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E-Business

Tenth Edition

Chapter 7
Virtual Communities
Learning Objectives

In this chapter, you will learn:


• How social networking emerged from virtual
communities
• How social networking tools such as blogs are used
in online business activities
• About mobile technologies that are now used to do
business online
• How online auctions and auction-related businesses
have become a major new commercial activity
introduced as part of electronic commerce
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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
From Virtual Communities to Social
Networks
• Online Web communities
– Not limited by geography
– Individuals and companies with common interests
• Meet online and discuss issues, share information,
generate ideas, and develop valuable relationships
• Companies make money by serving as relationship
facilitators
– Combine Internet’s transaction cost-reduction
potential with a communication facilitator role

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Virtual Communities

• Virtual community (Web community, online


community)
– Gathering place for people and businesses
• No physical existence
• Early virtual communities
– Bulletin board systems (BBSs)
• Revenue source: monthly fees and selling advertising
– Usenet newsgroups
• Message posting areas on usenets

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Virtual Communities (cont’d.)

• Current forms
– Web chat rooms
– Sites devoted to specific topics or general exchange
of information, photos, videos
– People connect and discuss common issues,
interests
– Considerable social interaction
– Relationship-forming activities
• Similar to physical communities

E-Business, Tenth Edition 5


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Early Web Communities

• 1985: WELL (“whole earth ‘lectronic link”)


– Monthly fee to participate in forums and conferences
– 1999 bought by Salon.com
• 1995: Beverly Hills Internet virtual community site
– Offered webcams, free Web site space
– Grew into GeoCities
• Revenue source: advertising, pop-up pages
• 1999: purchased by Yahoo! ($5 billion)
• Closed in 2009

E-Business, Tenth Edition 6


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Early Web Communities (cont’d.)

• 1995: Tripod virtual community


– Offered free Web page space, chat rooms, news,
weather updates, health information pages
– Revenue source: sold advertising
• 1995: Theglobe.com Cornell University class project
– Included bulletin boards, chat rooms, discussion
areas, personal ads
• Added more features
– Revenue source: sold advertising
• Most early Web community businesses closed
E-Business, Tenth Edition 7
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Social Networking Emerges

• As the Internet and Web grew:


– Experience of sharing new online communication
faded
– New phenomenon in online communication began
• Multiple common bonds joined people with all types of
common interests
• Social networking sites
– Allow individuals to create and publish a profile,
create a list of other users with whom they share a
connection (or connections), control that list, and
monitor similar lists made by other users
E-Business, Tenth Edition 8
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Social Networking Emerges (cont’d.)
• Social networking sites
– Six Degrees (1997)
– Friendster (2002)
• Had features found in today’s social networking sites
– LinkedIn: devoted to business connections
– Tribe.net
– YouTube: popularized video inclusion
– MySpace: popular with younger Web users
– Twitter
• Users can send short messages to other users who
sign up to follow their messages (tweets)
– Google+
E-Business, Tenth Edition 9
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Social Networking Emerges (cont’d.)

• Basic idea behind social networking


– People invited to join by existing members
– Site provides directory
• New members work through friends established in the
community

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
© Cengage Learning 2013
FIGURE 7-1 Social networking Web sites

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
© Cengage Learning 2013
FIGURE 7-2 Leading social networking sites around the world

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Social Networking Emerges (cont’d.)
• Web logs (Blogs)
– Web sites containing individual commentary on
current events or specific issues
– Form of social networking site
– Twitter: microblog
• Very informal; tweets limited to 140 characters
• Early blogs focused on technology topics
• 2004: blogs used as political networking tool
• 2008: all major candidates using blogs
– Communicating messages, organizing volunteers,
raising money, meetups
E-Business, Tenth Edition 13
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Social Networking Emerges (cont’d.)

• Retailers embracing blogs


– Way to engage visitors not ready to buy from site
– Marketing and supply managers saw social
networking benefits of enhancing B2B relationships
• Business uses
– CNN
• Blog information included in television newscasts

E-Business, Tenth Edition 14


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Social Networking Emerges (cont’d.)

• Business uses (cont’d.)


– Newspapers
• Inviting information and opinion contributions
• Targeting 18- to 35-year-old generation
– Participatory journalism
• Trend toward having readers help write the online
newspaper
• Blogs can become businesses in themselves
– Must generate financial support (fees, advertising)

E-Business, Tenth Edition 15


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Social Networking Emerges (cont’d.)

