Essentials of MIS, 9e Laudon & Laudon Lecture Files by Barbara J. Ellestad Chapter 9 E Co!!

erce" #i$ital Mar%ets, #i$ital &oods

Twenty-four/seventhe mantra of the Internet. Whether its buying, selling, gathering information, managing, or communicating, the driving force behind the evolutionary and revolutionary business is the Internet and its technological advances.

9.' E co!!erce and the Internet

Take a moment and reflect back on your sho ing e! eriences over the last year. "id any of them not involve using the Internet in one way or another# $erha s you sim ly used the Internet to research the cost of roducts without actually urchasing a roduct or service online. $erha s you emailed a com any to get an answer to a %uestion you had about a roduct after you urchased it at a regular brick-and-mortar store. &r, maybe you com ared rices between two businesses to get the best deal. If you did any of these you are among the growing legions that rely on the Internet as a new way of conducting business and commerce. E-Commerce Today The te!t rovides useful statistics to demonstrate the solid growth in e-commerce. 'any com anies that failed during the (dot.com) bust did so because they didnt have solid business lans, not because e-commerce as a whole wasnt a good idea. The Internet has roved to be the erfect vehicle for e-commerce because of its o en standards and structure. *o other methodology or technology has roven to work as well as the Internet for distributing information and bringing eo le together. Its chea and relatively easy to use it as a conduit for connecting customers, su liers, and em loyees of a firm. *o other mechanism has been created that allow organi+ations to reach out to anyone and everyone like the Internet. The Internet allows big businesses to act like small ones and small businesses to act big. The challenge to businesses is to make transactions not ,ust chea er and easier for themselves but also easier and more convenient for customers and su liers. Its more than ,ust osting a nice looking Web site with lots of cute animations and e! ecting customers and su liers to figure it out from there. Web-based solutions must be easier to use and more convenient than traditional methods, not to mention com etitors, if a com any ho es to attract and kee customers. -ustomers and su liers are learning how to use the new technologies to gather information about the firms roducts or services and com are them to the com etition. Its easier and faster than ever before. Therefore, any business wishing to stay ahead of the game needs to a reciate that fact and change their rocesses and methodologies. If they dont, they may not be in business much longer. Why E-commerce is Different .

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'ost of us have become so used to the Internet that we take it for granted. /ets look at the factors that make e-commerce so different from anything weve seen before. Ubiquity: 01/2 345 days a year, anytime, anywhere. *ew marketspaces change the balance of ower from being business-centric to customer-centric. Transactions costs for both businesses and customers are reduced. Global Reach: The Internet o ens markets to new customers. If you live in *ew 6ork -ity and yearn for fresh 'ontana-grown beef, you can order it from a Web site and receive it the ne!t day. 6ou benefit from new markets reviously not available, and the 'ontana rancher benefits from new customers reviously too e! ensive to reach. Universal standards: &ne of the rimary reasons e-commerce has grown so %uickly and has become so wides read is due to the universal standards u on which the technology is built. 7usinesses dont have to build ro rietary hardware, software, or networks in order to reach customers thereby kee ing market entry costs to a minimum. -ustomers can use the universally acce ted Internet tools to find new roducts and services %uickly and easily thereby kee ing search costs to a minimum. It truly is a win-win situation for both sides. Richness: The richness of information available to customers, cou led with information that merchants are able to collect about them, is o ening u new o ortunities for both businesses and consumers. -onsumers can access more information than was reviously available and businesses collect more information than they were reviously able to. *ow, instead of trying to gather information about businesses or consumers from multi le sources, both arties can use the Internet to cobble together more information than ever. 8nd do it much easier and faster than ever before. Interactivity: 9-commerce originally resented sim le, static Web sites to customers with limited ossibilities of interactivity between the two. *ow, most ma,or retailers and even small sho s, use a variety of ways to communicate back and forth with customers and create new relationshi s around the globe. Information Density: While many eo le com lain about having too much information ouring from the Internet, it rovides information density like no other medium. -onsumers en,oy price transparency allowing them to com arison sho %uickly and easily. Cost transparency is another benefit consumers en,oy that theyve never had available as readily as what they can find on the Internet. &n the other hand merchants gather much more information about customers and use it for price discrimination. Personalization/Customization: The neighborhood merchant robably knows most customers by name and remembers their ersonal references. That same co+y relationshi can now be e!tended to the Internet through a variety of personalization and customization technologies. Interactivity, richness, information density, and universal standards hel make it ossible. Social echnolo!y: User Content Generation and Social "et#or$in!: ;ocial networks are no longer limited to those eo le living in your immediate, hysical neighborhood or even the same town or city. 6our social network can now e!tend to all four corners of the world. <sers are generating their own content like video, audio, gra hics, and ictures. Interactive Session: Technology: Turner Sports Marries TV and the Internet, then oes Social !see p. ""# of the te$t% discusses ho& a ne& 'usiness is using eight uni(ue features of e)commerce technology to e$pand and create ne& opportunities.

