e-commerce 12

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Chapter 12

Economics, Global EC, and Other EC Issues

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The Components of Digital Electronics

Digital ProductsThe ConsumersThe SellersThe Infrastructure companiesThe IntermediariesThe Support servicesContent creaters

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Competition in Marketspace

Lower buyers’ search cost.Speedy comparisons.Differentiation.Lower prices.Customer services.

Other competitive factors to consider are:The size of the firm may not be a significant competitive advantage.Geographical distance from consumer may play an insignificant role.Some language barriers may be easily removed.Digital products lack normal wear and tear.

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Some Issues in Digital Economy and Success Factors

The need for a critical mass of buyer

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Virtual Communities

The Internet Virtual Communities The Web is being transformed into a social

Web of communities. Four major types:Communities of transactionsCommunities of interestCommunities of relations (practice)Communities of fantasy

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Virtual Communities (cont.)

Communities of transactions

Facilitate buying and sellingEvineyard.com

Sells wineProvides expert information on winesProvides chat room

Communities of interest

Place for people to interact with each other on a specific topicMotley fool (fool.Com)

Forum for individual investors

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Communities of relations (practice)

Be organized around certain life experiencesPlasticsnet.com used by thousands of engineers in the plastics industry

Communities of fantasy

Place for participants to create imaginary environmentsESPNet participants create competing teams and “play” with Michael Jordan

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Ways to transform a community site into a commerce site:

Understand a particular niche industryIts information needsUse a step-by-step process by which it does the research needed to do business

Build a site that provides valuable information

Through partnerships with existing publishers and information providersBy gathering it independently

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Set up the site to mirror the steps a user goes through in the information-gathering and decision-making processBuild a community that relies on the site for decision supportStart selling products and services, such as sample chips to engineers, that fit into the decision-support process

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The Expected PaybackCustomer loyalty increasesIncreased salesCustomer participation and feedback increasesIncreased repeat traffic to siteDrive new traffic to the site

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Creating economic valueMembers input useful information in the form of comments, feedback, elaborating their attitudes and beliefs, and information needs of the communityThe community brings together consumers of specific demographic and interestCommunities charge members content fees for downloading certain articles, music, or pictures

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Financial viability of communitiesBased on sponsorship and advertisementExpenses are very high because of the need to provide:

Fresh contentFree servicesFree membership

This model did not work well, many companies sustained heavy losses in 2000-2001; too few members, too few purchases

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Global Electronic Commerce

While geographical market boundaries may be falling, global interest-based communities will spring upMainly in support of business-to-business financial and other repetitive, standard transactions, e.g. EFT & EDIThe emergence of the Internet and the extranets resulted in an inexpensive and flexible infrastructure that can greatly facilitate global trade

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Barriers to Global Electronic Commerce

Legal IssuesUncoordinated actions must be avoided and an international policy of cooperation should be encouraged

Market Access IssuesCompanies starting e-commerce need to evaluate bandwidth needs by analyzing the data required, time constraints, access demands, and user technology limitations

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Barriers to Global Electronic Commerce (cont.)

Financial IssuesCustoms and taxationElectronic payment systems

Other IssuesIdentification of buyers and sellersTrustSecurity (for example, viruses)

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Barriers to Global Electronic Commerce (cont.)

Other Issues (cont.)Cultural diversityInternational agreements (multi-lateral agreements)Role of governmentPurchasing in local currenciesLanguage and translationPurchasing in different currencies

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The U.S. Policy RegardingGlobal Electronic Commerce

The private sector should leadGovernments should avoid undue restrictions on electronic commerceWhere government involvement is needed, its aim should be to support and enforce a predictable minimalistic, consistent and simple legal environment for commerce

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The U.S. Policy RegardingGlobal Electronic Commerce (cont.)

Governments should recognize the unique qualities of the InternetElectronic commerce on the Internet should be facilitated on a global basisGlobal marketspace erases national borders and gives small companies worldwide reach

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The Opportunities for Small Businesses

InexpensiveSource of informationWay of advertisingWay of conducting market researchWay to build (or rent) a storefrontWay of providing catalogsWay to reach worldwide customers

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The Opportunities for Small Businesses (cont.)