• Social networking Web sites for shoppers


– Social shopping
• Practice of bringing buyers and sellers together in a
social network to facilitate retail sales
– Example: craigslist
• Operated by not-for-profit foundation
• All postings free (except help wanted ads)
– Example: Etsy Web site
• Marketplace for selling handmade items
• We Love Etsy: Etsy buyers, sellers share information

E-Business, Tenth Edition 16


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Social Networking Emerges (cont’d.)

• Idea-based social networking


– Social networking sites form communities based on
connections among people
– Idea-based virtual communities
• Communities based on connections between ideas
– Idea-based networking
• Participating in idea-based virtual communities
• Examples: del.icio.us site, 43 Things site

E-Business, Tenth Edition 17


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Social Networking Emerges (cont’d.)
• Virtual learning networks
– Distance learning platforms for student-instructor
interaction (Blackboard)
– Tools include:
• Bulletin boards, chat rooms, drawing boards
– Moodle and uPortal
• Open-source software projects devoted to virtual
learning community development
– Open source software
• Developed by a programmer community
• Software available for download at no cost

E-Business, Tenth Edition 18


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Revenue Models for
Social Networking Sites
• Late 1990s
– Revenue created by selling advertising
• Used by virtual communities, search engine sites, Web
directories
• 1998
– Purchases and mergers occurred
– New sites still used advertising-only revenue-
generation model
• Included features offered by virtual community sites,
search engine sites, Web directories, other information-
providing and entertainment sites
– Web portal goal: every Web surfer’s doorway to Web
E-Business, Tenth Edition 19
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Revenue Models for
Social Networking Sites (cont’d.)
• Advertising-supported social networking sites
– Smaller sites with specialized appeal
• Can draw enough visitors to generate significant
advertising revenue
• Example: I Can Has Cheezburger site
– Recall from Chapter 4
• Sites with higher number of visitors can charge more
• Stickiness: important element in site’s attractiveness
– Rough measure of stickiness
• Time user spends at the site

E-Business, Tenth Edition 20


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
FIGURE 7-3 Popularity and stickiness of leading Web sites
E-Business, Tenth Edition 21
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Revenue Models for
Social Networking Sites (cont’d.)
• Advertising-supported social networking sites (cont’d.)
– Social networking sites
• Members provide demographic information
• Potential for targeted marketing: very high
– High visitor counts
• Can yield high advertising rates
– Second-wave advertising fees
• Based less on up-front site sponsorship payments
• Based more on revenue generation from continuing
relationships with people who use the social networking
sites

E-Business, Tenth Edition 22


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Revenue Models for
Social Networking Sites (cont’d.)
• Mixed-revenue and fee-for-service social networking
sites
– Most social networking sites use advertising
– Some charge a fee for some services
• Examples: Yahoo! All-Star Games package, Yahoo!
premium e-mail service
– Monetizing
• Converting site visitors into fee-paying subscribers or
purchasers of services
• Concern: visitor backlash
– More examples: The Motley Fool and TheStreet.com
E-Business, Tenth Edition 23
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Revenue Models for
Social Networking Sites (cont’d.)
• Fee-based social networking
– Google Answers site
• Early attempt to monetize social networking
• Questions answered for a fee
• Google operated service from 2002 to 2006
– Similar free services
• Yahoo! Answers, Amazon (Askville)
– Uclue (paid researchers earn 75 percent of total fee)
• Advocates claim better quality
– Fee-based Web sites can generate revenue by
providing virtual community interaction

E-Business, Tenth Edition 24


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Revenue Models for
Social Networking Sites (cont’d.)
• Microlending sites
– Function as clearinghouses for microlending activity
– Microlending
• Practice of lending very small amounts of money
• Lend to people starting or operating small businesses
(especially in developing countries)
– Microlending key element
• Working within social network of borrowers
• Provide support, element of pressure to repay
– Examples: Kiva and MicroPlace

E-Business, Tenth Edition 25


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Revenue Models for
Social Networking Sites (cont’d.)
• Internal social networking
– Provide social interaction among organization’s
employees
– Run on organization’s intranet
– Save money (less paper)
– Provide easy access to employee information
– Good for geographically dispersed employees
– Adding wireless connectivity
– Combine second-wave technology with first-wave
business strategy
• Wireless communications with internal Web portals
E-Business, Tenth Edition 26
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Mobile Commerce

