2.

E-COMMERCE
FUNDAMENTALS
 Figure 2.1 The environment in which e-business services are provided

For each of the environment influences shown in Figure 2.1, give examples of why it is important to
monitor and respond in an e-business context. For example, the personalization mentioned in
the text is part of why it is important to respond to technological innovation.
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?
ENVIRONMENT CONSTRAINTS
AND OPPORTUNITIES …
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?
Figure 2.2 Professor Donald Sull of London Business School talks about strategic agility
Source: www.ft.com

Strategic Agility- Capability to respond to environmental opportunities and threats

to gain competitive advantages
Figure 2.3 An online marketplace map
ONLINE MARKETPLACE
ANALYSIS

Customer Segment
 The phase that the customer is at in his/her lifecycle
http://academic.brooklyn.cuny.edu/economic/friedman/mmmarketsegmentatio
n.htm

 Psychographic segmentation is sometimes also referred

to as behavioural segmentation.
http://tutor2u.net/business/marketing/segmentation-psychographic.html

Search Intermediaries
ONLINE MARKETPLACE
ANALYSIS

Intermediaries and Media Sites

 Mainstream news media sites or portal, e.g., cbc.ca, Google
 Niche or vertical media sites, e.g., e-consultancy
 Price comparison sites (also called aggregator), e.g.,
http://www.pricecanada.com/
 Super-affiliates
 Niche affiliate or bloggers—often small or individual sites

Destination Sites
 The sites that the marketer tries to generate traffic to
 Google trends for web sites – useful for benchmarking the growth of online
Figure 2.4
intermediaries and destination sites
Source: http://trends.google.com/websites
Figure 2.5 B2B and B2C interactions between an organization, its suppliers and its customers

Marketplace Channel Structure- It describes the way a manufacture / supplier delivers

products and services to its customers
 B2B AND B2C
CHARACTERISTICS
Characteristics B2C B2B
Proportion of adopters with Low to medium High to very high
access

Complexity of buying Relatively simple – More complex – buying

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

Channel Relatively simple – direct or More complex, direct or via

from retailer wholesaler, agent or
distributor

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

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

Product characteristic Often standardized items Standardized items or

bespoke for Sale
 Disintermediation of a consumer distribution channel showing (a) the
Figure 2.6
original situation, (b) disintermediation omitting the wholesaler, and
(c) disintermediation omitting both wholesaler and retailer
REINTER-MEDIATION

The creation of new intermediaries between customers and suppliers,

such as search engine, price comparator, etc. such as
http://www.esurance.com/, http://www.pricecanada.com/
Supplies need to
 Be represented with new intermediaries
 Monitor other suppliers via intermediaries
 Create own intermediaries
Figure 2.7 From original situation (a) to disintermediation (b) and reintermediation (c)
COUNTERMEDIATION

Creation of a new intermediary by an established company

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
Figure 2.8 Variations in the location and scale of trading on e-commerce sites

Trading Location- Trading can be done on seller-controlled site, buyer-

controlled side, or neutral third-party site
Figure 2.9 Priceline Hong Kong service (www.priceline.com.hk)

Commercial Mechanisms- There are several ways for closing a transactions.

Priceline.com uses a new model that allows client to bid on the services such as hotel,
airline ticket
Figure 2.10Example channel chain map for consumers selecting an estate agent to
sell their property

Multi-channel Marketplace Model- Consumers use a combination of channels for their

purchases. M-Channel Defines how different marketing channels should integrate and
support each other
TYPES OF ONLINE
INTERMEDIARY
Infor-mediaries— intermediaries that capture, profile, and sell
customer information
Metamediaries— intermediaries that assist with selection and
discussion of about different product and services; they connects
customers with the providers
 Example: http://www.metacritic.com/
Figure 2.11 Metacritic (www.metacritic.com)
Source: CBS Interactive
TYPES OF
INTERMEDIARY
Intermediaries changed quite a lot since E-commerce first started.
 For a comprehensive list of intermediaries, ref. p. 75, table 2.5

Portal ‘A gateway to information resources and Meta services

services’
Search engines

Directories

News aggregators

MR aggregators

Comparers

Exchanges
Figure 2.12 Number of searches through the Google Keyword Tool
Source: Google https://adwords.google.com/select/KeywordTool
BUSINESS MODEL
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.

