Hoofdstuk 10: E-commerce

Overzicht

• Introduceren van e-business• Types• Successen en mislukkingen• Economische impact• Impact op de waardeketen• Bedrijfsmodellen op het web• B2B technologieën en bedrijfsmodellen• On line advertising• Web analytics

E-Commerce and E-Business

• E-Commerce (EC): process of buying and selling goods and services electronically– Any electronic means, not just the Internet

– Two sides to consider for a company: • buying from suppliers• selling to customers

• E-Business (EB): e-commerce + the use of Internet and other digital technologies for performing (internal) business processes and coordinating with suppliers and partners; more fashionable term…

Categories of Electronic Commerce

• In terms of nature of participants– 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 to consumers

• In terms of participants' connection (touch point)– Through a PC

– Mobile commerce (m-commerce): using handheld wireless devices (e.g. Internet-enabled mobile phone or PDA)

• Location-based commerce (l-commerce): m-commerce transactions targeted to individuals in specific locations, at specific times

– Using interactive digital TV (sometimes called “t-commerce”)

E-Business: Related Areas

• E-Learning: use of ICT in learning/teaching (e.g. web-based distance learning programmes)

• E-Government: use of ICT in government and public services to improve efficiency and provision of information and services – G2C (government-to-citizen)– G2B (government-to-business)– G2G (government-to-government)

• The list goes on: e-health, e-culture, …

Commerce in General

BUYERFINDS

SELLER

NEGOTIATION

PAYMENT

SALE

DELIVERY

POST-SALEACTIVITY

SELECTIONOF GOODS

INFORMATIONINFORMATION

PHYSICAL+INFORMATION

PHYSICAL+INFORMATION

E-Commerce

SEARCH ENGINE

SHOPPING BOT

AGGREGATOR

ON-LINE CATALOG

AUTOMATED AGENTS

TRACKING AGENT

ON-LINE HELP

INTERNET TELEPHONY

CUSTOMER PREFERENCES

BARGAINING STRATEGIES

PRICE SENSITIVITIES

CREDIT/PAYMENT INFORMATION

ON-LINE PROBLEM REPORTS

FOLLOW-ON SALES OPPORTUNITIES

SOME TECHNOLOGIES USED: SOME INFORMATION GATHERED:

BROWSING BEHAVIOR

DELIVERY REQUIREMENTSE-PAYMENT SYSTEMS

CONFIGURATOR

RECOMMENDER AGENT

TRANSACTION PROCESSOR

DATA INTERCHANGE

CRYPTOGRAPHY

BROWSER SHARING

MARKET BASKET

PERSONAL DATA

CUSTOMER SATISFACTION

SEARCH BEHAVIOR

EFFECTIVENESS OF PROMOTIONS

BUYERFINDS

SELLER

NEGOTIATION

PAYMENT

SALE

DELIVERY

POST-SALEACTIVITY

SELECTIONOF GOODS

INFORMATIONINFORMATION

PHYSICAL+INFORMATION

PHYSICAL+INFORMATION

Electronic Delivery?• Delivery of services

– Delivery of services can be done 100% electronically, with considerable cost reduction potential

online service industry is growing rapidly

– Examples: electronic banking, online securities trading, online job markets, travel services, real estate transactions, etc.

• Delivery of products– A few “digitised” products: mp3s, e-books, …

– For other types of products, finding a cost-effective physical delivery strategy is a key issue

Order Fulfilment and Logistics• Order fulfilment: all of the activities needed to provide

customers with ordered goods and services, including related customer services

• Logistics: the operations involved in the efficient and effective flow and storage of goods, services, and related information from point of origin to point of consumption

• Traditional vs. “e”-logistics– traditionally: large amounts of materials to a few destinations– e-logistics: typically small parcels sent to many homes (in B2C)

• Reverse logistics– The movement of returns from customers to vendors

• Third-party logistics (3PL) suppliers

Types of Companies in the “New Economy”

• Bricks-and-mortar (or “old-economy”): traditional companies based in the physical world only.

• Pure-play (or virtual) organisations are companies that are engaged only in electronic commerce.

• Clicks-and-mortar organisations are those that conduct some e-commerce activities, yet their primary business is done in the physical world.

Potential Advantages of B2C E-Commerce

• May eliminate need for maintaining physical shop front• Reduced transaction costs; increased transaction speed• Ease of crossing geographical boundaries• Web sites available 24/7• Ease of updating existing and distributing new information• Providing additional value for customers• Internet: universal, easy-to-use set of technologies and

standards• Empowers smaller companies

…but success is far from guaranteed!

The Dot Com Bubble Burst• A typical "dot-com" company relied on network effects to justify

losing money to build market share, or even mind share, through giving their product away in the hope that they could eventually charge for it.

• Stock market bubble: occurs when speculators note the fast increase in value and decide to buy in anticipation of further rises, rather than because the shares are undervalued.

• The bubble burst in late 2000 and through 2001.

NASDAC INDEX

Dot Com Failures: Pets.com

“You did not need to have a doctorate in economics to see that many of these dot-com companies wouldn't work. Take Pets.com, which sold pet supplies online. Imagine you just ran out of dog food and kitty litter. What do you do? Do you run to the nearest hardware store and pick some up? Or do you go online, order it, then wait four to six weeks while your dog starves and your cat shits all over the living room floor.” (Philip J. Kaplan)

Not the failure of B2C altogether

• At the end of 2002, 40% of surviving dot-coms and 70% of online retailers in the US were reporting profits (Business Week 2003)

• Amazon started making profits in the 4th quarter of 2001• Estimated quarterly U.S. retail e-commerce sales as a percent of

total quarterly retail sales, 1999(4Q)-2006(3Q):

Source: http://www.census.gov/mrts/www/ecomm.html [accessed Feb. 2007]

And B2C is just part of the story

Things to bear in mind about e-business:

• Not necessarily with the consumer B2B: much larger share of overall revenue

“The dollar value of B2B comprises at least 85 percent of the total transaction value of e-commerce” (Source: 2003 eMarketer report, quoted in Turban 2006, p.195)

• Not necessarily using Internet & WWW Majority of B2B still uses EDI technology

How is B2B Different from B2C?

