Chapter 2

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Chapter 2: 

Chapter 2 E-MARKETPLACES: STRUCTURE, MECHANISMS, ECONOMICS, AND IMPACTS

Learning Objectives: 

Learning Objectives Define e-marketplaces and list their components. List the major types of electronic markets and describe their features. Describe the types of intermediaries in EC and their roles. Describe electronic catalogs, shopping carts, and search engines.

Learning Objectives: 

Learning Objectives Describe the various types of auctions and list their characteristics. Discuss the benefits, limitations, and impacts of auctions. Describe bartering and negotiating online. Define m-commerce and explain its role as a market mechanism.

Electronic Marketplaces: 

Electronic Marketplaces Markets play a central role in the economy facilitating the exchange of: information goods services payments Markets create economic value for: buyers sellers market intermediaries society at large

Electronic Marketplaces (cont.): 

Electronic Marketplaces (cont.) Three main functions of markets matching buyers and sellers facilitating the exchange of information, goods, services, and payments associated with market transactions providing an institutional infrastructure, such as a legal and regulatory framework, that enables the efficient functioning of the market

Electronic Marketplaces (cont.): 

Electronic Marketplaces (cont.) In recent years markets have seen a dramatic increase in the use of IT—EC has: increased market efficiencies by improving functions been able to significantly decrease the cost of executing these functions

Marketspace: 

Marketspace Marketspace: A marketplace in which sellers and buyers exchange goods and services for money (or for other goods and services), but do so electronically

Marketspace Components: 

Marketspace Components Customers Sellers Products Infrastructure Front end Back end Intermediaries Other business partners Support services

Marketspace Components (cont.): 

Marketspace Components (cont.) Digital products: Goods that can be transformed to digital format and delivered over the Internet Front end: The portion of an e-seller’s business processes through which customers interact, including the seller’s portal, electronic catalogs, a shopping cart, a search engine, and a payment gateway

Marketspace Components (cont.): 

Marketspace Components (cont.) Back end: The activities that support online order-taking. It includes fulfillment, inventory management, purchasing from suppliers, payment processing, packaging, and delivery Intermediary: A third party that operates between sellers and buyers

Types of Electronic Markets: 

Types of Electronic Markets Electronic storefront: A single or company Web site where products and services are sold Mechanisms necessary for conducting the sale: electronic catalogs search engine e-auction facilities payment gateway shipment court customer services

Types of Electronic Markets (cont.): 

Types of Electronic Markets (cont.) e-mall (online mall): An online shopping center where many stores are located some are merely directories some provide shared services (e.g., choicemall.com). some are actually large click-and-mortar retailers some are virtual retailers (e.g., buy.com)

Types of Electronic Markets (cont.): 

Types of Electronic Markets (cont.) Types of stores and malls General stores/malls – sell all types of products  discount Specialized stores/malls – sell only one or a few types of products Regional versus global stores – serve live nearby / global Pure online organizations versus click-and-mortar stores –have physical store or not?

Types of Electronic Markets (cont.): 

Types of Electronic Markets (cont.) e-marketplace: An online market, usually B2B, in which buyers and sellers exchange goods or services; the three types of e-marketplaces are private, public, and consortia 1. Private e-marketplaces: Online markets owned by a single company; can be either sell-side or buy-side marketplaces Sell-side e-marketplace: A private e-market in which a company sells either standard or customized products to qualified companies

Types of Electronic Markets (cont.): 

Types of Electronic Markets (cont.) Buy-side e-marketplace: A private e-market in which a company makes purchases from invited suppliers 2. Public e-marketplaces: B2B markets, usually owned and/or managed by an independent third party, that include many sellers and many buyers; also known as exchanges 3. Consortia: E-marketplaces owned by a small group of large vendors, usually in a single industry

Information Portals: 

Information Portals Information portal: a single point of access through a Web browser to business information inside and/or outside an organization

Information Portals (cont.): 

Information Portals (cont.) Six types of portals Commercial (public) portals: offer content for diverse communities eg yahoo, msn Corporate portals: coordinate rich content within relatively narrow corporate & partner’s communities Publishing portals: involve relatively little customization of content, but they provide extensive online search & some interactive capabilities Personal portals: filtered information for individuals Mobile portals: a portal accessible via a mobile device Voice portals: a portal accessed by telephone or cell phone

Intermediation and Syndication in E-Commerce: 

