E-commerce
Use of the internet and web to transact business. Started in 1995 and grew exponentially, those who survived the dotcom bubble now thrive.
E-commerce segments
- retail goods
- travel services
- online content
Why is e-commerce different?
- Ubiquity (marketspace is virtual, transaction costs are reduced)
- Global reach (transactions cross cultures and nations)
- International standards (internet rules, lower market entry costs and search costs for customers)
- Interactivity (technology works through interaction with the user)
- Richness (videos, photos, messages)
- Personalization/customization: sending personalized messages to customers, customizing orders to their preferences
- Information density (transparency on costs and prices, enables price discrimination)
- Social technology (promotes user content genration and social networking)
Price discrimination
Selling the same, or almost the same, product at different prices to different groups of customers.
Marketspace
Market place extended beyond the traditional boundries and removed from temporal and geographic location.
Key concepts in E-commerce
- information assymetry (buyer/seller knowledge)
- switching costs
- menu, search and transactions cost reduces (menu costs are the costs of switching prices)
- dynamic pricing enabled: pricing products according to market demand
- delayed gratification: resisting the temptatation of immediate satisfaction in hopes of getting a more valuable long-lasting reward in the long term
- disintermediation (removing the middle man): producing at lower cost, hence charging lower prices
Disintermediation
The remmoval of business processes or organizations that serve as intermediary layers.
Digital goods
Goods that can be delivered over a digital network (music, photos)
Types of e-commerce
- Business-to-customer: retailing goods to individual shoppers
- Business-to-business: the sale of goods between businesses
- Customer-to-customer: consumers selling directly to consumers
M-commerce
Mobile commerce (35% of all e-commerce)
- the fastest growing form of e-commerce
- growing by 20+% per year
- areas of growth: mass market retailing, sale of digital content, in-app sales to mobile devices
Location based services
- Geosocial service: can tell you where your firends are meeting
- Geoadvertising: nearest supermarket
- Geoinformation: price of a house
Business models
- content provider
- e-tailer
- service provider
- community provider
- transaction broker
- portal
- market creator
Revenue models
- advertisement (web attracts visitors who can then be exposed to ads)
- sales (sale of products)
- affiliate (websites send visitors to other websites in return for a referral fee, or part of the revenue)
- subscription (some or all of a website offerings require a subscription fee)
- fee/freemium (free for the basic services and for the more special, advanced features you have to pay a fee)
- transaction costs (receive a fee for enabling a transaction)
How has e-commerce transformed marketing?
- Long tail marketing: the internet allows marketers to find customers for low-demand products.
- Behavioral targeting: Tracking the clickstream of individuals on thousands of websites to understand their interests and provide suitable ads.
- Native advertising: placing ads in social network newsfeeds and traditional editorial content such as newspaper articles.
What is the wisdom of crowds?
Wisdom of Crowds are sites where a lot of people can interact, which offers businesses a new way to market and advertise and discover who likes their product.
Crowdsourcing
Obtaining work, information and opinions of people who submit their data via the internet, social media, and smartphone apps.
Positive network effects
Metcalfe’s Law: The value of a telecommunication platform is proportional to the square of the number of connected users to the platform.
Negative network effects
An additional network user decreases the value of the network to all users.
(traffic jams, slow LTE/WI-FI)
Value sources in networks
- Exchange: a large number of users results in greater reach for exchanging products and services
- Staying power: a large number of users means the position is strong and the initial investment wasn’t wasted
Platform ecosystem
- platforms encourage 3-rd party providers to integrate products and services with their software creating an ecosystem: exchange of value (3-rd party gets greater reach, and platform increases the value of its offers to users)
- they provide an environment that makes it easy to fit the product into the platform software
- platform integrates cloud-based infrastructure for developers: enables cheaper, faster and scalable app development
Market
A medium that facilitates exchange.
Types of market
- One-sided market: value derived only from one class of users. (messaging platforms)
- Two-sided market: value derived from different classes of users. (Airbnb)
Exchange benefits
- same-sided exchange benefits: increasing value to a class of users as a result of increasing number of users of the same class
- cross-sided exchange benefits: increasing value to a class of users as a result of increasing the number of another class of users
Positive feedback loops
An increase in A leads to an increase in B, which leads to an increase in A.
