social networking, mcommerce & online auctions

Electronic Commerce

Ninth Edition

Chapter 6 Social Networking, Mobile Commerce,

and Online Auctions

Electronic Commerce, Ninth Edition 2 2

Learning Objectives

In this chapter, you will learn about:

• Social networking and online business activities

• Using mobile devices to do business online

• Online auctions and auction-related businesses

Electronic Commerce, Ninth Edition 3 3

From Virtual Communities to Social

Networks

• Online Web communities

– Not limited by geography

– Individuals and companies with common interests

• Meet online and discuss issues, share information,

generate ideas, and develop valuable relationships

• Companies make money by serving as relationship

facilitators

– Combine Internet‟s transaction cost-reduction

potential with a communication facilitator role

Electronic Commerce, Ninth Edition 4

Virtual Communities

• Virtual community (Web community, online

community)

– Gathering place for people and businesses

• No physical existence

• Early virtual communities

– Bulletin board systems (BBSs)

• Revenue source: monthly fees and selling advertising

– Usenet newsgroups

• Message posting areas on usenets


Virtual Communities (cont‟d.)

• Current forms

– Web chat rooms

– Sites devoted to specific topics or general exchange

of information, photos, videos

– People connect and discuss common issues,

interests

– Considerable social interaction

– Relationship-forming activities

• Similar to physical communities


Early Web Communities

• 1985: WELL (“whole earth „lectronic link”)

– Monthly fee to participate in forums and conferences

– 1999 bought by Salon.com

• 1995: Beverly Hills Internet virtual community site

– Offered webcams, free Web site space

– Grew into GeoCities

• Revenue source: advertising, pop-up pages

• 1999: purchased by Yahoo! ($5 billion)

• Closed in 2009


Early Web Communities (cont‟d.)

• 1995: Tripod virtual community

– Offered free Web page space, chat rooms, news,

weather updates, health information pages

– Revenue source: sold advertising

• 1995: Theglobe.com Cornell University class project

– Included bulletin boards, chat rooms, discussion

areas, personal ads

• Added more features

– Revenue source: sold advertising

• Most early Web community businesses closed


Social Networking in the Second Wave

of Online Communities

• As the Internet and Web grew:

– Experience of sharing new online communication

faded

– New phenomenon in online communication began

• Multiple common bonds joined people with all types of

common interests

• Social networking sites

– Allow individuals to create and publish a profile,

create a list of other users with whom they share a

connection (or connections), control that list, and

monitor similar lists made by other users



of Online Communities (cont‟d.)

• Social networking sites

– Six Degrees (1997)

– Friendster (2002)

• Had features found in today‟s social networking sites

– LinkedIn: devoted to business connections

– Tribe.net

– YouTube: popularized video inclusion

– MySpace: popular with younger Web users

– Twitter

• Users can send short messages to other users who sign up to follow their messages (tweets)




• Basic idea behind social networking

– People invited to join by existing members

– Site provides directory

• New members work through friends established in the

community

FIGURE 6-1 Social networking Web sites





• Web logs (Blogs)

– Web sites containing individual commentary on current events or specific issues

– Form of social networking site

• Encourages interaction among people

• Visitors add comments

• Early blogs focused on technology topics

• 2004: blogs used as political networking tool

• 2008: all major candidates using blogs

– Communicating messages, organizing volunteers, raising money, meetups




• Retailers embracing blogs to engage site visitors

– Bluefly.com online discount apparel retailer

• Flypaper blog

– Ice.com online jeweler

• Blogs may encourage potential customers to visit online

store

• Business uses

– CNN

• Blog information included in television newscasts




• Business uses (cont‟d.)

– Newspapers

• Inviting information and opinion contributions

• Targeting 18- to 35-year-old generation

– Participatory journalism

• Trend toward having readers help write the online

newspaper

• Blogs can become businesses in themselves

– Must generate financial support (fees, advertising)




• Social networking Web sites for shoppers

– Social shopping

• Practice of bringing buyers and sellers together in a

social network to facilitate retail sales

– Example: craigslist

• Operated by not-for-profit foundation

• All postings free (except help wanted ads)

– Example: Etsy Web site

• Marketplace for selling handmade items

• We Love Etsy: Etsy buyers, sellers share information




• Social networking Web sites for shoppers (cont‟d.)

