E-commerce (Business on social media )

2. In this chapter, you will learn about:
Social networking and online business activities
Using mobile devices to do business online
Online auctions and auction-related businesses

3.  Online Web communities
Not limited by geography
Individuals and companies with common interests
Meet online and discuss issues, share information, generate
ideas, and develop valuable relationships
Companies make money by serving as relationship
facilitators
Combine Internet’s transaction cost-reduction
potential with a communication facilitator role

4. Virtual community (Web community,
online community)
Gathering place for people and businesses
No physical existence
Early virtual communities
Bulletin board systems (BBSs)
Revenue source: monthly fees and selling
advertising
Usenet newsgroups
Message posting areas on usenets

5. Current forms
Web chat rooms
Sites devoted to specific topics or general exchange
of information, photos, videos
People connect and discuss common issues, interests
Considerable social interaction
Relationship-forming activities
Similar to physical communities

6. 1985: WELL (“whole earth ‘Electronic link”)
Monthly fee to participate in forums and
conferences
1999 bought by Salon.com
1995: Beverly Hills Internet virtual community
site
Offered webcams, free Web site space
Grew into GeoCities
Revenue source: advertising, pop-up pages
1999: purchased by Yahoo! ($5 billion)
Closed in 2009

7. 1995: Tripod virtual community
Offered free Web page space, chat rooms, news,
weather updates, health information pages
Revenue source: sold advertising
1995: Theglobe.com Cornell University class project
Included bulletin boards, chat rooms, discussion areas,
personal ads
Added more features
Revenue source: sold advertising
Most early Web community businesses closed

8. As the Internet and Web grew:
Experience of sharing new online communication
faded
New phenomenon in online communication began
Multiple common bonds joined people with all types of
common interests
Social networking sites
Allow individuals to create and publish a profile, create
a list of other users with whom they share a connection
(or connections), control that list, and monitor similar
lists made by other users

9. Social networking sites
Six Degrees (1997)
Friendster (2002)
Had features found in today’s social networking sites
LinkedIn: devoted to business connections
Tribe.net
YouTube: popularized video inclusion
MySpace: popular with younger Web users
Twitter
Users can send short messages to other users who sign up to
follow their messages (tweets)

10. Basic idea behind social networking
People invited to join by existing members
Site provides directory
New members work through friends established in
the community

11. FIGURE 6-1 Social networking Web sites

12. Web logs (Blogs)
Web sites containing individual commentary on
current events or specific issues
Form of social networking site
Encourages interaction among people
Visitors add comments
Early blogs focused on technology topics
2004: blogs used as political networking tool
2008: all major candidates using blogs
Communicating messages, organizing volunteers,
raising money, meetups

13. Retailers embracing blogs to engage site visitors
Bluefly.com online discount apparel retailer
Flypaper blog
Ice.com online jeweler
Blogs may encourage potential customers to visit online
store
Business uses
CNN
Blog information included in television newscasts

14. Business uses (cont’d.)
Newspapers
Inviting information and opinion contributions
Targeting 18- to 35-year-old generation
Participatory journalism
Trend toward having readers help write the online
newspaper
Blogs can become businesses in themselves
Must generate financial support (fees, advertising)

15. Social networking Web sites for shoppers
Social shopping
Practice of bringing buyers and sellers together in a social
network to facilitate retail sales
Example: craigslist
Operated by not-for-profit foundation
All postings free (except help wanted ads)
Example: Etsy Web site
Marketplace for selling handmade items
We Love Etsy: Etsy buyers, sellers share information

16. Social networking Web sites for shoppers (cont’d.)
Social networking sites form communities based on
connections among people
Idea-based virtual communities
Communities based on connections between ideas
Idea-based networking
Participating in idea-based virtual communities
Examples: del.icio.us site, 43 Things site

17. Virtual learning networks
Distance learning platforms for student-instructor
interaction (Blackboard)
Tools include:
Bulletin boards, chat rooms, drawing boards
Moodle and uPortal
Open-source software projects devoted to virtual
learning community development
Open-source software
Developed by a programmer community
Software available for download at no cost

