Slide 2.

E-commerce Fundamentals

BY DAVE CHAFFEY
.
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Learning outcomes
 Evaluate changes in business relationships between
organizations and their customers enabled by e-
commerce
 Identify the main business and marketplace models
for electronic communications and trading
 Describe different revenue models and transaction
mechanisms available through online services.
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Management issues
 What are the implications of changes in marketplace
structures for how we trade with customers and other
partners?
 Which business models and revenue models should
we consider in order to exploit the Internet?
 What will be the importance of online intermediaries
and marketplace hubs to our business and what
actions should we take to partner these
intermediaries?
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E-commerce environment
 Needs of customers
 Local and international economic conditions
 Legislation
 Technological innovations
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Environment constraints and

opportunities
 Customers – which services are they offering via their web site that your organization could
support them in?
 Competitors – need to be benchmarked in order to review the online services they are offering –
do they have a competitive advantage?
 Intermediaries – are new or existing intermediaries offering products or services from your
competitors while you are not represented?
 Suppliers – are suppliers offering different methods of procurement to competitors that give
them a competitive advantage?

 Macro-environment
 Society – what is the ethical and moral consensus on holding personal information?
 Country specific, international legal – what are the local and global legal constraints for example
on holding personal information, or taxation rules on sale of goods?
 Country specific, international economic – what are the economic constraints of operating
within a country or global constraints?
 Technology – what new technologies are emerging by which to deliver online services such as
interactive digital TV and mobile phone-based access?
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Lack of Privacy = Lack of Sales

“Consumer privacy apprehensions continue to
plague the Web. These fears will hold back
roughly $15 billion in e-commerce revenue.”
-Forrester Research, September 2001
“Privacy and security concerns could cost online
sellers almost $25 billion by 2006.”
-Jupiter Research, May 2002
“Online retail sales could be 25% higher by 2006 if
consumer’s fears about privacy and security were
addressed.”
-Jupiter Research, 2002
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B2B and B2C characteristics

Characteristic B2C B2B

Proportion of adopters Low to medium High to very high

with access

Complexity of buying Relatively simple – More complex – buying

decisions individual and influencers process involves users,
specifiers, buyers, etc.

Channel Relatively simple – direct More complex, direct or

or from retailer via wholesaler, agent or
distributor

Purchasing characteristics Low value, high volume Similar volume/value.

or high value, low May be high Involvement.
volume. May be high Repeat orders (rebuys)
involvement more common

Product characteristic Often standardized items Standardized items or

bespoke for sale
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Marketplace channel structures

 Describes the way a manufacturer delivers products

and services to its customers
Figure 2.4 From original situation (a) to disintermediation (b) and reintermediation (c)
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Reintermediation
 Creation of a new intermediary
 Example:
 B&Q www.diy.com
 Opodo www.opodo.com
 Boots www.wellbeing.com www.handbag.com
 Ford, Daimler (www.covisint.com)
 Partnering with existing intermediary – Mortgage
broker Charcol and Freeserve
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Reintermediation
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Online Intermediaries
 Directories
 Search Engines
 Malls
 Virtual resellers
 Financial Intermediaries
 Forums, fan clubs and user groups
 Evaluators
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Blogs
 Give an easy method of regularly publishing web
pages, e.g. online journals, diaries or event listing
 Include feedback or comments
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Importance of multi-channel
marketplace models
 Customer journey – modern multi-channel
behavior as consumers use different media
 Offline
 Mixed-mode
 Online
Figure 2.7Example channel chain map for consumers selecting an estate agent
to sell their property
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Portal

‘A gateway to information resources

and services’
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Types of portal
Type of portal Characteristics Example

Access portal Associated with ISP Wanadoo (www.wanadoo.com) and now (www.orange.co.uk)
AOL (www.aol.com)
Horizontal or Range of services: search engines, directories, news recruitment, personal Yahoo! (www.yahoo.com)
functional portal information management, shopping, etc. MSN (www.msn.com)
Google (www.google.com) for which a long period just focused on
search.

Vertical A vertical portal covers a particular market such as construction with news Construction Plus (www.constructionplus.co.uk)
and other services. Chem Industry
(www.chemindustry.com)
Barbour Index for B2B resources
(www.barbour-index.com)
E-consultancy
(www.e-consultancy.com)
Focuses on e-business resources

Media portal Main focus is on consumer or business news or entertainment. BBC (www.bbc.co.uk)
Guardian (www.guardian.co.uk)
ITWeek (www.itweek.co.uk)

Geographical May be:

(Region, country, horizontal Google country versions
local) vertical Yahoo! country and city versions
Craigslist (www.craigslist.com)
Countyweb (www.countyweb.com)

Marketplace May be: EC21

Horizontal (www.ec21.com)
Vertical eBay (www.eBay.com)
Geographical

Search portal Main focus is on Search Google (www.google.com)

Ask Jeeves (www.ask.com)

Media type May be: BBC (www.bbc.co.uk)

Voice Silicon (www.silicon.com)
Video
Delivered by streaming media or downloads of files
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Online representation
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Seller-oriented- Opodo.co.uk
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Buyer-oriented-covisint.com
Figure 2.8 Variations in the location and scale of trading on e-commerce sites
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Commercial arrangements for

transactions
Commercial (trading) mechanism Online transaction mechanism of Nunes et al. (2000)

1. Negotiated deal Negotiation – bargaining between single seller and buyer. Continuous
Example: can use similar mechanism to auction replenishment – ongoing fulfilment of orders under pre-set terms
as on Commerce One (www.commerceone.net)

2. Brokered deal Achieved through online intermediaries offering auction and pure markets
Example: intermediaries such as screentrade online
(www.screentrade.co.uk)

3. Auction Seller auction – buyers’ bids determine final price of sellers’ offerings. Buyer
Example: C2C: E-bay (www.ebay.com) B2B: auction – buyers request prices from multiple sellers. Reverse – buyers post
Industry to Industry desired price for seller acceptance
(http://business.ebay.co.uk/)

4. Fixed-price sale Static call – online catalogue with fixed prices. Dynamic call – online
Example: all e-tailers catalogue with continuously updated prices and features

5. Pure markets Spot – buyers’ and sellers’ bids clear instantly

Example: electronic share dealing

6. Barter Barter – buyers and sellers exchange goods. According to the International
Example: www.intagio.com and Reciprocal Trade Association (www.irta.com ) barter trade was over $9
www.bartercard.co.uk billion in 2002.
Figure 2.9 Priceline Hong Kong service (www.priceline.com.hk)
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Business model
Timmers (1999) defines a ‘business model’ as:
An architecture for product, service and information
flows, including a description of the various business
actors and their roles; and a description of the
potential benefits for the various business actors;
and a description of the sources of revenue.
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Business models on the web

 E-shop
 E-procurement
 E-malls
 E-auctions
 Virtual communities
 Collaboration platforms
 Third-party marketplace
 Value-chain service providers
 Information brokerage
 Trust and other services
Figure 2.10 Alternative perspectives on business models
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Revenue models – publisher

example