– Social networking sites form communities based on

connections among people

– Idea-based virtual communities

• Communities based on connections between ideas

– Idea-based networking

• Participating in idea-based virtual communities

• Examples: del.icio.us site, 43 Things site




• Virtual learning networks

– Distance learning platforms for student-instructor interaction (Blackboard)

– Tools include:

• Bulletin boards, chat rooms, drawing boards

– Moodle and uPortal

• Open-source software projects devoted to virtual learning community development

– Open-source software

• Developed by a programmer community

• Software available for download at no cost




• Web portals

– Combine portal and social networking features

– Typical portal offerings

• Search engines, directories, free e-mail, news stories,

weather reports

– Social networking elements

• Games and chat rooms

• Allow site visitors to interact with each other

– Examples:

• Yahoo!, AOL, MSN


Revenue Models for Social Networking

Sites

• By late 1990s:

– Revenue created by selling advertising

• Used by virtual communities, search engine sites, Web directories

• 1998

– Purchases and mergers occurred

– New sites still used advertising-only revenue-generation model

• Included features offered by virtual community sites, search engine sites, Web directories, other information-providing and entertainment sites

– Goal: be every Web surfer‟s doorway to the Web



Sites (cont‟d.)

• Advertising-supported social networking sites

– Smaller sites with specialized appeal

• Can draw enough visitors to generate significant

advertising revenue

• Example: I Can Has Cheezburger site

– Recall from Chapter 3:

• Sites with higher number of visitors can charge more

• Stickiness: important element in site‟s attractiveness

– Rough measure of stickiness

• Time user spends at the site


FIGURE 6-2 Popularity and stickiness of leading Web sites



Sites (cont‟d.)

• Advertising-supported social networking sites (cont‟d.)

– Social networking sites

• Members provide demographic information

• Potential for targeted marketing: very high

– High visitor counts

• Can yield high advertising rates

– Second-wave advertising fees

• Based less on up-front site sponsorship payments

• Based more on revenue generation from continuing relationships with people who use the social networking sites



Sites (cont‟d.)

• Mixed-revenue and fee-for-service social networking

sites

– Most social networking sites use advertising

– Some charge a fee for some services

• Examples: Yahoo! All-Star Games package, Yahoo!

premium e-mail service

– Monetizing

• Converting site visitors into fee-paying subscribers or

purchasers of services

• Concern: visitor backlash

– More examples: The Motley Fool and TheStreet.com



Sites (cont‟d.)

• Fee-based social networking

– Google Answers site

• Early attempt to monetize social networking

• Questions answered for a fee

• Google operated service from 2002 to 2006

– Similar free services

• Yahoo! Answers, Amazon (Askville)

– Uclue (paid researchers earn 75 percent of total fee)

• Advocates claim better quality

– Fee-based Web sites can generate revenue by providing virtual community interaction



Sites (cont‟d.)

• Microlending sites

– Function as clearinghouses for microlending activity

– Microlending

• Practice of lending very small amounts of money

• Lend to people starting or operating small businesses

(especially in developing countries)

– Microlending key element

• Working within social network of borrowers

• Provide support, element of pressure to repay

– Examples: Kiva and MicroPlace



Sites (cont‟d.)

• Internal virtual communities

– Provide social interaction among organization‟s

employees

– Run on organization‟s intranet

– Save money (less paper)

– Provide easy access to employee information

– Good for geographically dispersed employees

– Adding wireless connectivity

– Combine second-wave technology with first-wave

business strategy

• Wireless communications with internal Web portals


Mobile Commerce

• Short messaging service (SMS)

– Allows mobile phone users to send short text

messages to each other

• 2008: United States developments allowing phones

as Web browsers

– High-speed mobile telephone networks grew

dramatically

– Manufacturers offered range of smart phones with

Web browser, operating system, applications


Mobile Operating Systems and

Applications

• Japan and Southeast Asia mobile commerce

– Much larger online business activity

• Had high-capacity networks early on

– Mobile wallets

• Mobile phones functioning as credit cards

– Japan‟s NTT DoCoMo phones combined capabilities

• Generate significant business



Applications (cont‟d.)

• United States mobile commerce capabilities began

in 2008

– Smart phone and high-capacity network introductions

• Mobile commerce smart phone examples

– Apple iPhone, Palm Pre, several BlackBerry models

• Use the Android operating system

• Provide serious U.S. mobile commerce for the first time


FIGURE 6-3 Smart phones come in a range of different styles




• Mobile commerce browser display options

– Wireless Application Protocol (WAP)

• Allows Web pages formatted in HTML to be displayed

on devices with small screens

– Display a normal Web page on the device

• Made possible by increased screen resolution

• Example: Apple iPhone

– Design Web sites to match specific smart phones

• Much more difficult to accomplish




• Mobile commerce browser display options (cont‟d.)

