Fluent Essays

Write a summary of Week 4s PPT Slides (Chapters 5 and 6) Electronic Commerce Tenth Edition Chapter 6 Social Networking, Mobile Commerce, and Online Auctions 1 1 1 Electronic Commerce, Tenth Edition 2 2 Learning Objectives In this chapter, you will learn: How social networking emerged from virtual communities How social networking tools such as blogs are used in online business activities About mobile technologies that are now used to do business online How online auctions and auction-related businesses have become a major new commercial activity introduced as part of electronic commerce 2 2 3 3 From Virtual Communities to Social Networks Online Web communities Not limited by geography Individuals and companies with common interests Meet online and discuss issues, share information, generate ideas, and develop valuable relationships Companies make money by serving as relationship facilitators Combine Internet’s transaction cost-reduction potential with a communication facilitator role Electronic Commerce, Tenth Edition 3 3 3 4 Virtual Communities Virtual community (Web community, online community) Gathering place for people and businesses No physical existence Early virtual communities Bulletin board systems (BBSs) Revenue source: monthly fees and selling advertising Usenet newsgroups Message posting areas on usenets Electronic Commerce, Tenth Edition 4 4 5 Virtual Communities (cont’d.) Current forms Web chat rooms Sites devoted to specific topics or general exchange of information, photos, videos People connect and discuss common issues, interests Considerable social interaction Relationship-forming activities Similar to physical communities Electronic Commerce, Tenth Edition 5 5 6 Early Web Communities 1985: WELL (“whole earth ‘lectronic link”) Monthly fee to participate in forums and conferences 1999 bought by Salon.com 1995: Beverly Hills Internet virtual community site Offered webcams, free Web site space Grew into GeoCities Revenue source: advertising, pop-up pages 1999: purchased by Yahoo! ($5 billion) Closed in 2009 Electronic Commerce, Tenth Edition 6 6 7 Early Web Communities (cont’d.) 1995: Tripod virtual community Offered free Web page space, chat rooms, news, weather updates, health information pages Revenue source: sold advertising 1995: Theglobe.com Cornell University class project Included bulletin boards, chat rooms, discussion areas, personal ads Added more features Revenue source: sold advertising Most early Web community businesses closed Electronic Commerce, Tenth Edition 7 7 8 Social Networking Emerges As the Internet and Web grew: Experience of sharing new online communication faded New phenomenon in online communication began Multiple common bonds joined people with all types of common interests Social networking sites Allow individuals to create and publish a profile, create a list of other users with whom they share a connection (or connections), control that list, and monitor similar lists made by other users Electronic Commerce, Tenth Edition 8 8 9 Social Networking Emerges (cont’d.) Social networking sites Six Degrees (1997) Friendster (2002) Had features found in today’s social networking sites LinkedIn: devoted to business connections Tribe.net YouTube: popularized video inclusion MySpace: popular with younger Web users Twitter Users can send short messages to other users who sign up to follow their messages (tweets) Google+ Electronic Commerce, Tenth Edition 9 9 10 Social Networking Emerges (cont’d.) Basic idea behind social networking People invited to join by existing members Site provides directory New members work through friends established in the community Electronic Commerce, Tenth Edition 10 10 FIGURE 6-1 Social networking Web sites 11 Electronic Commerce, Tenth Edition 11 © Cengage Learning 2013 11 Electronic Commerce, Tenth Edition 12 FIGURE 6-2 Leading social networking sites around the world © Cengage Learning 2013 12 13 Social Networking Emerges (cont’d.) Web logs (Blogs) Web sites containing individual commentary on current events or specific issues Form of social networking site Twitter: microblog Very informal; tweets limited to 140 characters Early blogs focused on technology topics 2004: blogs used as political networking tool 2008: all major candidates using blogs Communicating messages, organizing volunteers, raising money, meetups Electronic Commerce, Tenth Edition 13 13 14 Social Networking Emerges (cont’d.) Retailers embracing blogs Way to engage visitors not ready to buy from site Marketing and supply managers saw social networking benefits of enhancing B2B relationships Business uses CNN Blog information included in television newscasts Electronic Commerce, Tenth Edition 14 14 15 Social Networking Emerges (cont’d.) Business uses (cont’d.) Newspapers Inviting information and opinion contributions Targeting 18- to 35-year-old generation Participatory journalism Trend toward having readers help write the online newspaper Blogs can become businesses in themselves Must generate financial support (fees, advertising) Electronic Commerce, Tenth Edition 15 15 16 Social Networking Emerges (cont’d.) Social networking Web sites for shoppers Social shopping Practice of bringing buyers and sellers together in a social network to facilitate retail sales Example: craigslist Operated by not-for-profit foundation All postings free (except help wanted ads) Example: Etsy Web site Marketplace for selling handmade items We Love Etsy: Etsy buyers, sellers share information Electronic Commerce, Tenth Edition 16 16 17 Social Networking Emerges (cont’d.) Idea-based social networking Social networking sites form communities based on connections among people Idea-based virtual communities Communities based on connections between ideas Idea-based networking Participating in idea-based virtual communities Examples: del.icio.us site, 43 Things site Electronic Commerce, Tenth Edition 17 17 18 Social Networking Emerges (cont’d.) Virtual learning networks Distance learning platforms for student-instructor interaction (Blackboard) Tools include: Bulletin boards, chat rooms, drawing boards Moodle and uPortal Open-source software projects devoted to virtual learning community development Open source software Developed by a programmer community Software available for download at no cost Electronic Commerce, Tenth Edition 18 18 19 Revenue Models for Social Networking Sites Late 1990s Revenue created by selling advertising Used by virtual communities, search engine sites, Web directories 1998 Purchases and mergers occurred New sites still