page © bis department, 2015: bis 312 e- commerce e-marketplaces: mechanisms, tools, and impacts of...

Page© BIS Department, 2015: BIS 312 E-Commerce

E-MARKETPLACES: MECHANISMS, TOOLS, AND IMPACTS OF E-COMMERCEThe major electronic commerce (EC) activities, processes and the mechanisms.E-marketplaces, their components and the major types.Electronic catalogs, search engines, and shopping carts.The major types of auctions and their characteristics.The benefits, limitations, and impacts of auctions.Competition in the digital economy.The impact of e-marketplaces on organizations, intermediation, and industries.

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EC Mechanisms: An Overview

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• EC activities and mechanisms ➠


EC Mechanisms: An Overview

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• Sellers, buyers, and transactions


EC Mechanisms

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★The purchasing process


Electronic Markets• E-marketplace

★ “An online market, in which buyers and sellers exchange goods or services.”

★ Changed the processes in trading & supply chain:a)Greater information richness of the transactional &

relational environmentb)Lower information search costs for buyersc)Diminished information asymmetry between sellers &

buyersd)Less time between purchase & possession of physical

productse)Greater temporal proximity between time of purchase &

time of possession of digital productsf) The ability of buyers, sellers, and the virtual market to be

in different locationsg)The ability of EC to leverage capabilities with increased

effectiveness, lower transaction & distribution costs.

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E-Marketplace Components & Participants

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Customers ✴ Look for bargains, customized items, collectors’ items, entertainment, socialization, etc..

✴ Search for detailed information, compare, bid, and negotiate.

Sellers ✴ Stores owned by companies, government agencies, or individuals.

Products and services

✴ Physical products, digital products.

Infrastructure ✴ Electronic networks, hardware, software, etc..Front end The seller’s portal, electronic catalogs, a shopping cart, a

search engine, an auction engine, a payment gateway.Back end ✴ Order aggregation & fulfillment, inventory

management, purchasing from suppliers, accounting & finance, insurance, payment processing, packaging, delivery.

Intermediaries

✴ Help match buyers & sellers, provide some infrastructure services, help customers and/or sellers institute, complete transactions.

Other business partners

✴ E.g. Shippers use the Internet to collaborate along the supply chain.

Support service

✴ Certification, escrow services to content providers.


Types of E-Marketplaces1.Private e-marketplaces

★ Owned & operated by a single company.a)Sell-side e-marketplace

✴ “A private e-marketplace in which one company sells either standard and/or customized products to individuals (B2C) or to business (B2B).”

b)Buy-side e-marketplace✴ “A private e-marketplace in which one company makes

purchases from invite suppliers (B2B).”2.Public e-marketplaces (exchanges)

★ Owned by a 3rd party / by a group of buying/selling companies.

★ Serve many sellers & many buyers.★ E.g. Stock exchange.★ Open to the public, regulated by the government / the

exchange’s owners.9


Customer Interaction Mechanisms: Storefronts, Malls, and Portals• Electronic storefronts (E.g. dell.com, walmart.com)

★“A single company’s Web site where products and services are sold.”

★Mechanism:✴Electronic catalog, search engine,

electronic cart, e-auction facilities, payment gateway, shipment court, customer services.

• Electronic malls (online mall) ★“An online shopping center where many

online stores are located.”10


Customer Interaction Mechanisms: Storefronts, Malls, and Portals• Types of stores & malls

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General stores/malls Large marketspaces that sell all kinds of products, e.g. amazon.com, choicemall.com, walmart.com, yahoo.com, aol.com, msn.com.

Specialized stores/malls

Sell only one / a few kinds of products, e.g. books, flowers, wine, cars, pet toys.

Regional versus global stores

Serve customers that live nearby, e.g. parknshop.com.

Pure-play online organizations versus click-and-mortar stores

✴E.g. amazon.com; walmart.com.


Web (Information) Portals• “A single point of access, through a Web browser, to

critical business information located inside and outside (via Internet) of an organization.”

