Chapter 5

EC in Service Industries

1
1. Ordering Journals Electronically

 How a large university automated the

purchasing of magazines and journals,
saving $365,000/year
 Direct Marketing: Buyer-to-seller; orders and
payments
 Market maker charges $5/transaction Vs.
about $40 (conventional agents)
 Ordering time reduced by up to 80%

2
 2. Broker-Based Services
 Brokers work as intermediaries between buyers and
sellers
 Agents basically make the markets
 Agents provide many services
 Most of the value-added tasks of brokers can be
automated
 Major electronic agent-based services
 travel
 employment
 real estate  electronic auctions
 stocks  at-home banking
 insurance
3
 Broker-Based Services (cont.)
 Service Industries Vs. Manufacturing and
Product’s Retailing
 Service Industries
 pure EC  substantially reduced cost
 bank and brokerage houses
• possible digitization of the entire process
 travel and real estate agents
• viewing an online video clip or seeing photos of a hotel
or a house for sale
 Manufacturing and Product’s Retailing
 physical delivery cost may be high

4
3. Travel and Tourism Services

 By the year 2000, close to 25 percent of all

business-to customer Internet commerce will be
related to tourism
 The Internet is an ideal place to plan, explore,
and arrange almost any trip

5
 Travel and Tourism Services (cont.)
 Services Provided
Providing maps
Information and booking
Pictures of major
of airlines, hotels, cars,
attractions
and even golf courses
Information about
Fare comparisons entertainment and ticket
purchasing (such as
360 degree www.ticketmaster.com)
video tours of Tips provided by people
top destinations that experienced certain
Electronic Travel situations (like a visa
magazine Converting 200 problem)
currencies
6
 Travel and Tourism Services (cont.)
Frequent
Fare tracker (free
Special discount flier deals
e-mail alerts on
information Restaurant reviews
low fares)
Current status
Chat rooms of flights Major international news
and bulletin (real time)
Worldwide
boards business and Special
Travel news
places locator interest
Shopping for travel vacations
Bed and breakfast
accessories and
recommendations E-mail to
books intermediary
Driving directions
Experts’ options
in the US Weather watch
© Prentice Hall, 2000 7
 Travel and Tourism Services (cont.)
 Benefits and Limitations

 Benefits  Limitations
 Free information is  Not all people use
tremendous the Internet
 Free information is  It may take a long
accessible anytime time to find what
 Substantial discounts you want
 People are still
reluctant to
provide credit
card numbers
8
 Travel and Tourism Services (cont.)
 Corporate Travel: New Business Model
 Corporations have additional special discounts
 Companies can make arrangements for employees to plan and book
their own trips.
 The Impact of EC on the Travel Industry
 Porter’s framework of competitive advantage:
 The five forces impact the competition in any industry i.e. new entrants,
substitute products, the bargaining power of buyers, the
bargaining power of suppliers and the rivalry of the competing
companies in the industry.
 Focus:
 Environment, competitive responses, firm’s strategy
 The industry is clearly transformed by IT.
 Taking away some functions traditionally performed by travel agents
9
 Travel and Tourism Services (cont.)
 Impacts on the industry
 Multimedia helps customers understand the
products
 Offering of lower-cost trips
 Providing a more personalized service
 Saving money in a paperless environment
 Increasing the convenience of getting
information at home
 Supporting a customer-focused strategy (such
as targeted advertisement and integration of
products); push information to customers
10
Travel and Tourism Services (cont.)

 Travel agencies, as we know them today, will

disappear
 Only their complex value-added activities will
not be automated
 These complex activities will be performed
by a new breed of intermediates

11
 Travel and Tourism Services (cont.)

 The Future
 Collaborative organizational process performed
by multiple organizational intelligent agents
 Acting autonomously
 Work cooperatively
 Work collectively to achieve the collective goal
 Example — How will your next vacation be
planned, booked and paid for?

12
Chapter 5
EC in Service Industries

LECTURE 2

13
The Employment Placement Market

 Job markets
 Employers are looking for employees with
specific skills, and individuals are looking for a
job
 Very volatile market
 Moved to the Internet
 Millions of job seekers, hundred of thousands of
jobs

14
The Employment Placement Market (cont.)
 Shortcomings of the Non-Internet Job Market
 Cost—Classified ads are expensive.
 Life cycle— Unless renewed, at an additional cost, the
life of the ads is only days or weeks.
 Place— Most ads are local. Nationwide ads are very
expensive. International ads are even more expensive.
 Minimum information— Because of the high cost, the
information provided is minimal and may not appeal to
some job seekers.
 Search— It is very time consuming for individuals to find
all relevant newspapers. A trip to a library results in
finding only major out of town newspapers.

15
The Employment Placement Market (cont.)
 Finding applicants— Most job seekers, in the pre Internet era,
did not place ads about their availability. Some sent unsolicited letters
with resumes. This situation made it difficult for companies to find
employees with special skills. They had to use employment agencies
and pay them high commissions.
 Matching— It was difficult to match candidates to open jobs as
well as to match supply and demand.
 Lost and dated material— Some applications or letters of
response tended to get lost, or arrive late. A letter in a big city may
travel two weeks to arrive at a distance of a few blocks.
 Speed— Communication by mail is slow and so is the processing
of a large number of applications. Frequently, employers lose good
employees, since by the time the application is processed, the
applicant had taken another job. Similarly, applicants accept less
desirable jobs because they are afraid to wait too long.

