1. E-Commerce: Digital Markets, Digital Goods
Chapter 10
E-Commerce: Digital Markets, Digital Goods

2. Describe how Internet technology has changed business models.
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
LEARNING OBJECTIVES
Identify the unique features of e-commerce, digital markets, and digital goods.
Describe how Internet technology has changed business models.
Identify the various types of e-commerce and explain how e-commerce has changed consumer retailing and business-to-business transactions.
Evaluate the role of m-commerce in business, and describe the most important m-commerce applications.
Identify the principal payment systems for electronic commerce.

3. Nexon games all feature Forums where users can socialize, share tips
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Nexus Games: E-Commerce Goes Social
Problem: Building a business model that serves the emerging market for social networking sites.
Solutions: Sell games that are social experiences. Online users can access full games for free but must pay for any “virtual items” to enhance game play
Prepaid cards used to purchase Nexon game items are second best- selling entertainment gift card at Target
Nexon games all feature Forums where users can socialize, share tips
Demonstrates digital technology’s role in generating new business models
The opening case describes the business model of Nexon Games, which creates popular online games. While the basic games are provided for free, users must pay for game enhancements, such as in-game virtual items. Ask students if they have every played online games and what the revenue model was for that games site.

4. E-commerce History of e-commerce Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
E-commerce
Use of the Internet and Web to transact business
Digitally enabled transactions
History of e-commerce
Began in 1995 and grew exponentially; still growing at an annual rate of 16 percent
Rapid growth led to market bubble
While many companies failed, many survived with soaring revenues
E-commerce today the fastest growing form of retail trade in U.S., Europe, Asia
This slide discusses what e-commerce is, and what the state of e-commerce is today. The text states that e-commerce history mirrors those of other technology innovations. What other innovations is e-commerce similar to?
The book discusses new trends in e-commerce. Ask the students to describe some of these trends.

5. The Growth of E-Commerce
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
The Growth of E-Commerce
This graphic illustrates the continuing growth of e-commerce. The dot-com bubble burst in March 2001.
Retail e-commerce revenues have grown exponentially since 1995 and have only recently “slowed” to a very rapid 16 percent annual increase, which is projected to remain the same until 2010.
Figure 10-1

6. Eight unique features of e-commerce technology
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Eight unique features of e-commerce technology
Ubiquity
Internet/Web technology available everywhere: work, home, etc., and anytime
Global reach
The technology reaches across national boundaries, around Earth
Universal standards
One set of technology standards: Internet standards
Richness
Supports video, audio, and text messages
This slide discusses reasons why e-commerce has grown so quickly – because of the unique nature of the Internet and e-commerce, which are richer and more powerful than previous technology revolutions like radio and TV.
Ask students what the effects are of the four features listed on this slide.
Ubiquity: Marketplace removed from temporal, geographic locations to become “marketspace”. Enhanced customer convenience and reduced shopping costs
Global reach: Commerce enabled across cultural and national boundaries seamlessly and without modification. Marketspace includes, potentially, billions of consumers and millions of businesses worldwide.
Universal standards: Disparate computer systems easily communicate with each other. Lower market entry costs—costs merchants must pay to bring goods to market. Lower consumers’ search costs—effort required to find suitable products.
Richness: Possible to deliver rich messages with text, audio, and video simultaneously to large numbers of people. Video, audio, and text marketing messages can be integrated into single marketing message and consumer experience.

7. Eight unique features (cont.)
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Eight unique features (cont.)
Interactivity
The technology works through interaction with the user
Information density
Vast increases in information density—the total amount and quality of information available to all market participants
Personalization/Customization:
Technology permits modification of messages, goods
Social technology
The technology promotes user content generation and social networking
This slide continues the discussion of the unique features of the Internet and e-commerce.
Ask students what the effects are of the four features listed on this slide.
Interactivity: Consumers engaged in dialog that dynamically adjusts experience to the individual. Consumer becomes co-participant in process of delivering goods to market.
Information density: Greater price transparency. Greater cost transparency. Enables merchants to engage in price discrimination.
Personalization/Customization: Personalized messages can be sent to individuals as well as groups. Products and services can be customized to individual preferences.
Social technology: New Internet social and business models enable user content creation and distribution, and support social networks.

8. Turner Sports New Media Marries TV and the Internet
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Turner Sports New Media Marries TV and the Internet
Read the Interactive Session: Organizations and then discuss the following questions:
Describe the unique features of e-commerce technology illustrated in this case.
How does the Web enhance the TV businesses for the companies discussed in this case? How does it add value?
Why is NASCAR TrackPass a good example of Turner Sports New Media’s value to sports league sites?
Do you think Turner Sports New Media will continue to grow steadily? Why or why not?
This Interactive Session looks at the online division of Turner Broadcasting System, which manages the online presence of sports leagues in conjunction with televised events. The case illustrates the ability of Internet-driven technologies to create new business models.

