Chapter 2
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Chapter 2. E-MARKETPLACES: STRUCTURE, MECHANISMS, ECONOMICS, AND IMPACTS. Markets play a central role in the economy facilitating the exchange of: information goods services payments. Markets create economic value for: buyers sellers market intermediaries society at large.

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Chapter 2

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Chapter 2



Markets play a central role in the economy facilitating the exchange of:





Markets create economic value for:



market intermediaries

society at large

Electronic Marketplaces

Electronic Marketplaces (cont.)

  • What are the functions of markets?

    • matching buyers and sellers

    • facilitating the exchange of information, goods, services, and payments associated with market transactions

    • providing an institutional infrastructure, such as a legal and regulatory framework, that enables the efficient functioning of the market

Types of Electronic Markets

  • Electronic storefront: A single or company Web site where products and services are sold

  • Mechanisms necessary for conducting the sale:

    • electronic catalogs

    • search engine

    • e-auction facilities

    • payment gateway

    • shipment court

    • customer services

Types of Electronic Markets (cont.)

  • e-mall (online mall): An online shopping center where many stores are located

    • some are merely directories

    • some provide shared services (e.g.,

    • some are actually large click-and-mortar retailers

    • some are virtual retailers (e.g.,

Information Portals

  • Information portal: a single point of access through a Web browser to business information inside and/or outside an organization

    • Yahoo

    • MSN

Information Portals (cont.)

  • Six types of portals

    • Commercial (public) portals

    • Corporate portals

    • Publishing portals

    • Personal portals

    • Mobile portals: a portal accessible via a mobile device

    • Voice portals: a portal accessed by telephone or cell phone

Intermediation and Syndication in E-Commerce

  • Intermediaries (brokers) provide value-added activities and services to buyers and sellers

  • Intermediaries in the physical world are wholesalers and retailers

    • Infomediaries: electronic intermediaries that control information flow in cyberspace, often aggregating information and selling it to others

Intermediation and Syndication in E-Commerce (cont.)

  • Disintermediation and reintermediation

    • Disintermediation:

      Elimination of intermediaries between sellers and buyers

    • Reintermediation:

      Establishment of new intermediary roles for traditional intermediaries that were disintermediated

Intermediation and Syndication in E-Commerce (cont.)

  • Syndication as an EC mechanism

    • Syndication:

      The sale of the same good (e.g., digital content) to many customers, who then integrate it with other offerings and resell it or give it away free

Electronic Catalogs

  • Electronic catalogs:

    The presentation of product information in an electronic form; the backbone of most e-selling sites

  • Electronic catalogs can be classified by the following dimensions:

    • The dynamics of the information presentation

    • The degree of customization

    • Integration with business processes

Auctions as EC Market Mechanisms

  • Auction:

    A market mechanism by which a seller places an offer to sell a product and buyers make bids sequentially and competitively until a final price is reached

  • Auctions can be done:

    • online

    • off-line

    • at public sites (eBay)

    • at private sites (by invitation)

Auctions as EC Market Mechanisms (cont.)

  • Four major categories of dynamic pricing

    • One buyer, one seller

    • One seller, many potential buyers

    • One buyer, many potential sellers (reverse auction; name your price)

    • Many sellers, many buyers (Double auction)

E-Commerce in the Wireless Environment: M-Commerce

  • Mobile computing:

    Permits real-time access to information, applications, and tools that, until recently, were accessible only from a desktop computer

  • Mobile commerce (m-commerce):

    E-commerce conducted via wireless devices

  • m-business:

    The broadest definition of m-commerce, in which e-business is conducted in a wireless environment

E-Commerce in the Wireless Environment: M-Commerce (cont.)

  • Promise of m-commerce

    • Mobility significantly changes the manner in which people and trading partners interact, communicate, and collaborate

    • Mobile applications are expected to change the way we live, play, and do business

    • Much of the Internet culture may change to one based on mobile devices

    • M-commerce creates new business models for EC, notably location-based applications

DoCoMo’s ( i-Mode—pioneering wireless service—with a few clicks on a handset, i-Mode users can conduct a large variety of m-commerce activities

Shopping guides

Maps and transportation


News and reports

Personalized movie service


Dining and reservations

Additional services

E-Commerce in the Wireless Environment: M-Commerce (cont.)

Issues in E-Markets: Liquidity, Quality, and Success Factors

  • Early liquidity:

    Achieving a critical mass of buyers and sellers as fast as possible, before a start-up company’s cash disappears

  • Quality uncertainty:

    The uncertainty of online buyers about the quality of non-commodity type products that they have never seen, especially from an unknown vendor

E-Market Success Factors

  • Product Characteristics

    Digitizable products can be electronically distributed to customers, resulting in very low distribution costs, allowing order-fulfillment cycle time “to be minimal”

  • Industry Characteristics

    Electronic markets are most useful when they are able to directly match buyers and sellers

E-Market Success Factors (cont.)

  • Seller Characteristics

    Electronic markets reduce search costs, allowing consumers to find sellers offering lower prices

  • Consumer Characteristics

    e-markets require a certain degree of effort on the part of the consumer, e-markets are more conducive to consumers who do some comparison and analysis before buying

Economics of E-Marketplaces

Competition in the Digital Economy

  • Internet ecosystem:

    The business model of the Internet economy

  • Competitive factors

    • Lower search costs for buyers

    • Speedy comparisons

    • Differentiation and personalization

      Differentiation: Providing a product or service that is unique

      Personalization: The ability to tailor a product, service, or Web content to specific user preferences

    • Lower prices

    • Customer service

Competition in the Digital Economy (cont.)

  • Characteristics necessary for perfect competition are the following:

    • Many buyers and sellers must be able to enter the market at little or no entry cost

    • Large buyers or sellers are not able to individually influence the market

    • Products must be homogeneous (no product differentiation)

    • Buyers and sellers must have comprehensive information about the products and about the market participants’ demands, supplies, and conditions

Competition in the Digital Economy (cont.)

  • Porter’s competitive forces model:

    The model that says that five major forces of competition determine industry structure and how economic value is divided among the industry players in the industry; analysis of these forces helps companies develop their competitive strategy

Exhibit 2.9 Porter’s Competitive Forces Model: How the Internet Influences Industry Structure

Impacts of E-Markets on Business Processes and Organizations

  • Improving direct marketing

    • Product promotion

    • New sales channel

    • Direct savings

    • Reduced cycle time

    • Improved customer service

    • Brand or corporate image

    • Customization

    • Advertising

    • Ordering systems

    • Market operations

Transforming Organizations

  • Technology and organizational learning—the changing nature of work

  • Redefining organizations

  • New and improved product capabilities

  • New business models

  • Improving the supply chain

  • Impacts on manufacturing

    Build-to-order: Production system in which manufacturing or assembly will start only after an order is received

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