Module 8

advancement in information and communication technologies

• allows for scalibility (lower transaction and search costs)

leveraging communities vs features of the product

community as the chief assset vs resource

→ no need to own assets

growing by the power of network effects

the larger the network, the better the matches

as more people join, the more valuable the network becomes

cross side vs same side network effects

• Cross-side network effects occur in two-sided or multi-sided markets where an increase in the number of users on one side of the market affects the value for users on the other side. Typically, these markets involve two distinct user groups that interact through an intermediary platform.

• Same-side network effects occur when an increase in the number of users on one side of the market affects the value for other users on the same side. This type of network effect is often seen in social networks, communication platforms, and other peer-to-peer systems.

network effects

explain how the value a user derives from a network relates to the number of user in the network

value of network is proportional to n^2 users of users: Matcalf’s Law

• two network users can make 1 connection, 5 can make 10, 12 66…

• number of possible connections between network users: n(n-1)

two types of network externalities

positive

• an additional network user increases value to all other users

negative

• an additional user decreases value to all others

a market perspective on networks

market - a medium that facilitates exchange (of goods and services)

• one-sided market

• two sided market

one sided market

• large share of value is derived from a single class of users

• eg: messaging services, telephone networks

two-sided market

• value is derived from two categories of network users

• more complex as the firm must consider interaction between the two sides

• eg: payment services, video game consoles, Airbnb, uber

market perspective on networks

• same side network effects

• cross-side network effects

• positive feedback loops

same side network effects

• increasing value to a class of users resulting from an increase in the number of users from that class

• eg: the added value from your friends joining WhatsApp

cross-side network effects

• increasing value to a class of users resulting from an increase in the number of users from another class

• eg: greater choice on airbnb : a vendor offering a certain payment option; video game players and developers

positive feedback loop

• an increase in a leads to an increase in b which leads to an increase in a

• two sided can have both types of exchange benefits

• eg: user rating on airbnb

network effects and competition

industries with strong network effects lead to winner-takes all dynamics

• may be strong competition when a new market emerges

• once a leader emerges, positive feedback loop strenghen its position further

eg: mobile operator, social media

E commerce

• use of Internet, web and mobile apps to transact

• began in 1995 and grew exponentially (still 12 to 15 % a year)

• move from desktop to smartphone

• m commerce accounts for 2 third of the total e commer

three major segments of e commerce

• retail goods

• travel and services

• online content

features of e commerce

social

• collection of tech-based tools for communication with shoppers

• conversation, engagement

• leading social commerce platforms: facebook, insta, X, linkedin

mobile

• from pcs to mobile phones

• mobile marketing is 75% of all marketing

• people are constantly connected to a cellphone

local:

• local merchants can gain access to customers

• personalized offers based on gps location

why is e-commerce different?

ubiquity

• marketspace is virtual (allows customers to partake at any time)

• transaction costs reduced (cost of participating in the market)

• mobile devices extend services to local areas

global reach

• transactions cross-cultural and national boudaries (global shipping possible)

universal standards

• one set of technology standards: internet standards

• lower market-entry costs (the costs merchants must pay to bring their goods to the market)

• reduces search costs for customers

richness

• supports video, audio, and text messages (allow for content diversification

interactivity

• using a chat window to interact with technical support

information density

• reduction in information costs (total amount and quality of information available to all market participants)

personalization/customization

• technology permits modification of messages, goods (eg amazon adjusts to your preferences)

social technology

• promotes user content generation and social networking (every user can be a marketer)

key concepts in e-commerce

• information asymmetry

• menu costs (merchants’ costs of changing prices)

• dynamic pricing

• switching costs

• delayed gratification

• disintermediation

digital goods

• goods that can be delivered over a digital network (music, videos…)

• cost of producing first unit is almost entire cost of product

• cost of delivery over the internt is very low

• marketing costs remain the same: pricing highly variable

• industries with digital goods are undergoing revolutionary changes

types of E commerce

business to consumer (B2C)

• selling products and services to individual shoppers

Business to business (B2B)

• involves sales of goods and services among businesses

consumer to consumer (C2C)

• consumers selling directly to other conumers

e-commerce can be categorised by platform

• Mobile commerce (m-commerce)

Business models

portal (search engine: eg google,, facebook)*

e-tailer (selling goods online: amazon)

transaction broker (eg paypal)

content rovider (netflix)

market creators (bringing two or more sides of the market togather (aibnb)

service provider (gmail)

community provider (instagram, linkedin)

revenue models

advertising revenue model

sales revenue model

subscription revenue model

free-freemium revenue model

transaction free revenue model

affiliate revenue model

advertising revenue model

• revenue comes from displaying ads

• most widely used revenue model in e-commerce

sales revenue model

• sale of good, info or service

• micropayment system (apple itunes store)

subscription revenue model

• content or services for a subscription fee (spotify)

free-freemium model

• basic services for free and premium for advanced (duolingo)

transaction fee revenue model

• fee for enbaling or executing a transaction (uber)

affiliate revenue model

• referring visitors to other websites for a free (skyscanner)

• referral fees or lead generation fees

how e-commerce has transformed marketing

• internet provides new ways to identify and communicate with cutomers

• long-tail marketing

• different marketing and advertising format (email, search, ads, video)

behavioral targeting

• tracking the online behavior of individuals

• on individual websites-apps and across advertising networks

programmatic ad buying

native advertising

has resulted in concerns about online privacy