• Short messaging service (SMS)


– Allows mobile phone users to send short text
messages to each other
• 2008: United States developments allowing phones
as Web browsers
– High-speed mobile telephone networks grew
dramatically
– Manufacturers offered range of smart phones with
Web browser, operating system, applications
• Potential for mobile commerce (m-commerce)

E-Business, Tenth Edition 27


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Mobile Operating Systems
• Japan and Southeast Asia mobile commerce
– Much larger online business activity
• Had high-capacity networks before U.S.
– NTT DoCoMo, Japan’s largest phone company
• Pioneered mobile commerce in 2000
• U.S. mobile commerce beginning in 2008
– Introduction of smart phones and high-capacity
networks
– Smart phone examples: Apple iPhone, Palm Pre,
several BlackBerry models
• Android operating system
E-Business, Tenth Edition 28
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
FIGURE 7-4 Smart phones come in a range of different styles
E-Business, Tenth Edition 29
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Mobile Operating Systems (cont’d.)
• Mobile commerce browser display options
– Wireless Application Protocol (WAP)
• Allows Web pages formatted in HTML to be displayed
on small-screen devices
– Display a normal Web page on the device
• Made possible by increased screen resolution
• Example: Apple iPhone
– Design Web sites to match specific smart phones
• Much more difficult to accomplish

E-Business, Tenth Edition 30


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Mobile Operating Systems (cont’d.)
• Mobile commerce browser display options (cont’d.)
– Apple, BlackBerry, Palm
• Use proprietary operating systems
– HTC, Motorola, Nokia
• At one time created their own operating systems and
software applications
• Now use a standard operating system provided by a
third party
– Most common third-party operating systems
• Android, Windows Mobile, Symbian

E-Business, Tenth Edition 31


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Mobile Operating Systems (cont’d.)
• Android operating system
– Most popular and fastest growing third-party
operating system
– Developed by Google
– Open source
• Smart phone operating system
– Cannot be deleted/switched by user
• Operating system modifications
– Jailbreaking (Apple iphone’s operating system)
– Rooting (Android operating system)
E-Business, Tenth Edition 32
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
FIGURE 7-5 Smart phones operating systems: U.S. market shares
E-Business, Tenth Edition 33
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Mobile Apps

• Common operating systems emergence


– Occurred due to a change in the way software
applications developed and sold
• Old U.S. mobile phone company revenue strategy
– Control application software (apps)
• Apple turned old revenue strategy on its head
– AT&T agreed to be sole carrier for iPhone
– Apple Apps for iPhone online store
• Independent developers create apps and sell them
• BlackBerry and Palm followed Apple’s lead
E-Business, Tenth Edition 34
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Mobile Apps (cont’d.)

• Recap from Chapter 6


– Some mobile app sellers include advertising element
• Messages displayed from advertisers
• Part of the app screen or in a separate screen
• Mobile apps’ advertising space marketed in same way
as Web sites’ banner advertising
• Companies moving to mobile commerce
– Determine suitability of Web site to mobile devices
– May be pertinent to develop separate Web site
optimized for mobile users

E-Business, Tenth Edition 35


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Mobile Apps (cont’d.)
• Mobile phones for online banking
– In early stages in the United States
• Physicians using smart phones
– Read EKGs, managing diabetic patients
– Medical students: Epocrates (drug information
database)
• Phones’ global positioning satellite (GPS) service
capabilities
– Allow mobile business opportunities
• Apps tools/resources
– Swebapps, App Inventor, TaskCity
E-Business, Tenth Edition 36
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Tablet Devices

• Tablet devices
– 2010: Apple’s iPad introduced
• Smaller than laptop computer; larger than smart phone
– Wireless phone carrier’s service or local wireless
network Internet connection
– Larger screen size better suited for online consumer
products purchases

E-Business, Tenth Edition 37


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Mobile Payment Apps

• Mobile wallets
– Mobile phones functioning as credit cards
– Japan’s NTT DoCoMo phones combined capabilities
• Generate significant business
• Widespread credit card use in U.S. has limited use
of mobile phone payments
– 2011: Phone readers offered by American Express,
Visa, MasterCard
– Google Wallet for Android phones introduced

