1. Dr. Ehud Reiter, Computing Science, University of Aberdeen1 E-Commerce (1) l What is E-Commerce? l Business Models »Issue: organisational change

2. Dr. Ehud Reiter, Computing Science, University of Aberdeen2 What is E-Commerce? l Business (commerce) over Internet/Web l Wide range »E-stores (Amazon) »Auction (EBay) »Business-to-Business (Cisco) »etc

3. Dr. Ehud Reiter, Computing Science, University of Aberdeen3 Benefits to Customer l Open 24 hours a day l More choices l Better prices l Product information in seconds l Interact with other customers l Easy to switch to competitor

4. Dr. Ehud Reiter, Computing Science, University of Aberdeen4 Benefits to Company l More potential customers l Decrease costs (no shop, less paper) l Better supply chain management l New services, eg customization

5. Dr. Ehud Reiter, Computing Science, University of Aberdeen5 Challenge: Competition l Competition is intense »Compete with 1000s (1000000s?) of e- retailers around the world, not just other high street shops »Customers can quickly/easily compare prices, which drives them down

6. Dr. Ehud Reiter, Computing Science, University of Aberdeen6 Prentice Hall, 2002 Porters Five Forces

7. Dr. Ehud Reiter, Computing Science, University of Aberdeen7 Middleman Problem l Retailers are middleman between manufacturer/provider and customer l Traditionally make money by mark-up »Buy product from supplier for £10, sell it to customer for £15 »Difference (£5) is profit margin

8. Dr. Ehud Reiter, Computing Science, University of Aberdeen8 Middleman problem l Competition drives profit margin down »If you have a £5 markup, customers will go to competitor with £4 markup l Suppliers may sell direct to customer »If supplier sells product to customer for £12, he and customer benefit »disintermediation l Hard to make money by mark-up

9. Dr. Ehud Reiter, Computing Science, University of Aberdeen9 Example: Flights l Pre-Internet, airlines sold flights to consumers via travel agents. »Travel agent charged £100, gave airline £80 and kept £20 as markup »If customer bought directly from airline, would be charged £100 (same as from travel agent)

10. Dr. Ehud Reiter, Computing Science, University of Aberdeen10 Example: Flights l In Internet age, airlines sell flights directly to customer »Airline sells flight to both customer and travel agent for £80. »If travel agent sells flight to customer for £80, he wont make any money »If travel agent charges £100, customer will buy direct from airline for £80

11. Dr. Ehud Reiter, Computing Science, University of Aberdeen11 Example: Flights l How can travel agent make money in Internet age? »Especially a small one, not Expedia

12. Dr. Ehud Reiter, Computing Science, University of Aberdeen12 Business Models l Sell flight at cost, extras at high markup »Eg, insurance, delivery l Sell advertising space on website »Sell customer data l Niche market »Specialise in travel to Poland –Flights, hotel, airport transfer, tours »Specialise in selling flights to universities

13. Dr. Ehud Reiter, Computing Science, University of Aberdeen13 Business Models l Branding »Build up a good reputation, so customers trust you to offer OK deals, good delivery –If youre trustworthy and cheap enough, it isnt worth hassle of looking at competitors –Satisfice –Means trusted shop can charge a bit more »Marketing helps branding »Customers visiting site helps –Even if no purchase, just looking

14. Dr. Ehud Reiter, Computing Science, University of Aberdeen14 Long Tail l E-commerce makes it much easier to sell obscure products from obscure suppliers. »Unusual books from small publishers »Can be sold at full price (sometimes even with a surcharge added)!

15. Dr. Ehud Reiter, Computing Science, University of Aberdeen15

16. Dr. Ehud Reiter, Computing Science, University of Aberdeen16 Business Must Change l Successful Internet travel agents differ from successful pre-Internet trav agent »Old: small shop selling generic flights to local customers with high mark-up –Joes travel agency »New: focus on product niche, high-markup extras, advertising revenue, brand –Expedia, escape2poland.co.uk

17. Dr. Ehud Reiter, Computing Science, University of Aberdeen17 Internet Business Model l Internet requires new business model l Management issue, not technology »But must be resolved in order for e- commerce to really take off l Poor business models one cause of dot- com boom/bust »Pouring in money before business model issue resolved is a mistake!

18. Dr. Ehud Reiter, Computing Science, University of Aberdeen18 Organisational Change l Internet (and most new tech) cannot be fully exploited unless society changes l Change is painful for companies »Many bankrupt small travel agents »Many bankrupt dot-com investors

19. Dr. Ehud Reiter, Computing Science, University of Aberdeen19 Organisational Change l Change is painful for individuals »Loss of skills: Joe has worked for 30 years selling generic hols to Spain, does this well –Must ditch this, learn new skills »Dislike model: Joe dislikes encouraging customers to buy overpriced insurance »Loss of income: average income of travel agents may go down, even if they adapt