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Key Concepts in E-commerce: Digital Markets and Digital Goods in a Global Marketplace /ets say youre getting ready to buy a new car. 6ouve already checked out the rices and information on the various Web sites and have managed to get a retty good deal because of the information you gathered. 7ut now you need a loan and insurance for the new car. 6our bank will give you a loan with a 2.5 ercent interest rate. 6ou think thats a little high. 6ou call your insurance agent and she tells you the going rate is =.,5>> a year. 6ou get a sinking feeling that the e!cellent discount you were able to wrangle on the car itself will be %uickly eaten u by the insurance and loan fees. 7ut wait. 6ou check out the Web sites offering loans and find out you can get 5 ercent. 6ou then discover you can get insurance for only =.,0>> a year. 9ven if you dont use the Web sites to rocure the loan or insurance, you can still take the information to your bank and insurance agent and erha s get them to renegotiate. 7ecause you were able to gather information from the Internet rather than hysically traveling from bank to bank, or insurance com any to insurance com any, your search costs were much lower. 7ecause of the information youve gathered from the Web, the bank and insurance com any no longer have the advantage of information asymmetry. That is, the bank and insurance com any thought they had more information about the transaction than you did, therefore they had the u er-hand. 7ut once you gained more information about the transaction than you reviously had, you were able to get better rates. The demise of information asymmetry is a henomenon that is occurring in many consumer and business transactions and is directly attributable to the Internet. &n the other hand, the Internet allows insurance com anies and banks to %uickly and easily ad,ust the information rovided to you thus lowering their menu costs. They can ,ust as easily engage in dynamic pricing based on information they gather from and about you. *isintermediation, removing the middleman, has allowed many com anies to im rove their rofits while reducing rices. In our e!am le, insurance com anies are using disintermediation to remove the local agent from the transaction between itself and the customer. 8irlines have steadily removed the travel agent from transactions with customers thereby reducing their costs. &ther industries are following in their footste s slowly but surely. Digital Goods If roducts can be digiti+ed, they can be sold and distributed on the Internet. 'usic and books have been the forerunner. *ow were seeing movies and television shows taking the same ath. *igital goods are much chea er to roduce in the long run with little or no distribution costs com ared to traditional channels. "igital goods markets aces also rovide relatively chea and efficient channels for merchants who otherwise could not afford to reach customers on a global scale. Inde endent musicians and moviemakers are finding tremendous o ortunities for reaching new audiences through the Internet that they couldnt reach before. This is es ecially true on social networking sites and through viral marketing. 8dvertising dollars are moving from traditional outlets to Internet-based outlets at alarming rates. That uts tremendous ressure on traditional mediums such as television channels and news a ers to get in on the aradigm shift. 7usinesses must now find new ways to chase the consumer instead of the consumer chasing the business. Table ?.1 shows how the Internet changes the costs of digital goods versus traditional goods.

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Table ?.1: @ow the Internet -hanges the 'arkets for "igital Aoods +ottom ,ine: -)commerce firms no& have more opportunities to reach customers, suppliers, and partners through Internet channels. The Internet has also given digital firms the opportunity to create ne& 'usiness models or reshape their current model 'y using one or more of the uni(ue features of e) commerce: u'i(uity, glo'al reach, universal standards, richness, interactivity, information density, personalization.customization, and social technology.

