Chapter 9 : Online Auctions, Virtual Communities and

Evolving Concepts

IT6304 e-Business Applications2015 – OpenArc Campus – UCSC BIT

Ref: ELECTRONIC COMMERCE, Ninth Edition, Gary P. Schneider

Instructional Objectives

Describe auction basics

Define web auction strategies

Describe virtual community and portal strategies

Discuss Advantages and Disadvantages of Social

Networking

Describe Cloud Computing (Previous Semester)

Describe Customer Relationship Management,

Supply Chain Management and Knowledge

Management

An auction site can charge both buyers and sellers in participation.

It sells advertising space on its pages. Manage the flow of buying by bidding

process. Its revenue-generating characteristics

makes it relatively easy to develop online auctions that yield profits early in the life of the project.

ONLINE AUCTIONS

(contd.)

One of the Internet’s strengths is that it can bring together people who share narrow interests but are geographically dispersed.◦ Antique items auctions

Online auctions can capitalize on that ability by either catering to a narrow interest or providing a general auction site (eBay) that has sections devoted to specific interests.

ONLINE AUCTIONS (contd.)

In an auction, a seller offers an item or items for sale, but does not establish a price.◦ This is called “putting an item up for bid” or

“putting an item on the (auction) block.”

Potential buyers are given information about the item or some opportunity to examine it; they then offer bids, which are the prices they are willing to pay for the item.

Auction Basics

(contd.)

The potential buyers, or bidders, each have developed private valuations, or amounts they are willing to pay for the item.

The whole auction process is managed by an auctioneer.

In some auctions, people employed by the seller can make bids on behalf of the seller, with sole intention is to make prices up. ◦ These people are called shill bidders. ◦ Shill bidders can artificially inflate the price of an

item.

Auction Basics (contd.)

Types of Auctions

Second Price Auction

Bidders publicly announce their successive higher bids until no higher bid is forthcoming.

At that point, the auctioneer pronounces the item sold to the highest bidder at that bidder’s price.

This type of auction is also called an ascending price auction.

An English auction is sometimes called an open auction (or open-outcry auction) because the bids are publicly announced.

1. English Auctions ***

(contd.)

A minimum bid is the price at which an auction begins.

If no bidders are willing to pay that price, the item is removed from the auction and not sold.

In some auctions, a minimum bid is not announced, but sellers can establish a minimum acceptable price, called a reserve price, or simply reserve.

If the reserve price is not exceeded, the item is withdrawn from the auction and not sold.

English Auctions (Minimum bid/ Reserve price)

(contd.)

Drawbacks for both sellers and bidders. The winning bidder is only required to bid a

small amount more than the next-highest bidder, winning bidders tend not to bid their full private valuations, which prevents sellers from obtaining the maximum possible price.

Bidders risk becoming caught up in the excitement of competitive bidding and then bidding more than their private valuations. ◦ This psychological phenomenon, called the

winner’s curse.

English Auctions (Drawbacks)

Open auction in which bidding starts at a high price and drops until a bidder accepts the price.

Because the price drops until a bidder claims the item, Dutch auctions are also called descending-price auctions.

Farmers’ cooperatives in the Netherlands use this type of auction to sell perishable goods such as fruits/vege and flowers, which is how it came to be known as a “Dutch” auction.

Used in Stock Market also.

2. Dutch Auctions

(contd.)

Use when seller offers a number of similar items for sale.

One common implementation of a Dutch auction uses a clock that drops the price with each tick.

The first bidder to call out “stop” which stops the clock, becomes the winning bidder.

The winning bidder can take all or any part of the auctioned items at that price.

Dutch Auctions (contd.)

(contd.)

If any items remain, the clock is restarted and continues to run until all the items are taken by successive lower bidders.

A Dutch auction is often better for the seller because the bidder with the highest private valuation will not let the bid drop much below that valuation for fear of losing the item to another bidder.

Dutch auctions are particularly good for sell large numbers of commodity items quickly.

Dutch Auctions (contd.)

In sealed-bid auctions, bidders submit their bids independently and are usually prohibited from sharing information with each other.

In a first-price sealed-bid auction, the highest bidder wins.

If multiple items are auctioned, successive lower (next highest) bidders are awarded the remaining items at the prices they bid.

3. First-Price Sealed-Bid Auctions

Highest bidder is awarded the item at the price bid by the second-highest bidder.

Why a seller would even consider such an auction because it gives the item to the winning bidder at a lower price???◦ Because it yields higher returns for the seller, encourages

all bidders to bid the amounts of their private valuations, and reduces the tendency for bidders to collude.

