Hi I’m Matthew Schieber and I will be discussing the topics covered in chapter five about electronic commerce.
This chapter looks at e-commerce from a broad spectrum discussing the different types of business models, different factors businesses need to focus on to be successful, and emerging business trends.
First lets start by defining what electronic (e) commerce is. It is the buying and selling of goods and services with the assistance of computers. E-commerce has completely revolutionized how businesses sell, operate, and interact with customers over the last 15-20 years. Paper checks are a thing of the past, orders are completed electronically, and goods can be bought and sold by dozens of people without leaving the warehouse. It allows businesses to create tighter more powerful relationships with customers, suppliers, partners, basically anyone who interacts with a business.
Organizations can operate under various business models. Businesses can sell to the government or to end consumers. The government can sell to businesses and the list goes on. There are a total of nine different types of models. Of the nine there are four main models which will be discussed in more detail on the next few slides.
By far the business-to-business (B2B) model is the dominating force of all the models, representing over 80 percent of all e-commerce transactions. This is where businesses sell goods or services to other businesses. Since transactions can be worth millions of dollars different techniques are used to provide better security. One way businesses do this is by creating electronic marketplaces. Electronic marketplaces, or emarketplaces, present structures for conducting commercial exchange, consolidating supply chains, and creating new sales channels. Their primary goal is to increase market efficiency by tightening and automating the relationship between buyers and sellers. Existing emarketplaces allow businesses to buy and sell almost anything, from services to direct materials.
As an end consumer this is the business model we are most aware of. Business-to-consumer (B2C) is where goods or services are sold to the end consumer. These are items sold at Wal-Mart, cars.com, or Amazon for example. This model is the one which gets almost all of todays media attention and what most of the remaining chapter focuses on.
The third business model, consumer-to-business (C2B), is where the end consumer sells products or services to businesses. This model is the hardest to comprehend because a typical business model has the end consumer driving demand and the business driving supply. Here those roles are flipped. Websites such as priceline.com are close to this model because you as an end consumer can set a price however businesses such as hotels still drive supply since they can refuse to accept the price you set. A true C2B example would be fotolia.com. Here you as an end consumer can post pictures and any business wanting to use your photo have to pay a royalty. Another example is using whats called an affiliate program. Here you advertise products sold on a retailers website, such as overstock.com, and when a person clicks on the link and buys the advertised product overstock.com pays you a commission fee.
The last of the four main models is consumer-to-consumer (C2C). Here consumers sell products or services to other consumers. Most of these types of transactions are done through some kind of intermediary the most well known being eBay.
Regardless of what business model is used every organization must be able to understand the business it is in and the customers it deals with. No business can appeal to every customer, even Wal-Mart the worlds largest retailer has target customers. Wal-Mart only interacts with other businesses that meet a very specific criteria and sells to a specific type of consumer. The thing Wal-Mart is great at is selling specific products to a wide range of specific customers. The key to any successful business is being able to know and define what the end customer perceives to be value.
Customers can perceive value in just about anything. One of the biggest areas is convenience. Some people will pay an extra five percent for items like food or bathroom supplies so they can be delivered to their door saving the person time and effort. Another big area is specialty in that people want their products customized. Many people buy covers for their phones and computers to personalize their devices. When products are considered to be commodity items the only reasons customers by the product from a certain business is because the customer believes company Z provides more value than company A. This can be based on price, return policies, store layout, location, parking space, online ordering, etc. The largest boom in determine value in the last five to ten years has been digital merchandise. Customers now demand to have the ability to pay for and download a specific song or movie or book. Digital merchandise is great for businesses because there is almost no inventory required and why customers can buy a song for $1 on iTunes rather than a whole CD at Wal-Mart for $20.
Everyone knows that in order for a business to survive it needs customers, yet one of the hardest things for a business is finding customers and creating lasting relationships with them. First you have to find customers by advertising using a marketing mix. What works best varies from organization to organization. The most common form used is banner ads. A variation to it is the dreaded pop-up ad. Overall not a very effective tool. When done properly viral marketing is a very effective way to market items because it gets customers to encourage other customers to participate and buy a product. One of the most effective viral marketing campaigns I have seen was for the movie The Dark Knight in which Warner Bros. created promotional websites, videos, and other ploys to get people actively involved from around the world months before the movie hit theaters. Whatever the marketing mix the end goal is still the same, to attract customers and to keep the conversion rate high.
