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Ch 10 E-commerce Digital Markets, Digital Goods

Management Information System (Universitas Airlangga)

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Chapter 10
E-commerce: Digital Markets, Digital -oods

10.1What are the unique features of E-commerce, digital markets,

and digital goods?
- E-commerce is about digitally enabled commercial transactions between and
among organizations and individuals over the Internet and the Web.
- Marketing in this social-mobile-local e-commerce period is based on firms
engaging in multiple online conversations with their customers, potential
customers, and even critics. The emphasis in online marketing has shifted from
a focus on eyeballs to a focus on participating in customer-oriented
conversations.
- As mobile devices become more powerful, they are more useful for accessing
Facebook and other social sites. As mobile devices become more widely
adopted, they can be used by customers to find local merchants, and by
merchants to alert customers in their neighborhood of special offers.

Unique features of E-commerce

a. Ubiquity: extended beyond traditional boundaries and removed from a
temporal and geographic location.
b. Global reach: reaches across national boundaries, around the earth.
c. Universal standards: there is one set of technology standards, namely Internet
standards.
d. Richness: complexity and content of a message (text, audio, video).
e. Interactivity: allow for two-way communication between merchant and
consumer.
f. Information density: reduces information costs and raises quality.
g. Personalization/customization: allows personalized messages to be delivered to
individuals as well as groups.
h. Social technology: empower users to create and distribute content on a large
scale, and permit users to program their own content consumption

- The Internet reduces information asymmetry. An information asymmetry

exists when one party in a transaction has more information that is important
for the transaction than the other party.
- Digital markets are very flexible and efficient because they operate with
reduced search and transaction costs, lower menu costs (merchants’ costs of
changing prices), greater price discrimination, and the ability to change prices
dynamically based on market conditions.
- Digital markets provide many opportunities to sell directly to the consumer,
bypassing intermediaries, such as distributors or retail outlets. Eliminating

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intermediaries in the distribution channel (disintermediation) can significantly

lower purchase transaction costs.

- Digital goods are goods that can be delivered over a digital network. For the
most part, digital goods are “intellectual property” which is defined as “works
of the mind.”

10.2What are the principal e-commerce business and revenue

models?
 Types of E-Commerce
o Business-to-consumer: involves retailing products and services to individual
shoppers.
o Business-to-business: involves sales of goods and services among businesses.
o Consumer-to-consumer: involves consumers selling directly to consumers.
o M-commerce: the use of handheld wireless devices for purchasing goods and
services from any location.

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 E-Commerce Business Models

 E-

Commerce Revenue Models

o Revenue model describes how the firm will earn revenue, generate
profits, and produce a superior return on investment.
o In the advertising revenue model, a Web site generates revenue by attracting a
large audience of visitors who can then be exposed to advertisements.
o In the sales revenue model, companies derive revenue by selling goods,
information, or services to customers.
o In the subscription revenue model, a Web site offering content or services
charges a subscription fee for access to some or all of its offerings on an
ongoing basis.
o In the free/freemium revenue model, firms offer basic services or content for
free, while charging a premium for advanced or special features.
o In the transaction fee revenue model, a company receives a fee for enabling or
executing a transaction.
o In the affiliate revenue model, Web sites (called “affiliate Web sites”) send
visitors to other Web sites in return for a referral fee or percentage of the
revenue from any resulting sales.

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10.3 How has e-commerce transformed marketing?

 The Internet provides marketers with new ways of identifying and communicating
with millions of potential customers at costs far lower than traditional media,
including search engine marketing, data mining, recommender systems, and
targeted e-mail.
 The Internet allows marketers to inexpensively find potential customers for
products where demand is very low.
 The Internet also provides new ways to gather information from customers, adjust
product offerings, and increase customer value.
 Behavioral Targeting
o Refers to tracking the clickstreams (history of clicking behavior) of
individuals on thousands of Web sites for the purpose of understanding their
interests and intentions, and exposing them to advertisements that are uniquely
suited to their behavior.
 Social E-Commerce and Social Network Marketing
o Social e-commerce is based on the mapping of all significant social
relationships.
o Social commerce uses social networks and social network sites to improve
targeting of products and services.

10.4 How has e-commerce affected business-to-business transactions?

Electronic Data Interchange (EDI)
- Electronic data interchange enables the computer-tocomputer exchange
between two organizations of standard transactions such as invoices, bills of
lading, shipment schedules, or purchase orders.
- Transactions are automatically transmitted from one information system to
another through a network, eliminating the printing and handling of paper at
one end and the inputting of data at the other.

New Ways of B2B Buying and Selling

- Private industrial networks typically consist of a large firm using a secure
Web site to link to its suppliers and other key business partners.
- Net marketplaces, which are sometimes called e-hubs, provide a single, digital
marketplace based on Internet technology for many different buyers and
sellers.
o Direct goods are goods used in a production process, such as sheet
steel for auto body production.
o Indirect goods are all other goods not directly involved in the
production process, such as office supplies or products for maintenance
and repair.

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o Exchanges are independently owned third-party Net marketplaces that

connect thousands of suppliers and buyers for spot purchasing.

10.5 What is the role of m-commerce in business, and what are the
most important m-commerce applications?
Location-Based Services and Applications
- Location-based services include geosocial services, geoadvertising, and
geoinformation services.
o A geosocial service can tell you where your friends are meeting.
o Geoadvertising services can tell you where to find the nearest Italian
restaurant, and geoinformation services can tell you the price of a
house you are looking at, or about special exhibits at a museum you are
passing.

Other Mobile Commerce Services

- Banks and credit card companies are rolling out services that let customers
manage their accounts from their mobile devices (JPMorgan Chase, Apple
Pay, etc).
- Google displaying ads to mobile phone linked to phone search engine (games,
e-commerce, etc)
- Shopkick  mobile app that enables retailers to offer coupons (BestBuy,
Macy’s, etc)

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10.6 What issues must be addressed when building an e-commerce

presence?
The two most important management challenges in building a successful e-
commerce presence are :
(1) developing a clear understanding of your business objectives
(2) knowing how to choose the right technology to achieve those objectives

Develop E-Commerce Presence Map

Develop a Timeline : Milestones

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