used advertising-only revenue-generation model Included features offered by virtual community sites, search engine sites, Web directories, other information-providing and entertainment sites Web portal goal: every Web surfer’s doorway to Web Electronic Commerce, Tenth Edition 19 19 20 Revenue Models for Social Networking Sites (cont’d.) Advertising-supported social networking sites Smaller sites with specialized appeal Can draw enough visitors to generate significant advertising revenue Example: I Can Has Cheezburger site Recall from Chapter 3 Sites with higher number of visitors can charge more Stickiness: important element in site’s attractiveness Rough measure of stickiness Time user spends at the site Electronic Commerce, Tenth Edition 20 20 21 FIGURE 6-3 Popularity and stickiness of leading Web sites Electronic Commerce, Tenth Edition 21 21 22 Revenue Models for Social Networking Sites (cont’d.) Advertising-supported social networking sites (cont’d.) Social networking sites Members provide demographic information Potential for targeted marketing: very high High visitor counts Can yield high advertising rates Second-wave advertising fees Based less on up-front site sponsorship payments Based more on revenue generation from continuing relationships with people who use the social networking sites Electronic Commerce, Tenth Edition 22 22 23 Revenue Models for Social Networking Sites (cont’d.) Mixed-revenue and fee-for-service social networking sites Most social networking sites use advertising Some charge a fee for some services Examples: Yahoo! All-Star Games package, Yahoo! premium e-mail service Monetizing Converting site visitors into fee-paying subscribers or purchasers of services Concern: visitor backlash More examples: The Motley Fool and TheStreet.com Electronic Commerce, Tenth Edition 23 23 24 Revenue Models for Social Networking Sites (cont’d.) Fee-based social networking Google Answers site Early attempt to monetize social networking Questions answered for a fee Google operated service from 2002 to 2006 Similar free services Yahoo! Answers, Amazon (Askville) Uclue (paid researchers earn 75 percent of total fee) Advocates claim better quality Fee-based Web sites can generate revenue by providing virtual community interaction Electronic Commerce, Tenth Edition 24 24 25 Revenue Models for Social Networking Sites (cont’d.) Microlending sites Function as clearinghouses for microlending activity Microlending Practice of lending very small amounts of money Lend to people starting or operating small businesses (especially in developing countries) Microlending key element Working within social network of borrowers Provide support, element of pressure to repay Examples: Kiva and MicroPlace Electronic Commerce, Tenth Edition 25 25 26 Revenue Models for Social Networking Sites (cont’d.) Internal social networking Provide social interaction among organization’s employees Run on organization’s intranet Save money (less paper) Provide easy access to employee information Good for geographically dispersed employees Adding wireless connectivity Combine second-wave technology with first-wave business strategy Wireless communications with internal Web portals Electronic Commerce, Tenth Edition 26 26 27 Mobile Commerce Short messaging service (SMS) Allows mobile phone users to send short text messages to each other 2008: United States developments allowing phones as Web browsers High-speed mobile telephone networks grew dramatically Manufacturers offered range of smart phones with Web browser, operating system, applications Potential for mobile commerce (m-commerce) Electronic Commerce, Tenth Edition 27 27 28 Mobile Operating Systems Japan and Southeast Asia mobile commerce Much larger online business activity Had high-capacity networks before U.S. NTT DoCoMo, Japan’s largest phone company Pioneered mobile commerce in 2000 U.S. mobile commerce beginning in 2008 Introduction of smart phones and high-capacity networks Smart phone examples: Apple iPhone, Palm Pre, several BlackBerry models Android operating system Electronic Commerce, Tenth Edition 28 28 29 FIGURE 6-4 Smart phones come in a range of different styles Electronic Commerce, Tenth Edition 29 29 30 Mobile Operating Systems (cont’d.) Mobile commerce browser display options Wireless Application Protocol (WAP) Allows Web pages formatted in HTML to be displayed on small-screen devices Display a normal Web page on the device Made possible by increased screen resolution Example: Apple iPhone Design Web sites to match specific smart phones Much more difficult to accomplish Electronic Commerce, Tenth Edition 30 30 31 Mobile Operating Systems (cont’d.) Mobile commerce browser display options (cont’d.) Apple, BlackBerry, Palm Use proprietary operating systems HTC, Motorola, Nokia At one time created their own operating systems and software applications Now use a standard operating system provided by a third party Most common third-party operating systems Android, Windows Mobile, Symbian Electronic Commerce, Tenth Edition 31 31 32 Mobile Operating Systems (cont’d.) Android operating system Most popular and fastest growing third-party operating system Developed by Google Open source Smart phone operating system Cannot be deleted/switched by user Operating system modifications Jailbreaking (Apple iphone’s operating system) Rooting (Android operating system) Electronic Commerce, Tenth Edition 32 32 Electronic Commerce, Tenth Edition 33 FIGURE 6-5 Smart phones operating systems: U.S. market shares 33 Mobile Apps Common operating systems emergence Occurred due to a change in the way software applications developed and sold Old U.S. mobile phone company revenue strategy Control application software (apps) Apple turned old revenue strategy on its head AT&T agreed to be sole carrier for iPhone Apple Apps for iPhone online store Independent developers create apps and sell them BlackBerry and Palm followed Apple’s lead Electronic Commerce, Tenth Edition 34 34 Mobile Apps (cont’d.) Recap from Chapter 4 Some mobile app sellers include advertising element Messages displayed from advertisers Part of the app screen or in a separate screen Mobile apps’ advertising space marketed in same way as Web sites’ banner advertising Companies moving to mobile commerce Determine suitability of Web site to mobile devices May be pertinent to develop separate Web site optimized for mobile users Electronic Commerce, Tenth Edition 35 35 36 Mobile Apps (cont’d.) Mobile phones for online banking In early stages in the United States Physicians using smart phones