1. E-commerce Fundamentals
Chapter 2
E-commerce Fundamentals

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.

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?

4. E-commerce environment
Needs of customers
Local and international economic conditions
Legislation
Technological innovations
E-commerce environment highly influencing business strategies in the e-commerce field.
The 4 environmental factors must be considered and should be monitored.

5. The acronym is SLEPT
Society (consumers)
Legal
Economy
Politic
Technology
Figure 2.1 The environment in which e-business services are provided

6. Local conditions

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?

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
apprehensions = kekuatiran

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

10. 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

11. Marketplace channel structures
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

12. Marketplace channel structures
Describes the way a manufacturer delivers products and services to its customers

13. Vauxhall

14. When to use intermediary and when to disintermediation?
Figure 2.4 From original situation (a) to disintermediation (b) and reintermediation (c)

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

16. Reintermediation

17. Online Intermediaries
Directories
Search Engines
Malls
Virtual resellers
Financial Intermediaries
Forums, fan clubs and user groups
Evaluators
Directories are now less important since the same function can be served by search engines.
Malls are also not effective since they have no added value to retail stores

18. Aggregators: web site that provide price comparison service to consumer.
Figure 2.6 Yahoo! Shopping Australia, a price comparison site based on the Kelkoo.com shopping comparison technology (

19. Blogs
Give an easy method of regularly publishing web pages, e.g. online journals, diaries or event listing
Include feedback or comments

20. Figure 2.5 Dave Chaffey’s blog site (www.davechaffey.com)

21. Importance of multi-channel marketplace models
Customer journey – modern multi-channel behavior as consumers use different media
Offline
Mixed-mode
Online

22. Figure 2.7 Example channel chain map for consumers selecting an estate agent to sell their property

23. Meta services Search engines Portal Directories ‘A gateway to
information
resources and
services’
Directories
News aggregators
MR aggregators
MR=market research
Comparers
Exchanges

24. Types of portal Type of portal Characteristics Example Access portal
Associated with ISP
Wanadoo ( 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.
Vertical
A 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 resources
Media portal
Main 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 (
Marketplace
Horizontal
EC21 (
eBay (
Search portal
Main focus is on Search
Google (
Ask Jeeves (
Media type
Voice
Video
Delivered by streaming media or downloads of files
Silicon (

25. Online representation
Place of purchase
Examples of sites
A. Seller-controlled
Vendor sites, i.e. home site of organization selling products, e.g.
B. Seller-oriented
Intermediaries controlled by third parties to the seller such as distributors and agents, e.g. Opodo ( represents the main air carriers
C. Neutral
Intermediaries 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-oriented
Intermediaries 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 (

26. Seller-oriented- Opodo.co.uk

27. Buyer-oriented-covisint.com

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

29. Commercial arrangements for transactions
Commercial (trading) mechanism
Online 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 2002.

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

31. 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.

32. Business models on the web
E-shop
E-procurement
E-malls
E-auctions
Virtual communities
Collaboration platforms
Third-party marketplace
Value-chain service providers
Information brokerage
Trust and other services

33. Figure 2.10 Alternative perspectives on business models

34. Revenue models – 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.
CPM = cost per mille (thousand). Cost to the advertiser or revenue for the publisher when an ad is displayed 1000 times.
CPC = cost per click. Cost to the advertiser when an ad is clicked once
CPA = cost per acquisition. Cost to the advertiser for each sales or at least lead generated after a click.

35. Figure 2. 11 Alex Tew’s Million Dollar Home Page (www
Figure Alex Tew’s Million Dollar Home Page (

36. Figure

37. Summary
The constantly changing e-business environment should be monitored by all organizations in order to be able to respond to changes in social, legal, economic, political and technological factors together with changes in the immediate marketplace that occur through changes in customer requirements and competitors’ and intermediaries’ offerings
The e-business marketplace involves transactions between organizations and consumers (B2C) and other businesses (B2B). Consumer-to-consumer (C2C) and consumer-to-business categories (C2B) can also be identified

38. Summary
The Internet can cause disintermediation within the marketplace as an organization’s channel partners such as wholesalers or retailers are bypassed. Alternatively, the Internet can cause reintermediation as new intermediaries with a different purpose are formed to help bring buyers and sellers together in a virtual marketplace or marketspace. Evaluation of the implications of these changes and implementation of alternative countermediation strategies is important to strategy

39. Summary
Trading in the marketplace can be sell-side (seller- controlled), buy-side (buyer-controlled) or at a neutral marketplace
A business model is a summary of how a company will generate revenue identifying its product offering, value-added services, revenue sources and target customers. Exploiting the range of business models made available through the Internet is important to both existing companies and start-ups

40. Summary
The Internet may also offer opportunities for new revenue models such as commission on affiliate referrals to other sites or banner advertising
The opportunities for new commercial arrangements for transactions include negotiated deals, brokered deals, auctions, fixed-price sales and pure spot markets, and barters should also be considered
The success of dot-com or Internet start-up companies is critically dependent on their business and revenue models and traditional management practice

41. Homework Describe your dream e-commerce website
Write details of your website:
What are the transaction actors (B2B, B2C, or others)
If you are to create intermediaries, specify what kind of intermediaries are you going to create
What are the trading mechanisms
Explain the marketplace position
Explain the revenue model