1、1,Chapter 12 Economics, Global, and Other Issues in Electronic Commerce,2,Learning Objectives,Identify the major impacts of Web-based economics Describe the major components of Web-based economics Analyze the impact of online markets on competition Describe the impacts and industry structure on inte
2、rmediation Describe the role and impact of virtual communities Evaluate the issues involved in global electronic commerce Analyze the impact of EC on small businesses Understand the research opportunities in EC Describe the factors that will determine the future of EC,3,Marketplace Vs. Marketspace,M
3、arkets have three main functions Matching buyers and sellers Facilitating the exchange of information, goods, services and payments Providing an institutional infrastructure Electronic Marketplaces = Marketspaces Increase effectiveness Lower distribution costs Friction-free markets,4,Marketplace Vs.
4、 Marketspace (cont.),Regular and EC economics are completely different EC involves gathering, selecting, synthesizing, and distributing information Economics of EC starts with supply and demand, and ends with pricing and competition,5,The Components of Digital (Virtual) Economics,Digital Products,In
5、formation and entertainment products that are digitized :,Paper-based documents : books, newspapers, magazines journals, newsletters Product information : product specifications, catalogs, user manuals Graphics : photographs, postcards, calendars, maps, posters, x-rays Audio : music recordings, spee
6、ches, lectures, industrial voices Software : programs, games, development tools,Symbols, tokens and concepts :,Tickets and reservations : airlines, hotels, concerts, sport events, transportation Financial instruments : checks, electronic currencies, credit cards, securities,Processes and services :,
7、Government services : forms, benefits, and welfare payments, licenses Electronic messaging : letters, faxes, telephone calls Business value creation processes : ordering, bookkeeping, inventorying Auction, bidding, bartering Remote education, telemedicine, and other interactive services Cybercafes i
8、nteractive entertainment, virtual communities,6,The Consumers people worldwide that surf the Web are potential buyers of goods and services The Sellers frontstores available on the Net, advertising and/or offering millions of items The Infrastructure Companies companies provide the hardware and soft
9、ware necessary to support EC The Intermediaries intermediaries of all kinds offer their services on the Web The Support Services ranging from certification and trust, which assures security to knowledge providers Content Creators media-type companies create and perpetually update Web pages and sites
10、,The Components of Digital (Virtual) Economics (cont.),7,Competition in Electronic Commerce,Impacts on competition Lower buyers search cost Speedy comparisons Differentiation Lower price Customer service Digital products lack normal wear and tear,8,Competition in Electronic Commerce (cont.),Perfect
11、competition Enable many buyers and sellers to enter the market at little or no cost (no barriers to entry) Not allow any buyers and sellers to individually influence the market Make certain products homogeneous (no product differentiation) Supply buyers and sellers with perfect information about the
12、 products and the market participants and conditions,9,Competition in Electronic Commerce (cont.),Observations regarding competitiveness There will be many new entrants The bargaining power of buyers is likely to increase There will be more substitute products and services The bargaining power of su
13、ppliers may decrease The number of industry competitors in one location will increase,10,Cost Curves,Quantity,Cost per unit,Optimal,Regular Products,Cost per unit,Quantity,Digital Products,11,The Need for a Critical Mass of Buyers,Reasons for the need for critical mass of buyers Fixed cost of EC is
14、high, need many customers to cover it. Strong and fair competition can be developed Estimated Internet users worldwide : 150-200 million range (1999) Small number as compared with an estimated 1.3 billion TVs No need to wait a few years before starting EC Look at the microlevel segmentation of the m
15、arket you are trying to reach,12,Quality Uncertainty and Quality Assurance,Price is becoming the major factor influencing many Web purchases Quality is extremely important in many situations Issue of quality is related to issue of trust Quality assurance by a trusted 3rd party is needed For example
16、: Trust-e and Better Business Bureau (BBB),13,Quality Uncertainty and Quality Assurance (cont.),Solutions for quality uncertainty Provide free samples clear signal that the vendor is confident about the quality Return if you are not satisfied providing a guarantee, or a full refund, for dissatisfied