• More complex process that may involve extensive negotiation over prices, product specifications, etc.

• Often longer-term, higher stickiness• Need for systems integration buyer/seller;

additional technologies• Focus on realising process cost efficiencies• Collaborative commerce• ...

ERP, EAI, …

Key Areas of E-Business: Example Setting

Suppliers (e.g. computer

components, book publishers)

Suppliers (e.g. computer

components, book publishers) (B2B)

SCM world

(B2C)CRM world

ConsumersConsumers

Build-to-order (e.g. Dell) orShip-to-order (e.g. Amazon)

Enterprise

Build-to-order (e.g. Dell) orShip-to-order (e.g. Amazon)

Enterprise

Internal Integration(does Marketing talk to Operations?)

External Integration(does the firm talk to the outside world?)

Front / Back Office; Systems Integration

• Back-office operations: the activities that support fulfilment of sales, such as accounting and logistics

• Front-office operations: the business processes, such as sales and advertising, that are visible to customers

• Need to integrate front & back office processes and systems

• Examples of systems integration:– E.g., when a customer browses / orders a product online (front-end

system), the product description, inventory count, and order information are likely to be retrieved from / stored in one or more databases (back-end system)

– Integration with ERP, CRM, SCM software, etc.

– Enterprise Application Integration (EAI) software

Limitations & Barriers for E-Business Adoption

(Source: Turban 2006, p.28)

Reducing Transaction Costs• The Internet (potentially) reduces transaction costs

– Finding buyers: no mass-mailing of expensive brochures, or expensive TV and radio ads

– Fully automatic collection of payments– (in some cases:) Delivering product– Support: email, FAQ, user forums instead of person-to-person

Economic Impact of Digitisation

• Traditional economic cost structure:

Source: V. Grover & P. Ramanlal, Digital economics and the e-business dilemma, Business Horizons 47(4), 2004, p.71-80

Economic Impact of Digitisation (contd.)

• Economics of digital production costs:

Source: V. Grover & P. Ramanlal, Digital economics and the e-business dilemma, Business Horizons 47(4), 2004, p.71-80

Economic Impact of Digitisation (contd.)

• Cost structure of digital products or services:– Near-unlimited economies of scale; no or few capacity

constraints– High fixed costs (intellectual capital vs. plant and equipment)– Fixed costs incurred early and may not be recoverable– Marginal costs approaching zero

• Four “information age” strategies to create competitive advantage (Grover & Ramanlal):– Versioning– Confounding: make it difficult for buyers to compare– Creating network effects (and charge for value derived from it…)– Preemptive pricing

• The Internet offers a new distribution channel– Channel conflict vs. cooperation

• The Internet has led to the unbundling of information from traditional value chain channels– Disintermediation: getting rid of the “middle-man”– Reintermediation: new types of middle-men

• The Internet is allowing companies to work more closely with suppliers and other business partners

Impact on Value Chain

Firm Value Chain and Industry Value Chain

Firm Value ChainFirm Value Chain

Industry Value ChainIndustry Value Chain

Disintermediation

• Disintermediation: removal of intermediary steps in a value chain, e.g., selling directly to consumers lower purchase transaction costs

potential price advantages

Example taken from: Laudon & Laudon, Essentials of Information Systems, 2005

Channel Conflict

• Channel conflict: tension among different distribution chains for the same product or service– Channel member perceives another channel to be engaged in

behaviour that prevents or impedes it from achieving its own goals

– Web-based direct sales channel Risk of alienating traditional sales reps (internal conflicts), distributors (external conflicts), … Threats may include lockouts or even lawsuits by distributors

– Disintermediation is usually not instantaneous: how to placate partners in the distribution channel while taking steps toward the eventual demise of these relationships?

• Channel cooperation

Reintermediation

• Reintermediation: shifting of the intermediary function in a value chain to a new source– Delivery, e.g., becomes a critical part of

overall customer satisfaction (Royal Mail, DHL, UPS, …)

– New intermediaries: information brokers, net marketplaces, intelligent agents, …

Porter's Competitive Forces Model

• Five major forces of competition determine industry structure and how economic value is divided among the industry players in an industry

• Analysis of these forces helps companies develop their competitive strategy

Source: Porter, M. E. (2001), Strategy and the Internet, Harvard Business Review, 79(3), p. 62-78suggested reading included in Appendix 8

Impact on Value Chain (contd.)

• The Internet has changed relations with suppliers and other business partners– Increased opportunities for integration

– Lower entry barriers (lower setup cost)

– Increased flexibility choosing partners• Lower switching costs• Net marketplaces

Common Revenue Models

Source: Turban, E. et al., Electronic Commerce 2006: A Managerial Perspective, Prentice Hall, 2006, p.21

Impact on Business Models

The Internet is changing business models by:

• giving rise to new kinds of business modelsExamples: iTunes, Google, …

• reinventing tried-and-true modelsExample: eBay

A Classification of Business Models

• Brokerage Model– Net marketplace– Auction broker– Transaction broker– ...

• Advertising Model– Portal– Search-based advertising– …

• Infomediary Model• Merchant Model• Manufacturer (Direct) Model• Affiliate Model• Community Model• Subscription Model• Utility Model

Brokerage Model

• Brokers are market-makers: they bring buyers and sellers together and facilitate transactions

• Usually a broker charges a fee or commission for each transaction it enables

• Common in B2B, B2C, C2C

• Can take on many forms:– B2B net marketplace– Auction Broker– Transaction Broker: provides a third-party payment mechanism

for buyers and sellers to settle a transaction• Example: PayPal

– Expedia, Travelocity, Orbitz, ...