E-Business, Tenth Edition 38


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions

• Business opportunity perfect for the Web


• Auction site revenue sources
– Charging both buyers and sellers to participate
– Selling advertising
• Targeted advertising opportunities available
• Online auctions capitalize on Internet’s strength
– Bring together geographically dispersed people
sharing narrow interests

E-Business, Tenth Edition 39


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics
• From Babylon to the Roman Empire to Buddhists
• Common activity of 17th century England
– Sotheby’s (1744), Christie’s (1766), colonial auctions
• Auction: seller offering item for sale
– Bids: price potential buyer willing to pay
– Bidders: potential buyers
– Private valuations: amounts buyer willing to pay
– Auctioneer: manages auction process
– Shill bidders: work for seller or auctioneer
• May artificially inflate price
E-Business, Tenth Edition 40
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)

• English auctions
– Bidders publicly announce successively higher bids
• Item sold to highest bidder (at bidder’s price)
– Also called ascending-price auction
– Open auction (open-outcry auction)
• Bids publicly announced
– Minimum bid
• Beginning price
• If not met, item removed (not sold)

E-Business, Tenth Edition 41


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)
• English auctions (cont’d.)
– Reserve price (reserve)
• Seller’s minimum acceptable price
• Not announced
• If not exceeded, item withdrawn (not sold)
– Yankee auction
• Multiple item units offered for sale (bidders specify
quantity)
• Highest bidder allotted bid quantity
• Remaining items allocated to next highest bidders until
all items distributed
• Bidders pay lowest successful bidder price
E-Business, Tenth Edition 42
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)

• English auctions (cont’d.)


– Seller drawback
• May not obtain maximum possible price
– Buyer drawback
• Winner’s curse psychological phenomenon
– Bidder gets caught up in competitive bidding excitement
– Bids more than their private valuation

E-Business, Tenth Edition 43


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)

• Dutch auctions
– Open auction
• Bidding starts at a high price
• Drops until bidder accepts price
– Also called descending-price auctions
– Seller offers number of similar items for sale
– Common implementation
• Use a clock (price drops with each tick)
• Bidders stop clock and take items at the given price
• If items remain, clock restarted

E-Business, Tenth Edition 44


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)

• Dutch auctions (cont’d.)


– Often better for the seller
– Quickly move large numbers of commodity items
– Successful examples:
• Google initial public offering stock sale (2004)
• LookSmart stock repurchase

E-Business, Tenth Edition 45


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)

• First-price sealed-bid auctions


– Sealed-bid auctions
• Bidders submit bids independently
• Prohibited from sharing information
– First-price sealed-bid auction
• Highest bidder wins
• If multiple items auctioned, next highest bidders
awarded remaining items at their bid price

E-Business, Tenth Edition 46


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)

• Second-price sealed-bid auction


– Same as first-price sealed-bid auction
– Except highest bidder awarded item at second-
highest bidder price
– Commonly called Vickrey auctions
• William Vickrey: 1996 Nobel Prize in Economics
– Findings:
• Yields higher seller returns
• Encourages all bidders to bid private valuation amounts
• Reduces tendency for bidder collusion

E-Business, Tenth Edition 47


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)

• Open-outcry double auctions


– Example: Chicago Board of Trade auctions of
commodity futures and stock options
– Buy and sell offers shouted by traders in trading pit
• Each commodity, stock option traded in own pit
• Quite frenzied
• Double auctions (either sealed bid or open outcry)
– Good for items of known quality traded in large
quantities
– No item inspection before bidding

E-Business, Tenth Edition 48


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)

• Double auctions
– Buyers, sellers submit combined price-quantity bids
– Auctioneer
• Matches sellers’ offers
– Starts with lowest price and then goes up
• To buyers’ offers
– Starts with highest price and then goes down until all
quantities offered are sold
– Operation format: Sealed bid or open-outcry
– Example: New York Stock Exchange

E-Business, Tenth Edition 49


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction Basics (cont’d.)

