eCommerce:Digital markets, Digital goods

The new frontier of business

Groupon’s Business Model:social & local

• Offers subscribers daily deals from local merchants– Group of people (usually at least 25) has to

purchase the discounted coupon (a “Groupon”)• If you really want 50% off discount of your favorite

Italian restaurant• You need to message your friends to pay for the

Groupon

– Groupon takes a 50% cut of the revenue– Merchant receives the rest

• 75% off the list price• Receive many (sometimes too many) customers

– Lost money in this single offer– Hope to generate repeat purchases, loyal customers, and a

large customers base

• Customer acquisition cost

• Groupon– Founded 2008– Go public in June 2011– Struggle to show a profit

• Revenue is $1.6 billion (in 2011)• Spend $768 millions in marketing• Lost $254 millions

• Critics of Groupon’s business model– Revenue per customer has been falling– Conversion rate of customers into subscribers is

slowing down– Emails Groupon used is poorly targeted– Increasingly fewer Groupons sold per customer– Revenue per Groupon is falling

• Groupon’s solutions– Scale: getting big really quick and develop the

brand• Competitors will never be able to find an audience

– Fast enough customer growth– Acquisition

• Help its position in the small and medium-sized business market

• Reality– Merchants report not creating large group of

repeat customers• Price-sensitive customers never return for regular

price

– Competitors springing up everywhere• Google offfer• AmazonLocal

10.1 eCommerce and the Internet

10.2 eCommerce: Business & Technogy

10.3 mCommerce

10.4 Building an E-commerce Presence

10.1 eCommerce & Internet

• eCommerce– The use of the Internet and the Web to transact

business• Digitally enabled commercial transactions• Exchange of values

– First eCommerce• 1995, Netscape.com accept first Ads• New medium for advertising and sales

• The “dot-com” bubble– 2001, burst

• A large number of company failed• Some results still positive

– Amazon– eBay– Google

– eCommerce outlook is positive• Online consumer sales will still increase in 2008

– Cyber Monday» Thanksgiving (black Friday, traditional)

• On the average day, – 140 million send email– 5 million write blogs

• B2B eCommerce will continue to expand

• 雙 11 光棍節– 淘寶網、天貓網– 營業額 55 秒就破 1 億人民幣– 總交易額超過 400 億人民幣– 快遞業務量超過 3.23 億件

• Why eCommerce is different– Unique features of the Internet & Web

• Ubiquity– Traditional commerce

» Marketplace is a physical place

bookstore, classroom– eCommerce

» Everywhere

beyond traditional boundaries» any time

remove from temporal

– Customers’ viewpoint» Reduce transaction cost

no need to spend money and time

to reach market

less mental efforts for purchasing

• Global reach– Cross cultural and national boundaries

» Conveniently» Cost effectively

– Potential market size

• Universal standards– Internet standard

» Shared by all nations» Regardless of the technology platform

– Lower market entry cost– Reduce search cost

• Richness– The complexity and content of a message

» Traditional sale repGreat richness

personal, face-to-face service» Web

• Interactivity– Allow two-way communication– Similar to face-to-face experience

• Information density– The total amount and quality of info available– eCommerce

» Reduce info costs

collection, storage, processing, communication

» Greatly increase quality

currency, accuracy, timeliness

– Customers» Price transparency» Cost transparency

– Merchants» Discover more about customers

segment markets» Price discrimination

selling the same goods

or almost the same goods

to different group at different prices

• Personalization / customization– Personalization

» Adjust the message to customers’ interests and past purchases

– Customization» Changing the delivered products and services based

on a user’s preference– Ex: Wall Street Journal

» Customers choose types of news first» …

– Social technology• User content generation• Social networking

– Expanding the number of business & social contacts by making connections through individuals

– Allow user to create and share contents» Text» Video» Music» Photo

• Key concepts in eCommerce– Info asymmetry

• One party of transaction has more info– Important to transaction– Help determining bargaining power

– Digital market• More transparent in info• Reduced search and transaction cost• Lower menu price

