E-COMMERCE: DIGITAL

MARKETS, DIGITAL
GOODS

Kudakwashe Maguraushe (PhD)

kudakwashe.maguraushe@nust.ac.zw
 Overview
 Internet Technology and the Digital Firm
 New Business Models and Value Propositions
 Electronic Commerce and the Internet
 Eight unique features of e-commerce
 Digital markets and digital goods
 E-commerce models
 E-business models
 E-commerce revenue models
 Customer self-service models
 M-commerce:
 E-Commerce Payment Systems
 Internet Technology and the
Digital Firm
• Information technology infrastructure: The
Internet provides a universal and easy-to-use
set of technologies and technology standards
that can be adopted by all organizations.

• Direct communication between trading

partners: Disintermediation removes
intermediate layers and streamlines processes.
 Internet Technology and the
Digital Firm (Continued)
• Round the clock service: Web sites available
to consumers 24 hours

• Extended distribution channels: Outlets

created for attracting customers who otherwise
would not patronize a firm

• Reduced transaction costs: Costs of

searching for buyers declines
New Business Models and
Value Propositions
Business Model:

• Defines an enterprise

• Describes how the enterprise delivers a

product or service

• Shows how the enterprise creates wealth

 The Changing Economies of
Information
• Information asymmetry: One party in a
transaction has more information than the other.
The Internet decreases information asymmetry.

• Increases richness: The Internet increases the

depth, detail, and scope of information.

• Increases reach: The Internet increases the

number of people who can be contacted efficiently.
 Electronic Commerce and the
Internet
• E-commerce:
• Digitally enabled commercial transactions between and among
organizations and individuals, primarily over Internet
• Began in 1995 and growing at 25% growth rate annually
• Rapid growth led to dot-com bubble (burst in 2001)
• Today e-commerce revenues picture is very positive
• E.g. Global annual revenue from ecommerce amounted to
$1.3 trillion in 2014.
THE GROWTH OF E-COMMERCE
 Eight unique features of e-
commerce
1. Ubiquity
• Internet technology available anytime and everywhere: work, home,
mobile devices
• Business significance:
• Marketplace is extended beyond traditional boundaries.
• Market-space- extended beyond traditional geographical
boundaries, is being created
• Shopping can take place anywhere - customer convenience is
enhanced, shopping costs are reduced
 Eight unique features of e-commerce
2. Global reach
• Technology reaches across national boundaries, around Earth
• Business significance:
• Commerce enabled across cultural and national boundaries
seamlessly, without modification
• Marketspace includes potentially billions of consumers and
millions of businesses worldwide
 Eight unique features of e-commerce

3. Universal standards
● One set of technology standards: Internet standards
• Business significance:

● Disparate computer systems easily communicate with each other

● Lower market entry costs—costs merchants must pay to
bring goods to market
● Lower consumers’ search costs—effort required to find
suitable products
 Eight unique features of e-commerce

4. Richness
● Supports video, audio, and text messages
• Business significance:

● Possible to deliver rich messages with text, audio, and video

simultaneously to large numbers of people
● Video, audio, and text marketing messages can be integrated
into single marketing message and consumer experience
 Eight unique features of e-commerce
5. Interactivity
● The technology works through interaction with the user
• Business significance:

● Consumers engaged in dialog that dynamically

adjusts experience to the individual
● Consumer becomes co-participant in process of
delivering goods to market
 Eight unique features of e-commerce
6. Information density
• Technology reduces information costs and raises quality
• Business significance:
• Information becomes plentiful, cheap, and more accurate
• Increases price transparency and cost transparency
• Enables price discrimination
 Eight unique features of e-commerce
7. Personalization/customization
• Technology allows personalized messages to be delivered to
individuals as well as groups
• Permits customization—changing delivered product or service
based on user’s preferences or prior behavior
• Business significance
• Personalization of marketing messages and customization of
products and services are based on individual characteristics
 Eight unique features of e-commerce
8. Social technology
● The technology promotes user content generation and social
networking
• Business significance

● New Internet social and business models enable user content

creation and distribution, and support social networks
 Key concepts in e-commerce
• Digital markets and digital goods
• Internet shrinks information asymmetry
• Information asymmetry: when one party has more information
important for transaction
• E.g. Information asymmetry between auto dealers and customers

• Digital markets more flexible and efficient

• Reduced search and transaction costs
• Lower menu costs (cost of changing prices)
• Dynamic pricing
 Key concepts in e-commerce
• Digital goods
• Goods that can be delivered over network
• E.g. Music tracks, video, e-books, software
• Cost for producing first unit is nearly total cost of product: Cost
for producing additional units very low
• Industries with digital goods are undergoing revolutionary changes
• Video rental services
• Record label companies
• Newspapers and magazines
 E-commerce Business Models
Internet business models

Virtual storefront Online marketplace

Portal

Virtual community
Online service provider

Transaction broker
Information broker

Content provider
 E-commerce models
Business-to-consumer (B2C)
B2C involves retailing products and services to individual shoppers.
Example: Amazon.com

Business-to-business (B2B)
B2B involves sales of goods and services among businesses.
Example: ChemConnect.com

Consumer-to-consumer (C2C)
C2C involves consumers selling directly to consumers.
Example: eBay.com
 Types of e-business models

● E-commerce business models

● Portal
● E-tailer
● Content Provider
● Transaction Broker
● Market Creator
● Service Provider
● Community Provider
 E-Business Models

Portal
Portals offer powerful web search tools as well as an
integrated package of content and services such as news,
email, maps, and more, all in one place.
Example: Yahoo, Google