16
The Employment Placement Market (cont.)

 The Internet Job Market

 The Internet offers a perfect environment; it
is especially effective for technology-
oriented jobs.
 Job seekers
 Job offerers
 Recruiting firms
 Government agencies and institutions

17
The Employment Placement Market (cont.)
 The Advantage of the Electronic Job Market
 For job seekers
 Ability to find very detailed and timely information on a
large number of jobs world-wide
 Ability to quickly communicate with potential employers
 Ability to post resumes for large-volume distribution
 Ability to search for jobs quickly from any place at any
time
 Obtain several support services at no cost
• writing resume  career development  how to
interview
 Find employer profile & industry guides
• www.valuereports.com
18
The Employment Placement Market (cont.)
 For employers
 Ability to advertise to a large number of job seekers
 Ability to save on advertisement costs
 Lower the cost of processing (using electronic
application forms)
 Ability to provide greater ‘equal opportunity’ for job
seekers
 Ability to find highly skilled employees
 Ability to conduct tests quickly, online
 Ability to change and update ads quickly
 Ability to fill up positions rapidly
 Interviewing from distance

19
The Employment Placement Market (cont.)

 The Limitations of the Electronic Job Markets

 Many people do not use the Internet

 Security
 Privacy
 Lack of face-to-face contact

20
The Employment Placement Market (cont.)
 Major Services Available on the Net
 Finding a job
 Writing and posting resumes
 Career planning
 Newsgroups
 The Intranet Job Market
 Most companies organize an internal electronic
job market
 Openings are posted for employees to look at,
and search engines enable managers to identify
talents even if the people were not actively
looking for a job change
21
Cyberbanking and Personal Finance

 Electronic banking
 Saves time and
money for users
 Offers an inexpensive
alternative to branch
banking
 Application Case:
Cyberbanking at
Wells Fargo

22
 Cyberbanking and Personal Finance (cont.)
 Implementation Issues in Banking and Online
Trading
 Securing Financial Transactions
 Application Case: Security at NationsBank

B of A
Web Site

Customer’s Encrypted External Logon Screen B of A Internal B of A

Computer SSL Session Firewall •User ID Web Server Firewall Application
& Digital •User Password Server
Certificate
Verification
Initiated Bank of America Security System
23
Cyberbanking and Personal Finance (cont.)

 Using the Extranet

 Imaging Systems
 Pricing Online Vs. Offline Services
 The Future of Banking
 building alliances quickly with banks, and software
vendors, and information providers
 effective outsourcing without neglecting to build in-
house skills, particularly with respect to customer
information systems
 focusing on the profitable customers to provide
broad channels for services and products
 keeping a central role in the payment environment
24
 Alternative Strategies for Banking
 Customers’ Agents— banks unable to achieve economies of scale
 Offer customers the widest possible choices, including products
from multiple sources, and provide the customers with integrated
information services
 Product Manufacturers— banks able to achieve economies of scale
 It will strengthen a trend that can already be seen in a number of
product segments and in core processing services for small and
medium sized institutions
 Integrated Players— banks with a strong brand and position from
manufacturing to delivery
 Many banks will adopt a hybrid strategy, but every player needs to
make crucial decisions about which areas are strategically too risky
to outsource and which capabilities need to be built up in-house

25
 Billing Online
 Automatic transfer of mortgages
 This method has existed for several years. The payer
authorizes its bank to pay the mortgage, including tax
escrow payments.
 Automatic transfer of funds to pay monthly utility bills
 As of fall 1997, the city of Long Beach has allowed its
customers to pay their gas and water bills automatically
form their bank accounts.
 In 1999, many utility companies worldwide, including
those in Hong Kong, allow customers to pay from bank
accounts, or ATMs.

26
 Billing Online (cont.)
 Paying bills from online banking account
 Such payments can be made into any bank
account. Many people pay their monthly rent and
other bills directly into the payee’s bank
accounts.

Bill Consolidator Billers

Phone
Credit Card

Utility
Consumer

27
 Billing Online (cont.)

 A merchant-to-customer direct billing

 Under this model, a merchant like American Express
posts bills on its Web site, where customers can
view and pay them . This means that the customers
have to go to many Web sites to pay all their bills.
Several utilities in Los Angeles allow customers to
pay bills on the utilities’ Web site, charging
customers 20 cents per transaction, which is less
than the price of a postage stamp.