– Apple, BlackBerry, Palm

• Use proprietary operating systems

– HTC, Motorola, Nokia

• At one time created their own operating systems and

software applications

• Now use a standard operating system provided by a

third party

– Most common third-party operating systems

• Android, Windows Mobile, Symbian




• Common operating systems emergence

– Occurred due to a change in the way software

applications developed and sold

• Old U.S. mobile phone company revenue strategy

– Control application software

• Apple turned old revenue strategy on its head

– Apple Apps for iPhone online store

• Independent developers create apps and sell them

• BlackBerry and Palm followed Apple‟s lead


The Future of Mobile Commerce

• Companies wanting mobile user commerce

– Review Web sites for compatibility

• May create separate Web sites for mobile users

• Mobile phones for online banking

– In early stages in the United States

• Physicians using smart phones

• Phones‟ global positioning satellite (GPS) service

capabilities

– Allow mobile business opportunities


Online Auctions

• Business opportunity perfect for the Web

• Auction site revenue sources

– Charging both buyers and sellers to participate

– Selling advertising

• Targeted advertising opportunities available

• Online auctions capitalize on Internet‟s strength

– Bring together geographically dispersed people

sharing narrow interests


Auction Basics

• From Babylon to the Roman Empire to Buddhists

• Common activity of 17th century England

– Sotheby‟s (1744), Christie‟s (1766), colonial auctions

• Auction: seller offering item for sale

– Bids: price potential buyer willing to pay

– Bidders: potential buyers

– Private valuations: amounts buyer willing to pay

– Auctioneer: manages auction process

– Shill bidders: work for seller or auctioneer

• May artificially inflate price


Auction Basics (cont‟d.)

• English auctions

– Bidders publicly announce successively higher bids

• Item sold to highest bidder (at bidder‟s price)

– Also called ascending-price auction

– Open auction (open-outcry auction)

• Bids publicly announced

– Minimum bid

• Beginning price

• If not met: item removed (not sold)



• English auctions (cont‟d.)

– Reserve price (reserve)

• Seller‟s minimum acceptable price

• Not announced

• If not exceeded: item withdrawn (not sold)

– Yankee auction

• Multiple item units offered for sale (bidders specify quantity)

• Highest bidder allotted bid quantity

• Remaining items allocated to next highest bidders until all items distributed

• Bidders pay lowest successful bidder price



• English auctions (cont‟d.)

– Seller drawback

• May not obtain maximum possible price

– Buyer drawback

• Winner’s curse psychological phenomenon

– Bidder gets caught up in competitive bidding excitement

– Bids more than their private valuation



• Dutch auctions

– Open auction

• Bidding starts at a high price

• Drops until bidder accepts price

– Also called descending-price auctions

– Seller offers number of similar items for sale

– Common implementation

• Use a clock (price drops with each tick)

• Bidders stop clock and take items at the given price

• If items remain: clock restarted



• Dutch auctions (cont‟d.)

– Often better for the seller

– Quickly move large numbers of commodity items

– Successful examples:

• Google initial public offering stock sale (2004)

• LookSmart stock repurchase



• First-price sealed-bid auctions

– Sealed-bid auctions

• Bidders submit bids independently

• Prohibited from sharing information

– First-price sealed-bid auction

• Highest bidder wins

• If multiple items auctioned: next highest bidders

awarded remaining items at their bid price



• Second-price sealed-bid auction

– Same as first-price sealed-bid auction

– Except highest bidder awarded item at second-

highest bidder price

– Commonly called Vickrey auctions

• William Vickrey: 1996 Nobel Prize in Economics

– Findings:

• Yields higher seller returns

• Encourages all bidders to bid private valuation amounts

• Reduces tendency for bidder collusion



• Open-outcry double auctions

– Example: Chicago Board of Trade auctions of

commodity futures and stock options

– Buy and sell offers shouted by traders in trading pit

• Each commodity, stock option traded in own pit

• Quite frenzied

• Double auctions (either sealed bid or open outcry)

– Good for items of known quality traded in large

quantities

– No item inspection before bidding



• Double auctions

– Buyers, sellers submit combined price-quantity bids

• Auctioneer

– Matches sellers‟ offers

• Starts with lowest price and then goes up

– To buyers‟ offers

• Starts with highest price and then goes down until all quantities offered are sold