17、 customers is facilitating EC returns not feasible for digital products many digital products such as information, knowledge, or educational material, are fully consumed when they are viewed by consumers returning a product or refunding a purchase price may be impractical due to transaction costs,14
18、,Pricing on the Internet,Price Discovery Electronic marketplaces enable new types of price discovery Web-based auctions at O and eB Intermediaries such as Priceline () Agents such as Kasbah (ecomerce.medis.mit.edu/kasbah),15,Online Vs. Offline Pricing,How to price the online Vs. the offline products
19、 or services Pacific Brokerage Services () a discount broker offered almost 50% commission discount for online services Banking Industry most do not offer any discounts for going online some even charge additional online fixed monthly service fee some, whose strategy is to aggressively go online, pr
20、ovide discount Retailers no clear strategy,16,Contributors to Electronic Market Success,Product characteristics Digitizable products; low priced items; computers; electronics, consumer products; and even cars Industry characteristics The need for a transaction broker exists (e.g., stocks) Seller cha
21、racteristics In oligopolistic situations, sellers can maintain an environment of lower volume, higher profit margin transactions Consumer characteristics Patient and analytical consumers,17,Impacts on Industry Structure,Traditional Market Industry Structure,Traditional market Customers search out in
22、formation (about the products available and their prices, quality, and features) from a wide range of sources,18,Impacts on Industry Structure (cont.),Electronic markets The search cost for consumers is reduced Consumers can buy products for lower prices, intermediaries play new roles,Industry Struc
23、ture with an Electronic Market,19,The Roles and Value of Brokers in Electronic Markets,Search costs for finding partnershigh Lack of privacy; can not remain anonymous Incomplete information; a broker can get more Contracting risk of refusing to pay, poor quality products, etc. Pricing inefficiencies
24、, opportunities may be missed,Limitations of Privately Negotiated Transactions,20,Potential Winners and Losers in EC,Proprietary network owners Midsize manufacturers Technology suppliers Market makers Online dedicated companies Conventional retailers that use online extensively Providers of diversif
25、ied Internet services Advertisement and target marketing companies Security, special infrastructure, and payment systems providers,Internet access providers Portal providers A few large resellers EC software companies,Winners,21,Most wholesalers, especially small ones Brokers Salespeople Non-differe
26、ntiated manufacturers,Potential Losers in EC,22,Virtual Communities,The Internet Communities Web is being transformed into a social Web of communities Types of communities Communities of transactions facilitate buying and selling Communities of interest place for people to interact with each other o
27、n a specific topic Communities of relations be organized around certain life experiences Communities of fantasy place for participants to create imaginary environments,23,Virtual Communities (cont.),Ways to transform a community site into a commerce site:,Understand a particular niche industry, its
28、information needs, and the step-by-step process by which it does the research needed to do business.,Build a site that provides that information, either through partnerships with existing publishers and information providers or by gathering it independently.,Set up the site to mirror the steps a use
29、r goes through in the information-gathering and decision-making process.,Build a community that relies on the site for decision support.,Start selling products and services, such as sample chips to engineers, that fit into the decision-support process.,24,Virtual Communities (cont.),The Expected Pay
30、back Customer loyalty increases Increased sales Customer participation and feedback increases Increased repeat traffic to site Drive new traffic to the site,25,Virtual Communities (cont.),Creating economic value Members input useful information in the form of comments, feedback, elaborating their at
31、titudes and beliefs, and information needs of the community The community brings together consumers of specific demographic and interest Communities charge members content fees for downloading certain articles, music, or pictures,26,Global Electronic Commerce,While geographical market boundaries may
32、 be falling, global interest-based communities will spring up Mainly in support of business-to-business financial and other repetitive, standard transactions, e.g. EFT & EDI The emergence of the Internet and the extranets resulted in an inexpensive and flexible infrastructure that can greatly facili
