PP 02

Slide 2.
Chapter 2
E-commerce fundamentals
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Slide 2.2
Learning outcomes
• After completing this chapter the reader

should be able to:
– Complete an online marketplace analysis to
assess competitor, customer, and intermediary
and competitor use of the Internet as part of
strategy development
– Identify the main business and marketplace
models for electronic communications and
trading
– Evaluate the effectiveness of business and
revenue models for online businesses.
Slide 2.3
Management issues
• What are the implications of changes in

marketplace structures for how we trade with
customers and other partners?
• Which business models and revenue models
should we consider in order to exploit the
Internet?
• What will be the importance of online
intermediaries and marketplace hubs to our
business and what actions should we take to
partner these intermediaries?
Slide 2.4
Figure 2.1 The environment in which e-business services are provided
Slide 2.5
Activity – the e-commerce environment
• For each of the environment influences shown

in Figure 2.1, give examples of why it is
important to monitor and respond in an e-
business context.
• For example, the personalization mentioned in
the text is part of why it is important to
respond to technological innovation.
Slide 2.6
Environment constraints and

opportunities
• Customers – which services are they offering via
their web site that your organization could support
them in?
• Competitors – need to be benchmarked in order to
review the online services they are offering – do
they have a competitive advantage?
• Intermediaries – are new or existing intermediaries
offering products or services from your competitors
while you are not represented?
• Suppliers – are suppliers offering different methods
of procurement to competitors that give them a
competitive advantage?
Slide 2.7
Environment constraints and

opportunities (Continued)
• Macro-environment
• Society – what is the ethical and moral consensus on
holding personal information?
• Country specific, international legal – what are the
local and global legal constraints for example, on
holding personal information, or taxation rules on sale
of goods?
• Country specific, international economic – what are
the economic constraints of operating within a country
or global constraints?
• Technology – what new technologies are emerging by
which to deliver online services such as interactive
digital TV and mobile phone-based access?
Slide 2.8
Strategic Agility
• Capability to respond to environmental opportunities
and threats to gain competitive advantages
• Read the pp. 58-59 Mini Case Study 2.1
• The video may be searched form Google video
search.
• Discuss the key points of strategic agility
• P. 59, Activity 2.1 Give examples of why it’s important

to monitor and respond in an e-business context
Slide 2.9
Professor Donald Sull of London Business School talks about

Figure 2.2
strategic agility
Source: www.ft.com
Slide 2.10
Figure 2.3 An online marketplace map
Slide 2.11
Online Marketplace Analysis

• Customer Segment
– The phase that the customer is at in his/her lifecycle
http://academic.brooklyn.cuny.edu/economic/friedman/mmmarketsegmentation.htm
– Psychographic segmentation is sometimes also referred to
as behavioural segmentation.
http://tutor2u.net/business/marketing/segmentation-psychographic.html
• Search Intermediaries
Slide 2.12
Online Marketplace Analysis

• Intermediaries and Media Sites
– Mainstream news media sites or portal, e.g., cbc.ca, Google
– Niche or vertical media sites, e.g., e-consultancy
– Price comparison sites (also called aggregator), e.g.,
http://www.pricecanada.com/
– Super-affiliates
– Niche affiliate or bloggers—often small or individual sites
• Destination Sites
– The sites that the marketer tries to generate traffic to
Slide 2.13
Resource for Analysing e-Marketplace
• Ref. pp. 63-64, Tab 2.2. Some websites have

changed and some need registration
Slide 2.14
Google trends for web sites – useful for benchmarking the growth of online
Figure 2.4
intermediaries and destination sites
Source: http://trends.google.com/websites
Slide 2.15
Marketplace Channel Structure
• It describes the way a manufacture / supplier

delivers products and services to its
customers
• Fig. 2.5 and Fig 2.6 display variety of options
Slide 2.16
B2B and B2C interactions between an organization, its suppliers and its
Figure 2.5
customers
Slide 2.17
B2B and B2C characteristics
Characteristics B2C B2B
Proportion of adopters with Low to medium High to very high

access
Complexity of buying Relatively simple – More complex – buying

decisions individual and influencers process involves users,
specifiers, buyers, etc.
Channel Relatively simple – direct or More complex, direct or via

from retailer wholesaler, agent or
distributor
Purchasing characteristics Low value, high volume or Similar volume/value. May

high value, low volume. be high Involvement.
May be high involvement Repeat orders (rebuys)
more common
Product characteristic Often standardized items Standardized items or

bespoke for Sale
Slide 2.18
Disintermediation of a consumer distribution channel showing (a) the

