IS 3003: Ch 10 E-Commerce

E-commerce –
Use of the Internet and Web to transact business; digitally enabled transactions

Builds on traditional commerce by adding the flexibility that networks and the Internet offer

Examples of business applications that use the Internet:
Buying and selling products and services

Collaborating and communicating with business partners

Gathering business intelligence on customers and competitors

Providing customer service

Making software updates and patches available

Offering vendor support

Publishing and disseminating information

Business types include:
Bricks-and-mortar business

Clicks-and-mortar business (clicks-and-bricks)

Pure-play business (also called .com’s, clicks only, or virtual)

New “clicks-to-bricks” trend …..? Online business that builds a showroom to accompany the business.

“Showrooming” vs “Webrooming”

Showrooming is where you visit the store to research but purchase online, whereas webrooming is researching online and purchasing in the store.

Internet/Web technology available everywhere – anytime, anyplace

Effect is a new “market space”

A marketplace extended beyond traditional
boundaries and removed from temporal,
geographic locations

Enhanced customer convenience

Reduced transaction costs- the costs of
participating in a market ….

Global reach
The technology reaches across national boundaries, across the globe


Commerce enabled across cultural and national
boundaries seamlessly and without modification.

Marketspace includes, potentially, billions of
consumers and millions of businesses

Universal standards
One set of technology standards: Internet standards


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
for consumers to find suitable products

Richness – the complexity and content of a message
E-commerce – supports video, audio, & text


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

Interactivity –

e-commerce can provide two way communication between merchant and consumer


Consumers engage in dialogs that dynamically
adjust the experience to the individual

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

Information density –
The total amount and quality of information available to all market participants; has greatly increased
Effect – Consumers
Greater price transparency – the ease with which the customer can find out the price they will have to pay for an item

Greater cost transparency – the ability to find out the actual cost to the merchant

Effect – Merchants
Enables merchants to engage in price discrimination – selling the same goods to different targeted groups at different prices
Personalization & Customization
Technology permits modification of messages, goods
Personalization –
Ability to target marketing messages to specific individuals by adjusting the message to a person’s name, interests, and past purchases
Customization –
Modification of a good or service based on a user’s preference
Social technology
Allows users to create and share content in the form of text, videos, music, photos …


New Internet social and business models enable
user content creation and distribution

Creation of a new “many-to-many” model of
mass communications (and potential marketing)

The Effect of the Internet and Digital Markets
Reduce Information asymmetry
Reduce Search costs
Reduce Transaction costs
Reduce Menu costs
Enable Price discrimination
Enable Dynamic pricing
More use of Disintermediation
Digital Markets

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
Digital goods
Goods that can be delivered over a digital network (music, video, software, newspapers, books

Cost of producing first unit almost entire cost of product: marginal cost of producing 2nd unit is about zero

Costs of delivery over the Internet very low

Marketing costs remain the same

Industries with digital goods are undergoing revolutionary changes (publishers, record labels, etc.)

Types of E-commerce
Based on Participants:

Business-to-consumer (B2C)

Consumer-to-consumer (C2C)

Business-to-business (B2B)

Government-to-citizen (G2C)

Government-to-Business (G2B)

Government-to-Government (G2G)

Types of E-commerce
Based on platform used by participants:
Mobile commerce (m-commerce)
B2C –
Businesses sell their products or services directly to consumers over the Internet

May involve disintermediation

Common B2C e-commerce models include:

E-shop (e-tailer, e-store, on-line store) – an on-
line version of a retail store

E-mall – consists of a number of e-shops; serves
as a gateway (portal) through which a consumer
can access multiple e-shops

Traditional B2C models utilize:
Menu-driven pricing: company sets the price that consumers pay

What about companies like

These types of B2C relationships utilize different pricing mechanisms:

Reverse-pricing: consumer specifies the price
he/she is willing to pay, the company can accept
or reject it

Consumer-to-Consumer (C2C)
Involves business transactions between users; consumers selling directly to other consumers over the Internet

Online classified ads:
Pricing model: Menu-driven pricing

Online auction sites:
Pricing model: Forward auction – Sellers use the
site as a selling channel to many buyers and the
highest bid wins

Business-to-Business (B2B)
Involves electronic transactions among businesses; businesses buying from and selling to each other over the Internet

Fastest growing segment of e-commerce

B2B transactions tend to be more complex and have high security needs

Purchase orders, invoices, inventory status,
shipping logistics, business contracts, and other

Business-to-Business (cont’)
Lowers production costs and improves accuracy by eliminating many labor-intensive tasks

Reduces delivery time, inventory levels, prices

Facilitates information sharing

B2Bs utilize:
Intranets, Extranets, Virtual private networks
(VPNs) – already covered
Electronic data interchange (EDI)
Private industrial networks (private exchanges)
Net marketplaces

Electronic data interchange (EDI)
Computer-to-computer exchange of standard transactions such as invoices, purchase orders.

