Social Networking, Mobile Commerce, and Online Auctions Chapter 6 Social Networking, Mobile Commerce, and Online Auctions © Cengage Learning 2015 1 1

Learning Objectives In this chapter, you will learn: How social networking emerged from virtual communities How companies use social networking tools in online business activities About mobile technologies that are now used to do business online How online auctions and auction-related businesses are conducted online © Cengage Learning 2015 2 2

Introduction Case study: Starbucks Views social media as an extension of the customer relationship Integrates mobile technology by accepting payments from mobile phones Provides mobile device app to let customers manage loyalty program benefits Serves as a social media observer rather than actively advertising © Cengage Learning 2015

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 © Cengage Learning 2015 4 4 4 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 © Cengage Learning 2015 5

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 © Cengage Learning 2015 6

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 © Cengage Learning 2015 7

Early Web Communities (cont’d.) 1995-2001 Tripod and Theglobe.com offered advertising-supported virtual communities These early communities evolved into social networking sites of today © Cengage Learning 2015 8

Social Networking Emerges As the Internet and Web grew: New experience of sharing online communication faded Specific common interests formed a basis for interaction 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 Monitor similar lists made by other users © Cengage Learning 2015 9

Social Networking Emerges (cont’d.) Early social networking sites Six Degrees (1997) Friendster (2002) Had features found in today’s social networking sites Tribe.net MySpace (dominant prior to 2008) © Cengage Learning 2015 10

Social Networking Emerges (cont’d.) Current social networking sites Facebook Google+ YouTube Inclusion of video GREE, mixi (Japan) Orkut (Brazil, India) QQ, WeChat, Weibo (China) © Cengage Learning 2015 11

Social Networking Emerges (cont’d.) LinkedIn Dedicated to facilitating business contacts Twitter Users send short messages (tweets) to other users who sign up to follow their messages Basic idea behind social networking People invited to join by existing members Site provides directory (without contact information) Communication does not occur until intended recipient approves the contact © Cengage Learning 2015 12

FIGURE 6-1 Social networking Web sites © Cengage Learning 2015 © Cengage Learning 2015 13

FIGURE 6-2 Leading social networking sites around the world © Cengage Learning 2015 © Cengage Learning 2015

Social Networking Emerges (cont’d.) Some social networks focused around specific interests or capabilities Flickr Pinterest Instagram CafeMom Snapchat © Cengage Learning 2015 15

Web Logs (Blogs) and Microblogs Web sites containing individual commentary on current events or specific issues Form of social networking site Twitter: microblog Very informal; tweets limited to 140 characters Early blogs focused on technology topics Blogs can be used as a political networking tool Starting with 2004 election Communicating messages, organizing volunteers, raising money, meetups © Cengage Learning 2015 16

Web Logs (Blogs) and Microblogs (cont’d.) Retailers embracing blogs Way to engage visitors not ready to buy from site Marketing and supply managers saw social networking benefits of enhancing B2B relationships Participatory journalism CNN Blogs can become businesses in themselves Must generate financial support (fees, advertising) © Cengage Learning 2015 17

Location-Aware Mobile Social Networks Mobile devices transmit their location to Web sites Sites use location information to provide customized advertising and other services Examples Foursquare Facebook Google+ © Cengage Learning 2015

Business Uses of Social Networking Types of use by businesses Thinly-veiled advertising Building brand awareness Establishing trust Announcing new products or services Gathering information about customers and potential customers Example: Brooks Running Contributes to social media discussions dedicated to fitness © Cengage Learning 2015

Business Uses of Social Networking (cont’d.) Example: Campbell’s Soup Discussion areas focusing on what soup can do for the family © Cengage Learning 2015

Figure 6-3 Social media strategies for business © Cengage Learning 2015 © Cengage Learning 2015

Social Shopping Sites Craigslist Etsy Poshmark Started as information resource for San Francisco residents Expanded to other major cities Free advertising in most categories Etsy Buy and sell handmade items Poshmark Women’s clothing social shopping Site optimized for mobile phone users © Cengage Learning 2015

Idea-Based Social Networking 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, 43 Things © Cengage Learning 2015 23