Figure 2.6
original situation, (b) disintermediation omitting the wholesaler, and
(c) disintermediation omitting both wholesaler and retailer
Slide 2.19
Reinter-mediation
• The creation of new intermediaries between

customers and suppliers, such as search
engine, price comparator, etc. such as
http://www.esurance.com/, http://www.pricecanada.com/
• Supplies need to
– Be represented with new intermediaries
– Monitor other suppliers via intermediaries
– Create own intermediaries
Slide 2.20
Figure 2.7 From original situation (a) to disintermediation (b) and reintermediation (c)
Slide 2.21
Countermediation
• Creation of a new intermediary by an

established company
• Example:
– B&Q www.diy.com
– Opodo www.opodo.com
– Boots www.wellbeing.com www.handbag.com
– Ford, Daimler (www.covisint.com)
• Partnering with existing intermediary –
Mortgage broker Charcol and Freeserve
Slide 2.22
Trading Location
• Trading can be done on seller-controlled site,

buyer-controlled side, or neutral third-party
site
• P. 67, Table 2.3 and P. 69 Fig. 2.8 present
various options
Slide 2.23
Figure 2.8 Variations in the location and scale of trading on e-commerce sites
Slide 2.24
Commercial Mechanisms
• There are several ways for closing a

transactions
• Ref. p. 69, Table 2.4 for detail
• Priceline.com uses a new model that allows
client to bid on the services such as hotel,
airline ticket
Slide 2.25
Figure 2.9 Priceline Hong Kong service (www.priceline.com.hk)
Slide 2.26
Multi-channel Marketplace Model
• Consumers use a combination of channels for

their purchases.
• M-Channel Defines how different marketing
channels should integrate and support each
other
• Fig. 2.10 (p.71) shows an example channel
chain map
Slide 2.27
Example channel chain map for consumers selecting an estate agent to

Figure 2.10
sell their property
Slide 2.28
Types of Online Intermediary
• Infor-mediaries— intermediaries that capture,

profile, and sell customer information
• Metamediaries— intermediaries that assist
with selection and discussion of about
different product and services; they connects
customers with the providers
– Example: http://www.metacritic.com/
Slide 2.29
Figure 2.11 Metacritic (www.metacritic.com)

Source: CBS Interactive
Slide 2.30
Types of Intermediary
• Intermediaries changed quite a lot since E-

commerce first started.
• For a comprehensive list of intermediaries,
ref. p. 75, table 2.5
Slide 2.31
Interactive activity – portals
Q1. Define portal (p.74)
Q2. Is a search engine the same as a

portal? Yes, No
Q3. Is a search engine the same as a
directory? Yes, No
Q4. List search engines / portals you use

and explain why
Slide 2.32
Meta services
Search engines
Portal
Directories
‘A gateway to
information News aggregators
resources and
MR aggregators
services’
Comparers
Exchanges
Slide 2.33
Figure 2.12 Number of searches through the Google Keyword Tool

Source: Google https://adwords.google.com/select/KeywordTool
Slide 2.34
Business model
Timmers (1999) defines a ‘business model’ as:
An architecture for product, service and

information flows, including a description of
the various business actors and their roles;
and a description of the potential benefits for
the various business actors; and a description
of the sources of revenue.
Slide 2.35
Business model
Key elements
1. Value proposition-products & services to offer
2. Market or audience
3. Revenue models and cost base
4. Competitive environment
5. Value chain and marketing positioning
6. Representation in the physical & virtual world
7. Organizational structure
8. Management
Complete Activity 2.3 on page 79
Slide 2.36
Business model
Timmers identified 11 different types of business
models. –ref. p. 78
Alternative Perspectives on Business Model
1. Marketplace position perspective
2. Revenue model perspective
3. Commercial arrangement perspective
Slide 2.37
Figure 2.13 Alternative perspectives on business models
Slide 2.38
Revenue model
• It describes how a business generate revenue
• What are traditional ways?
• The New Ways
Slide 2.39
Revenue Model- Publisher Example

• Advertising CPM (cost per thousand/mille)
• Advertising CPC (cost per click)
• Sponsorship of section, content, or widget
• Affiliate Revenue (CPA or CPC)
• Transaction Fee
• Subscription access to content or services
• Per-per-view Access to document
• Subscription Data Access for e-mail Marketing
Slide 2.40
Figure 2.14 Alex Tew’s Million Dollar Home Page (www.milliondollarhomepage.com)
Slide 2.41
Online Business Revenue Calculation
• What factors to consider?

