1 © Prentice Hall, 2000 Chapter 12 Economics, Global, and Other Issues in Electronic Commerce 2 © Prentice Hall, 2000 Learning Objectives ❚ Identify the major impacts of Web-based economics ❚ Describe the major components of Web-based economics ❚ Analyze the impact of online markets on competition ❚ Describe the impacts and industry structure on intermediation ❚ Describe the role and impact of virtual communities ❚ Evaluate the issues involved in global electronic commerce ❚ Analyze the impact of EC on small businesses ❚ Understand the research opportunities in EC ❚ Describe the factors that will determine the future of EC 3 © Prentice Hall, 2000 Marketplace V s. Marketspace ❚ Markets have three main functions ❙ Matching buyers and sellers ❙ Facilitating the exchange of information, goods, services and payments ❙ Providing an institutional infrastructure ❚ Electronic Marketplaces = Marketspaces ❙ Increase effectiveness ❙ Lower distribution costs ❙ ‘Friction-free’ markets 4 © Prentice Hall, 2000 Marketplace V s. Marketspace (cont.) ❚ Regular and EC economics are completely different ❙ EC involves gathering, selecting, synthesizing, and distributing information ❙ Economics of EC starts with supply and demand, and ends with pricing and competition 5 © Prentice Hall, 2000 The Components of Digital (Virtual) Economics ❚ Digital Products Information and entertainment products that are digitized : • Paper-based documents : books, newspapers, magazines journals, newsletters • Product information : product specifications, catalogs, user manuals • Graphics : photographs, postcards, calendars, maps, posters, x-rays • Audio : music recordings, speeches, lectures, industrial voices • Software : programs, games, development tools Symbols, tokens and concepts : • Tickets and reservations : airlines, hotels, concerts, sport events, transportation • Financial instruments : checks, electronic currencies, credit cards, securities Processes and services : • Government services : forms, benefits, and welfare payments, licenses • Electronic messaging : letters, faxes, telephone calls • Business value creation processes : ordering, bookkeeping, inventorying • Auction, bidding, bartering • Remote education, telemedicine, and other interactive services • Cybercafes interactive entertainment, virtual communities 6 © Prentice Hall, 2000 ❚ The Consumers— people worldwide that surf the Web are potential buyers of goods and services ❚ The Sellers— frontstores available on the Net, advertising and/or offering millions of items ❚ The Infrastructure Companies— companies provide the hardware and software necessary to support EC ❚ The Intermediaries— intermediaries of all kinds offer their services on the Web ❚ The Support Services— ranging from certification and trust, which assures security to knowledge providers ❚ Content Creators— media-type companies create and perpetually update Web pages and sites The Components of Digital (Virtual) Economics (c ont.) 7 © Prentice Hall, 2000 Competition in Electronic Commerce ❚ Impacts on competition ❙ Lower buyers’ search cost ❙ Speedy comparisons ❙ Differentiation ❙ Lower price ❙ Customer service ❙ Digital products lack normal wear and tear 8 © Prentice Hall, 2000 Competition in Electronic Commerce (cont.) ❚ Perfect competition ❙ Enable many buyers and sellers to enter the market at little or no cost (no barriers to entry) ❙ Not allow any buyers and sellers to individually influence the market ❙ Make certain products homogeneous (no product differentiation) ❙ Supply buyers and sellers with perfect information about the products and the market participants and conditions 9 © Prentice Hall, 2000 Competition in Electronic Commerce (cont.) ❚ Observations regarding competitiveness ❙ There will be many new entrants ❙ The bargaining power of buyers is likely to increase ❙ There will be more substitute products and services ❙ The bargaining power of suppliers may decrease ❙ The number of industry competitors in one location will increase 10 © Prentice Hall, 2000 Cost Curves Quantity Cost per unit Optimal Regular Products Cost per unit Quantity Digital Products [...]... may be falling, global interest-based communities will spring up Mainly in support of business-to-business financial and other repetitive, standard transactions, e.g EFT & EDI The emergence of the Internet and the extranets resulted in an inexpensive and flexible infrastructure that can greatly facilitate global trade © Prentice Hall, 2000 26 Barriers to Global Electronic Commerce Legal Issues ... payment mechanisms Integrating EC with existing corporate information systems, databases, etc Retrieval of information from an electronic industry directory Establishing standards for international trade Building a mobile Internet distribution command system © Prentice Hall, 2000 34 Managerial Research Issues Advertisement measuring the effectiveness, integration and coordination Applications... creating a methodology of finding EC business applications Strategy designing strategic advantage strategy for EC initiating “Where to market” strategy finding way to Integrate EC into organizations Impacts identify the necessary organization structure and culture integration with ERP and SCM © Prentice Hall, 2000 35 The Future of Electronic Commerce Internet Usage— increase... for Buying— increase rapidly Purchasing Incentives— increase buyers’ advantages Increased Security and Trust— significant improvement Efficient Information Handing— accessible from anywhere Innovative Organizations— restructured and reengineered Virtual Communities— spreading rapidly Payment Systems— ability to use e-cash cards and make micropayments is getting close to reality Business-to-Business—... Uncoordinated actions must be avoided and an international policy of cooperation should be encouraged Market Access Issues Companies starting e -commerce need to evaluate bandwidth needs by analyzing the data required, time constraints, access demands, and user technology limitations Financial Issues Customs and taxation electronic payment systems © Prentice Hall, 2000 27 Barriers to Global Electronic. .. community site into a commerce site: Understand a particular niche industry, its information needs, and the step-by-step process by which it does the research needed to do business Set up the site to mirror the steps a user goes through in the information-gathering and decision-making process Build a site that provides that information, either through partnerships with existing publishers and information... Creating economic value Members input useful information in the form of comments, feedback, elaborating their attitudes and beliefs, and information needs of the community The community brings together consumers of specific demographic and interest Communities charge members content fees for downloading certain articles, music, or pictures © Prentice Hall, 2000 25 Global Electronic Commerce. .. pattern and willingness to buy Mental model of consumer product search process, comparison process, and negotiation How to build trust in the marketspace © Prentice Hall, 2000 33 Research in Electronic Commerce (cont.) Technical Issues Methods that help customers find what they want Models for extranet design and management Natural language processing and automatic language translation Matching smart... restrictions on electronic commerce Where government involvement is needed, its aim should be to support and enforce a predictable minimalist, consistent and simple legal environment for commerce Governments should recognize the unique qualities of the Internet Electronic commerce on the Internet should be facilitated on a global basis © Prentice Hall, 2000 29 The Advantage for Small Businesses Inexpensive... for Small Businesses Niche products International products Small volume Information Capital investment must be small Inventory should be minimal or non-existent Electronic payments schema exist Payment methods must be flexible Logistical services must be quick and reliable The Web site should be submitted to directory-based search engine services like Yahoo in a correct way Join an online service . completely different ❙ EC involves gathering, selecting, synthesizing, and distributing information ❙ Economics of EC starts with supply and demand, and ends with pricing and competition 5 © Prentice. messaging : letters, faxes, telephone calls • Business value creation processes : ordering, bookkeeping, inventorying • Auction, bidding, bartering • Remote education, telemedicine, and other interactive. 1 © Prentice Hall, 2000 Chapter 12 Economics, Global, and Other Issues in Electronic Commerce 2 © Prentice Hall, 2000 Learning Objectives ❚ Identify the major impacts of