E-commerce: Digital Markets, Digital Goods

Unit 6
 E-commerce and the Internet

⚫ E-commerce: Use of the Internet and Web to

transact business.
⚫ Began in 1995 first Internet portals,
Netscape.com , accepted ads.
⚫ Exponential growth curve for e-commerce retail
sales, which doubled and tripled in the early
years.
⚫ E-commerce revolution is still in its early stages.

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THE GROWTH OF E-COMMERCE

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EIGHT UNIQUE FEATURES OF INTERNET AND WEB AS COMMERCIAL MEDIUM

⚫ Ubiquity
⚫ Global reach
⚫ Universal standards
⚫ Richness
⚫ Interactivity
⚫ Information density
⚫ Personalization/customization
⚫ Social technology

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EIGHT UNIQUE FEATURES OF INTERNET AND WEB AS COMMERCIAL MEDIUM

⚫ Ubiquity
⚫ Internet/Web technology available everywhere:
work, home, and so on, anytime.
⚫ Effect:
⚫ Marketplace removed from temporal, geographic
locations to become “marketspace”
⚫ Enhanced customer convenience and reduced shopping
costs
⚫ Reduces transaction costs
⚫ Costs of participating in market

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EIGHT UNIQUE FEATURES OF INTERNET AND WEB AS COMMERCIAL MEDIUM

⚫ Global reach
• The technology reaches across national boundaries, around
Earth
• Effect:
⚫ Commerce enabled across cultural and national boundaries
seamlessly and without modification.
⚫ Marketspace includes, potentially, billions of consumers and
millions of businesses worldwide.

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EIGHT UNIQUE FEATURES OF INTERNET AND WEB AS COMMERCIAL MEDIUM

⚫ Universal standards
⚫ One set of technology standards: Internet standards
⚫ Effect:
⚫ Disparate computer systems easily communicate with one another
⚫ Lower market entry costs—costs merchants must pay to bring goods to
market
⚫ Lower consumers’ search costs—effort required to find suitable
products

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EIGHT UNIQUE FEATURES OF INTERNET AND WEB AS COMMERCIAL MEDIUM

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

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EIGHT UNIQUE FEATURES OF INTERNET AND WEB AS COMMERCIAL MEDIUM

⚫ Interactivity
⚫ The technology works through interaction with the user.
⚫ Effect:
⚫ Consumers engaged in dialog that dynamically adjusts experience to
the individual.
⚫ Consumer becomes co-participant in process of delivering goods to
market.

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EIGHT UNIQUE FEATURES OF INTERNET AND WEB AS COMMERCIAL MEDIUM

⚫ Information density
⚫ Large increases in information density—the total amount and
quality of information available to all market participants
⚫ Effect:
⚫ Greater price transparency
⚫ Greater cost transparency
⚫ Enables merchants to engage in price discrimination

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EIGHT UNIQUE FEATURES OF INTERNET AND WEB AS COMMERCIAL MEDIUM

⚫ Personalization/Customization
⚫ Technology permits modification of messages, goods
⚫ Effect:
⚫ Personalized messages can be sent to individuals as well as groups.
⚫ Products and services can be customized to individual preferences.

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EIGHT UNIQUE FEATURES OF INTERNET AND WEB AS COMMERCIAL MEDIUM

⚫ Social technology
⚫ The technology promotes user content generation and social
networking
⚫ Effect:
⚫ New Internet social and business models enable user content creation
and distribution, support social networks
⚫ Many-to-many model

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EFFECT OF THE INTERNET ON THE MARKETPLACE:

⚫ Reduces information asymmetry

⚫ Reduce relative bargaining power
⚫ Offers greater flexibility and efficiency because of:
⚫ Reduced search costs and transaction costs
⚫ Lower menu costs (merchants’ costs of changing prices)
⚫ Greater price discrimination
⚫ Dynamic pricing
⚫ May reduce or increase switching costs
⚫ May delay gratification: effects dependent on product
⚫ Increased market segmentation
⚫ Stronger network effects
⚫ More disintermediation

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THE BENEFITS OF DISINTERMEDIATION TO THE CONSUMER

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DIGITAL GOODS

⚫ Goods that can be delivered over a digital network

⚫ For example: music tracks, video, software, newspapers,
books
⚫ Cost of producing first unit is almost entire cost of product
⚫ Costs of delivery over the Internet very low
⚫ Marketing costs remain the same; pricing highly variable
⚫ Industries with digital goods are undergoing revolutionary
changes (publishers, record labels, etc.)

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 Types of e-commerce

⚫ Three major types of e-commerce

⚫ Business-to-consumer (B2C)
⚫ Example: BarnesandNoble.com
⚫ Business-to-business (B2B)
⚫ Example: ChemConnect
⚫ Consumer-to-consumer (C2C)
⚫ Example: eBay

⚫ Another one : Consumer-to-Business(C2B)

⚫ Example: guru.com, peopleperhour.com,
⚫ E-commerce can be categorized by platform
⚫ Mobile commerce (m-commerce)

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 Types of e-commerce

⚫ Business-to-Business (B2B)
⚫ It encompasses all electronic transactions of goods or services
conducted ​between companies.
⚫ Example: Amazon.com, Kaymu.com, etc
⚫ Business-to-Consumer (B2C)
⚫ relationships between businesses and final consumers.
⚫ It corresponds to the retail section of e-commerce, where
traditional retail trade normally operates.
⚫ many virtual stores and malls on the Internet, selling almost
all products
⚫ Example: sastodeal.com, amazon.com, godaddy.com, etc.