E-Auctions• Auctions (e.g. eBay): market mechanism by which sellers

place offers and buyers make sequential bids; auction broker charges the seller a listing fee and commission scaled with the value of the transaction

• Forward vs. reverse auctions– Forward auctions: auctions that sellers use as a selling channel

to many potential buyers; items are placed at sites for auction and buyers bid continuously for the items.

– Reverse auctions: have one buyer, usually an organisation, that wants to buy a product/service; suppliers are invited to submit bids.

• The Internet facilitates dynamic pricing• Liquidation auctions vs. market efficiency auctions

Proxy Bidding and Sniping Software

• Proxy bidding: allows a bidder to– state a maximum bid for an item– place new bids without actually being in front of their computer

eBay's system: http://pages.ebay.com/help/buy/proxy-bidding.html

• Sniping: bidding at the last possible moment, hence minimising chance of driving up the price during the auction

• Sniping software/services: handle the actual transaction– Decide on bid just above what you think will be the highest proxy

bid, and on a time to place the bid, and the software does it for you– One shot to get it right– Possibility to bid for the same item at multiple auctions and

automatically retract other outstanding bids if you win one auction (if allowed…)

Typical Unfair Practices in Online Auctions

• “Puffing” or “shilling”, which means fake bidding by initiator or proxy participants to drive the price up/down

• The setting of unrealistic target prices• Fake/hidden identity of bidders/initiators• Non acceptance of best bid• Hidden reserve prices (unless allowed)• Price dumping• Auction rings, bid shielding and other collusion

Note: plenty of academic research on auction models!

An Electronic Payment Broker: PayPal

• Betty's bank account (if withdrawing by direct deposit)

6. Betty can withdraw her money by direct deposit to her bank account or by a personal check from PayPal. Betty also has the option of sending the money on to others.

• Betty's name• Betty's address

5. Betty registers by entering her name and address.

4. Betty receives an email notification ("You've got cash!") and clicks on a link which takes her to her new account.

3. Andy's credit card is charged $50 and a new account in Betty's name is created and credited with the $50.

• Andy's credit card• Betty's email• Transaction amount

2. Andy sends $50 to Betty by entering his credit card information, her email address, and the amount ($50).

• Andy's name• Andy's address• Andy's email

1. Andy logs on to PayPal.com and registers.

I nformation enteredAction

• Betty's bank account (if withdrawing by direct deposit)

6. Betty can withdraw her money by direct deposit to her bank account or by a personal check from PayPal. Betty also has the option of sending the money on to others.

• Betty's name• Betty's address

5. Betty registers by entering her name and address.

4. Betty receives an email notification ("You've got cash!") and clicks on a link which takes her to her new account.

3. Andy's credit card is charged $50 and a new account in Betty's name is created and credited with the $50.

• Andy's credit card• Betty's email• Transaction amount

2. Andy sends $50 to Betty by entering his credit card information, her email address, and the amount ($50).

• Andy's name• Andy's address• Andy's email

1. Andy logs on to PayPal.com and registers.

I nformation enteredAction

Manufacturer (Direct) Model

• Direct Model: a manufacturer (i.e. a company that creates a product or service) reaching buyers directly and thereby compressing the distribution channel

• Typical example: Dell

Other Examples of Business Models

• Content Provider– Provides digital content– Example: news service (offering streamed video, e.g. CNN)– Customer usually charged a periodic fee to subscribe to the

service– Advertising can also provide revenue

• Web Portal– Initial point of entry to the web– Often started out as a search engine or directory; includes varied

content or services which can usually be further customised (e.g. Yahoo!, MSN, AOL, …)

– Attractive for advertisers when the volume of viewer traffic is large or highly specialised (niche portals serving a particular demographic)

ERP, EAI, …

Key Areas of E-Business: Example Setting

Suppliers (e.g. computer

components, book publishers)

Suppliers (e.g. computer

components, book publishers) (B2B)

SCM world

(B2C)CRM world

ConsumersConsumers

Build-to-order (e.g. Dell) orShip-to-order (e.g. Amazon)

Enterprise

Build-to-order (e.g. Dell) orShip-to-order (e.g. Amazon)

Enterprise

Internal Integration(does Marketing talk to Operations?)

External Integration(does the firm talk to the outside world?)

Supply Chain Management (SCM)

• “Supply chain management is the coordination of production, inventory, location, transportation, and information among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.” (Hugos, Essentials of Supply Chain Management, 2003)

• e-SCM: collaborative use of technology for SCM

Some Predictions Made in 2000…

• A Gartner report estimated that a staggering $7.3 trillion worth of global corporate spending would go through the Internet in 2004, up from $145 billion in 1999.

• By 2005, “the entire supply chain between suppliers and buyers will be automated.” (Geri Spieler, Gartner analyst)

• “Any company will be able to order anything on the Web and have it customised.” (id.).(Source: NY Times, May 7, 2003)

In reality:

• Not all industries similarly affected by B2B e-commerce• Computer, automotive, aerospace and defence, and

industrial equipment industries probably moving fastest

The Traditional Supply Chain

• A chain is something linear...

• Point-to-point B2B

Tier 1 Tier 1 SuppliersSuppliers

Tier 2Tier 2SuppliersSuppliers

Tier 3Tier 3SuppliersSuppliers

The Future Internet-Driven Supply “Network”

• Chains evolving into collaborative networks• Virtual companies• Exchanges• Not quite there yet...