28
 Billing Online (cont.)
 Using an intermediary
 According to this model, a third party like MSFDS
(Microsoft and First Data Corporation)
consolidates all bills related to each customer in
one site, and in a standard format. Collecting a
certain commission, this intermediary makes it
convenient both for the payee and payer to
complete transactions. This model is of interest
to vendors such as E*Trade, and Intuit.
 Personal finance online
 Available from many banks and other financial
institutions, frequently free of charge.
29
 Auctions: From Theory to Practice

 Used when the conventional marketing

channels are ineffective or inefficient
 Offer trading opportunities for both buyers and
sellers which are not available in the
conventional channels
 Internet provides much cheaper infrastructure
with many more involved sellers and buyers
 Individual consumers and corporations alike can
participate in this rapidly growing and very
convenient form of electronic commerce
30
Auctions: From Theory to Practice (cont.)
 Types of Auctions
Auction Co-ordination Price Allocation Distribution
Type Mechanism Discovery Mechanism Mechanism
Buyer Short term acquisition Often experts/ Bargain hunting, Bargain hunting,
Role of resources, e.g. for professional collectors gambling motive gambling motive;
demand peaks, auction trying to acquire rare possible side motive:
as a mechanism to items at a reasonable charity
achieve an equilibrium price
Supplier Short term allocation of Exposing items for Clearance of Attention, direct
Role resources, load balance sale to a sufficient inventory sales channel, public
breadth of demand, relations; possible
hope for a high price side motive: charity

Auctioneer/ Often electronic auction Achieve high breadth Achieve high breadth Limited role because
Intermedi- without auctioneer and depth of the and depth of the of 1:n supplier -
ary auctions, high trading auctions, high trading buyer relation;
Role volume results in high volume results in high possible function as
returns, competitive returns, competitive service provider for
advantage over other advantage over other the supplier side
auctions auctions

31
Auctions: From Theory to Practice (cont.)
 Limitations of traditional auctions
 Last only a few minutes for each item sold
 Give buyers little time to make a decision
 The bidders do not have much time to examine the
goods
 Exclude many potential bidders
 May be complicated for sellers to move goods to
the auction site
 Commissions are fairly high (rent, advertising,
auctioneer and other employees)

32
Auctions: From Theory to Practice (cont.)
 Electronic Auctions
 Early auctioning done on local area networks
 the auctioning of pigs in Taiwan and Singapore
 the auctioning of flowers in Holland
 the auctioning of cars in Japan
 Auctions on the Internet started in 1995
 similar to offline auctions, except for the fact that they are
done on a computer
 some last days, others a short time
 detailed information is available
 start bidding by sending e-mail or filling out an electronic
form
 names of bidders are kept coded to maintain privacy
33
Auctions: From Theory to Practice (cont.)

 Electronic Auctions
 Auctioning methods
 Yankee method
 Dutch (Reverse bidding) method
 “Straight sale” method

 Examples
 www.usaweb.com/auction.html ; a directory of
sites, search
 Onsale, eBay, uBid

34
Auctions: From Theory to Practice (cont.)
 Benefits and Limitations
 Benefits  Limitations
 For seller  Inability to
• Sells goods efficiently physically see the
• Sells goods with little action
items
or effort
• Creates a greater range of  Possibility of
potential buyers fraud
• Sells excess inventories  Less competitive
quickly via this process
atmosphere may
 For buyers
prevail on the Net
• Gets a huge variety of goods
• Finds quality goods for largely
discounted prices
35
 Impacts
Parameter Impact of the Web
Auctioneer Lower entry barriers, opportunity for direct sales
Access rules Customizable, theoretically millions of potential customers
can be reached
Items Focused product segments can be auctioned off, the
auctioned technology extends the complexity of the product
description
Trading rules The trading rules reflect the lack of a guaranteed service

Execution For digital products the entire trading cycle can be

process handled on the Web; for physical products the trading
process and the physical logistics of the trade objects can
be separated, leading to a reduction of costs

36
 Online Publishing
 The electronic delivery of newspapers,
magazines, news, and other information
through the Internet
 Online Publishing Today and Tomorrow
 Today— mainly used for disseminating
information and for conducting sales
transactions interactively
 Tomorrow— include more customized material
that the reader will receive free, or will pay for

37
 Online Publishing (cont.)
 Publishing Modes
 newspapers, magazines, news, textbooks, music,
artwork, video clips, and movies
 Publishing Methods
 online archive approach— a digital archive such as
library catalogs and bibliographic databases
 new medium approach— add extra
comprehensiveness to any issue or topic
 publishing intermediation approach— an online
directory for news services
 dynamic or just-in-time approach— create content in
real-time and transmitted on the fly

38
 Knowledge Dissemination
 Virtual Teaching and Universities
 Many universities are offering limited courses
and degrees but use innovative teaching
methods and multimedia support
 MBA program in Hong Kong
 lectures are delivered as an interactive TV (iTV)
 students can decide what and when they want to
‘attend’ the lecture
 lecture, support material, exercises etc. are
provided on the Web

39
 Knowledge Dissemination (cont.)
 Online Consulting
 Medical advice— provide consultation with top
experts
 Management consulting— provide accumulated
expertise from knowledge bases
 Legal advice— delivery of legal consultation services
to business has considerable prospects
 Financial advice— offer extensive financial advice
 Other service online
 insurance, healthcare, future exchanges, matchmaking,
venture capital, finding a college, digital delivery of
documents, and electronic stamps
40