Chapter 5: Electronic Commerce in Service Industries

Chapter 5
Electronic Commerce in Service Industries

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Opening Vignette: Ordering Journals Electronically

How a large university automated the purchasing of magazines and journals, saving $365,000/year Direct E-Marketing: Buyer-to-seller; orders and payments Market maker charges $5/transaction vs. about $32 (conventional agents) Ordering time reduced by up to 80% Rowe.comInternet IPO that survived the stock market in the industry
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Broker-Based Services
Brokers work as intermediaries between buyers and sellers Agents basically make the markets Agents provide many services Most of the value-added tasks of brokers can be automated
Major electronic agent-based services

Travel Employment Real estate Stocks Electronic auctions At-home banking Insurance
Broker-Based Services (cont.)

Service Industries vs. Manufacturing and Product Retailing
Service Industries
Pure EC: substantially reduced cost Bank and brokerage houses Possible digitation of the entire process Travel and real estate agents Viewing an online video clip or seeing photos of a hotel or a house for sale
Manufacturing and product retailing

Physical delivery cost may be high
Travel and Tourism Services

Any experienced traveler knows that good planning and shopping around can save money The Internet is an ideal place to plan, explore, and arrange almost any trip Travel-related information available at many sites including:
Expedia.com Travelocity.com Asiatravel.com Travelweb.com Trip.com Priceline.com
Travel and Tourism Services (cont.)

Services provided:
Information and booking of airlines, hotels, cars, and even golf courses Fare comparisons 360 degree video tours of top destinations Electronic Travel magazine Converting 200 currencies
Providing maps Pictures of major attractions Information about entertainment and ticket purchasing (ticketmaster.com) Tips provided by people that experienced certain situations (like a visa problem)

Services provided:
Special discount information Chat rooms and bulletin boards Shopping for travel accessories and books Experts options Frequent flier deals Restaurant reviews Current status of flights (real time) Driving directions in the US Travel news Fare tracker (free e-mail alerts on low fares) Major international news Worldwide business and places locator Special interest vacations Bed and breakfast recommendations E-mail to intermediary Weather watch

Auctions, bids, and special sales
American airlines (aa.com) auctions tickets during low-volume seasons Cathay (cathaypacific.com) auctions tickets on competitive routes Aer Lingus (aerlingus.ie) auctions tickets that expire in 1 or 2 weeks Priceline (priceline.com) asks consumers to specify the price they are willing to pay

Special services
Wireless services Direct marketing Alliances and consortia Other services
Interactive kiosks in hotels Internet access in hotels
Limitations
Benefits
Free information is tremendous Free information is accessible anytime Substantial discounts
Not all people use the Internet It may take a long time to find what you want People are still reluctant to provide credit card numbers

Corporate Travel: New Business Model The Impact of EC on the Travel Industry
Porters framework of competitive advantage (the five forces) Focus:
Environment Competitive responses Firms strategy
The industry is clearly transformed Taking away some functions traditionally performed by travel agents

Impacts on the industry
Multimedia helps customers understand the products Offering of lower-cost trips Providing a more personalized service Saving money in a paperless environment Increasing the convenience of getting information at home Supporting a customer-focused strategy (such as targeted advertisement and integration of products); push information to customers

Travel agencies, as we know them today, will disappear Only their complex value-added activities will not be automated These complex activities will be performed by a new breed of intermediaries Survival strategy
Minor improvements due to process changes BPR with significant improvements Organizational transformation
Figure 5-2 The Travel Industry Chain
Source: Block and Segev The Impact of Electronic Commerce on the Travel Industry Proceedings, HICSS 31, Hawaii 1997 IEEE.

Intelligent agents
Step 1: turn on PC and enter
Desired destination Dates Available budget Special requirements Desired entertainment
Voice communication with agent

Step 2: computer dispatches an intelliget agen that shops around Step 3: agent attempts to match your requirements with what is available, negotiates with vendors Step 4: agent returns within minutes with suitable alternatives, modifies as per your wishes, books the vacation
The Employment Placement: Deficiencies of Manual Market

Job markets
Employers are looking for employees with specific skills, and individuals are looking for jobs Very volatile market Moved to the Internet Millions of job seekers, hundreds of thousands of jobs
The Employment Placement: Deficiencies of Manual Market (cont.)