(Picture taken from: Laudon & Laudon, Essentials of MIS)

B2B Technologies

• Traditional EDI

• Internet/XML-based frameworks

Traditional B2B Technologies: EDI

• Electronic Data Interchange (EDI): – Transfer of electronic data from one organisation's computer system

to another's in a commonly agreed format

– To be processed by the receiver's computer system without the need for human interpretation

– Set of hardware and software that accommodate the EDI process

– Often involves third-party service provider (‘value-added networks’)

– International standards bodies and proposed standardsEurope: UN/EDIFACT (EDI for Administration, Commerce and Transport); US: X12

– Used since 1980s to automate routine transactions between established trading partners

– Long-term, point-to-point, and tightly coupled relationships

– Still widely used in B2B integration practice

B2B Technologies: EDI (contd.)

• Examples of EDI relationships– Manufacturer(s) working together with supplier(s)

– Large EDI groups (e.g. SWIFT: international financial transfers)

B2B Technologies: EDI (contd.)

EDI to InternalMiddleware

Internal to EDIMiddleware

Internal to EDIMiddleware

EDI to InternalMiddleware

EDI to InternalMiddleware

Internal to EDIMiddleware

Company A

Company C

Company B

EDI

Example EDI Message

NAD: Name and Address of partner; QTY: quantity; DTM: date/time/period, …

Original Benefits of EDI

Compared to not engaging in electronic B2B:

• Speed of transaction• Reduced transaction costs• Less errors• Just-in-time support: lower inventory costs

Competitive advantage over other companies in the sector

But... • Advantage for supplier/customer depends heavily

on balance of power

Disadvantages of EDI• Long-term, point-to-point, and tightly coupled relationships;

less suitable for networked, collaborative environment (need to agree on vocabulary/syntax)

• EDI syntax not very programmer or Web friendly

• Not that attractive for SMEs– High initial investment– Risk of being locked in

• Risk of EDI vendor lock-in

Shift away from using private communication networks and proprietary hardware/software towards using Internet technologies

HTML?

Company 1

WebBrowser

Company 2

eCommerceServer

ERP/Accounting

Systems

Internet

• HTML encoding not suited to carry the information that is needed for automated B2B e-commerce

HTMLWeb

pages

(Glushko, 2001)

Disadvantages of HTML• Presentation-oriented

– Simple structures: headings, lists, link

• No structural or semantic (content) information

• No content-based encoding means that HTML cannot be effectively searched or processed by business applications– Meant for human consumption (B2C)

<html> <title>business card</title> <body> <h1>John Doe</h1> <h3><i>CEO, Widget Inc.</i></h3> <p>email: <a href="mailto:john.doe@widget.com"> <tt>john.doe@widget.com</tt></a></p> <p>phone: (202) 456-1414</p> </body></html>

<html> <title>business card</title> <body> <h1>John Doe</h1> <h3><i>CEO, Widget Inc.</i></h3> <p>email: <a href="mailto:john.doe@widget.com"> <tt>john.doe@widget.com</tt></a></p> <p>phone: (202) 456-1414</p> </body></html>

Extensible Markup Language (XML)

• Focus on content

• No embedded formatting information!– Use of separate “style sheets”

• Meta-markup language– No fixed set of tags; group of users can define their own tags for

particular domain or purpose– Schemas used to formally define an agreed tag set and structure

for a collection of XML documents

• Can serve as a uniform data exchange format between B2B applications

• E.g., XML tags for catalogues, price lists, purchase orders, invoices, inventory reports, bill of materials, …

Example Catalog Entry in XML<computer type="Notebook"><oem series="Armada300">Compaq</oem><specs> <partno>165288-002</partno> <display type="CTFT" unit="in">12.1</display> <processor>Intel Mobile Pentium III</processor> <weight unit="lb">3.2</weight> <price currency="USD">2399</price> <os>Windows 2000 Professional</os></specs></computer>

• <computer> and <specs> provide logical containers for extracting and manipulating product information as a unit

• Could sort products by <oem>, <processor>, <price>, etc.• Explicit identification of each part enables its automated processing

without “scraping and hoping”• Convert <price> from USD units to Euro, Yen, etc.

Exchanging XML

Company 1

ERP/AccountingSystems

eCommerceServer

Company 2

eCommerceServer

ERP/AccountingSystems

Internet

• Benefit: XML can be processed automatically; generic tools available to support XML document transformation and processing

XML Documents

E-Business Frameworks• XML: in itself only a data format

• What about business processes and messaging?e.g., how to chain electronic messages (invoice for every order, or monthly invoice?), what security to put in place, etc.

• B2B e-business frameworks: technical and business aspects of what information share, when to share information and how to share information– ebXML (initiative by UN/CEFACT and OASIS)– RosettaNet

• Web services (using WSDL, UDDI and SOAP protocols)

• Future promise: “plug and play” business partners?

A Classification of B2B Models

• Sell-side B2B– One seller, many buyers– Seller usually provides a “shopping”

Web site with an e-catalogue (or sells via auctions)

– Buyers usually shop directly on the seller's Web site

• Buy-side B2B– One buyer, many sellers– Aggregate multiple sellers' catalogues

and trade using reverse auctions and/or negotiations

– Integrate with the company's back-end applications

Example of a Sell-Side Model

• bigboXX.com: Hong Kong-based sell-side B2B site supplying a comprehensive range of office products (stationeries, paper, computer supplies, etc.) and services (printing, sourcing gift items, etc.)

• Facilities for customer companies to manage group/individual accounts, track order progress, receive customised purchase reports, etc.

• bigboXX.com: Hong Kong-based sell-side B2B site supplying a comprehensive range of office products (stationeries, paper, computer supplies, etc.) and services (printing, sourcing gift items, etc.)

• Facilities for customer companies to manage group/individual accounts, track order progress, receive customised purchase reports, etc.

