Slide 2.1 CHAPTER 2  E-commerce Fundamentals

Slide 2.2 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.

Slide 2.3 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?

Slide 2.4 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

Slide 2.6 Local conditions

Slide 2.7 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?

Slide 2.8 Lack of Privacy = Lack of Sales “Consumer privacy apprehensions continue to plague the Web. These fears will hold back roughly $15 billion in e-commerce revenue.” -Forrester Research, September 2001 “Privacy and security concerns could cost online sellers almost $25 billion by 2006.” -Jupiter Research, May 2002 “Online retail sales could be 25% higher by 2006 if consumer’s fears about privacy and security were addressed.” -Jupiter Research, 2002

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

Slide 2.10 B2B and B2C characteristics CharacteristicB2CB2B Proportion of adopters with access Low to mediumHigh to very high Complexity of buying decisions Relatively simple – individual and influencers More complex – buying process involves users, specifiers, buyers, etc. ChannelRelatively simple – direct or from retailer More complex, direct or via wholesaler, agent or distributor Purchasing characteristicsLow 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 characteristicOften standardized itemsStandardized items or bespoke for sale

Slide 2.11 Marketplace channel structures  Describes the way a manufacturer delivers products and services to its customers

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

Slide 2.13 Vauxhall

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

Slide 2.15 Reintermediation  Creation of a new intermediary  Example:  B&Q  Opodo  Boots  Ford, Daimler (  Partnering with existing intermediary – Mortgage broker Charcol and Freeserve

Slide 2.16 Reintermediation

Slide 2.17 Online Intermediaries  Directories  Search Engines  Malls  Virtual resellers  Financial Intermediaries  Forums, fan clubs and user groups  Evaluators

Slide 2.18 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 (

Figure 2.6 Yahoo! Shopping Australia, a price comparison site based on the Kelkoo.com shopping comparison technology (

Slide 2.21  Virtual Marketplace – an intermediary!

Multi-channel Marketplace Models

Slide 2.23 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 agent to sell their property

Slide 2.25 Search engines Directories News aggregators MR aggregators Comparers Exchanges Meta services Portal ‘A gateway to information resources and services’

Slide 2.26 Types of portal Type of portalCharacteristicsExample Access portalAssociated with ISPWanadoo ( and now ( AOL ( Horizontal or functional portal Range of services: search engines, directories, news recruitment, personal information management, shopping, etc. Yahoo! ( MSN ( Google ( for which a long period just focused on search. VerticalA vertical portal covers a particular market such as construction with news and other services. Construction Plus ( Chem Industry ( Barbour Index for B2B resources ( E-consultancy ( Focuses on e-business resourceswww.e-consultancy.com Media portalMain focus is on consumer or business news or entertainment.BBC ( Guardian ( ITWeek ( Geographical (Region, country, local) May be:  horizontal  vertical  Google country versions  Yahoo! country and city versions  Craigslist (  Countyweb ( MarketplaceMay be:  Horizontal  Vertical  Geographical EC21 ( eBay ( Search portalMain focus is on SearchGoogle ( Ask Jeeves ( Media typeMay be:  Voice  Video Delivered by streaming media or downloads of files BBC ( Silicon (

Slide 2.27 Place of purchase Examples of sites A. Seller- controlled Vendor sites, i.e. home site of organization selling products, e.g. B. Seller-orientedIntermediaries controlled by third parties to the seller such as distributors and agents, e.g. Opodo ( represents the main air carrierswww.opodo.com C. NeutralIntermediaries not controlled by buyer’s industry, e.g. EC21 ( Product-specific search engines, e.g. CNET ( Comparison sites, e.g. Barclay Square/Shopsmart ( Auction space, e.g. eBay ( D. Buyer-orientedIntermediaries controlled by buyers, e.g. Covisint used to represent the major motor manufacturers ( 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 ( Online representation

Slide 2.28 Seller-oriented- Opodo.co.uk

Slide 2.29 Buyer-oriented-covisint.com

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

Slide 2.31 Commercial arrangements for transactions Commercial (trading) mechanismOnline transaction mechanism of Nunes et al. (2000) 1. Negotiated deal Example: can use similar mechanism to auction as on Commerce One ( 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 ( Achieved through online intermediaries offering auction and pure markets online 3. Auction Example: C2C: E-bay ( B2B: Industry to Industry ( 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: and Barter – buyers and sellers exchange goods. According to the International Reciprocal Trade Association ( ) barter trade was over $9 billion in

Figure 2.9 Priceline Hong Kong service (

Slide 2.33 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.