18. Web portals
Combine portal and social networking features
Typical portal offerings
Search engines, directories, free e-mail, news stories,
weather reports
Social networking elements
Games and chat rooms
Allow site visitors to interact with each other
Examples:
Yahoo!, AOL, MSN

19. By late 1990s:
Revenue created by selling advertising
Used by virtual communities, search engine sites, Web
directories
1998
Purchases and mergers occurred
New sites still used advertising-only revenue-
generation model
Included features offered by virtual community sites,
search engine sites, Web directories, other information-
providing and entertainment sites
Goal: be every Web surfer’s doorway to the Web

20. Advertising-supported social networking sites
Smaller sites with specialized appeal
Can draw enough visitors to generate significant
advertising revenue
Example: I Can Has Cheeseburger site
Recall from Chapter 3:
Sites with higher number of visitors can charge more
Stickiness: important element in site’s attractiveness
Rough measure of stickiness
Time user spends at the site

21. FIGURE 6-2 Popularity and stickiness of leading Web sites

22. Advertising-supported social networking sites
(cont’d.)
Social networking sites
Members provide demographic information
Potential for targeted marketing: very high
High visitor counts
Can yield high advertising rates
Second-wave advertising fees
Based less on up-front site sponsorship payments
Based more on revenue generation from continuing
relationships with people who use the social networking
sites

23. Mixed-revenue and fee-for-service social networking
sites
Most social networking sites use advertising
Some charge a fee for some services
Examples: Yahoo! All-Star Games package, Yahoo! premium
e-mail service
Monetizing
Converting site visitors into fee-paying subscribers or
purchasers of services
Concern: visitor backlash
More examples: The Motley Fool and TheStreet.com

24. Fee-based social networking
Google Answers site
Early attempt to monetize social networking
Questions answered for a fee
Google operated service from 2002 to 2006
Similar free services
Yahoo! Answers, Amazon (Askville)
Uclue (paid researchers earn 75 percent of total fee)
Advocates claim better quality
Fee-based Web sites can generate revenue by
providing virtual community interaction

25. Micro lending sites
Function as clearinghouses for micro lending activity
Micro lending
Practice of lending very small amounts of money
Lend to people starting or operating small businesses
(especially in developing countries)
Micro lending key element
Working within social network of borrowers
Provide support, element of pressure to repay
Examples: Kiva and Micro Place

26. Internal virtual communities
Provide social interaction among organization’s
employees
Run on organization’s intranet
Save money (less paper)
Provide easy access to employee information
Good for geographically dispersed employees
Adding wireless connectivity
Combine second-wave technology with first-wave
business strategy
Wireless communications with internal Web portals

27. Short messaging service (SMS)
Allows mobile phone users to send short text
messages to each other
2008: United States developments allowing phones
as Web browsers
High-speed mobile telephone networks grew
dramatically
Manufacturers offered range of smart phones with
Web browser, operating system, applications

28. Japan and Southeast Asia mobile commerce
Much larger online business activity
Had high-capacity networks early on
Mobile wallets
Mobile phones functioning as credit cards
Japan’s NTT Do Como phones combined capabilities
Generate significant business

29. United States mobile commerce capabilities began in
2008
Smart phone and high-capacity network introductions
Mobile commerce smart phone examples
Apple iPhone, Palm Pre, several BlackBerry models
Use the Android operating system
Provide serious U.S. mobile commerce for the first time

30. FIGURE 6-3 Smart phones come in a range of different styles

31. Mobile commerce browser display options
Wireless Application Protocol (WAP)
Allows Web pages formatted in HTML to be displayed on
devices with small screens
Display a normal Web page on the device
Made possible by increased screen resolution
Example: Apple iPhone
Design Web sites to match specific smart phones
Much more difficult to accomplish

32. Mobile commerce browser display options
(cont’d.)
Apple, BlackBerry, Palm
Use proprietary operating systems
HTC, Motorola, Nokia
At one time created their own operating systems and
software applications
Now use a standard operating system provided by a
third party
Most common third-party operating systems
Android, Windows Mobile, Symbian

