Chapter 10

E-Commerce: Digital
Markets, Digital Goods

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

LEARNING OBJECTIVES

• Describe the unique features of e-commerce, digital

markets, and digital goods.

• Analyze how Internet technology has changed value

propositions and business models.

• Describe the various types of e-commerce and how

e-commerce has changed consumer retailing and
business-to-business transactions.

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

LEARNING OBJECTIVES (cont’d)

• Evaluate the role of m-commerce in business and

describe the most important m-commerce
applications.

• Compare the principal payment systems for electronic

commerce.

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• E-commerce:
• Digitally enabled commercial transactions between and
among organizations and individuals, primarily over
Internet
• Began in 1995 with Netscape.com’s acceptance of ads
• Rapid growth led to dot-com bubble (burst in 2001)
• Current growth 25% annually
• Today e-commerce revenues picture is very positive
• E.g. Number of people who have purchased something online
expanded to about 106 million in 2007

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

The Growth of E-Commerce

Retail e-commerce revenues have grown exponentially since 1995 and have only recently “slowed” to
a very rapid 25 percent annual increase, which is projected to remain the same until 2008.
Source: Based on data from eMarketer, 2006; Shop.org and Forrester Research, 2005; and authors.

Figure 10-1
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 Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• Seven unique features of e-commerce

1. Ubiquity
• Internet technology available anytime and everywhere:
work, home, mobile devices
• Business significance:
• Marketplace is extended beyond traditional boundaries
and is removed from temporal and geographic location
• Creates marketspace: Marketplace extended beyond
traditional temporal, geographical boundaries
• Shopping can take place anywhere - customer
convenience is enhanced, shopping costs are reduced

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

2. Global reach
• Technology reaches across national
boundaries, around Earth
• Business significance:
• Commerce enabled across cultural and
national boundaries seamlessly, without
modification
• Marketspace includes potentially billions of
consumers and millions of businesses
worldwide

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

3. Universal standards
• There is one set of Internet technology standards
• Business significance
• Disparate computer systems can easily
communicate
• Brings lower market entry costs (costs merchants
pay to bring goods to market)
• Lowers search costs for consumers

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

4. Richness
• Video, audio, text messages are possible
• Business significance: Video, audio, text
integrated into single marketing message and
experience
5. Interactivity
• Technology works through interaction with user
• Business significance: Consumers engaged in
dialog that adjusts to individual; consumer is co-
participant in delivering goods to market
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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

6. Information density
• Technology reduces information costs and
raises quality
• Business significance:
• Information becomes plentiful, cheap, and
more accurate
• Increases price transparency and cost
transparency
• Enables price discrimination

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

7. Personalization/customization
• Technology allows personalized messages to be
delivered to individuals as well as groups
• Permits customization—changing delivered
product or service based on user’s preferences
or prior behavior
• Business significance
• Personalization of marketing messages and
customization of products and services are
based on individual characteristics
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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• Key concepts in e-commerce: Digital

markets and digital goods
• Internet shrinks information asymmetry
• Information asymmetry: when one party has more
information important for transaction
• E.g. Information asymmetry between auto dealers and
customers
• Digital markets more flexible and efficient
• Reduced search and transaction costs
• Lower menu costs (cost of changing prices)
• Dynamic pricing

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• Key concepts in e-commerce: Digital

markets and digital goods (cont.)
• Internet enables disintermediation
• Disintermediation:
• Removal of organizations or business process
layers responsible for intermediary steps in
value chain
• Enables selling direct to consumer

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

The Benefits of Disintermediation to the Consumer

The typical distribution channel has several intermediary layers, each of which adds to the final cost of
a product, such as a sweater. Removing layers lowers the final cost to the consumer.
Figure 10-2
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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• Digital goods
• Goods that can be delivered over network
• E.g. Music tracks, video, e-books, software
• Cost for producing first unit is nearly total cost of product: Cost
for producing additional units very low
• Impact of Internet on market for digital goods is revolutionary
• Video rental services
• Hollywood studios
• Record label companies
• Newspapers and magazines

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• Internet business models

• Virtual storefront
• Information broker
• Transaction broker
• Online marketplace
• Content provider
• Online service provider
• Virtual community
• Portal

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• Communication and community

• Some new business models take advantage of Internet’s rich
communication capabilities
• E.g. eBay, iVillage
• Banner ads and pop-up ads are source of revenue for online
communities
• Social networking sites: Link people through their mutual
business or personal connections
• Have become powerful marketing tools for businesses
• Social shopping: Online meeting places where people swap
shopping ideas

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

YouTube is a free online

streaming video service
enabling users to upload, tag,
and share videos worldwide.
Members can join and create
video groups to connect to
people with similar interests.

