E-commerce: Digital Markets and Digital Goods

1. What are the unique features of e-commerce, digital markets, and digital goods? 

E-commerce involves digitally enabled commercial transactions between and among organizations and individuals. Unique features of e-commerce technology include ubiquity, global reach, universal technology standards, richness, interactivity, information density, capabilities for personalization and customization, and social technology. Digital markets are said to be more “transparent” than traditional markets, with reduced information asymmetry, search costs, transaction costs, and menu costs, along with the ability to change prices dynamically based on market conditions. Digital goods, such as music, video, software, and books, can be delivered over a digital network. Once a digital product has been produced, the cost of delivering that product digitally is extremely low. 

• Name and describe four business trends and three technology trends shaping e-commerce today. 

• Four business trends 
• Social Networking – used by companies to promote goods or services to a massive online audience 
• Online Advertising – Larger online audience will see the add when they open a site rather than if the ad were in print. 
• Online Newspapers – traditional newspapers have gone to offering online subscriptions to their newspapers to reach the online audience. 
• Online Entertainment Business Models – Netflix and other sites and apps like it are making it possible for the public to have access to movies and TV shows instantly. E-books are another example of being able to get your book right when you want it via the Internet. 

• Three Technology trends 
• Social – social networks (Facebook, Ebay, Pintrest) used in e-commerce 
• Mobile – wireless devices used to conduct both business with consumer and other businesses over the Internet. 
• Local – provide services to consumers that are location-specific. 

• List and describe the eight unique features of e-commerce. 
• Global reach – the technology reaches across national boundaries, around Earth
• Universal standards – one set of technology standards: Internet standards 
• Richness – supports video, audio, and text messages 
• Interactivity – The technology works through interaction with the user 
• Information density 
• Large increases in information density – the total amount and quality of information available to all market participants 
• Personalization/Customization – Technology permits modification of messages, goods 
• Social technology – The technology promotes user content generation and social networking 

• Define a digital market and digital goods and describe their distinguishing features 
• Digital market is a marketplace that is created by computer and communication technology to link many buyers and sellers 
• Distinguishing features: 
• Decreased in when one party in a transaction has more information that is important for the transaction than the other party 
• Reduced the effort to find suitable products and the cost of participating in a market 
• Delayed gratification: effects dependent on product 
• Reduced merchants' costs of changing prices 
• Increased the price of a product varies depending on the demand characteristics of the customer or the supply situation of the seller 
• Increased selling the same goods, or nearly the same goods, to different targeted groups at different prices 
• Increased market segmentation 
• Switching costs: effects dependent on product 
• Stronger network effects 
• More the removal of organizations or business process layers responsible for intermediary steps in a value chain. 
• Digital goods - Goods that can be delivered over a digital network. For example: music tracks, video, software, newspapers, books 
• Distinguishing features 
• Cost of producing first unit almost entire cost of product: marginal cost of producing 2nd unit is about zero 
• Costs of delivery over the Internet very low
• Marketing costs remain the same; pricing highly variable 
• Industries with digital goods are undergoing revolutionary changes (publishers, record labels, etc.) 

2. What are the principal e-commerce business and revenue models? 

E-commerce business models are electronic retailers (e-tailers), transaction brokers, market creators, content providers, community providers, service providers, and portals. The principal e-commerce revenue models are advertising, sales, subscription, free/freemium, transaction fee, and affiliate. 

• Name and describe the principal e-commerce business models. 
• Models – What Business I am in 
• Portal – home page, entry page to the web (page you start your internet with 
• E-tailer – sells stuff (Amazon.com) 
• Content provider – provide content you may be willing to buy 
• Transaction broker – connects parties together (Expedia, eBay) 
• Market creator – online mall (provide place other business can sell stuff at 
• Service provider – sell software or access to internet 
• Community provider – provide a place for people to hang out (Facebook)

• Name and describe the e – commerce revenue models. 
• Advertising – generates revenue by attracting a large audience of visitors who are exposed to advertisements. 
• Sales – generates revenue by selling goods, information, or services. 
• Subscription – fees charged for access to some or all content. 
• Free/Freemium – offer free basic content, but premium content is charged.
• Transaction fee – A fee charged for enabling or executing a transaction. 
• Affiliate – Website seeds visitors to other websites in return for a referral fee or percentage of sales revenue. 

3. How has e-commerce transformed marketing? 

The Internet provides marketers with new ways of identifying and communicating with millions of potential customers at costs far lower than traditional media. Crowdsourcing utilizing “the wisdom of crowds” helps companies learn from customers in order to improve product offerings and increase customer value. Behavioral targeting techniques increase the effectiveness of banner, rich media, and video ads. 

