1 Chapter Twelve Global E-Commerce: An Examination of Issues Related to Advertising and Intermediation

2 Agenda  E-Commerce Future and Success  Types of Websites, types of E-commerce  The Richness-Reach Tradeoff  Intermediation

3 Global E-Commerce Predictions  Intermediaries will decrease (disintermediation)  Disintermediation will be more rapid in service industry  Disintermediation is sensitive to product and service characteristics  Promotions will inhibit disintermediation  New intermediaries will arise (navigators, eg.)  Logistics and Distribution are enhanced by E- commerce (fulfillment functions)

4 Internet & Productivity  Exponential Growth of Internet  Great potential for economic advantage  Productivity Paradox  Lack of observation of productivity gains in macroeconomic data  Resolved by understanding the long gestation period Changes in human skills and organizational structure must occur before true growth is seen Learning is important People remember

5 Internet & Productivity  Productivity Paradox  What does IT buy? Lowered transaction costs, lowered coordination costs, interoperability, increased memory  What does IT cost? Increased learning, new procedures, new ways of thinking

6 Critical Success Factors for Global E-Commerce  High tech also requires high touch  Globalize operations, but localize service  Simplify and expedite transaction process  Foster trusting relationships with [& among] customers  Focus on convenience, info, intermediation, pricing  Get yourself found often and on top in portals  Plan to evolve to transactions

7 Types of Websites Static Inter- actional Trans- actional Business Basis of Firm Portal Links to other websites and web services

8 The Richness-Reach Tradeoff-1 Reach: Distribution Range Richness: Variety and Depth of Content In the past, the cost of communication limited the amount of information we could distribute over a given territory Today, via inter-, intra- and extranets, we can distribute almost limitless variety and amounts of information over a given range, even worldwide.

9 The Richness-Reach Tradeoff-2 Reach: Distribution Range Richness: Variety and Depth of Content Each distribution channel has its own characteristic Richness-Reach tradeoff curve Attempting to increase distribution range incurs costs, which lower the available richness.

10 The Richness-Reach Tradeoff-3 Reach: Distribution Range Richness: Variety and Depth of Content Attempting to increase richness incurs costs, which lower the available distribution reach

11 The Richness-Reach Tradeoff-4 Reach: Distribution Range Richness: Variety and Depth of Content The new media BREAK the relationship between richness and reach. No reasonable move to increase richness or reach will have any real cost and hence no effect on the other characteristic.

12 Global e-Commerce: Transformation  Connecting the World  1 st Phase – Sharing databases, EFT, EDI Very successful!  2 nd Phase – B2C, B2B e-Commerce Moving value chain processes to Internet Is critical for survival and sustenance of the Internet  Internet Transforming Business US Banking Industry – 95% online services 32 million Americans bank online Airlines, Books, etc.

13 Global e-Commerce  Online Spending Trends  2002 e-Commerce Revenues Worldwide – $623 B., up from $41 B. in 1998 US – $291 B., up from $31 B. in 1998  What happened to Predictions?

14 Types of E-Commerce Business Government Consumer B2G G2B G2C B2C B2E C2C C2B EMPLOYEES B2B C2G

15 Familiar Types - 2  B2C: Retailing  B2B: Supply Chain  G2B: Regulation  B2G: Supply/Procurement  G2C: E-government  C2G: ????  C2C: Amateur Business  B2E: Part of Employee Relations

16 Global e-Commerce  Business to Business (B2B)  Linking with other members of the value chain Less expensive automated transactions Enables standards for data transfer Extends boundaries Streamline operations (JIT) Improve customer service Reduce Operating Costs Opportunities for sales automation and self-service purchases Allows Manufacturers, wholesalers, retailers, and consumers to buy, sell, and barter

17 Global e-Commerce (continued…)  Business to Employee (B2E)  Linking businesses to their employees Keeps everyone “up to date” Download tax forms Review benefits Signing up for medical Buy company product at employee discount Automatic deductions from payroll (medical, retirement plans)

18 Global e-Commerce (continued…)  Business to Consumer (B2C)  Linking businesses to customers Lets customer buy online Improves customer relationship and awareness of product and/or service  Business to Government (B2G)  Government to Consumer (G2C) Thought of as democratizing factor  Consumer to Consumer (C2C) E-bay is current archetype