• Reverse (seller-bid) auction


– Multiple sellers submit price bids
• Auctioneer represents single buyer
– Bids for given amount of specific item to purchase
– Prices go down as bidding continues
• Until no seller willing to bid lower
– Occasionally operated for consumers
– Most involve businesses as buyers and sellers

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May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
FIGURE 7-6 Key characteristics of seven major auction types
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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses
• Online auction business: rapidly changing
• Three auction Web site categories
– General consumer auctions
– Specialty consumer auctions
– Business-to-business auctions
• Varying opinions on categorizing consumer auctions
– Business-to-consumer
– Consumer-to-consumer
– Consumer-to-business

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• General consumer auctions
• eBay: registration required, seller fees, rating
system
– Seller’s risk: buyer uses stolen credit card; buyer fails
to conclude transaction
– Buyer’s risk: no item delivery; misrepresented item
– Most common auction format: English auction
• Seller may set reserve price
• Bidders listed: bids not disclosed (until auction end)
• Continually updated high bid amount displayed
• Private auction option available

E-Business, Tenth Edition 53


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• General consumer auctions (cont’d.)
– Another eBay auction format: Dutch auction
– Both formats require minimum bid increment
• Amount by which one bid must exceed previous bid
– Proxy bid
• Bidder specifies maximum bid
• May cause bidding to rise rapidly
– eBay stores
• Integrated into auction site
• Sellers generate additional profits

E-Business, Tenth Edition 54


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Competition in general consumer auctions
– eBay’s success due to unspecified audience
• Also spends $1 billion per year to market and promote
Web site
– Major determinants of Web auction site success
• Attracting enough buyers and sellers
– Yahoo! Auction operation closed in 2007
– Amazon.com with “Auctions Guarantee”
• Offered buyer protection through escrow service
• Closed in 2006

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Future challengers to eBay
– Must overcome lock-in effect
• New auction participants inclined to patronize
established marketplaces
– Example: Japanese general consumer auction
• Yahoo! first to enter market
– Now dominates (more than 90% market share)
• eBay maintains low market share (less than 3%)

E-Business, Tenth Edition 56


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Specialty consumer auctions
– Identify special-interest market targets
– Create specialized Web auction sites
• No need to compete with eBay
– Examples:
• JustBeads.com, Cigarbid.com, Winebid

E-Business, Tenth Edition 57


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Consumer reverse auctions
• Reverse bid
– Visitor describes desired items or services
– Site routes visitor to participating merchants
• Reply to visitor by e-mail
• Offer item at particular price
– Buyer accepts
• Lowest offer
• Offer best matching buyer’s criteria
• All these types of sites now closed
E-Business, Tenth Edition 58
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Consumer reverse auctions (cont’d.)
• Priceline.com
– Considered a seller-bid auction site
– Visitor states desired airline ticket, car rental, hotel
room price
• If sufficiently high price: transaction completed
– Many transactions come from inventory
• Priceline operates more as a liquidation broker

E-Business, Tenth Edition 59


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Group shopping sites
– Also known as group purchasing site
– Seller posts item with tentative price
– Individual buyers enter bids
• Agreement to buy one unit (no price provided)
• Site negotiates with seller for lower price
– Posted price decreases
• As number of bids increases (only if number of bids
increases)
– Result: buyers force seller to reduce price
• Similar to consumer reverse auction
E-Business, Tenth Edition 60
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Group shopping sites (cont’d.)
• Well-suited product types
– Branded products, well-established reputations
• Produces buyer confidence of good bargain
– High value-to-size ratio, non-perishable
• Disadvantages
– Difficulty attracting sellers’ interest
– Well-suited companies
• Find no advantage, fear sites cannibalize product
sales, reluctant to offend current distributors
• Mercata and LetsBuyIt sites closed
• Successful sites: Groupon, LivingSocial, Gilt
E-Business, Tenth Edition 61
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Business-to-business auctions
– Evolved to meet specific existing need
• Excess inventory disposal (manufacturing)
– Two methods
• Liquidation specialists: find buyers for unusable items
• Liquidation brokers: firms that finds buyers for items
– Online auctions
• Logical extension of these inventory liquidation
activities to a new and more efficient channel (Internet)

E-Business, Tenth Edition 62


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Business-to-business auctions (cont’d.)
– Emerging business-to-business Web auction models
• Large-company model: creates own auction site
• Small-company model: uses third-party Web auction
site instead of liquidation broker
• Both are direct descendants of traditional methods

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Business-to-business auctions (cont’d.)
– Third emerging business-to-business Web auction
model
• New business entity enters market lacking efficiency
and creates a site at which buyers and sellers who
have not historically done business with each other can
participate in auctions
• Resembles consumer online auctions
• Example: hospitals using online auctions to fill
temporary employment openings