33. Common operating systems emergence
Occurred due to a change in the way software
applications developed and sold
Old U.S. mobile phone company revenue strategy
Control application software
Apple turned old revenue strategy on its head
Apple Apps for iPhone online store
Independent developers create apps and sell them
BlackBerry and Palm followed Apple’s lead

34. Companies wanting mobile user commerce
Review Web sites for compatibility
May create separate Web sites for mobile users
Mobile phones for online banking
In early stages in the United States
Physicians using smart phones
Phones’ global positioning satellite (GPS) service
capabilities
Allow mobile business opportunities

35. Business opportunity perfect for the Web
Auction site revenue sources
Charging both buyers and sellers to participate
Selling advertising
Targeted advertising opportunities available
Online auctions capitalize on Internet’s strength
Bring together geographically dispersed people sharing
narrow interests

36. From Babylon to the Roman Empire to Buddhists
Common activity of 17th century England
Sotheby’s (1744), Christie’s (1766), colonial auctions
Auction: seller offering item for sale
Bids: price potential buyer willing to pay
Bidders: potential buyers
Private valuations: amounts buyer willing to pay
Auctioneer: manages auction process
Shill bidders: work for seller or auctioneer
May artificially inflate price

37. English auctions
Bidders publicly announce successively higher bids
Item sold to highest bidder (at bidder’s price)
Also called ascending-price auction
Open auction (open-outcry auction)
Bids publicly announced
Minimum bid
Beginning price
If not met: item removed (not sold)

38. English auctions (cont’d.)
Reserve price (reserve)
Seller’s minimum acceptable price
Not announced
If not exceeded: item withdrawn (not sold)
Yankee auction
Multiple item units offered for sale (bidders specify
quantity)
Highest bidder allotted bid quantity
Remaining items allocated to next highest bidders until all
items distributed
Bidders pay lowest successful bidder price

39. English auctions (cont’d.)
Seller drawback
May not obtain maximum possible price
Buyer drawback
Winner’s curse psychological phenomenon
Bidder gets caught up in competitive bidding excitement
Bids more than their private valuation

40. Dutch auctions
Open auction
Bidding starts at a high price
Drops until bidder accepts price
Also called descending-price auctions
Seller offers number of similar items for sale
Common implementation
Use a clock (price drops with each tick)
Bidders stop clock and take items at the given price
If items remain: clock restarted

41. Dutch auctions (cont’d.)
Often better for the seller
Quickly move large numbers of commodity items
Successful examples:
Google initial public offering stock sale (2004)
Look Smart stock repurchase

42. First-price sealed-bid auctions
Sealed-bid auctions
Bidders submit bids independently
Prohibited from sharing information
First-price sealed-bid auction
Highest bidder wins
If multiple items auctioned: next highest bidders awarded
remaining items at their bid price

43. Second-price sealed-bid auction
Same as first-price sealed-bid auction
Except highest bidder awarded item at second-highest
bidder price
Commonly called Vickrey auctions
William Vickrey: 1996 Nobel Prize in Economics
Findings:
Yields higher seller returns
Encourages all bidders to bid private valuation amounts
Reduces tendency for bidder collusion

44. Open-outcry double auctions
Example: Chicago Board of Trade auctions of
commodity futures and stock options
Buy and sell offers shouted by traders in trading pit
Each commodity, stock option traded in own pit
Quite frenzied
Double auctions (either sealed bid or open outcry)
Good for items of known quality traded in large
quantities
No item inspection before bidding

45. Double auctions
Buyers, sellers submit combined price-quantity bids
Auctioneer
Matches sellers’ offers
Starts with lowest price and then goes up
To buyers’ offers
Starts with highest price and then goes down until all
quantities offered are sold
Operation format
Sealed bid or open-outcry
Example: New York Stock Exchange

46. Reverse (seller-bid) auction
Multiple sellers submit price bids
Auctioneer represents single buyer
Bids for given amount of specific item to purchase
Prices go down as bidding continues:
Until no seller willing to bid lower
Occasionally operated for consumers
Most involve businesses as buyers and sellers