• Operation format

– Sealed bid or open-outcry

• Example: New York Stock Exchange



• Reverse (seller-bid) auction

– Multiple sellers submit price bids

• Auctioneer represents single buyer

– Bids for given amount of specific item to purchase

– Prices go down as bidding continues:

• Until no seller willing to bid lower

– Occasionally operated for consumers

– Most involve businesses as buyers and sellers


FIGURE 6-4 Key characteristics of seven major auction types


Online Auctions and Related

Businesses

• Online auction business: rapidly changing

• Three auction Web site categories

– General consumer auctions

– Specialty consumer auctions

– Business-to-business auctions

• Varying opinions on categorizing consumer auctions

– Business-to-consumer

– Consumer-to-consumer

– Consumer-to-business



Businesses (cont‟d.)

• General consumer auctions

• eBay: registration required, seller fees, rating system

– Seller‟s risk: stolen credit cards; buyer fails to conclude transaction

– Buyer‟s risk: no item delivery; misrepresented item

– Most common auction format: English auction

• Seller may set reserve price

• Bidders listed: bids not disclosed (until auction end)

• Continually updated high bid amount displayed

• Private auction option available




• General consumer auctions (cont‟d.)

– Another eBay auction format: Dutch auction

– Both formats require minimum bid increment

• Amount by which one bid must exceed previous bid

– Proxy bid

• Bidder specifies maximum bid

• May cause bidding to rise rapidly

– eBay stores

• Integrated into auction site

• Sellers generate additional profits




• eBay‟s success due to unspecified audience

– Also spends $1 billion each year to market and

promote Web site

• Major determinants of Web auction site success

– Attracting enough buyers and sellers

• Yahoo! Auction operation closed in 2007

• Amazon.com with “Auctions Guarantee”

– Offered buyer protection through escrow service

– Closed in 2006

• Overstock.com (still active)


• Future challengers to eBay

– Must overcome lock-in effect

• New auction participants inclined to patronize

established marketplaces

– Example: Japanese general consumer auction

• Yahoo! first to enter market

– Now dominates (more than 90% market share)

• eBay maintains low market share (less than 3%)




• Specialty consumer auctions

– Identify special-interest market targets

– Create specialized Web auction sites

• No need to compete with eBay

– Examples:

• JustBeads.com, Cigarbid.com, Winebid




• Consumer reverse auctions

• Reverse bid

– Visitor describes desired items or services

– Site routes visitor to participating merchants

• Reply to visitor by e-mail

• Offer item at particular price

– Buyer accepts

• Lowest offer

• Offer best matching buyer‟s criteria

• All these types of sites now closed




• Consumer reverse auctions (cont‟d.)

• Priceline.com

– Considered a seller-bid auction site

– Visitor states desired airline ticket, car rental, hotel

room price

• If sufficiently high price: transaction completed

– Many transactions come from inventory

• Priceline operates more as a liquidation broker




• Group shopping sites

– Seller posts item with tentative price

– Individual buyers enter bids

• Agreement to buy one unit (no price provided)

• Site negotiates with seller for lower price

– Posted price decreases

• As number of bids increases (only if number of bids

increases)

– Result: buyers force seller to reduce price

• Similar to consumer reverse auction




• Group shopping sites (cont‟d.)

• Well-suited product types

– Branded products, well-established reputations

• Produces buyer confidence of good bargain

– High value-to-size ratio, non-perishable

• Disadvantages

– Difficulty attracting sellers‟ interest

– Well-suited companies

• Find no advantage, fear sites cannibalize product sales, reluctant to offend current distributors

• Group purchasing sites closed




• Business-to-business auctions

– Evolved to meet specific existing need

• Excess inventory disposal (manufacturing)

– Two methods

• Liquidation specialists: find buyers for unusable

items

• Liquidation broker: firm that finds buyers for items

– Online auctions

• Logical extension of these inventory liquidation

activities to a new and more efficient channel (Internet)




• Business-to-business auctions (cont‟d.)

– Emerging business-to-business Web auction models

• Large-company model: creates own auction site

• Small-company model: uses third-party Web auction

site instead of liquidation broker

• Both are direct descendants of traditional methods




• Business-to-business auctions (cont‟d.)

