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Chapter 5
EC in Service Industries
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Learning Objectives
Understand how broker-based services are
performed online
Describe online travel tourism services and
their benefits
Discuss the impact of EC on the travel
industry
Describe the online job market, its drivers
and benefits
Describe the electronic real estate market
Understand how stock trading is done online
and its benefits
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Discuss cyberbanking, its drivers and
capabilities
Discuss implementation issues of online
financial services and its future
Describe electronic auctions, their benefits,
implementation, and impacts
Describe some innovative applications in the
service industries
Discuss the future of intermediaries and their
role in cyberspace
Learning Objectives (cont.)
Opening Vignette:
Ordering Journals Electronically
How a large university automated the
purchasing of magazines and journals,
saving $365,000/year
Direct Marketing: Buyer-to-seller; orders and
payments
Market maker charges $5/transaction Vs.
about $40 (conventional agents)
Ordering time reduced by up to 80%
4
Electronic Commerce in Magazine Ordering
Opening Vignette:
Ordering Journals Electronically (cont.)
5
Publisher
Publishers
Bank
University
of California
Electronic
Catalogs
Buyers
Bank
BANC ONE
OM Transact
BANC ONE
Automated
Clearing
House (ACH)
Rowe. Coms
Account
Rowe.Com System
EDI
Order +
Payment
EDI,
Internet
Order
Browsing
EDI Payments
Fee
$5 Fee
Payment
Buyer Seller Intermediary
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Broker-Based Services
Brokers work as intermediaries between buyers
and sellers
Agents basically make the markets
Agents provide many services
Most of the value-added tasks of brokers can be
automated
Major electronic agent-based services
travel
employment
real estate
stocks
electronic auctions
at-home banking
insurance
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Service Industries Vs. Manufacturing and
Products Retailing
Broker-Based Services (cont.)
Service Industries
pure EC substantially reduced cost
bank and brokerage houses
possible digitization of the entire process
travel and real estate agents
viewing an online video clip or seeing photos of a hotel
or a house for sale
Manufacturing and Products Retailing
physical delivery cost may be high
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Travel and Tourism Services
By the year 2000, close to 25 percent of all
business-to customer Internet commerce will
be related to tourism
The Internet is an ideal place to plan,
explore, and arrange almost any trip
IBMs vision of seamless electronic travel
using smart cards
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Services Provided
Information and booking
of airlines, hotels, cars,
and even golf courses
Fare comparisons
360 degree
video tours of
top destinations
Electronic Travel
magazine
Tips provided by people
that experienced certain
situations (like a visa
problem)
Pictures of major
attractions
Providing maps
Information about
entertainment and ticket
purchasing (such as
www.ticketmaster.com)
Converting 200
currencies
Travel and Tourism Services (cont.)
Worldwide
business and
places locator
E-mail to
intermediary
Chat rooms
and bulletin
boards
Major international news
Weather watch
Experts options
Shopping for travel
accessories and
books
Special
interest
vacations
Current status
of flights
(real time)
Fare tracker (free
e-mail alerts on
low fares)
Bed and breakfast
recommendations
Restaurant reviews
Special discount
information
Frequent
flier deals
Travel news
Driving directions
in the US
Travel and Tourism Services (cont.)
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Benefits and Limitations
Limitations
Not all people
use the Internet
It may take a
long time to find
what you want
People are still
reluctant to
provide credit
card numbers
Benefits
Free information is
tremendous
Free information is
accessible anytime
Substantial
discounts

Travel and Tourism Services (cont.)
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Corporate Travel: New Business Model
The Impact of EC on the Travel Industry
Porters framework of competitive advantage (the
five forces)
Focus:
environment
competitive responses
firms strategy
The industry is clearly transformed
Taking away some functions traditionally performed
by travel agents
Travel and Tourism Services (cont.)
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Impacts on the industry
Travel and Tourism Services (cont.)
