CHAPTER 4

INTERNET TECHNOLOGY AND

THE DIGITAL FIRM.
 Reading notes for chapter 4 in the textbook.
 
Chapter 4 is on the digital firm, electronic commerce and
business. We have to read entire chapter carefully and digest the
material thoroughly. Internet is a widely used technology today and
there is no doubt that Internet and digital organization will shape
every aspect of our lives, personal as well as professional in the years
ahead.
Section 4.1 elaborates on the benefits of Internet technology
to the organizations of any kind. Read section 4.1 carefully and pay
attention to Internet business models and concepts like information
asymmetry, richness, reach, dynamic pricing and portals. Table 4.1 is
a concise summary of Internet business models. Customer-centered
retailing, business-to-business electronic commerce, and electronic
payment systems also deserve a close and critical look. Marshall
Industries is an interesting example of a virtual distribution network
and gives us clues about future business models. Examine figure 4.7
carefully.
 
 
Reading notes for chapter 4 in the textbook.

Section 4.3 explores how intranets support electronic business and

services like group collaboration, coordination and supply chain
management that are vital for any organization. Group
collaboration at Internet has new dynamics and implications in
product design and delivery as well as organization’s functional
areas and supply chain management. Finally management
challenges and opportunities deserve careful scrutiny.
 Internet technology

•Standardised communication architecture.

•Direct communication between related parties.

•Reduced transaction costs

Airline ticket $8$1
Banking $1.08$0.13

•Infrastructure for electronic business.

•Unbundling the information from the product.

Business model:

An abstraction of what and how the enterprise

delivers a product or service,showing how the
enterprise creates wealth.
 Changing Economics Of Information

Information Asymmetry:
Situation in which the relative bargaining power of two parties
in a transaction is determined by one party possessing more
information essential to the transaction than the other party.

Richness:
Measurement of the depth and detail of information that a
business can supply to the customer as well as information the
business collects about the customer.

Reach:
Measurement of how many people a business can connect
with and how many products it can offer those people.
 INTERNET BUSINESS MODELS

Category Description Examples

Virtual Store Sells physical goods or services on-line instead Amazon.com
front of through a physical storefront or retail outlet. Wine.com,
Delivery of nondigital goods and services takes
Wingspanbank.com
place through traditional means.

Marketplace Concentrates information about products and Shopnow.com

concentrator services from multiple providers at one central Dealernet
point.Purchases can search,comparison-shop,and Industrial mall
sometimes complete the sales transaction.
Insure market
On-line Bid-ask system where multiple buyers can Asia capacity
exchange purchase from multiple sellers. Exchange
Covisint
E-steel
Fibermarket
Information broker Provides product, pricing, and Partnet
availability information. Some Travelocity
facilitate transactions, but their main
value is the information they
provide.
Transaction broker Buyers can view rates and terms, but E*TRADE
the primary business activity is to Ameritrade
complete the transaction.
Auction Provides electronic clearinghouse Ebay
for products where price and Ubid
availability are constantly changing, Bigequip.com
sometimes in response to customer
actions
Reverse auction Consumers submit a bid to Priceline.com
multiple Importquote.com
sellers to buy goods or services at a
buyer specified price.
Aggregator Groups of people who want to Mobshop.com
purchase a particular product sign up
and then seek a volume discount from
vendors.
Digital product Sells and delivers software, multimedia, and other Regards.com
delivery digital products over internet. Photodisc

Content provider Creates revenue by providing content. The customer Salon.com

may pay to access the content, or revenue may be Thestreet.com
generated by selling advertising space or by having
advertisers placement in an organized listing in a
searchable database.
On-line service Provides service and support for hardware and Pcsupport.com
provider software users. @backup
Xdrive.com
Virtual Provides on-line meeting place where people with Geocities
community similar interests can communicate and find useful Fortunecity
information. Tripod
Portal Provides initial point of entry to the web along with Yahoo
specialized content and other services. Barrabas

Syndicator Aggregates content or applications from multiple Thinq

sources and resells them to other companies. Screaming
 Internet Business Models
Dynamic pricing
Pricing of items based on real time interactions between buyers and sellers that
determine what an item is worth at any particular moment.
Portal
Web site or other service that provides an initial point of entry to the web or to
internal company data.
Banner ad
Graphic display on a web page used for advertising. The banner is linked to the
advertiser’s web site so that a person clicking on it will be transported to the
advertiser’s web site.
Syndicator
Business aggregating content or applications from multiple sources,packaging them
for distribution,and reselling them to third-party web sites.
Pure-play
Business model based solely on the internet.
Clicks-and-mortar
Business model where the web site is an extension of a traditional bricks-and-mortar
businesses.
 Electronic Commerce
Business-to-Consumer(B2C)electronic commerce
Electronic retailing of products and services directly to individual
consumers.

