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e-Commerce
Chapter 1
Overview of e-Commerce Framework
Exhibits and Tables
Overview of E-Commerce Framework — Today’s Objective
Develop an understanding of the framework of e-commerce
Chapter 1:Overview of E-Commerce Framework
Definition of e-commerce
Distinct categories of e-commerce
E-commerce vs. traditional commerce
The importance of e-commerce
Decision-making in e-commerce
A framework for e-commerce
What is to come?
Conclusion
Chapter 1Overview of E-Commerce Framework
Definition of e-commerce
Distinct categories of e-commerce
E-commerce vs. traditional commerce
The importance of e-commerce
Decision-making in e-commerce
A framework for e-commerce
What is to come?
Conclusion
Definition of E-Commerce
“[The Internet] is global. It favors intangible things – ideas, information, relationships. And it is intensively interlinked.”
- Kevin Kelly, “New Rules for the New Economy”
E-commerce is characterized by several specific attributes: • It is about the exchange of digitalized information between parties• It is technology-enabled• It is technology-mediated• It includes intra- and inter-organizational activities that support the exchange
E-commerce can be defined as technology-mediated exchange between parties (individuals, organizations or both) as well as the electronically based intra- and inter-organizational activities that facilitate such exchange
Chapter 1:Overview of E-Commerce Framework
Definition of e-commerce
Distinct categories of e-commerce
E-commerce vs. traditional commerce
The importance of e-commerce
Decision-making in e-commerce
A framework for e-commerce
What is to come?
Conclusion
B2B
B2C
C2B
C2CConsumers
Business
And selling to...
Business originating from...
Business Consumers
Table 1 — 1: Four Categories of E-Commerce
Four distinct categories of e-commerce can be defined, based on the business origination and the customer type
e.g., Freemarket, Covisint e.g., Mercata.com
e.g., Groupsgoogle.com, Monster.com
e.g., Amazon, Staples.com, Yahoo
Chapter 1:Overview of E-Commerce Framework
Definition of e-commerce
Distinct categories of e-commerce
E-commerce vs. traditional commerce
The importance of e-commerce
Decision-making in e-commerce
A framework for e-commerce
What is to come?
Conclusion
How Is E-Commerce Different From Traditional Commerce?
1. Core Strategic Decisions Are Technology-Based• Digital businesses cannot separate technology choices from the strategic decision-making process
2. Real-Time Competitive Responsiveness• Speed is becoming increasingly important as a means to increase differentiation as well as to
simulate competitors
3. 24/7 Access• Consumers expect to be able to constantly access a business’s online storefront, forcing
businesses to adjust their level of responsiveness (both strategic and tactical)
4. Technology-Based Consumer Interface• “Screen-to-face” customer interaction has increased the importance of capturing and delivering a
positive customer experience
5. Customer in Control of the Interaction• Technology-based interfaces limit the company’s influence on the buying process and give the
customer more control of the interaction
6. Increased Knowledge of Customer Behavior• A technology-based interface, however, gives the company the opportunity to more accurately
track consumer behavior
7. Networked Economics and Positive Feedback• Networked economics and positive feedback can allow “increasing returns”
Supporting Slide 1 — A: Point-Counterpoint: Do Valuations Make Sense?
Point-CounterpointValuations Make Sense Valuations Do Not Make Sense
After the April 2000 Nasdaq slump, there has been an increased focus on path to profitability and revenue
– Lines are beginning to get drawn between winners and losers
Techniques such as real options valuation yield observed valuations
Investors are placing hundreds of billions of dollars based on their projected valuations
Network economics and information economics will combine to create highly profitable companies that dominate their industries
There is a high level of uncertainty leading to wide fluctuations
– Nasdaq fell by 30% in April 2000 Many companies do not demonstrate
profits for a long period of time, making it hard to value them
There is an inconsistency between assumptions made in the valuation of online and offline companies
There is often a “bending” of the accounting rules by online companies
Valuations are based on the number of customers and make the assumption that the economics of “monetizing” these customers will remain favorable
Many stocks tend to be moved by momentum
Chapter 1:Overview of E-Commerce Framework
Definition of e-commerce
Distinct categories of e-commerce
E-commerce vs. traditional commerce
The importance of e-commerce
Decision-making in e-commerce
A framework for e-commerce
What is to come?