9. Key concepts in e-commerce Digital markets reduce
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Key concepts in e-commerce
Digital markets reduce
Information asymmetry
Search costs
Transaction costs
Menu costs
Digital markets enable
Price discrimination
Dynamic pricing
Disintermediation
This slide introduces digital markets and discusses the effects of digital markets on the ways companies conduct business. Ask students to define the terms listed here, and also to explain how each of these effects (lowered information asymmetry, etc.) are created by digital markets.
Information asymmetry: when one party in a transaction has more information that is important for the transaction than the other party
Search costs: The effort to find suitable products
Transaction costs: The cost of participating in a market
Menu costs: Merchants’ costs of changing prices
Price discrimination: Selling the same goods, or nearly the same goods, to different targeted groups at different prices.
Dynamic pricing: The price of a product varies depending on the demand characteristics of the customer or the supply situation of the seller
Disintermediation: The removal of organizations or business process layers responsible for intermediary steps in a value chain

10. The Benefits of Disintermediation to the Consumer
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
The Benefits of Disintermediation to the Consumer
This graphic illustrates how disintermediation reduces prices to consumers. It also allows manufacturers to earn more profit for the product.
The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product, such as a sweater. Removing layers lowers the final cost to the consumer.
Figure 10-2

11. Key concepts in e-commerce (cont.) Digital goods
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Key concepts in e-commerce (cont.)
Digital goods
Goods that can be delivered over a digital network
E.g., Music tracks, video, software, newspapers, books
Cost of producing first unit almost entire cost of product: marginal cost of producing 2nd unit is about zero
Costs of delivery over the Internet very low
Marketing costs remain the same; pricing highly variable
Industries with digital goods are undergoing revolutionary changes (publishers, record labels, etc.)
This slide continues the discussion of key concepts in e-commerce, looking at digital goods and how these compare with traditional goods.
Ask students how their purchases of digital goods have changed over the past five years. Are digital goods equal in value to their traditional counterparts? What benefits and drawbacks do they have?

12. Internet business models
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Internet business models
Pure-play models
Clicks-and-mortar models
Social Network
Online meeting place
Social shopping sites
Can provide ways for corporate clients to target customers through banner ads and pop-up ads
Online marketplace:
Provides a digital environment where buyers and sellers can meet, search for products, display products, and establish prices for those products
This slide and the next several slides discuss new business models that are enabled by the Internet and e-commerce. While many of the new business models are pure-play, some, especially in the retail industry, are clicks-and-mortar.
Some of the new models take advantage of the Internet’s communication capabilities, such as the social networking sites. Ask students what other sites take advantage of the Internet’s communication abilities.
Ask students to differentiate between banner ads and popup ads.

13. Content provider Service provider Portal
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Content provider
Providing digital content, such as digital news, music, photos, or video, over the Web
Online syndicators: Aggregate content from multiple sources, package for distribution, and resell to third-party Web sites
Service provider
Provides Web 2.0 applications such as photo sharing and interactive maps, and services such as data storage
Portal
“Supersite” that provides comprehensive entry point for huge array of resources and services on the Internet
This slide continues the discussion of new Internet business models. Ask students to give examples of these business models. Ask how these business models create revenue.
Content provider – Access fees, advertising
Portal – Advertising
Service provider – subscription, advertising

14. Virtual storefront: Information broker: Transaction broker:
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Virtual storefront:
Sells physical products directly to consumers or to individual businesses
Information broker:
Provides product, pricing, and availability information to individuals and businesses
Transaction broker:
Saves users money and time by processing online sales transactions and generating a fee for each transaction
This slide continues the discussion of Internet business models. Ask students how each of these models creates revenue and ask them to provide an example of that business model.

15. Types of Electronic Commerce
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Types of Electronic Commerce
Business-to-consumer (B2C)
Business-to-business (B2B)
Consumer-to-consumer (C2C)
Mobile commerce (m-commerce)
This slide introduces the types of e-commerce. B2C, B2B, and C2C e-commerce are categorized according to the nature of the participants. M-commerce is a category based on the nature of the connection to the Internet. Ask students to provide examples of the different types of e-commerce listed here.

16. Can J&R Electronics Grow with E-commerce?
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Can J&R Electronics Grow with E-commerce?
Read the Interactive Session: Technology and then discuss the following questions:
Analyze J&R Electronics using the competitive forces and value chains models. What is its business model and business strategy? How does it provide value?
What is the role of the Internet in J&R’s business strategy? Is it providing a solution to J&R’s problems? Why or why not?
Can J&R keep up with the competition since it is more or less a local brand competing with nationwide chains? How would you measure its success in keeping up with the competition?
This Interactive Session looks at the online strategy of J&R Electronics. It illustrates a company implementing a customer intimacy and a product differentiation strategy in order to compete with chain stores in the same arena.

