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The Digital Firm: Electronic Business and Electronic Commerce

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Title: The Digital Firm: Electronic Business and Electronic Commerce


1
The Digital Firm Electronic Business and
Electronic Commerce
Chapter 4
2
Objectives
  • How has Internet technology changed value
    propositions and business models?
  • What is electronic commerce? How has electronic
    commerce changed consumer retailing and
    business-to-business transactions?
  • What are the principal payment systems for
    electronic commerce?

3
Objectives
  • How can Internet technology facilitate management
    and coordination of internal and
    interorganizational business processes?
  • What are the major managerial and organizational
    challenges posed by electronic business and
    electronic commerce?

4
Management Challenges
  • Digitally integrating the enterprise requires a
    complete change of mind-set.
  • Finding a successful Internet business model.

5
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
Internet Technology and the Digital Firm
  • The Internet
  • Rapidly becoming infrastructure of choice
  • Universal, easy-to-use set of technologies and
    standards
  • Web sites available 24/7
  • Extended distribution channels
  • Reduced transaction costs
  • Reduced network and coordination costs

6
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions
  • Past Information about products and services
    bundled with their physical value chain
  • Today The Internet has unbundled information
    from traditional value chain, creating new
    business models

7
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions
  • Information Asymmetry
  • One party has more information essential to the
    transaction than the other party
  • The Internet shrinks information asymmetry
  • How this affects to the industry?

8
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions
  • Richness and Reach
  • Richness depth and detail of information
  • Reach how many people a business can connect
    with how many products offered those people
  • Internet allows much richer communication with
    farther reach

9
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
The changing economics of information
Trade off
Figure 4-1
10
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions
  • Internet Business Models
  • Virtual storefront Sells physical products
    directly to consumers or businesses. Amazon.com
  • Information broker Provides product pricing and
    availability information generates revenue from
    advertising or directing buyers to sellers.
    Kbb.com
  • Transaction Broker Processes online sales
    transactions for fee. ETRADE.com, Expedia.com

Table 4-2
11
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions
  • Internet Business Models
  • Online Marketplace Provides digital environment
    where buyers and sellers meet, Auctions or
    reverse auctions eBay.com, Priceline.com
  • Content Provider Provides digital content, such
    as news revenue from fees or advertising sales
    CNN.com, WSJ.com, MP3.com
  • Online Service Provider Provides connectivity
    revenue from fees, advertising, or marketing
    information Xdrive.com, _at_Backup.com

12
Electronic Business, Electronic Commerce, and the
Emerging Digital Firm
New Business Models and Value Propositions
  • Internet Business Models (cont.)
  • Virtual Community Provides online meeting place
    for people of similar interests Motocross.com,
    iVillage.com
  • Portal Provides initial point of entry to the
    Web, along with specialized content and services
    Yahoo.com, MSN.com
  • Syndicator aggregates content or applications to
    resell as package to third-party Web sites

Pure-play vs. clicks-and-motar
13
Electronic Commerce
Categories of Electronic Commerce
  • Business-to-consumer (B2C) Retailing products
    and services to individual shoppers
    BarnesNoble.com
  • Business-to-business (B2B) Sales of goods and
    services among businesses Milacron Inc. Web
  • Consumer-to-consumer (C2C) Consumers selling
    directly to consumers eBay.com

14
Electronic Commerce
Customer-Centered Retailing
  • Direct Sales Over the Web
  • Disintermediation Removal of intermediary steps
    in a value chain, selling directly to consumers,
    significantly lowers purchase transaction costs
  • Reintermediation Shifting intermediary function
    in a value chain to a new source, such as
    service hubs

Priced as high as 135 of its original cost to
manufacture
15
Electronic Commerce
The benefits of disintermediation to the consumer
Figure 4-2
16
Electronic Commerce
Customer-Centered Retailing
  • Interactive Marketing and Presentation
  • Collection of customer information using Web site
    auditing tools less expensive than surveys and
    focus groups
  • Web personalization technology customizes content
    on Web site to individuals profile and purchase
    history one-to-one marketing
  • Web sites and marketing shorten sales cycle and
    reduce time spent in customer education

17
Electronic Commerce
Web site personalization
Amazon.com Bluefly.com
Figure 4-3
18
Electronic Commerce
Customer-Centered Retailing
  • Customer Self-Service
  • Web-based responses to customer questions cost a
    fraction of telephone costs for live customer
    service representation
  • Web-based customer self-service applications,
    such as airline flight information sites
  • Traditional, phone-based customer call centers
    being integrated with Web

aa.com, UPS.com
19
Electronic Commerce
Window on Technology
  • Lightnin Lights Up with the Internet
  • What are the benefits of using Web-based order
    configuration software?
  • How does this system provide value to Lightnin
    and its customers?

