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Chapter 2 E-Marketplaces: Structures, Mechanisms, Economics, and Impacts Jason C.H. Chen , Ph.D. Professor of MIS Graduate School of Business Gonzaga University Spokane, WA 99223 USA [email protected] Learning Objectives Define e-marketplaces and list their components.

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chapter 2 e marketplaces structures mechanisms economics and impacts

Chapter 2E-Marketplaces: Structures, Mechanisms, Economics, and Impacts

Jason C.H. Chen, Ph.D.

Professor of MIS

Graduate School of Business

Gonzaga University

Spokane, WA 99223 USA

[email protected]

learning objectives
Learning Objectives
  • Define e-marketplaces and list their components.
  • List the major types of e-marketplaces and describe their features.
  • Describe the various types of EC intermediaries and their roles.
  • Describe electronic catalogs, shopping carts, and search engines.
  • Describe the major types of auctions and list their characteristics.
learning objectives3
Learning Objectives
  • Discuss the benefits, limitations, and impacts of auctions.
  • Describe bartering and negotiating online.
  • Define m-commerce and explain its role as a market mechanism.
  • Discuss competition in the digital economy.
  • Describe the impact of e-marketplaces on organizations and industries.
2 1 e marketplaces
2.1 E-Marketplaces
  • e-marketplace
    • A marketplace in which sellers and buyers exchange goods and services for money (or for other goods and services) but do so electronically
    • the three types of e-marketplaces are:
      • private,
      • public, and
      • consortia
electronic marketplaces
Electronic Marketplaces
  • In recent years markets have seen a dramatic increase in the use of IT - EC has:
    • increased market efficiencies by expediting or improving functions
    • been able to significantly decrease the cost of executing these functions
electronic marketplaces6
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

Electronic Marketplaces
electronic marketplaces cont
Electronic Marketplaces (cont.)
  • Three main 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
e marketplaces9
Customers

Sellers

Products and services

digital products

Goods that can be transformed to digital format and delivered over the Internet

Infrastructure

Front end

Back end

Intermediaries

Third parties that operates between sellers and buyers

Other business partners

Support services

E-Marketplaces

E-Marketplace Components and Participants

e marketplaces10
E-Marketplaces
  • front end

The portion of an e-seller’s business processes through which customers interact, including the seller’s portal, electronic catalogs, a shopping cart, a search engine, and a payment gateway

  • back end

The activities that support online order fulfillment, inventory management, purchasing from suppliers, payment processing, packaging, and delivery

2 2 types of e marketplaces from storefronts to portals
Mechanisms necessary for conducting the sale:
    • electronic catalogs
    • search engine
    • e-auction facilities
    • payment gateway
    • shipment court
    • customer services
  • some are merely directories
  • some provide shared services (e.g., choicemall.com).
  • some are actually large click-and-mortar retailers
  • some are virtual retailers (e.g., buy.com)
2.2 Types of E-Marketplaces: From Storefronts to Portals

2. e-mall (Internet/online mall): An online shopping center where many stores are located

Visualization and virtual realty in shopping malls

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

types of e marketplaces from storefronts to portals
Types of E-Marketplaces: From Storefronts to Portals
  • Types of Stores and Malls
    • General stores/malls
    • Specialized stores/malls
    • Regional versus global stores
    • Pure-play online organizations versus click-and-mortar stores
types of e marketplaces from storefronts to portals14
Types of E-Marketplaces: From Storefronts to Portals
  • Types of E-Marketplaces
    • 1. private e-marketplaces

Online markets owned by a single company; may be either sell-side and/or buy-side e-marketplaces

    • 1a) sell-side e-marketplace

A private e-marketplace in which one company sells either standard and/or customized products to qualified companies

    • 1b) buy-side e-marketplace

A private e-marketplace in which one company makes purchases from invited suppliers

types of e marketplaces from storefronts to portals15
Types of E-Marketplaces: From Storefronts to Portals
  • Types of E-Marketplaces (cont.)
    • 2. public e-marketplaces