Conclusion
US Online Population Forecasts
Population (Millions)
• At the end of 2003 approximately 55% of the US population will be online
Exhibit 1 — 1: Growth in Number of Internet Users
E-Commerce is significant in several respects, first of which is the expected growth of the online population
66,470
134,000
153,000
140,000
600
125
210
500
1 10 100 1,000 10,000 100,000 1,000,000
Forrester
Yankee Group
IDC
eStats
19962000
Exhibit 1 — 2: Growth in the B2B Sector
0200400600800
10001200
1999 2003
$Bill
ions
B2B E-Commerce Projections
USA
World
• The B2B sector is expected to grow significantly
• While different sources provide different estimates, they all show a fast growth between 1996 and 2000
• IDC estimated that US annual revenues of $50 billion in 1999 could go up to $634 billion by 2003. Total B2B revenues are forecasted to reach $1.1 trillion by 2003
International Data Corporation
-20
0
20
40
60
80
100
120
1922
1926
1930
1934
1938
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
E
Internet as Mass Medium — North American Adoption Curves
North American Users /
Households (MM)
* Launch of HBO in 1976 used to estimate the beginning of cable as an entertainment / advertising medium
Radio
TV
Cable CommercialInternet
50 Million Users / Households
Years to Reach50 MM UsersRadio: 38 years
TV: 13 years Cable*: 10 yearsCommercial Internet: 5 years
Exhibit 1 — 3: Adoption Rate of the Internet vs. Other Mediums
The fast growth of the Internet compared with other media is an indication of the velocity of how E-commerce is affecting the nature of economic activity
Exhibit 1 — 4: Estimated Savings From E-Commerce
In addition to the growth in online population, B2B revenues and Internet adoption, E-commerce is important for the cost savings it can generate as well as for its impact on industry boundaries and on many aspects of the social life
• Cost savings from e-commerce are expected to exceed $1 trillion by the end of year 2002
Chapter 1:Overview of E-Commerce Framework
Definition of e-commerce
Distinct categories of e-commerce
E-commerce vs. traditional commerce
The importance of e-commerce
Decision-making in e-commerce
A framework for e-commerce
What is to come?
Conclusion
E-Commerce Decision-Making Process
New E-Commerce Business
Which customers
should I target?
What unique benefits should I
provide?
How do I communicate
with customers?
How can I provide a
compelling online
experience?
How should I structure the organization?
Who should be my partners?
What metrics should be used to
track performance?
How will the business create
shareholder value?
Supporting Slide 1 — B:Point-Counterpoint: Who Will Win? Online vs. Offline
Point-Counterpoint
Online Will Win Offline Will Win
Offline companies can’t easily cannibalize their own businesses
Offline companies’ stock does not allow them to adequately incentivize key talent
Offline companies move too slowly Key elements of business (e.g., business
design, strategy, value proposition) are different in the networked economy
“Innovator’s Dilemma”: focusing on current customer needs causes companies to divert focus from new technologies
Market will not tolerate blue chip companies running loss-making businesses
Offline companies may face a channel conflict
Companies like Schwab have become leading players in the online brokerage industry
Companies with established market leadership have key assets such as relationships with customers and suppliers, deep industry knowledge and experienced management
Established companies have deep pockets
Offline companies have established and trusted brands
Offline companies can create spinoff businesses with new culture, processes, funding, etc.
There have been other technology revolutions
– from 1894 to 1903, there were 20,000 telephone companies that started in the US
Chapter 1:Overview of E-Commerce Framework
Definition of e-commerce
Distinct categories of e-commerce
E-commerce vs. traditional commerce
The importance of e-commerce
Decision-making in e-commerce
A framework for e-commerce
What is to come?