9.( E co!!erce" Business and )echnolo$y

Its been a fascinating time in our history to watch e-commerce blossom from the early days of a few Web sites offering a limited su ly of goods to what we have now. The combination of good business sense and e! losive technological advances romise an even more e!citing future. Types of E-commerce 9-commerce is divided into three ma,or categories to make it easier to distinguish between the ty es of transactions that take lace. +usiness)to)consumer B70-C: most visible +usiness)to)'usiness B707C: greatest dollar amount of transactions Consumer)to)consumer !-0-C: greater geogra hic reach

8s you know, there are many roducts and services offered through traditional Web sites. 7ut as we continue to e! and the reach of the Internet to wireless devices, businesses are figuring out how to offer more roducts and services through new channels dubbed mo'ile commerce or m)commerce. *ot only can you urchase your airline ticket through a traditional Web site but you can instantly find out about flight delays or cancellations through your cell hone or hand-held com uter as you travel to the air ort. <sing your hand-held com uter you can urchase and download an electronic book to read while you wait for the air lane to take off. Detailers are continually finding ways to e! and m-commerce and find new ways to attract customers. 8ma+on.com has launched on the 8 le 8 ;tore an i$hone a lication that makes it ossible to take a icture of a roduct and then send it to the online retailer, which will try to match it with roducts in its inventory. The software is meant to sim lify sho ing on the i$hone and the i$od Touch, which can access the Web through a Wi-Ei hot s ot. The e! erimental feature called 8ma+on Demembers hel s users kee track of items they see while away from home. The feature tries to match hotos of roducts taken with the i$hone with whats in 8ma+ons inventory.
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When users receive the results, they can urchase items immediately or store them for later in their 8ma+on accounts. BInformationWeek.com, Amazon Launches Experimenta !o"i e #hopping $eature, 8ntone Aonsalves, "ec 3, 0>>FC E-Commerce B siness Models Table ?.5 in the te!t shows some of the new business models the Internet has enabled digital firms to undertake. 'any of these businesses sim ly would not be ossible without the technologies offered by the Internet. ;o how do you create a viable business model on the Internet# Eollow the ath of these: /ortals charge advertisers for ad lacements, collect referral fees, or charge for remium services. These sites are much more than ,ust sim le search engines. They now include news headlines, calendars, digital downloads like music and books, sho ing, and ma s. -)tailers rovide a sho ing channel 01/2 thats convenient and easy to use. 6our site could be rather small, offering a limited range of goods or it could be a huge conglomeration of goods. Content providers offer a wide range of intellectual property content that users can urchase for use on digital devices like smart hones, i$ods, or e-book readers. 6our site can be a conduit for podcasting audio or video downloads. Transaction 'rokers rocess transactions for consumers, saving them time and money. Market creators rovide a latform that conveniently connects sellers and buyers. Service providers offer services like hoto sharing, data backu and storage, or Web 0.> a lications. Community providers create an environment in which eo le can communicate with one another, share common interests, u load videos and ictures, or buy and sell roducts.

There are do+ens of e!am les of each of these business models that you robably use all the time. ;ome of them overla each other and thats okay. The idea is you have to create a site that gives eo le what they want, when they want it, and make it convenient and easy to use. The more difficult as ect of the business model you choose is how to generate revenue from it. Interactive Session: 0rganizations: T&itter Searches for a +usiness Model !see p. "12 of the te$t% discusses ho& one of the most popular 3e' services is trying to figure out ho& to develop a sustaina'le 'usiness and revenue model and monetize its services. E-Commerce !e"en e Models 6ou may have a really nice Web site that youve worked very hard to design and build. 7ut if youre in it as a business, some how you have to create a viable revenue model that allows you to make money from your endeavor and kee it going. @ere are a cou le ways you can do that: 4dvertising revenue: -harge advertisers the right to lace ads on the site. Its the most widely used method of generating revenue. 6oull be able to charge higher ad fees if you attract a large number of users or kee users on your site for any length of time. Sales revenue: ;ell roducts, information or services directly to users. 6oull need a viable, secure micropayment system that rocesses high volumes of very small monetary transactions. Su'scription revenue: -harge an ongoing fee for content or services like maga+ines and news a ers already do offline. 6oull need to rovide content that users erceive as worth the cost and not readily available elsewhere.
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5ree.5remium revenue: $rovide basic content or services free but charge a remium for s ecial features. The idea is to entice users to your site with freebies and then convert them to aying customers. 7ecause so much content on the Web has been free for so many years, its difficult to get eo le to ay for what they think they should get without charge. Transaction 5ee revenue: -harge a fee for enabling or e!ecuting a transaction. 6ou dont have to hysically own the service or content. Dather, you act as the middleman. 4ffiliate revenue: Deceive a referral fee or ercentage of sales each time you steer customers to affiliated sites.

