21/05/16

E-COMMERCE: DIGITAL
MARKETS, DIGITAL GOODS
Arief Rahman

E-COMMERCE AND THE INTERNET

E-commerce today:
Use of the Internet and Web to transact business;
digitally enabled transacMons
Began in 1995 and grew exponenMally, sMll
growing even in a recession
Companies that survived the dot-com bubble burst
and now thrive
E-commerce revoluMon is sMll in its early stages

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E-COMMERCE AND THE INTERNET

THE GROWTH OF E-COMMERCE

Retail e-commerce revenues grew 1525 percent per year unMl the recession of 20082009,
when they slowed measurably. In 2010, e-commerce revenues are growing again at an esMmated
12 percent annually.

WHY E-COMMERCE IS DIFFERENT

1. Ubiquity
Internet/Web technology available everywhere:
work, home, etc., anyMme.
Eect:
Marketplace removed from temporal, geographic
locaMons to become marketspace
Enhanced customer convenience and reduced
shopping costs

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WHY E-COMMERCE IS DIFFERENT

2. Global reach
The technology reaches across naMonal
boundaries, around Earth
Eect:
Commerce enabled across cultural and naMonal
boundaries seamlessly and without modicaMon
Marketspace includes, potenMally, billions of
consumers and millions of businesses worldwide

WHY E-COMMERCE IS DIFFERENT

3. Universal standards
One set of technology standards: Internet
standards
Eect:
Disparate computer systems easily communicate with
each other
Lower market entry costscosts merchants must pay
to bring goods to market
Lower consumers search costseort required to
nd suitable products

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WHY E-COMMERCE IS DIFFERENT

4. Richness
Supports video, audio, and text messages
Eect:
Possible to deliver rich messages with text, audio, and
video simultaneously to large numbers of people
Video, audio, and text markeMng messages can be
integrated into single markeMng message and
consumer experience

WHY E-COMMERCE IS DIFFERENT

5. InteracMvity
The technology works through interacMon with
the user
Eect:
Consumers engaged in dialog that dynamically adjusts
experience to the individual
Consumer becomes co-parMcipant in process of
delivering goods to market

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WHY E-COMMERCE IS DIFFERENT

6. InformaMon density
Large increases in informaMon densitythe total
amount and quality of informaMon available to
all market parMcipants
Eect:
Greater price transparency
Greater cost transparency
Enables merchants to engage in price discriminaMon

WHY E-COMMERCE IS DIFFERENT

7. PersonalizaMon/CustomizaMon
Technology permits modicaMon of messages,
goods
Eect
Personalized messages can be sent to individuals as
well as groups
Products and services can be customized to individual
preferences

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WHY E-COMMERCE IS DIFFERENT

8. Social technology
The technology promotes user content
generaMon and social networking
Eect
New Internet social and business models enable user
content creaMon and distribuMon, and support social
networks

KEY CONCEPT IN E-COMMERCE

Digital markets reduce
InformaMon asymmetry
Search costs
TransacMon costs
Menu costs

Digital markets enable

Price discriminaMon
Dynamic pricing
DisintermediaMon

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KEY CONCEPT IN E-COMMERCE

THE BENEFITS OF DISINTERMEDIATION TO THE CONSUMER

The typical distribuMon channel has several intermediary layers, each of which adds to
the nal cost of a product, such as a sweater. Removing layers lowers the nal cost to
the consumer.

KEY CONCEPT IN E-COMMERCE

Digital goods
Goods that can be delivered over a digital network
E.g. Music tracks, video, sofware, newspapers, books

Cost of producing rst unit almost enMre cost of product:

marginal cost of 2nd unit is about zero
Costs of delivery over the Internet very low
MarkeMng costs remain the same; pricing highly variable
Industries with digital goods are undergoing revoluMonary
changes (publishers, record labels, etc.)

