Lecture Slides 7

1. Lecture Slides 7 Introduction to Information Technology E-Business (C) 2006 Jim Janossy and Laura McFall, Information Technology Workbook

2. Course resources PowerPoint presentations, podcasts, and web links for readings are available at www.ambriana.com > IT Workbook Print slides at 6 slides per page Homework, quizzes and final exam are based on slides, lectures, readings and podcasts

3. Topics • Definitions: e-business, value chain, B2B, B2C • Internet era I, collapse, era II • Marketing selling before the web, now • Seven unique features of e-commerce • E-commerce business models • Internet irritations and dangers

4. Definitions • E-business: the use of the internet and web to transact business (limited definition) • E-business: any business process empowered by an information system (broader definition) • Business processes along the whole value chain

5. Definitions • Value chain: the generic value-adding activities of an organization. • Manufacturing: purchasing, production processes, packaging, sales and marketing, order processing, customer service, maintenance • Internet supports multiple parts of the value chain

6. Types of E-commerce Distinct types of E-commerce B2C B2B C2C P2P Business to consumer is web sales to retail consumers. Largest market in terms of quantity of customers, but only 10% of e-commerce revenue.

7. Types of E-commerce Distinct types of E-commerce B2C B2B C2C P2P In 2001, was only 1% of the revenue of the entire retail market! There is huge opportunity for growth in B2C!

8. Types of E-commerce Distinct types of E-commerce B2C B2B C2C P2P Business to business is web sales between firms. Total 2001 revenue of $12 trillion but only $700 billion was on web, so LOTS of room to grow!

9. Types of E-commerce Distinct types of E-commerce B2C B2B C2C P2P Types: Inter-business exchanges e-distributors service providers matchmakers infomediaries

10. Types of E-commerce Distinct types of E-commerce B2C B2B C2C P2P Consumer to consumer, auctions such as e-bay.com. Consumer prepares product for sale, relies on market maker for catalog, search engine, payment handling.

11. Types of E-commerce Distinct types of E-commerce B2C B2B C2C P2P Generic market maker functions: product display product discovery product payment

12. Types of E-commerce Distinct types of E-commerce B2C B2B C2C P2P Peer to peer, sharing of files without a central web server, like Napster, Gnutella. May be applied to sharing of other computer resources in future.

13. B2C vs. B2B • B2C: business-to-consumer 10% • B2B: business-to-business 90% • B2C is most visible to the majority of the population but it is actually dwarfed by business-to-business transactions • B2B via the internet/web is overtaking EDI (electronic data interchange)

14. E-commerce • 1994: $ 0 2000: 60 billion B2C • 700 billion B2B • 1994: Internet use growing 2300% / yr • Enormous changes in firms, markets, consumer behavior • Fastest growing type of commerce

15. E-commerce growth • 1994: $ 0 2000: 60 billion B2C • 700 billion B2B • 2006: 250 billion B2C • 5,400 billion B2C • 4,000,000,000 web pages exist 2003 • 7,000,000 web pages added daily +420%

16. E-commerce growth • 1994: $ 0 2000: 60 billion B2C • 700 billion B2B • 2006: 250 billion B2C • 5,400 billion B2C • 4,000,000,000 web pages now exist • 7,000,000 web pages added daily +770%

17. Growth compared to other technologies B2C e-commerce: Radio took 38 years to achieve 30% household penetration (1920-58) Television took 17 years to achieve 30% household penetration (1946-63) Web took only 7 years to achieve 30% household penetration (1994-2001)

18. Internet Era I1995 to 2000 • Pieces of underlying technology were all in place by 1994; browsers were last piece; Mosaic triggered explosion in users • Overly-confident “cowboy” dot.coms • Lots of swashbuckling investors • Much dot.com activity in B2C area

19. Internet Era I1995 to 2000 - Why? Pattern of technological revolutions, as with electricity, telephone, radio, TV, cars 1. Explosion of entrepreneurial activity paves the way (“first mover” start-ups) 2. Retrenchment: weaker, less organized players exit while stronger take over 3. Continued exploitation by established firms

20. Internet Era I II 9/11

21. Internet Era I collapse factors 1. Many tech companies profited from Y2K efforts, suffered when clients were Y2K’d 2. Telecomm industry overbuilt capacity 3. Christmas 1999 had less sales growth than expected, shows high tech is hard! 4. Valuations of dot.com’s too high, 400 x earnings (typical companies 10-15 x); many never showed ANY profit!

22. Fallacy of the “first mover” notion Common idea in Era I - “first movers” can gain the market, will lose money first, then dominate; but it doesn’t work that way! Reality: being first isn’t enough. You need to have a good business plan, act on it, and need much greater financial strength to develop mature markets

23. Plus… some ideas just aren’t so good! Some innovative ideas sounded good but just weren’t viable (wishful thinking) There are some things that people feel comfortable buying at a distance, and some things people buy in person Some services are handy, some are too much trouble or inconvenient online

24. B2C E-commerce now… is alive and well: “...has moved into the mainstream life of established business concerns that have the market brands and financial muscle required for long-term deployment of e-commerce technologies and methods.”