Finding and creating relationships with other businesses is very different from creating them with consumers. These relationships often take place in e-marketplaces. Once found setting up a face-to-face meeting is a must. From there IT systems should be integrated to allow secure electronic communication. With organizations focusing on supply chain management, just-in-time manufacturing, and other lean practices developing strong relationships with other organizations is a must. Without it huge problems can and will happen. Tupperware went out of business in the late 50’s because it was not able to form a close relationship with Wal-Mart. Boeing learned this all to well in developing the 787 Dreamliner. Because of production and assembly problems with the hundreds of suppliers for the new aircraft it entered service two and a half years after the original planned date.
To operate in the electronic world businesses have to be able to transfer money electronically. For consumers this can either be done directly with a credit card or through a financial cybermediary which acts as a mediator between the business and the consumer. The cybermediary ensures the business gets paid and the consumer gets the product they were promised. The best known example is PayPal. For business to business transactions paying for each item is incredibly inefficient. Instead invoices are totaled for a specific time frame and a large lump sum is transferred through the electronic data interchange (EDI). Financial EDI’s provide a safe secure connection and can easily handle huge balance transfers worth millions of dollars.
The biggest thing any customer or business is concerned about is security. Protecting credit cards and other sensitive information electronically is a necessity. There are multiple tactics that can be used. One is encrypting information before being sent to another party. Encryption scrambles information and can only be read by using the correct key to decrypt the information. Many businesses use a public key encryption system in which each business customer has a public key to encrypt information. The encrypted information is then sent back to the business which has a private key that can decrypt the information. The other main form of security is the use of secure socket layers (SSL). The SSL creates a secure and private connection between a client and server computer, encrypts the information, and then sends the information over the Internet. SSL is identified by a website address that includes an “s” at the end of the http-https.
The Internet has opened up many new possibilities for businesses and the means business is conducted. Take music for example. Before the Internet a typical store could only hold a few thousand CD’s at most, limiting the variety and number of successful artists. Small bands remained obscure. Today with iTunes or Rhapsody containing millions of songs, artists such as Hometown News and Glen Everhart are able to sell their music. This is possible because iTunes has no physical inventory it’s all electronic. Meaning Apple can still make a profit even if only one song is downloaded for a dollar. This is called the long tail of economics. If you remember from economics class the longer the sales curve the less money a business can make forcing businesses such as Wal-Mart to limit the number of songs available in inventory. With digital music there is no limit because there is virtually no cost in storing the song allowing iTunes to carry songs no other business wants to carry. Rhapsody for example gets 40 percent of its revenue from the long tail.
A powerful emerging trend is crowdsourcing. Crowdsourcing is a tool that is hundreds of years old but todays technology has made it easier for organizations to engage in. Most organizations who use crowdsourcing have problems which normal employees are unable to solve. They open up information to the general public and hold a contest providing a financial reward to the person with the best solution. A trend becoming quite common in the food industry. Pepsi-Cola used it to help create a new Mt Dew flavor. Frito-Lays offered a million dollar prize to the person who came up with the next great flavor. Not a bad investment for a company which will make tens of millions of dollars on the product over its lifetime.
Another trend is an area that boomed during the 2000’s and still happening today is the sale of virtual goods. With Internet speeds getting better and faster more and more people are using the Internet as their primary means of entertainment for music, movies, games, and social interaction.
The last business trend which is still in the early stages is mobile commerce. M-commerce uses mobile devices such as a smartphone to conduct business once done on a desktop computer connected to a cable. This is the area businesses are struggling the most because mobile devices by their very nature are far less secure. But people want to be connected and have access to everything no matter where they are. In two years, from 2008-2010, mobile transactions grew from $400 million to $2.4 billion. This m-commerce trend means organizations must recognize the power of this technology and figure out how to operate it in a effective and secure manner.