– Number and size of ad units
– Ads Capacity to be sold
– Fee level negotiated for different ads models
– Traffic
– Visitor engagement (time to stay)
Slide 2.42
Example spreadsheet for calculating a site revenue model. Available for

Figure 2.15
download at www.davechaffey.com/Spreadsheets
Slide 2.43
Example spreadsheet for calculating a site revenue model. Available for

Figure 2.15
download at www.davechaffey.com/Spreadsheets (Continued)
Slide 2.44
Online Business Revenue Calculation
• Lab exercise: Activity 2.4 on page 85.
Slide 2.45
Figure 2.16 Econsultancy (www.econsultancy.com)
Slide 2.46
Revenue Model- Auction Example

Roles for auction (Klein 1997)
• Price discovery
• Efficient Allocation mechanism
• Distribution mechanism—attracting audience
• Coordination mechanism
Slide 2.47
Business Model- Auction Example

Types of auction
• English—forward or upward, initiated by seller
this is more of conventional auctions we
commonly seen in physical world and on virtual
market
• Dutch—Reverse, downward, initiated by buyer

This is more commonly seen in large manufacture
procurement
Slide 2.48
Business Model- Auction Example

• Read the Case Study 2.1 on page 87-88. Discuss
the questions.
• Research on the web to find Reverse auction
examples in Canada
Slide 2.49
Business Model-Start-ups
1. Many dot.com start-ups failed. Some succeeded
and newer ones are still created.
2. Value the Internet start-ups (pp. 90-91)
– Concept
– Innovation
– Execution—promotion, performance, availibility,
security
– Traffic
– Financing
– Profile—publicity and awareness in the market
Slide 2.50
Lab Exercises
Case Study 2.2 on Pages 91-93
– Read the case
– Discuss the question 1-3 on page 93
Mini Case Study 2.3 on pages 93-94
– What’s business model of Firebox?
– What made it a success?
Slide 2.51
Figure 2.17 Firebox (www.firebox.com)
Slide 2.52
Lab Exercises
Case Study 2.3 on Pages 95-98
– What is Zopa’s business model?
– Do you think it can succeed and develop further
and why?
Slide 2.53
Next Class
Preview the E-consultancy Interview.107-109
Prepare to discuss the following
– What’re the impacts of the Internet to publishing
industry
– How are publish industry coping with the challenges?
– How do they reach online readers?
– How do they use social network for their advantage?
– What a role do digital content and ecommerce play in
their business?
– From this interview, how do you feel about the
publishing industry and where it is going?

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Slide 2.

• After completing this chapter the reader

• What are the implications of changes in

Figure 2.1 The environment in which e-business services are provided

Activity – the e-commerce environment

• For each of the environment influences shown

Environment constraints and

Environment constraints and

• P. 59, Activity 2.1 Give examples of why it’s important

Professor Donald Sull of London Business School talks about

Figure 2.3 An online marketplace map

Online Marketplace Analysis

Online Marketplace Analysis

Resource for Analysing e-Marketplace

• Ref. pp. 63-64, Tab 2.2. Some websites have

Marketplace Channel Structure

• It describes the way a manufacture / supplier

B2B and B2C characteristics

Characteristics B2C B2B

Proportion of adopters with Low to medium High to very high

Complexity of buying Relatively simple – More complex – buying

Channel Relatively simple – direct or More complex, direct or via

Purchasing characteristics Low value, high volume or Similar volume/value. May

Product characteristic Often standardized items Standardized items or

Disintermediation of a consumer distribution channel showing (a) the

• The creation of new intermediaries between

• Creation of a new intermediary by an

• Trading can be done on seller-controlled site,

• There are several ways for closing a

Figure 2.9 Priceline Hong Kong service (www.priceline.com.hk)

Multi-channel Marketplace Model

• Consumers use a combination of channels for

Example channel chain map for consumers selecting an estate agent to

Types of Online Intermediary

• Infor-mediaries— intermediaries that capture,

Figure 2.11 Metacritic (www.metacritic.com)

• Intermediaries changed quite a lot since E-

Interactive activity – portals

Q1. Define portal (p.74)

Q2. Is a search engine the same as a

Q4. List search engines / portals you use

Figure 2.12 Number of searches through the Google Keyword Tool

Timmers (1999) defines a ‘business model’ as:

An architecture for product, service and

Figure 2.13 Alternative perspectives on business models

Revenue Model- Publisher Example

Figure 2.14 Alex Tew’s Million Dollar Home Page (www.milliondollarhomepage.com)

Online Business Revenue Calculation

• What factors to consider?

Example spreadsheet for calculating a site revenue model. Available for

Example spreadsheet for calculating a site revenue model. Available for

Online Business Revenue Calculation

• Lab exercise: Activity 2.4 on page 85.

Figure 2.16 Econsultancy (www.econsultancy.com)

Revenue Model- Auction Example

Business Model- Auction Example

• Dutch—Reverse, downward, initiated by buyer

Business Model- Auction Example

Figure 2.17 Firebox (www.firebox.com)

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