B2B marketplaces, usually owned and/or managed by an independent third party, that include many sellers and many buyers; also known as exchanges

information portals
Information Portals
  • Why Portals?
  • Information portal: a single point of access through a Web browser to business information inside and/or outside an organization
  • A portal is an information gateway
information portals cont
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
    • Knowledge: access to knowledge by K workers
2 3 transactions intermediation and process in e commerce
2.3 Transactions, Intermediation, and Process in E-Commerce
  • Sellers, Buyers, and Transactions
    • A seller (retailer, wholesaler, or manufacturer) sells to customers
    • The seller buys from suppliers: either raw material (as a manufacturer) or finished goods (as a retailer)
transactions intermediation and process in e commerce22
Transactions, Intermediation, and Process 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

slide23
Exhibit (extra) Infomediaries and Information Flow Model

Information Flow

Infomediaries

Sellers

Buyers

  • Infomediary Services
  • Matching
  • Search/complexity
  • Privacy
  • Informational
  • Infrastructural
  • Content
  • Community
  • Infomediary Services
  • Matching
  • Search/complexity
  • Privacy
  • Informational
  • Infrastructural
  • Content
  • Community

Flow of Products/Services

  • Revenue from Buyers
  • Membership/Subscription fee
  • Transactions
  • Fee for Services
  • Revenue from Sellers
  • Advertising
  • Transactions
  • Membership/Subscription fee
transactions intermediation and process in e commerce24
Transactions, Intermediation, and Process in E-Commerce
  • A broker is a company that facilitates transactions between buyers and sellers
  • Types of brokers
    • Buy/sell fulfillment
    • Virtual mall
    • Metamediary
    • Bounty
    • Search agent
    • Shopping facilitator
roles and value of intermediaries in e markets
Roles and value of intermediaries in e-markets
  • Intermediaries can address the following five important limitations of direct interaction:
    • Search costs
    • Lack of privacy
    • Incomplete information
    • Contract risk
    • Pricing inefficiencies
transactions intermediation and process in e commerce26
Transactions, Intermediation, and Process in E-Commerce
  • E-distributors in B2B
    • e-distributor:

An e-commerce intermediary that connects manufacturers (suppliers) with buyers by aggregating the catalogs of many suppliers in one place - the intermediary’s Web site

    • Maintenance, repair, and operation items (MROs):

Routine items that are usually not under regular contract with suppliers

transactions intermediation and process in e commerce27
Transactions, Intermediation, and Process in E-Commerce
  • 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
Intermediation and Syndication in E-Commerce
  • 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

2 4 electronic catalogs and other market mechanisms
2.4 Electronic Catalogs and Other Market Mechanisms
  • electronic catalogs

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

  • Three dimensions of electronic catalogs:
    • The dynamics of the information presentation
    • The degree of customization
    • Integration with business processes
electronic catalogs and other market mechanisms32
Electronic Catalogs and Other Market Mechanisms
  • search engine

A computer program that can access databases of Internet resources, search for specific information or keywords, and report the results

  • software (intelligent) agent

Software that can perform routine tasks that require intelligence

electronic catalogs and other market mechanisms33
Electronic Catalogs and Other Market Mechanisms
  • electronic shopping cart

An order-processing technology that allows customers to accumulate items they wish to buy while they continue to shop

2 5 auctions as ec market mechanisms
2.5 Auctions as EC Market Mechanisms
  • Auction

A competitive process in which a seller solicits consecutive bids from buyers (forward auctions) or a buyer solicits bids from sellers (backward auctions). Prices are determined dynamically by the bids

  • Auctions can be done:
    • online
    • off-line
    • at public sites (eBay)
    • at private sites (by invitation)
auctions as ec market mechanisms cont
Auctions as EC Market Mechanisms (cont.)
  • Electronic auctions (e-auctions):