Read EKGs, managing diabetic patients Medical students: Epocrates (drug information database) Phones’ global positioning satellite (GPS) service capabilities Allow mobile business opportunities Apps tools/resources Swebapps, App Inventor, TaskCity Electronic Commerce, Tenth Edition 36 36 Tablet Devices Tablet devices 2010: Apple’s iPad introduced Smaller than laptop computer; larger than smart phone Wireless phone carrier’s service or local wireless network Internet connection Larger screen size better suited for online consumer products purchases Electronic Commerce, Tenth Edition 37 37 Mobile Payment Apps Mobile wallets Mobile phones functioning as credit cards Japan’s NTT DoCoMo phones combined capabilities Generate significant business Widespread credit card use in U.S. has limited use of mobile phone payments 2011: Phone readers offered by American Express, Visa, MasterCard Google Wallet for Android phones introduced Electronic Commerce, Tenth Edition 38 38 Electronic Commerce, Tenth Edition 39 Online Auctions Business opportunity perfect for the Web Auction site revenue sources Charging both buyers and sellers to participate Selling advertising Targeted advertising opportunities available Online auctions capitalize on Internet’s strength Bring together geographically dispersed people sharing narrow interests 39 Electronic Commerce, Tenth Edition 40 Auction Basics From Babylon to the Roman Empire to Buddhists Common activity of 17th century England Sotheby’s (1744), Christie’s (1766), colonial auctions Auction: seller offering item for sale Bids: price potential buyer willing to pay Bidders: potential buyers Private valuations: amounts buyer willing to pay Auctioneer: manages auction process Shill bidders: work for seller or auctioneer May artificially inflate price 40 Electronic Commerce, Tenth Edition 41 Auction Basics (cont’d.) English auctions Bidders publicly announce successively higher bids Item sold to highest bidder (at bidder’s price) Also called ascending-price auction Open auction (open-outcry auction) Bids publicly announced Minimum bid Beginning price If not met, item removed (not sold) 41 Electronic Commerce, Tenth Edition 42 Auction Basics (cont’d.) English auctions (cont’d.) Reserve price (reserve) Seller’s minimum acceptable price Not announced If not exceeded, item withdrawn (not sold) Yankee auction Multiple item units offered for sale (bidders specify quantity) Highest bidder allotted bid quantity Remaining items allocated to next highest bidders until all items distributed Bidders pay lowest successful bidder price 42 Electronic Commerce, Tenth Edition 43 Auction Basics (cont’d.) English auctions (cont’d.) Seller drawback May not obtain maximum possible price Buyer drawback Winner’s curse psychological phenomenon Bidder gets caught up in competitive bidding excitement Bids more than their private valuation 43 Electronic Commerce, Tenth Edition 44 Auction Basics (cont’d.) Dutch auctions Open auction Bidding starts at a high price Drops until bidder accepts price Also called descending-price auctions Seller offers number of similar items for sale Common implementation Use a clock (price drops with each tick) Bidders stop clock and take items at the given price If items remain, clock restarted 44 Electronic Commerce, Tenth Edition 45 Auction Basics (cont’d.) Dutch auctions (cont’d.) Often better for the seller Quickly move large numbers of commodity items Successful examples: Google initial public offering stock sale (2004) LookSmart stock repurchase 45 Electronic Commerce, Tenth Edition 46 Auction Basics (cont’d.) First-price sealed-bid auctions Sealed-bid auctions Bidders submit bids independently Prohibited from sharing information First-price sealed-bid auction Highest bidder wins If multiple items auctioned, next highest bidders awarded remaining items at their bid price 46 Electronic Commerce, Tenth Edition 47 Auction Basics (cont’d.) Second-price sealed-bid auction Same as first-price sealed-bid auction Except highest bidder awarded item at second-highest bidder price Commonly called Vickrey auctions William Vickrey: 1996 Nobel Prize in Economics Findings: Yields higher seller returns Encourages all bidders to bid private valuation amounts Reduces tendency for bidder collusion 47 Electronic Commerce, Tenth Edition 48 Auction Basics (cont’d.) Open-outcry double auctions Example: Chicago Board of Trade auctions of commodity futures and stock options Buy and sell offers shouted by traders in trading pit Each commodity, stock option traded in own pit Quite frenzied Double auctions (either sealed bid or open outcry) Good for items of known quality traded in large quantities No item inspection before bidding 48 Electronic Commerce, Tenth Edition 49 Auction Basics (cont’d.) Double auctions Buyers, sellers submit combined price-quantity bids Auctioneer Matches sellers’ offers Starts with lowest price and then goes up To buyers’ offers Starts with highest price and then goes down until all quantities offered are sold Operation format: Sealed bid or open-outcry Example: New York Stock Exchange 49 Electronic Commerce, Tenth Edition 50 Auction Basics (cont’d.) Reverse (seller-bid) auction Multiple sellers submit price bids Auctioneer represents single buyer Bids for given amount of specific item to purchase Prices go down as bidding continues Until no seller willing to bid lower Occasionally operated for consumers Most involve businesses as buyers and sellers 50 Electronic Commerce, Tenth Edition 51 FIGURE 6-6 Key characteristics of seven major auction types Click to edit Master text styles Second level Third level Fourth level Fifth level 51 Electronic Commerce, Tenth Edition 52 Online Auctions and Related Businesses Online auction business: rapidly changing Three auction Web site categories General consumer auctions Specialty consumer auctions Business-to-business auctions Varying opinions on categorizing consumer auctions Business-to-consumer Consumer-to-consumer Consumer-to-business 52 Electronic Commerce, Tenth Edition 53 Online Auctions and Related Businesses (cont’d.) General consumer auctions eBay: registration required, seller fees, rating system Seller’s risk: buyer uses stolen credit card; buyer fails to conclude transaction Buyer’s risk: no item delivery; misrepresented item Most common auction format: English auction Seller may set reserve price Bidders listed: bids not disclosed (until auction end) Continually updated high bid amount displayed Private auction option available 53 Electronic Commerce, Tenth Edition 54 Online Auctions and