Example of a Buy-Side Model

• Click2procure: Siemens e-procurement system, build on technology provided by Commerce One and SAP

• One of world's largest private buy-side B2B sites• A Web-based platform for standardising and automating purchasing activities • Has over 1000 suppliers who pay a subscription fee for opportunity to sell goods to

Siemens

• Click2procure: Siemens e-procurement system, build on technology provided by Commerce One and SAP

• One of world's largest private buy-side B2B sites• A Web-based platform for standardising and automating purchasing activities • Has over 1000 suppliers who pay a subscription fee for opportunity to sell goods to

Siemens

A Classification of B2B Models (contd.)

• (Public) e-marketplace (net marketplace, exchange, …)– Intermediary hub where many buyers and many sellers connect – Virtual marketplace

– May provide additional services (e.g. catalogue management, supporting the sourcing process, auctioning, integrating with logistics providers, etc.)

– Problem: encourages competitive bidding, driving prices down; suppliers often reluctant to participate

B2B Net Marketplace Example: Covisint

• Covisint: B2B net marketplace for the automobile manufacturing industry: exchange of parts and equipment

• Founded by General Motors, Ford, DaimlerChrysler, Renault and Nissan

• Technology providers involved: Oracle and Commerce One• Brings these together with large number of preselected

suppliers• A Web-based system allows participants to work across

computer platforms and operating systems without requiring participating companies, especially the smaller ones, to invest in special systems

Covisint's Problems• Split mission• Distrust between partners • Lack of leadership • Reluctance from suppliers • Rival technology providers

Suggested reading (Appendix 10): R. Meredith, Harder than the hype, Forbes Global, 16 April 2001.

How is www.supplyon.com approaching things differently?

• SupplyOn: Established in mid 2000 by leading companies within the automotive supply industry (e.g. Bosch, Continental, INA and ZF), along with SAP as a technology partner.

• More than 1000 automotive industry suppliers use this e-Marketplace daily.

• Suppliers from more than 30 countries are registered, of which 60% are German, 21% are based in Europe (excluding Germany), 15% are in the USA and a further 4% are in countries outside Europe or the USA.

• SupplyOn: Established in mid 2000 by leading companies within the automotive supply industry (e.g. Bosch, Continental, INA and ZF), along with SAP as a technology partner.

• More than 1000 automotive industry suppliers use this e-Marketplace daily.

• Suppliers from more than 30 countries are registered, of which 60% are German, 21% are based in Europe (excluding Germany), 15% are in the USA and a further 4% are in countries outside Europe or the USA.

Example of an e-Marketplace

SupplyOn: Buy-/Sell-Side (Web)EDI & SCM

Source: www.SupplyOn.com [accessed 19 Feb 2006]

Types of e-Marketplaces

• Types of transactions:– Spot buying: the purchase of goods and services as they are

needed, usually at prevailing market prices– Strategic (systematic) sourcing: purchases involving long-term

contracts that usually are based on private negotiations between sellers and buyers, with agreed upon terms and quality

• Types of materials traded:– Direct materials: materials used in the production of a product (e.g.,

steel in a car or paper in a book)– Indirect materials: materials used to support production (e.g.

office supplies or light bulbs)– MRO (maintenance, repair, and operation): indirect materials used

in activities that support production

Types of e-Marketplaces (contd.)

• Direction of trade:– Vertical marketplaces: markets that deal with

one industry or industry segment (e.g. steel, chemicals)

– Horizontal marketplaces: markets that concentrate on a service, materials, or a product that is used in all types of industries (e.g. office supplies, PCs)

• Degree of openness

Types of e-Marketplaces (contd.)

Note: several of these examples are sadly no longer with us today...

Note: several of these examples are sadly no longer with us today...

• Founded in Feb. 2000, in Hamburg, Germany

• Connecting airlines, OEMs and aviation repair facilities to streamline the overhaul and repair business using the Internet

• Focused on optimising the information flow on subcontracted parts and the scheduling of overhaul events

• Developed together with launching customers Lufthansa Technik AG, Praxair Aviation Services Inc., and some smaller companies.

• Founded in Feb. 2000, in Hamburg, Germany

• Connecting airlines, OEMs and aviation repair facilities to streamline the overhaul and repair business using the Internet

• Focused on optimising the information flow on subcontracted parts and the scheduling of overhaul events

• Developed together with launching customers Lufthansa Technik AG, Praxair Aviation Services Inc., and some smaller companies.

• European e-Marketplace for the sale and purchase of electricity and related equipment.

• Set up in March 2001 by 11 of Europe's leading utility companies including Electrabel, Electricité de France, Endesa, National Grid Company, RWE, Vattenfall and Nuon.

• European e-Marketplace for the sale and purchase of electricity and related equipment.

• Set up in March 2001 by 11 of Europe's leading utility companies including Electrabel, Electricité de France, Endesa, National Grid Company, RWE, Vattenfall and Nuon.

URL: http://www.emergeinteractive.com/ [accessed 19 Feb. 2006]

• eMerge's original business plan was to set up an online cattle exchange

• In 2001, unprofitable online operations forced new management to downsize and focus on other activities (e.g. carcass scanning software)

• Filed for bankruptcy protection on Feb. 14, 2007.

• eMerge's original business plan was to set up an online cattle exchange

• In 2001, unprofitable online operations forced new management to downsize and focus on other activities (e.g. carcass scanning software)

• Filed for bankruptcy protection on Feb. 14, 2007.