Auctions conducted online

  • Host sites on the Internet serve as brokers, offering services for sellers to post their goods for sale and allowing buyers to bid on those items
  • Conventional business practices that traditionally have relied on contracts and fixed prices are increasingly being converted into auctions with bidding for online procurements
auctions as ec market mechanisms
Auctions as EC Market Mechanisms
  • Traditional Auctions versus

E-Auctions

    • Limitations of traditional offline auctions
      • rapid process gives potential buyers little time to make a decision
    • electronic auction (e-auction)

Auctions conducted online

auctions as ec market mechanisms37
Auctions as EC Market Mechanisms
  • Dynamic pricing:

Prices that change based on supply and demand relationships at any given time

At what price would you

buy/sell today?

auctions as ec market mechanisms cont38
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
    • Many sellers, many buyers
types of auctions
Types of Auctions
  • One buyer, one seller

One can use negotiation, bargaining, or bartering (see 2.6)

  • One seller, many potential buyers

Forward auction: An auction in which a seller entertains bids from buyers

Forward auctions used for fast liquidation and as a selling channel. Price is increasing; the highest bidder wins

auctions as ec market mechanisms cont40
Auctions as EC Market Mechanisms (cont.)
  • (a) One buyer, many potential suppliers

Reverse auction (bidding or tendering system):

Auction in which the buyer places an item for bid (tender) on a request for quote (RFQ) system, potential suppliers bid on the job, with price reducing sequentially, and the lowest bid wins; primarily a B2B or G2B mechanism

(b) One buyer, many potential sellers (special model)

“name-your-own-price” model:

Auction model in which a would-be buyer specifies the price (and other terms) they are willing to pay to any willing and able seller. It is a C2B model, pioneered by Priceline.com

slide41
General Purchasing Process

Forecast Demand

Supplier / Seller

Buyer

Request for Proposal/Quote (RFP/RFQ)

Bid

Negotiate Contract

Place Orders

Process Orders

Shipping Orders

Receiving Orders

Invoicing

Payment

Vender Performance Tracking & Management

Customer Service

auctions as ec market mechanisms cont43
Auctions as EC Market Mechanisms(cont.)
  • Many sellers, many buyers

Double auction:

Auctions in which multiple buyers and their bidding prices are matched with multiple sellers and their asking prices, considering the quantities on both sides

limitations and impacts of e auctions cont
Limitations and Impacts of E-Auctions (cont.)
  • Limitations of e-auctions
    • Lack of security
    • Possibility of fraud
    • Limited participation
  • Impacts of auctions
    • Auctions as a coordination mechanism
    • Auctions as a social mechanism to determine a price
    • Auctions as a highly visible distribution mechanism.
    • Auctions as a component in e-commerce
slide46
Group Purchasing Organization Process

[Stage1-b]

[Stage1-a]

Forecast Demand

RFQ

G

P

O

B

u

y

e

r

RFQ

Bid

Response

Confirm

(Price OK)

Negotiate Contract

S

Place Orders

u

Process Orders

p

Shipping Orders

p

Receiving Orders

. . .

l

Invoicing

Payment

RFQ

i

VPTM

e

[Stage3]

[Stage2]

r

Shipping / Receiving Orders

Returns

/

S

Refund Process

Shipping / Receiving Orders

e

Invoice

l

Payment

l

Returns

e

r

[Stage4]

Refund Process

VPTM : Vender Performance Tracking & Management

break 1
BREAK-1
  • EC Application Case 2.2: Innovative Auctions (p.60)
2 6 bartering and negotiating online
2.6 Bartering and Negotiating Online
  • Online Bartering
    • bartering

The exchange of goods or services

    • e-bartering (electronic bartering)