• Types of portals

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Commercial (public) portals • E.g. yahoo.com, msn.comCorporate portals (enterprise portals / enterprise information portals)

Provide organized access to rich content within relatively narrow corporate & partners’ communities.

Publishing portals For communities with specific interests.Personal portals • Target specific filtered information for

individuals.• Offer narrow content, very personalized.

Mobile portals Accessible from mobile devices.Voice portals With audio interfaces, can be accessed by a

standard telephone / a cell phone, by using both speech recognition & text-to-speech technologies.

Knowledge portals Enable access to knowledge by knowledge workers, facilitate collaboration.


Intermediaries in E-Marketplaces• 2 types of online intermediaries

1.Brokers✴ A company that facilitates transactions between

buyers & sellers.2.Infomediaries

✴ “Electronic intermediaries that provide and/or control information flow in cyberspace, often aggregating information, and selling it to others.”

• Distributors in B2B: e-distributor★ “An e-commerce intermediary that connects

manufacturers with business buyers (customers) by aggregating the catalogs of many manufacturers in one place -- the intermediary’s Web site.”

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Electronic Catalogs (E-Catalogs)• “The presentation of product information in an electronic

form; the backbone of most e-selling sites.”• 3 dimensions of e-catalogs:

1.The dynamics of the information presentation.✴ Motion pictures, videos, animation, with supplemental

sound.✴ Real time, changing frequently.

2.The degree of customization.✴ Content, pricing, display are tailored to the

characteristics of specific customers.3.Integration with business processes.

✴ Order taking & fulfillment; electronic payment systems; intranet workflow software & systems; inventory & accounting systems; suppliers’ / customers’ extranets; paper catalogs.

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Online Catalogs Versus Paper Catalogs

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Type Advantages DisadvantagesPaper catalogs

•Easy to create without high technology•Reader is able to look at the catalog without computer system

•More portable than electronic

•Difficult to update changed product information promptly

•Display a limited number of products

•Limited information through photographs & textual description is available

•No possibility for advanced multimedia.

Online catalogs

•Easy to update product information•Can integrate with the purchasing process

•Good search & comparison capabilities•Provide timely, up-to-date product information

•Provide globally broad range of product information

•Can add voice & animated pictures•Long-term cost savings•Easy to customize•More comparative shopping•Ease of connecting order processing, inventory processing, payment processing to the system

•Difficult to develop catalogs, large fixed cost

•Need for customer skill to deal with computers & browsers.


EC Search Activities, Types, Engines• Types of EC searches

1. Internet/Web search2.Enterprise search (within an organization)

✴ “The practice of identifying and enabling specific content across the enterprise to be indexed, searched, and displayed to authorized users.”

3.Desktop search (e.g. Web browser histories, e-mail archives)✴ “Search tools that search the contents of a user’s or

organization’s computer files, rather than searching the Internet.”

• Search engines, e.g. Google★ “A computer program that can access databases of Internet

resources, search for specific information or keywords, and report the results.”

• Software (Intelligent) agents★ E.g. Conduct complex searches, compare prices, interpret

information, work as an assistant.

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Shopping Carts• Electronic shopping cart

★ “An order-processing technology that allows customers to accumulate items they wish to buy while they continue to shop.”

★ Select items ➡ review what has been selected ➡ make changes ➡ finalize the list.

• Product configuration★ Support the acquisition of customer requirements

while automating the order-taking process.★ E.g. Apple.★ Allow customers to configure their products by

specifying their technical requirements.17


Auctions• “A competitive process in which a seller solicits

consecutive bids from buyers (forward auctions) or a buyer solicits bids from sellers (backward auctions). Prices are determined dynamically by the bids.”

• Limitations of traditional offline auctions

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Bidder Seller• Last only a few minutes/seconds,

for each item sold ➡ May not get what they really want, pay too much for the item.

• Do not have much time to examine the goods.