Multimedia helps customers understand the
products
Offering of lower-cost trips
Providing a more personalized service
Saving money in a paperless environment
Increasing the convenience of getting
information at home
Supporting a customer-focused strategy (such
as targeted advertisement and integration of
products); push information to customers
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Travel agencies, as we know them today, will
disappear
Only their complex value-added activities will
not be automated
These complex activities will be performed
by a new breed of intermediates
Travel and Tourism Services (cont.)
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The Future
Travel and Tourism Services (cont.)
Collaborative organizational process performed
by multiple organizational intelligent agents
Acting autonomously
Work cooperatively
Work collectively to achieve the collective goal
Example How will your next vacation be
planned, booked and paid for?
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The Employment Placement Market
Job markets
Employers are looking for employees with
specific skills, and individuals are looking for a
job
Very volatile market
Moved to the Internet
Millions of job seekers, hundred of thousands of
jobs
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Shortcomings of the Non-Internet Job Market
The Employment Placement Market (cont.)
CostClassified ads are expensive.
Life cycle Unless renewed, at an additional cost, the
life of the ads is only days or weeks.
Place Most ads are local. Nationwide ads are very
expensive. International ads are even more expensive.
Minimum information Because of the high cost, the
information provided is minimal and may not appeal to
some job seekers.
Search It is very time consuming for individuals to find
all relevant newspapers. A trip to a library results in
finding only major out of town newspapers.
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Finding applicants Most job seekers, in the pre Internet
era, did not place ads about their availability. Some sent
unsolicited letters with resumes. This situation made it difficult
for companies to find employees with special skills. They had to
use employment agencies and pay them high commissions.
Matching It was difficult to match candidates to open jobs
as well as to match supply and demand.
Lost and dated material Some applications or letters
of response tended to get lost, or arrive late. A letter in a big city
may travel two weeks to arrive at a distance of a few blocks.
Speed Communication by mail is slow and so is the
processing of a large number of applications. Frequently,
employers lose good employees, since by the time the
application is processed, the applicant had taken another job.
Similarly, applicants accept less desirable jobs because they are
afraid to wait too long.
The Employment Placement Market (cont.)
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The Internet Job Market
The Employment Placement Market (cont.)
The Internet offers a perfect environment; it
is especially effective for technology-
oriented jobs.
Job seekers
Job offerers
Recruiting firms
Government agencies and institutions
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The Advantage of the Electronic Job Market
The Employment Placement Market (cont.)
For job seekers
Ability to find very detailed and timely information on a
large number of jobs world-wide
Ability to quickly communicate with potential employers
Ability to post resumes for large-volume distribution
Ability to search for jobs quickly from any place at any
time
Obtain several support services at no cost
writing resume career development how to
interview
Find employer profile & industry guides
www.valuereports.com
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For employers
Ability to advertise to a large number of job
seekers
Ability to save on advertisement costs
Lower the cost of processing (using electronic
application forms)
Ability to provide greater equal opportunity for
job seekers
Ability to find highly skilled employees
Ability to conduct tests quickly, online
Ability to change and update ads quickly
Ability to fill up positions rapidly
Interviewing from distance
The Employment Placement Market (cont.)
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The Limitations of the Electronic Job Markets
The Employment Placement Market (cont.)
Many people do not use the Internet
Security
Privacy
Lack of face-to-face contact
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Major Services Available on the Net
Finding a job
Writing and posting resumes
Career planning
Newsgroups
The Intranet Job Market
Most companies organize an internal electronic
job market
Openings are posted for employees to look at,
and search engines enable managers to identify
talents even if the people were not actively
looking for a job change
The Employment Placement Market (cont.)
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Real Estate: From Virtual Realtors to Virtual
Reality
You can view many properties on the screen
You can sort and organize properties
You can find detailed information about the
properties
You can search, compare and apply for
loans
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Real Estate Applications
Real Estate: From Virtual Realtors to Virtual
Reality (cont.)
