Feature Traditional Commerce E-commerce

Ubiquity Marketplace Anywhere; marketspace; saves transaction costs + mental efforts

Reach Local Global
Standards Differ in each nation Global Tech Standards
Richness Mass advertising decreases richness (trade-off) No trade-off and richness is extended
Interactivity One-way communication. Ex: TV Two-way communication. Ex: Social networks
Information Information is scarce and difficult to find Information is high quality, plentiful and cheaper to collect
Density
Personalization One standard marketing message Marketing messages can be targeted based on consumer preferences

Social None Many-to--many mass communications; sharing content from network to

Technology network

Industry Structure:

 Nature of players industry + relative bargaining power

 Five forces:
o Rivalry among existing competitors, threat of substitute products, barriers to entry, bargaining power of
suppliers, power of buyers

Barriers to entry VS new substitutes (competition)

Buyer Power VS marketing channels (expands market)

What is a first mover? Why was being a first mover considered to be important during the early years of e-
commerce?

Answer:  First movers are firms who are first to market in a particular area and who move quickly to gather market
share. First movers hoped to establish a large customer base quickly, build brand name recognition early, and inhibit
competitors by building in switching costs for their customers through proprietary interface designs and features. The
thinking was that once customers became accustomed to using a company's unique Web interface and feature set,
they could not easily be switched to competitors. In the best case, the entrepreneurial firm would invent proprietary
technologies and techniques that almost everyone adopted, creating a network effect, which occurs where all
participants receive value from the fact that everyone else uses the same tool or product.

42) Why is the management team such an important element of a business model?

Answer:  A strong management team gives a model instant credibility to outside investors, immediate market-specific
knowledge, and experience in implementing business plans. A strong management team may not be able to salvage
a weak business model, but the team should be able to change the model and redefine the business as it becomes
necessary.

43) Who are the e-commerce enablers and why are they important?

Answer:  No discussion of e-commerce business models would be complete without mention of a group of companies
whose business model is focused on providing the infrastructure necessary for e-commerce companies to exist,
grow, and prosper. E-commerce enablers provide the hardware, operating system software, networks and
communications technology, applications software, Web design, consulting services, and other tools required for e-
commerce. While these firms may not be conducting e-commerce per se (although in many instances, e-commerce
in its traditional sense is in fact one of their sales channels), as a group they have perhaps profited the most from the
development of e-commerce.

44) Define elevator pitch and describe its key elements.

Answer:  An elevator pitch is a short two-to-three minute presentation aimed at convincing investors to invest. The
key elements of an elevator pitch are an introduction, in which you state your name and position, your company's
name and a tagline in which you compare what your company does to a well-known company; background, in which
you state the origin of your idea, and the problem you are trying to solve, the industry size/market opportunity, in
which you provide brief facts about the size of the market; revenue model/numbers/growth metrics, in which you
provide insight into your company's revenue model and results thus far, how fast it is growing, and early adopters, if
there are any; funding, in which you state the amount of funds you are seeking and what it will help you achieve; and
finally exit strategy, in which you explain how your investors will achieve a return on their investment.

56) Define and describe the transaction broker business model and discuss the eight components of the
business model for this type of B2C firm.

Answer:  The transaction broker business model is most commonly found in the financial services, travel services,
and job placement services industries. The eight elements of a business model are value proposition, revenue model,
market opportunity, competitive environment, competitive advantage, market strategy, organizational development,
and management team.

The primary value proposition for a transaction broker is the saving of time and money. These sites also often provide
timely information and opinion. They offer the consumer the opportunity to increase their individual productivity by
helping them to get things done faster and more cheaply.

The revenue model for these firms is based upon receiving commissions or transaction fees when a successful
business deal is completed. Online stock trading firms receive either a flat fee for each transaction or a fee based on
a sliding scale according to the size of the transaction. Job sites charge the employers a listing fee up front, rather
than when the position is filled as traditional "head hunter" firms have done.

