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CHAPTER 4: ELECTRONIC CHAPTER 4: ELECTRONIC COMMERCE & ELECTRONIC COMMERCE & ELECTRONIC

BUSINESSBUSINESS

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Management Challenges

Internet provides many opportunities, but also challenges, such as:

• Electronic commerce & electronic business require a new way of thinking

• Finding a successful Internet business model

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New Business Models and Value Propositions

Business Model: How an organization delivers a product or service

Changing Economics of Information– The Internet reduces information asymmetry– The Internet eliminates the tradeoff between

richness and reach of information

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Business Models

• Bricks and Mortar

• Clicks and Mortar (Bricks and Clicks)– Canadian Tire

• Pure Play– Amazon

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Internet Business Models: Selling

• Virtual Storefront– Sells goods and /or services online– www.amazon.com

• Aggregator– groups come together to gain volume discounts

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Internet Business Models: Auctions

• Auction– Dynamic pricing– www.eBay.com

• Reverse Auction– Consumers submit a bid to multiple sellers– www.priceline.com

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Business Models: Online Delivery, Products & Services

• Digital Product Delivery

– Sell and deliver software, multimedia, etc.

– www.Compusmart.com

• Content provider

– creates revenue through providing content for a fee, and through advertising

– www.yahoo.com

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Internet Business Models: Brokers

• Information Broker– Provides information about products

– www.baystreet.ca

• Transaction Broker– Buyers view rates and terms & completes transaction

– www.TDWaterhouse.com

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Internet Business Models: Web Entries & Communities

• Virtual community– Provides an online meeting place for people

with common interests– www.kidshelp.sympatico.ca

• Portal– Initial point of entry to Web, specialized

content, services– www.lycos.com

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Electronic Commerce

Business Consumers

Business B2B C2B

Consumers B2C C2C

Business Originating From:

An

d Se

lling

to:

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Electronic Commerce

Business Consumers

Business Publishers order paper supplies from paper companies

Amazon orders from publishers

Consumers aggregate to bulk purchase from Amazon

Consumers

Consumers buy thousands of Harry Potter Books from

Amazon

Consumers resell copies on eBay

Business Originating From:

An

d Se

lling

to:

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Customer-Centric Retailing

• Direct sales over the Web

• Interactive Marketing and Personalization

• M-Commerce and Next Generation Marketing

• Customer Self-Service

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B2B: Business to BusinessExchanges: commercial online market; many buyers,

many sellers

VERTICAL EXCHANGESSet up for specific industriese.g. Steel and Chemical Industries

HORIZONTAL EXCHANGESAddress functions that occur cross industrye.g. purchasing office equipment

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E-commerce Payment Systems

• Digital wallet • E-cash• Smart card• Person-to-person payments• Credit Cards

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Security: Credit Cards

• Transfer of data from customer to vendor

• Transfer of data from vendor to payment processor

• Protection of customer data in stored in merchant’s database

• Secure Socket Layers (SSL)

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Intranets

Using Internet technology to support internal organizational needs– Email– Document sharing– Online repositories of information– Remote access to resources– Group collaboration

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Example: Sun Microsystems

Intranet to support Sales Team

“The good news is there’s lots of information”

“The bad news is there’s lots of information”

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Intranets: Organizational Benefits

• Cross platform availability• Can be tied to internal & transaction processing systems• Interactive applications with text, audio, video• Scalable as required• Easy to use Web interface• Low start-up costs• Improved information sharing• Reduced cost of distributing information

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Challenges & Opportunities

• Unproven business models

• Business processes require change– channel conflicts

• Legal Issues

• Security and Privacy

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E-commerce in Canada

• There is a higher percentage of Canadians than Americans using the Internet

• But . . . Canadian businesses are underrepresented on the Internet– Only 6 percent of Canadian businesses selling online in

2000, down from 10% in 1999

– In 2000, e-commerce sales accounted for 0.4 % of revenues, up from 0.2% in 1999

– Canadians purchase from US companies

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Barriers to e-commerce in Canada

• High percentage of SMEs in Canada

– May not have adequate resources to develop e-commerce strategy & solution

• Shortage of skilled IT workers

• Lack of sense of urgency

• Conservative investor culture

• Tax structure

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E-commerce Taxation Issues

• Cross-border shopping

• Digital downloads

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Who is Making Money on the Web?• 190 companies split into 7 categories

– Portals– Transaction– Commerce– Content– ISP– Enablers– Advertising

• Evaluated on financial metrics

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Who is Making Money on the Web? Ctd.

• Results– Winner: Transaction (8/11 cos. had positive earnings)

• Why: solid revenue model

– Losers: Content Providers and ISPs (4/34 CPs had positive earnings)

– Commerce (0/26 had positive earnings)

– Conclusion: <1/5 that met necessary requirements to go public had positive earnings. Transaction companies making money; others are investing in building brands and customer bases. Only a fraction of these cos. will succeed.

Source: Scherbakovsky and Siegal