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• Digital content, Entertainment, and

Services
• Internet has created new alternatives to
traditional print, broadcast media
• Online versions of newspapers, online games, radio,
TV, music downloads
• Podcasting: Publishing audio broadcasts via
Internet; inspired by Apple’s iTunes service and
iPod
• Enables independent producers
• New distribution method
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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• Digital content, Entertainment, and

Services
• Portals
• “Supersites” that provide comprehensive entry point for
huge array of resources and services on Internet, e.g.
Yahoo!
• Syndicators
• Aggregate content or applications from multiple
sources, package them for distribution, and resell them
to third-party Web sites

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce and the Internet

• Pure-play business models

• Based purely on Internet
• Do not have bricks-and-mortar portion of business
• E.g. Amazon.com, eBay.com, YouTube.com

• Clicks-and-mortar models
• Internet presence is extension of bricks-and-mortar
businesses
• E.g. L.L.Bean, Office Depot, Wall Street Journal

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce

• Three major e-commerce categories

• Business-to-consumer (B2C)
• E.g. Barnesandnoble.com
• Business-to-business (B2B)
• E.g. ChemConnect.com
• Consumer-to-consumer (C2C)
• E.g. eBay.com

• M-commerce
• Use of handheld wireless devices for purchasing goods
and services from any location

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce

Electronic Data Interchange (EDI)

Companies use EDI to automate transactions for B2B e-commerce and continuous inventory replenishment.
Suppliers can automatically send data about shipments to purchasing firms. The purchasing firms can use EDI to
provide production and inventory requirements and payment data to suppliers.

Figure 10-5
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 Management Information Systems
Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce

• Net marketplaces (e-hubs)

• Internet-based marketplace for buyers and sellers
• Industry-owned or independent intermediary
• May establish prices through online negotiations,
auctions, requests for quotations or use fixed prices
• Generate revenue from transactions and other services
• May focus on direct goods or indirect goods
• May serve vertical or horizontal markets
• Example: Exostar

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce

A Net Marketplace

Figure 10-7

Net marketplaces
are online
marketplaces where
multiple buyers can
purchase from
multiple sellers.

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

M-Commerce

• M-Commerce services and applications

• Popular for services that are time-critical, that appeal to
people on the move, or that accomplish task more efficiently
than other methods
• Especially popular in Europe, Japan, South Korea, and
countries where fees for conventional Internet usage are very
expensive
• Content and location-based services
• Example: checking train schedules, searching for local
businesses

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

M-Commerce

• Banking and financial services

• Example: Wireless alerts about changes in account information

• Wireless advertising
• Example: Wireless service providers including advertising for local
restaurants, movie theaters on cell phones and Wi-Fi devices
• Games and entertainment
• Example: downloading ringtones, movie clips

• Wireless portals
• Feature content optimized for mobile devices to steer users to
information most likely to need
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Chapter 10 E-Commerce: Digital Markets, Digital Goods

M-Commerce

• M-Commerce challenges
• Keyboards and screens tiny and awkward to use
• Data transfer speeds (2G networks) slow compared to Internet
connections for PCs
• Time-based connection fees
• Limited memory and power supplies

• M-commerce will benefit from:

• 3G networks and other broadband services
• Standardized mobile payment systems

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce Payment Systems

• Digital cash: “Currency” represented in electronic form that

moves outside normal network of money. Not regulated and not
legal tender
• Client software allows exchange of money with other e-cash user
over Internet or with retailer accepting e-cash
• Peer-to-peer payment systems: Serve people who want to
send money to vendors or individuals who are not set up to
accept credit card payments
• Digital checking payment systems: Electronic check with
secure digital signature
• Electronic billing presentment and payment systems: Used
for paying routine monthly bills from bank or credit card accounts

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Chapter 10 E-Commerce: Digital Markets, Digital Goods

Electronic Commerce Payment Systems

• Digital payment systems for m-commerce

• Utilize any form of e-commerce payment systems
• Many payments are small purchases (soft drinks, mobile games,
sports scores) requiring micropayment systems
• In Europe/Asia, mobile payments often added and presented on
single bill such as mobile phone bill
• Virgin Mobile phone can dial Virgin Cola vending machine in
London
• eBay’s PayPal Mobile Text2Buy service allows payments sent to
mobile PayPal accounts via texting

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