Major industries have EDI standards that define structure and information fields of electronic documents for that industry.

However, more companies increasingly moving away from private networks to the Internet for linking to other firms.

E.g., procurement: businesses can now use
Internet to locate most low-cost supplier, search
online catalogs of supplier products, negotiate
with suppliers, place orders, and so on

Private industrial networks (private exchanges)
Large firm using extranet to link to its suppliers, distributors, and other key business partners

Owned by firm (buyer)

Supports product design and development, marketing, production scheduling and inventory management, unstructured communication (graphics and e-mail)

Firm may post needs and invite sellers to bid on announced products or requests for quotation (RFQs)

Pricing Model: Reverse auction – vendors provide quotes (bid) to firm (buyer) on price they will sell for – buyer selects the vendor with the lowest bid or quote

Net marketplaces (e-hubs)
Single digital market/exchanges to connect many buyers and sellers

Industry-owned or owned by independent intermediary

Generate revenue from transaction fees, other services

Use prices established through negotiation, auction, RFQs, or fixed prices

May be vertical marketplaces for specific industries or horizontal marketplaces for goods and services that are used across a variety of industries

Net marketplaces
Online marketplaces where multiple buyers can purchase from multiple sellers
E-government –
Involves the use of Internet technologies to transform government(s) by improving the delivery of services and enhancing the quality of interaction between the citizen-consumer and the various branches of government
E-government Categories:
Government-to-citizen (G2C)

Government-to-business (G2B)

Government-to-government (G2G)

Government-to-Citizen (G2C)
Government services provided on-line to citizens/customers

Renew driver’s licenses, passports, visas,
Medicare Medicaid benefits, social security,
food stamps, public service announcements

Consumer initiated transactions with government

Elections/voting, census/demographic
information, file/pay taxes

Government-to-Business (G2B)
Government services to businesses

Information about regulations, licenses;
import/export/tariff information; forms

Business initiated transactions to government

Filing information with SEC/EEO/IRS, paying

Government-to-Government (G2G)

Governments exchanging information –

Local – health department, traffic, crime

State – state budget information, education, Medicaid programs, statewide criminal records, transportation

National – Medicare programs, Social Security, transportation, national crime records, disaster assistance

International – international trade agreements, treaties, immigration information, international arms and terrorist information

M-commerce –
Use of wireless mobile devices for purchasing goods and services
Although m-commerce represents small fraction of total e-commerce transactions, revenue has been steadily growing due to following:
Location-based services

Wireless advertising

Banking and financial services

Games and entertainment

E-commerce Business Models
E-tailer – on-line retail store, sells products

Service provider – sells services (not tangible products) on-line

Content provider – provides digital content such as news, music, other types of intellectual property

Portal – provides initial entry point to the web along with specialized content and other services

E-commerce Business Models, cont.
Transaction broker – processes on-line sales transactions in return for a fee

Market creator – create a digital environment where buyers and sellers can meet, display products, search for products, and establish prices

Community provider (social networks and web sites) – provides an on-line meeting place where people with similar interests can communicate and find useful information

E-commerce Revenue Models
Sales (sometimes called merchant) – earn income by selling goods, information and services

Subscription – charge a subscription fee for access to material or charge for a “membership”

Free/Fremium – offer basic services or content for free, but charge a premium for advanced or special features

Transaction fee (sometimes called brokerage) – the company receives a fee for executing a transaction

Affiliate – receive a referral fee or % of the sale/revenue when they refer a visitor to another site

E-commerce Revenue Models, cont.
Advertising – users are exposed to advertisements on the web

Banner ads – a box running across a web page
with an advertisement and link to a company’s
web site

Pop-up ad – a small web page or box
containing an ad that appears over the page you
are viewing

Pop-under ad – a form of pop-up ad that users
do not see until they close the current web

Spot leasing – a space on a web site or search
engine that is leased for a specific amount of
time to show an ad to anyone who visits that

Sponsored links – links that appear at the top or
side of search engine results that are paid for by
a company

Viral marketing – a technique that induces users
or web sites to pass on a marketing message; a
word-of-mouth type of advertising

Social Network Marketing & Social Search:
Social e-commerce: based on digital social graph
Mapping of all significant online relationships

An effort to provide fewer, more relevant, and trustworthy search results based on a person’s network of social contacts – the purchases of one person influences other people’s interests and purchases

An environment where consumers ask their friends for advice on purchases of products, services, and content

Seeks to leverage individuals’ influence over others in their digital social graph

The target is a social network of people sharing interests and advice

On-line communities are ideal venues to employ viral marketing techniques – a technique that induces web sites or users to pass on a marketing message

