Essentials of Management Information Systems, 6e Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce 4.1 © 2005 by Prentice Hall The

Essentials of Management Information Systems, 6eEssentials of Management Information Systems, 6eChapter 4 The Digital Firm: Electronic Business and Electronic CommerceChapter 4 The Digital Firm: Electronic Business and Electronic Commerce

4.1 © 2005 by Prentice Hall

The Digital Firm: Electronic Business and Electronic Commerce

Chapter 4



• British Airways: Faster, Leaner, and Internet Enabled



The Internet• Rapidly becoming infrastructure of choice• Universal, easy-to-use set of technologies and

standards• Web sites available 24/7• Extended distribution channels• Reduced transaction costs• Reduced network and coordination costs

Electronic Business, Electronic Commerce, and the Emerging Digital Firm

Internet Technology and the Digital Firm



• Past: Information about products and services bundled with their physical value chain

• Today: The Internet has unbundled information from traditional value chain, creating new business models


New Business Models and Value Propositions



Internet Business Model Features

• Dynamic pricing• Banner ad or pop-up ad• Information sharing• Virtual community

– Personal web site, on-line discussion group, chat room, message board

• Services– E-mail, Messenger, file storage, subscription





Internet Business Models

• Virtual storefront: Sells physical products directly to consumers or businesses.– Amazon.com, EPM.com

• Information broker: Provides product pricing and availability information; generates revenue from advertising or directing buyers to sellers.– Edmunds.com, Kbb.com, Insweb.com, IndustrialMall.com

• Transaction Broker: Processes online sales transactions for fee.– E*TRADE.com, Expedia.com






• Online Marketplace: Provides digital environment where buyers and sellers meet– eBay (Dynamic Pricing), Priceline.com,

ChemConnect.com, Pantellos.com

• Content Provider: Provides digital content, such as news; revenue from fees or advertising sales– WSJ.com, CNN.com, TheStreet.com, Gettyimages.com,

MP3.com






• Online Service Provider: Provides connectivity; revenue from fees, advertising, or marketing information– @Backup.com, Xdrive.com, Employease.com,

Salesforce.com• Virtual Community: Provides online meeting

place for people of similar interests– Motocross.com, iVillage.com (banner ad, pop-up ad),

Sailnet.com (Latin American)





Internet Business Models (cont.)

• Portal: Provides initial point of entry to the Web, along with specialized content and services– Yahoo.com, MSN.com, StarMedia.com

• Syndicator: aggregates content or applications to resell as package to third-party Web sites– E*TRADE (Reuters-news, Bridge Info Sys-quotes,

BigCharts.com-charts)





• Business-to-consumer (B2C): Retailing products and services to individual shoppers

• Business-to-business (B2B): Sales of goods and services among businesses

• Consumer-to-consumer (C2C): Consumers selling directly to consumers

Electronic Commerce

Categories of Electronic Commerce



Direct Sales Over the Web• Disintermediation: Removal of intermediary steps

in a value chain, selling directly to consumers, significantly lowers purchase transaction costs

• Reintermediation: Shifting intermediary function in a value chain to a new source, such as “service hubs” (Ex. Information broker in Table 4-2)

Electronic Commerce

Customer-Centered Retailing



Electronic Commerce

The benefits of disintermediation to the consumer

Figure 4-2



Interactive Marketing and Presentation• Collection of customer information using Web site

auditing tools less expensive than surveys and focus groups.

• Web personalization technology customizes content and banner ads on Web site to individual’s profile and purchase history.

• Web sites and marketing shorten sales cycle and reduce time spent in customer education.

Electronic Commerce




Interactive Marketing and Presentation• Combine web visitor data with customer data from other

sources to create detailed profiles of individuals.– Off-line purchases, customer service records, or product

registrations.• Conduct (incentive-driven) on-line market research

surveys.• Monitor customer discussions about products that are

taking place through on-line communities and message boards.

• Monitor the online surfing and buying behavior of large numbers of customers at many different web sites.

Electronic Commerce




Collection of Customer Information• TravelWeb

– On-line reservation of more than 16,000 hotels in 138 countries.

