C6B E-commerce & E-Business Part 2 Notes

E-commerce & E-Business Part 2

Topic Learning Outcomes

  • Identify unique features of e-commerce, digital markets, and digital goods.
  • Explain how e-commerce has transformed marketing.
  • Describe how e-commerce has affected business-to-business transactions.
  • Identify issues to address when building an e-commerce presence.
  • Understand how MIS can help your career.

Features of E-commerce, Digital Markets, and Digital Goods

  • Purchasing goods & services using smartphones, tablets, and desktop computers.
  • 240 million people in the United States (85% of the total population) will shop online.
  • 215 million will buy something online.
  • E-commerce is composed of 3 major segments: retail goods, travel and other services, and online content.
  • US e-commerce:
    • Retail sales of goods and services: 1.05 trillion
    • Travel: about 225 billion
    • Total: 1.3 trillion
  • Worldwide online sales of retail goods generated 5.4 trillion and are expected to grow by 9% annually, compared to the 4% growth of traditional retailers.
  • E-commerce has expanded from desktop & home computers to mobile devices.

Case Study: Chewy

  • Chewy blends B2C and B2B e-commerce.
  • Transition:
    1. E-commerce is more social, mobile, & local.
    2. Displays ads & email without interactions (measure audience size & ad views) to conversation & engagement.
    3. Conversational commerce involves social elements (listening, discussing, interacting, choices, tastes, and opinion on social networks).
    4. Focus shifts from unique visitors to participating in customer-oriented conversations using technologies.

Business Transformation

  • E-commerce remains the fastest-growing form of commerce, with mobile, social, and local e-commerce becoming major channels.
  • The breadth of e-commerce offerings is growing, especially in the services economy.
  • On-demand services like Uber, Lyft, and Airbnb; meal delivery services; and pet care services have further expanded online service offerings.
  • E-commerce business models are refined further to achieve higher levels of profitability.
  • Traditional retail firms such as Walmart, Zara, and H&M have developed omni-channel business models to strengthen their dominant physical retail assets.
  • Small businesses and entrepreneurs continue to flood the e-commerce marketplace, often using infrastructures created by industry giants like Amazon, Apple, Google, and eBay, and are increasingly employing cloud-based computing resources.
  • Mobile e-commerce (m-commerce) has taken off worldwide with location-based services and entertainment downloads, including e-books, movies, music, and television shows.
  • Mobile retail e-commerce was expected to generate more than 3.6 trillion in 2022.
  • The traditional advertising industry is disrupted because online advertising now comprises more than 70 percent of all ad spending; Google, Yahoo, and Facebook display trillions of ads a year.
  • More than 80 percent of Internet users worldwide have joined an online social network, created blogs, and shared photos and music.
  • Social networks have become the primary gateway to news, music, and, increasingly, products and services.
  • The growth of online entertainment business models is enabled by the cooperation of the major copyright owners, as well as the movement of companies such as Netflix, Amazon, Apple, and YouTube into movie and TV production.
  • Cable television is in decline, as some viewers cut or reduce their cable subscriptions and rely on Internet-based streaming alternatives such as Hulu or YouTube TV.
  • Newspapers and other traditional media adopt online, interactive models but continue to lose advertising revenues despite gaining online readers.
  • Book publishing continues to grow slowly because of the growth in e-books and the continuing appeal of traditional trade books.

Technology Foundation

  • Wireless Internet connections (Wi-Fi, WiMax, 4G, and 5G smartphones) continue to expand.
  • Smartphones and tablet computers provide access to music, web surfing, and entertainment, as well as voice communication.
  • Streaming and podcasting take off as platforms for distribution of video, radio, and user-generated content.
  • Mobile devices expand to include wearable computers such as Apple Watch and Fitbit trackers along with in-home devices such as Amazon Alexa and Google Assistant.
  • The Internet broadband foundation becomes stronger in households and businesses as communication prices fall.
  • Social networks such as Facebook, Twitter, LinkedIn, Instagram, TikTok, and others are becoming major new platforms for e-commerce, marketing, and advertising.
  • Internet-based models of computing, such as smartphone apps, cloud computing, software as a service (SaaS), and platform as a service (PaaS), reduce the costs of building and maintaining e-commerce websites.
  • E-commerce vs. traditional commerce: Internet & web vs. radio, television & telephone

Key Concepts in E-commerce: Digital Markets and Digital Goods in a Global Marketplace

  • Digital marketplace: massive exchange of information directly, instantly & FOC (free of charge).
  • The internet reduces information asymmetry (access to information & determine relative bargaining power).
  • Increase transparency à price of goods.
  • Access to competitive pricing information.

Digital Markets and Digital Goods

  • The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product.
  • Removing layers lowers the final cost to the customer (disintermediation).