Bartering conducted online, usually in a bartering exchange

    • bartering exchange

A marketplace in which an intermediary arranges barter transactions

bartering and negotiating online
Bartering and Negotiating Online
  • Online Negotiating
    • Negotiated pricing commonly is used for expensive or specialized products
    • Negotiated prices also are popular when large quantities are purchased
    • Much like auctions, negotiated prices result from interactions and bargaining among sellers and buyers
2 7 e commerce in the wireless environment
2.7 E-Commerce in the Wireless Environment
  • mobile computing

Use of portable devices, including smart cell phones, usually in a wireless environment. It permits real-time access to information, applications, and tools that, until recently, were accessible only from a desktop computer

e commerce in the wireless environment
E-Commerce in the Wireless Environment
  • 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 environment52
E-Commerce in the Wireless Environment
  • The Mobility Revolution
    • Organizations are embracing mobilized computing technologies for several reasons:
    • Improved productivity of workers in the field
    • Wireless telecom support for mobility is growing quickly
    • More applications can run both online and offline
    • The prices of notebook computers, wireless handhelds, and smart phones continue to fall as their capabilities increase
e commerce in the wireless environment53
E-Commerce in the Wireless Environment
  • The Promise of M-Commerce
    • location-based commerce (LBC)

An m-commerce application targeted to a customer whose location, preferences, and needs are known in real time

    • M-Commerce Adoption
      • Although there are currently many hurdles to the widespread adoption of m-commerce, many companies are already shifting their strategy to the mobile world
2 8 competition in the digital economy and its impact on industries
2.8 Competition in the Digital Economy and Its Impact on Industries
  • Internet ecosystem

The business model of the Internet economy

competition in the digital economy and its impact on industries
Lower search costs for buyers

Speedy comparisons

Lower prices

Customer service

Barriers to entry are reduced

Virtual partnerships multiply

Market niches abound

Differentiation and personalization

Competition in the Digital Economy and Its Impact on Industries

Competitive Factors—Online Transactions Allow:

competition in the digital economy and its impact on industries56
Competition in the Digital Economy and Its Impact on Industries
  • Differentiation

Providing a product or service that is unique

  • Personalization

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

striving for competitive advantage
Striving for Competitive Advantage
  • Firm level: Industry & Competitive Analysis
  • Business level
  • Competitive Forces Model (discussed in chap.2)
  • Competitive Strategy
  • Value-Chain Analysis
competition in the digital economy and its impact on industries58
Competition in the Digital Economy and Its Impact on Industries
  • Porter’s Competitive Analysis in an Industry
    • competitive forces model

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

porter s five competitive forces model
NEW MARKET ENTRANTS

SUBSTITUTE PRODUCTS & SERVICES

  • Switching cost
  • Access to distribution channels
  • Economies of scale
  • Redefine products and services
  • Improve price/performance

INDUSTRY COMPETITORS

THE FIRM

  • Cost-effectiveness
  • Market access
  • Differentiation of product or service
  • Buyer selection
  • Switching costs
  • Differentiation
  • Selection of suppler
  • Threat of backward integration

SUPPLIERS

CUSTOMERS

PORTER’S FIVE COMPETITIVE FORCES MODEL

Threats

Bargaining power

N

TM -59

Dr. Chen,The Trends of the Information Systems Technology

the five forces model and is
The Five Forces Model and IS
  • The Five Forces Model provides a way to think about how information resources can create competitive advantage.
  • Using Porter’s Model, General Managers can:
    • Identify key sources of competition they face.
    • Recognize uses of information resources to enhance their competitive position against competitive threats
    • Consider likely changes in competitive threats over time

N

slide62
Figure 1.2: Porter’s Generic Strategy Framework –

3 Strategies for achieving Competitive Advantage

Competitive Advantage

Uniqueness

Perceived by

Customer

Lower Cost

Position

Industrywide (Broad Target)

Overall Cost Leadership

Differentiation

Competitive Scope

Particular Segment only (Narrow Target)