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TYPES OF E-COMMERCE
Business-to-consumer (B2C)
Business-to-business (B2B)
Consumer-to-consumer (C2C)
Mobile commerce (m-commerce)

E-COMMERCE REVENUE MODELS

1. AdverMsing
2. Sales
3. SubscripMon
4. Free/Freemium
5. TransacMon Fee
6. Aliate

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E-COMMERCE MARKETING
Internet provides marketers with new ways of
idenMfying and communicaMng with
customers
Long tail markeMng: Ability to reach a large
audience inexpensively
Behavioral targeMng: Tracking online behavior
of individuals on thousands of Web sites
AdverMsing formats include search engine
markeMng, display ads, rich media, and e-mail

E-COMMERCE MARKETING
WEB SITE VISITOR TRACKING

E-commerce Web sites have tools to track a shoppers every step through an online
store. Close examinaMon of customer behavior at a Web site selling womens clothing
shows what the store might learn at each step and what acMons it could take to
increase sales.

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WEB SITE PERSONALIZATION

Firms can create
unique personalized
Web pages that
display content or ads
for products or
services of special
interest to individual
users, improving the
customer experience
and creaMng
addiMonal value.

B2B E-COMMERCE
Electronic data interchange (EDI)
Computer-to-computer exchange of standard transacMons
such as invoices, purchase orders
Major industries have EDI standards that dene structure
and informaMon elds of electronic documents for that
industry
More companies increasingly moving away from private
networks to Internet for linking to other rms
E.g. Procurement: Businesses can now use Internet to locate most
low-cost supplier, search online catalogs of supplier products,
negoMate with suppliers, place orders, etc.

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ELECTRONIC DATA INTERCHANGE

Companies use EDI to automate transacMons for B2B e-commerce and conMnuous
inventory replenishment. Suppliers can automaMcally send data about shipments to
purchasing rms. The purchasing rms can use EDI to provide producMon and inventory
requirements and payment data to suppliers.

B2B E-COMMERCE
Private industrial networks (private
exchanges)
Large rm using extranet to link to its suppliers, distributors
and other key business partners
Owned by buyer
Permits sharing of:

Product design and development

MarkeMng
ProducMon scheduling and inventory management
Unstructured communicaMon (graphics and e-mail)

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B2B E-COMMERCE
Net marketplaces (e-hubs)
Single market for many buyers and sellers
Industry-owned or owned by independent intermediary
Generate revenue from transacMon fees, other services
Use prices established through negoMaMon, aucMon, RFQs,
or xed prices
May focus on direct or indirect goods
May be verMcal or horizontal marketplaces

B2B E-COMMERCE
A NET
MARKETPLACE
Net marketplaces are
online marketplaces
where mulMple buyers
can purchase from
mulMple sellers.

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MOBILE DIGITAL PLATFORM

M-commerce
Although m-commerce represents small
fracMon of total e-commerce transacMons,
revenue has been steadily growing
LocaMon-based services
Banking and nancial services
Wireless adverMsing and retailing
Games and entertainment

MOBILE DIGITAL PLATFORM

CONSOLIDATED MOBILE COMMERCE REVENUES

Mobile e-commerce is the fastest growing type of B2C e-commerce although it represents only a
small part of all e-commerce in 2010.

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BUILDING AN E-COMMERCE WEBSITE

Assembling a team with the skills required to
make decisions about:
Technology
Site design
Social and informaMon policies
Hardware, sofware, and telecommunicaMons
infrastructure

Customers demands should drive the sites

technology and design

BUILDING AN E-COMMERCE WEBSITE

Business decisions drive the technology not
the reverse
Business objecMves
CapabiliMes the site should have
E.g. execute a transacMon payment

System funcMonality
Technological capability to achieve this objecMve
E.g. a shopping cart or other payment system

InformaMon requirements
E.g. secure credit card clearing, mulMple payment opMons

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BUILDING AN E-COMMERCE WEBSITE

AlternaMves in building the Web site
Completely in-house
Mixed responsibility
Completely outsourced
Co-locaMon

Web site budgets

Several thousand to millions / year
50% of a budget is system maintenance and
content creaMon

BUILDING AN E-COMMERCE WEBSITE

CHOICES IN BUILDING AND HOSTING WEB SITES

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