Related Businesses (cont’d.) General consumer auctions (cont’d.) Another eBay auction format: Dutch auction Both formats require minimum bid increment Amount by which one bid must exceed previous bid Proxy bid Bidder specifies maximum bid May cause bidding to rise rapidly eBay stores Integrated into auction site Sellers generate additional profits 54 Electronic Commerce, Tenth Edition 55 Online Auctions and Related Businesses (cont’d.) Competition in general consumer auctions eBay’s success due to unspecified audience Also spends $1 billion per year to market and promote Web site Major determinants of Web auction site success Attracting enough buyers and sellers Yahoo! Auction operation closed in 2007 Amazon.com with “Auctions Guarantee” Offered buyer protection through escrow service Closed in 2006 55 Electronic Commerce, Tenth Edition 56 Future challengers to eBay Must overcome lock-in effect New auction participants inclined to patronize established marketplaces Example: Japanese general consumer auction Yahoo! first to enter market Now dominates (more than 90\% market share) eBay maintains low market share (less than 3\%) Online Auctions and Related Businesses (cont’d.) 56 Electronic Commerce, Tenth Edition 57 Specialty consumer auctions Identify special-interest market targets Create specialized Web auction sites No need to compete with eBay Examples: JustBeads.com, Cigarbid.com, Winebid Online Auctions and Related Businesses (cont’d.) 57 Electronic Commerce, Tenth Edition 58 Consumer reverse auctions Reverse bid Visitor describes desired items or services Site routes visitor to participating merchants Reply to visitor by e-mail Offer item at particular price Buyer accepts Lowest offer Offer best matching buyer’s criteria All these types of sites now closed Online Auctions and Related Businesses (cont’d.) 58 Electronic Commerce, Tenth Edition 59 Consumer reverse auctions (cont’d.) Priceline.com Considered a seller-bid auction site Visitor states desired airline ticket, car rental, hotel room price If sufficiently high price: transaction completed Many transactions come from inventory Priceline operates more as a liquidation broker Online Auctions and Related Businesses (cont’d.) 59 Electronic Commerce, Tenth Edition 60 Group shopping sites Also known as group purchasing site Seller posts item with tentative price Individual buyers enter bids Agreement to buy one unit (no price provided) Site negotiates with seller for lower price Posted price decreases As number of bids increases (only if number of bids increases) Result: buyers force seller to reduce price Similar to consumer reverse auction Online Auctions and Related Businesses (cont’d.) 60 Electronic Commerce, Tenth Edition 61 Group shopping sites (cont’d.) Well-suited product types Branded products, well-established reputations Produces buyer confidence of good bargain High value-to-size ratio, non-perishable Disadvantages Difficulty attracting sellers’ interest Well-suited companies Find no advantage, fear sites cannibalize product sales, reluctant to offend current distributors Mercata and LetsBuyIt sites closed Successful sites: Groupon, LivingSocial, Gilt Online Auctions and Related Businesses (cont’d.) 61 Electronic Commerce, Tenth Edition 62 Business-to-business auctions Evolved to meet specific existing need Excess inventory disposal (manufacturing) Two methods Liquidation specialists: find buyers for unusable items Liquidation brokers: firms that finds buyers for items Online auctions Logical extension of these inventory liquidation activities to a new and more efficient channel (Internet) Online Auctions and Related Businesses (cont’d.) 62 63 Business-to-business auctions (cont’d.) Emerging business-to-business Web auction models Large-company model: creates own auction site Small-company model: uses third-party Web auction site instead of liquidation broker Both are direct descendants of traditional methods Online Auctions and Related Businesses (cont’d.) Electronic Commerce, Tenth Edition 63 63 Electronic Commerce, Tenth Edition 64 Business-to-business auctions (cont’d.) Third emerging business-to-business Web auction model New business entity enters market lacking efficiency and creates a site at which buyers and sellers who have not historically done business with each other can participate in auctions Resembles consumer online auctions Example: hospitals using online auctions to fill temporary employment openings Online Auctions and Related Businesses (cont’d.) 64 Electronic Commerce, Tenth Edition 65 Business-to-business reverse auctions Example: Owens Corning purchases Examples: Agilent, Bechtel, Boeing, Raytheon, Sony Potential disadvantage Suppliers compete on price alone Cut corners on quality or miss scheduled delivery dates Potential advantage Useful for nonstrategic commodity items with established quality standards Online Auctions and Related Businesses (cont’d.) 65 66 Business-to-business reverse auctions (cont’d.) Companies opting out Cisco, Cubic, IBM, Solar Turbines If suppliers do not participate: Impossible to conduct reverse auctions If competition high among suppliers: Reverse auctions provide efficient way to conduct, manage price bidding Online Auctions and Related Businesses (cont’d.) Electronic Commerce, Tenth Edition 66 66 Electronic Commerce, Tenth Edition 67 FIGURE 6-7 Supply chain characteristics and reverse auctions Click to edit Master text styles Second level Third level Fourth level Fifth level 67 Electronic Commerce, Tenth Edition 68 Auction-Related Services Entrepreneurs encouraged by eBay and other auction site growth Provide various kinds of auction-related services Escrow services Auction directory and information services Auction software (for sellers and buyers) Auction consignment services 68 Electronic Commerce, Tenth Edition 69 Auction-Related Services (cont’d.) Auction escrow services Buyers’ common concern: seller reliability Buyers protect interests in high-value items Independent party holds payment until: Buyer receives item Buyer satisfied item is as expected May take delivery of item from seller Perform buyer inspection (qualified to do so) Charge fees Percent of item’s cost, subject to minimum fee 69 Electronic Commerce, Tenth Edition 70 Auction-Related Services (cont’d.) Auction escrow services (cont’d.) Examples: Escrow.com, eDeposit May sell auction buyer’s insurance Protect buyers from nondelivery and quality risks Avoid escrow fraud Determine if licensed, bonded (licensing agency) Avoid offshore escrow companies entirely Other buyer protections Check