Web #$%& 'ocial (et)orking and the Wisdom of Cro)ds $eo le are very social beings so its not sur rising to find they are using the Internet to fulfill their need to connect with other eo le socially and rofessionally. Social net&orking sites such as 'y; ace.com and Eacebook.com let eo le make new friends, find new ,obs, and e!change information easily and %uickly with a larger circle of eo le than through any other medium. &ther sites allow users to engage in social shopping a twist on traditional tri s to the mall with friends. While some of these sites ose slight ersonal danger if misused, they fulfill the basic need eo le have to communicate with others. Dather than looking at social networking sites from a ersonal oint of view, lets see how they resent business o ortunities and how com anies are using them to im rove their o erations. -or orations increasingly are (e! loring and e! erimenting) in the use of social networks to im rove business o erations, says Aina 7ianchini,-9& of *ing, a social-networking site for businesses and consumers. It makes revenue from Aoogle 8d;ense and remium services. (Theres been a definite shift the last two months,) she says. (There is a genuine interest now rather than a casual curiosity before.) (The s read of the workforce has ut a remium on tech tools that let eo le collaborate, learn and share info from different arts of the world,) says Doss 'ayfield, co-founder of businesssoftware maker ;ocialte!t. @e cites studies that show F5G of all em loyees work on ro,ects with colleagues in other offices. The em loyee-only sites are an e!cellent format for large, geogra hically dis ersed organi+ations to communicate internally and elicit ideas from workers, says Tom 7eaucham , chief information officer at @ot To ic, a retail chain of 4?> stores for teens in all 5> states. B<;8Today.com, #ocia %et&or'ing #ites (e p Companies )oost Producti*ity, Hon ;wart+, &ct F, 0>>FC @ere are a few other ways businesses are using social networking sites like Eacebook and 'y; ace: To interact with otential customers To listen to what customers are saying about their roducts To obtain feedback from customers To dis lay video advertising Bmuch more dynamic than rinted adsC To create channels to market roducts 8s the te!t discusses in this cha ters case studies, its still tough to make money from many of the social networking sites and new services like Twitter.
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Twitter has ,ust started e! loring ways to generate revenue, and its ros ects are unclear. Eacebook, with its blend of social networking and real-time activity, has struggled to turn rising o ularity into rofits. In ,ust the ast cou le of years, several develo ments have come together to make the Web more of a real-time e! erience: ubi%uitous high-s eed Internet connectionsI a growing number of mobile devices such as the i$hone with full Web browsersI and new Web technologies that enable instant transmission of messages and data. That mi! has made always-on, real-time communications easy and addictive. The iconic e!am le, Twitter, attracted 11.5 million eo le to its Web site in Hune, lus erha s an e%uivalent number who gain access to its services via other sites and software. Eacebooks 05> million active users, whose instant status u dates are a key art of its a eal, share more than . billion videos, hotos, and other content each week. (Deal-time) is actually a bit of a misnomer. 'ost of this activity doesnt truly occur in real time, the way talking on the hone does, and social gestures such as sharing links with friends are ,ust as im ortant a art of the a eal as immediacy. These gesturesoften accom anied by data from eo les rofiles on social networks, such as where they live or their agehold the key to the real-time Webs moneymaking otential. What eo le are tweeting and sharing could be a otent indicator of their interests and intentions: When eo le ty e in a res onse to Twitters home- age %uestion (What are you doing#) their answers also may reveal what they want to buyright now. B7usinessWeek, )etting on the +ea ,-ime .e", @of, Dobert ", 8ug .2, 0>>?C 7usinesses are also using the &isdom of cro&ds to hel them make better decisions, create new ways to market and advertise their roducts, and to find out how customers really feel about roducts and services. Traditional methods of market research like focus grou s or wides read, blanket advertising havent always been the most reliable, or the chea est, way to get customer feedback. Ta ing into the minds of millions of eo le on the Web can give a com any much better information u on which they can act. Cro&dsourcing is another way businesses are using the wisdom of crowds conce t on social networking sites. $resent a roblem or o ortunity on the site and let eo le rovide suggestions, advice, or feedback free of charge. /rediction markets also let businesses gain insight into what customers are really thinking. This conce t lets eo le bet on s ecific outcomes of, lets say, new marketing cam aign or the ne!t congressional election. E-Commerce Marketing The business function thats been most affected by e-commerce is advertising and marketing. The Internet has o ened a whole new s ectrum for identifying and communicating with millions of current and otential customers in a variety of ways that were sim ly not ossible before. Table ?.4 rovides a syno sis of the formats. 8nd, its a whole lot chea er online than it is offline. &ne of the best e!am les of the cost reduction invoked on the Internet is long tail marketing. /ets say you had a line of $ersian rugs that you urchased directly from the su lier at a significant cost savings. Dather than s end boatloads of money marketing the rugs to mass audiences, you can use the Internet to focus on a small grou of eo le that may be interested in them. 6ou save money, customers get what they want, and everyone wins. It should come as no sur rise that online businesses and merchants collect millions and millions of ieces of data about Internet users and e!actly what they do and where they s end their time. 9-commerce marketers use the data in the form of 'ehavioral targeting. Eor e!am le, you fre%uently read Aolf "igest &nline and eruse the
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s orts ages of online news a ers looking for stories about golf tournaments. It stands to reason that you en,oy the game so why not have online marketers send you ads for golf vacations in *orth -arolina# Wouldnt you rather receive those ads than ones about dee -sea diving e! editions# 7ehavioral targeting occurs on individual Web sites and also on the vast advertising networks that track your every move on the Web. Hust some of the data collected include: the site from which you came. where you go when you leave the current site. each age you viewed on the current site. how long you viewed each age. which images you may have clicked on. whether you urchased anything. the o erating system you use. the browser you use. ersonal data you may have entered like email address, home address, and credit card data. Who said the Internet was anonymous# Eigure ?-3 shows you how e-commerce Web sites track visitors.

