Chapter 2
E-Marketplaces: Structures,
Mechanisms, Economics, and
Impacts
Mr. Erwin S. Sison
OSA Director
St. Nicolas College of Business and Technology
[email protected]
[email protected]
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
2.1 E-Marketplaces
• e-marketplace
o A marketplace in which sellers and buyers exchange goods and services for money (or
for other goods and services) but do so electronically
o the three types of e-marketplaces are:
• private,
• public, and
• consortia
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Electronic Marketplaces
• In recent years markets have seen a dramatic increase in the
use of IT - EC has:
o increased market efficiencies by expediting or improving functions
o been able to significantly decrease the cost of executing these functions
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Electronic Marketplaces
• Markets play a • Markets create
central role in the economic value for:
economy o buyers
facilitating the o
o
sellers
market intermediaries
exchange of: o society at large
o information
o goods
o services
o payments
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Electronic Marketplaces
(cont.)
• Three main functions of markets
1. matching buyers and sellers
2. facilitating the exchange of information, goods, services, and payments associated
with market transactions
3. providing an institutional infrastructure, such as a legal and regulatory
framework, that enables the efficient functioning of the market
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
E-Marketplaces
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
E-Marketplaces
E-Marketplace Components and Participants
• Customers •
Infrastructure
• Sellers Front end •
• Products and services Back end •
o digital products •
Intermediaries
Goods that can be Third parties that operates
transformed to digital format between sellers and buyers
and delivered over the • Other business partners
Internet
• Support services
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
E-Marketplaces
• front end
The portion of an e-seller’s business processes
through which customers interact, including the
seller’s portal, electronic catalogs, a shopping cart, a
search engine, and a payment gateway
• back end
The activities that support online order fulfillment,
inventory management, purchasing from suppliers,
payment processing, packaging, and delivery
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
2.2 Types of E-Marketplaces:
From Storefronts to Portals
1. Electronic storefront: A 2. e-mall (Internet/online
single or company Web mall): An online shopping
site where products and center where many stores are
services are sold located
Visualization and virtual
•Mechanisms necessary for realty in shopping malls
conducting the sale: –some are merely directories
–electronic catalogs –some provide shared
–search engine services (e.g.,
– e-auction facilities choicemall.com).
–payment gateway –some are actually large
–shipment court click-and-mortar retailers
–customer services –some are virtual retailers
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
(e.g., buy.com)
Types of E-Marketplaces:
From Storefronts to Portals
• Types of Stores and Malls
o General stores/malls
o Specialized stores/malls
o Regional versus global stores
o Pure-play online organizations versus click-and-mortar stores
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Types of E-Marketplaces:
From Storefronts to Portals
• Types of E-Marketplaces
o 1. private e-marketplaces
Online markets owned by a single company; may be either
sell-side and/or buy-side e-marketplaces
o 1a) sell-side e-marketplace
A private e-marketplace in which one company sells either
standard and/or customized products to qualified
companies
o 1b) buy-side e-marketplace
A private e-marketplace in which one company makes
purchases from invited suppliers
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Types of E-Marketplaces:
From Storefronts to Portals
• Types of E-Marketplaces (cont.)
o 2. public e-marketplaces
B2B marketplaces, usually owned and/or managed by an independent third party, that
include many sellers and many buyers; also known as exchanges
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Information Portals
• Why Portals?
• Information portal: a single point of access through a
Web browser to business information inside and/or
outside an organization
• A portal is an
information gateway
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Information Portals (cont.)