Driving forces of electronic job market
Costclassified ads are expensive Life cyclethe life of the ads is only days or weeks Placemost ads are local; nationwide and international ads are more expensive Minimum informationbecause of the high cost, the information provided is minimal SearchTime consuming for individuals to find all relevant newspapers

Driving forces of electronic job market (cont.)
Finding applicantsduring pre-Internet era, job seekers did
not place ads about their availability making it difficult for companies to find employees with special skills Matchingit was difficult to match candidates to open jobs, supply and demand Lost and dated materialsome applications or letters of response tended to get lost, or arrive late
Speedcommunication by mail and processing of a large

number of applications is slow; employers lose good employees, the applicant had taken another job being afraid to wait too long Comparisonsdifficult for job seekers to compare monetary value of available positions

The Internet Job Market
The Internet offers a perfect environment; it is especially effective for technology-oriented jobs
Job seekers Job offerers Recruiting firms Government agencies and institutions

The Advantage of the Electronic Job Market
For job seekers
Find very detailed and timely information on a large number of jobs world-wide Quickly communicate with potential employers Post resumes for largevolume distribution
Search for jobs quickly from any place at any time Obtain several support services at no cost Find employer profile & industry guides (valuereports.Com)

The Advantage of the Electronic Job Market
For employers
Advertise to a large number of job seekers Save on advertisement costs Lower the cost of processing (using electronic application forms) Provide greater (equal opportunity) for job seekers Find highly skilled employees Conduct tests quickly, online Change and update ads quickly Fill up positions rapidly Interviewing from distance

The Limitations of Electronic Job Markets
Many people do not use the Internet Security Privacy Lack of face-to-face contact Locating jobs Writing and posting resumes Career planning Newsgroups Recruiters online network StaffNET Global employment network Employment opportunities Intranet job market
Examples of online job services
Examples of career services on the Internet
Intelligent agents
Intelligent agents for job seekers (jobsleuth.com) Intelligent agents for employers (resumix.com)
Real Estate
You can view many properties on the screen You can sort and organize properties You can find detailed information about the properties You can search, compare and apply for loans
Real Estate (cont.)

Real Estate Applications (cont.) The National Association of Realtors, realtor.com has links to property listings in all major US cities To find how much house you can afford, consult: replace.com Mortgage brokers can pass on loan applications over the Net and receive bids from lenders that want to issue the mortgages To find mortgage interest rates online use:
Lendingtree.com Eloan.com Homeside.com.au Insureate.com Order.com Quotesmith.com
Insuranceauto, home life, health at substantial discount
Investing and Trading Stocks Online

Online stock trading
Costs between $7 and $29 per transaction (vs. $10 - $35 in traditional brokerage) No waiting on busy telephone lines No oral communication, less chance for errors Place orders from anywhere, any time, day or night No biased broker to push you Considerable amount of free information
Trading Stocks Online (cont.)

Initial public offerings (IPOs)
Spring Street Brewing Offers initial and secondary securities trading over the Internet See ipo.com
Related markets
Financial derivatives Commodities Mutual funds
Global stock exchanges around-the-clock global trading
Individual investors and day trading Electronic trading of interest rate derivatives
Swapswire.com Forbes.com
Cyberbanking and Personal Finance

Electronic banking
Saves time and money for users Offers an inexpensive alternative to branch banking
Capabilities of home banking

Get current account balances any time Obtain charge and credit card statements Pay bills Download account transactions Transfer money between accounts
Application Case: Cyberbanking at Wells Fargo
Cyberbanking and Personal Finance

International and multiple-currency banking
Some international retail purchasing can be done by credit card Other transactions may require international banking support
Hong Kong Banks HEXAGON provides e-banking in Asia Mark Twain Bank in the U.S. uses e-cash to support trading in 20 foreign currencies Bank of America and other banks offer:
International capital raising Cash management Other services on an international level
Cyberbanking and Personal Finance (cont.)

