trading rules The trading rules reflect the lack of a guaranteed service

Executionprocess

For digital products the entire trading cycle can be handled on the Web; for physical products the trading process and the physical logistics of the trade objects can be separated, leading to a reduction of costs


Online Publishing

The electronic delivery of newspapers, magazines, news, and other information through the Internet

Online Publishing Today and Tomorrow Today— mainly used for disseminating

information and for conducting sales transactions interactively

Tomorrow— include more customized material that the reader will receive free, or will pay for


Publishing Modes newspapers, magazines, news, textbooks, music,

artwork, video clips, and movies

Publishing Methods online archive approach— a digital archive such as

library catalogs and bibliographic databases new medium approach— add extra

comprehensiveness to any issue or topic publishing intermediation approach— an online

directory for news services dynamic or just-in-time approach— create content in

real-time and transmitted on the fly

Online Publishing (cont.)


Virtual Teaching and Universities

Knowledge Dissemination

Many universities are offering limited courses and degrees but use innovative teaching methods and multimedia support

MBA program in Hong Konglectures are delivered as an interactive TV (iTV)students can decide what and when they want to

‘attend’ the lecturelecture, support material, exercises etc. are

provided on the Web


Online Consulting

Knowledge Dissemination (cont.)

Medical advice— provide consultation with top experts

Management consulting— provide accumulated expertise from knowledge bases

Legal advice— delivery of legal consultation services to business has considerable prospects

Financial advice— offer extensive financial advice Other service online

insurance, healthcare, future exchanges, matchmaking, venture capital, finding a college, digital delivery of documents, and electronic stamps


The Impact on Intermediaries and Their Changing Roles

Change the role of agents to :

Assist in comparison shopping from multiple sources

Providing total solutions by combining services from several vendors

Providing certifications and trusted third party control and evaluation systems


Issues that could impact the future of the intermediaries

The Impact on Intermediaries and Their Changing Roles (cont.)

The success of intelligent agents— In addition to the travel intelligent agents, there are agents to support job matching and to interpret resumes. The more intelligent the software agents will be, the less you will need human agents.

Customer attitudes and behavior are important— If you have good experience with online insurance or stock purchasing, or with virtual travel agencies would you ever return to use a human agent?


New roles of electronic marketing intermediaries

The Impact on Intermediaries and Their Changing Roles (cont.)

To extend what we are familiar with in physical markets to the virtual world (e.g., search services and electronic malls)

To extend payment clearing functions into the Internet (e.g. electronic cash and digital credit card services)


Managerial Issues

Effectiveness of out-of-town recruitment

Privacy may be in danger

International legal issues may impact services more than

products

Ethical issues are prevalent in services

The intermediaries and their roles are changing

Ecommerce Chap 05

Education

tourism services cont

customers prentice hall

high prentice hall

cyberspace prentice

brokerbased services

corporate travel

travel agencies

performedby travel agents