– Track origins of users– Track web pages and links which users click to learn

about customer preferences.• Hyatt hotel

– Japanese users are most interested in resort’s golf facilities.

– Shape market strategies to develop hospitality-related products.

Electronic Commerce




Web Personalization Technology• Amazon.com

– Retain customer purchase and recommendation data.– Recommend products based on purchase history and past

purchases from other buyers.

• Bluefly.com– Display items that a visitor has recently viewed.

• Subaru.com– Maintenance reminder, configuration of warranty repair, notice of

recalls and service campaigns, service history log, trade-in value calculation, link to dealer web site, request a service appointment.

Electronic Commerce




Electronic Commerce

Web site personalization

Figure 4-3



Customer Self-Service• Web-based responses to customer questions cost a

fraction of telephone costs for live customer service representation

• Allow interaction at customers’ convenience• Web-based customer self-service applications,

such as airline flight information sites• Traditional, phone-based customer call centers

being integrated with Web

Electronic Commerce




Customer Self-Service• American, Northwest: Flight departure and arrival

times, seating charts, airport logistics, check frequent-flyer miles, and purchase tickets on-line.

• Yamaha Corp. of America: Access to technical solutions, send email to live technician.

• UPS, FedEx: Track shipment, calculate shipping cost, determine time in transit, and arrange for package pickup.

• Lend’s End: Push to talk button to request live talk with customer services.

Electronic Commerce




Lightnin Lights Up with the Internet

• What are the benefits of using Web-based order configuration software?

• How does this system provide value to Lightnin and its customers?

Electronic Commerce

Window on Technology



• Web, Internet streamlining procurement process

• E-procurement eliminates inefficient, paper-based processes

• Selling through Web sites, private industrial networks, or Net marketplaces

Electronic Commerce

Business-to-Business Electronic Commerce



Electronic Commerce

Before-after diagram of changes in Lightnin’s ordering process

Figure 4-4



Private Industrial Network• Private exchange; typically consists of large firm

using extranet to link to its suppliers and business partners

• Permits firm and partners to share product design, development, marketing, scheduling, inventory management, and unstructured communication

• Fastest-growing type of B2B commerce

Electronic Commerce




Electronic Commerce

A private industrial network

Figure 4-5



Net Marketplace• E-hub; provides single Internet-based

marketplace for many different buyers and sellers

• Industry owned or independent intermediaries• Transaction oriented; generates revenue from

purchase and sales transactions and other services

Electronic Commerce




Electronic Commerce

A Net marketplace

Figure 4-6



Different Types of Net Marketplace• Direct goods: goods used in a production process, e.g.,

sheet steel for auto production.• Indirect goods: goods not directly involved in a

production process, e.g., office supplies.• Contractual purchasing: long-term relationships with

designated suppliers.• Short-term spot purchasing: purchase based on

immediate needs.• Vertical markets for specific industries: automobile,

telecommunication, machine tools.• Horizontal markets with different industries: office

equipment and transportation.

Electronic Commerce




Different Types of Net Marketplace• W. W. Grainger: Horizontal market for sourcing

maintenance, repair, and operations (MRO) products used in many different industries.

– Customers benefit from low search cost, low transaction cost, wide selection, and low price. Grainger earns revenue by charging a markup on the products it distributes.

Electronic Commerce




Different Types of Net Marketplace• Ariba: Long-term contractual purchasing of both

indirect and direct goods.– For buyers, Ariba automates sourcing, contract

management, purchase orders, requisitions, business rule enforcement, and payment.

– For sellers, Ariba provides services for catalog creation and content management, order management, invoicing, and settlement.

Electronic Commerce




Different Types of Net Marketplace• Covisint: industry-owned vertical market for automobile

manufacturing. Founded by GM, Ford, DaimlerChrysler, Renault, and Nissan.

– Focus on long-term contract purchasing relationships and on providing common networks and computing platforms for reducing supply chain inefficiencies.

– Buyers benefit from competitive pricing among alternative suppliers.

– Suppliers benefit from stable long-term relationships with large firms.

