Electronic CommerceTenth EditionChapter 5Business-to-Busin

Electronic Commerce
Tenth Edition
Chapter 5
Business-to-Business Activities: Improving Efficiency and
Reducing Costs
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Electronic Commerce, Tenth Edition
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Learning Objectives
In this chapter, you will learn about:
How businesses use the Internet to improve purchasing,
logistics, and other support activities
Electronic data interchange and how it works
How businesses have moved some of their electronic data
interchange operations to the Internet
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Learning Objectives (cont’d.)
Supply chain management and how businesses are using Internet
technologies to improve it

Electronic marketplaces and portals that make purchase-sale
negotiations easier and more efficient
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Purchasing, Logistics, and
Business Support Processes
Recap
Strategy issues arise when providing information to potential
customers
Value chain model’s primary activities
Identify customers, market and sell, and deliver
Many business models for selling on the Web
Used in B2B e-commerce
Apply to B2C e-commerce
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Business Support Processes (cont’d.)
Companies use electronic commerce to:
Improve purchasing and logistics
Improve all support activities
Provide potential cost reductions, business process

improvements
Necessary characteristic: flexibility
Economic organizations evolving from hierarchical structures to
new, more flexible network structures
Reduced transaction cost through Internet and Web technologies
for business processes
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Business Support Processes (cont’d.)
Outsourcing: use of other organizations to perform specific
activities
Typically manufacturing
Offshoring: outsourcing done by organizations in other
countries
Internet-enabled activities: purchasing, research and
development, record keeping, information management
Business process offshoring
Impact sourcing or smart sourcing: offshoring done by or
through not-for-profit organizations
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Purchasing Activities
Identify and evaluate vendors, select specific products, place
orders, resolve any issues after receiving ordered goods or
services
Supply chain
Part of industry value chain preceding a particular strategic

business unit
Includes all activities undertaken by every predecessor in the
value chain to:
Design, produce, promote, market, deliver, support each
individual component of a product or service
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Purchasing Activities (cont’d.)
Traditionally
Purchasing department buys components at lowest price
possible
Bidding process focus: individual component cost
Procurement includes:
All purchasing activities
Monitoring all purchase transaction elements
Managing and developing supplier relationships
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Procurement also called supply management
Procurement staff have high product knowledge
Identify and evaluate appropriate suppliers
Sourcing procurement activity
Identifying suppliers, determining qualifications

e-sourcing
Using Internet technologies in sourcing activities
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Business purchasing process
More complex than most consumer purchasing processes
Spend
Total yearly dollar amount for goods and services purchased
Institute for Supply Management (ISM)
Main organization for procurement professionals
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FIGURE 5-1 Steps in a typical business purchasing process
© Cengage Learning 2013
Click to edit Master text styles
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Direct vs. Indirect Materials Purchasing
Direct materials
Become part of finished product
Direct materials purchasing: two types
Replenishment purchasing (contract purchasing)
Company negotiates long-term material contracts
Spot purchasing
Purchases made in loosely organized market (spot market);
demand exceeds estimates made for contract purchasing
Indirect materials
All other materials company purchases
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Direct vs. Indirect Materials Purchasing (cont’d.)
Maintenance, repair, and operating (MRO) supplies
Indirect materials purchased on a recurring basis
Standard items (commodities) with price as main criterion
Purchasing cards (p-cards) provide:
Managers ability to make multiple small purchases
Cost-tracking information to procurement
Leading Suppliers:
MRO: McMaster-Carr, W.W. Grainger,
Office Depot, Staples, Digi-Key, Newark.com
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FIGURE 5-2 Grainger.com Web store
© 1994-2001 W.W Grainger, Inc. All rights reserved.
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Logistics Activities
Classic objective
Provide the right goods in the right quantities in the right place
at the right time
Important support activity for sales and purchasing
Includes managing the movements of:
Inbound materials and supplies
Outbound finished goods and services
Web and the Internet
Providing increasing number of opportunities to better manage
activities
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Logistics Activities (cont’d.)
Example: Schneider Track and Trace system
Real-time shipment information: customers’ browsers

