Electronic Commerce Business Models Strategies Investment and Implementation in the Network Economics Fall 2010 Minder Chen Ph D Associate Professor of Management Information Systems E Mail minder chen csuci edu Web site http faculty csuci edu minder chen Internet The Virtual Network Internal Structure NAP Compute r Router A Regional Network Internet Telephone Company ISP T1 T3 ISDN ADSL Cable Modem LAN NAP National Access Point ISP Internet Service Provider Minder Chen 1996 2010 EC 2 E Commerce Network Minder Chen 1996 2010 EC 3 Domain Name DNS Domain Name Server Mapping the 32 bit numeric IP address such as 217 156 3 14 to a name such as vax cs uiuc edu The formats of a domain name and its corresponding IP address are unrelated The master registrar DNS database is managed by Network Solutions at www networksolutions com Register a domain e g GoDaddy com The name of a host computer with an IP address edu gmu cs uiuc cs vax vax Minder Chen 1996 2010 EC 4 Electronic Commerce Introduction E Business E Commerce Commerce Internet Commerce Minder Chen 1996 2010 EC 5 Travelocity Microsoft expedia Priceline com The Low Friction Market The Internet will carry us into a new world of low friction lowoverhead capitalism in which market information will be plentiful and transaction costs low Bill Gates The Road Ahead Where there is a friction there is opportunity Net Ready Minder Chen 1996 2010 EC 7 EC Business Opportunities Innovative Ideas Business models and Business strategies Funding Business and technical talents Technological enablers New business models and ideas are driving EC initiatives Internet technologies are enablers Minder Chen 1996 2010 EC 8 The Cycle of Electronic Commerce Access Searches Queries Surfing Customers Online Ads Follow on Sales Online Orders Standard Orders Distribution Online soft goods Delivery hard goods Electronic Customer Support Minder Chen 1996 2010 EC 9 EC and Business Processes Customer Seller Selling Process Corporate Databases Provide Info Send info Phone fax e mail Data sheets catalogs demos Get customer Request info Procurement Process Identify need Web surfing Web searches web ads Web site Find source Newsgroups Provide info Demos reviews Fulfill order Evaluate offerings Net communities Web site P O s Credit cards e cash EDI Deliver soft goods electronically Support Minder Chen 1996 2010 Purchase Web site phone fax e mail emailing list Operate Maintain Repair EC 10 Changes in the Net Economy Business environment Local Physical Global Virtual Intangible Continuous Business assets Tangible Business change Periodic Business production Mass Production Mass Customization Mass Personalization Customization is under direct user control the user explicitly selects between certain options a portal site with headlines from the New York Times or from the Wall St Journal enter ticker symbols for the stocks you want to track Personalization is driven by the computer which tries to serve up individualized pages to the user based on some form of model of that user s needs http www useit com alertbox 981004 html Minder Chen 1996 2010 EC 11 Network and Information Economy Information is costly to produce but cheap to reproduce Price information according to its value not its cost Managing intellectual property Maximize the value of your intellectual property not the terms and conditions that maximize the protection Information as an experience good Consumers must experience it to value it Brand and trust building is critical The economics of attention A wealth of information creates a poverty of attention Source Information Rules Minder Chen 1996 2010 EC 12 uo us c Vir t cy cl e us Vi ci o Value to User yc le Popularity Adds Value in a Network Positive Network Externality Networks Real LAN Internet Fax Virtual Virtual community Chat room Instant messenger Skype social network Number of Compatible User Minder Chen 1996 2010 EC 13 Challenge Consumers Everything on the Internet should to be free Merchant How can I make a profit if everything is free Examples Free web browsers Netscape Communicator and Internet Explorer Free email Juno mail yahoo com and hotmail com Free Internet Access Freeserve in Britain Free PC eMachine and CompuServe Free PC Free web hosting Geocities Angelfire Zoom Free Gilder s Law Price 250 Cost of a 3 minute Long Distance Call 0 1930 Year Minder Chen 1996 2010 1999 All Alltangible tangibleand andintangible intangibleitems itemsthat that can be copied adhere to the law of can be copied adhere to the law of inverted invertedpricing pricingand andbecome becomecheaper cheaper as asthey theyimprove improve Anticipate Anticipatethis thischeapness cheapnessin inyour your pricing strategy and product service pricing strategy and product service development developmentstrategy strategy EC 14 Moving Your Business Online Companies are motivated by either fear or greed to move to their businesses to the net To com your company is becoming an imperative They have to obsolete their current business models and work very hard to search a new business model Be aware of internet tax law and interstate international commerce laws http en wikipedia org wiki Internet taxes Your competitor is just one click away Minder Chen 1996 2010 EC 15 Business Models Based on the Value Chain in the Market Place Raw material producer Exchange On Pro line Bu cure yer me sid nt eE CM Manufacturer C2B Examples B2B alibaba com B2C Amazon com C2B Priceline com C2C eBay com craiglist com Minder Chen 1996 2010 Independent market operators Consortia od el Distributor New Middleman Ch a nn Service Providers Logistics Financial Retailer el Co n B2C Consumer f li ct B2C EC 16 C2C Business to Business vs Business to Consumer Business to Consumer No vendor loyally No switching costs Time insensitive Short term Casual Many vendors Products differentiated on price image Minder Chen 1996 2010 Business to Business Relationship based Very high switching costs Extremely time sensitive Long term Mission critical Few partners Partners differentiated on reliability flexibility EC 17 Buyer Brick and mortar Face to Face Mail order Mail Printed catalog Phone order Telex Phone Fax Click and Mortar Business Channel Multi Channel Presence Seller Electronic commerce EDI Email Pure Play Web Multi channel plays will have extraordinary power if companies elegantly blend and synchronize those channels Minder Chen 1996 2010 EC 18 EC Strategies 4 Cs Customers Commerce ContentCommunity Minder Chen 1996 2010 EC