Eigure ?-3: Web ;ite Jisitor Tracking. 7usinesses and e-commerce marketers use the data to: determine how well their Web sites are working. create ersonali+ed Web ages suited to individual users Bthink 8ma+on.coms (What others are reading that urchased this book)C. im rove customer e! eriences. create additional value for each user. &ften, the data are collected by advertising networks rather than individual Web sites. Its chea er, easier, and less time-consuming that way. Eigure ?-5 shows you how advertising networks o erate.

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Eigure ?-5: @ow an 8dvertising *etwork such as "oubleclick Works. B#B E-Commerce: (e) Efficiencies and !elationships 7efore the Internet, transactions between businesses were based on long-term relationshi s and geogra hic restrictions. It wasnt ractical or cost efficient to search out buyers or su liers nationwide. Thats all changed thanks to new technologies made available through electronic data interchanges B9"IC and the Internet. 9"I rocesses allow com anies to connect their information systems to each other and make transactions flow seamlessly between the systems. Its faster, chea er, and less error- rone. The Internet is slowly re lacing 9"I as the referred method of procurement between businesses. 9"I systems usually re%uired ro rietary systems while the Internet rovides an o en standard, universally acce ted method of e!changing data for rocesses such as rocurement and 70- commerce. Its also chea er and easier through online private industrial net&orks, also known as private e$changes for the buyer to find the chea est rices and the seller to find new customers. *either buyers nor sellers are restricted to doing business with one or two artners in a articular geogra hic area. Eigure ?-2 shows the relationshi s between buyers and sellers in online e!changes.

Eigure ?-2: 8 $rivate Industrial *etwork. 7usinesses and both buyers and sellers are en,oying tremendous cost savings by using net marketplaces or ehubs. 707 e-commerce is reducing the buyers costs by allowing them to sho around for the lowest rices. 707 e-commerce reduces sellers costs by allowing them to automate urchasing transactions and reach a greater number of otential buyers of direct doogs used in roduction rocesses and indirect goods like office su lies. The ty es of net marketplaces available for 707 e-commerce include: ?