seller’s rating Use Web site listings of unreliable sellers 70 Electronic Commerce, Tenth Edition 71 Auction-Related Services (cont’d.) Auction directory and information services Example: AuctionBytes Publishes e-mail newsletter Online auction industry articles Example: Price Watch Advertiser-supported site Advertisers post current selling prices Computer hardware, software, electronics 71 Electronic Commerce, Tenth Edition 72 Auction-Related Services (cont’d.) Auction software Target: sellers Helps manage online auctions Example: AuctionHawk and Vendio Seller management software and services Automate tasks Create attractive page layouts Manage hundreds of auctions 72 Electronic Commerce, Tenth Edition 73 Auction-Related Services (cont’d.) Auction software (cont’d.) Target: buyers Helps manage online auctions Sniping software Observes auction progress until last second As auction expires: places bid high enough to win (unless bid exceeds sniping software owner’s limit) Snipe: act of placing winning bid at the last second Almost always wins out over human bidder 73 Electronic Commerce, Tenth Edition 74 Auction-Related Services (cont’d.) Auction software (cont’d.) Example: Cricket Sniping Software site Created in 1997 by David Eccles Companies offer sniping service Sniping software runs on company Web site Customer enters instructions on site Company may offer subscriptions Company may offer mixed-revenue model 74 Electronic Commerce, Tenth Edition 75 Auction-Related Services (cont’d.) Auction consignment services Target: people and small businesses Want to use online auction Do not have skills, time to become a seller Auction consignment services Take item and create online auction for that item Handle transaction Remit proceeds balance (after deducting fee) Main auction consignment businesses ePowerSellers, iSold It 75 Summary Companies using the Web for entirely new things Creating social networks Using mobile technologies to make sales and increase operational efficiency Operating auction sites Conducting related businesses Businesses creating online communities to connect with customers and suppliers Individuals using social networking sites Personal and business-related interactions Mobile commerce opportunities emerging Electronic Commerce, Tenth Edition 76 76 Electronic Commerce, Tenth Edition 77 Summary (cont’d.) Companies’ internal social networking sites Facilitate … Electronic Commerce Tenth Edition Chapter 5 Business-to-Business Activities: Improving Efficiency and Reducing Costs 1 1 1 Electronic Commerce, Tenth Edition 2 Learning Objectives In this chapter, you will learn about: How businesses use the Internet to improve purchasing, logistics, and other support activities Electronic data interchange and how it works How businesses have moved some of their electronic data interchange operations to the Internet 2 2 3 Learning Objectives (cont’d.) Supply chain management and how businesses are using Internet technologies to improve it Electronic marketplaces and portals that make purchase-sale negotiations easier and more efficient Electronic Commerce, Tenth Edition 3 3 3 4 Purchasing, Logistics, and Business Support Processes Recap Strategy issues arise when providing information to potential customers Value chain model’s primary activities Identify customers, market and sell, and deliver Many business models for selling on the Web Used in B2B e-commerce Apply to B2C e-commerce Electronic Commerce, Tenth Edition 4 4 Electronic Commerce, Tenth Edition 5 Purchasing, Logistics, and Business Support Processes (cont’d.) Companies use electronic commerce to: Improve purchasing and logistics Improve all support activities Provide potential cost reductions, business process improvements Necessary characteristic: flexibility Economic organizations evolving from hierarchical structures to new, more flexible network structures Reduced transaction cost through Internet and Web technologies for business processes 5 Purchasing, Logistics, and Business Support Processes (cont’d.) Outsourcing: use of other organizations to perform specific activities Typically manufacturing Offshoring: outsourcing done by organizations in other countries Internet-enabled activities: purchasing, research and development, record keeping, information management Business process offshoring Impact sourcing or smart sourcing: offshoring done by or through not-for-profit organizations Electronic Commerce, Tenth Edition 6 6 Purchasing Activities Identify and evaluate vendors, select specific products, place orders, resolve any issues after receiving ordered goods or services Supply chain Part of industry value chain preceding a particular strategic business unit Includes all activities undertaken by every predecessor in the value chain to: Design, produce, promote, market, deliver, support each individual component of a product or service Electronic Commerce, Tenth Edition 7 7 Electronic Commerce, Tenth Edition 8 Purchasing Activities (cont’d.) Traditionally Purchasing department buys components at lowest price possible Bidding process focus: individual component cost Procurement includes: All purchasing activities Monitoring all purchase transaction elements Managing and developing supplier relationships 8 Electronic Commerce, Tenth Edition 9 Purchasing Activities (cont’d.) Procurement also called supply management Procurement staff have high product knowledge Identify and evaluate appropriate suppliers Sourcing procurement activity Identifying suppliers, determining qualifications e-sourcing Using Internet technologies in sourcing activities 9 Purchasing Activities (cont’d.) Business purchasing process More complex than most consumer purchasing processes Spend Total yearly dollar amount for goods and services purchased Institute for Supply Management (ISM) Main organization for procurement professionals Electronic Commerce, Tenth Edition 10 10 Electronic Commerce, Tenth Edition 11 FIGURE 5-1 Steps in a typical business purchasing process © Cengage Learning 2013 Click to edit Master text styles Second level Third level Fourth level Fifth level 11 Electronic Commerce, Tenth Edition 12 Direct vs. Indirect Materials Purchasing Direct materials Become part of finished product Direct materials purchasing: two types Replenishment purchasing (contract purchasing) Company negotiates long-term material contracts Spot purchasing Purchases made in loosely organized market (spot market); demand exceeds estimates made for contract purchasing Indirect materials All other materials company purchases 12 Electronic