E-COMMERCE: DIGITAL

MARKETS, DIGITAL
GOODS
CHAPTER 7

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 STUDENT LEARNING OBJECTIVES

• What are the unique features of e-commerce, digital

markets, and digital goods?
• How has Internet technology changed business
models?
• What are the various types of e-commerce, and how
has e-commerce changed consumer retailing and
business-to-business transactions?
• What is the role of m-commerce in business, and what
are the most important m-commerce applications?
• What are the principal payment systems for electronic
commerce?
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 Nexon Games: E-Commerce Goes Social

• Problem: competing
with other online
and offline gaming
companies;
improving
profitability.
• Solutions: centralize all
games into one online
portal and combine it
with social networking
features.

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Nexon Games: E-Commerce Goes Social

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 E-COMMERCE TODAY

• E-commerce refers to the use of the Internet and the

Web to transact business. More formally, e-
commerce is about digitally enabled commercial
transactions between and among organizations and
individuals. For the most part, this means
transactions that occur over the Internet and the
Web. Commercial transactions involve the
exchange of value (e.g., money) across
organizational or individual boundaries in return for
products and services

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 History of e-commerce

Began in 1995 and grew exponentially;

still growing at an annual rate of 16
percent While many companies failed,
many survived with soaring revenues
E-commerce today the fastest growing
form of retail trade in U.S., Europe, Asia

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The Growth of E-Commerce

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 WHY E-COMMERCE IS DIFFERENT?
•Why has e-commerce grown so rapidly?
The answer lies in the unique nature of
the Internet and the Web. Simply put, the
Internet and e-commerce technologies are
much more rich and powerful than
previous technology revolutions like
radio, television, and the telephone. Let’s
explore each of these unique features in
more detail.
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 E-commerce and the Internet

Why E-Commerce Is Different, 8 unique features

1. Ubiquity
• Internet/Web technology available everywhere:
work, home, etc., anytime.
• Effect:
• Marketplace removed from temporal,
geographic locations to become
“marketspace”
• Enhanced customer convenience and reduced
shopping costs
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 E-commerce and the Internet
Unique Features of E-commerce Technology
2. 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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 E-commerce and the Internet
Unique Features of E-commerce Technology
• 3. 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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 E-commerce and the Internet

Unique Features of E-commerce Technology

4. 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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 E-commerce and the Internet

Unique Features of E-commerce Technology

5. 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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 E-commerce and the Internet

Unique Features of E-commerce Technology

• 6. 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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 E-commerce and the Internet

• Unique Features of E-commerce Technology

7. Personalization/Customization:
•Technology permits modification of messages

•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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 E-commerce and the Internet

• 8. Social technology:
• The technology promotes user content in a social networking

•Effect
•Social Networking allow users to create and share content in
the form of text, videos, music, or photos with their personal
friends.

•New Internet social and business models enable user content

creation and distribution, and support social networks.
•

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 KEY CONCEPTS IN E-COMMERCE
Dynamic pricing the price of a product varies
depending on the demand of the customer
There are intermediary steps between
manufacturer and customers which is called
disintermediation.
Price discrimination is selling the same
goods, or nearly the same goods, to different
targeted groups at different prices.

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 Key concepts in e-commerce

•Digital markets reduce

•Information asymmetry
•Search costs
•Transaction costs
•Menu costs
•Digital markets enable
•Price discrimination
•Dynamic pricing
•Disintermediation
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 KEY CONCEPTS IN E-COMMERCE
•Digital goods
•Goods that can be delivered over a digital
network
• E.g. Music tracks, video, software, e-
newspapers, eBooks, Hollywood movies, e-
magazines
• Costs of delivery over the Internet very low

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 Types of e-commerce
Business-to-consumer (B2C) electronic commerce
involves retailing products and services to individual
shoppers.
Business-to-business (B2B) electronic commerce
involves sales of goods and services among businesses.
Consumer-to-consumer (C2C) electronic commerce
involves consumers selling directly to consumers.
Mobile commerce or M-commerce: The use of
handheld wireless devices for purchasing goods and
services from any location

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 E-commerce: Business and Technology

E-commerce business models

• Portal
• E-tailer
• Content Provider
• Transaction Broker
• Market Creator
• Service Provider
• Community Provider

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 E-commerce: Business and Technology

• E-commerce revenue models

1. Advertising
2. Sales
3. Subscription
4. Free/Freemium
5. Transaction Fee

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 E-commerce: Business and Technology

• Advertising Revenue Model: a Web site generates

revenue by attracting a large audience of visitors
who can then be exposed to advertisements
• Sales Revenue Model: companies derive revenue
by selling goods, information, or services to
customers.
•Subscription Revenue Model: a Web site
offering content or services charges a subscription
fee for access to some or all of its offerings on an
ongoing basis.
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 E-commerce: Business and Technology

•Free/Freemium Revenue Model: firms offer

basic services or content for free, while charging a
premium for advanced or special features
• Transaction Fee Revenue Model: a company
receives a fee for enabling or executing a
transaction.

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 E-commerce: Business and Technology

•E-commerce marketing
• Internet provides marketers with new ways of
identifying and communicating with customers
• Long tail marketing: Ability to reach a large
audience inexpensively
• Behavioral targeting: Tracking online behavior of
individuals on thousands of Web sites
• Advertising formats include search engine
marketing, display ads, rich media, and e-mail

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 BUILDING AN E-COMMERCE WEB SITE

Building a successful e-commerce site requires a

keen understanding of business, technology, and
social issues.
In planning Web site, first answer the question,
“What do we want the e-commerce site to do for
our business?”
The key lesson to be learned here is to let the
business decisions drive the technology, not the
reverse
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 BUILDING AN E-COMMERCE WEB SITE

• Assembling a team with the skills required to make

decisions about:
• Technology
• Site design
• Social and information policies
• Hardware, software, and telecommunications
infrastructure
• Customer’s demands should drive the site’s
technology and design

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 BUILDING AN E-COMMERCE WEB SITE

• Web Site Budgets:

• Simple Web sites can be built and hosted with a
first-year cost of $5,000 or less.
• Large firms with high levels of interactivity cost
several million dollars a year to create and operate.

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THANK YOU

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