The market opportunity for transaction brokers in financial services appears to be large due to the rising interest in
receiving financial planning advice and conducting stock transactions online. Demand is also increasing for job
placement help that is national and even global in nature and for purchasing travel services quickly and easily online.
However, there is some market resistance due to consumers' fear of loss of privacy and loss of control over their
personal financial information.

The competitive environment for financial services has become fierce as new entrants, including the traditional
brokerage firms that have now entered the online marketspace, have flooded the market. In order to compete
effectively, online traders must convince consumers that they have superior security and privacy procedures. The
number of job placement sites has also multiplied, and the largest sites such as Monster, which have the greatest
number of job listings, are the most likely to survive. Consolidation in all of the transaction broker markets is presently
occurring, making the market opportunity and competitive environment for new firms looking to enter the marketspace
bleak.

The market strategies for such firms typically include expensive marketing campaigns to convince consumers to
switch from their current provider or to choose their company over other more well-established competitors, also a
daunting task in the present economic environment.

Achieving a competitive advantage is crucial to firms trying to enter these industries. Possible strategies are to lure
well-known names in the industry away from their present positions to head a new endeavor, giving the firm instant
credibility in the market. Experienced, knowledgeable, and well-known employees may be able to give a new firm a
competitive edge.

New companies may have to start out recruiting a specialized highly skilled staff, with an organizational development
plan that is far more advanced than the typical startup. A strong management team will attract investors and convince
investors and consumers alike that a new firm has plenty of market-specific knowledge and the experience necessary
to implement the business plan.

66) What is a B2B exchange, and what benefits do they offer? Given those benefits, why are they today only

a small part of the overall B2B picture?

Answer:  An exchange is an independent digital marketplace where hundreds of suppliers meet a smaller number of very large
commercial purchasers. Exchanges are owned by independent, usually entrepreneurial startup firms whose business is making a
market, and they generate revenue by charging a commission or fee based on the size of the transactions conducted among trading
parties. They usually serve a single vertical industry, and focus on the exchange of direct inputs to production and short-term
contracts or spot purchasing. For buyers, B2B exchanges make it possible to gather information, check out suppliers, collect prices,
and keep up to date on the latest happenings all in one place. Sellers, on the other hand, benefit from expanded access to buyers.
The greater the number of sellers and buyers, the lower the sales cost and the higher the chances of making a sale. In theory,
exchanges make it significantly less expensive and time-consuming to identify potential suppliers, customers, and partners, and to
do business with each other. As a result, they can lower transaction costs–the cost of making a sale or purchase. Exchanges can
also lower product costs and inventory-carrying costs–the cost of keeping a product on hand in a warehouse. In reality, however,
B2B exchanges have had a difficult time convincing thousands of suppliers to move into singular digital markets where they face
powerful price competition, and an equally difficult time convincing businesses to change their purchasing behavior away from
trusted long-term trading partners. As a result, the number of exchanges has fallen significantly.

85) Describe the four stages involved in business model disruption.

Answer:  In the first disruptive stage, disruptors, often funded by new sources of finance, introduce new products that are less
expensive, less capable, and of poorer quality. These early products nevertheless find a niche in a market that incumbents do not
serve or are unaware of. In the second stage, disruptors improve their products at a rapid pace, taking advantage of newer
technologies at a faster pace than incumbents, expanding their niche market, and eventually attracting a larger customer base from
the incumbents' market. In the third stage, the new products and business model become good enough, and even superior to
products offered by incumbents. In the fourth stage, incumbent companies lose market share, and either go out of business or are
consolidated into other more successful firms that serve a much more limited customer base. Some incumbents survive by finding
new customers for their existing product, adopting some of the newer products and business models in separate divisions of their
firms, or moving into other often nearby markets.

35) What are the implications of cloud computing for e-commerce?