Electronic Commerce




Exchanges• Third-party Net marketplaces connecting

thousands of suppliers and buyers for spot purchasing

• Proliferated during early years of e-commerce• Exchanges encouraged competitive bidding,

driving prices down; suppliers reluctant to participate

Electronic Commerce




Exchanges• Enermetrix Network: Online exchange for

retail natural gas and electricity contracts.

• FoodTrader.com: Automate spot purchases among buyers and sellers from over 180 countries in the food and agriculture industry.

Electronic Commerce




• Digital credit card payment systems: Secure credit card payment over Web

• Digital wallet: Stores credit card and owner identification, shipping information, to facilitate payment process

– Amazon.com 1-Click, Gator, MSN Wallet, MasterCard Wallet, American Online’s Quick Checkout.

Electronic Commerce

Electronic Commerce Payment Systems



• Micropayment: Payment for a very small sum of money, often less than $10.

• Accumulated balance digital payment systems: Accumulates micropayment purchases as debit balance paid periodically on credit card or telephone bills

– PaymentOne and Trivnet.

Electronic Commerce




• Stored value payment system: Enables consumers to make instant payments based on value stored in digital account

– Ecount, RocketCash (aimed at teenagers).

• Smart Card: A credit-card size plastic card that stores digital information and that can be used for electronic payments in place of cash.

– Mondex, American Express Blue.

Electronic Commerce




• Digital cash: Digital currency that can be used for micropayments or larger purchases

– eCoin.net.

• Peer-to-Peer payment systems: Enables payments to vendors not set up for credit-card payments

– The recipient “picks up” the payment by visiting the web site and supplying information about where to send the payment (a bank account or a physical address).

Electronic Commerce




• Digital checking: Electronic check with secure digital signature

• Electronic billing presentment and payment system: Supports electronic payment for online and physical store purchases after purchase has taken place

Electronic Commerce




Electronic Commerce

Electronic commerce information flows

Figure 4-7



• Connectivity: accessible from most platforms

• Can be tied to internal corporate systems and core transaction data

• Can create interactive applications with text, audio, and video

Electronic Business and the Digital Firm

How Intranets Support Electronic Business



• Scalable to larger or smaller computing platforms as requirements change

• Easy to use, universal Web interface• Low start-up costs• Rich, responsive information environment

– Product catalogs, employee handbooks, telephone directories, and benefit information.

• Reduced information distribution costs


How Intranets Support Electronic Business



• Finance and Accounting: Integrated view of financial and accounting information online

• Human Resources: Rapid delivery of information to employees; online publishing

• Sales and Marketing: Collaborative place to coordinate activities of sales force

• Manufacturing and Production: Distribute manufacturing information to different parts of organization


Intranet Applications for Electronic Business




Functional applications of intranets

Figure 4-8



Can Online Brokers Survive in Europe?

Is providing online financial services over the Internet a viable business model? Why or why not?


Window on Organizations



• Pre-Internet, integration costly and difficult• Internet technology less expensive than building

enterprise systems• Intranets: improve coordination among internal

business processes• Extranets: coordinate processes shared with

customers and partners• Intranet promotes collaborative commerce


Business Process Integration



• Unproven business models– Only 43% of the independent exchanges that were

operating in the spring of 2000 survived to July 2002, and less than 200 remained by mid-2003.

– Heavy outlays for web site maintenance, supply chain management, customer service call centers, and customer acquisition.

– Large payroll expense for skilled technical staff and additional shipping expense to ensure on-time delivery.

Management Challenges and Opportunities




• Business process change requirements– Fail, if badly managed or poorly executed.

• Channel conflicts– Competition between distributors to sell the same

products or services.

– Current solutions to offer only partial products on web or pay full commission to online sales rep.





• Legal issues– Which law to apply, if company is in Thailand, server

in Singapore, and buyer in Hungary.

• Trust, security, and privacy– Hesitate to buy from unfamiliar vendors.

– Security and confidentiality of personal date through subscription and credit card transactions.



Documents

Essentials of Management Information Systems, 6e Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce 4.1 © 2005 by Prentice Hall The