International Real Estate Directory and News is
the most comprehensive Web site
www.ired.com
National listing of real estate properties
www.cyberhomes.com
Commercial real estate directory
www.comspace.com
The complete real estate software catalog
www.mnink.com/re/cover.html
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Mortgage comparisons and calculations and other
financing information; mortgage application
www.eloan.com ;
www.homeshark.com
Searching residential real estate in multiple databases
www.homescout.com
Real estate related maps are available on:
www.mapquest.com
Automating the closing of real estate transactions,
which is overwhelmed by paperwork
Real Estate: From Virtual Realtors to Virtual
Reality (cont.)
Real Estate Applications
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The National Association of Realtors,
www.realtor.com has links to property listings in all
major US cities
To find how much house you can afford,
consult: www.replace.com/links.html
Mortgage brokers can pass on loan
applications over the Net and receive bids from
lenders that want to issue the mortgages

Real Estate: From Virtual Realtors to Virtual
Reality (cont.)
Real Estate Applications
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To find mortgage interest rates online use:
www.bankrate.com
www.eloan.com
www.quickenmortgage.com

To rent an apartment or a house try www.rent.net
Several additional services are available
including a virtual walk through of some listings
Real Estate: From Virtual Realtors to Virtual
Reality (cont.)
Real Estate Applications
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Trading Stocks Online
Costs between $7 and $20 per transaction (Vs.
$30 - $100 in traditional brokerage)
No waiting on busy telephone lines
No oral communication, less chance for errors
Place orders from anywhere, any time, day or
night
No biased broker to push you
Considerable amount of free information
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E
*
Trade, Schwab Online
The order is routed to
Schwabs host computer
in San Francisco and,
within a split second,
forwarded to the trading
floor of the New York
Sock Exchange (NTSE).
In a few seconds, (most
cases), Schwab
confirms that trade and
the price, relaying the
information to the
investors PC.
Order is transferred to
Schwabs floor brokers
at the NYSE, who take
it to the specialist, who
finds the best price and,
if satisfactory, the
order is fulfilled.
Yes
Order is automatically
transferred to a
specialist and fulfilled
based on the bid and ask
prices.


No
Trading Stocks Online (cont.)
Is the order larger than
30,000 shares?
Order is placed, as
described earlier, on an
electronic form from
any computer with
access to the Web,
anywhere in the world.

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Investment Information
Trading Stocks Online (cont.)
For municipal bond pricing see :
www.bondmarkets.org and www.investinbonds.com
For overall market information and many links
see: www.cyberinvest.com
For free Gurus advice see:
www.upside.com
For stock screening and evaluation try:
www.marketguide.com
www.aaii.com provides articles from the Journal of
the American Association of Individual Investors
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pomaven.com reports the latest findings and
pricing of IPOs
For chart lovers try www.bigcharts.com
For mutual funds evaluation and other
interesting investment information see
www.morningstar.net
Almost anything that you need will be provided
to you by www.yahoo.com
www.firstcall.com provides earning estimates and
much more
Initial public Offerings (IPOs)
Spring Street Brewing
Trading Stocks Online (cont.)
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Cyberbanking and Personal Finance
Electronic banking
Saves time and
money for users
Offers an inexpensive
alternative to branch
banking
Application Case:
Cyberbanking at
Wells Fargo
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Implementation Issues in Banking and Online
Trading
Cyberbanking and Personal Finance (cont.)
Encrypted
SSL Session
& Digital
Certificate
Verification
Initiated
External
Firewall
B of A
Web Server
Internal
Firewall
B of A
Application
Server
Bank of America Security System
Logon Screen
User ID
User Password
B of A
Web Site
Customers
Computer
Securing Financial Transactions
Application Case: Security at NationsBank
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Using the Extranet
Imaging Systems
Pricing Online Vs. Offline Services
The Future of Banking
building alliances quickly with banks, and
software vendors, and information providers
effective outsourcing without neglecting to build
in-house skills, particularly with respect to
customer information systems
focusing on the profitable customers to provide
broad channels for services and products
keeping a central role in the payment
environment
Cyberbanking and Personal Finance (cont.)