Intermediation and Syndication in E-Commerce Intermediaries (brokers) provide value-added activities and services to buyers and sellers Intermediaries in the physical world are wholesalers and retailers Infomediaries: electronic intermediaries that control information flow in cyberspace, often aggregating information and selling it to others

Exhibit 2.2 Infomediaries and Information Flow Model: 

Exhibit 2.2 Infomediaries and Information Flow Model

Intermediation and Syndication in E-Commerce (cont.): 

Intermediation and Syndication in E-Commerce (cont.) Roles and value of intermediaries in e-markets Search costs Lack of privacy Incomplete information Contract risk Pricing inefficiencies

Intermediation and Syndication in E-Commerce (cont.): 

Intermediation and Syndication in E-Commerce (cont.) Search costs – maintain dbs of customer preferences  can predict demand & reduce costs by selectively routing info from providers to consumers & by matching customers with products and/or services Lack of privacy – relay messages & make pricing & allocation decisions without revealing the identity of one or both parties Incomplete information – gather product information from sources (evaluators, other customers) other than product provider Contract risk Pricing inefficiencies

Intermediation and Syndication in E-Commerce (cont.): 

Intermediation and Syndication in E-Commerce (cont.) Contract risk – disseminate information about the behavior of providers & consumers Responsibility for the behavior of parties in transactions it arranges & act as a policeman on its own Provide insurance against bad behavior 5. Pricing inefficiencies – use pricing mechanisms that include just the appropriate trades

Intermediation and Syndication in E-Commerce (cont.): 

Intermediation and Syndication in E-Commerce (cont.) E-distributors in B2B e-distributor: An e-commerce intermediary that connects manufacturers (suppliers) with buyers by aggregating the catalogs of many suppliers in one place—the intermediary’s Web site Maintenance, repair, and operation items (MROs): Routine items that are usually not under regular contract with suppliers

Intermediation and Syndication in E-Commerce (cont.): 

Intermediation and Syndication in E-Commerce (cont.) Disintermediation and reintermediation Disintermediation: Elimination of intermediaries between sellers and buyers Reintermediation: Establishment of new intermediary roles for traditional intermediaries that were disintermediated

Intermediation and Syndication in E-Commerce (cont.): 

Intermediation and Syndication in E-Commerce (cont.) Syndication as an EC mechanism Syndication: The sale of the same good (e.g., digital content) to many customers, who then integrate it with other offerings and resell it or give it away free

Electronic Catalogs: 

Electronic Catalogs Electronic catalogs: The presentation of product information in an electronic form; the backbone of most e-selling sites Electronic catalogs can be classified by the following dimensions: The dynamics of the information presentation – static or dynamic catalogs The degree of customization – standard or customized catalogs Integration with business processes

Exhibit 2.4 Comparison of Online Catalogs with Paper Catalogs: 

Exhibit 2.4 Comparison of Online Catalogs with Paper Catalogs

Electronic Catalogs (cont.): 

Electronic Catalogs (cont.) Customized catalogs A catalog assembled specifically for a company, usually a customer of the catalog owner

Electronic Catalogs (cont.): 

Electronic Catalogs (cont.) Two approaches to customized catalogs Let the customers identify the interesting parts out of the total catalog Let the system automatically identify the characteristics of customers based on their transaction records

Other market mechanism (E catalogs cont.): 

Other market mechanism (E catalogs cont.) Search engine A computer program that can access a database of Internet resources, search for specific information or keywords, and report the results Software (intelligent) agent: can do more than just “search and match” Software that can perform routine tasks that require intelligence Electronic shopping cart: An order-processing technology that allows customers to accumulate items they wish to buy while they continue to shop

Auctions as EC Market Mechanisms: 

Auctions as EC Market Mechanisms Auction: A market mechanism by which a seller places an offer to sell a product and buyers make bids sequentially and competitively until a final price is reached  Used in B2C, B2B, C2C, G2B, G2G Auctions can be done: online off-line at public sites (eBay) at private sites (by invitation)

Auctions as EC Market Mechanisms (cont.): 

Auctions as EC Market Mechanisms (cont.) Electronic auctions (e-auctions): Auctions conducted online Host sites on the Internet serve as brokers, offering services for sellers to post their goods for sale and allowing buyers to bid on those items Conventional business practices that traditionally have relied on contracts and fixed prices are increasingly being converted into auctions with bidding for online procurements