Business-to-business(B2B)electronic commerce
Electronic sales of goods and services among businesses.

Consumer-to-consumer(C2C)electronic commerce
Consumers selling goods and services electronically to other
consumers.

Mobile commerce (m-commerce)

The use of wireless devices, such as cell phones or handheld digital
information appliances, to conduct e-commerce transactions over the
internet.
 Customer-Centered Retailing

•Direct sales over web

•Interactive marketing and personalization.

•M-Commerce and next generation marketing

•Custom self-service
Manufacturer Distributor Retailer Customer

Manufacturer Retailer Customer

Manufacturer Customer
Disintermediation

The elimination of organizations or business process layers responsible

for certain intermediary steps in a value chain.

Reintermediation

The shifting of the intermediary role in a value chain to a new source.

 Web Personalization

User Web
site

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Sarah,
Here are the items you want to bid on: Iron scroll lamp sparkle beach
barbie beatles silk tie.
 Business-to-Business electronic commerce.
Exchange
Type of on-line marketplace where multiple buyers can purchase from multiple
sellers using a bid-ask system.

Sellers Buyers

S1 B1

B2
S2

B3
S3 Exchange

•Catalogs B4
S4 •Sourcing
•Automated purchasing B5
S5 •Processing and fulfillment
BEFORE
Phone or Arrange Negotiate Schedule Fill out bills
fax mill Carrier price shipments of lading
S
h
I
p Bill
m
FIBERMARKET EXCHANGE e
Customer
n
t

Reconcile received
goods against
receiving report
AFTER

Recovered
Fibermarket Paper
paper
exchange mill
supplier
 Marshall Industries Virtual
Distribution System
C USTO M ER
U PS

SU P P L IE S EXTR A N ET M O D EM INTR A NET

C USTO M ER
Digital wallet
Software that stores credit card, electronic cash, owner identification,and
address information and provides these data automatically during
electronic commerce purchase transactions.

Micropayment
payment for a very small sum of money, often $1.00 or less.

Electronic cash (e-cash)

Currency represented in electronic form that can be exchanged with
another e-cash user or retailer over the internet.

Smart card
A credit card-size plastic card that stores digital information and that
can be used for electronic payments in place of cash.

Person-to-person payment system

Electronic payment system for people who want to send money to
vendors or individuals who are not set up to accept credit card payments.
 Examples of electronic payment systems for E-commerce

Payment Description Commercial

system example
Credit cards Secure services for credit card payments on PC Authorize
the internet that protect information Web authorize
transmitted among users, merchant sites, and IC Verify
processing banks

Electronic Digital currency that can be used for Flooz.com

cash(e-cash) micropayments e-Coin

Person-to- Send money via the web to individuals who Paypal

person payment are not set up to accept credit card payments Billpoint
systems. Yahoo payDirect
Payment System Description Commercial
Example

Electronic check Check with secure digital signature. Netchex

Smart card Microchip that stores electronic cash Mondex

to use for on-line and off-line
micropayments

Electronic bill Supports electronic payment for on- Checkfree

payment line and physical store purchases of Billserve.com
goods or services after the purchase
has taken place
 Electronic Commerce Information Flow
Business-to-consumer Business-to-Business

Retailer Manufacturers,suppliers,
•Information and Distributors
Buyer •Orders •Purchases
•Service and support •Bids

Banks
•Credit checks
•payment authorization
•Electronic payments transfer
ORGANIZATION BENEFITS OF INTRANETS

•Connectivity: accessible from most computing platforms

•Can be tied to internal corporate systems

•Can create interactive applications with text,audio,and video

•Scalable to larger or smaller computing platforms as requirements change

•Easy to use,universal web interface

•Low start-up costs

Richer,more responsive information environment

Reduced information distribution costs

 Human Resources
Finance and Accounting •Corporate policies
•General ledger reporting •Employee Savings plans
•Project costing •Benefits enrollment
•Annual reports •On-line training
•Budgeting •job postings

Corporate
Intranet

Manufacturing and production Sales and Marketing

•Quality measurements •Competitor analysis
•Maintenance schedules •Price updates
•Design specifications •promotional campaigns
•Machine output •Sales presentations
•Order tracking •Sales contacts
 Intranets and Supply
Customers Chain Management Suppliers

Planning &
forecasting

Order processing Procurement

Intranet
Production
Accounting

Shipping Inventory

Logistics services Distributors

MANAGEMENT CHALLENGES AND
OPPORTUNITIES

•Unproven Business models

•Business Process change Requirements

•Channel Conflicts

•Legal Issues

•Security and Privacy