17. Interactive marketing and personalization
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Interactive marketing and personalization
Web sites are bountiful source of details about customer behavior, preferences, buying patterns used to tailor promotions, products, services, and pricing
Clickstream tracking tools: Collect data on customer activities at Web sites
Used to create personalized Web pages
Collaborative filtering: Compares customer data to other customers to make product recommendations
This slide introduces the use of Internet-based techniques for achieving greater customer intimacy. Ask students for examples of clickstream tracking and collaborative filtering tools in action (Amazon’s recommendations for new products). Ask students to describe the types of information that can be gleaned about their habits from a web site.

18. Web Site Visitor Tracking
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Web Site Visitor Tracking
Figure 10-3
This graphic illustrates how clickstream tracking works and what the store can tell about the activities of a shopper on their Web site. Extensive metrics exist for various types of user behavior, from the time spent on a Web page to the number of products ordered and placed in a shopping cart but not purchased.
E-commerce Web sites have tools to track a shopper’s every step through an online store. Close examination of customer behavior at a Web site selling women’s clothing shows what the store might learn at each step and what actions it could take to increase sales.

19. Web Site Personalization
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Web Site Personalization
This graphic illustrates some of the types of personalization that clickstream tracking can make possible. Have students found suggestions made by a Web site useful in their experience?
Firms can create unique personalized Web pages that display content or ads for products or services of special interest to individual users, improving the customer experience and creating additional value.
Figure 10-4

20. Customer self-service
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Blogs
Personal web pages that contain series of chronological entries by author and links to related Web pages
Has increasing influence in politics, news
Corporate blogs: New channels for reaching customers, introducing new products and services
Blog analysis by marketers
Customer self-service
Web sites and to answer customer questions or to provide customers with product information
Reduces need for human customer-support expert
This slide continues the discussion of Internet-based techniques for enhancing customer intimacy. Ask students to explain why marketers are looking to analyze blog content, and content from chat rooms and message boards. Ask students to describe and evaluate their experiences in using any Web-based customer self-services, such as FedEx or UPS package tracking.

21. B2B e-commerce: New efficiencies and relationships
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
B2B e-commerce: New efficiencies and relationships
Electronic data interchange (EDI)
Computer-to-computer exchange of standard transactions such as invoices, purchase orders
Major industries have EDI standards that define structure and information fields of electronic documents for that industry
More companies increasingly moving away from private networks to Internet for linking to other firms
E.g., Procurement: Businesses can now use Internet to locate most low-cost supplier, search online catalogs of supplier products, negotiate with suppliers, place orders, etc.
This slide looks at changes brought to B2B e-commerce by Internet technologies. Note that the Internet and Web technology enable businesses to create new electronic storefronts for selling to other businesses with multimedia graphic displays and interactive features similar to those for B2C commerce. Alternatively, businesses can use Internet technology to create extranets or electronic marketplaces for linking to other businesses for purchase and sale transactions.

22. Electronic Data Interchange (EDI)
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Electronic Data Interchange (EDI)
This graphic illustrates how EDI is used by firms and their suppliers to automate transactions for both B2B e-commerce and continuous replenishment.
Companies use EDI to automate transactions for B2B e-commerce and continuous inventory replenishment. Suppliers can automatically send data about shipments to purchasing firms. The purchasing firms can use EDI to provide production and inventory requirements and payment data to suppliers.
Figure 10-5

23. Private industrial networks (private exchanges)
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Private industrial networks (private exchanges)
Large firm using extranet to link to its suppliers, distributors and other key business partners
Owned by buyer
Permits sharing of:
Product design and development
Marketing
Production scheduling and inventory management
Unstructured communication (graphics and )
This slide continues the discussion of ways the Internet and Web technologies have changed B2B e-commerce. One way is in using an extranet to link to the firm’s suppliers. The text provides the example of VW Group Supply, which links the Volkswagen Group and its suppliers. VW Group Supply handles 90 percent of all global purchasing for Volkswagen, including all automotive and parts components.

24. A Private Industrial Network
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
A Private Industrial Network
This graphic illustrates a private industrial network, and how it can link to both suppliers and distributors.
Figure 10-6
A private industrial network, also known as a private exchange, links a firm to its suppliers, distributors, and other key business partners for efficient supply chain management and other collaborative commerce activities.