Implementation issues in banking and online stock trading
Securing financial transactions
Application case: Bank of America Online
Using the extranet

Banks provide large business customers with personalized service by allowing them access to the banks intranet
Access accounts Historical transactions Intranet-based decision-support applications

Imaging systemsallow customers to view images of all:
Incoming checks Invoices Other related online correspondence
Pricing online vs. off-line services

Some banks offer free services (fee per check or transfer) Some banks charge $5 to $10
Risksespecially in international banking


Banking: 4 scenarios
Building alliances quickly with banks, software vendors, and information providers Effective outsourcing without neglecting to build in-house skills (customer information systems) Focusing on the profitable customers to provide broad channels for services and products Keeping a central role in the payment environment
The Future of Online Banking

Three core strategies to pursue
1. Customers Agentsbanks unable to achieve economies of scale Offer customers the widest possible choices Include products from multiple sources Provide the customers with integrated information services
2. Product Manufacturers banks able to achieve economies of scale

Strengthen a trend that can already be seen in a number of product segments In core processing services for small and medium-sized institutions
The Future of Online Banking (cont.)

Three core strategies to pursue (cont.)
3. Integrated Playersbanks with a strong brand and position from manufacturing to delivery
Many banks will adopt a hybrid strategy Every player needs to make crucial decisions about which areas are strategically too risky:
To outsource Which capabilities need to be built up in-house
The Future of Online Banking (cont.)

Personal finance online
Bill paying and e-checks Tracking bank accounts etc. Portfolio management Investment tracking Quotes and prices (past and current) Budget organization Record keeping Tax computations Retirement goals, planning and budgeting
Billing Online
Automatic transfer of mortgages
This method has existed for several years The payer authorizes its bank to pay the mortgage, including tax escrow payments
Automatic transfer of funds to pay monthly utility bills

Since1997, the city of Long Beach has allowed its customers to pay their gas and water bills from their bank accounts Many utility companies worldwide provide this option
Billing Online (cont.)

Paying bills from online banking account
Can be made into any bank account Monthly rent and other bills paid directly into the payees bank accounts

A merchant-to-customer direct billing
A merchant posts bills on its Web site Customers can view and pay their bill Customers have to go to many Web sites to pay all their bills Several utilities in Los Angeles allow customers to pay bills on the utilities Web site (20 cents per transaction )

Using an intermediary
A third party consolidates all bills related to each customer in one site in a standard format Collects a certain commission Makes it convenient to complete transactions E*Trade and Intuit
ISPs services
Trying to sell customized solutions Do not have adequate billing platforms See moneymain.com
Online Publishing
The electronic delivery of newspapers, magazines, news, and other information through the Internet Online Publishing Today and Tomorrow
Today mainly used for disseminating information and for conducting sales transactions interactively Tomorrow include more customized material that the reader will receive free, or will pay for
Online Publishing (cont.)

Publishing Modes
Newspapers Magazines News Textbooks Music Artwork Video clips Movies

Publishing Methods
Online archive: digital archive (library catalogs, bibliographic databases) New medium: extra comprehensiveness to issue or topic Publishing intermediation: online directory for news services Dynamic or just-in-time: create content in real-time and transmit on the fly

Publishing music, videos, and games
Major issue is payment of intellectual property fees People-to-people (P2P) modelpeople swap files 3rd-party organizer may be in violation of copyright laws (Napster)

Digital delivery of documentssecure environment
U.S. Postal Service, UPS, E-parcel.com
Encryption Software for digital signature Authentication Notarization

Edutainmentcombination of:
Education Entertainment Games Goal: encourage students to become active learners Managerial issues
Educational games delivered as CD-ROMs Distance-learning format

Electronic books
Frequent updates possible Contain up-to-the-minute information Special eBook device necessary to view books See:
Wizap.com Ebookconnections.com Netlibrary.com
Knowledge Dissemination
Virtual teaching and online universities
Distance learning and virtual universities Many universities offer limited courses and degrees, but use innovative teaching methods and multimedia support
MBA program in Hong Kong Lectures delivered on interactive TV (iTV), now on the Web Students decide what and when they attend the lecture Lecture, support material exercises, etc., provided on the Web
Knowledge Dissemination (cont.)

Online advice and consulting
Medical adviceprovide consultation with top experts Management consultingprovide accumulated expertise from knowledge bases Legal advicedelivery of legal consultation services to business has considerable prospects
Knowledge Dissemination (cont.)