Virtual Learning Networks Distance learning platforms for student-instructor interaction (Blackboard) Tools include: Bulletin boards, chat rooms, drawing boards Massive Open Online Courses (MOOC) Coursera Udacity Some university programs available entirely online Low completion rate © Cengage Learning 2015 24

Open-Source Software Software available for download at no cost An example of successful social networking Community devoted to the creation, improvement, and maintenance of the software Some software devoted to development of virtual learning communities Moodle uPortal © Cengage Learning 2015

Revenue Models for Social Networking Sites Late 1990s Revenue created by selling advertising Used by virtual communities, search engine sites, Web directories 1998 Purchases and mergers occurred New sites used advertising-only revenue model Included features offered by virtual community sites, search engine sites, Web directories, other information-providing and entertainment sites Web portal goal: every Web user’s doorway to Web © Cengage Learning 2015 26

Revenue Models for Social Networking 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 © Cengage Learning 2015 27

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 Examples The Motley Fool and TheStreet.com © Cengage Learning 2015 28

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 © Cengage Learning 2015 29

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 Borrowers support each other, element of pressure to repay Examples: Kiva and MicroPlace © Cengage Learning 2015 30

Crowdfunding Sites Small businesses can sell partial ownerships to investors Examples: Kickstarter, IndieGoGo Reduces risk to individual investors Small amounts of money invested Reward-based crowdfunding Investors pay in advance for products and services To be delivered when funds raised Used by artists and charitable organizations To help complete a specific project © Cengage Learning 2015

Internal Social Networking Provide social interaction among organization’s employees Run on organization’s intranet Save money by replacing printed distribution Provide easy access to employee information Good for geographically dispersed employees Adding wireless connectivity © Cengage Learning 2015 32

Mobile Commerce Short messaging service (SMS) Usually called texting Mobile phone users 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 Potential for mobile commerce (m-commerce) © Cengage Learning 2015 33

Mobile Phones Japan and Southeast Asia mobile commerce Much larger online business activity Had high-capacity networks before U.S. NTT DoCoMo, Japan’s largest phone company Pioneered mobile commerce in 2000 U.S. mobile commerce beginning in 2008 Introduction of smart phones and high-capacity networks Smart phone examples: Apple iPhone, Android © Cengage Learning 2015 34

Tablet Devices Smaller than laptop computer, larger than phone Connect to the Internet wirelessly Phone carrier service or local network Can switch between two modes automatically Phablets Large phones with high-resolution screens By 2016: More tablets sold annually than personal computers © Cengage Learning 2015

FIGURE 6-5 Actual and projected sales of personal computers, tablet devices, and mobile phones (in millions of units) © Cengage Learning 2015 36

Tablet Devices (cont’d.) Mobile commerce browser display options Wireless Application Protocol (WAP) Allows Web pages formatted in HTML to be displayed on small-screen devices Display a normal Web page on the device Made possible by increased screen resolution Example: Apple iPhone Touchscreen controls now prevalent © Cengage Learning 2015 37

Mobile Device Operating Systems Apple and BlackBerry 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 Phone © Cengage Learning 2015 38

Mobile Device Operating Systems (cont’d.) Android operating system Most popular and fastest growing third-party operating system Developed by Google Open source Smart phone operating system Cannot be deleted/switched by user Operating system modifications Jailbreaking (Apple iphone’s operating system) Rooting (Android operating system) © Cengage Learning 2015 39

FIGURE 6-7 Smartphone operating systems: U.S. market shares © Cengage Learning 2015

Mobile Apps 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 (apps) Apple turned old revenue strategy on its head AT&T agreed to be sole carrier for iPhone Apple Apps for iPhone online store Independent developers create apps and sell them © Cengage Learning 2015

Mobile Apps (cont’d.) Apple AppStore, Google Play Some mobile apps are sold for a fee Games, puzzles, productivity tools, reference works Typically range from $1 to $5 each © Cengage Learning 2015

Mobile Apps (cont’d.) Mobile phones used for online banking Physicians using smart phones To read EKGs To manage diabetic patients Phones’ global positioning satellite (GPS) service capabilities Allow mobile business opportunities © Cengage Learning 2015 43