• Six types of portals
1. Commercial (public) portals
2. Corporate portals
3. Publishing portals
4. Personal portals
5. Mobile portals: a portal accessible via a mobile
device
6. Voice portals: a portal accessed by telephone or cell
phone
7. Knowledge: access to knowledge by K workers
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
2.3 Transactions, Intermediation,
and Process in E-Commerce
• Sellers, Buyers, and Transactions
o A seller (retailer, wholesaler, or manufacturer) sells to customers
o The seller buys from suppliers: either raw material (as a manufacturer) or finished goods
(as a retailer)
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Transactions, Intermediation,
and Process in E-Commerce
• Intermediaries (brokers) provide value-added activities and
services to buyers and sellers
• Intermediaries in the physical world are wholesalers and
retailers
• Infomediaries:
electronic intermediaries that control information flow in cyberspace, often
aggregating information and selling it to others
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Transactions, Intermediation,
and Process in E-Commerce
o A broker is a company that facilitates transactions between buyers and sellers
o Types of brokers
• Buy/sell fulfillment
• Virtual mall
• Metamediary
• Bounty
• Search agent
• Shopping facilitator
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Roles and value of intermediaries
in e-markets
• Intermediaries can address the following five important
limitations of direct interaction:
1. Search costs
2. Lack of privacy
3. Incomplete information
4. Contract risk
5. Pricing inefficiencies
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Transactions, Intermediation,
and Process in E-Commerce
• E-distributors in B2B
o e-distributor:
An e-commerce intermediary that connects manufacturers (suppliers) with buyers
by aggregating the catalogs of many suppliers in one place - the intermediary’s
Web site
o Maintenance, repair, and operation items (MROs):
Routine items that are usually not under regular contract with suppliers
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Transactions, Intermediation,
and Process in E-Commerce
• Disintermediation and reintermediation
o Disintermediation:
Elimination of intermediaries between sellers and buyers
o Reintermediation:
Establishment of new intermediary roles for traditional intermediaries that were
disintermediated
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Intermediation and Syndication
in E-Commerce
• Syndication as an EC mechanism
o Syndication:
The sale of the same good (e.g., digital content) to many customers, who then
integrate it with other offerings and resell it or give it away free
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
2.4 Electronic Catalogs and Other Market Mechanisms
• electronic catalogs
The presentation of product information in an
electronic form; the backbone of most e-selling
sites
• Three dimensions of electronic catalogs:
1. The dynamics of the information presentation
2. The degree of customization
3. Integration with business processes
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Electronic Catalogs and Other Market Mechanisms
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Electronic Catalogs
and Other Market Mechanisms
• search engine
A computer program that can access databases of Internet
resources, search for specific information or keywords, and
report the results
• software (intelligent) agent
Software that can perform routine tasks that require
intelligence
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Electronic Catalogs
and Other Market Mechanisms
• electronic shopping cart
An order-processing technology that allows customers to
accumulate items they wish to buy while they continue to
shop
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
2.5 Auctions as EC Market
Mechanisms
• Auction
A competitive process in which a seller solicits
consecutive bids from buyers (forward auctions) or a
buyer solicits bids from sellers (backward auctions).
Prices are determined dynamically by the bids
• Auctions can be done:
o online
o off-line
o at public sites (eBay)
o at private sites (by invitation)
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Auctions as EC Market
Mechanisms (cont.)
• Electronic auctions (e-auctions):
Auctions conducted online
• Host sites on the Internet serve as brokers, offering
services for sellers to post their goods for sale and
allowing buyers to bid on those items
• Conventional business practices that traditionally
have relied on contracts and fixed prices are
increasingly being converted into auctions with
bidding for online procurements
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Auctions as EC Market
Mechanisms
• Traditional Auctions versus
E-Auctions
o Limitations of traditional offline auctions
• rapid process gives potential buyers little time to make a decision
o electronic auction (e-auction)
Auctions conducted online
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Auctions as EC Market
Mechanisms
• Dynamic pricing:
Prices that change based on
supply and demand relationships
at any given time
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Auctions as EC Market
Mechanisms (cont.)
• Four major categories of dynamic pricing
1. One buyer, one seller
2. One seller, many potential buyers
3. One buyer, many potential sellers
4. Many sellers, many buyers
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Types of Auctions
1. One buyer, one seller
One can use negotiation, bargaining, or bartering (see 2.6)
2. One seller, many potential buyers
Forward auction: An auction in which a seller entertains bids from buyers
Forward auctions used for fast liquidation and as a selling channel. Price is
increasing; the highest bidder wins
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Auctions as EC Market Mechanisms
(cont.)