– Third emerging business-to-business Web auction

model

• New business entity enters market lacking efficiency

and creates a site at which buyers and sellers who

have not historically done business with each other can

participate in auctions

• Resembles consumer online auctions

• Example: hospitals using online auctions to fill

temporary employment openings




• Business-to-business reverse auctions

– Example: Owens Corning purchases

– Examples: Agilent, Bechtel, Boeing, Raytheon, Sony

– Potential disadvantage

• Suppliers compete on price alone

• Cut corners on quality or miss scheduled delivery dates

– Potential advantage

• Useful for nonstrategic commodity items with

established quality standards




• Business-to-business reverse auctions (cont‟d.)

– Companies opting out

• Cisco, Cubic, IBM, Solar Turbines

– If suppliers do not participate:

• Impossible to conduct reverse auctions

– If competition high among suppliers:

• Reverse auctions provide efficient way to conduct,

manage price bidding




FIGURE 6-5 Supply chain characteristics and reverse auctions


Auction-Related Services

• Entrepreneurs encouraged by eBay and other

auction site growth

• Provide various kinds of auction-related services

– Escrow services

– Auction directory and information services

– Auction software for sellers and buyers

– Auction consignment services


Auction-Related Services (cont‟d.)

• Auction escrow services

– Buyers‟ common concern: seller reliability

• Buyers protect interests in high-value items

– Independent party holds payment until:

• Buyer receives item

• Buyer satisfied item is as expected

– May take delivery of item from seller

• Perform buyer inspection (qualified to do so)

– Charge fees

• Percent of item‟s cost; subject to minimum fee



• Auction escrow services (cont‟d.)

– Examples: Escrow.com, eDeposit, Square Trade

– May sell auction buyer‟s insurance

• Protect buyers from nondelivery and quality risks

– Avoid escrow fraud

• Determine if licensed, bonded (licensing agency)

• Avoid offshore escrow companies entirely

– Other buyer protections

• Check seller‟s rating

• Use Web site listings of unreliable sellers



• Auction directory and information services

– Example: Auctionguide.com

• Guidance for new auction participants

• Helpful hints and tips for experienced participants

• Directories of online auction sites

– Example: AuctionBytes

• Publishes e-mail newsletter

• Online auction industry articles



• Auction directory and information services (cont‟d.)

– Example: PriceWatch

• Advertiser-supported site

• Advertisers post current selling prices

• Computer hardware, software, electronics

– Example: PriceSCAN

• Similar price-monitoring service

• Also includes books, movies, music, sporting goods



• Auction software

– Target: sellers

• Helps manage online auctions

– Example: AuctionHawk and Vendio

• Seller management software and services

• Automate tasks

• Create attractive page layouts

• Manage hundreds of auctions



• Auction software (cont‟d.)

– Target: buyers

• Helps manage online auctions

– Sniping software

• Observes auction progress until last second

• As auction expires: places bid high enough to win

(unless bid exceeds sniping software owner‟s limit)

• Snipe: act of placing winning bid at the last second

• Almost always wins out over human bidder



• Auction software (cont‟d.)

– Example: Cricket Sniping Software site

• Created in 1997 by David Eccles

– Companies offer sniping service

• Sniping software runs on company Web site

• Customer enters instructions on site

• Company may offer subscriptions

• Company may offer mixed-revenue model

– Sniping software and services business information

• AuctionBytes Web site


FIGURE 6-6 AuctionBytes home page



• Auction consignment services

– Target: people and small businesses

• Want to use online auction

• Do not have skills, time to become a seller

– Auction consignment services

• Take item and create online auction for that item

• Handle transaction

• Remit proceeds balance (after deducting fee)

– Main auction consignment businesses

• ePowerSellers, iSold It, USA AuctionDrop



• Auction consignment services (cont‟d.)

– Key to success

• Convenient locations for customer drop off

• Open own stores, franchise stores

• Electronic commerce first wave

– Online auction business made possible by the Web

• Electronic commerce second wave

– Online auction business created opportunities:

• For even more entirely new types of business

Summary

• Companies using the Web for entirely new things

– Creating social networks

– Using mobile technologies to make sales and

increase operational efficiency

– Operating auction sites

– Conducting related businesses

• Businesses creating online communities to connect

with customers and suppliers

• Individuals using social networking sites

– Personal and business-related interactions

• Mobile commerce opportunities emerging Electronic Commerce, Ninth Edition 78


Summary (cont‟d.)

• Companies‟ internal social networking sites

– Facilitate employee communication

• Online auctions used to sell goods to customers and

buy from suppliers

– Seven major auction types

– Consumer online auction business dominated by

eBay (United States)

– Ancillary service businesses support auctions

• B2B auctions and reverse auctions

– New methods of inventory disposal, procurement

social networking, mcommerce & online auctions

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