Digital Goods

  • Goods can be delivered over a digital network.
  • Examples: Music, video, movies, software, newspapers, magazines, and books can all be expressed, stored, delivered, and sold as purely digital products.
  • Digital goods are intellectual property, which is protected from misappropriation by copyright, patent, trademark, and trade secret laws.

E-commerce Business & Revenue Models

  • Advertising Revenue Model: attracting a large audience of visitors to a website and/or apps who can then be exposed to advertisements.
    • Estimated at 570 billion, with 75% (425 billion) for digital ads.
    • Websites with the largest number of unique visitors or that are able to retain user attention (stickiness) can charge higher advertising rates.
    • Yahoo derives nearly all its revenue from display ads (banner ads), video ads, and, to a lesser extent, search engine text ads.
    • Google and Facebook each derive more than 90 percent of their revenue from advertising, including selling keywords (AdWords), ad spaces (AdSense), and display ads to advertisers.
  • Sales Revenue Model:
    • Companies derive revenue by selling goods, information, or services to customers.
    • Examples: Amazon, Net-A-Porter (luxury fashion), and Wayfair (furniture).
    • Content providers make money by charging for downloading content such as music (Apple Music), books (Amazon Kindle), or movies (Apple TV).
  • Subscription Revenue Model:
    • A company offering content or services charges a subscription fee for access to some or all of its offerings on an ongoing basis.
    • Content providers often use this revenue model. For instance, the online version of Consumer Reports provides access to premium content, such as detailed ratings, reviews, and recommendations, only to subscribers for a 39 annual fee.
    • Netflix is one of the most successful users of the subscription revenue model, with more than 220 million customers worldwide in 2022.
    • To be successful, the subscription model requires the content to be perceived as differentiated, having high added value, and not readily available elsewhere or easily replicated.
    • Other companies offering content or services online on a subscription basis include Match (dating services), Ancestry (genealogy research), and Microsoft Xbox Live.
  • Transaction Fee Revenue Model:
    • A company receives a fee for enabling or executing a transaction. For example, eBay provides an online auction marketplace and receives a small transaction fee from a seller when the seller is successful in selling an item.
    • The transaction revenue model enjoys wide acceptance in part because the true cost of using the platform is not immediately apparent to the user.
    • Online financial services, from banking to payment systems, typically rely on a transaction fee model.
  • Affiliate Revenue Model:
    • Websites (called affiliate websites) send visitors to other websites in return for a referral fee or percentage of the revenue from any resulting sales.
    • Referral fees are also referred to as lead generation fees. For example, MyPoints makes money by connecting companies to potential customers by offering special deals to MyPoints members. When MyPoint members take advantage of an offer and make a purchase, they earn points they can redeem for free products and services, and MyPoints receives a referral fee.
    • Companies such as Yelp, which publishes crowd-sourced reviews of businesses, receive much of their revenue from steering potential customers to websites where the customers make a purchase.
    • Amazon uses affiliates that steer business to Amazon by placing the Amazon logo on their blogs.
    • Personal blogs often contain display ads as part of affiliate programs. Some bloggers are paid directly by manufacturers, or receive free products, for speaking highly of the manufacturers’ products and providing links to sales channels.

Behavioral Targeting

  • Behavioral targeting refers to tracking the clickstreams (history of clicking behavior) of individuals on thousands of websites to understand their interests and intentions and to expose them to advertisements that are uniquely suited to their online behavior.
  • This more precise understanding of the customer leads to more efficient marketing (the firm pays for ads that are directed only to those shoppers who are most interested in their products) and increased sales and revenues.
  • Negative aspects include the invasion of personal privacy without user consent.
  • Two tracking levels: individual websites or from within apps (first-party tracking) and on various advertising networks that track users across thousands of websites (third-party tracking).
  • All websites collect data, store, & record:
    • Where these users go when they leave that site
    • The type of operating system they use
    • Browser information and even some location data.
    • Specific pages visited on the particular site
    • The time spent on each page of the site
    • The types of pages visited
    • What the visitors purchased
  • Firms analyze this information about customer interests and behavior to develop precise profiles of existing and potential customers.
  • Most major websites have hundreds of tracking programs on their home pages, which track your clickstream behavior across the web by following you from site to site and retarget ads to you by showing you the same ads on different sites.

