E-commerce fundamentals Chapter 2 E-commerce fundamentals

Learning outcomes After completing this chapter the reader should be able to: Complete an online marketplace analysis to assess competitor, customer, and intermediary and competitor use of the Internet as part of strategy development Identify the main business and marketplace models for electronic communications and trading Evaluate the effectiveness of business and revenue models for online businesses.

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?

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

Activity – the e-commerce environment For each of the environment influences shown in Figure 2.1, give examples of why it is important to monitor and respond in an e-business context. For example, the personalization mentioned in the text is part of why it is important to respond to technological innovation.

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?

Environment constraints and opportunities (Continued) 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?

Strategic Agility Capability to respond to environmental opportunities and threats to gain competitive advantages Read the pp. 58-59 Mini Case Study 2.1 The video may be searched form Google video search. Discuss the key points of strategic agility P. 59, Activity 2.1 Give examples of why it’s important to monitor and respond in an e-business context

Figure 2.2 Professor Donald Sull of London Business School talks about strategic agility Source: www.ft.com

Figure 2.3 An online marketplace map

Online Marketplace Analysis Customer Segment The phase that the customer is at in his/her lifecycle http://academic.brooklyn.cuny.edu/economic/friedman/mmmarketsegmentation.htm Psychographic segmentation is sometimes also referred to as behavioural segmentation. http://tutor2u.net/business/marketing/segmentation-psychographic.html Search Intermediaries

Online Marketplace Analysis Intermediaries and Media Sites Mainstream news media sites or portal, e.g., cbc.ca, Google Niche or vertical media sites, e.g., e-consultancy Price comparison sites (also called aggregator), e.g., http://www.pricecanada.com/ Super-affiliates Niche affiliate or bloggers—often small or individual sites Destination Sites The sites that the marketer tries to generate traffic to

Resource for Analysing e-Marketplace Ref. pp. 63-64, Tab 2.2. Some websites have changed and some need registration

Figure 2.4 Google trends for web sites – useful for benchmarking the growth of online intermediaries and destination sites Source: http://trends.google.com/websites

Marketplace Channel Structure It describes the way a manufacture / supplier delivers products and services to its customers Fig. 2.5 and Fig 2.6 display variety of options

Figure 2.5 B2B and B2C interactions between an organization, its suppliers and its customers

B2B and B2C characteristics 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 2.6 Disintermediation of a consumer distribution channel showing (a) the original situation, (b) disintermediation omitting the wholesaler, and (c) disintermediation omitting both wholesaler and retailer

Reinter-mediation The creation of new intermediaries between customers and suppliers, such as search engine, price comparator, etc. such as http://www.esurance.com/, http://www.pricecanada.com/ Supplies need to Be represented with new intermediaries Monitor other suppliers via intermediaries Create own intermediaries

Figure 2.7 From original situation (a) to disintermediation (b) and reintermediation (c)

Countermediation Creation of a new intermediary by an established company 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

Trading Location Trading can be done on seller-controlled site, buyer-controlled side, or neutral third-party site P. 67, Table 2.3 and P. 69 Fig. 2.8 present various options

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

Commercial Mechanisms There are several ways for closing a transactions Ref. p. 69, Table 2.4 for detail Priceline.com uses a new model that allows client to bid on the services such as hotel, airline ticket

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

Multi-channel Marketplace Model Consumers use a combination of channels for their purchases. M-Channel Defines how different marketing channels should integrate and support each other Fig. 2.10 (p.71) shows an example channel chain map

Figure 2.10 Example channel chain map for consumers selecting an estate agent to sell their property

Types of Online Intermediary Infor-mediaries— intermediaries that capture, profile, and sell customer information Metamediaries— intermediaries that assist with selection and discussion of about different product and services; they connects customers with the providers Example: http://www.metacritic.com/