• Explain how social networking and the “wisdom of crowds” help companies improve their marketing. 
• Networking sites sell banner, video, and text ads; user preference information to marketers; and products such as music, videos, and e-books. Corporations set up their own social networking profiles to interact with potential customers and “listen” to what social networkers are saying about their products, and obtain valuable feedback from consumers. At user-generated content sites, high-quality video content is used to display advertising. Online communities are ideal venues to employ viral marketing techniques. 
• Creating sites where thousands, even millions, of people can interact offers business firms new ways to market and advertise products and services, and to discover who likes or dislikes their products. In a phenomenon called “the wisdom of crowds” some argue that large numbers of people can make better decisions about a wide range of topics or products than a single person or even a small committee of experts. In marketing, the wisdom of crowds concept suggests that firms should consult with thousands of their customers first as a way of establishing a relationship with them, and second, to better understand how their products and services are used and appreciated. Actively soliciting customer comments builds trust and sends the message to customers that the company cares what they are thinking and that customer advice is valuable. 

• Define behavioral targeting and explain how it works at individual Web sites and on advertising networks. 
• Behavioral targeting refers to tracking the click-streams of individuals for the purpose of understanding their interests and intentions, and exposing them to advertisements which are uniquely suited to their behavior. Ultimately, this more precise understanding of the customer leads to more efficient marketing and larger sales and revenues. Behavioral targeting of millions of Web users also leads to the invasion of personal privacy without user consent. 
• Behavioral targeting takes place at two levels: at individual Web sites and on various advertising networks that track users across thousands of Web sites. Most e-commerce Web sites collect data on visitor browser activity and store it in a database. They have tools to record the site that users visited prior to coming to the Web site, where these users go when they leave that site, the type of operating system they use, browser information, and even some location data. They also record the specific pages visited on the particular site, the time spent on each page of the site, the types of pages visited, and what the visitors purchased. Firms analyze this information about customer interests and behavior to develop precise profiles of existing and potential customers. 

• Define the social graph and explain how it is used in e-commerce marketing. 
• a deception of all the people you know and all the people they know 
• a mapping of all significant social relationships 
• the products and services you buy will influence the decisions of friends, and their decisions will also influence you 
• word of mouth theory in digital format 

4. How has e-commerce affected business-to-business transactions? 

B2B e-commerce generates efficiencies by enabling companies to locate suppliers, solicit bids, place orders, and track shipments in transit electronically. Net marketplaces provide a single, digital marketplace for many buyers and sellers. Private industrial networks link a firm with its suppliers and other strategic business partners to develop highly efficient and responsive supply chains. 

• Explain how Internet technology supports business-to-business electronic commerce. 
• business 2 business transactions can occur through a company’s website 
• websites make it easier to sell and buy direct and indirect goods over the Internet 
• compare suppliers, products, and prices, and ask other opinions on products 
• because of the ease and efficiency brought by the internet, B2B participants can a significant amount of money and time 

• Define and describe Net marketplaces and explain how they differ from private industrial networks (private exchanges) 
• net marketplace is a single digital marketplace based on Internet technology linking many buyers to many sellers 
• can either sell direct or indirect goods 
• more transaction oriented and less relationship oriented than private industrial networks 

5. What is the role of m-commerce in business, and what are the most important m-commerce applications? 

M-commerce is especially well suited for location-based applications, such as finding local hotels and restaurants, monitoring local traffic and weather, and providing personalized location-based marketing. Mobile phones and handhelds are being used for mobile bill payment, banking, securities trading, transportation schedule updates, and downloads of digital content, such as music, games, and video clips. M-commerce requires wireless portals and special digital payment systems that can handle micropayments. 

• List and describe important types of m-commerce services and applications. 
1. Location-based services: users are able to locate the services or products they wants 
2. Banking and financial services: users can manage their bank accounts using their cell phones 
3. Wireless advertising: cell phone service providers can sell advertising on phones 
4. Games and entertainment: users can download video clips and short films designed to play on mobile phones 
5. Personalized services: services anticipate what a customer wants based on a person's location or data profile 

6. What issues must be addressed when building an e-commerce presence? 

Building a successful e-commerce site requires a clear understanding of the business objectives to be achieved by the site and selection of the right technology to achieve those objectives. E-commerce sites can be built and hosted in-house or partially or fully outsourced to external service providers. 

• List and describe each of the factors that go into the building of an e-commerce Web site. 
• remain aware of the main areas that require decisions 
• managers must make decisions about hardware, software, and telecommunications infrastructure 
• customer demands should drive technology choices 
• the site design must be carefully considered
• a project plan should be developed 

• List and describe four business objectives, four system functionalities, and four information requirements of a typical e-commerce Web site. 
• display goods (business) using a digital catalog (system functionality) for dynamic text and graphics catalog (information requirements) 
• provide product information (objective) using a product database (system functionality) to provide a product description, stocking numbers, and inventory levels (information requirements). 
• execute a transaction payment (objective) using a shopping cart/payment system (system functionality) to provide secure credit card clearing (information requirements). 
• understand marketing effectiveness (objective) using a site tracking and reporting system (system functionality) to provide the number of unique visitors, pages visited, products purchased, and identified by the marketing campaign (information requirements). 

• List and describe each of the options for building and hosting e-commerce Web sites. 
• completely hosting and building the site in house 
• completely outsourcing the hosting and building functions 
• hosting the site in house and outsourcing the building function 
• building the site in house and outsourcing the hosting function