Website Visitor Tracking Tools

  • Website visitor tracking tools are available to track a shopper’s every step through an online store and then across the web as shoppers move from site to site.
  • Website features: create unique, display content or ads for products or services of special interest to each user; improve the customer’s experience; and create additional value through a better understanding of the shopper.
  • Personalization technology: to modify the web pages presented to each customer (imitate salespeople but at dramatically lower costs).
  • Example:
    • Land Rover might show a display ad emphasizing safety and utility to people over the age of 50, whereas young adults in their twenties may receive ads emphasizing sportiness or performance.
  • Ad networks create real-time bidding (RTB) platforms, where marketers bid in an automated environment for highly targeted slots available from web publishers.
  • Ad platforms predict how many targeted individuals will view the ads, and ad buyers can estimate how much this exposure is worth.
  • Advertising networks create a network of several thousand of the most popular websites (which millions of people visit), tracking the behavior of these users, building profiles of each user, and then selling these profiles to advertisers in a real-time bidding environment.
  • Popular websites download dozens of web-tracking cookies, bugs, and beacons, which report users’ online behavior to remote servers.
  • Example: single consumers with college degrees, living in the UK, in the 18–34 age range who are interested in purchasing an electric vehicle (EV).
  • Advertising networks can identify and deliver thousands of people who fit this profile and expose them to ads for EVs as they move from one website to another.
  • Behaviorally targeted ads are generally 10 times more likely to produce a consumer response than a randomly chosen banner or video ad.

Advertising Networks & Social Network Marketing

  • Advertising networks and their use of tracking programs have become controversial among privacy advocates because of these programs’ ability to track individual consumers across the Internet.
  • Social e-commerce is commerce based on the idea of the digital social graph, a mapping of all significant online social relationships. The social graph is synonymous with the idea of a social network used to describe offline relationships.
  • Mapping a social graph (network):
    • Draw lines from oneself to the 10 closest people you know. If they know one another, draw lines between these people. If you are ambitious, ask these 10 friends to list and draw in the names of the 10 people closest to them.
    • What emerges from this exercise is a preliminary map of your social network. Now imagine if everyone on the Internet did the same and posted the results to a large database with a website.
    • Ultimately, you would end up with Facebook or a site like it.

Social Networks Statistics (2022)

  • Facebook: 2 billion monthly worldwide users.
  • Instagram: more than 1.275 billion monthly active users.
  • TikTok: around 815 million.
  • Snapchat: around 500 million.
  • Twitter: about 370 million.
  • In 2022, more than 100 million US consumers were expected to make a purchase via a social network, and US social retail e-commerce revenues were expected to top 53 billion.
  • Facebook Shops and Instagram Shops enable retailers to post their catalogs directly on the social network.
  • TikTok is rapidly becoming a major venture for both social marketing and social e-commerce.

How E-commerce Has Affected Business-to-Business Transactions

  • Electronic Data Interchange (EDI):
    • EDI enables the computer-to-computer exchange of standard transactions such as invoices, bills of lading, shipment schedules, or purchase orders, between two organizations.
    • Transactions are automatically transmitted from one information system to another through a network, eliminating the printing and handling of paper at one end and the inputting of data at the other.
    • Each major industry in the United States and much of the rest of the world has EDI standards that define the structure and information fields of digital transactions for that industry.
  • New Ways of B2B Buying and Selling:
    • Private B2B networks typically consist of a large firm using a secure website to link to its suppliers and other key business partners.
    • B2B e-commerce marketplaces provide a single, digital marketplace based on Internet technology for many buyers and sellers.
    • They are industry-owned or operate as independent intermediaries between buyers and sellers.
    • B2B e-commerce marketplaces generate revenue from purchase and sale transactions and other services.

B2B Network

  • A private B2B network links a firm to its suppliers, distributors, and other key business partners for efficient supply chain management and other collaborative commerce activities.
  • B2B e-commerce marketplaces are online marketplaces where multiple buyers can purchase from multiple sellers.

MIS and Career: Leila X Designs Case Study

  • Leila X Designs is a small, rapidly growing company that offers an upscale but affordable collection of area rugs, lighting fixtures, and accent furniture. Leila X sells the products it offers via a variety of methods: through physical retailers such as Pier 1, online marketplaces such as Wayfair, and directly to consumers via its website, which uses the Shopify platform. Leila X is looking for a recent college graduate to fill a junior e-commerce associate position to help it continue growing.
  • Position Description: The junior e-commerce associate will work with Leila X’s e-commerce team to optimize the day-to-day operations of its website and enhance its customers’ digital experience. Job responsibilities include:
    • Collaborating with the buying, marketing, and e-commerce operations team.
    • Uploading contents such as product descriptions, details, and images to the Shopify platform.
    • Refreshing product pages to maintain newness on the website.
    • Creating compelling landing pages for product and category launches.
    • Identifying opportunities to increase website conversion.
    • Maintaining a calendar to track product launches, site updates, home page refreshes, and sales/promotions.
    • Collaborating with a search optimization agency to plan and help execute site optimizations and implement best website practices.
  • Job Requirements:
    • Bachelor’s degree in MIS, e-commerce, or digital marketing
    • Experience with website management and operations
    • Familiarity with Shopify
    • Knowledge of Google Analytics
    • Proficiency with Microsoft Excel, Microsoft Word, and Adobe Photoshop
    • Ability to work remotely
    • Strong communication and organizational skills