E-Marketplaces vs. Private Industrial Networks

• e-Marketplaces: bring together potentially thousands of sellers and buyers in a single digital marketplace

• Private industrial networks: bring together a small number of strategic business partner firms that collaborate to develop highly efficient supply chains– Relationship-based– Private– Permits firm and partners

to share product design, development, marketing, scheduling, inventory management (cf. VMI), and unstructured communication (“collaborative commerce”)

Example 1: Procter & Gamble

monitor movement of goodsmonitor movement of goods

Goals are to reduce product cycle time and inventory levels

Bullwhip Effect

• Bullwhip effect: observed increase in variability as demand and/or stock fluctuations travel up the supply chain

Vendor Managed Inventory

• Vendor Managed Inventory (VMI):

– A company managing inventory levels of its (usually downstream) value-chain partners based on forecasted demand and prior agreements on minimum and maximum stock levels

– Seller: able to optimise production planning and overall supply chain efficiency

• Counters bullwhip effect

– Buyer: relinquishes control in return for cost savings more competitive end-consumer price

Demand Forecasting Problems at Nike

• Nike's $400 million introduction of demand forecasting software caused their stock value to plummet 9 months later

• Relying exclusively on the automated projections, Nike ended up ordering $90 million worth of shoes, such as the Air Garnett II, that turned out to be very poor sellers.

• Apparent problem causes:– “Garbage in, garbage out”: availability of POS data– Poor integration with existing systems– Management's naïve belief in the system's predictive abilities

Suggested reading: http://www.cio.com/archive/071503/future.html

Example 2: Wal-Mart• Late 1980s: Developed beginning of collaborative

commerce using EDI-based supply chain management system that required large suppliers to use Wal-Mart's proprietary EDI network

• 1991: Introduced Retail Link, which connected Wal-Mart's largest suppliers to Wal-Mart's inventory management system

• 1997: Moved Retail Link to an extranet that allowed suppliers to directly link over the Internet into Wal-Mart's inventory management system

• 2000: Upgraded Retail Link to more of a CFPR system (collaborative resource planning, forecasting, and replenishment)

Advertising & the Internet

The Internet has led to new types of advertising:

• E-mail advertising– Note: spam (unsolicited email)

• Display advertising: banner ads, pop-ups, rich media, etc.– Advertisement shown on a web page, which provides link to the

web site of the advertiser

• Search-based advertising

• Viral marketing

• Online promotions and coupons

How “Big” is Online Advertising?• eMarketer predicts that US online advertising spending will in 2006,

for the first time, exceed 5% of total media spending

Source: http://www.emarketer.com/Article.aspx?1003773 [accessed Jan. 2005]

Source: http://www.emarketer.com/Report.aspx?em_ad_spend_oct06 [accessed Feb. 2007]

Web Advertising Model: Display Advertising

• Extension of the traditional media publishing model– The publisher, in this case, a web site, provides content (usually,

but not necessarily, for free) and services (like email, IM, blogs) mixed with advertising messages in the form of e.g. banner ads.

– Works best when the volume of viewer traffic is large or highly specialised.

• Examples– Portal: point of entry to the web; usually includes a search engine

and may include varied content or services (e.g. Yahoo!, MSN, …)– Social networks, user-generated content sites, etc.– …

Problem: Internet Ad Avoidance

• Internet ad avoidance (banner ads, pop-up ads, …)– Low click-through rates (typically less than 1%!)– Banner blindness: Internet users' tendency to avoid fixing their

eyes on anything that looks like a banner ad

• Empirical study by Cho & Cheon, 2004– Causal Factors

• Perceived goal impediment: strongest factor!

• Perceived ad clutter

• Prior negative experience

– Components of ad avoidance: cognitive, affective, behavioural

Ad Formats and Pricing Models

• Ad formats:– From simple text ads to banner ads, sky scrapers, etc. (can be

static or rich media)– Popups, popunders– Interstitials: usually full-page add loaded before actual page– Layer ads (e.g. ValueClick/FastClick's InVues)

Note: IAB standard units: http://www.iab.net/standards/adunits.asp

• Pricing models based on:– CPM: cost per thousand impressions (i.e. number of times an ad

is served); e.g. you buy a guaranteed number– CPC: cost per click; fixed prices or auction

Note: only pay once per click per user in specified time period (e.g. 24 hrs)

– CPA: cost per action – generated lead (e.g. visitor registers or requests info via online form) or actual sale (lead conversion)

Advertisers, Publishers, and Ad Networks

• Online sponsorship: an advertiser sponsoring an entire site, online event or e-mail message

• Ad network: intermediary between advertisers and publishers– Network and publisher each get share of revenue;

– Benefits for advertiser / publisher:• Ad network brings in entire group of advertisers and publishers at once• Quality control of accepted partners• Automatic ad rotation• Allows publisher/advertiser to control various campaign parameters (volume

capping, ad format, blocking, etc.)• Support for various forms of targeting• Tracking and (customisable) reporting of campaign performance

– Each network has its own profile, e.g. size of publishers (minimum traffic), sector(s) it focuses on, etc.

– Examples: Advertising.com, ValueClick, Tribal Fusion, Google AdSense, etc.