47. FIGURE 6-4 Key characteristics of seven major auction types

48. Online auction business: rapidly changing
Three auction Web site categories
General consumer auctions
Specialty consumer auctions
Business-to-business auctions
Varying opinions on categorizing consumer auctions
Business-to-consumer
Consumer-to-consumer
Consumer-to-business

49. General consumer auctions
eBay: registration required, seller fees, rating system
Seller’s risk: stolen credit cards; buyer fails to conclude
transaction
Buyer’s risk: no item delivery; misrepresented item
Most common auction format: English auction
Seller may set reserve price
Bidders listed: bids not disclosed (until auction end)
Continually updated high bid amount displayed
Private auction option available

50. General consumer auctions (cont’d.)
Another eBay auction format: Dutch auction
Both formats require minimum bid increment
Amount by which one bid must exceed previous bid
Proxy bid
Bidder specifies maximum bid
May cause bidding to rise rapidly
eBay stores
Integrated into auction site
Sellers generate additional profits

51. eBay’s success due to unspecified audience
Also spends $1 billion each year to market and
promote Web site
Major determinants of Web auction site success
Attracting enough buyers and sellers
Yahoo! Auction operation closed in 2007
Amazon.com with “Auctions Guarantee”
Offered buyer protection through escrow service
Closed in 2006
Overstock.com (still active)

52. Future challengers to eBay
Must overcome lock-in effect
New auction participants inclined to patronize established
marketplaces
Example: Japanese general consumer auction
Yahoo! first to enter market
Now dominates (more than 90% market share)
eBay maintains low market share (less than 3%)

53. Specialty consumer auctions
Identify special-interest market targets
Create specialized Web auction sites
No need to compete with eBay
Examples:
JustBeads.com, Cigarbid.com, Wine bid

54. Consumer reverse auctions
Reverse bid
Visitor describes desired items or services
Site routes visitor to participating merchants
Reply to visitor by e-mail
Offer item at particular price
Buyer accepts
Lowest offer
Offer best matching buyer’s criteria
All these types of sites now closed

55. Consumer reverse auctions (cont’d.)
Priceline.com
Considered a seller-bid auction site
Visitor states desired airline ticket, car rental, hotel
room price
If sufficiently high price: transaction completed
Many transactions come from inventory
Priceline operates more as a liquidation broker

56. Group shopping sites
Seller posts item with tentative price
Individual buyers enter bids
Agreement to buy one unit (no price provided)
Site negotiates with seller for lower price
Posted price decreases
As number of bids increases (only if number of bids
increases)
Result: buyers force seller to reduce price
Similar to consumer reverse auction

57. Group shopping sites (cont’d.)
Well-suited product types
Branded products, well-established reputations
Produces buyer confidence of good bargain
High value-to-size ratio, non-perishable
Disadvantages
Difficulty attracting sellers’ interest
Well-suited companies
Find no advantage, fear sites cannibalize product sales,
reluctant to offend current distributors
Group purchasing sites closed

58. Business-to-business auctions
Evolved to meet specific existing need
Excess inventory disposal (manufacturing)
Two methods
Liquidation specialists: find buyers for unusable items
Liquidation broker: firm that finds buyers for items
Online auctions
Logical extension of these inventory liquidation activities to
a new and more efficient channel (Internet)

59. Business-to-business auctions (cont’d.)
Emerging business-to-business Web auction
models
Large-company model: creates own auction site
Small-company model: uses third-party Web auction
site instead of liquidation broker
Both are direct descendants of traditional methods
Online Auctions and Related
Businesses (cont’d.)

