Slide 2.1 Dave Chaffey, E-Business and E-Commerce Management, 3 rd Edition © Marketing Insights Ltd...

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Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition © Marketing Insights Ltd 2007

CHAPTER 2

E-commerce Fundamentals

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Learning outcomes Evaluate changes in business

relationships between organizations and their customers enabled by e-commerce

Identify the main business and marketplace models for electronic communications and trading

Describe different revenue models and transaction mechanisms available through online services.

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Management issues What are the implications of changes in

marketplace structures for how we trade with customers and other partners?

Which business models and revenue models should we consider in order to exploit the Internet?

What will be the importance of online intermediaries and marketplace hubs to our business and what actions should we take to partner these intermediaries?

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E-commerce environment

Needs of customers Local and international economic

conditions Legislation Technological innovations

Figure 2.1 The environment in which e-business services are provided

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Local conditions

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Environment constraints and opportunities

Customers – which services are they offering via their web site that your organization could support them in?

Competitors – need to be benchmarked in order to review the online services they are offering – do they have a competitive advantage?

Intermediaries – are new or existing intermediaries offering products or services from your competitors while you are not represented?

Suppliers – are suppliers offering different methods of procurement to competitors that give them a competitive advantage?

Macro-environment Society – what is the ethical and moral consensus on holding personal

information? Country specific, international legal – what are the local and global legal

constraints for example on holding personal information, or taxation rules on sale of goods?

Country specific, international economic – what are the economic constraints of operating within a country or global constraints?

Technology – what new technologies are emerging by which to deliver online services such as interactive digital TV and mobile phone-based access?

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Lack of Privacy = Lack of Sales

“Consumer privacy apprehensions continue toplague the Web. These fears will hold backroughly $15 billion in e-commerce revenue.”

-Forrester Research, September 2001

“Privacy and security concerns could cost onlinesellers almost $25 billion by 2006.”

-Jupiter Research, May 2002

“Online retail sales could be 25% higher by 2006 ifconsumer’s fears about privacy and security wereaddressed.”

-Jupiter Research, 2002

Figure 2.2 B2B and B2C interactions between an organization, its suppliers and its customers

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B2B and B2C characteristicsCharacteristic B2C B2B

Proportion of adopters with access

Low to medium High to very high

Complexity of buying decisions

Relatively simple – individual and influencers

More complex – buying process involves users, specifiers, buyers, etc.

Channel Relatively simple – direct or from retailer

More complex, direct or via wholesaler, agent or distributor

Purchasing characteristics Low value, high volume or high value, low volume. May be high involvement

Similar volume/value. May be high Involvement. Repeat orders (rebuys) more common

Product characteristic Often standardized items Standardized items or bespoke for sale

Figure 2.3 Disintermediation of a consumer distribution channel showing(a) the original situation, (b) disintermediation omitting the wholesaler, and(c) disintermediation omitting both wholesaler and retailer

Marketplace channel structures

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Marketplace channel structures

Describes the way a manufacturer delivers products and services to its customers

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Vauxhall

Figure 2.4 From original situation (a) to disintermediation (b) and reintermediation (c)

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Reintermediation Creation of a new intermediary Example:

B&Q www.diy.com Opodo www.opodo.com Boots www.wellbeing.com

www.handbag.com Ford, Daimler (www.covisint.com)

Partnering with existing intermediary – Mortgage broker Charcol and Freeserve

http://www.covisint.com/

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Reintermediation

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Online Intermediaries

Directories Search Engines Malls Virtual resellers Financial Intermediaries Forums, fan clubs and user groups Evaluators

Figure 2.6 Yahoo! Shopping Australia, a price comparison site based on theKelkoo.com shopping comparison technology (http://shopping.yahoo.com.au)

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Blogs

Give an easy method of regularly publishing web pages, e.g. online journals, diaries or event listing

Include feedback or comments

Figure 2.5 Dave Chaffey’s blog site (www.davechaffey.com)

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Importance of multi-channel marketplace models Customer journey – modern multi-

channel behavior as consumers use different media Offline Mixed-mode Online

Figure 2.7 Example channel chain map for consumers selecting an estate agentto sell their property

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Search engines

Directories

News aggregators

MR aggregators

Comparers

Exchanges

Meta services

Portal

‘A gateway to information resources and services’

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Types of portalType of portal Characteristics Example

Access portal Associated with ISP Wanadoo (www.wanadoo.com) and now (www.orange.co.uk)AOL (www.aol.com)

Horizontal or functional portal

Range of services: search engines, directories, news recruitment, personal information management, shopping, etc.

Yahoo! (www.yahoo.com) MSN (www.msn.com)Google (www.google.com) for which a long period just focused on search.

Vertical A vertical portal covers a particular market such as construction with news and other services.

Construction Plus (www.constructionplus.co.uk)Chem Industry(www.chemindustry.com) Barbour Index for B2B resources(www.barbour-index.com)E-consultancy(www.e-consultancy.com) Focuses on e-business resources

Media portal Main focus is on consumer or business news or entertainment. BBC (www.bbc.co.uk) Guardian (www.guardian.co.uk)ITWeek (www.itweek.co.uk)

Geographical(Region, country, local)

May be:horizontal vertical

Google country versionsYahoo! country and city versionsCraigslist (www.craigslist.com)Countyweb (www.countyweb.com)

Marketplace May be:HorizontalVerticalGeographical

EC21(www.ec21.com) eBay (www.eBay.com)

Search portal Main focus is on Search Google (www.google.com)Ask Jeeves (www.ask.com)

Media type May be:Voice Video Delivered by streaming media or downloads of files

BBC (www.bbc.co.uk) Silicon (www.silicon.com)

http://www.wanadoo.com/

http://www.orange.co.uk/

http://www.aol.com/

http://www.yahoo.com/

http://www.msn.com/

http://www.google.com/

http://www.constructionplus.co.uk/

http://www.chemindustry.com/

http://www.barbour-index.com/

http://www.e-consultancy.com/

http://www.bbc.co.uk/

http://www.guardian.co.uk/

http://www.itweek.co.uk/

http://www.craigslist.com/

http://www.countyweb.com/

http://www.ec21.com/

http://www.ebay.com/

http://www.google.com/

http://www.ask.com/

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Place of purchase

Examples of sites

A. Seller-controlled

Vendor sites, i.e. home site of organization selling products, e.g. www.dell.com.