3. (a) One buyer, many potential suppliers
Reverse auction (bidding or tendering system):
Auction in which the buyer places an item for bid (tender) on a request for quote
(RFQ) system, potential suppliers bid on the job, with price reducing sequentially,
and the lowest bid wins; primarily a B2B or G2B mechanism
(b) One buyer, many potential sellers (special model)
“name-your-own-price” model:
Auction model in which a would-be buyer specifies the price (and other terms) they
are willing to pay to any willing and able seller. It is a C2B model, pioneered by
Priceline.com
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
General Purchasing Process
Forecast Demand
Request for Proposal/Quote (RFP/RFQ)
Bid
Negotiate Contract
Supplier / Seller
Place Orders
Buyer
Process Orders
Shipping Orders
Receiving Orders
Invoicing
Payment
Vender Performance Tracking &
Management
Customer Service
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Auctions as EC Market Mechanisms
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Auctions as EC Market
Mechanisms (cont.)
4. Many sellers, many buyers
Double auction:
Auctions in which multiple buyers and
their bidding prices are matched with
multiple sellers and their asking prices,
considering the quantities on both sides
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Benefits of E-Auctions
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Limitations and Impacts
of E-Auctions (cont.)
• Limitations of e-auctions
o Lack of security
o Possibility of fraud
o Limited participation
• Impacts of auctions
–Auctions as a coordination mechanism
–Auctions as a social mechanism to determine a price
–Auctions as a highly visible distribution mechanism.
–Auctions as a component in e-commerce
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Group Purchasing Organization Process
[Stage1-b] [Stage1-a]
RFQ Forecast Demand
Bid RFQ
Response
Negotiate Contract
S Place Orders
G
Confirm
u Process Orders (Price OK)
p Shipping Orders
B
p Receiving Orders
...
Invoicing
l Payment
RFQ u
i VPTM
e
r
[Stage3]
Returns P [Stage2]
Shipping / Receiving Orders y
/
…
…
S Refund Process Shipping / Receiving Orders e
e Invoice
l Payment
l
e
O Returns
[Stage4]
r
r Refund Process
VPTM : Vender Performance Tracking & Management
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
2.6 Bartering and
Negotiating Online
• Online Bartering
o bartering
The exchange of goods or services
o e-bartering (electronic bartering)
Bartering conducted online, usually in a bartering exchange
o bartering exchange
A marketplace in which an intermediary arranges barter transactions
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Bartering and Negotiating
Online
• Online Negotiating
o Negotiated pricing commonly is used for expensive or specialized products
o Negotiated prices also are popular when large quantities are purchased
o Much like auctions, negotiated prices result from interactions and bargaining among
sellers and buyers
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
E-Commerce in the Wireless
Environment
• The Mobility Revolution
o Organizations are embracing mobilized computing
technologies for several reasons:
o Improved productivity of workers in the field
o Wireless telecom support for mobility is growing quickly
o More applications can run both online and offline
o The prices of notebook computers, wireless handhelds, and
smart phones continue to fall as their capabilities increase
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
E-Commerce in the Wireless
Environment
• The Promise of M-Commerce
o location-based commerce (LBC)
An m-commerce application targeted to a customer whose location, preferences, and
needs are known in real time
o M-Commerce Adoption
• Although there are currently many hurdles to the widespread adoption of m-
commerce, many companies are already shifting their strategy to the mobile
world
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Competition in the Digital Economy
and Its Impact on Industries
Competitive Factors—Online Transactions Allow:
• Lower search costs • Barriers to entry are
for buyers reduced
• Virtual partnerships
• Speedy comparisons
multiply
• Lower prices • Market niches abound
• Customer service • Differentiation and
personalization
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
PORTER’S FIVE COMPETITIVE FORCES
MODEL
NEW
MARKET
Threats SUBSTITUTE
PRODUCTS
ENTRANTS & SERVICES
•Switching cost
•Access to •Redefine products
distribution channels and services
•Economies of scale •Improve
INDUSTRY price/performance
THE FIRM COMPETITORS
•Cost-effectiveness
•Selection of suppler •Market access •Buyer selection
•Threat of backward •Differentiation of •Switching costs
integration product or service •Differentiation
SUPPLIERS CUSTOMERS
Bargaining power
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
N
Dr. Chen, The Trends of the Information Systems Technology TM -44
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
The Five Forces Model and IS
• The Five Forces Model provides a way to think about how
information resources can create competitive advantage.