Focus

Competitive Mechanism

N

Dr. Chen,The Trends of the Information Systems Technology

TM -62

porter s competitive advantage strategies
Porter’s Competitive Advantage Strategies
  • Cost leadership: be the cheapest
  • Differentiation: focus on making your product and/or service stand out for non-cost reasons
  • Focus: occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation.
slide64
Business Strategies

and its Competitive Advantage

Uniqueness

Perceived by

Customer

Lower Cost

Position

Industrywide (Broad Target)

Cost Leadership

Differentiation

Alliance

Innovation

Growth

Competitive Scope

Particular Segment only (Narrow Target)

Cost Focus

Differentiation Focus

Knowledge-based economy

Industrial economy

Competitive Mechanism

N

Dr. Chen,The Trends of the Information Systems Technology

TM -64

competition in the digital economy and its impact on industries65
Competition in the Digital Economy and Its Impact on Industries
  • Impact on Whole Industries
    • Patient self-care is growing rapidly
    • The amount of free medical information is exploding
    • Patient empowerment is gaining importance
    • Increasing electronic interaction among patients, hospitals, pharmacies, etc.
    • Increasing digital hospital and other health-care facilities
    • Data collected about patients is growing in amount and quality
    • Easy and shared access to patient data
    • Elder care and special types of care are improving significantly due to wireless systems
    • Increasing need to protect patient privacy and contain cost
competition in the digital economy
Competition in the Digital Economy
  • 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
2 9 impacts of ec on business processes and organizations
2.9 Impacts of EC on Business Processes and Organizations
  • Impacts of e-marketplaces on (improving) B2C 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
    • Accessibility
slide68
Exhibit 2.9 The Analysis-of-Impact Framework (p.72)

Business

Drivers

New Information &

Communication

Technology

Industry

Competitors

Industry

level

New Actors

New Configurations

New Strategies

The Organization

Sources of business value

  • Product promotion
  • New sales channel
  • Direct savings
  • Time to market
  • Customer service
  • Brand image
  • Technological & organizational learning
  • Customer relations
  • New product capabilities
  • New business models

Improve it!

Feedback

& Impact

EC strategy

Transform it!

Redefine it!

Organizational impact

Technological impact

Company

level

Mission

Strategies

Organization

Technology

impacts of ec on business processes and organizations
Impacts of EC on Business Processes and Organizations
  • Transforming Organizations
    • Technology and organizational learning
    • The changing nature of work
  • Redefining Organizations
  • New and improved product capabilities
  • New industry order and business models
  • Improving the supply chain
impacts of ec on business processes and organizations73
Impacts of EC on Business Processes and Organizations
  • Impacts on manufacturing

- Build-to-Order Manufacturing

      • build-to-order (pull system)

A manufacturing process that starts with an order (usually customized). Once the order is paid for, the vendor starts to fulfill it

- Real-Time Demand-Driven Manufacturing

- Virtual Manufacturing

- Assembly Lines

transforming organizations
Transforming Organizations
  • Impacts on finance and accounting
    • Executing an electronic order triggers an action in what is called the back office that include:
      • buyers’ credit checks
      • product availability checks
      • order confirmation
      • changes in accounts payable, receivables, billing, and much more
    • These activities must be efficient, synchronized, and fast so that the electronic trade will not be slowed down
transforming organizations cont
Transforming Organizations (cont.)
  • Impacts on human resource management
    • EC is changing how people are recruited evaluated, promoted, and developed
    • EC also is changing the way training and education are offered to employees
    • Companies cut training costs by 50 percent or more
    • New e-learning systems offer two-way video, on-the-fly interaction, and application sharing
e market success factors
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
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

managerial issues
Managerial Issues
  • What about intermediaries?
  • Should we auction?
  • Should we barter?
  • What m-commerce opportunities are available?
  • How do we compete in the digital economy?
  • What organizational changes will be needed?
break 2
BREAK-2
  • EC Application Case 2.3: Wireless Pepsi Increases Productivity (p. 67)
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