Auctions as EC Market Mechanisms (cont.): 

Auctions as EC Market Mechanisms (cont.) Dynamic pricing: Prices that change based on supply and demand relationships at any given time

Auctions as EC Market Mechanisms (cont.): 

Auctions as EC Market Mechanisms (cont.) Four major categories of dynamic pricing One buyer, one seller One seller, many potential buyers One buyer, many potential sellers Many sellers, many buyers

Auctions as EC Market Mechanisms (cont.): 

Auctions as EC Market Mechanisms (cont.) One buyer, one seller One can use negotiating, bargaining, or bartering One seller, many potential buyers Forward auction: An auction in which a seller entertains bids from buyers Forward auctions used for fast liquidation and as a selling channel. Price is increasing; the highest bidder wins

Auctions as EC Market Mechanisms (cont.): 

Auctions as EC Market Mechanisms (cont.) One buyer, many potential suppliers Reverse auction (bidding or tendering system): Auction in which the buyer places an item for bid (tender) on a request for quote (RFQ) system, potential suppliers bid on the job, with price reducing sequentially, and the lowest bid wins; primarily a B2B or G2B mechanism

Auctions as EC Market Mechanisms (cont.): 

Auctions as EC Market Mechanisms (cont.) One buyer, many potential sellers (special model) “name-your-own-price” model: Auction model in which a would-be buyer specifies the price (and other terms) they are willing to pay to any willing and able seller. It is a C2B model, pioneered by Priceline.com

Auctions as EC Market Mechanisms (cont.): 

Auctions as EC Market Mechanisms (cont.) Many sellers, many buyers Double auction: Auctions in which multiple buyers and their bidding prices are matched with multiple sellers and their asking prices, considering the quantities on both sides

Exhibit 2.5 The Reverse Auction Process: 

Exhibit 2.5 The Reverse Auction Process

Benefits of E-Auctions: 

Benefits of E-Auctions

Limitations of E-Auctions (cont.): 

Limitations of E-Auctions (cont.) Limitations of e-auctions Lack of security Possibility of fraud Limited participation Impacts of auctions Auctions as a coordination mechanism Auctions as a highly visible distribution mechanism. Auctions as a component in e-commerce

Bartering Online: 

Bartering Online Bartering: An exchange of goods and services e-bartering: Bartering conducted online, usually by a bartering exchange Bartering exchange: A marketplace in which an intermediary arranges barter transactions

Negotiating Online: 

Negotiating Online Negotiated pricing used for expensive or specialized products Negotiated prices are popular when large quantities are purchased Result from interactions and bargaining among sellers and buyers

Negotiating Online (cont.): 

Negotiating Online (cont.) Deals with non-pricing terms, such as payment method and credit Digital products and services can be personalized and “bundled” at a negotiated standard price

E-Commerce in the Wireless Environment: M-Commerce: 

E-Commerce in the Wireless Environment: M-Commerce Mobile computing: Permits real-time access to information, applications, and tools that, until recently, were accessible only from a desktop computer Mobile commerce (m-commerce): E-commerce conducted via wireless devices m-business: The broadest definition of m-commerce, in which e-business is conducted in a wireless environment

E-Commerce in the Wireless Environment: M-Commerce (cont.): 

E-Commerce in the Wireless Environment: M-Commerce (cont.) Promise of m-commerce Mobility significantly changes the manner in which people and trading partners interact, communicate, and collaborate Mobile applications are expected to change the way we live, play, and do business Much of the Internet culture may change to one based on mobile devices M-commerce creates new business models for EC, notably location-based applications

E-Commerce in the Wireless Environment: M-Commerce (cont.): 

E-Commerce in the Wireless Environment: M-Commerce (cont.) DoCoMo’s (nttdocomo.com) i-Mode—pioneering wireless service—with a few clicks on a handset, i-Mode users can conduct a large variety of m-commerce activities Shopping guides Maps and transportation Ticketing News and reports Personalized movie service Entertainment Dining and reservations Additional services

Summary: 

Summary E-marketplaces and their components. The major types of e-markets. The role of intermediaries. Electronic catalogs, search engines, and shopping carts.

Summary (cont.): 

Summary (cont.) Types of auctions and their characteristics. The benefits and limitations of auctions. Bartering and negotiating. The role of m-commerce.

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