– Merchant’s cost of changing price• Lower price discriminationEx: Auto sales

– Dynamic pricing• Price varies on the demand characteristics

– Switching cost• Increase or reduce

– Immediate gratification • Can

– Digital music downloaded

• Can not– Clothes purchased

– Disintermediation• Removal of organizations and business process

layer

• Digital Goods– Goods that can be delivered over a digital

network• Music• Video• Software• Newspaper• Magazine• eBooks

– Cost structure• Producing another copy

– Marginal, (zero)

• Producing the original– Relatively high

– The impact of the Internet• Music industry

– Loss CD sales, reach more customers

• Books• Video

10.1 eCommerce and the Internet

10.2 eCommerce: Business & Technology

10.3 mCommerce

10.4 Building an E-commerce presence

10.2 electronic commerce

• Categories– Classify by the nature of the participant

• Business-to-consumer (B2C)– Retailing– amazon.com

• Business-to-business (B2B)– 企業採購作業 business procurement– 台塑採購網

• Consumer-to-consumer (C2C)– eBay

• C2B: 揪團

– Classify by participant’s connection• Wired network: PC• Mobile commerce (m-Commerce)

– The use of wireless Internet appliance

E-Commerce business models

• Business Model: – How you planned to make money (product,

service)• Portal• E-tailors• ……

• Portal– Google, Bing, Yahoo!, MSN, AOL

• Powerful web search tools• Integrated package of content and services

– Revenue• Ad placement• Collect referral fees• Charge for premium services

• E-tailers– Online retail stores

• Convenient• Low cost• 24/7• Large selections

– Types• Bricks-and-clicks: Walmart• e-tailer: Amazon

• Content provider– Content: all forms of intellectual property

• Text, music, movie

– Podcasting• Publish audio and video content from i-store

– Streaming• Flow a continuous stream of content• without being stored locally

• Transaction broker– Process transactions for consumers

• Financial service• Travel service

• Market creator– Build digital environments

• eBay• Priceline.com

• Service provider– Offer services online

• Online backup and storage• Google apps• Gmail

• Community provider– Create online environment where people with

similar interests can transact• Facebook, MySpace

E-Commerce revenue models

• Advertising revenue model– Exposing advertisements to visitors

• Most widely used revenue model• Yahoo: banner ads• Google: keywords

• Sales revenue model– Selling goods, information, or service– Amazon, iTune

• Subscription revenue model– Charge a subscription fee for access contents or

services• Netflix• Wall Street Journal

• Free/Freemium revenue model– Offer basic services or content for free– Charge a premium for advanced or special

feature• FarmVille on Facebook

• Transaction fee revenue model– Fee for enabling or executing a transaction

• eBay• E*Trade

• Affiliate revenue model– Referral fee– Percentage of the revenue from any resulting

sales• Amazon logo on blogs

Social networking & The wisdom of crowds

• Link people through their mutual business or personal connection– Enable to mine their friends & friends’ friend)

• Sales leads• Job-hunting tips• New friends

– Social networking sites sell• Banner, video, and text ads• User preference info to marketers• Product

– P&G, MySpace’s fictional character “Miss Irresistable”

– Social shopping • Swap shopping ideas with friends

– Ideal venues to employ viral marketing techniques» Fat wallet

– Word-of-mouth marketing

– The wisdom of crowds• Firm should consult as many customers as possible

– Establish relationships first

• Actively solicit comments• Understand how products and services are used and

appreciated (or rejected)

– The wisdom of crowds techniques• Crowdsourcing

– Involve crowd of customers for ideas– Netflix offer $1 million for ideas to predict what movie

customers like

• Prediction markets– Peer-to-peer betting markets

» Participants make bets on specific outcomes» For example, political elections

• E-commerce marketing– Long tail marketing

• Find potential customers for which demand is very low

• e.g. independent music

– Behavioral targeting• Tracking the click-streams to understand their

interests and intentions

– Clickstream tracking• Collect data on customer activity at website

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– Web personalization• Modify webpages presented to each customer

– Collaborative filter» Compare info collected about a specific user’s

behavior» to data about other customers with similar interests

Ex: www.books.com.tw

買這本書的人，也會購買 … people bought this book also bought …

Web personalization

• Behavior targeting on advertising network– Track users across thousands of websites