Mobile Payment Apps Mobile wallets Mobile phones function as credit cards Japan’s NTT DoCoMo phones combine capabilities Generate significant business Widespread credit card use in U.S. but limited use of mobile phone payments 2011: Phone readers offered by American Express, Visa, MasterCard Google Wallet for Android phones introduced 2014: Starbucks reported 12% of customers paying through mobile app © Cengage Learning 2015

Online Auctions Business opportunity perfect for the Web Auction site revenue sources Charge both buyers and sellers to participate Sell advertising Targeted advertising opportunities available Online auctions capitalize on Internet’s strength Bring together geographically dispersed people sharing narrow interests © Cengage Learning 2015

Auction Basics Auctions date from Babylon in 500 B.C. Common activity of 17th century England 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 © Cengage Learning 2015

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 Reserve price (reserve) If not met, item removed (not sold) © Cengage Learning 2015

Auction Basics (cont’d.) 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 © Cengage Learning 2015

Auction Basics (cont’d.) 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 the clock and take items at the given price If items remain, the clock is restarted © Cengage Learning 2015

Auction Basics (cont’d.) 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 © Cengage Learning 2015

Auction Basics (cont’d.) 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 © Cengage Learning 2015

Auction Basics (cont’d.) 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 © Cengage Learning 2015

Auction Basics (cont’d.) Double auctions Buyers, sellers submit combined price-quantity bids Auctioneer matches sellers’ offers to buyers’ offers Starts with lowest price and then goes up 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 © Cengage Learning 2015

Auction Basics (cont’d.) 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 Most involve businesses as buyers and sellers © Cengage Learning 2015

FIGURE 6-8 Key characteristics of seven major auction types © Cengage Learning 2015 © Cengage Learning 2015

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 © Cengage Learning 2015

General Consumer Auctions eBay Registration required, seller fees, rating system Seller’s risk: buyer uses stolen credit card; 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 © Cengage Learning 2015

General Consumer Auctions (cont’d.) 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 © Cengage Learning 2015

General Consumer Auctions: The Lock-In Effect eBay established itself early Economic structure is biased against new entrants Markets become more efficient as number of buyers and sellers increase Consumers more likely to patronize established sites 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%) © Cengage Learning 2015

Group Shopping and Coupon Sites Group shopping sites Also known as group purchasing site 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 © Cengage Learning 2015

Group Shopping and Coupon 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; are reluctant to offend current distributors Mercata and LetsBuyIt sites closed Successful sites: Groupon, LivingSocial, Gilt © Cengage Learning 2015

Business-to-Business Auctions Evolved to meet specific existing need Excess inventory disposal (manufacturing) Two methods Liquidation specialists: find buyers for unusable items Liquidation brokers: firms that finds buyers for items Online auctions Logical extension of these inventory liquidation activities to a new and more efficient channel (Internet) Example: GoIndustry Dove Bid site © Cengage Learning 2015

Business-to-Business Auctions (cont’d.) Used to fill temporary employment openings Example: nursing Employers operate their own shift auctions © Cengage Learning 2015

Business-to-Business Reverse Auctions Example: Owens Corning purchases Examples: Agilent, Bechtel, Boeing, Raytheon, Sony Need for trust and long-term supplier relationships Make reverse auctions less appealing If suppliers refuse to participate: Impossible to conduct reverse auctions © Cengage Learning 2015

FIGURE 6-9 Supply chain characteristics and reverse auctions © Cengage Learning 2015 © Cengage Learning 2015

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) © Cengage Learning 2015

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 © Cengage Learning 2015

Auction Escrow Services (cont’d.) Avoid escrow fraud Determine if licensed, bonded (licensing agency) Other buyer protections Check seller’s rating Use Web site listings of unreliable sellers © Cengage Learning 2015

Auction Directory and Information Services Example: eCommerceBytes Publishes articles about developments in the auction industry Example: Price Watch Advertiser-supported site Advertisers post current selling prices Computer hardware, software, and electronics © Cengage Learning 2015

Auction Software For sellers Example: AuctionHawk and Vendio Helps manage online auctions Example: AuctionHawk and Vendio Seller management software and services Automate tasks Create attractive page layouts Manage hundreds of auctions For buyers Sniping software to execute last-second bids © Cengage Learning 2015