ecommerce chap 05
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1© Prentice Hall, 2000
Chapter 5EC in Service Industries
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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
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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
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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
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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
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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
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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
Travel and Tourism Services (cont.)
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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
Travel and Tourism Services (cont.)
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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
Travel and Tourism Services (cont.)
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Impacts on the industry
Travel and Tourism Services (cont.)
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
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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
Travel and Tourism Services (cont.)
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The Future
Travel and Tourism Services (cont.)
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?
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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
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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.
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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 Employment Placement Market (cont.)
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The Internet Job Market
The Employment Placement Market (cont.)
The Internet offers a perfect environment; it is especially effective for technology-oriented jobs.Job seekersJob offerersRecruiting firmsGovernment agencies and institutions
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The Advantage of the Electronic Job Market
The Employment Placement Market (cont.)
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
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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 Employment Placement Market (cont.)
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The Limitations of the Electronic Job Markets
The Employment Placement Market (cont.)
Many people do not use the Internet Security Privacy Lack of face-to-face contact
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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
The Employment Placement Market (cont.)
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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
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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
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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
Real Estate: From Virtual Realtors to Virtual Reality (cont.)
Real Estate Applications
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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
Real Estate: From Virtual Realtors to Virtual Reality (cont.)
Real Estate Applications
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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
Real Estate: From Virtual Realtors to Virtual Reality (cont.)
Real Estate Applications
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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
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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.
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Investment Information
Trading Stocks Online (cont.)
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
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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
Trading Stocks Online (cont.)
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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
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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
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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.)
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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
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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.
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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.
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A merchant-to-customer direct billing
Billing Online (cont.)
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.
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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.
Billing Online (cont.)
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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
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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
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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)
Auctions: From Theory to Practice (cont.)
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Electronic Auctions
Auctions: From Theory to Practice (cont.)
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
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Auctioning methodsYankee methodDutch (Reverse bidding) method“Straight sale” method
Exampleswww.usaweb.com/auction.html ; a directory of
sites, searchOnsale, eBay, uBid
Auctions: From Theory to Practice (cont.)
Electronic Auctions
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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
Auctions: From Theory to Practice (cont.)
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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
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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
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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.)
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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
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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
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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
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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?
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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)
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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