• Using Porter’s Model, General Managers can:
o Identify key sources of competition they
face.
o Recognize uses of information resources to
enhance their competitive position against
competitive threats
o Consider likely changes in competitive
threats over time
N
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Figure 1.2: Porter’s Generic Strategy Framework –
3 Strategies for achieving Competitive Advantage
Competitive Advantage
Uniqueness
Lower Cost
Perceived by
Position
Customer
Industrywide Overall Cost Differentiation
(Broad Leadership
Target)
Competitive Scope
Particular
Segment only
(Narrow Focus
Target)
N
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Competitive Mechanism
Dr. Chen, The Trends of the Information Systems Technology TM -47
Porter’s Competitive Advantage
Strategies
• Cost leadership: be the cheapest
• Differentiation: focus on making your
product and/or service stand out for non-
cost reasons
• Focus: occupy narrow market niche
where the products/services can stand out
by virtue of their cost leadership or
differentiation.
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Competition in the Digital
Economy
• Characteristics necessary for perfect competition
are the following:
o Many buyers and sellers must be able to enter the market
at little or no entry cost
o Large buyers or sellers are not able to individually
influence the market
o Products must be homogeneous (no product
differentiation)
o Buyers and sellers must have comprehensive information
about the products and about the market participants’
demands, supplies, and conditions
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
2.9 Impacts of EC on
Business Processes and Organizations
• Impacts of e-marketplaces on (improving) B2C direct
marketing:
o Product promotion
o New sales channel
o Direct savings
o Reduced cycle time
o Improved customer service
o Brand or corporate image
o Customization
o Advertising
o Ordering systems
o Market operations
o Accessibility
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Business Processes and Organizations
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Exhibit 2.12 Changes in the Supply Chain
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Impacts of EC on
Business Processes and Organizations
• Impacts on manufacturing
- Build-to-Order Manufacturing
build-to-order (pull system)
A manufacturing process that starts with an
order (usually customized). Once the order is
paid for, the vendor starts to fulfill it
- Real-Time Demand-Driven Manufacturing
- Virtual Manufacturing
- Assembly Lines
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Transforming Organizations
• Impacts on finance and accounting
o Executing an electronic order triggers an action in what is
called the back office that include:
• buyers’ credit checks
• product availability checks
• order confirmation
• changes in accounts payable, receivables, billing, and much more
o These activities must be efficient, synchronized, and fast so
that the electronic trade will not be slowed down
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
Transforming Organizations
(cont.)
• Impacts on human resource management
o EC is changing how people are recruited evaluated,
promoted, and developed
o EC also is changing the way training and education are
offered to employees
o Companies cut training costs by 50 percent or more
o New e-learning systems offer two-way video, on-the-fly
interaction, and application sharing
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
E-Market Success Factors
• Product Characteristics
Digitizable products can be electronically distributed to customers, resulting in very low
distribution costs, allowing order-fulfillment cycle time “to be minimal”
• Industry Characteristics
Electronic markets are most useful when they are able to directly match buyers and
sellers
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
E-Market Success Factors
(cont.)
• Seller Characteristics
Electronic markets reduce search costs, allowing consumers to find sellers offering
lower prices
• Consumer Characteristics
e-markets require a certain degree of effort on the part of the consumer, e-markets
are more conducive to consumers who do some comparison and analysis before
buying
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce