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Vertical: s ecific industries 6orizontal: various functions across all industries +randed: rivate e!changes across a broad range of industries

-$changes also allow businesses to offer a broader range of services to other businesses. ;ta les, the office su ly store, was restricted to offering in-store urchases of a er, encils, and other su lies to other businesses. The buyer had to hysically go to the store and wander through the aisles. $rice com arison was limited to guessing whether ;ta les had the lowest rice. ;ta les now offers an online e!change from which other businesses can not only order office su lies but also use business services such as ayroll ricing, human resources management, legal and insurance services, and many others that werent rofitable or ossible in the ast. ;ta les.com is able to rovide these online services by artnering with others to create new efficiencies and relationshi s through the Internet. While the burst in the dot-com bubble has caused some com anies to slow their e-commerce efforts, hardly any of them are totally abandoning Internet integration altogether. The benefit from the dot-com fiasco is that com anies are lanning their e-commerce efforts better and making their systems more stable and secure. +ottom ,ine: The three categories of e)commerce, +2C, +2+, and C2C, offer 'usinesses endless possi'ilities for e$panding their products and services. Customers have far more opportunities through customer)centered retailing and interactive marketing and personalization to gather information and make more economical and convenient purchases.

9.* )he Mobile #i$ital +latfor! and Mobile E Co!!erce

-ell hones arent ,ust for making hone calls anymore. *ow they take hotogra hs, send te!t messages, used as tracking devices, and for urchasing goods and services. What was once a very sim le device has now turned in to a ersonal, ortable com uting device thats changing the very nature of commerce worldwide. M-Commerce 'er"ices and *pplications '--ommerce e!tends the ubi%uitous Internet and com uting to new heights. *o longer does a business have to wait for customers to find it. It can go out and find new customers %uickly and easily. 8s you wander through downtown sho s or the mall, a business will know youre near and send a message to your mobile com uting device detailing lunch s ecials. While many of the services are currently not available in the <nited ;tates, foreign countries are embracing the technology to rovide the following benefits: /ocation-based services 7anking and financial services Wireless advertising Aames and entertainment including ringtones for cell hones 'obile bill ayment <ser-generated content

The growing o ularity of m-commerce is causing businesses to develo new services and a lications that e!tend the reach to customers. .>

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What if you could send money to that friend who loaned you =0> last week by using your mobile hone rather than having to go through the trouble of trekking to the 8T' or mailing a check# 8ll youd need would be your buddys e-mail address or cell numberand resto. Eolks in Ha an and 9uro e can already do that. ;oon 8mericans will, too. ;tudies show that <.;. consumers, articularly the younger set, have embraced the convenience of online sho ing and ebanking and are now ready to move to the ne!t frontier: erson-to- erson mobile ayments. 8 recent oll by 'ercatus, a financial consulting firm, showed that the ro ortion of eo le ages 04 to 31 who had used a cell hone to buy goods or ay for a roduct or service had doubled, to .1G, in the ast year. (We are at the ti ing oint,) says 'ercatus managing artner Dobert @edges. Thats why a host of banks and financial com anies are gearing u to add erson-to- erson ayments to their e!isting mobile and online banking latforms. What about security, you ask# (7anking on the mobile hone is relatively safe,) says Dobert Jamosi, an analyst on security, risk, and fraud at Havelin ;trategy K Desearch. In fact, says Jamosi, mobile banking is currently more secure than online banking because cellular networks are tough to hack into. B7usinessWeek, )uddy, Can /ou E,!ai !e 100 )uc's0, Eeldman, 8my, *ov 03, 0>>?C +ottom ,ine: 3hile mo'ile commerce is still in its infancy in the 7nited States, other countries are em'racing the products and services availa'le through the technology. The challenges of e$panding m) commerce in 4merica are 'eing addressed collectively 'y 'usinesses, industries, and customers.