Commerce, Tenth Edition 13 Direct vs. Indirect Materials Purchasing (cont’d.) Maintenance, repair, and operating (MRO) supplies Indirect materials purchased on a recurring basis Standard items (commodities) with price as main criterion Purchasing cards (p-cards) provide: Managers ability to make multiple small purchases Cost-tracking information to procurement Leading Suppliers: MRO: McMaster-Carr, W.W. Grainger, Office Depot, Staples, Digi-Key, Newark.com 13 Electronic Commerce, Tenth Edition 14 FIGURE 5-2 Grainger.com Web store © 1994-2001 W.W Grainger, Inc. All rights reserved. Click to edit Master text styles Second level Third level Fourth level Fifth level 14 Logistics Activities Classic objective Provide the right goods in the right quantities in the right place at the right time Important support activity for sales and purchasing Includes managing the movements of: Inbound materials and supplies Outbound finished goods and services Web and the Internet Providing increasing number of opportunities to better manage activities Electronic Commerce, Tenth Edition 15 15 Logistics Activities (cont’d.) Example: Schneider Track and Trace system Real-time shipment information: customers’ browsers Third-party logistics (3PL) provider Operates all (large portion) of customer’s materials movement activities Examples: Ryder and Whirlpool Excellent example of second-wave e-commerce Marriage of GPS and portable computing technologies with the Internet (Examples: Fed Ex and UPS) Third-wave e-commerce supported by smart phones 16 Electronic Commerce, Tenth Edition 16 16 Electronic Commerce, Tenth Edition 17 Business Process Support Activities General categories Finance and administration, human resources, technology development FIGURE 5-3 Categories of support activities 17 18 Business Process Support Activities (cont’d.) Human resources and /or payroll functions often outsourced by small/midsized companies Common support activity: training Underlies multiple primary activities Putting training materials on company intranet Can distribute materials to many different sales offices Can coordinate materials in corporate headquarters Knowledge management Intentional collection, classification, dissemination of information about a company, its products and processes (Examples: Ericsson, KMWorld) Electronic Commerce, Tenth Edition 18 18 Electronic Commerce, Tenth Edition 19 E-Government E-Government Use of electronic commerce by governments and government agencies Enhances functions performed for stakeholders Enhances businesslike activity operations U.S. government examples Financial Management Service (FMS): Pay.gov site Bureau of Public Debt: TreasuryDirect site Department of Homeland Security (DHS) Internet technology use initiatives to enable information sharing among agencies 19 Electronic Commerce, Tenth Edition 20 E-Government (cont’d.) Examples in other countries United Kingdom Department for Work and Pensions Web site Singapore Government Online site State government sites California’s one-stop portal site: CA.GOV Similar sites for most other states Examples in local government Large cities: Minneapolis, New Orleans sites Small cities: Cheviot, Ohio Web site as one example 20 Electronic Commerce, Tenth Edition 21 FIGURE 5-4 State of California portal site Copyright © 2011 State of California Click to edit Master text styles Second level Third level Fourth level Fifth level 21 Network Model of Economic Organization in Purchasing: Supply Webs Trend in purchasing, logistics, and support activities Shift from hierarchical structures Toward network structures Procurement departments’ new tools (technology) To negotiate with suppliers and form strategic alliances Network model of economic organization Other firms perform various support activities Supply Web: term replacing “supply chain” Due to parallel lines interconnected in a Web or network configuration Electronic Commerce, Tenth Edition 22 22 Electronic Commerce, Tenth Edition 23 Electronic Data Interchange Computer-to-computer business information transfer Between two businesses using a standard format Trading partners Two businesses exchanging information EDI compatible Firms exchanging data in specific standard formats Reasons to be familiar with EDI Most B2B e-commerce adapted from EDI or based on EDI principles Dominant technology for electronic B2B transactions 23 Electronic Commerce, Tenth Edition 24 Early Business Information Interchange Efforts 1800s and early 1900s Need to create formal business transactions records 1950s Computers store, process internal transaction records Information flows: printed on paper 1960s: large volume transactions Exchanged on punched cards or magnetic tape 1960s and 1970s Transferred data over telephone lines Efforts increased efficiency, reduced errors 24 Electronic Commerce, Tenth Edition 25 Early Business Information Interchange Efforts (cont’d.) Issue: incompatible data translation programs 1968: freight, shipping companies joined together Created standardized information set Used a computer file Transmittable to any freight company adopting the standard Benefits limited to members of industries that created standard-setting groups Full realization of EDI economies and efficiencies Required standards for all companies in all industries 25 Electronic Commerce, Tenth Edition 26 Emergence of Broader Standards: The Birth of EDI American National Standards Institute (ANSI) United States coordinating body for standards Accredited Standards Committee X12 (ASC X12) Develops and maintains EDI standards Data Interchange Standards Association (DISA) Administrative body coordinating ASC X12 activities Transaction sets: names of the formats for specific business data interchanges EDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT) 26 Electronic Commerce, Tenth Edition 27 FIGURE 5-5 Commonly used EDI transaction sets Click to edit Master text styles Second level Third level Fourth level Fifth level 27 Electronic Commerce, Tenth Edition 28 How EDI Works Basic idea: straightforward Implementation: complicated Example: Company replacing metal-cutting machine Steps to purchase using paper-based system Steps to purchase using EDI 28 Electronic Commerce, Tenth Edition 29 How EDI Works (cont’d.) Paper-based purchasing process Buyer and vendor Not using integrated software for business processes Each information processing step results in paper document Must be delivered to department handling next step Paper-based information transfer Mail, courier, fax Information flows shown in Figure 5-6 29 