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Business-to-business reverse auctions
– Example: Owens Corning purchases
– Examples: Agilent, Bechtel, Boeing, Raytheon, Sony
– Potential disadvantage
• Suppliers compete on price alone
• Cut corners on quality or miss scheduled delivery dates
– Potential advantage
• Useful for nonstrategic commodity items with
established quality standards

E-Business, Tenth Edition 65


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Online Auctions and
Related Businesses (cont’d.)
• Business-to-business reverse auctions (cont’d.)
– Companies opting out
• Cisco, Cubic, IBM, Solar Turbines
– If suppliers do not participate:
• Impossible to conduct reverse auctions
– If competition high among suppliers:
• Reverse auctions provide efficient way to conduct,
manage price bidding

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
FIGURE 7-7 Supply chain characteristics and reverse auctions

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction-Related Services

• Entrepreneurs encouraged by eBay and other


auction site growth
• Provide various kinds of auction-related services
– Escrow services
– Auction directory and information services
– Auction software (for sellers and buyers)
– Auction consignment services

E-Business, Tenth Edition 68


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction-Related Services (cont’d.)

• Auction escrow services


– Buyers’ common concern: seller reliability
• Buyers protect interests in high-value items
– Independent party holds payment until:
• Buyer receives item
• Buyer satisfied item is as expected
– May take delivery of item from seller
• Perform buyer inspection (qualified to do so)
– Charge fees
• Percent of item’s cost, subject to minimum fee

E-Business, Tenth Edition 69


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction-Related Services (cont’d.)

• Auction escrow services (cont’d.)


– Examples: Escrow.com, eDeposit
– May sell auction buyer’s insurance
• Protect buyers from nondelivery and quality risks
– Avoid escrow fraud
• Determine if licensed, bonded (licensing agency)
• Avoid offshore escrow companies entirely
– Other buyer protections
• Check seller’s rating
• Use Web site listings of unreliable sellers

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction-Related Services (cont’d.)

• Auction directory and information services


– Example: AuctionBytes
• Publishes e-mail newsletter
• Online auction industry articles
– Example: Price Watch
• Advertiser-supported site
• Advertisers post current selling prices
• Computer hardware, software, electronics

E-Business, Tenth Edition 71


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction-Related Services (cont’d.)

• Auction software
– Target: sellers
• Helps manage online auctions
– Example: AuctionHawk and Vendio
• Seller management software and services
• Automate tasks
• Create attractive page layouts
• Manage hundreds of auctions

E-Business, Tenth Edition 72


© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction-Related Services (cont’d.)

• Auction software (cont’d.)


– Target: buyers
• Helps manage online auctions
– Sniping software
• Observes auction progress until last second
• As auction expires: places bid high enough to win
(unless bid exceeds sniping software owner’s limit)
• Snipe: act of placing winning bid at the last second
• Almost always wins out over human bidder

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction-Related Services (cont’d.)

• Auction software (cont’d.)


– Example: Cricket Sniping Software site
• Created in 1997 by David Eccles
– Companies offer sniping service
• Sniping software runs on company Web site
• Customer enters instructions on site
• Company may offer subscriptions
• Company may offer mixed-revenue model

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auction-Related Services (cont’d.)

• Auction consignment services


– Target: people and small businesses
• Want to use online auction
• Do not have skills, time to become a seller
– Auction consignment services
• Take item and create online auction for that item
• Handle transaction
• Remit proceeds balance (after deducting fee)
– Main auction consignment businesses
• ePowerSellers, iSold It

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May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Summary
• Companies using the Web for entirely new things
– Creating social networks
– Using mobile technologies to make sales and
increase operational efficiency
– Operating auction sites
– Conducting related businesses
• Businesses creating online communities to connect
with customers and suppliers
• Individuals using social networking sites
– Personal and business-related interactions
• Mobile commerce opportunities emerging
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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Summary (cont’d.)
• Companies’ internal social networking sites
– Facilitate employee communication
• Online auctions used to sell goods to customers and
buy from suppliers
– Seven major auction types
– Consumer online auction business dominated by
eBay (United States)
– Ancillary service businesses support auctions
• B2B auctions and reverse auctions
– New methods of inventory disposal, procurement

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© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition.
May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

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