◦ Because the winning bidder is protected from an erroneously high bid.

Commonly called Vickrey auctions. ◦ William Vickrey

4. Second-Price Sealed-Bid Auctions

Buyers and sellers each submit combined price quantity bids to an auctioneer.

The auctioneer matches the sellers’ offers (starting with the lowest price and then going up) to the buyers’ offers (starting with the highest price and then going down) until all the quantities offered for sale are sold to buyers.

Double auctions can be operated in either sealed-bid or open-outcry formats.

5. Double Auctions

The buy and sell offers are shouted by traders standing in a small area on the exchange floor called a trading pit.

Each commodity or stock option is traded in its own pit. The action in a trading pit can become quite frenzied as 20 or 30 traders shout offers aloud.

Work well only for items of known quality, such as securities or graded agricultural products, which are regularly traded in large quantities.

Such items can be auctioned without bidders inspecting the items before placing their bids.

5.1 Open-Outcry Double Auctions

Multiple sellers submit price bids to an auctioneer who represents a single buyer. ◦ Tender Calling

The bids are for a given amount of a specific item that the buyer wants to purchase.

The prices go down as the bidding continues until no seller is willing to bid lower.

In many business reverse auctions, the buyer acts as auctioneer and screens sellers before they can participate.

6. Reverse (Seller-Bid) Auctions

A virtual community, also called a Web community or an online community, is a gathering place for people and businesses that does not have a physical existence.

Arrived as Bulletin Board Systems (BBSs)◦ BBSs often hosted discussions on specific topics

or issues related to specific geographic regions. Many BBSs were free, but some charged a monthly membership fee.

Usenet newsgroups were another early form of virtual community.

Virtual Communities

(contd.)

Today, Web chat rooms and sites devoted to specific topics or the general exchange of information, photos, or videos can constitute virtual communities.

These communities offer people a way to connect with each other and discuss common issues and interests.

The social interaction in these communities can be considerable and many sociologists believe that the communication and relationship forming activities that occur online are similar to those that occur in physical communities.

Virtual Communities (contd.)

In the early days of the Internet, virtual communities provided an important service to the small number of people who regularly used the medium.

As the Internet and Web grew, mass Internet communities were formed on common interests and the Internet was become a tool that enabled communication among community members.

Social Networking

(contd.)

• Web Logs (Blogs / Micro-blog)• Personal Blogs, Company Blogs, News Blogs…etc

• Social Networking Web Sites for Shoppers

• Virtual Learning Networks

• Web Portals

• Yahoo!, AOL, MSN…etc• search engines, directories, free e-mail, news stories, and

weather reports with social networking elements such as games and chat rooms that allow site visitors to interact with each other.

This new focus on the social interactions among community members that are made possible by the Web has led to a new category of Web sites.

Because these sites are designed to facilitate interactions among people, they are called social networking sites.

A social networking site is a Web site that allows individuals to create and publish a profile and manage a list of other users with whom they share a connection.

Social Networking (contd.)

(contd.)

Advertising-Supported Social Networking Sites◦ Social networking sites often ask their members to provide

demographic information about themselves, the potential for targeted marketing on these types of sites is very high.

Fee-Based Social Networking

The use of mobile technology is becoming an important part of almost every social networking business strategy as people use their mobile phones to do everything from take photos they will post on Facebook to send tweets to their followers on Twitter.

Social Networking (contd.)

A growing number of large organizations have built internal Web sites that provide opportunities for social interaction among their employees.

These sites also include important information for employees.

Organizations can save significant amounts of money by replacing the printing and distribution of paper memos, newsletters, and other correspondence with a Web site.

Internal social networking and community sites also provide easy access to employee handbooks, newsletters, and employee benefits information.

Internal Virtual Communities

(contd.)

These organizations are also finding that an internal social networking Web site can become a good way of creating a virtual community among employees who are dispersed over a wide geographic area. ◦ For example, a global company could create a

question and answer page for all of its networking technicians. Such a page would provide mentoring and informal help functions for the networking technician community within the company.

Internal Virtual Communities (contd.)

(contd.)

Many companies are adding wireless connectivity to their internal community sites and are using this technology to extend the reach of the site to employees who are traveling, meeting with customers or suppliers, or telecommuting.

Internal Virtual Communities (contd.)

The nature of the Web, with its two-way communication features and traceable connection technology, allows firms to gather much more information about customer behavior and preferences.

Now, companies can measure a large number of things that are happening as customers and potential customers gather information and make purchasing decisions.

Customer Relationship Management

(contd.)

The information that a Web site can gather about its visitors (which pages were viewed, how long each page was viewed, the sequence, and similar data) is called a clickstream.