Electronic Commerce, Tenth Edition 30 FIGURE 5-6 Information flows in a paper-based purchasing process © Cengage Learning 2013 Click to edit Master text styles Second level Third level Fourth level Fifth level 30 Electronic Commerce, Tenth Edition 31 How EDI Works (cont’d.) EDI purchasing process Mail service replaced with EDI network data communications Paper flows within buyer’s and vendor’s organizations replaced with computers Running EDI translation software Information flows shown in Figure 5-7 31 Electronic Commerce, Tenth Edition 32 FIGURE 5-7 Information flows in an EDI purchasing process © Cengage Learning 2013 Click to edit Master text styles Second level Third level Fourth level Fifth level 32 Value-Added Networks EDI network key elements EDI network, two EDI translator computers Direct connection EDI Businesses operate on-site EDI translator computers Connected directly to each Few companies use direct connection EDI Dedicated leased lines: expensive Electronic Commerce, Tenth Edition 33 33 Electronic Commerce, Tenth Edition 34 FIGURE 5-8 Direct connection EDI © Cengage Learning 2013 Click to edit Master text styles Second level Third level Fourth level Fifth level 34 Value-Added Networks (cont’d.) Value-added network (VAN) Receives, stores, forwards electronic messages containing EDI transaction sets Indirect connection EDI Trading partners use VAN to retrieve EDI-formatted messages Companies providing VAN services CovalentWorks, EasyLink Services, GXS, Kleinschmidt, Promethean Software Services, and SPS Commerce 35 Electronic Commerce, Tenth Edition 35 35 36 FIGURE 5-9 Indirect connection EDI through a VAN Electronic Commerce, Tenth Edition 36 © Cengage Learning 2013 36 Electronic Commerce, Tenth Edition 37 Value-Added Networks (cont’d.) Advantages Support one communications protocol (VAN) VAN records message activity in audit log Becomes independent transactions record VAN provides translation between different transaction sets VAN performs automatic compliance checking VAN records message activity in audit log Helps establish nonrepudiation: ability to establish that a particular transaction actually occurred 37 38 Value-Added Networks (cont’d.) Disadvantages: In the past, cost (fees) Today, affordable even for small companies Internet presents low-cost communications medium used by VAN services EDI on the Internet: Internet EDI, Web EDI, open EDI (Internet is open architect network) Electronic Commerce, Tenth Edition 38 38 Value-Added Networks (cont’d.) EDIINT (Electronic Data Interchange-Internet Integration, EDI-INT) most common protocol for Internet EDI transaction sets EDI exchanges encoded using AS2 (Applicability Statement 2) or AS3 (Applicability Statement 3) Secure electronic receipts returned to senders for every transaction, help establish repudiation Electronic Commerce, Tenth Edition 39 39 Electronic Commerce, Tenth Edition 40 EDI Payments EDI transaction sets Provide instructions to trading partner’s bank Negotiable instruments Electronic equivalent of checks Electronic funds transfers (EFTs) Movement of money from one bank account to another Automated clearing house (ACH) system Service banks use to manage accounts with each other Operated by U.S. Federal Reserve Banks, private ACHs 40 Electronic Commerce, Tenth Edition 41 Supply Chain Management Using Internet Technologies Supply chain management Job of managing integration of company supply management and logistics activities Across multiple participants in a particular product’s supply chain Ultimate goal Achieve higher-quality or lower-cost product at the end of the chain 41 Electronic Commerce, Tenth Edition 42 Value Creation in the Supply Chain Firms engaging in supply chain management Reaching beyond limits of their own organization’s hierarchical structure Creating new network form of organization among members of supply chain Originally developed to reduce costs Today: value added in the form of benefits to the ultimate consumer Requires more holistic view of the entire supply chain 42 Electronic Commerce, Tenth Edition 43 Value Creation in the Supply Chain (cont’d.) Tier-one suppliers Small number of very capable suppliers Original business establishes a long-term relationship Tier-two suppliers Larger number of suppliers who tier-one suppliers develop long-term relationships with for components, raw materials Tier-three suppliers Next level of suppliers Key element: trust 43 Electronic Commerce, Tenth Edition 44 Value Creation in the Supply Chain (cont’d.) Supply alliances Long-term relationships among participants in the supply chain Major barrier Level of information sharing Example: Dell Computer Reduced supply chain costs by sharing information with suppliers Buyers expect annual price reductions, quality improvements from suppliers 44 Electronic Commerce, Tenth Edition 45 Value Creation in the Supply Chain (cont’d.) Marshall Fisher 1997 Harvard Business Review article Described two types of organization goals Efficient process goals Market-responsive flexibility goals Successful supply chain management key elements Clear communications Quick responses to those communications Internet and Web technologies Effective communications enhancers 45 Electronic Commerce, Tenth Edition 46 FIGURE 5-10 Advantages of using Internet technologies in supply chain management Click to edit Master text styles Second level Third level Fourth level Fifth level 46 Increasing Supply Chain Efficiencies Internet and Web technologies managing supply chains can: Yield increases in efficiency throughout the chain Increase process speed, reduce costs, increase manufacturing flexibility Allows response to changes in quantity and nature of ultimate consumer demand Example: Boeing Invested in new information systems increasing production efficiency of the supply chain Also launched spare parts Web site Electronic Commerce, Tenth Edition 47 47 Electronic Commerce, Tenth Edition 48 Increasing Supply Chain Efficiencies (cont’d.) Example: Dell Computer Famous for use of Web to sell custom-configured computers Also used technology-enabled supply chain management Give customers exactly what they want Reduced inventory amount (three weeks to two hours) Top suppliers have access to secure Web site Tier-one suppliers can better plan their production Dell accesses suppliers’ information 48 Electronic Commerce, Tenth Edition 49 Materials-Tracking Technologies Troublesome task Tracking materials as they move from one company to another Optical scanners and bar codes Help track movement of materials Integration of bar