25. “Established companies” “Bricks and clicks” companies Existing companies with traditionally-developed and serviced markets, traditional products Web adds new dimension to their marketing and customer attraction/retention options “Pure play” are new Web-only companies

26. To understand e-commerce... Need to understand: Relationships between e-commerce business interests technology social and legal contexts Suppliers Customers Competitors Partners How do we: locate suppliers and items order discover prices?

27. To understand e-commerce... Need to understand: Relationships between e-commerce business interests technology social and legal contexts Suppliers Customers Competitors Partners How do we: market products advertise use brands?

28. To understand e-commerce... Need to understand: Relationships between e-commerce business interests technology social and legal contexts How to reduce supply chain costs? How to increase production efficiency? How to tighten relationship with customers?

29. To understand e-commerce... Need to understand: Relationships between e-commerce business interests technology social and legal contexts Payment systems Security Marketing B2B Retail

30. To understand e-commerce... Privacy Intellectual property Sovereignty Web governance Fair access Public welfare Need to understand: Relationships between e-commerce business interests technology social and legal contexts

31. Amazon.com Founding ideas: • Audience expanding (Web growth) • Less need to touch and feel books to buy them than many other items • Large source of supply (2,500 publishers) • Largest stores had only 12% of market • Major distributors stock books; no need for local inventory

32. Amazon.com Founding determinations: • Market exists • Books can be sold at a distance • No one else owns the source of supply • Competition is not unified • Distributors hold inventory; few premises needed, few employees: lower cost

34. Amazon.com Compelling factors for customers: Selection: Million titles (books, CDs, DVDs) Convenience: anytime, anywhere,simplified ordering (“1-click”) Price: discounts from regular retail price Service: order confirmation e-mails, notifications of out of stock situations, affiliate (used book) vendors

35. Amazon.com performance

36. Amazon.com Yet despite it’s diversification into other product lines, in 2005 sales of books, CDs and DVDs still accounted for 70% of Amazon sales!

37. Information asymmetry is. . . Any disparity in relevant market information among the parties in a transaction.

38. Marketing and sellingbefore the web Mass marketing Salesforce driven Consumers seen as passive targets Campaigns and brands aimed to influence consumers product perceptions and purchasing behavior Consumers trapped by geographical and social boundaries Information asymmetry

39. Information asymmetry Consumers unable to search widely for best price and quality Information about…pricescostsfees …could be hidden from consumer!

40. Podcast 44: Internet advantages for consumers • Search for competing products and competing vendors and prices: easier, more comprehensive “due diligence” • Can learn of other’s experiences with the products and vendors • Disintermediation: better prices because “middlemen” may be eliminated

41. Podcast 45: Internet advantages for sellers • Publish larger catalog (more products) • Reach consumers all hour, everywhere • Adjust prices instantly • Disintermediation: cut costs, price more competitively • New ways to market, customize offerings

42. Marketing and selling - now Altered by 7 unique features of e-commerce Ubiquity Global reach Universal standards Richness Interactivity Information density Personalization / customization

43. Marketing and selling - now Altered by 7 unique features of e-commerce Ubiquity Global reach Universal standards Richness Interactivity Information density Personalization / customization “Marketspace” extends everywhere, including mobile. Shopping is 24x7 and shopper costs are reduced.

44. Marketing and selling - now Altered by 7 unique features of e-commerce Ubiquity Global reach Universal standards Richness Interactivity Information density Personalization / customization Commerce enabled across borders without modification

45. Marketing and selling - now Altered by 7 unique features of e-commerce Ubiquity Global reach Universal standards Richness Interactivity Information density Personalization / customization One set of communication technology, namely, Internet TCP/IP, HTML, browsers

46. Marketing and selling - now Altered by 7 unique features of e-commerce Ubiquity Global reach Universal standards Richness Interactivity Information density Personalization / customization Message is not limited to text or audio; video, audio, and text all possible, with visual cues

47. Marketing and selling - now Altered by 7 unique features of e-commerce Ubiquity Global reach Universal standards Richness Interactivity Information density Personalization / customization Consumer is engaged in a dialog, as a co-participant in discovering goods

48. Marketing and selling - now Altered by 7 unique features of e-commerce Ubiquity Global reach Universal standards Richness Interactivity Information density Personalization / customization Currency, timeliness, accuracy of information increases; price transparency

49. Marketing and selling - now Altered by 7 unique features of e-commerce Ubiquity Global reach Universal standards Richness Interactivity Information density Personalization / customization Messages possible to individuals not just groups; dialog can be tailored to appeal to individuals

50. ConcurrentEra I visions Thinking of many was: Universal access Info asymmetry reduced Middlemen disappear Extraordinary profits Easy to segment market Profit from efficiencies Deconstruct traditional distribution Everyone would have a computer, web access, quickly