Technology-enabled-relationship management is important when promoting and selling on the Web.

Customer Relationship Management (contd.)

(contd.)

Technology-enabled-relationship management occurs when a firm obtains detailed information about a customer’s behavior, preferences, needs, and buying patterns, and uses that information to set prices, negotiate terms, tailor promotions, add product features, and otherwise customize its entire relationship with that customer.

Customer Relationship Management (contd.)

(contd.)

Many electronic commerce Web sites today offer customers the convenience of an online order history, recommendations based on previous purchases, and show current information about products in which the customer might be interested.

Successful Web-marketing approaches all involve enabling the potential customer to find information easily and customizing the depth and nature of that information; such approaches should encourage the customer to buy.

Customer Relationship Management (contd.)

(contd.)

Firms should track and examine the behaviors of their Web site visitors, and then use that information to provide customized, value-added digital products and services in the market space.

In the early days of the Web, many companies attempted to create comprehensive CRM systems that captured every bit of information about every customer. ◦ Watch: https://www.youtube.com/watch?v=sENv5vlXiu4

Customer Relationship Management (contd.)

(contd.)

By limiting data collection to key facts that matter to sales-people and customers, these systems provide valuable information, yet they do not overly burden sales and administrative staff with data entry work.

More companies are getting better at automating the collection of data, which also increases the likelihood that a CRM implementation will be successful.

Customer Relationship Management (contd.)

(contd.)

The goal of CRM is to understand each customer’s specific needs and then customize a product or service to meet those needs.

The idea is that a customer whose needs are being met exactly is willing to pay more for the goods or services that they need.

CRM Software

(contd.)

Must obtain customer related data from operations software that conducts activities such as sales automation, customer service center operations, and marketing campaigns.

CRM software uses this data to help managers conduct analytical activities, such as gathering business intelligence, planning marketing strategies, customer behavior modeling, and customizing the products and services to meet the needs of specific customers or categories of customers.

CRM Software (contd.)

(contd.)

In its most basic form, CRM uses information about customers to sell them more (or more profitable) goods or services.

More advanced CRM is about delivering extremely attractive and positive experiences regularly to customers.

Salesforce.com

CRM Software (contd.)

Helps companies to coordinate planning and operations with their partners in the industry supply chains of which they are members.

SCM software performs two general types of functions: planning and execution.

Most companies that sell SCM software offer products that include both components, but the functions are quite different.

Supply Chain Management Software

(contd.)

SCM planning software ◦ Helps companies develop coordinated demand

forecasts using information from each participant in the supply chain.

SCM execution software ◦ Helps with tasks such as warehouse and

transportation management.

SCM Software (contd.)

(contd.)

The cost of SCM software implementations varies tremendously depending on how many locations (retail stores, wholesale warehouses, distribution centers, and manufacturing plants) are in the supply chain.

Most supply chain management software was developed for manufacturing firms that wanted to manage inventory purchases and manufacturing processes.◦ Includes specific components that manage demand

planning, supply planning, and demand fulfillment.

SCM Software (contd.)

(contd.)

The demand planning module

◦ Includes algorithms for specific industry markets that examine

customers’ buying patterns and generate continually updated

forecasts.

The supply planning module

◦ Coordinates distribution logistics, inventory-level forecasting,

collaborative procurement, and supply allocations.

The demand fulfillment module

◦ Handles the execution elements, including order management,

customer verification, backlog control, and order fulfillment.

SCM Software (contd.)

Companies began the search for systems that would help them manage the knowledge itself, rather than the documentary representations of that knowledge.

The software that has been developed to meet that goal is called knowledge management (KM) software.

Knowledge Management Software

(contd.)

Knowledge management is the intentional collection, classification, and dissemination of information about a company, its products, and its processes.

This type of knowledge is developed over time by individuals working for or with a company and is often difficult to gather and distill.

KM Software (contd.)

(contd.)

KM software helps companies do four main things: ◦ collect and organize information, ◦ share the information among users, ◦ enhance the ability of users to collaborate, ◦ preserve the knowledge gained through the use of

information so that future users can benefit from the learning of current users.

KM software includes tools that read electronic documents (in formats such as Microsoft Word or Adobe PDF), scanned paper documents, e-mail messages, and Web pages.

KM Software (contd.)

(contd.)

KM software often includes powerful search tools that use semantic and statistical algorithms to help users find the content, human experts, and other resources that can aid them in their research and decision-making tasks.

Early KM systems often disrupted the flow of users’ work.

Today, KM systems collect knowledge elements by extracting them from the normal interactions users have with information.

KM Software (contd.)