Answer:  Cloud computing has many significant implications for e-commerce. For e-commerce firms, cloud computing radically
reduces the cost of building and operating Web sites because the necessary hardware infrastructure and software can be licensed
as a service from cloud service providers at a fraction of the cost of purchasing these services as products. This means firms can
adopt "pay-as-you-go" and "pay-as-you-grow" strategies when building out their Web sites. For instance, according to Amazon,
hundreds of thousands of customers use Amazon Web Services. For individuals, cloud computing means you no longer need a
powerful laptop or desktop computer to engage in e-commerce or other activities. Instead, you can use much less-expensive tablet
computers or smartphones that cost a few hundred dollars. For corporations, cloud computing means that a significant part of
hardware and software costs (infrastructure costs) can be reduced because firms can obtain these services online for a fraction of
the cost of owning, and they do not have to hire an IT staff to support the infrastructure.

 On-demand self-service: Consumers can obtain computing capabilities such as server time or network storage as
needed automatically on their own.
 Ubiquitous network access: Cloud resources can be accessed using standard network and Internet devices, including
mobile platforms.
 Location-independent resource pooling: Computing resources are pooled to serve multiple users, with different virtual
resources dynamically assigned according to user demand. The user generally does not know where the computing
resources are located.
 Rapid elasticity: Computing resources can be rapidly provisioned, increased, or decreased to meet changing user
demand.
 Measured service: Charges for cloud resources are based on the amount of resources actually used.

4) In developing an e-commerce presence, what questions must be asked and answered about the firm's target audience?

Answer:  Without a clear understanding of a firm's target audience, it is difficult to develop a successful e-commerce presence. There are two
primary questions: who is the target audience and where can they best be reached? A target audience can be described in a number of ways:
demographics, behavior patterns (lifestyle), current consumption patterns (online vs. offline purchasing), digital usage patterns, content creation
preferences (blogs, social networks, sites like Pinterest), and buyer personas (profiles of your customer). Understanding the demographics of the
firm's target audience is usually the first step. Demographic information includes age, income, gender, and location.

35) Describe the major issues surrounding the decisions to build and/or host your own e-commerce Web site or to outsource some aspects
of site development. Include the advantages and disadvantages of each decision.

Answer: If you decide to build an e-commerce Web site in-house, you will need a multiskilled staff including programmers, graphic artists, Web
designers, and project managers. You will also have to select and purchase software and hardware. Building a site from scratch involves a great
deal of risk, and the costs can be high because many of the required elements of an e-commerce site such as shopping carts, credit card
authentication and processing, inventory management, and order processing are quite complex. Specialized firms have already perfected these
tools and your staff will often have to learn to build all of these features themselves. The advantage is that you and your staff may be able to
build a site that exactly suits the specific needs of your company. Another advantage is that you will be developing a skilled staff and
consequently acquiring an invaluable supply of in-house knowledge that will enable your firm to change the site if necessary due to the rapidly
changing business environment.
If, on the other hand, you decide to purchase an expensive site-building package, you will have to evaluate different packages to decide which
one will be best suited to your firm's needs. This can be a lengthy process and some packages may have to be modified. Additional vendors may
have to be hired to execute the modifications, and this can cause the costs to mount rapidly.

You can also purchase less expensive, prebuilt templates, but you will be limited to the functionality already built into the template. You can
choose templates from merchant-solution vendors such as Amazon Stores, or use the templates from a site-building tool such as WordPress.
Brick-and-mortar retailers can generally design a site themselves because they have a skilled staff in place and have made large investments in
information technology, such as databases and telecommunications. They will usually use outside vendors to build the e-commerce
applications for the site. Medium-size startups will often purchase a prepackaged site-building tool and make modifications as necessary. Small
startups that only require a simple virtual storefront will usually use a template.