• Difficult to know about auctions, cannot compare what is offered at each location.

• Must physically present at auctions.

• Last only a few minutes/seconds, for each item sold ➡ May not get the highest possible price.

• Difficult to move goods to an auction site.

• Commissions are high (rent, advertising, labor).


Auctions• Innovative auctions

★ E.g. JetBlue airlines started to auction flights in September 2008 on eBay. ✴ Initial offer: 300 flights + 6 vacation packages, with

opening bids set (5₵ - 10₵).✴ The 3-, 5-, and 7-day auctions included 1- and 2-

person roundtrip, weekend flights in September from cities including Boston, Chicago, New York, Orlando, and Southern California.

✴ Although no one was lucky enough to get a flight for 5/10 cents, many auctions gave the winners a flight that was 10% to 20% cheaper than regular prices.

• Dynamic pricing★ “Prices that change based on supply and demand

relationships at any given time.” 19


Auctions• 4 categories of auctions:

1. One buyer, one seller✴ Use negotiation, bargaining, bartering.✴ The resulting price: determined by each party’s bargaining

power, supply & demand in the item’s market, business environment factors.

2. One seller, many potential buyers✴ Forward auction

✦ “An auction in which a seller entertains bids from buyers. Bidders increase price sequentially.”

3. One buyer, many potential sellers✦ Reverse auction (bidding/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 the price reducing sequentially, and the lowest bid wins; primarily a B2B or G2B mechanism.”

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Auctions4. Many sellers, many buyers (Double auction)

✴ “An auction in which multiple buyers and their bidding prices are matched with multiple sellers and their marking price, based on the quantities on both sides.”

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Benefits of E-Auctions

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Sellers Buyers E-Auctioneers•Increased revenues: broader bidder base, shorter cycle time, sell globally.•Opportunity to bargain: sell any time, conduct frequent auctions.•Optimal price setting determined by the market.•Gain more customer dollars by offering items directly (no intermediaries).•Liquidate large quantities quickly.•Improved customer relationship & loyalty.

•Opportunities to find unique items & collectibles.•Entertainment.•Convenience: buyers bid anywhere; do not have to travel to an auction place.•Anonymity.•Possibility of finding bargains.

•Higher repeat purchases.•Higher “stickiness” to the Web site.•Easy expansion of the auction business.


Limitations of E-Auctions1.Minimal security

★Some auctions are done in an unencrypted environment.

2.Possibility of fraud★Buyers may get defective products (since

they cannot see the items).★Buyers may receive goods/services

without paying for them.3.Limited participation

★Some auctions are by invitation/dealers only.

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Impacts of Auctions1.Auctions as a coordination mechanism

★ Establish price equilibrium.2.Auctions as a social mechanism to determine a price

★ For fine arts / rare item, attracts potential buyers & experts.

➡ With enough exposure of purchase & sale orders, an optimal price can be determined.

3.Auctions as a highly visible distribution mechanism (e.g. Cathay Pacific)★ Auctions off a limited number of items ➔ gain attention

➔ attract those customers.4.Auctions as an EC component

★ Combine with other e-commerce activities.5.Auctions for profit for individuals

★ Make money by selling things.24


Bartering and Negotiating Online• Online bartering

★ Bartering✴ “The exchange of goods and services.”

★ E-bartering is done in a bartering exchange✴ “A marketplace in which an intermediary arranges barter

transactions.”★ Process:

1.The company tells the bartering exchange what it wants to offer.

2.The exchange assesses the value of that products/services, offers it certain “points”/ “bartering dollars”.

3.The company can use the “points” to buy the things it needs from a participating member in the exchange.

• Online negotiating★ Deals with pricing and/or nonpricing terms (payment method

& credit).25


Competition in the Internet Ecosystem• Competitiveness factors

★ EC competition is very intense because online transactions enable:

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Lower search costs for buyers

Customers can find less expensive products ➡ Sellers reduce prices, improve customer service.