9., Buildin$ an E co!!erce -eb Site

8ll of us have robably used do+ens of Web sites through time, ranging from ortals to e-tailers to content roviders. ;ome of them are easy to use and others are a nightmare. @ave you ever thought about what goes into making a successful e-commerce Web site# Theres a lot more to it than ,ust ounding the keyboard. Eirst you must have a very clear understanding of your business ob,ectives and then you must choose the a ro riate technology that will hel you achieve those ob,ectives. +ieces of the 'ite-B ilding + ,,le 8ll too often businesses ,ust ,um in and start designing a Web site without understanding all the decisions they must make throughout the ,ourney. They ick the background color, the hotos or gra hics they want on the home age, and maybe they think about an online ayment system they might need. WrongL 8ll wrongL "ont start ounding the keyboard ,ust yet. 6our first ste must be to think the whole rocess through and understand all the decisions you need to make about the site. If your business is large enough, develo a team of eo le from around the organi+ation who can make key decisions about the technology youll need, the site design, and olicies youll use to guide users. What kind of hardware will you need# Will you need to urchase Web design software to hel the team# If so, what kind will work best for meeting your ob,ectives# "o you have the necessary telecommunications infrastructure to meet the demands of your customers, em loyees, and other users# Will you build the entire site in-house, including ayment systems, or will you outsource some or all of the work# Will you host the site on your com anys serverswith all the security im lications that go along with thator will you outsource it# Who will be res onsible for maintaining, u dating, and monitoring the site# &nce you identify all these decisions, you develo a lan that hel s act as a roadma for the team and the business to follow through the rest of the rocess. ..
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;ee# Theres a lot of work that needs to be done before you ever hit a single key on the keyboard. B siness -b.ecti"es& 'ystem / nctionality& and 0nformation !e1 irements When lanning, designing, and building your site, you should never lose sight of the fact that business decisions must drive the technology you use, not the other way around. 8ll the fancy bells and whistles you ut on your site dont mean a thing if eo le cant use the site or dont feel comfortable with it. The lan you develo for your e-commerce Web site should have three key areas: 7usiness ob,ectives: ca abilities the site should have ;ystem functionalities: system ca abilities to achieve the business ob,ectives Information re%uirements: what the system must roduce in order to achieve the business ob,ectives Table ?.2 gives you an idea of some of these three key areas used in ty ical e-commerce Web sites.

Table ?.2: ;ystem 8nalysis: 7usiness &b,ectives, ;ystem Eunctionality, and Information De%uirements for a Ty ical 9-commerce ;ite. B ilding the Web 'ite: 0n-ho se 2ers s - tso rcing &kay, now you can start ounding the keyboardif you have the right eo le, technology, ca abilities, and most im ortantly, moneyto do it yourself. &therwise, you should consider outsourcing art or all of the rocess.
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7ut, how do you decide# Eigure ?-.> shows you the o tions you have between in-house o erations and outsourcing some or all of your e-commerce Web site activities.

Eigure ?-.>: -hoices in 7uilding and @osting Web ;ites. The Building Decision If you decide to build the site in-house, you have a cou le o tions. 6ou can use re-built tem lates offered on numerous e-commerce sites like 6ahooL or 8ma+on. <se these if your eo le arent very knowledgeable about com uter software. Its the least costly and sim lest method to use. @owever, you wont have much latitude with the design layout. 6ou can urchase Web site building software. These ackages are retty so histicated and have a fairly substantial learning curve. ;ome of the software is fairly ine! ensive but others are %uite costly. 6oull need eo le in your organi+ation that are com uter-savvy and have a lot of time to build and maintain the site. "evelo ment costs are high because youll have to work with com le! features like sho ing carts, online ayment systems, and order rocessing and fulfillment. It may take more time and money to ursue this method but youll have more latitude with the site design. 6ou may end u deciding to go with an outside firm that can work with your team to design, build, and maintain a site that has the features you want and need to fulfill your business ob,ectives. This choice can save you time and money in the long run because you wont have to re-invent the wheel by training your eo le to do what the outsources have already done for many other com anies. It may seem more e! ensive on the surface but by the time you get done, it could be much chea er. The Hosting Decision *ow that you have the site built, what are you going to do with it# 8re you going to host BstoreC your ecommerce activities on your own servers, making sure you kee the site u and running 01/2# "o you have the technical staff available in-house with the necessary skills to u grade hardware and software, and kee your Web site secure from hackers# What ha ens if you get a sudden surge of users all wanting to access the site at the same time# Will you have enough telecommunication infrastructure to handle that or will the site get bogged down and become inaccessible# If all that sounds like too much for your com any to handle, you should consider a co)location agreement that many e-commerce businesses choose. 6ou build the site and then lease Web server s ace from a third- arty com any that s eciali+es in maintaining the server hardware and telecommunication infrastructure. 6ou still have com lete control over the site but you dont have to worry about all the other issues. The vendor is res onsible for kee ing the site u and running 01/2 and maintaining security of the hardware. If you have a surge in users,
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you can arrange for e!tra ca acity with the vendor on an ad-hoc basis. 6our total cost of ownershi may be much less with this kind of arrangement. Web Site Budgets 8s with most ma,or undertakings, you need to make sure you have the right amount of money available to com lete your Web site ro,ect in such a way that it fulfills your business ob,ectives with the necessary system functionality and meets your information re%uirements. 'ost of the time, it will cost more than you originally guess. 8de%uately lanning your e-commerce activities and making the right decisions before you ,um headlong into the ro,ect will save you time, headaches, and money.