Lower transaction costNiche market, specialty products (cigars, wines, sauces) are the best place to beImage and public recognition can be accumulated fast

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Risks and Disadvantagesfor Small Businesses

Inability to use EDI, unless it is EDI/InternetLack of resources to fully exploit the WebLack of expertise in legal issues, advertisementLess risk tolerance than a large company

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Risks and Disadvantagesfor Small Businesses (cont.)

Disadvantage when a commodity is the product (for example, CDs)No more personal contact, which is a strong point of a small businessNo advantage to being in a local community

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Success Factors for Small Businesses

Niche products Low volumeNot carried by regular retail stores

Small volumeE.g., special books

Oldtechnical

International productsNot easily available to off-line customers

InformationGartnerGroup provides access to online research material by subscriptionSmaller companies may provide specialized information (home and gardening)

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Success Factors forSmall Businesses (cont.)

Capital investment must be smallInventory should be minimal or non-existentElectronic payments schema existPayment methods must be flexibleLogistical services must be quick and reliable

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The Web site should be submitted to directory-based search engine services like Yahoo, in a correct wayJoin an online service or mall and do banner exchangeDesign a Web site that is functional and provides all needed services to consumers

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Monitor your:CompetitionTechnologyMarketplace changes

Keep growth slow and steadyDelegateDevelop good internal communications

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Research in EC

Behavioral IssuesConsumer behavior Building consumers behavioral profiles and identify ways to utilize themSeller’s behavior and motivation Issue-oriented research (e.g., trust, intermediaries)Internet usage pattern and willingness to buyMental model of consumer product search process, comparison process, and negotiationHow to build trust in the e-marketspace

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Research in EC (cont.)

Technical IssuesMethods that help customers find what they wantModels for extranet design and managementNatural language processing and automatic language translationMatching smart card technology with payment mechanisms

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Research in EC (cont.)

Technical Issues (cont.)Integrating EC with existing corporate information systems, databases, etc.Retrieval of information from an electronic industry directoryEstablishing standards for international tradeBuilding a mobile Internet distribution command system

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Managerial Research Issues

AdvertisementMeasuring the effectiveness, integration and coordination

ApplicationsCreating a methodology of finding EC business applications

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Managerial Research Issues (cont.)

StrategyDesigning strategic advantage strategy for ECInitiating “where to market” strategyFinding way to integrate EC into organizations

ImpactsIdentify the necessary organization structure and cultureIntegration with ERP and SCM

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The Future of Electronic Commerce

Opportunities for buyingIncrease rapidly

Internet usageIncrease exponentiallyAccess via cell phones!

M-commerceNo need for a computer brings more

people to the web

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The Future of Electronic Commerce (cont.)

Purchasing incentivesIncrease buyers’ advantages

Increased security and trustSignificant improvement is expected

Efficient information handingAccessible from anywhere

Innovative organizationsRestructured and reengineered

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Virtual CommunitiesSpreading rapidly

Payment systemsAbility to use e-cash cards and make

micropayments is getting close to reality

Business-to-businessContinues to grow rapidly

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B2B exchangesProvide infrastructure

AuctionsIncreasing rapidly

Going globalMost appealing benefit of EC

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E-government--comprehensiveGovernment-to-consumers (G2C)Government-to-government (G2G)Government-to-business (G2B)Government-to-employees (G2E)

Intrabusiness ECImproving internal supply chain

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Technology trendsClients

Thin client and embedded clientServers

Windows NT

Networks XDSL and wireless communication

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Technology TrendsEC software and services

Availability of all types of EC softwareCompanies support auctions and multiple types of certifications

EC knowledge The quantity and quality of EC knowledge is increasing rapidly

Networked economy

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Managerial Issues

Finding a community that matches your businessGoing global

Threats—difficult to accomplish, especially on large scaleOpportunities—create collaborative projects with partners in other countries (last a long time)

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Managerial Issues (cont.)

Small can be beautifulCompeting on commodities with the big guys is very difficult (especially in cyberspace)Finding niche markets is advisableMore opportunities in providing support services than in trading

Restructuring is likely; should be investigatedThe future of EC is very bright, but planning is a must

e-commerce 12

Education