19 Internet and Traditional Advertising Criterion Driver Hyperlinks View Timing Effectiveness Measures Control over Exposure Time Interactivity Image Pay for Performance Targetting Traditional Advert Advertising None View when Broadcast None or little; based on samples & focus gps. Determined by advertiser except in print media None Perference for upscale Not normal Limited Internet Advert Contents Network of HLs View on demand All hits recorded; based on actual data Determined by web surfer upon use As much as desired Preference for relevance Increasingly tied Multiple paths for targetting

20 Global and E-Commerce Issues  Cybercrime  Global Market Exploration  Internationalization  Localization  Payment System  Legal and Taxation System  Learning Curve or Quantum Leap  Intermediation …

21 Intermediation BUYER SELLER MARKET SPACE Traditionally, buyer and seller come together in market space where they can confidently transact. BUYER SELLER Owners of the market space get a fee for this intermediation service. SIMPLE INTERMEDIATION

22 Intermediation-2 In the traditional marketspace, the owners provide safety, security, standards, replicability, recording, transportation, etc. to increase the confidence of buyers and sellers. BUYER SELLER As interaction becomes more complex, more possibilities for intermediation arise Each of these represents a business opportunity COMPLEX INTERMEDIATION These complex interactions result in a hierarchy made possible by layers of intermediation

23 Intermediation-3 HIERARCHY BUYER SELLER A more complex form of intermediation is being a navigator among brokerages One possibility for intermediation is brokerage COMPLEX INTERMEDIATION GIVES RISE TO HIERARCHIES An even more complex form of intermediation is trraining or consulting in how to use navigators

24 Intermediation-4 MARKET SPACE The user can take over many of the intermediation functions, resulting in “dis- intermediation”; hierarchies are broken down and the market space is recreated As Internet replaces the Hierarchies of the Marketspace, the user becomes “empowered” DISINTERMEDIATION BUYER SELLER Assuming the user has the tools and the skills and the opportunities

25 Intermediation-5 MARKET SPACE Providers can find niches within the interstices and “reintermediate” the market space, reintroducing hierarchical structures. However, the complexity of the Internet creates more interstices. REINTERMEDIATION BUYER SELLER

26 Intermediation & E-Commerce  Anticipated Changes in Market Structure Price Distribution of profits Strategic interactions between market participants Organizational hierarchies Transaction costs Value chain composition Barriers to entry  Ecommerce combines the advantages of lowered transaction costs with lowered coordination costs and other advantages of computer-based systems

27 Traditional Intermediation Marketing Channels Intermediaries

28 Traditional Intermediary Functions  Communication, Coordination and Exchange Costs  Assortment of Product  Warehousing and Distribution  Financing and Risk Sharing  Product Promotions

29 E-Commerce & Intermediation  Digital Networks  Direct channels between producers and consumers  Lowers coordination costs for producers and retailers  Lowers physical distribution costs  Disintermediation - Theorizes the end of the “middleman”

30 Intermediation Cont’d  Supporting Disintermediation  Growing trends in online commerce Airline tickets Book sales Computer Sales Auctions Securities by discount brokers Based mostly on anecdotal evidence

31 Emerging Intermediary Trends  Theorizes that E-Commerce will not eliminate the “Middleman”  Selling products direct is not a new phenomenon Sherwin-Williams sell directly to customer Hart, Shaffner, Marx has about 200 retail outlets Gap uses direct retailing  E-Commerce is evolving new Intermediary functions CyberIntermediaries are emerging, “Hypermediation”

32 Intermediary – Global Issues  Cost-Effective Distribution  If business efforts are concentrated on small number of key countries More efficient to ship goods from local distribution centers than from home country Delivery services charge much more in other countries  If business efforts are concentrated on large number of foreign countries More efficient to negotiate a volume deal with a major delivery service

33 Critical Success factors for Global E- Commerce  Complement High Tech with High Touch  Globalize Operations, but Segment Geographically to Localize Service  Simplify and Expedite Transaction Process  Foster Trusting Relationships with Customers  Reinvent with Focus on Convenience, Information, Intermediation and Pricing Strategies  Get Yourself Found Often and on the Top  Plan Technology to Evolve for Transactional e-Commerce  Prepare for m-Commerce