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Alternative Strategies for Banking
Customers Agents banks unable to achieve economies of scale
Offer customers the widest possible choices, including products
from multiple sources, and provide the customers with integrated
information services
Product Manufacturers banks able to achieve economies of
scale
It will strengthen a trend that can already be seen in a number of
product segments and in core processing services for small and
medium sized institutions
Integrated Players banks with a strong brand and position from
manufacturing to delivery
Many banks will adopt a hybrid strategy, but every player needs
to make crucial decisions about which areas are strategically too
risky to outsource and which capabilities need to be built up in-
house
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Billing Online
Automatic transfer of mortgages
This method has existed for several years. The
payer authorizes its bank to pay the mortgage,
including tax escrow payments.
Automatic transfer of funds to pay monthly
utility bills
As of fall 1997, the city of Long Beach has
allowed its customers to pay their gas and water
bills automatically form their bank accounts.
In 1999, many utility companies worldwide,
including those in Hong Kong, allow customers to
pay from bank accounts, or ATMs.
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Paying bills from online banking account
Billing Online (cont.)
Consumer
Bill Consolidator
Billers
Phone
Credit Card
Utility
Such payments can be made into any bank
account. Many people pay their monthly rent and
other bills directly into the payees bank
accounts.
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A merchant-to-customer direct billing
Billing Online (cont.)
Under this model, a merchant like American Express
posts bills on its Web site, where customers can
view and pay them . This means that the customers
have to go to many Web sites to pay all their bills.
Several utilities in Los Angeles allow customers to
pay bills on the utilities Web site, charging
customers 20 cents per transaction, which is less
than the price of a postage stamp.
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Using an intermediary
According to this model, a third party like
MSFDS (Microsoft and First Data Corporation)
consolidates all bills related to each customer in
one site, and in a standard format. Collecting a
certain commission, this intermediary makes it
convenient both for the payee and payer to
complete transactions. This model is of interest
to vendors such as E
*
Trade, and Intuit.
Personal finance online
Available from many banks and other financial
institutions, frequently free of charge.
Billing Online (cont.)
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Used when the conventional marketing
channels are ineffective or inefficient
Offer trading opportunities for both buyers and
sellers which are not available in the
conventional channels
Internet provides much cheaper infrastructure
with many more involved sellers and buyers
Individual consumers and corporations alike can
participate in this rapidly growing and very
convenient form of electronic commerce
Auctions: From Theory to Practice
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Types of Auctions
Auctions: From Theory to Practice (cont.)
Auction
Type
Co-ordination
Mechanism
Price
Discovery
Allocation
Mechanism
Distribution
Mechanism
Buyer
Role
Short term acquisition
of resources, e.g. for
demand peaks, auction
as a mechanism to
achieve an equilibrium
Often experts/
professional collectors
trying to acquire rare
items at a reasonable
price
Bargain hunting,
gambling motive
Bargain hunting,
gambling motive;
possible side motive:
charity
Supplier
Role
Short term allocation of
resources, load balance
Exposing items for
sale to a sufficient
breadth of demand,
hope for a high price
Clearance of
inventory
Attention, direct
sales channel, public
relations; possible
side motive: charity
Auctioneer/
Intermedi-
ary
Role
Often electronic auction
without auctioneer
Achieve high breadth
and depth of the
auctions, high trading
volume results in high
returns, competitive
advantage over other
auctions
Achieve high breadth
and depth of the
auctions, high trading
volume results in high
returns, competitive
advantage over other
auctions
Limited role because
of 1:n supplier -
buyer relation;
possible function as
service provider for
the supplier side
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Limitations of traditional auctions
Last only a few minutes for each item sold
Give buyers little time to make a decision
The bidders do not have much time to
examine the goods
Exclude many potential bidders
May be complicated for sellers to move
goods to the auction site
Commissions are fairly high (rent,
advertising, auctioneer and other employees)
Auctions: From Theory to Practice (cont.)
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Electronic Auctions
Auctions: From Theory to Practice (cont.)