E-tailer
Online retail stores that sell product and services by using
website.
Example: Amazon.com
Content Provider
Creates revenue by providing digital contents, such as news, music,
photos, or video over the web.
Example: iTunes.com, Games.com

Transaction Broker
Saves users money and time by processing online sales transactions
and generating a fee each time a transaction occurs.
Example: Etrade.com, Expedia

Market Creator
Market Creator provides a digital environment where buyers and
sellers can meet, search for products, display products, and establish
prices for those products. Example: eBay
Community Provider
Provides an online meeting place where people with similar
interasts can communicate and find useful information
Example: Facebook, MySpace

Service Provider
Provides Web 2.0 applications such as photo sharing, video
sharing, and user generated content as services.
Example: Google Apps, Xdrive.com
 E-commerce revenue models
Advertising Revenue Model
In the advertising revenue model, a Web site generates revenue
by attracting a large audience of visitors who can then be exposed
to advertisements.
Example: Yahoo.com

Sales Revenue Model

In the Sales Revenue Model, companies derive revenue by
selling goods, information, or services to customers.
Example: Amazon.com
Subscription Revenue Model
In subscription model, a web site offering content or services
charges a subscription fee for access to some or all of its
offerings on an on-goining basis.
Example: Wall Street Journal

Free/ Freemium Revenue Model

In this model, firms offer basic services or content for free,
while charging a premium for advanced or special features.
Example: Google, Pandora
Transaction Fee Revenue Model
A company receives a fee for enabling or executing a
transaction.
Example: ebay, E*Trade

Affiliate Revenue Model

In the affiliate revenue model, Web sites send visitors to other
Web sites in return for a refferal fee or percentage of the
revenue from any resulting sales.
Example: MagicRooms Solutions
E-commerce Revenue Models

Advertising Free/Freemium
Sales

Subscription
Affiliate

Transaction Fee
 Customer self-service:
• The use of Web sites to provide customers with access
to information and answers to questions

• Replacing human call centre operators and clerks

• UPS.com: Customer tracking of packages

• Orbitz.com: Customer self-help for organizing

and managing a trip

• Dell.com: “My Order Status” facility

 Customer self-service:
Business-to-business e-commerce
Electronic data interchange (EDI)
 Computer-to-computer exchange of standard
transactions such as invoices, purchase orders etc.
 Major industries have EDI standards that define the
structure and information fields of electronic documents
for that industry
 More companies increasingly moving away from private
networks to the Internet for linking to other firms
 E.g. Procurement: Businesses can now use the Internet to
locate most low-cost suppliers, search online catalogues
of supplier products, negotiate with suppliers, place
orders, etc.
ELECTRONIC DATA
INTERCHANGE (EDI)
 Private industrial networks
Business-to-business e-commerce (cont.)
 Private industrial networks (private exchanges)
 A large firm using an extranet to link to its suppliers,
distributors and other key business partners
Owned by buyer
Permits sharing of:
 Product design and development
 Marketing
 Production scheduling and inventory management
 Unstructured communication (graphics and e-mail)
A Private Industrial Network
 Net marketplaces

Business-to-business e-commerce (cont.)

Net marketplaces (e-hubs) are simply an online platform
host where transactions may take place between a seller
and a buyer.
A single market for many buyers and sellers
Industry-owned or owned by
independent intermediary
Generate revenue from transaction fees,
other services
Use prices established through negotiation,
auction, etc.
May focus on direct or indirect goods
A Net Marketplace
 Web Personalization

• Create unique personalized Web

pages for each customer

• Increased closeness to customer

increases value to the customer,
while reducing costs of interacting
with the customer
Web Site Personalization
 Key concepts in e-commerce
• Internet enables disintermediation
• Disintermediation:

• Removal of organizations or business process layers responsible

for intermediary steps in the value chain
• Enables selling directly to consumer
Advantages of E-Commerce:

• Disintermediation: The elimination of organizations

or business process layers responsible for certain
intermediary steps in a value chain, reducing costs
to the consumer

• Re-intermediation: The shifting of the intermediary

role in a value chain to a new source, adding
additional value to the consumer
Advantages of E-commerce:
• Customer-centred retailing: Closer and more
personalized relationship with customers is possible

• Web sites: Provide a corporate-centred portal for the

consumer to quickly find information on products,
services, prices, orders
E-Commerce Payment Systems
The most common form of payment. $50 Limited customer
Credit cards liability.
Digital wallets Electronic storage of I.D. and digital cash. Not widely used.
Accumulated Used for micro payments. Similar to monthly telephone
balance bills.
Used for micro payments. Pre-payment of funds, debited
Stored value on use.
I.D. and credit information stored on a chip attached to a
Smart Cards card. Used in Europe.

Digital cash Electronic currency that can be transferred over the Web.
Peer-to-Peer
payment Interpersonal transfer of funds such as PayPal.
Electronic checks with digital signatures, used most often
Digital checking in B2B commerce.
Electronic billing Used by consumers to pay bills online, provided by many
presentment banks.
and payment
M-commerce:
• Cell phones aren’t just for making phone calls anymore.
Now they take photographs, send text messages, used
tracking devices, and for purchasing goods and services.
What was once a very simple device has now turned into a
personal, portable computing device that’s changing the
very nature of commerce worldwide.
• Location-based services: Uses GPS technology to
identify customers' location
• Banking and financial services: Customers
manage accounts from mobile devices
• Wireless advertising and retailing: Identify users in
the vicinity and offer special promotions
• Games and entertainment including ringtones for
cell phones: Portable entertainment platforms