Management Information Systems

Sixteenth Edition

Chapter 10
E-commerce: Digital
Markets, Digital Goods

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 Learning Objectives

10.1 What are the unique features of e-commerce, digital markets, and digital goods?

10.2 What are the principal e-commerce business and revenue models?

10.3 How has e-commerce transformed marketing?

10.4 How has e-commerce affected business-to-business transactions?

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 E-Commerce Today

• E-commerce: Use of the Internet and Web to transact business

• Began in 1995 and grew exponentially;

• E-commerce remains the fastest-growing form of commerce when

compared to physical retail stores, services, and entertainment.

• The new e-commerce: social, mobile, local

• Move from desktop to smartphone

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 Why E-Commerce has grown rapidly ?
1. Ubiquity: E-commerce is ubiquitous, meaning that it is available
everywhere all the time. Marketspace is virtual and transaction costs
are reduced.

2. Global reach: Transactions cross cultural and national boundaries.

3. Universal standards: One set of technology standards: Internet

standards

4. Richness: refers to the complexity and content of a message. Internet

supports video, audio, and text messages

5. Interactivity: e-commerce technologies are interactive, meaning they

allow for two-way communication between merchant and consumer
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6. Information density:

• Internet increased information density: Information becomes

abundant, cheap, and more accurate to market participants. This allows
consumers to find out more easily the variety of prices in a market (price
transparency ) as well as the actual costs merchants pay for products
(cost transparency).

• Information density has advantages and disadvantages for merchants.

First, they can charge different prices for the same product based on
customer’s degree of interest for the product (price discrimination). On
the other hand, consumers may be less willing to pay a premium price if
they can easily find a similar product at a lower price elsewhere.

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 Why E-Commerce has grown rapidly ?

7. Personalization/customization: Merchants can target their marketing

messages to specific individuals by adjusting the message to a person’s
clickstream behavior, interests, and past purchases (personalization).
The technology also permits customization —changing the delivered
product or service based on a user’s preferences or prior behavior.

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 Digital Markets and Digital Goods in a Global
Marketplace

• Internet and digital markets have changed the way companies conduct
business

• Information asymmetry reduced: digital markets are more transparent than

traditional markets.

• Menu costs, search and transaction costs reduced

• Dynamic pricing enabled: prices variy depending on market conditions

such as the time of day, the demand, users’ prior visits to the site, etc.

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 Digital Markets and Digital Goods in a Global
Marketplace
• Switching costs: digital markets can either reduce or increase switching
costs. For example, if a digital market offers a wider range of products
than a traditional market, it may be easier to switch between options. On
the other hand, if a digital market offers unique or specialized products, it
may be more difficult for consumers to switch to an alternative provider.

• Delayed gratification: digital markets may cause some delay in

gratification due to shipping times. Consumers may need to wait for their
purchases to be shipped or delivered.

• Disintermediation: Digital markets provide opportunities to sell directly to

the consumer, bypassing intermediaries which can lower purchase costs.
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 Figure 10.2 The Benefits of
Disintermediation to the Consumer

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 Digital Goods
• Goods are delivered electronically. Customers can download the product
directly to their computer or mobile device after purchase.

• Cost of producing first unit is almost entire cost of product. Unlike

physical goods that require manufacturing, storage, and shipping.

• There is no limit to the number of customers who can purchase the

product.

• The distribution costs of digital goods are very low, as there is no need for
physical packaging or shipping

• Digital goods can be stored, customized and updated easily

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 Types of E-Commerce
– Business-to-consumer (B2C): businesses sell products or services
directly to consumers. Examples include online retailers like Amazon,
clothing stores…

– Business-to-business (B2B): Examples include manufacturers

selling parts to suppliers and wholesale distributors.

– Consumer-to-consumer (C2C): consumers selling products or

services to other consumers through online marketplaces like eBay,
or Facebook Marketplace.

– Consumer-to-business (C2B): consumers offer their products or

services to businesses. Examples include freelancers offering their
services to businesses
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 E-Commerce Business Models
• Portal: gateways offering package services. Exp: Google, Yahoo ...

• E-tailer: Online retail stores. Exp: Amazon, Souq.com

• Content provider: distributing digital content. Exp: Netflix, youtube

• Transaction broker: processing transactions for consumers that are

normally handled in person, by phone or by mail.