B. Seller-oriented Intermediaries controlled by third parties to the seller such as distributors and agents, e.g. Opodo (www.opodo.com) represents the main air carriers

C. Neutral Intermediaries not controlled by buyer’s industry, e.g. EC21 (www.ec21.com).

Product-specific search engines, e.g. CNET (www.computer.com)

Comparison sites, e.g. Barclay Square/Shopsmart (www.barclaysquare.com)

Auction space, e.g. eBay (www.ebay.com)

D. Buyer-oriented Intermediaries controlled by buyers, e.g. Covisint used to represent the major motor manufacturers (www.covisint.com) although they now don’t use a single marketplace, but each manufacturer uses technology to access its suppliers direct.

Purchasing agents and aggregators

E. Buyer-controlled

Web site procurement posting on company’s own site, e.g. GE Trading Process Network (www.tpn.geis.com

Online representation

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Seller-oriented- Opodo.co.uk

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Buyer-oriented-covisint.com

Figure 2.8 Variations in the location and scale of trading on e-commerce sites

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Commercial arrangements for transactions

Commercial (trading) mechanism Online transaction mechanism of Nunes et al. (2000)

1. Negotiated deal Example: can use similar mechanism to auction as on Commerce One (www.commerceone.net)

Negotiation – bargaining between single seller and buyer. Continuous replenishment – ongoing fulfilment of orders under pre-set terms

2. Brokered deal Example: intermediaries such as screentrade (www.screentrade.co.uk)

Achieved through online intermediaries offering auction and pure markets online

3. Auction Example: C2C: E-bay (www.ebay.com) B2B: Industry to Industry (http://business.ebay.co.uk/)

Seller auction – buyers’ bids determine final price of sellers’ offerings. Buyer auction – buyers request prices from multiple sellers. Reverse – buyers post desired price for seller acceptance

4. Fixed-price sale Example: all e-tailers

Static call – online catalogue with fixed prices. Dynamic call – online catalogue with continuously updated prices and features

5. Pure markets Example: electronic share dealing

Spot – buyers’ and sellers’ bids clear instantly

6. Barter Example: www.intagio.com and www.bartercard.co.uk

Barter – buyers and sellers exchange goods. According to the International Reciprocal Trade Association (www.irta.com ) barter trade was over $9 billion in 2002.

Figure 2.9 Priceline Hong Kong service (www.priceline.com.hk)

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Business modelTimmers (1999) defines a ‘business model’

as:An architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenue.

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Business models on the web E-shop E-procurement E-malls E-auctions Virtual communities Collaboration platforms Third-party marketplace Value-chain service providers Information brokerage Trust and other services

Figure 2.10 Alternative perspectives on business models

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Revenue models – publisher example1. Subscription access to content.2. Pay-per-view access.3. CPM on site display advertising.4. CPC advertising on site.5. Sponsorship of site sections, content or

widgets.6. Affiliate revenue (CPA or CPC).7. Subscriber data access for e-mail

marketing.8. Access to customers for research purposes.

Figure 2.11 Alex Tew’s Million Dollar Home Page (www.milliondollarhomepage.com)

Figure 2.13 www.firebox.com

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Summary1. The constantly changing e-business environment

should be monitored by all organizations in order to be able to respond to changes in social, legal, economic, political and technological factors together with changes in the immediate marketplace that occur through changes in customer requirements and competitors’ and intermediaries’ offerings

2. The e-business marketplace involves transactions between organizations and consumers (B2C) and other businesses (B2B). Consumer-to-consumer (C2C) and consumer-to-business categories (C2B) can also be identified

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Summary

3. The Internet can cause disintermediation within the marketplace as an organization’s channel partners such as wholesalers or retailers are bypassed. Alternatively, the Internet can cause reintermediation as new intermediaries with a different purpose are formed to help bring buyers and sellers together in a virtual marketplace or marketspace. Evaluation of the implications of these changes and implementation of alternative countermediation strategies is important to strategy

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Summary

4. Trading in the marketplace can be sell-side (seller-controlled), buy-side (buyer-controlled) or at a neutral marketplace

5. A business model is a summary of how a company will generate revenue identifying its product offering, value-added services, revenue sources and target customers. Exploiting the range of business models made available through the Internet is important to both existing companies and start-ups

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Summary

6. The Internet may also offer opportunities for new revenue models such as commission on affiliate referrals to other sites or banner advertising

7. The opportunities for new commercial arrangements for transactions include negotiated deals, brokered deals, auctions, fixed-price sales and pure spot markets, and barters should also be considered

8. The success of dot-com or Internet start-up companies is critically dependent on their business and revenue models and traditional management practice

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Homework

Describe your dream e-commerce website Write details of your website:

What are the transaction actors (B2B, B2C, or others)

If you are to create intermediaries, specify what kind of intermediaries are you going to create

What are the trading mechanisms Explain the marketplace position Explain the revenue model

Slide 2.1 Dave Chaffey, E-Business and E-Commerce Management, 3 rd Edition © Marketing Insights Ltd...

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