1. E-Commerce: Digital Markets, Digital Goods
Chapter 4
E-Commerce: Digital Markets, Digital Goods

2. Describe how Internet technology has changed business models.
Management Information Systems
Chapter 4 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. E-commerce History of e-commerce Management Information Systems
Chapter 4 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.

4. The Growth of E-Commerce
Management Information Systems
Chapter 4 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

5. Eight unique features of e-commerce technology
Management Information Systems
Chapter 4 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.

6. Eight unique features (cont.)
Management Information Systems
Chapter 4 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.

7. Turner Sports New Media Marries TV and the Internet
Management Information Systems
Chapter 4 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.

8. 1. Digital markets 2. Digital goods
Management Information Systems
Chapter 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Key concepts in e-commerce
1. Digital markets
2. Digital goods
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

9. Key concepts in e-commerce Digital markets Digital markets reduce
Management Information Systems
Chapter 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Key concepts in e-commerce
Digital markets
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 4 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.) 2. Digital goods
Management Information Systems
Chapter 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Key concepts in e-commerce (cont.)
2. 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 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
Internet business models
Pure-play models
Clicks-and-mortar models
1. Social Network: Online meeting place, Social shopping sites, Can provide ways for corporate clients to target customers through banner ads and pop-up ads
2. 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. 3. Virtual storefront: 4. Information broker: 5. Transaction broker:
Management Information Systems
Chapter 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet
3. Virtual storefront:
Sells physical products directly to consumers or to individual businesses
4. Information broker:
Provides product, pricing, and availability information to individuals and businesses
5. 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.

14. Types of Electronic Commerce
Management Information Systems
Chapter 4 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.

15. Management Information Systems
Chapter 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
B2B e-commerce: New efficiencies and relationships between Businesses with Businesses
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.

16. 1. Private industrial networks (private exchanges)
Management Information Systems
Chapter 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
1. Private industrial networks (private exchanges)
Large firm using extranet to link to its suppliers, distributors and other key business partners, and Owned by buyer for efficient supply chain management and other collaborative commerce activities.
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.

17. 2. Net marketplaces (e-hubs)
Management Information Systems
Chapter 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
2. 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, 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.

18. A Net Marketplace Management Information Systems Figure 10-7
Chapter 4 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.

19. 3. Exchanges Management Information Systems Independently:
Chapter 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce
3. Exchanges
Independently:
Connect thousands of suppliers and buyers for spot purchasing
Typically provide vertical markets for direct goods for single industry (food, electronics)
Competitive bidding drove prices down.
example of FoodTrader.com, which automates spot purchases among buyers and sellers from more than 180 countries in the food and agriculture industry.
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.

20. M-commerce services and applications
Management Information Systems
Chapter 4 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?

21. Global M-commerce Revenue 2000-2012
Management Information Systems
Chapter 4 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.

22. Limitations in mobile’s access of Web information Data limitations
Management Information Systems
Chapter 4 E-Commerce: Digital Markets, Digital Goods
M-Commerce
Limitations in mobile’s access of Web information
Data limitations
Small display screens
Limited bandwidth
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?

23. Types of electronic payment systems Digital wallet
Management Information Systems
Chapter 4 E-Commerce: Digital Markets, Digital Goods
Electronic Commerce Payment Systems
Types of electronic payment systems
Digital wallet
Accumulated balance digital payment systems
Stored value payment systems
Digital checking
Electronic billing presentment and payment systems
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.

24. Digital payments systems for m-commerce
Management Information Systems
Chapter 4 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.