• Market creator: Builds a digital environment where buyers and sellers can
meet. Exp: eBay

• Service provider: Providing online services. Exp: Google drive

• Community provider: Provide online environment where people with

similar interests can communicate. Exp: Facebook, LinkedIn, Twitter, Pintrest
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 E-Commerce Revenue Models
A revenue model is a plan for earning money from a business. It
explains different mechanisms of revenue generation and its sources.

1. Advertising Model: deriving revenue by selling ad spaces. YouTube,

Instagram, Facebook, and Google generate revenues by displaying ads.
They may also generate revenues through other sources.

2. Sales Model: The most common model. The eCommerce merchant

offers products and services to consumers and generates revenue by
selling them these goods and services.

3. Subscription Model: offering users content or services and charging a

subscription fee for access to some or all its offerings. Exp: dating sites,
video games, music or films (Netflix, YouTube premium, Amazon prime)
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4. Freemium Model: the user access the basic limited features of a product
for free, but will be charged for the “premium version” with extended
features.

5. Transaction fee Model: receiving a fee or a commission for enabling or

executing a transaction. Exp: Airbnb, Amazon, Paypal, eBay…

6. Affiliate Model: Web sites redirect visitors to other Web sites in return
for a commission or a percentage of the revenue from any resulting sales

7. Drop shipping: The merchant display products on his website and takes
the orders under his brand. He does not keep an inventory or handle the
shipping. Products are purchased from a third party as soon as a
customer makes a purchase which is then shipped directly to the
customer.
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 How Has E-commerce Transformed
Marketing?
• Internet provides new ways to identify and communicate with millions of
potential customers at costs much lower than traditional media.

• Long tail marketing: a strategy that concentrates on less popular

products. Internet gives tools to inexpensively find customers for products
where demand is very low. Firms can achieve high profits by selling low
volumes of hard-to-find items to many customers. Amazon sells more than
350 millions products

• Behavioral targeting: monitoring people actions

on the web by tracking their clickstreams

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 Social E-Commerce
• Social e-commerce:

 refers to the use of social media platteforms to promote and sell products
and services. These platforms are a great way to reach a large audience.
Examples include: Instagram's shopping, Facebook Marketplace, Twitter's
buy button, Youtube ads, etc..

 Social sign-on

– Collaborative shopping

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 Social E-Commerce and Social Network
Marketing (2 of 2)
• Social shopping sites: online marketplaces or e-commerce platforms that
incorporate social media features, such as user reviews, ratings, and
recommendations.

• Wisdom of crowds:

• Crowdsourcing: the practice of obtaining ideas, content, or services from

a large and diverse group of people, often via the internet.

• Live shopping: involves live streaming video of products being

demonstrated or sold in real-time. This allows customers to ask
questions, interact with the seller, and make purchases directly from the
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 How Has E-Commerce Affected B2B
Transactions?
• Global B2B e-commerce in 2019 is $12.2 trillion

• Internet and networking helps automate procurement

• Variety of Internet-enabled technologies used in B2B

– EDI

– Industrial Private Networks (private exchanges)

– Net marketplaces

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 Electronic B2B Solutions
• Electronic Data Interchange (EDI): a computer-to-computer exchange
between trading partners of standard business documents such as
invoices, bills, shipment schedules, or purchase orders. 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.

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 Electronic B2B Solutions
• Private Industrial Network: a secure online platform used by a group of
firms to manage their supply chain activities. It consists of a large firm
using an extranet to link to its key business partners to share product
design and development, production scheduling, inventory management,
etc. The sponsoring firm sets the rules inviting other firms to participate at
its own discretion. Many firms (Wal-mart, Microsoft, Coca-Cola, Nike, HP,
IBM) operate private industrial networks, which indeed form the largest
part of B2B ecommerce today.

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 Electronic B2B Solutions
• Net marketplaces (e-hubs): Online platforms that facilitate transactions
between buyers and sellers. They typically operate in a specific industry
and offer a range of services, such as product listings, search functions,
communication tools, and payment processing.

– May be operated by third-party providers or by industry associations.

– Participants can establish prices through online negotiations, auctions,

quotations…

– Some e-hubs serve vertical markets for specific industries, such as

automobiles or telecommunications, whereas others serve horizontal
markets for goods and services that can be found in many industries,
such as office equipment or transportation.
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 Net Marketplace

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