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B2B

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 Types of e-commerce
B2C

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 Types of e-commerce

⚫ Consumer-to-Consumer (C2C)
⚫ Electronic transactions of goods or services
conducted ​between consumers.
⚫ Transactions are conducted through a third party
⚫ Example: eBay.com, hamrobazar.com, etc.
⚫ Consumer-to-Business (C2B)
⚫ Individuals make their services or products available for
purchase for companies seeking precisely these types of
services or products.
⚫ Examples: iStockphoto.com, linkedIn.com, etc.

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C2C

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 Types of e-commerce
C2B

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 Types of e-commerce
C2B

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 E-commerce
Electronic Payment System
 e-commerce Electronic Payment System
WHAT IS ELECTRONIC PAYMENT SYSTEM?

⚫ An e-commerce payment system facilitates the acceptance

of electronic payment for online transactions.
⚫ Also known as a sample of Electronic Data Interchange
(EDI), e-commerce payment systems have become
increasingly popular due to the widespread use of the
internet-based shopping and banking.
⚫ Types of payment system
⚫ Cash
⚫ Credit Card
⚫ Stored Value
⚫ Accumulating Balance

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MOST COMMON PAYMENT SYSTEMS, BASED ON NUMBER OF TRANSACTIONS

SOURCE: Based on data from U.S. Census Bureau, 2005.

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 e-commerce Electronic Payment System
CASH

⚫ Legal tender defined by a national authority to represent value

⚫ Most common form of payment in terms of number of
transactions
⚫ Instantly convertible into other forms of value without
intermediation of any kind
⚫ Portable, requires no authentication, and provides instant
purchasing power
⚫ “Free” (no transaction fee), anonymous, low cognitive demands
⚫ Limitations: easily stolen, limited to smaller transaction, does
not provide any float
⚫ Eg: COD

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CREDIT CARD

⚫ Represents an account that extends credit to consumers,

permitting consumers to purchase items while deferring
payment, and allows consumers to make payments to multiple
vendors at one time
⚫ Credit card associations: Nonprofit associations (Visa,
MasterCard) that set standards for issuing banks
⚫ Issuing banks: Issue cards and process transactions
⚫ Processing centers (clearinghouses): Handle verification of
accounts and balances

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CREDIT CARD

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STORED VALUE

⚫ Accounts created by depositing funds into an account and

from which funds are paid out or withdrawn as needed
⚫ Examples: Debit cards, gift certificates, prepaid cards, smart
cards
⚫ Debit cards: Immediately debit a checking or other
demand-deposit account
⚫ Peer-to-peer payment systems such as PayPal a variation
⚫ Nepal: e-sewa, Debit cards, etc.

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ACCUMULATING BALANCE

⚫ Accounts that accumulate expenditures and to which

consumers make period payments
⚫ Examples: utility, phone, American Express accounts

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DIGITAL WALLETS

⚫ Concept of digital wallet relevant to many of the new digital

payment systems
⚫ Seeks to emulate the functionality of traditional wallet
⚫ Most important functions:
▪ Authenticate consumer through use of digital certificates or
other encryption methods
▪ Store and transfer value
▪ Secure payment process from consumer to merchant
⚫ Most common types are client-based software applications:
Gator eWallet.com, MasterCard Wallet

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DIGITAL CASH

⚫ One of the first forms of alternative payment systems

⚫ Not really “cash”: rather, are forms of value storage and
value exchange that have limited convertibility into other
forms of value, and require intermediaries to convert
⚫ Many of early examples have disappeared; concepts
survive as part of P2P payment systems

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DIGICASH: HOW FIRST GENERATION DIGITAL CASH WORKED

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ONLINE STORED VALUE SYSTEMS

⚫ Permit consumers to make instant, online payments to

merchants and other individuals based on value stored in
an online account
⚫ Rely on value stored in a consumer’s bank, checking, or
credit card account

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HOW ECOUNT.COM WORKS: A STORED VALUE SYSTEM

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E-CASH

⚫ e-cash refers to a system in which money is only

exchanged electronically.
⚫ link personal bank account to other payee accounts or set
up an e-cash account using a centralized system, such as
PayPal, and link it to your personal bank account.
⚫ We can debit from our personal bank account or credit
card.
⚫ To make payments, we can make a deposit to the other
person's e-cash account

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DIGITAL WALLETS

⚫ Also known as e-wallet

⚫ It can store your personal information and payment.
⚫ Once the software is installed on your digital wallet, enter
your personal information, such as your name and billing
address, then connect it to your banking information so
you can use it to withdraw funds from your account(s)
when making on-line purchases.
⚫ When you're at the check-out page of an e-commerce site,
the digital wallet can automatically enter your personal and
banking information into the appropriate areas.

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MOBILE PAYMENT

⚫ A consumer uses her cell phone to make purchases.

⚫ the user simply sends a payment request via text message
⚫ If the vendor has the mobile billing capability, the
consumer's mobile account or credit card is charged for the
purchase.
⚫ To set up a mobile payment system, download a software
package from your cell phone company's website, then link
your credit card or mobile billing information to that
software.

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THE SET (SECURE ELECTRONIC TRANSACTION) PROTOCOL

⚫ Authenticates cardholder and merchant identity through use of

digital certificates
⚫ An open standard developed by MasterCard and Visa
⚫ Transaction process similar to standard online credit card
transaction, with more identity verification
⚫ Thus far, has not caught on much, due to costs involved in
integrating SET into existing systems, and lack of interest
among consumers

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HOW SET TRANSACTIONS WORK

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 M-Commerce
INTRODUCTION

⚫ M-commerce (mobile commerce) is the buying and selling

of goods and services through wireless handheld devices
such as cellular telephone and personal digital assistants
(PDAs).
⚫ Known as next-generation e-commerce, m-commerce
enables users to access the Internet without needing to find
a place to plug in.
⚫ It is based on the Wireless Application Protocol (WAP)
technology

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