1

Chapter Twelve

Global E-Commerce: An Examination of Issues Related to Advertising and Intermediation

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Agenda

E-Commerce Future and SuccessTypes of Websites, types of E-commerceThe Richness-Reach TradeoffIntermediation

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Global E-Commerce Predictions

Intermediaries will decrease (disintermediation)Disintermediation will be more rapid in service

industryDisintermediation is sensitive to product and

service characteristicsPromotions will inhibit disintermediationNew intermediaries will arise (navigators, eg.)Logistics and Distribution are enhanced by E-

commerce (fulfillment functions)

4

Internet & Productivity

Exponential Growth of Internet Great potential for economic advantage

Productivity Paradox Lack of observation of productivity gains in

macroeconomic data Resolved by understanding the long gestation period

• Changes in human skills and organizational structure must occur before true growth is seen

• Learning is important

• People remember

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Internet & Productivity

Productivity Paradox What does IT buy? Lowered transaction costs, lowered

coordination costs, interoperability, increased memory What does IT cost? Increased learning, new procedures,

new ways of thinking

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Critical Success Factors for Global E-Commerce

High tech also requires high touchGlobalize operations, but localize serviceSimplify and expedite transaction processFoster trusting relationships with [& among]

customersFocus on convenience, info, intermediation,

pricingGet yourself found often and on top in portalsPlan to evolve to transactions

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Types of Websites

Static

Inter-actional

Trans-actional

Business Basis

of Firm

Portal

Links to other websites and web services

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The Richness-Reach Tradeoff-1

Reach: Distribution RangeRic

hnes

s: V

arie

ty a

nd D

epth

of

Con

tent

In the past, the cost of

communication limited the amount of

information we could distribute

over a given territory

Today, via inter-, intra- and extranets, we can distribute almost limitless variety and amounts of information over a given range, even worldwide.

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The Richness-Reach Tradeoff-2

Reach: Distribution RangeRic

hnes

s: V

arie

ty a

nd D

epth

of

Con

tent

Each distribution

channel has its own

characteristic Richness-

Reach tradeoff curve

Attempting to increase

distribution range incurs costs, which

lower the available richness.

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The Richness-Reach Tradeoff-3

Reach: Distribution RangeRic

hnes

s: V

arie

ty a

nd D

epth

of

Con

tent

Attempting to increase

richness incurs costs, which

lower the available

distribution reach

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The Richness-Reach Tradeoff-4

Reach: Distribution RangeRic

hnes

s: V

arie

ty a

nd D

epth

of

Con

tent

The new media BREAK the relationship between richness and

reach. No reasonable move to increase richness or reach will have any real cost

and hence no effect on the other characteristic.

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Global e-Commerce: Transformation

Connecting the World 1st Phase – Sharing databases, EFT, EDI

• Very successful!

2nd Phase – B2C, B2B e-Commerce • Moving value chain processes to Internet

• Is critical for survival and sustenance of the Internet

Internet Transforming Business• US Banking Industry – 95% online services

• 32 million Americans bank online

• Airlines, Books, etc.

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Global e-Commerce

Online Spending Trends 2002 e-Commerce Revenues

• Worldwide – $623 B., up from $41 B. in 1998

• US – $291 B., up from $31 B. in 1998

What happened to Predictions?

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Types of E-Commerce

Business Government

Consumer

B2G

G2B

G2C

B2C

B2E

C2C

C2B

EMPLOYEES

B2B

C2G

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Familiar Types - 2

B2C: RetailingB2B: Supply ChainG2B: RegulationB2G: Supply/ProcurementG2C: E-governmentC2G: ????C2C: Amateur BusinessB2E: Part of Employee Relations

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Global e-Commerce

Business to Business (B2B) Linking with other members of the value chain

• Less expensive automated transactions

• Enables standards for data transfer

• Extends boundaries

• Streamline operations (JIT)

• Improve customer service

• Reduce Operating Costs

• Opportunities for sales automation and self-service purchases

• Allows Manufacturers, wholesalers, retailers, and consumers to buy, sell, and barter

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Global e-Commerce (continued…)

Business to Employee (B2E) Linking businesses to their employees

• Keeps everyone “up to date”

• Download tax forms

• Review benefits

• Signing up for medical

• Buy company product at employee discount

• Automatic deductions from payroll (medical, retirement plans)

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Global e-Commerce (continued…)

Business to Consumer (B2C) Linking businesses to customers

• Lets customer buy online• Improves customer relationship and awareness of product and/or

service

Business to Government (B2G)Government to Consumer (G2C)

• Thought of as democratizing factor

Consumer to Consumer (C2C)• E-bay is current archetype

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Internet and Traditional Advertising

Criterion

Driver

Hyperlinks

View Timing

Effectiveness Measures

Control over Exposure Time

Interactivity

Image

Pay for Performance

Targetting

Traditional Advert

Advertising

None

View when Broadcast

None or little; based on samples & focus gps.

