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E-COMMERCE: DIGITAL MARKETS, DIGITAL GOODS
Part-I
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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.
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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.
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THE GROWTH OF E-COMMERCE
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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E-commerce Business Models
Internet business modelsVirtual storefront
Information broker
Transaction broker
Online marketplace
Content provider
Online service providerVirtual community
Portal
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E-commerce Revenue Models
Advertising Sales
Subscription
Free/Freemium
Transaction Fee
Affiliate
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Thank YouEnd of Part-I