Conclusion
Exhibit 1 — 5: Framework for E-Commerce
The E-commerce framework helps managers develop a sound E-commerce strategy
Frame the Market Frame the Market OpportunityOpportunity
Select the Select the Business ModelBusiness Model
Design Customer Design Customer InterfaceInterface
Develop Marketing Develop Marketing Communication Communication
StrategiesStrategies
Implement the StrategyImplement the Strategy DefineDefine MetricsMetrics
EstimateEstimate Market Value Market Value
• “Where will I play?”• The emphasis is more on potential business partnerships
• “What is the value proposition?”• What products/services should be offered?• What resources are necessary?• What financial model should be used?
• “What should the online interface look like?”• Look and feel• Content• Transaction capabilities• Community building
• “How do I attract and retain customers?”• Includes all offline and online methods to reach customers
• “How do we go to market?”
• “How are we doing?”• What metrics should be used to track the business performance?
• “What value are we creating for shareholders?”
Sample eCommerce Sites
Fulfillment Systems
CustomerInterface
Online Offline
Yahoo!
Amazon.com
BN.com
McD
onal
ds
Egg h
e ad
Exhibit 1 — 6: Where to Play Online and Offline
Many companies are combining both online and offline capabilities to serve customers. There are different positions a company can hold when deciding where to play.
• Yahoo only plays online; it only communicates with its customers online
• Egghead also plays online only, but the Internet is used for both customer interface and back-office systems
• Amazon employs both online and offline back-office resources, but interacts with customers only online
• McDonald’s interacts with customers offline (mainly) and online, but only uses offline back-office systems
• BN.com plays in all four quadrants
Exhibit 1 — 7: Market Infrastructure
Underlying each e-commerce decision is the industry environment or market infrastructure, which is generally outside the company’s control and presents both opportunities and constraints. This environment can be divided into two broad categories:
Network Infrastructure Media Infrastructure
• Basic, underlying group of electronic devices and connecting circuitry designed as a system to share information
• Devices: telephone, radio, cable TV, computer, satellite, etc.
• Companies: ISPs, hardware providers, software companies, telcos, etc.
• All the various communication companies and their channel of communication
• Media infrastructure refers to the content of communication
Telephone/DSL
Cable
Broadcast Radio & TV
Satellite
Wireless
Print (Newspapers and Magazines)
Television
Radio
Music
Motion Pictures
DigitalConvergence
NetworkInfrastructure
MediaInfrastructure
Network and media infrastructure are independently converging due to the digitalization of information, causing competition in the market to increase
• The network to deliver digitized content has converged, leading to cross-industry competition
• The major content players are now competing to deliver content to the same target segments
Exhibit 1 — 8: Media Convergence to a Digital Platform
Chapter 1:Overview of E-Commerce Framework
Definition of e-commerce
Distinct categories of e-commerce
E-commerce vs. traditional commerce
The importance of e-commerce
Decision-making in e-commerce
A framework for e-commerce
What is to come?
Conclusion
Exhibit 1 — 9: A Framework for E-Commerce
There are six interrelated, sequential decisions to make to implement an e-commerce strategy. These decisions are made in the context of a changing market-level infrastructure
• Vertical boxes are analyses and decisions that are “controllable” by the firm• Horizontal boxes represent forces that are “non-controllable” by the firm
Framing the Market
Opportunity
Implemen-tation
Market Communica-
tions and Branding
Evaluation: Metrics and Valuation
Business Model
Customer Interface
Network Infrastructure
Media Infrastructure
Publics and Politics
E-CommerceStrategy
Market Infrastructure
Chapter 1:Overview of E-Commerce Framework
Definition of e-commerce
Distinct categories of e-commerce
E-commerce vs. traditional commerce
The importance of e-commerce
Decision-making in e-commerce
A framework for e-commerce
What is to come?
Conclusion
E-Commerce Framework Overview — Conclusion
After today’s lesson, you should be able to answer the following questions:
1. What is the definition of e-commerce?
2. What are the distinct categories of e-commerce?
3. What are the key characteristics of e-commerce that make it different from traditional commerce?
4. Why is understanding e-commerce so critical?
5. What is the e-commerce framework? What are its main components? Which of them are “controllable” and which are “non-controllable”?