Figure 2.11 Metacritic (www.metacritic.com) Source: CBS Interactive

Types of Intermediary Intermediaries changed quite a lot since E-commerce first started. For a comprehensive list of intermediaries, ref. p. 75, table 2.5

Interactive activity – portals Q1. Define portal (p.74) Q2. Is a search engine the same as a portal? Yes, No Q3. Is a search engine the same as a directory? Yes, No Q4. List search engines / portals you use and explain why

Meta services Search engines Portal ‘A gateway to information resources and services’ Directories News aggregators MR aggregators Comparers Exchanges

Figure 2.12 Number of searches through the Google Keyword Tool Source: Google https://adwords.google.com/select/KeywordTool

Business model Timmers (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.

Business model Complete Activity 2.3 on page 79 Key elements Value proposition-products & services to offer Market or audience Revenue models and cost base Competitive environment Value chain and marketing positioning Representation in the physical & virtual world Organizational structure Management Complete Activity 2.3 on page 79

Business model Timmers identified 11 different types of business models. –ref. p. 78 Alternative Perspectives on Business Model Marketplace position perspective Revenue model perspective Commercial arrangement perspective

Figure 2.13 Alternative perspectives on business models

Revenue model It describes how a business generate revenue What are traditional ways? The New Ways

Revenue Model- Publisher Example Advertising CPM (cost per thousand/mille) Advertising CPC (cost per click) Sponsorship of section, content, or widget Affiliate Revenue (CPA or CPC) Transaction Fee Subscription access to content or services Per-per-view Access to document Subscription Data Access for e-mail Marketing

Figure 2. 14 Alex Tew’s Million Dollar Home Page (www Figure 2.14 Alex Tew’s Million Dollar Home Page (www.milliondollarhomepage.com)

Online Business Revenue Calculation What factors to consider? Number and size of ad units Ads Capacity to be sold Fee level negotiated for different ads models Traffic Visitor engagement (time to stay)

Figure 2. 15 Example spreadsheet for calculating a site revenue model Figure 2.15 Example spreadsheet for calculating a site revenue model. Available for download at www.davechaffey.com/Spreadsheets

Figure 2. 15 Example spreadsheet for calculating a site revenue model Figure 2.15 Example spreadsheet for calculating a site revenue model. Available for download at www.davechaffey.com/Spreadsheets (Continued)

Online Business Revenue Calculation Lab exercise: Activity 2.4 on page 85.

Figure 2.16 Econsultancy (www.econsultancy.com)

Revenue Model- Auction Example Roles for auction (Klein 1997) Price discovery Efficient Allocation mechanism Distribution mechanism—attracting audience Coordination mechanism

Business Model- Auction Example Types of auction English—forward or upward, initiated by seller this is more of conventional auctions we commonly seen in physical world and on virtual market Dutch—Reverse, downward, initiated by buyer This is more commonly seen in large manufacture procurement

Business Model- Auction Example Read the Case Study 2.1 on page 87-88. Discuss the questions. Research on the web to find Reverse auction examples in Canada

Business Model-Start-ups Many dot.com start-ups failed. Some succeeded and newer ones are still created. Value the Internet start-ups (pp. 90-91) Concept Innovation Execution—promotion, performance, availibility, security Traffic Financing Profile—publicity and awareness in the market

Lab Exercises Case Study 2.2 on Pages 91-93 Read the case Discuss the question 1-3 on page 93 Mini Case Study 2.3 on pages 93-94 What’s business model of Firebox? What made it a success?

Figure 2.17 Firebox (www.firebox.com)

Lab Exercises Case Study 2.3 on Pages 95-98 What is Zopa’s business model? Do you think it can succeed and develop further and why?

Next Class Preview the E-consultancy Interview.107-109 Prepare to discuss the following What’re the impacts of the Internet to publishing industry How are publish industry coping with the challenges? How do they reach online readers? How do they use social network for their advantage? What a role do digital content and ecommerce play in their business? From this interview, how do you feel about the publishing industry and where it is going?