+ottom ,ine: *eveloping a successful e)commerce site re(uires managers to develop a clear understanding of their 'usiness o'8ects and choose the right technology to achieve those o'8ectives. *ecisions need to 'e made a'out the site design and social and information policies. Managers must decide &hether some or all of the 'uilding and hosting &ill take place in)house or 'e outsourced. Most of all, the company must ade(uately 'udget for all the necessary components of an e)commerce site.

#iscussion .uestions"
.. "iscuss how the features of ubi%uity, universal standards and information richness make e-commerce different from traditional retailing efforts. 0. "escribe how the Internet changes information asymmetry in favor of consumers versus sellers. 3. "iscuss how businesses can use the (wisdom of crowds) to im rove their roducts or services. 1. "escribe m-commerce services and a lications that either you have already used or would like to have available. 5. "iscuss the challenges managers face when building a successful e-commerce Web site.

/ns0ers to #iscussion .uestions"

.. <bi%uity refers to the constant availability of e-commerce 01/2, 345 days a year anywhere a com uting device is available. Traditional retailing efforts are limited in hours and to a s ecific geogra hical location. 9commerce is conducted using o en standard, universally acce ted technologies making it easy to learn and use for both sellers and buyers. Information richness refers to the com le!ity and content on a Web site. 9commerce en,oys information richness not available in traditional markets.

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0. The Internet shrinks information asymmetry and ti s the balance of scale in favor of consumers. 8ccess to information about roducts and services is faster and easier to obtain about ricing which favors consumers. ;ellers can no longer restrict access to basic ricing information. -onsumers can com are sellers and obtain lower rices through e-commerce. 3. 7usinesses use the wisdom of crowds to hel them make better decisions, create new ways to market and advertise their roducts, and to find out how customers really feel about roducts and services. Ta ing into the minds of millions of eo le on the Web can give a com any much better information u on which they can act. -rowdsourcing is another way businesses are using the wisdom of crowds conce t on social networking sites. $resent a roblem or o ortunity on the site and let eo le rovide suggestions, advice, or feedback free of charge. $rediction markets also let businesses gain insight into what customers are really thinking. This conce t lets eo le bet on s ecific outcomes of, lets say, new marketing cam aign or the ne!t congressional election. 1. 8nswers rely on the articular m-commerce service available or desired. ;tudents should reference these services: location-based services, banking and financial services, wireless advertising, games and entertainment, mobile sho ing, social networking-based activities. 5. The two most im ortant challenges are understanding the organi+ations business ob,ectives and choosing the right technology to achieve those ob,ectives. 'anagers must understand all the decisions they need to make. 'anagers must form a team of eo le that ossess the skill sets needed to build and manage a successful site. @ardware, software, and telecommunications infrastructure must be ade%uate to su ort the site. -ustomer demands must drive the technology choices. 'anagers must decide on the sites design. The team and managers must develo a lan that will outline all these decisions. 'anagers must decide whether the site will be built and hosted in-house or outsourced. Einally, ade%uate money must be set aside to meet all the e! enses of develo ing a successful e-commerce Web site.

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