Forms of Targeted Online Advertising

• Types of targeting:– Geographic (US: Nielsen's DMAs – Designated Market Areas)– Demographic (e.g. males aged 18-34) or psychographic (e.g. travel

enthusiasts)– Dayparting (e.g. only business hours), day of week, etc.– Bandwidth (e.g. rich media only on broadband)– Pixel targeting

– Contextual: based on Web page content (e.g. through keyword matching and/or analysis of page content)

• Examples: Google's AdSense, Yahoo!/Overture's ContentMatch

– Behavioural: based on past browsing behaviour (site to site!)• Example: Tacoda Audience Networks

• Claria's PersonalWeb: downloadable personalised homepage application; Web-wide tracking! (http://www.clickz.com/showPage.html?page=3595996)

The Limitations of Contextual Ads…

Source: http://www.adrants.com/images/product_placement_toyota_teacher.jpg

Search-based Advertising & Google

• Search-based advertising: payment to a search service to display a sponsored link to a company's web site next to search results for particular term(s)

• Example: Google AdWords

• Paid placement rather than paid inclusion (fee to be indexed: out of favour)

• Google's ad network: Google AdSense

Source: adwords.google.com [accessed Nov. 2005]

Online demo: http://services.google.com/tutorial/awsignup/awsignup.html

Spending on Online Advertising Categories

• Search ads: 40%• Banner ads: 20%• Classified listings: 18%• Streaming video/audio ads: 8% (fast growing segment)• Online sponsorship (an advertiser sponsoring an entire

site, online event or e-mail message): 5%

Source: Gilbert, A., Internet ad revenue climbs 26 percent, CNET News.com, Sept. 26, 2005, available at: http://news.com.com/Internet+ad+revenue+climbs+26+percent/2100-1024_3-5882670.html

Google AdWordsGoogle AdWords

Google AdSenseGoogle AdSense

Screen capture taken from: www.psu.com

Click Fraud

• Possible threat to pay-per-click model: click fraud

Source: http://www.emarketer.com/Article.aspx?1004525 [accessed Feb. 2007]

Viral Marketing Example• Launch:

10 emails were sent out to friends of beer.com from their office to beta test “Virtual Bartender”. No other form of marketing was used and there weren’t any links from the home page or any other sites. No search engine marketing, banner ads or offline media have been used to promote it.

• Day 1:More than 15,000 sessions. The first “Fan Forum” appeared from the UK where young DJs talked about the commands they discovered.

• Day 2:Sessions began doubling – 30,000. More “Fan Forums” appeared around the world (Holland, Italy, Japan, USA)

• Day 6:Over 500,000 sessions. Still going viral – The only way to get the Virtual bartender was through forwarded emails and the increasing number of 'Fan Forums' appearing in search engines.Average length of visit: 7 minutes; Page views: 7,980,000

• By day 28 the site had reached 10 million sessions. It is still getting hundreds of thousands of visitors each week.Source: http://en.wikipedia.org/wiki/VirtualBartender.beer.com [accessed April 2005]

Incentive Marketing: Coupon Sites• Incentive marketing model: customer loyalty program

that provides incentives to customers such as redeemable points or coupons for making purchases from associated retailers.

• Consumers need to register and provide key demographics so that targeted offers and promotions can be made based on their household information.

• Clients may be online or traditional shops.• Example: CoolSavings

URL: www.coolsavings.com

Search Engine Optimisation (SEO)

• SEO: how to improve ranking in search results?• Submit URL to search engines and directories• Climb up the ranks:

– Make sure good specific keywords are included in titles, meta tags, ALT tags, <h1>, <b>, etc.

– Keep it easy for spiders to search your site– Popularity: find sites to link to you! (Google's PageRank algorithm)– Regular updates– Spamming? (e.g. link farms)

• Google's “sandbox”– penalising link abuse by excluding site from search results– waiting period for new sites to climb up the search ranking

• Thriving industry!

Google Bombing

The First Ever Google Bomb

URL: http://uber.nu/2001/04/06/ [accessed Nov. 2005]

Web Analytics

• Web analytics is the monitoring and reporting of actual web site usage so as to improve its effectiveness

Web Analytics: Main Goals

• Help optimise server infrastructure and performance– e.g. avg./max. number of visitors, patterns, …

• Improve web site design– e.g. where/why are visitors leaving my site?

• Measure the effectiveness of marketing strategies, SEO activities, and advertising campaigns– e.g. monitor effect of new strategy on traffic and (more

importantly) conversion rate, effectiveness of banner campaigns, search engine visibility, etc.

• Personalisation: deliver content specific to each user– e.g. recommender systems (customers who bought this book

also bought…), targeted offers, etc.

Web Analytics: Server Log Analysis

• Common data collection technique: server log analysis– Every HTTP request produces an entry in the web server log

(“clickstream” data), containing following data:• Remote host: IP address or domain name that identifies the location

of the computer network you are using• Date/time stamp• Resource requested• Referrer: web page with hyperlink you clicked on to arrive here• Browser and platform

(Note: sequence of HTTP requests for every hyperlink clicked less detailed unit of analysis than eye movement)

195.162.218.155 [27/Jun/2002:00:01:54 +0200] "GET /dutch/shop/detail.html HTTP/1.1" 200 38890 "http://www.msn.be/shopping/food/" "Mozilla/4.0 (MSIE 6.0)"

195.162.218.155 [27/Jun/2002:00:01:54 +0200] "GET /dutch/shop/detail.html HTTP/1.1" 200 38890 "http://www.msn.be/shopping/food/" "Mozilla/4.0 (MSIE 6.0)"

Server Log Analysis (contd.)

• Examples of useful web usage information that can be extracted from web server logs– IP address: origin of our visitors (geographical area, ISP or

company domain)– Information on referrer

• Most popular search queries

Understand why we attract visitors (what were they looking for?), monitor search engine visibility, …

• Top referrers

Measure the effectiveness of online advertising campaigns, identifying which e-business partners to work with, …

– Hits per hour/day/week/month reports and time series analyses Optimising server infrastructure for average and peak loads, plan

capacity to handle anticipated future growth, …

Server Log Analysis (contd.)