20
Electronic Commerce
Before-after diagram of changes in Lightnins
ordering process
Figure 4-4
21
Electronic Commerce
Business-to-Business Electronic Commerce
  • Web, Internet streamlining procurement process
  • E-procurement eliminates inefficient, paper-based
    processes
  • Selling through Web sites, private industrial
    networks, or Net marketplaces

22
Electronic Commerce
Business-to-Business Electronic Commerce
  • Private Industrial Network
  • Private exchange typically consists of large
    firm using extranet to link to its suppliers and
    business partners
  • Permits firm and partners to share product
    design, development, marketing, scheduling,
    inventory management, and unstructured
    communication
  • Fastest-growing type of B2B commerce

23
Electronic Commerce
A private industrial network
Figure 4-5
24
Electronic Commerce
Business-to-Business Electronic Commerce
  • Net Marketplace
  • E-hub provides single Internet-based marketplace
    for many different buyers and sellers
  • Industry owned or independent intermediaries
  • Transaction oriented generates revenue from
    purchase and sales transactions and other services

Covisint.com, Ariba.com
25
Electronic Commerce
A Net marketplace
Figure 4-6
26
Electronic Commerce
Business-to-Business Electronic Commerce
  • Exchanges
  • Third-party Net marketplaces connecting thousands
    of suppliers and buyers for spot purchasing
  • Proliferated during early years of e-commerce
  • Exchanges encouraged competitive bidding, driving
    prices down suppliers reluctant to participate

FoodTrader. com
27
Electronic Commerce
Electronic Commerce Payment Systems
  • Digital credit card payment systems Secure
    credit card payment over Web
  • Digital wallet Stores credit card and owner
    identification, shipping information, to
    facilitate payment process
  • Accumulated balance digital payment systems
    Accumulates micropayment purchases as debit
    balance paid periodically on credit card or
    telephone bills

PaymentOne.com, Trivnet.com
28
Electronic Commerce
Electronic Commerce Payment Systems
  • Stored value payment system Enables consumers
    to make instant payments based on value stored in
    digital account
  • Digital cash Digital currency that can be used
    for micropayments or larger purchases
  • Client software to exchange money with other
    e-cash users
  • Peer-to-Peer payment systems Enables payments to
    vendors who do not set up for credit-card
    payments

Ecount.com, RocketCash.com
eCoin.net, Smart Card
PayPal.com
29
Electronic Commerce
Electronic Commerce Payment Systems
  • Digital checking Electronic check with secure
    digital signature
  • Electronic billing presentment and payment
    system Supports electronic payment for online
    and physical store purchases after purchase has
    taken place, Routine monthly bills

eCheck.org
30
Electronic Commerce
Electronic commerce information flows
Figure 4-7
31
Electronic Business and the Digital Firm
How Intranets Support Electronic Business
  • Connectivity accessible from most platforms
  • Can be tied to internal corporate systems and
    core transaction data
  • Can create interactive applications with text,
    audio, and video

32
Electronic Business and the Digital Firm
How Intranets Support Electronic Business
  • Scalable to larger or smaller computing platforms
    as requirements change
  • Easy to use, universal Web interface
  • Low start-up costs
  • Rich, responsive information environment
  • Reduced information distribution costs

33
Electronic Business and the Digital Firm
Intranet Applications for Electronic Business
  • Finance and Accounting Integrated view of
    financial and accounting information online
  • Human Resources Rapid delivery of information to
    employees online publishing
  • Sales and Marketing Collaborative place to
    coordinate activities of sales force
  • Manufacturing and Production Distribute
    manufacturing information to different parts of
    organization

34
Electronic Business and the Digital Firm
Functional applications of intranets
Figure 4-8
35
Electronic Business and the Digital Firm
Business Process Integration
  • Pre-Internet, integration costly and difficult
  • Internet technology less expensive than building
    enterprise systems
  • Intranets improve coordination among internal
    business processes
  • Extranets coordinate processes shared with
    customers and partners
  • Intranet promotes collaborative commerce

36
Management Challenges and Opportunities
Business Process Change Requirements
  • Unproven business models
  • Business process change requirements
  • Channel conflicts
  • Legal issues
  • Trust, security, and privacy

37
Electronic Business and the Digital Firm
Window on Organizations
  • Can Online Brokers Survive in Europe?
  • Is providing online financial services over the
    Internet a viable business model? Why or why not?

38
Chapter 4 Case Study
Can the Music Industry Change Its Tune?
  • Apply the value chain and competitive forces
    models to the music recording industry.
  • What role did the Internet play in changing value
    propositions and the competitive environment? To
    what extent has it been responsible for declining
    CD sales? Explain your answer.

39
Chapter 4 Case Study
Can the Music Industry Change Its Tune?
  • Analyze the response of the music recording
    industry to these changes. What management,
    organization, and technology issues affected this
    response?
  • What is the current business strategy of the
    music industry? Do you think it is viable?
    Explain your answer.
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