60. Business-to-business auctions (cont’d.)
Third emerging business-to-business Web auction
model
New business entity enters market lacking efficiency and
creates a site at which buyers and sellers who have not
historically done business with each other can participate
in auctions
Resembles consumer online auctions
Example: hospitals using online auctions to fill temporary
employment openings

61. Business-to-business reverse auctions
Example: Owens Corning purchases
Examples: Agilent, Bechtel, Boeing, Raytheon, Sony
Potential disadvantage
Suppliers compete on price alone
Cut corners on quality or miss scheduled delivery dates
Potential advantage
Useful for nonstrategic commodity items with established
quality standards

62. Business-to-business reverse auctions (cont’d.)
Companies opting out
Cisco, Cubic, IBM, Solar Turbines
If suppliers do not participate:
Impossible to conduct reverse auctions
If competition high among suppliers:
Reverse auctions provide efficient way to conduct,
manage price bidding
Online Auctions and Related
Businesses (cont’d.)

63. FIGURE 6-5 Supply chain characteristics and reverse auctions

64. Entrepreneurs encouraged by eBay and other
auction site growth
Provide various kinds of auction-related services
Escrow services
Auction directory and information services
Auction software for sellers and buyers
Auction consignment services

65. Auction escrow services
Buyers’ common concern: seller reliability
Buyers protect interests in high-value items
Independent party holds payment until:
Buyer receives item
Buyer satisfied item is as expected
May take delivery of item from seller
Perform buyer inspection (qualified to do so)
Charge fees
Percent of item’s cost; subject to minimum fee

66. Auction escrow services (cont’d.)
Examples: Escrow.com, eDeposit, Square Trade
May sell auction buyer’s insurance
Protect buyers from no delivery and quality risks
Avoid escrow fraud
Determine if licensed, bonded (licensing agency)
Avoid offshore escrow companies entirely
Other buyer protections
Check seller’s rating
Use Web site listings of unreliable sellers

67. Auction directory and information services
Example: Auctionguide.com
Guidance for new auction participants
Helpful hints and tips for experienced participants
Directories of online auction sites
Example: Auction Bytes
Publishes e-mail newsletter
Online auction industry articles

68. Auction directory and information services (cont’d.)
Example: Price Watch
Advertiser-supported site
Advertisers post current selling prices
Computer hardware, software, electronics
Example: Price SCAN
Similar price-monitoring service
Also includes books, movies, music, sporting goods

69. Auction software
Target: sellers
Helps manage online auctions
Example: Auction Hawk and Vendio
Seller management software and services
Automate tasks
Create attractive page layouts
Manage hundreds of auctions

70. Auction software (cont’d.)
Target: buyers
Helps manage online auctions
Sniping software
Observes auction progress until last second
As auction expires: places bid high enough to win (unless
bid exceeds sniping software owner’s limit)
Snipe: act of placing winning bid at the last second
Almost always wins out over human bidder

71. Auction software (cont’d.)
Example: Cricket Sniping Software site
Created in 1997 by David Eccles
Companies offer sniping service
Sniping software runs on company Web site
Customer enters instructions on site
Company may offer subscriptions
Company may offer mixed-revenue model
Sniping software and services business information
AuctionBytes Web site

72. FIGURE 6-6 Auction Bytes home page

73. Auction consignment services
Target: people and small businesses
Want to use online auction
Do not have skills, time to become a seller
Auction consignment services
Take item and create online auction for that item
Handle transaction
Remit proceeds balance (after deducting fee)
Main auction consignment businesses
ePowerSellers, iSold It, USA Auction Drop

74. Auction consignment services (cont’d.)
Key to success
Convenient locations for customer drop off
Open own stores, franchise stores
Electronic commerce first wave
Online auction business made possible by the Web
Electronic commerce second wave
Online auction business created opportunities:
For even more entirely new types of business

75. Companies using the Web for entirely new things
Creating social networks
Using mobile technologies to make sales and increase
operational efficiency
Operating auction sites
Conducting related businesses
Businesses creating online communities to connect
with customers and suppliers
Individuals using social networking sites
Personal and business-related interactions
Mobile commerce opportunities emerging

76. Companies’ internal social networking sites
Facilitate employee communication
Online auctions used to sell goods to customers and
buy from suppliers
Seven major auction types
Consumer online auction business dominated by eBay
(United States)
Ancillary service businesses support auctions
B2B auctions and reverse auctions
New methods of inventory disposal, procurement