• Examples of useful web usage information that can be extracted from web server logs (contd.)– Errors loading pages

Repair

– Most common browsers Which ones to support (the most…)

– Navigation information• Most/least requested pages

• Which paths the visitors take

• How much time visitors spend on each page

• The most common starting page

• Where visitors are leaving your site

How to improve web site design

Web Analytics: Individual User Behaviour

• How to identify users during & across sessions?– Implicit:

• Identification of visitor may be based on combination of IP address (duration of session) and cookies

• Visitor remains anonymous (unless he/she registers or buys)

• Allows to distinguish between new and repeat visitors (evolution in both numbers important for monitoring marketing strategy)

• Repeat visitors: you know what they looked at during previous visits! profiling based on online behaviour

– Explicit:• Through registration / log-in mechanism, or when purchase made (conversion)• No longer anonymous: identity can be established• May now be linked with data from offline channels, external data, …

additional opportunities for customer profiling

Cookies

• Cookies– Small text file that a web server can deposit on a user's

hard disk (often containing a unique user ID)– When the user returns to the site, the web server retrieves

the cookie (thus identifying the user as a repeat visitor)– A web site cannot look at cookies from other sites

• Uses for cookies– Provide a better user experience– Easier to gather accurate information about the site's

visitors– May be used to implement virtual shopping carts

Cookies (contd.)• Problems with cookies

– People often share machines– Cookies get erased– Multiple machines

Cookies often combined with registration /

log-in mechanism

• Privacy concerns– Third-party cookies and “Web bugs”

Page Tagging

• Page tagging: alternative to server log analysis– Client-side as opposed to server-side data collection– Usually involves “tagging” web page with reference to JavaScript

program that:• Drops cookie to further track visitor• Sends additional data through to server (ranging from client's

browser configuration, screen size, etc. to tracking client-side events)

– Often third-party server, i.e. that of analytics provider (hosted solution), or setup/run at own site

• Server log analysis and page tagging can complement each other (each has its advantages/disadvantages) hybrid solution!

Google Analytics & Page Tagging

http://www.google.com/analytics [accessed when I tried to register last year… :-)]

Note: New beta software by Google (http://services.google.com/websiteoptimizer/): AdWords landing site optimisation – try design variations & test differences in conversion

Google's New Patents

• In the not-so-far future, Google may include web analytics data for search results ranking (cf. recent patent):“[0093] According to an implementation consistent with the principles of the invention, information corresponding to individual or aggregate user behavior relating to a document over time may be used to generate (or alter) a score associated with the document. For example, search engine 125 may monitor the number of times that a document is selected from a set of search results and/or the amount of time one or more users spend accessing the document. Search engine 125 may then score the document based, at least in part, on this information.”Source: http://appft1.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=/netahtml/PTO/search-bool.html&r=1&f=G&l=50&co1=AND&d=PG01&s1=20050071741&OS=20050071741&RS=20050071741

Web Personalisation• Online customer identification

• Personal data and preferences explicitly provided by customer

• Clickstream data (implicit)

• Customer's online purchase history

• Data collected from off-line channels (back-office or external)

Very rich individual customer profiles

Huge opportunities for mass personalisation: one-to-one channels with customers over mass communication medium– “If I have two million customers on the web, I should have two million

stores on the web” (Jeff Bezos, Amazon)

– Customised delivery and presentation of content, and targeting offers and campaigns, specific to individual users

VirginWineshttp://www.bluemartini.com

Web Analytics & E-Mail Advertising

• Similar techniques can be used to monitor whether emails sent to customer base are:– Opened?

<img src="" width="1" height="1" alt="Web Bug from http://as1.emv2.com/S?28a029acf4eeb895a4e5b0372593af03-A-482114-444000.gif" />

– Clicked?<a href="/exchweb/bin/redir.asp?URL=http://as1.emv2.com/I?X=f8c3bb3a03fb46a3fae020c414e2934d46544bcbb0e61036" target=_blank><img src="/exchweb/img/clear1x1.gif" alt="Live a little in Lille Eurostar + 1 night 3 star from &pound;85* Book now" width="177" height="59" border="0"></a>

– Led to conversion?

• Can be used to monitor effectiveness of different strategies (e.g. different treatment of different segments based on demographic data, last sent/opened, etc.)

Web Analytics: Usability Studies

• Web analytics can also refer to usability studies

• Goal: evaluate and improve Web site design

• Can be applied earlier in the life cycle

• “Web analytics is the assessment of a variety of data, including web traffic, web-based transactions, web server performance, usability studies, user submitted information [i.e. surveys], and related sources to help create a generalised understanding of the visitor experience online.” (Eric Peterson, Web Analytics Demystified)

• Qualitative usability studies: let some people use the web-site and observe them or ask them about their experiences

(Source: http://www.useit.com/alertbox/20000319.html)

Qualitative Usability Studies

Quantitative Usability Studies• Quantitative usability studies: set up usability

experiments and (statistically) analyse the results

– Basic examples of usability metrics are:• success rate (whether users can perform the task at all)• time on task• error rate• user satisfaction

– Example uses:• Track progress between releases• Assess competitive position• Make stop/go decision before launch

74.5044.75Satisfaction

40 sec.140 sec.Task 4

8 sec.9 sec.Task 3

15 sec.75 sec.Task 2

6 sec.12 sec.Task 1

RedesignOriginal Design

74.5044.75Satisfaction

40 sec.140 sec.Task 4

8 sec.9 sec.Task 3

15 sec.75 sec.Task 2

6 sec.12 sec.Task 1

RedesignOriginal Design

74.5044.75Satisfaction

40 sec.140 sec.Task 4

8 sec.9 sec.Task 3

15 sec.75 sec.Task 2

6 sec.12 sec.Task 1

RedesignOriginal Design

74.5044.75Satisfaction

40 sec.140 sec.Task 4

8 sec.9 sec.Task 3

15 sec.75 sec.Task 2

6 sec.12 sec.Task 1

RedesignOriginal Design

(http://www.macromedia.com/software/flash/productinfo/usability/usability_test/)

Usability Experiments: Eye-Tracking

• Eye-tracking: participants are set up with a physical head gear to track their eye movements as they browse through a site