Slide 2.34 Business models on the web  E-shop  E-procurement  E-malls  E-auctions  Virtual communities – B2C or B2B communities; have potential for e-mkting  Collaboration platforms – e-groups etc  Third-party marketplace  Value-chain service providers – provide function for a specific part of value chain  Information brokerage – provide info to consumer and businesses  Trust and other services – authenticate the quality of service on web etc

Figure 2.10 Alternative perspectives on business models

Slide 2.36 Alternative Perspectives on Business Models 1.Marketplace Position Perspective- P = Manufacturer A = Retailer Y = both a retailer and a marketplace intermediary 2. Revenue Model Perspective- P sells directly using web. A and Y take commission based sales. Y also has advertising as a revenue model. 3. Commercial Arrangement perspective- All three offer fixed price sales but Y as a market place intermediary, offers alternatives.

Slide 2.37 Revenue models – diff. techniques for generation of income. Publisher example: 1. 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 marketing. 8. Access to customers for research purposes.

“The Million Dollar Homepage”

Slide 2.39 Who started it?  His name is Alex Tew, a 21 years old who lives in a small town in Wiltshire, England.  He'll be starting at University in England at the end of September, where he will be reading Business Management.

Slide 2.40 “I'm going to Uni a little later than normal (I will technically be a mature student), but I'm really looking forward to it. Infact, I can't wait. But Uni is not cheap, and faced with the prospect of graduating after 3 years with a huge debt, I thought I'd try and make some money ($1m should do the trick!)”

What is the idea? The idea is simple: to try and make $1m (US) by selling 1,000,000 pixels for $1 each. Hence, 'The Million Dollar Homepage". Pixels are available in 100-pixel 'blocks' (each measuring 10x10 pixels). You will see the homepage is divided into 10,000 of these 100-pixel blocks (hence there are 1,000,000 pixels in total).

The reason for selling them in 100-pixel blocks is because anything smaller would be too small to display anything meaningful. You can buy as many pixels as you like. When you buy some pixels, you can then display an image/ad/logo of your choice in the space you have purchased. You can also have the image click through to your own website. The pixels you buy will be displayed on the homepage permanently. The homepage will not change.

“I want it to become a kind of internet time capsule. So, in the long run, I believe the pixels will offer good value. You will have a piece of internet history!”

Slide 2.44 Is he genuine/is this a joke? This photo of his and his uni acceptance form should prove to any doubters 'UCAS' is the 'Universities and Colleges Admissions Service' who, as the name suggests, handle all University admissions in the UK.

Slide 2.45 Why should I buy your pixels?  Because you will have an image and a link to your site on the homepage of a site that could potentially be seen by millions of people over the coming years.  The site will be online for at least 5 years, that's guaranteed, but the idea is to keep it online forever.  So you really could own a piece of 'internet history'

Slide 2.46 Why can't I buy one single pixel?  You can't display anything meaningful in one pixel - nor click it easily - so visually, it would be pointless.  With thousands of random tiny coloured dots all over the place, the homepage would look ghastly.  The site would appeal more to people with businesses/websites to advertise than it would to individuals, they would pay more to have a meaningful graphic on the homepage. Hence the minimum purchase is $100 - a 10x10 block.  However! If you really want to own a single pixel, there is always the option of clubbing together with your friends/family/colleauges and buying a 10x10 block. …

Slide 2.47 If you're from the UK, why are you selling the pixels in dollars?

Slide 2.48 If you want money for Uni, why don't you get a job?  Although I've done many different jobs in the past, it's not really how my brain likes to work. My natural disposition is to think of ideas, and I like to create interesting things and ways of doing things. Plus this is much more fun to do, with a potential higher reward. That's not a cop-out, honest guv!

Slide 2.53 The Last Pixel!!!  The auction bid fetched $38,100.  Received for a 100-pixel ad from Million Dollar Weightloss!!