Wisdom of crowds
Based on concept that large numbers of people can make better decisions about topics and products than a single person
Crowdsourcing –
Where firms offer incentives to customers for solving a problem or coming up with an idea
Prediction markets:
Peer-to-peer betting markets on specific outcomes (elections, sales figures, designs for new products) – customer places bets or votes for or against specific outcomes.
Crowd-funding –
Organized web sites where individuals can ask for direct financial contributions from family, friends, and others to help fund some type of venture

A way for individuals to pool their money
through the Internet to support other’s artistic,
educational, and business efforts as well as
charities and disaster relief

Several models – Equity-based, lending-based,
reward-based, donation-based

Electronic payment:
Money or script that is exchanged electronically

Payment cards: credit, debit, charge, or smart



E-wallet (digital wallet)

Financial Cybermediary – an Internet-based
company that facilitates payments over the
Internet (ex. PayPal)

Micropayments – provide content providers with
a cost-effective method for processing high
volumes of very small monetary transaction

E-commerce Advantages
Decreased costs

Better relationships with suppliers, customers, business partners

Price transparency – all can trade at same price

Round the clock 24/7/365

Global operations

More information on potential customers

Increasing customer involvement/feedback

Improving customer service

Increasing flexibility and ease of shopping

Increasing the number of customers

Increasing opportunities for collaboration with business partners

Increasing return on investment because inventory needs are reduced

Offering personalized services and product customization

Reducing administrative and transaction costs

Bandwidth capacity problems



Security issues

Potential Liability Issues

Taxation rules

Which of the following best describes long tail marketing?
Long tail marketing refers to the ability of firms to profitably market goods to very small online audiences, largely because of the lower costs of reaching very small market segments (people who fall into the long tail ends of a Bell curve).
Which of the following best describes an e-tailer business model?
An e-tailer sells physical products directly to consumers or to individual businesses.
Which of the following is true of the effect of the universal technical standards of the Internet and e-commerce on customers?
It reduces the search costs while simultaneously lowers market entry costs.
Which of the following best defines m-commerce?
The use of hand held wireless devices for purchasing goods and services from any location
Which of the following is true of digital goods?
The cost of producing the original first unit of a digital good is nearly the total cost of the product.
Which of the following statements about e-commerce and business-to-business transactions is true?
B2B e-commerce creates efficiencies by enabling companies to locate suppliers, solicit bids, place orders, and track shipments in transit electronically.
Which of the following best describes the affiliate revenue model?
In the affiliate revenue model, Web sites send visitors to other Web sites in return for a referral fee or percentage of the revenue from any resulting sales.
Which of the following statements about the “wisdom of crowds” and crowd-sourcing is true?
Crowdsourcing utilizing the “wisdom of crowds” helps companies learn from customers in order to improve product offerings and increase customer value.
Which of the following is not one of the early key decision areas when building an e-commerce presence?
The manager should not consider the demands of the customers at this point in order to focus on the planning process.
Which of the following is true of the effect of information density in e-commerce markets?
It increases the price transparency for consumers.
EBay is an example of a _________________ electronic commerce category.
Which of the following is true of the effect of the ubiquitous nature of Internet on e-commerce?
It reduces transaction costs for a customer.
Which of the following statements about e-commerce and business-to-business transactions is true?
If even just a portion of inter-firm trade were automated, and parts of the entire procurement process assisted by the Internet, literally trillions of dollars might be released for more productive uses.
Google Apps,, and Dropbox all provide Web 2.0 applications such as photo sharing, video sharing, and user-generated content as services.

Google Apps,, and Dropbox are all examples of which e-commerce business model?

A service provider
What type of e-commerce presence includes newsletter, update, and sales activities?
Which of the following best describes behavioral targeting?
Behavioral targeting refers to the tracking of the clickstreams (the history of clicking behavior) of individuals across multiple Web sites for the purpose of understanding their interests and intentions, and exposing them to advertisements that are uniquely suited to their interests.
__________ are independently owned third-party Net marketplaces that connect thousands of suppliers and buyers for spot purchasing.
__________ is especially well suited for location-based applications, such as finding local hotels and restaurants, monitoring local traffic and weather, and providing personalized location-based marketing.
M-commerce is an example of A _________________ electronic commerce category.
Which of the following best defines an electronic data interchange (EDI)?
An electronic data interchange (EDI) enables the computer-to-computer exchange between two organizations of standard transactions such as invoices, bills of lading, shipment schedules, and purchase orders.
Which of the following best describes the free/freemium revenue model?
In the free/freemium revenue model, firms offer basic services or content for free, while charging a premium for advanced or special features.
The social commerce feature that enables a consumer to log into sites through Facebook is called a​ ___________________.
Social​ sign-on

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