Online advice and consulting (cont.)
Financial advice offer extensive financial advice Other service online
Healthcare Matchmaking Electronic stamps
Disintermediation and Reintermediation

Change the role of agents to:
Assists in comparison shopping from multiple sources Providing total solutions by combining services from several vendors Providing certifications and trusted third party control and evaluation systems
Disintermediation and Reintermediation (cont.)

Issues impacting future of intermediaries
The success of intelligent agents
Travel intelligent agents Agents that support job matching Agents that interpret resumes The more intelligent the software agents become, the less human agents will be needed
Customer attitudes and behavior are important
Good experience with online agencies means fewer customers use human agents Insurance purchasing Stock purchasing Virtual travel agencies

New roles of electronic marketing intermediaries
To extend what we are familiar with in physical markets to the virtual world (e.g., search services and electronic malls) To extend payment clearing functions into the Internet (e.g., electronic cash and digital credit card services)

Disintermediation in B2B
Exchanges decrease number of calls a sales rep pays on purchasing managers Reengineering marketing and sales organizations is necessary
Cybermediation
Electronic intermediary (rowe.com) Affects most market functions
Hypermediationhuman/electronic intermediation; may profit greatly from EC

Managerial Issues
Effectiveness of out-of-town recruitment Privacy may be in danger International legal issues may impact services more than products Ethical issues are prevalent in services The intermediaries and their roles are changing Alliances for online initiatives are spreading rapidly

Chapter 5: Electronic Commerce in Service Industries

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Chapter 5: Electronic Commerce in Service Industries

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Chapter 5

Electronic Commerce in Service Industries

Opening Vignette: Ordering Journals Electronically

Major electronic agent-based services

Broker-Based Services (cont.)

Manufacturing and product retailing

Travel and Tourism Services

Travel and Tourism Services (cont.)

Travel and Tourism Services (cont.)

Travel and Tourism Services (cont.)

Travel and Tourism Services (cont.)

Free information is tremendous Free information is accessible anytime Substantial discounts

Travel and Tourism Services (cont.)

Travel and Tourism Services (cont.)

Travel and Tourism Services (cont.)

Figure 5-2 The Travel Industry Chain

Travel and Tourism Services (cont.)

Voice communication with agent

The Employment Placement: Deficiencies of Manual Market

The Employment Placement: Deficiencies of Manual Market (cont.)

The Employment Placement: Deficiencies of Manual Market (cont.)

Speedcommunication by mail and processing of a large

The Employment Placement: Deficiencies of Manual Market (cont.)

The Employment Placement: Deficiencies of Manual Market (cont.)

The Employment Placement: Deficiencies of Manual Market (cont.)

The Employment Placement: Deficiencies of Manual Market (cont.)

Examples of online job services

Examples of career services on the Internet

Real Estate (cont.)

Insuranceauto, home life, health at substantial discount

Investing and Trading Stocks Online

Trading Stocks Online (cont.)

Global stock exchanges around-the-clock global trading

Cyberbanking and Personal Finance

Capabilities of home banking

Application Case: Cyberbanking at Wells Fargo

Cyberbanking and Personal Finance

Cyberbanking and Personal Finance (cont.)

Using the extranet

Cyberbanking and Personal Finance (cont.)

Pricing online vs. off-line services

Risksespecially in international banking

Cyberbanking and Personal Finance (cont.)

The Future of Online Banking

2. Product Manufacturers banks able to achieve economies of scale

The Future of Online Banking (cont.)

The Future of Online Banking (cont.)

Automatic transfer of funds to pay monthly utility bills

Billing Online (cont.)

Billing Online (cont.)

Billing Online (cont.)

Online Publishing (cont.)

Online Publishing (cont.)

Online Publishing (cont.)

Online Publishing (cont.)

Online Publishing (cont.)

Online Publishing (cont.)

Knowledge Dissemination (cont.)

Knowledge Dissemination (cont.)

Disintermediation and Reintermediation

Disintermediation and Reintermediation (cont.)

Customer attitudes and behavior are important

Disintermediation and Reintermediation (cont.)