Speedy comparisons

Customers can find products quickly.

Lower prices Low costs of operation (e.g. no physical facilities, minimum inventories, etc.)

Customer service Amazon.com provides superior customer service.Barriers to entry are reduced

Setting up a Web site is easy, fast, inexpensive ➡ Don’t need sales force & brick-and-mortar stores.

Virtual partnerships multiply

Easy access to the Web + Share production & sales information easily ➡ Creation of virtual partnership increases dramatically.

Market niches abound

No limits imposed by the physical storefronts ➡ No. of business opportunities is as large as the Web.

Differentiation To provide a product/service that is not available elsewhere.E.g. Amazon.com provides customers with information such as communication with authors, almost real-time book review, and book recommendations.


Competition in the Internet Ecosystem• Customization and personalization

★ Customization✴ “Creation of a product or service according to the

buyer’s specifications.”★ Personalization (E.g. Google will e-mail all news

regarding certain topics to a user)✴ “The ability to tailor a product, service, or Web

content to specific user preferences.”• Impact on competition

★ Competition between companies ➡ Competition between networks✴ The company with better communication networks,

online advertising capabilities, relationships with other Web companies (e.g. Google, Amazon.com) has a strategic advantage. 3

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The Analysis-of-Impacts Framework

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Improving Marketing and Sales

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Old model - Mass & segmented marketing

New model - One-to-one & customization

Relationships with customers

Customer is a passive recipient Customer is an active coproducer

Customer needs Articulated Articulated, inferredSegmentation Mass market + target

segmentsSegmented targets, 1:1 targets

Product & service offerings

Product line extensions & modification

Customized products, services, marketing; personalization

New product development

Marketing + R&D R&D develops the platforms ➡ consumers customize based on their inputs

Pricing Fixed prices + discounting Customer influence pricing; e-auctions, e-negotiations

Communication Advertising + PR Integrated, interactive, customized marketing communication, education, entertainment; avatars

Distribution Traditional retailing + direct marketing

Direct (online) distribution + 3rd-party logistics services

Branding Traditional branding + cobranding

Customer’s name as the brand

Basis of competitive advantage

Marketing power Marketing finesse + customer as “partner” while integrating marketing, operations, R&D, information

Communities Discount to members in physical communities

Discounts to members of e-communities, social networking

Advertising TV, newspapers, billboards Innovative, viral, on the Web, wireless devices


Transforming Organizations• To survive, companies learn & adapt new technologies quickly.• New products, services, business models ➡ Strategic &

structural changes.• The changing nature of work

★ E.g. Reduce the no. of employees to a core of essential staff ➡ Outsource work ➡ Create new opportunities & risks ➡ New jobs, careers, salaries.

• Disintermediation★ “Elimination of intermediaries between sellers and buyers.”★ E.g. Many airlines require customers to pay $5/more per

ticket if they buy a ticket from an agent.• Reintermediation

★ “Disintermediated entities/newcomers take on new intermediary roles”.

★ E.g. Brokers who manage electronic intermediation, like eTrade.

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Redefining Organizations• New & improved product capabilities

★Customer profiles & preferences, can be used as a source of information for improving products / designing new ones.

• Mass customization★“A method that enables manufacturers to

create specific products for each customer based on the customer’s exact needs”.

★E.g. Nike, Lego, T-shirt, ...★Build-to-order (pull system).

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Redefining Organizations

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Redefining Organizations• Improving the supply chain

★ Self-service✴ Transfer some activities to customers, employees.✴ In call centers (e.g. track your package), with self-

configuration of products, customers using FAQs, allowing employees to update data online.

➡ Saves money, increases data accuracy & accountability.• Impacts on manufacturing

★ From mass-production lines to demand-driven, just-in-time manufacturing.

★ E.g. Using Web-based ERP systems, customer orders can be directed to designers, to the production floor within seconds.

★ Production cycle time can be cut 50%, even if production is done in a different country.

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Redefining Organizations

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