25. Net marketplaces (e-hubs)
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Net marketplaces (e-hubs)
Single market for many buyers and sellers
Industry-owned or owned by independent intermediary
Generate revenue from transaction fees, other services
Use prices established through negotiation, auction, RFQs, or fixed prices
May focus on direct or indirect goods
May support long-term contract purchasing or short-term spot purchasing
May serve vertical or horizontal marketplaces
This slide continues the discussion of ways the Internet and Web technologies have changed B2B e-commerce, in this case by the ability to create Net marketplaces. Ask students to distinguish between and provide examples of direct and indirect goods. (Direct goods are goods used in a production process, such as sheet steel for auto body production. Indirect goods are all other goods not directly involved in the production process, such as office supplies or products for maintenance and repair.)
Ask students to distinguish between vertical and horizontal marketplaces.

26. A Net Marketplace Management Information Systems Figure 10-7
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
A Net Marketplace
This graphic illustrates a net marketplace, and the functions that it can provide to participants in managing their transactions. The text provides the example of Exostar, an aerospace and defense industry-sponsored Net marketplace that focuses on long-term contract purchasing relationships and on providing common networks and computing platforms for reducing supply chain inefficiencies. More than 16,000 trading partners in the commercial, military, and government sectors use Exostar’s sourcing, e-procurement, and collaboration tools for both direct and indirect goods.
Figure 10-7
Net marketplaces are online marketplaces where multiple buyers can purchase from multiple sellers.

27. Exchanges Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
Exchanges
Independently owned third-party Net marketplaces
Connect thousands of suppliers and buyers for spot purchasing
Typically provide vertical markets for direct goods for single industry (food, electronics)
Proliferated during early years of e-commerce; many have failed
Competitive bidding drove prices down and did not offer long- term relationships with buyers or services to make lowering prices worthwhile
This slide continues the discussion of ways the Internet and Web technologies have changed B2B e-commerce, in this case by the ability to create exchanges. The text provides the example of FoodTrader.com, which automates spot purchases among buyers and sellers from more than 180 countries in the food and agriculture industry.

28. M-commerce services and applications
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
M-Commerce
M-commerce services and applications
Although m-commerce represents small fraction of total e-commerce transactions, revenue has been steadily growing
Location-based services
Banking and financial services
Wireless Advertising
Games and entertainment
This slide introduces m-commerce, the use of wireless mobile devices for purchasing goods and services. M-commerce is especially well-suited for specific types of applications and services. Ask students what applications and services they use with their cell-phones. Have any purchased games or entertainment, and from what companies?

29. Global M-commerce Revenue 2000-2012
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
M-Commerce
Global M-commerce Revenue
This graph illustrates the steady growth of m-commerce sales. Have any of the students purchased something using their cell phone or mobile laptop computer?
Figure 10-8
M-commerce sales represent a small fraction of total e-commerce sales, but that percentage is steadily growing.

30. Limitations in mobile’s access of Web information Data limitations
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
M-Commerce
Limitations in mobile’s access of Web information
Data limitations
Small display screens
Wireless portals (mobile portals)
Feature content and services optimized for mobile devices to steer users to information they are most likely to need
This slide continues the discussion of m-commerce. Ask students what their experience is of the data limitations and display screens for their mobile phones. Do any use wireless portals, and if so, which ones?

31. Types of electronic payment systems Digital wallet
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce Payment Systems
Types of electronic payment systems
Digital wallet
Stores credit card and owner identification information and enters the shopper’s name, credit card number, and shipping information automatically when invoked to complete a purchase
Accumulated balance digital payment systems
Used for micropayments ($10 or less)
Accumulating debit balance that is paid periodically on credit card or telephone bills
This slide introduces the types of electronic payment systems used to pay for goods on the Internet. Ask students which of these payment systems they have used, and to evaluate the system’s ease of use.

32. Stored value payment systems
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce Payment Systems
Stored value payment systems
Enable online payments based on value stored in online digital account
May be merchant platforms or peer-to-peer (PayPal)
Digital checking
Extend functionality of existing checking accounts to be used for online payments
Electronic billing presentment and payment systems
Paying monthly bills through electronic fund transfers or credit cards
This slide continues the look at the different types of electronic payment systems. Have any students used electronic billing?

33. Digital payments systems for m-commerce
Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce Payment Systems
Digital payments systems for m-commerce
Three types of mobile payment systems in use in Japan
Stored value system charged by credit cards or bank accounts
Mobile debit cards
Mobile credit cards
In the U.S., the cell phone has not yet evolved into a mobile payment system
This slide looks at payment systems used in m-commerce. Note that in Europe and Asia, phones are integrated into a large array of financial institutions, while in the U.S. cell phone service resides behind a “walled garden” of telephone providers.

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