• Google’s DoubleClick• Yahoo’s RightMedia• AOL’s Ad Network

– Target their ads to precisely the groups and individuals they desire

• Figure 10.5, p.424

• Social e-commerce & social network marketing– Social network (offline)

• Collection of people who voluntarily communicate with each other, over an extended period of time

– Digital social graph• Mapping of all significant online social relationship

– Small world theory• Everyone is only six links away from any other

person on earth

– Product & service you buy will influence the decision of your friend• Within social network

– Share interests and values– Communicate and influence one another

– Fortune 500 companies• 72% had twitter account• 66% had facebook account• 62% had youtube account

• B2B e-commerce: – New efficiencies & relationship– EDI

• Electronic data interchange– Proprietary

• 80% of B2B e-commerce– Computer-to-computer exchange of transactions

» Invoices, Orders …» Just-in-time inventory / continuous replenishment

– Internet and web based• Public network

– Flexible and low cost

• Extranet– Private intranet extend to authorized users outside the

company» Fedex.com

– Private industrial network• B2B extranet• Collaboration and supply chain management

– Suppliers– Distributors– Business partners

• Private exchange– VWGroupSupply.com

» Volkswagon

– Net marketplace• Transaction oriented digital market

– Sellers– Buyers

• Types of net marketplace– Direct goods– Indirect goods– Vertical markets

» 鋼鐵業 Steel– Horizontal market

» 家具 office furniture

– Industry-owned net marketplace• Exostar

– Aerospace and defense industry» Boeing» Lockheed Martin» Raytheon …

– Exchanges• Independently owned third-party net marketplaces

– Foodtrader.com

• Many have failed– Suppliers reluctant to join

» Encourage competitive bidding

Drive price down» Did not offer long term relationship

Make lowering price un-worthwhile» Do not offer delivery timing, customization, and

quality of products

10.1 eCommerce and the Internet

10.2 eCommerce

10.3 mCommerce

10.4 Building an E-commerce presence

10.3 m-Commerce

– Use wireless mobile devices• Purchasing• Transmitting message

• Location-based service and application– Geosocial service

• Tell us where our friends are meeting

– Geoadvertising• Tell us where is the nearest restaurant

– Geoinformation• Tell the price of a house we are looking at• Info about special exhibits at museum you are

passing by

– Wikitude.me• Use 800,000 points of interest available on

wikipedia• Display info to your smartphone about what you are

looking at

– Foursquare• Find your friends by “checking in” to the service

• Other mobile commerce service– Bank

• Check balance and transfer fund

– Mobile advertising• Display ads linked to cell phone searches• Identify cell user within a specified distance and

feed ads message

• Games and Entertainment– Portable entertainment platform

• Downloadable and streaming– Digital games (angry bird, candy crush)– Movie– TV shows– Music– ……

10.1 eCommerce and the Internet

10.2 eCommerce

10.3 mCommerce

10.4 Building an E-commerce presence

10.4 Building an E-commerce presence

• Building a successful e-commerce presence– Corporate website, social network site

(Facebook Fan page), Tweeter account, smartphone app

• Challenges– Business objectives– Choose the right technology

• Business objectives, system functionality, and information requirements– Business objectives

• Capabilities your site to have

– System functionality• Types of information capabilities needed to achieve

business objectives

– Information requirements• The information elements that the system must

produce

• Building the Web site– In-house vs. Outsourcing

• The building decision– Pre-built template

• Yahoo merchant solutions, Amazon stores, eBay• Least costly and simplest solution• Limited “look and feel” and functionality

– Build your own site• Adobe Dreamweaver, Microsoft SharePoint

Designer• Built exactly what you want• Cost is high

– Complexity of features» Shopping carts» Credit card authentication

• Long and difficult learning curve– Poor design

• The hosting decision– Outsourcing

• site is “live” or accessible 24 hours a day– Web server maintenance (hardware & software)– Telecommunication link– backup

• Monthly fee– $4.95 ~ several hundred thousands

» Size, bandwidth, storage, support

• Website Budgets

Interactive session

(Minicase)

– Organization• Location-Based Marketing and Advertising• P. 417

– Management• Social commerce creates new customer

relationships• P.427