Electronic Commerce - 702054

CHAPTER 2: E-COMMERCE
FUNDAMENTALS

1
 Contents

• 2.1. The e-commerce environment

• 2.2. Location of trading in the marketplace
• 2.3. Business models for e-commerce
• 2.4. Auction business models
• 2.5. Internet start-up companies

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 Learning outcomes

• Complete an online marketplace analysis

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

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 2.1. The E-commerce environment

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

Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,
12/12/2016 702054 - E-commerce fundamentals 4
implementation and practice 4 edition, Prentice Hall, USA, Page 52
th
 2.1. The E-commerce environment

• Activity
– 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.

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 2.1. The E-commerce environment

• Strategic agility
– Capability to respond to environmental
opportunities and threats to gain competitive
advantages
– 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

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Figure 2.3
An online
marketplace
map

Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,

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implementation and practice 4th edition, Prentice Hall, USA, Page 60
 2.1. The E-commerce environment

• Online marketplace analysis

– Customer Segment
• The phase that the customer is at in his/her
lifecycle
• Psychographic segmentation is sometimes also
referred to as behavioural segmentation.
– Search Intermediaries

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 2.1. The E-commerce environment

• 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/Super-affiliates/Niche affiliate or
bloggers—often small or individual sites
– Destination Sites
• The sites that the marketer tries to generate traffic
to

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 2.1. The E-commerce environment

• Marketplace Channel Structure

– It describes the way a manufacture / supplier
delivers products and services to its
customers
– Fig. 2.5 and Fig 2.6 display variety of options

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Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,
12/12/2016 702054 - E-commerce fundamentals 11
implementation and practice 4 edition, Prentice Hall, USA, Page 64
th
Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,
implementation and practice 4th edition, Prentice Hall, USA, Page 65

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 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

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Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,
implementation and practice 4th edition, Prentice Hall, USA, Page 66
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 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

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 2.2. Location of trading in the
marketplace

• Electronic Marketplace
– The new electronic marketspace has many
alternative virtual locations
– where an organization needs to position itself
to communicate and sell to its customers

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 2.2. Location of trading in the
marketplace

• Trading can be done on seller-controlled

site, buyer-controlled side, or neutral third-
party site
• P. 67, Table 2.3 and P. 69 Fig. 2.8 present
various options

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 2.2. Location of trading in the
marketplace

Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,

implementation and practice 4th 702054
12/12/2016 edition, Prentice
- E-commerce Hall, USA, Page 67
fundamentals 18
Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,
12/12/2016 702054 - E-commerce fundamentals 19
implementation and practice 4 edition, Prentice Hall, USA, Page 69
th
 2.2. Location of trading in the
marketplace

• Commercial Mechanisms
– There are several ways for closing a
transactions
– Ref. p. 69, Table 2.4 for detail
– Priceline.com uses a new model that allows
client to bid on the services such as hotel,
airline ticket

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Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,
implementation and practice 4th edition, Prentice Hall, USA, Page 69
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 2.2. Location of trading in the
marketplace

• The importance of multi-channel

marketplace models
– Consumers use a combination of channels for
their purchases.
– M-Channel Defines how different marketing
channels should integrate and support each
other
– Fig. 2.10 (p.71) shows an example channel
chain map

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 2.2. Location of trading in the
marketplace

Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,

12/12/2016 702054 - E-commerce fundamentals 23
implementation and practice 4 edition, Prentice Hall, USA, Page 71
th
 2.2. Location of trading in the
marketplace

• 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/

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 2.2. Location of trading in the
marketplace
• 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

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 2.3. Business models for e-
commerce

• 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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 2.3. Business models for e-
commerce

• Key elements
– Value proposition- – Competitive
products & services to environment
offer – Value chain and
– Market or audience marketing positioning
– Revenue models and – Representation in the
cost base physical & virtual world
– Organizational
structure • Complete Activity 2.3
– Management on page 79

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 2.3. Business models for e-
commerce

• Timmers identified 11 different types of

business models. –ref. p. 78
• Alternative Perspectives on Business
Model
– Marketplace position perspective
– Revenue model perspective
– Commercial arrangement perspective

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Source: Dave Chaffey, [2009], E-business and e-commerce management: strategy,
12/12/2016 702054 - E-commerce fundamentals 29
implementation and practice 4 edition, Prentice Hall, USA, Page 80
th
 2.3. Business models for e-
commerce

• Revenue model
– It describes how a business generate revenue
– What are traditional ways?
– The New Ways

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 2.3. Business models for e-
commerce

• 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)

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 2.3. Business models for e-
commerce

• Revenue Model- Publisher Example

– Transaction Fee
– Subscription access to content or services
– Per-per-view Access to document
– Subscription Data Access for e-mail Marketing

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 2.3. Business models for e-
commerce

• 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)

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 2.4. Auction business models

• Revenue Model- Auction Example

– Roles for auction (Klein 1997)
– Price discovery
– Efficient Allocation mechanism
– Distribution mechanism—attracting audience
– Coordination mechanism

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 2.4. Auction business models

• 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

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 2.5. Internet start-up companies

• From ‘bricks and mortar’ to ‘clicks and

mortar’
• Assessing e-businesses
• Valuing Internet start-ups
• The dot-com bubble bursts
• Why dot-coms failed
• The impact of the dot-com phenomenon on
traditional organizations

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 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

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 Summary

• The constantly changing e-business

environment should be monitored by all
organizations
• The e-business marketplace involves
transactions between B2C,B2B, C2C, C2B
• Trading in the marketplace can be sell-side
(seller-controlled), buy-side (buyer-
controlled) or at a neutral marketplace

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 Summary

• A business model is a summary of how a

company will generate revenue
– Identifying its product offering, value-added
services, revenue sources and target
customers.
• The Internet may also offer opportunities
for new revenue models such as
– commission on affiliate referrals to other sites
or banner advertising.

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 Summary

• The success of dot-com or Internet start-up

companies
– is critically dependent on their business and
revenue models and traditional management
practice.

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 Next Lecture

• Chapter 3: Retailing In Electronic

Commerce Products and Services
• Case study:
– Amazon.Com: The King of E-Tailing,[1] page
104-106
– Etsy – A Social-Oriented B2C Marketplace, [1]
page 154-155

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