Key elements
 Value proposition-products & services to offer
 Market or audience
 Revenue models and cost base
 Competitive environment
 Value chain and marketing positioning
 Representation in the physical & virtual world
 Organizational structure
 Management
BUSINESS MODELS &
REVENUE MODELS
Business model- Alternative Perspectives
 Marketplace position perspective
 Revenue model perspective
 Commercial arrangement perspective

Revenue model
 It describes how a business generate revenue
 What are traditional ways?
 The New Ways
Figure 2.13 Alternative perspectives on business models
REVENUE MODEL-
PUBLISHER EXAMPLE
 Advertising CPM (cost per thousand/mille)
 Advertising CPC (cost per click)
 Sponsorship of section, content, or widget
 Affiliate Revenue (CPA or CPC)
 Transaction Fee
 Subscription access to content or services
 Per-per-view Access to document
 Subscription Data Access for e-mail Marketing
 Example spreadsheet for calculating a site revenue model. Available for
Figure 2.15
download at www.davechaffey.com/Spreadsheets

Continued …
Online Business Revenue Calculation- What factors to consider?
Number and size of ad units, Ads Capacity to be sold, Fee level negotiated for different ads
models, Traffic, Visitor engagement (time to stay)

Example spreadsheet for calculating a site revenue model. Available for

Figure 2.15
download at www.davechaffey.com/Spreadsheets (Continued)
Figure 2.16 Econsultancy (www.econsultancy.com)
REVENUE MODEL-
AUCTION EXAMPLE
Roles for auction (Klein 1997)
 Price discovery
 Efficient Allocation mechanism
 Distribution mechanism—attracting audience
 Coordination mechanism

Types of auction
 English—forward or upward, initiated by seller
this is more of conventional auctions we commonly seen in physical world and on
virtual market
 Dutch—Reverse, downward, initiated by buyer
This is more commonly seen in large manufacture procurement
BUSINESS MODEL-START-
UPS
Many dot.com start-ups failed. Some succeeded and newer ones are
still created.
Value the Internet start-ups (pp. 90-91)
 Concept
 Innovation
 Execution—promotion, performance, availibility, security
 Traffic
 Financing
 Profile—publicity and awareness in the market
???
LEARNING OUTCOMES

After completing this chapter the reader should be able to:

 Complete an online marketplace analysis to assess competitor, customer, and
intermediary and competitor use of the Internet as part of strategy development
 Identify the main business and marketplace models for electronic
communications and trading
 Evaluate the effectiveness of business and revenue models for online
businesses.
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?
EXERCISES

Case Study 2.3 on Pages 95-98

 What is Zopa’s business model?
 Do you think it can succeed and develop
further and why?
CLASS DISCUSS

Preview the E-consultancy Interview.107-109

Prepare to discuss the following
 What’re the impacts of the Internet to publishing industry
 How are publish industry coping with the challenges?
 How do they reach online readers?
 How do they use social network for their advantage?
 What a role do digital content and ecommerce play in
their business?
 From this interview, how do you feel about the publishing
industry and where it is going?
CLASS DISCUSS

Read the pp. 58-59 Mini Case Study 2.1

The video may be searched form Google video
search.
Discuss the key points of strategic agility

P. 59, Activity 2.1 Give examples of why it’s

important to monitor and respond in an e-
business context
Interactive activity – portals

Q1. Define portal (p.74)

Q2. Is a search engine the same as a

portal? Yes, No
Q3. Is a search engine the same as a
directory? Yes, No

Q4. List search engines / portals you use

and explain why
RESOURCE FOR ANALYSING E-
MARKETPLACE

Ref. pp. 63-64, Tab 2.2. Some websites have changed and some need
registration

Online Business Revenue Calculation

 Lab exercise: Activity 2.4 on page 85.
LAB EXERCISES

Case Study 2.2 on Pages 91-93

 Read the case
 Discuss the question 1-3 on page 93
Mini Case Study 2.3 on pages 93-94
 What’s business model of Firebox?
 What made it a success?