The hosting decision is independent from the building decision, but the two are usually considered at the same time. Most businesses choose to
outsource hosting because it is generally less expensive than it would be for them to purchase all of the hardware and the physical space, lease
the communications lines, and hire the staff. Large hosting firms can build the telecommunication links and emergency power supplies and
achieve economies of scale by establishing huge "server farms" in strategic locations around the country. If you host your own site you must
also build the security and backup capabilities yourself.

Another option is co-location in which a firm purchases or leases a Web server and has total control over its operation, but the server is located
in the vendor's physical facility. In a co-location agreement, the vendor maintains the facility, the machinery, and the communication lines.
Small ISPs may not be able to provide service that is as reliable as the large providers. The disadvantage of outsourcing hosting is that as your
business grows, you may need more power or services than the hosting company can provide. This is the main reason that firms will decide to
host their own sites, but the costs will almost always be higher than if they had chosen an outsourcing firm.

54) Explain the main functionalities included in e-commerce merchant server software and the decision-making process for a manager choosing
from among the various e-commerce merchant server software packages.

Answer: The main functionalities included in e-commerce merchant server software are online catalog, order taking capabilities using an online
shopping cart, and online credit card processing. Merchant server software typically includes a database and the capability to post lists, product
descriptions, product photographs, and in larger sites even sound, animations, videos, or interactivities with product demonstrations and
customer service representatives. Online shopping carts enable customers to set aside items they wish to purchase while they continue to shop
at the site. Online shopping cart capabilities must also include the ability for consumers to review the items they have set aside and delete or
edit items as necessary. Finally, the customer must be able to click a button to begin the order processing system. Credit card processing must
work in conjunction with the shopping cart so that the customer's credit card can be verified, the charge can be debited to the card, and a
credit to the firm's account can be made. Merchant server software/e-commerce suites offer an integrated environment that promises to
provide most or all of the functionality and capabilities you will need to develop a sophisticated, customer-centric site. E-commerce suites come
in three general ranges of price and functionality: basic, mid-range, and high-end.

74) What are widgets and how are they used? How do they differ from mashups?

Answer: A widget is a small, prebuilt chunk of code that executes automatically in an HTML Web page to perform a specific task. Many are free.
Social networks and blogs use widgets to present users with content drawn from around the Web (news headlines from specific news sources,
announcements, press releases, and other routine content), calendars, clocks, weather, live TV, games, and other functionality. Mashups are a
little more complicated and involve pulling functionality and data from one program and including it in another. The most common mashup
involves using Google Maps data and software and combining it with other data.

85) Discuss some of the unique features that must be taken into account when designing a mobile
Web presence.
Answer: Designing a mobile Web presence is somewhat different from designing a Web site that will be accessed via a
traditional desktop computer. For instance, mobile hardware is smaller, and there are more resource constraints on data
storage and processing power. The mobile platform is also constrained by slower connection speeds than provided by
traditional desktop computers. As a result, file sizes should be kept smaller, and the number of files sent to the user reduced.
Mobile displays are much smaller and require simplification, and some screens are not as easily visible in sunlight. Touch screen
technology also introduces new interaction routines that are different from the traditional mouse and keyboard. The mobile
platform is not as easy to use as a data entry tool, and therefore choice boxes and lists should be used more frequently so that
the user can easily scroll and touch-select options, rather than type them in. You will also want to determine whether to create
a mobile-friendly version of your e-commerce site or implement responsive Web design or adaptive Web design, or create an
entirely new mobile app. You can choose to build a mobile Web app, a native app, or a hybrid app. Building a mobile Web app
that uses the mobile device's browser requires more effort and cost than developing a mobile Web site, suffers from the same
limitations as any browser-based application, but does offer some advantages such as better graphics, more interactivity, and
faster local calculations. Building a native app, which is programmed for specific mobile operating systems, requires much more
programming; however, it will allow you much greater creative rein in making a unique customer experience. You can also
choose to create a hybrid, cross-platform mobile app with various low-cost or open source app development toolkits.