Management Information Systems:

Managing the Digital Firm

Fifteenth edition

Chapter 10
E-commerce: Digital
Markets, Digital Goods

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Learning Objectives
•
10-1 What are the unique features of e-commerce, digital markets, and digital goods?
•
10-2 What are the principal e-commerce business and revenue models?
•
10-3 How has e-commerce transformed marketing?
•
10-4 How has e-commerce affected business-to-business transactions?
•
10-5 What is the role of m-commerce in business, and what are the most important m-
commerce applications?
•
10-6 What issues must be addressed when building an e-commerce presence?

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Uber Digitally Disrupts the Taxi Industry
• Problem
– Opportunities presented by new technology
– Political and regulatory hurdles

• Solutions
– Driver and rider apps
– Demand prediction software

• Illustrates the use of IT to create new services as

well as business models
• Demonstrates the disruptive effects of new
technologies
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E-commerce Today
• E-commerce: Use of the Internet and web to
transact business
• Began in 1995 and grew exponentially; still stable
even in a recession
• Companies that survived the dot-com bubble now
thrive
• The new e-commerce: social, mobile, local
• Move from desktop to smartphone

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Figure 10.1: The Growth of E-commerce

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Why E-commerce Is Different (1 of 2)
• Ubiquity
– Marketspace is virtual
– Transaction costs reduced

• Global reach
– Transactions cross cultural and national boundaries

• Universal standards
– One set of technology standards: Internet standards

• Richness
– Supports video, audio, and text messages

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Why E-commerce Is Different (2 of 2)
• Interactivity
• Information density
– Greater price and cost transparency
– Enables price discrimination

• Personalization/customization
– Technology permits modification of messages, goods

• Social technology
– Promotes user content generation and social networking

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Key Concepts in E-commerce: Digital
Markets and Digital Goods in a Global
Marketplace
• Internet and digital markets have changed the way
companies conduct business
• Information asymmetry reduced
• Menu costs, search and transaction costs reduced
• Dynamic pricing enabled
• Switching costs
• Delayed gratification
• Disintermediation
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Figure 10.2: The Benefits of
Disintermediation to the Consumer

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Digital Goods
• Goods that can be delivered over a digital network
• Cost of producing first unit is almost entire cost of
product
• 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.)
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Digital markets compared with traditional
markets

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Types of E-commerce
• Three major types
– Business-to-consumer (B2C)
 Example: BarnesandNoble.com
– Business-to-business (B2B)
 Example: ChemConnect
– Consumer-to-consumer (C2C)
 Example: eBay

• E-commerce can be categorized by platform

– Mobile commerce (m-commerce)

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E-commerce Business Models
• Portal (Google, Bing, Yahoo,…)
• E-tailer (Amazon)
• Content provider (iTunes)
• Transaction broker (Expedia)
• Market creator (eBay)
• Service provider (Dropbox, Google Apps)
• Community provider (FB, Twitter, Google+)

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E-commerce Revenue Models
• Advertising
• Sales
• Subscription
• Free/Freemium
• Transaction fee
• Affiliate

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How Has E-commerce Transformed
Marketing?
• Internet provides new ways to identify and
communicate with customers
• Long tail marketing
• Internet advertising formats
• Behavioral targeting
– Tracking online behavior of individuals

• Programmatic ad buying
• Native advertising

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Figure 10.3: Website Visitor Tracking

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Figure 10.4: Website Personalization

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Figure 10.5: How an Advertising Network
Such as DoubleClick Works

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Social E-commerce and Social Network
Marketing (1 of 2)
• Social e-commerce based on digital social graph
• Features of social e-commerce driving its growth
– Newsfeed
– Timelines
– Social sign-on
– Collaborative shopping
– Network notification
– Social search (recommendations)

• Social media
– Fastest growing media for branding and marketing

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Social E-commerce and Social Network
Marketing (2 of 2)
• Social network marketing
– Seeks to leverage individuals’ influence over others
– Targeting a social network of people sharing interests and advice
– Facebook’s “Like” button
– Social networks have huge audiences

• Social shopping sites

• Wisdom of crowds
• Crowdsourcing

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Interactive Session: Technology: Getting
Social with Customers
• Class discussion
– Assess the management, organization, and technology issues for
using social media technology to engage with customers.
– What are the advantages and disadvantages of using social
media for advertising, brand building, market research, and
customer service?
– Give an example of a business decision in this case study that
was facilitated by using social media to interact with customers.
– Should all companies use social media technology for customer
service and marketing? Why or why not? What kinds of
companies are best suited to use these platforms?

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How Has E-commerce Affected Business-to
Business Transactions?
• U.S. B2B trade in 2015 is $14.6 trillion
– U.S. B2B e-commerce in 2015 is $6.2 trillion

• Internet and networking helps automate

procurement
• Variety of Internet-enabled technologies used in
B2B
– Electronic data interchange (EDI)
– Private industrial networks (private exchanges)
– Net marketplaces
– Exchanges

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Electronic Data Interchange (EDI)
• Computer-to-computer exchange of standard
transactions such as invoices, purchase orders
• Major industries have EDI standards
– Define structure and information fields of electronic documents

• More companies are moving toward web-enabled

private networks
– Allow them to link to a wider variety of firms than EDI allows
– Enable sharing a wider range of information

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Figure 10.6: Electronic Data Interchange

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New Ways of B2B Buying and Selling
• Private industrial networks
– Private exchanges
– Large firm using a secure website to link to suppliers and partners

• Net marketplaces (e-hubs)

– Single digital marketplace for many buyers and sellers
– May focus on direct or indirect goods
– May be vertical or horizontal marketplaces

• Exchanges
– Independently owned third-party Net marketplaces for spot
purchasing

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Figure 10.7: A Private Industrial Network

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Figure 10.8: A Net Marketplace

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What Is the Role of M-commerce in
Business, and What Are the Most Important
M-commerce Applications?
• M-commerce in 2017 is 37 percent of all e-
commerce
• Fastest growing form of e-commerce
 Some areas growing at 50 percent or more

• Main areas of growth

– Mass market retailing (Amazon, eBay, etc.)
– Sales of digital content (music, TV, etc.)
– In-app sales to mobile devices

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Figure 10.9: Mobile Retail Commerce
Revenues

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Location-Based Services and Applications
• Used by 74 percent of smartphone owners
• Based on GPS map services
• Geosocial services
– Where friends are

• Geoadvertising
– What shops are nearby

• Geoinformation services
– Price of house you are passing

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Interactive Session: Organizations: Can
Instacart Deliver?
• Class discussion
– Analyze Instacart using the value chain and competitive forces
models. What competitive forces does the company have to deal
with? What is its value proposition?
– Explain how Instacart’s business model works. How does the
company generate revenue?
– What is the role of information technology in Instacart’s business
model?
– Is Instacart’s model for selling online groceries viable? Why or
why not?

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Other Mobile Commerce Services
• Financial account management apps
– Banks, credit card companies

• Mobile advertising market

– Google and Facebook are largest markets
– Ads embedded in games, videos, and mobile apps

• 55 percent of online retailers have m-commerce

websites

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What Issues Must be Addressed when
Building an E-commerce Presence?
• Most important management challenges
– Developing clear understanding of business objectives
– Knowing how to choose the right technology to achieve those
objectives

• Develop an e-commerce presence map

– Four areas: websites, e-mail, social media, offline media

• Develop a timeline: milestones

– Breaking a project into discrete phases

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Figure 10.10: E-commerce Presence Map

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