Determined by advertiser except in print media

None

Perference for upscale

Not normal

Limited

Internet Advert

Contents

Network of HLs

View on demand

All hits recorded; based on actual data

Determined by web surfer upon use

As much as desired

Preference for relevance

Increasingly tied

Multiple paths for targetting

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Global and E-Commerce Issues

CybercrimeGlobal Market ExplorationInternationalizationLocalizationPayment SystemLegal and Taxation SystemLearning Curve or Quantum LeapIntermediation …

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Intermediation

BUYERSELLER

MARKETSPACE

Traditionally, buyer and seller come together in

market space where they can

confidently transact.

BUYER SELLER

Owners of the market space get

a fee for this intermediation

service.

SIMPLE INTERMEDIATION

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Intermediation-2 In the traditional marketspace, the owners provide safety, security,

standards, replicability,

recording, transportation, etc. to increase

the confidence of buyers and

sellers.

BUYER SELLER

As interaction becomes more complex, more possibilities for intermediation

arise

Each of these represents a

business opportunity

COMPLEX INTERMEDIATION

These complex interactions result

in a hierarchy made possible by

layers of intermediation

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Intermediation-3

HIERARCHY

BUYER SELLER

A more complex form of

intermediation is being a navigator

among brokeragesOne possibility

for intermediation is brokerage

COMPLEX INTERMEDIATION GIVES RISE TO HIERARCHIES

An even more complex form of intermediation is

trraining or consulting in how to use navigators

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Intermediation-4

MARKETSPACE

The user can take over many of the intermediation

functions, resulting in “dis-intermediation”; hierarchies are

broken down and the market space

is recreated

As Internet replaces the

Hierarchies of the Marketspace, the

user becomes “empowered”

DISINTERMEDIATION

BUYER SELLER

Assuming the user has the tools and the skills and the opportunities

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Intermediation-5

MARKETSPACE

Providers can find niches within the interstices and “reintermediate” the market space,

reintroducing hierarchical structures.

However, the complexity of the Internet creates more interstices.

REINTERMEDIATION

BUYER SELLER

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Intermediation & E-Commerce

Anticipated Changes in Market Structure• Price

• Distribution of profits

• Strategic interactions between market participants

• Organizational hierarchies

• Transaction costs

• Value chain composition

• Barriers to entry

Ecommerce combines the advantages of lowered transaction costs with lowered coordination costs and other advantages of computer-based systems

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Traditional Intermediation Marketing Channels

Automobile Part Manufacturer

Vehicle ManufacturersService Program

Mail Order &Chains

Direct JobbersWarehouseDistributors

Oil &RubberCompanies

Indirect Jobbers Oil & Tire Jobbers

Service StationsRepair ShopsVehicle Dealers

Car Owner

Intermediaries

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Traditional Intermediary Functions

Communication, Coordination and Exchange Costs

Assortment of ProductWarehousing and DistributionFinancing and Risk SharingProduct Promotions

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E-Commerce & Intermediation

Digital Networks Direct channels between producers and

consumers Lowers coordination costs for producers and

retailers Lowers physical distribution costs Disintermediation - Theorizes the end of the

“middleman”

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Intermediation Cont’d

Supporting Disintermediation Growing trends in online commerce

• Airline tickets

• Book sales

• Computer Sales

• Auctions

• Securities by discount brokers

Based mostly on anecdotal evidence

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Emerging Intermediary Trends

Theorizes that E-Commerce will not eliminate the “Middleman”

Selling products direct is not a new phenomenon• Sherwin-Williams sell directly to customer

• Hart, Shaffner, Marx has about 200 retail outlets

• Gap uses direct retailing

E-Commerce is evolving new Intermediary functions

• CyberIntermediaries are emerging, “Hypermediation”

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Intermediary – Global Issues

Cost-Effective Distribution If business efforts are concentrated on small

number of key countries• More efficient to ship goods from local distribution centers than from

home country

• Delivery services charge much more in other countries

If business efforts are concentrated on large number of foreign countries

• More efficient to negotiate a volume deal with a major delivery service

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Critical Success factors for Global E-Commerce

Complement High Tech with High Touch Globalize Operations, but Segment Geographically to

Localize Service Simplify and Expedite Transaction Process Foster Trusting Relationships with Customers Reinvent with Focus on Convenience, Information,

Intermediation and Pricing Strategies Get Yourself Found Often and on the Top Plan Technology to Evolve for Transactional e-Commerce Prepare for m-Commerce