coding and EDI: prevalent Second wave of electronic commerce Integration of new types of tracking into Internet-based materials-tracking systems 49 Electronic Commerce, Tenth Edition 50 FIGURE 5-11 Shipping label with bar-coded elements from EDI transaction set 856, Advance Ship Notification © Cengage Learning 2013 Click to edit Master text styles Second level Third level Fourth level Fifth level 50 Electronic Commerce, Tenth Edition 51 Materials-Tracking Technologies (cont’d.) Real-time location systems (RTLS) Bar code tracking system Used by fulfillment centers Radio Frequency Identification Devices (RFIDs) Small chips using radio transmissions to track inventory RFIDs read much more quickly, higher degree of accuracy than bar codes Important development: passive RFID tag Made cheaply and in very small sizes No power supply required 51 Electronic Commerce, Tenth Edition 52 Materials-Tracking Technologies (cont’d.) Example: 2003 (Wal-Mart) Tested RFID tag use on merchandise for inventory tracking and control Initiated plan to have all suppliers install RFID tags in shipped goods Reduced incidence of stockouts Retailer loses sales because it does not have specific goods on its shelves General acceptance of RFID tagging will not occur in most industries until 2015 52 Electronic Commerce, Tenth Edition 53 FIGURE 5-12 Passive RFID tag Courtesy, Moeller-Horcher. Source: Metro Click to edit Master text styles Second level Third level Fourth level Fifth level 53 Electronic Commerce, Tenth Edition 54 Creating an Ultimate Consumer Orientation in the Supply Chain Ultimate consumer orientation Customer focus difficult to maintain Michelin North America Pioneered use of Internet technology To go beyond next step in its value chain 1995: launched electronic commerce initiative BIB NET extranet Allowed dealer access to tire specifications, inventory status, and promotional information Through simple-to-use Web browser interface 54 Electronic Commerce, Tenth Edition 55 Building and Maintaining Trust in the Supply Chain Major issue: developing trust Key elements Continual communication and information sharing Internet and the Web Provide excellent ways to communicate and share information Offer new avenues for building trust Maintain contact with their customers Afford buyers instant access to their sales representatives Provide comprehensive information quickly 55 Electronic Commerce, Tenth Edition 56 Electronic Marketplaces and Portals Vertical portals (vortals) Industry-focused hubs Offer marketplaces and auctions for contact and business transactions Doorway (or portal) to the Internet for industry members Vertically integrated: each hub services just one industry 56 Independent Industry Marketplaces First vertical portals Trading exchanges focused on a particular industry Independent industry marketplaces Industry marketplaces: focused on a single industry Independent exchanges: not controlled by established buyer or seller in the industry Public marketplaces: open to new buyers and sellers just entering the industry Ventro opened industry marketplace Chemdex Trade in bulk chemicals Electronic Commerce, Tenth Edition 57 57 Electronic Commerce, Tenth Edition 58 Independent Industry Marketplaces (cont’d.) SciQuest founded industry marketplace in life science chemicals By mid-2000: more than 2200 independent exchanges By 2010: fewer than 70 industry marketplaces still operating Due to lack of venture capital and profits B2B marketplace models gradually replaced independent marketplaces 58 Electronic Commerce, Tenth Edition 59 Private Stores and Customer Portals Large established sellers feared industry marketplaces diluting power Large sellers have customer portal B2B sites Offer private stores along with services B2B private store has password-protected entrance Offers negotiated price reductions on limited product selection If large established sellers participated in industry marketplaces Services would have been needlessly duplicated 59 Electronic Commerce, Tenth Edition 60 Private Company Marketplaces Large companies purchasing from relatively small vendors Exert power in purchasing negotiations Using e-procurement software Allows companies to manage purchasing function through Web interface Automates authorizations, other steps Includes marketplace functions 60 Electronic Commerce, Tenth Edition 61 Private Company Marketplaces (cont’d.) Larger companies: Reluctant to abandon investments in e-procurement software Make software work with industry marketplaces’ software Private company marketplace Marketplace providing auctions, request for quote postings, other features For companies that want to operate their own marketplaces 61 Electronic Commerce, Tenth Edition 62 Industry Consortia-Sponsored Marketplaces Companies with strong negotiating positions in their industry supply chains Not enough power to force suppliers to deal with them through a private company marketplace Industry consortia-sponsored marketplace Marketplace formed by several large buyers in a particular industry Characteristics of five general marketplace forms in B2B electronic commerce today (Figure 5-13) 62 Electronic Commerce, Tenth Edition 63 FIGURE 5-13 Characteristics of B2B marketplaces Adapted from: Raisch, W. 2001. The eMarketplace, p. 225. Click to edit Master text styles Second level Third level Fourth level Fifth level 63 Summary Using Internet and Web technologies Improves purchasing and logistics primary activities Improves support activities Companies and other large organizations extending reach of enterprise planning and control activities Beyond organization’s legal definitions Emerging network model of organization Describes growth in interorganizational communications and coordination Electronic Commerce, Tenth Edition 64 64 Summary (cont’d.) History of EDI and how it works Freight companies first introduced electronic commerce Spread of EDI to virtually all large companies Requires smaller businesses to seek an affordable way to participate in EDI Internet providing inexpensive communications channel EDI lacked Important force driving supply chain management technique adoption 65 Electronic Commerce, Tenth Edition 65 65 Electronic Commerce, Tenth Edition 66 Summary (cont’d.) Supply chain management Incorporates several elements Implemented, enhanced through Internet and Web use Industry electronic marketplaces led to B2B electronic commerce models Private stores Customer portals Private marketplaces Industry consortia-sponsored marketplace Models coexist with industry marketplace model 66