Early auctioning done on local area networks
the auctioning of pigs in Taiwan and Singapore
the auctioning of flowers in Holland
the auctioning of cars in Japan
Auctions on the Internet started in 1995
similar to offline auctions, except for the fact that they are
done on a computer
some last days, others a short time
detailed information is available
start bidding by sending e-mail or filling out an electronic
form
names of bidders are kept coded to maintain privacy
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Auctioning methods
Yankee method
Dutch (Reverse bidding) method
Straight sale method

Examples
www.usaweb.com/auction.html ; a directory of
sites, search
Onsale, eBay, uBid
Auctions: From Theory to Practice (cont.)
Electronic Auctions
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Benefits
For seller
Sells goods efficiently
Sells goods with little action
or effort
Creates a greater range of
potential buyers
Sells excess inventories
quickly via this process
For buyers
Gets a huge variety of goods
Finds quality goods for largely
discounted prices
Limitations
Inability to
physically see the
items
Possibility of
fraud
Less competitive
atmosphere may
prevail on the Net
Benefits and Limitations
Auctions: From Theory to Practice (cont.)
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Impacts
Parameter
Impact of the Web
Auctioneer Lower entry barriers, opportunity for direct sales
Access rules
Customizable, theoretically millions of potential customers
can be reached
Items
auctioned
Focused product segments can be auctioned off, the
technology extends the complexity of the product
description
Trading rules
The trading rules reflect the lack of a guaranteed service
Execution
process
For digital products the entire trading cycle can be
handled on the Web; for physical products the trading
process and the physical logistics of the trade objects can
be separated, leading to a reduction of costs
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Online Publishing
The electronic delivery of newspapers,
magazines, news, and other information
through the Internet
Online Publishing Today and Tomorrow
Today mainly used for disseminating
information and for conducting sales
transactions interactively
Tomorrow include more customized material
that the reader will receive free, or will pay for
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Publishing Modes
newspapers, magazines, news, textbooks,
music, artwork, video clips, and movies
Publishing Methods
online archive approach a digital archive such
as library catalogs and bibliographic databases
new medium approach add extra
comprehensiveness to any issue or topic
publishing intermediation approach an online
directory for news services
dynamic or just-in-time approach create
content in real-time and transmitted on the fly
Online Publishing (cont.)
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Virtual Teaching and Universities
Knowledge Dissemination
Many universities are offering limited courses
and degrees but use innovative teaching
methods and multimedia support
MBA program in Hong Kong
lectures are delivered as an interactive TV (iTV)
students can decide what and when they want to
attend the lecture
lecture, support material, exercises etc. are
provided on the Web
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Online Consulting
Knowledge Dissemination (cont.)
Medical advice provide consultation with top
experts
Management consulting provide accumulated
expertise from knowledge bases
Legal advice delivery of legal consultation services
to business has considerable prospects
Financial advice offer extensive financial advice
Other service online
insurance, healthcare, future exchanges,
matchmaking, venture capital, finding a college, digital
delivery of documents, and electronic stamps
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The Impact on Intermediaries and
Their Changing Roles
Change the role of agents to :
Assist in comparison shopping from
multiple sources
Providing total solutions by combining
services from several vendors
Providing certifications and trusted third
party control and evaluation systems

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Issues that could impact the future of the
intermediaries
The Impact on Intermediaries and
Their Changing Roles (cont.)
The success of intelligent agents In addition to
the travel intelligent agents, there are agents to
support job matching and to interpret resumes.
The more intelligent the software agents will be,
the less you will need human agents.
Customer attitudes and behavior are important
If you have good experience with online
insurance or stock purchasing, or with virtual
travel agencies would you ever return to use a
human agent?
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New roles of electronic marketing intermediaries
The Impact on Intermediaries and
Their Changing Roles (cont.)
To extend what we are familiar with in physical
markets to the virtual world (e.g., search services
and electronic malls)
To extend payment clearing functions into the
Internet (e.g. electronic cash and digital credit card
services)
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Managerial Issues
Effectiveness of out-of-town recruitment
Privacy may be in danger
International legal issues may impact services
more than products
Ethical issues are prevalent in services
The intermediaries and their roles are changing