33、tate global trade,27,Barriers to Global Electronic Commerce,Legal Issues Uncoordinated actions must be avoided and an international policy of cooperation should be encouraged Market Access Issues Companies starting e-commerce need to evaluate bandwidth needs by analyzing the data required, time cons
34、traints, access demands, and user technology limitations Financial Issues Customs and taxation,electronic payment systems,28,Barriers to Global Electronic Commerce (cont.),Other Issues Identification of buyers and sellers Trust Security ( for example, viruses) Cultural diversity International agreem
35、ents (multi-lateral agreements) Role of government Purchasing in local currencies Language and translation,29,The U.S. Policy Regarding Global Electronic Commerce,The private sector should lead Governments should avoid undue restrictions on electronic commerce Where government involvement is needed,
36、 its aim should be to support and enforce a predictable minimalist, consistent and simple legal environment for commerce Governments should recognize the unique qualities of the Internet Electronic commerce on the Internet should be facilitated on a global basis,30,The Advantage for Small Businesses
37、,Inexpensive source of information Inexpensive way of advertising Inexpensive way of conducting market research Inexpensive way to build (or rent) a storefront Lower transaction cost Niche market, specialty products (cigars, wines, sauces) are the best Image and public recognition can be accumulated
38、 fast Inexpensive way of providing catalogs Inexpensive way to reach worldwide customers,31,The Risks and Disadvantages for Small Businesses,Inability to use EDI, unless it is EDI/Internet Lack of resources to fully exploit the Web Lack of expertise in legal issues, advertisement Less risk tolerance
39、 than a large company Disadvantage when a commodity is the product (for example, CDs) No more personal contact which is a strong point of a small business No advantage being in a local community,32,Success Factors for Small Businesses,Niche products Small volume Capital investment must be small Inve
40、ntory should be minimal or non-existent Electronic payments schema exist Payment methods must be flexible Logistical services must be quick and reliable The Web site should be submitted to directory-based search engine services like Yahoo in a correct way Join an online service or mall and do banner
41、 exchange Design a Web site that is functional and provides all needed services to consumers,International productsInformation,33,Research in Electronic Commerce,Behavioral Issues Consumer behavior Building consumers behavioral profiles and identify ways to utilize them Sellers behavior and motivati
42、on Issue-oriented research (e.g., trust, intermediaries) Internet usage pattern and willingness to buy Mental model of consumer product search process, comparison process, and negotiation How to build trust in the marketspace,34,Research in Electronic Commerce (cont.),Technical Issues Methods that h
43、elp customers find what they want Models for extranet design and management Natural language processing and automatic language translation Matching smart card technology with payment mechanisms Integrating EC with existing corporate information systems, databases, etc. Retrieval of information from
44、an electronic industry directory Establishing standards for international trade Building a mobile Internet distribution command system,35,Managerial Research Issues,Advertisement measuring the effectiveness, integration and coordination Applications creating a methodology of finding EC business appl
45、ications Strategy designing strategic advantage strategy for EC initiating “Where to market” strategy finding way to Integrate EC into organizations Impacts identify the necessary organization structure and culture integration with ERP and SCM,36,The Future of Electronic Commerce,Internet Usage incr
46、ease exponentially; access via cellphones! Opportunities for Buying increase rapidly Purchasing Incentives increase buyers advantages Increased Security and Trust significant improvement Efficient Information Handing accessible from anywhere Innovative Organizations restructured and reengineered Vir
47、tual Communities spreading rapidly Payment Systems ability to use e-cash cards and make micropayments is getting close to reality Business-to-Business continues to grow rapidly,37,The Future of Electronic Commerce (cont.),Technology Trends Clients thin client and embedded client Servers Windows NT Networks xDSL and wireless communication EC software and services availability of all types of EC software companies support auctions and multiple types of certifications EC knowledgethe quantity and quality of EC knowledge is increasing rapidly,
