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Chapter 10&11

COMMERCE 2KA3 Chapter Notes - Chapter 10&11: Linkedin, Flickr, E-Commerce


Department
Commerce
Course Code
COMMERCE 2KA3
Professor
A L I R M O N T A Z E M I
Chapter
10&11

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CHAPTER TEN: E-COMMERCE – DIGITAL MARKETS AND
DIGITAL GOODS
E-Commerce and the Internet
E-Commerce Today
Ecommerce: use of internet and web to transact business
Commercial transactions involve exchange of value across
organizational/individual boundaries in return for products/services
Ecommerce was the only stable segment of retail during recession
By 2006 ecommerce revenues retuned to solid growth
Fastest-growing form of retail trade in North America, Europe, Asia
Why E-Commerce is Different
E-Commerce Technology
Dimension Business Significance
Ubiquity: available anywhere at
all times (work, home, mobile) - Marketplace is extended beyond traditional
boundaries and removed from a geographic location
- Transaction costs are reduced (do not need to
spend time/money on travelling)
Global Reach: reaches across
national boundaries - Potential market is the size of the world’s online
population
Universal Standards: technical
standards for conducting e-
commerce are universal
- Disparate computer systems can easily
communicate with each other
- Lower market entry costs for merchants
- Lower search costs for consumers
Richness: video, audio, text
messages are possible - Information richness: the complexity,
personalization and content of a message
- Web makes it possible to deliver rich messages to
a large number of people
Interactivity: technology works
through interaction with the user - Allow for two-way communication between
merchant and consumer
- Consumers are engaged in dialogue that adjusts
the experience to the individual
Information Density: reduces
information costs and raises
quality
- Price transparency: ease with which consumers
can find out the variety of prices in a market
- Cost transparency: ability of consumers to
discover the actual costs merchants pa for products
- Price discrimination: selling same goods to
different groups at different prices
Personalization/Customization:
allows personal messages to be
delivered to individuals as well as
groups
- Personalization: merchants can target marketing
messages to specific individuals
- Customization: changing delivered products based
on user’s preference
Social Technology: user content - Users can create and share text, videos, music,

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generation and social networking photos with personal friends
Key Concepts in E-Commerce: Digital Markets and Digital Goods in a Global
Marketplace
Internet reduces information asymmetry
Information asymmetry: exists when one party in a transaction has more info than
the other party
Digital markets are more transparent than traditional markets
Ex. customers can look around at competing prices before buying a car
Digital markets:
oReduce menu costs (merchants cost of changing prices)
oReduce transaction costs
oRaise price discrimination
Dynamic pricing: price of a product varies depending on demand characteristics
of customer/supply situation of seller
Disintermediation: removal of organizations/business process layers responsible
for intermediary steps in a value chain
Digital Goods:
oGoods that can be delivered over a digital network
oEx. music, video, movies, TV, software, newspapers, magazines, books
oMarginal cost of producing another unit is almost zero
oBusinesses dependent on physical products for sale are losing business to
the internet
E-Commerce: Business and Technology
Types of E-Commerce
Business-to-consumer (B2C) electronic commerce: retailing products/services to
individual shoppers (ex. Chapters.Indigo.ca)
Business-to-business (B2B) electronic commerce: sales of goods/services among
businesses
Consumer-to-consumer (C2C) electronic commerce: consumers selling directly to
consumer (ex. eBay, Kijiji, Craigslist)
Mobile commerce (m-commerce): the use of handheld wireless devices for
purchasing goods/services from any location
E-Commerce Business Models
Portal - Offer web search tools, news, email, IM, maps, calendars
- Ex. Google, Bing, Yahoo!, MSN, AOL
- Generate revenue by attracting large audiences, charging
advertisers for ad placement, charging for premium services
E-tailer - Sells physical products directly to consumers or to individual
businesses
- Ex. Amazon.ca, RedEnvelope.com

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Content Provider - Creates revenue by proving digital content (news, music,
photos, video)
- Content might be generated by selling ad space or making
customer pay to access site
- Ex. GlobeandMail.com, iTunes.ca, Canada.com
Transaction Broker - Saves users money and time by processing online sales
transactions
- Generates a fee every time transaction occurs
- Ex. BaySteet.ca, Expedia.ca
Market Creator - Provides digital environment where buyers and sellers can
meet, search for products, display products, establish prices for
products
- Ex. eBay.ca, Priceline.com
Service Provider - Web 2.0 application (photo sharing, video sharing, user-
generated content)
- Provides online storage/backup
- Ex. Google Apps, Flickr.com
Community Provider - Online meeting place where people with similar interests can
communicate and find info
- Ex. Facebook, Twitter
E-Commerce Revenue Models
Revenue model: describes how firm will earn revenue, generate profits, produce
superior return on investment
Advertising Revenue Model:
oWeb site generates revenue by attracting large audience of visitors who
can be exposed to advertisements
oEverything on the web is free to visitors because advertisers pay
production/distribution costs
oWeb sites with higher viewership are able to charge higher advertising
rates
Sales Revenue Model:
oCompanies derive revenue by selling goods, info, services to customers
oEx. Amazon, TheBay.com, iTunes
oMicropayment systems: provide content providers with a cost-effective
method for processing high volumes of very small monetary transactions
(ex. buying one song off iTunes)
Subscription Revenue Model:
oWeb site offers content/services and charges subscription fee for access
oEx. Netflix, Wall Street Journal, eHarmony
Free/Freemium Revenue Model:
oOffers basic services for free while charging premium for
advanced/special features
oWant to attract large audience with free services and convert some to pay
subscription
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