Third-party logistics (3PL) provider
Operates all (large portion) of customer’s materials movement
activities
Examples: Ryder and Whirlpool
Excellent example of second-wave e-commerce
Marriage of GPS and portable computing technologies with the
Internet (Examples: Fed Ex and UPS)
Third-wave e-commerce supported by smart phones
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Business Process Support Activities
General categories
Finance and administration, human resources, technology
development
FIGURE 5-3 Categories of support activities
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Business Process
Support Activities (cont’d.)
Human resources and /or payroll functions often outsourced by
small/midsized companies
Common support activity: training
Underlies multiple primary activities

Putting training materials on company intranet
Can distribute materials to many different sales offices
Can coordinate materials in corporate headquarters
Knowledge management
Intentional collection, classification, dissemination of
information about a company, its products and processes
(Examples: Ericsson, KMWorld)
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E-Government
E-Government
Use of electronic commerce by governments and government
agencies
Enhances functions performed for stakeholders
Enhances businesslike activity operations
U.S. government examples
Financial Management Service (FMS): Pay.gov site
Bureau of Public Debt: TreasuryDirect site
Department of Homeland Security (DHS)
Internet technology use initiatives to enable information sharing
among agencies
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E-Government (cont’d.)

Examples in other countries
United Kingdom
Department for Work and Pensions Web site
Singapore Government Online site
State government sites
California’s one-stop portal site: CA.GOV
Similar sites for most other states
Examples in local government
Large cities: Minneapolis, New Orleans sites
Small cities: Cheviot, Ohio Web site as one example
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FIGURE 5-4 State of California portal site
Copyright © 2011 State of California
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Network Model of Economic Organization in Purchasing:
Supply Webs
Trend in purchasing, logistics, and support activities
Shift from hierarchical structures
Toward network structures
Procurement departments’ new tools (technology)

To negotiate with suppliers and form strategic alliances
Network model of economic organization
Other firms perform various support activities
Supply Web: term replacing “supply chain”
Due to parallel lines interconnected in a Web or network
configuration
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Electronic Data Interchange
Computer-to-computer business information transfer
Between two businesses using a standard format
Trading partners
Two businesses exchanging information
EDI compatible
Firms exchanging data in specific standard formats
Reasons to be familiar with EDI
Most B2B e-commerce adapted from EDI or based on EDI
principles
Dominant technology for electronic B2B transactions
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Early Business Information
Interchange Efforts
1800s and early 1900s

Need to create formal business transactions records
1950s
Computers store, process internal transaction records
Information flows: printed on paper
1960s: large volume transactions
Exchanged on punched cards or magnetic tape
1960s and 1970s
Transferred data over telephone lines
Efforts increased efficiency, reduced errors
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Early Business Information
Interchange Efforts (cont’d.)
Issue: incompatible data translation programs
1968: freight, shipping companies joined together
Created standardized information set
Used a computer file
Transmittable to any freight company adopting the standard
Benefits limited to members of industries that created standard-
setting groups
Full realization of EDI economies and efficiencies
Required standards for all companies in all industries
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Emergence of Broader Standards:
The Birth of EDI

American National Standards Institute (ANSI)
United States coordinating body for standards
Accredited Standards Committee X12 (ASC X12)
Develops and maintains EDI standards
Data Interchange Standards Association (DISA)
Administrative body coordinating ASC X12 activities
Transaction sets: names of the formats for specific business data
interchanges
EDI for Administration, Commerce, and Transport (EDIFACT,
or UN/EDIFACT)
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FIGURE 5-5 Commonly used EDI transaction sets
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How EDI Works
Basic idea: straightforward
Implementation: complicated
Example:
Company replacing metal-cutting machine

Steps to purchase using paper-based system
Steps to purchase using EDI
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How EDI Works (cont’d.)
Paper-based purchasing process
Buyer and vendor
Not using integrated software for business processes
Each information processing step results in paper document
Must be delivered to department handling next step
Paper-based information transfer
Mail, courier, fax
Information flows shown in Figure 5-6
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FIGURE 5-6 Information flows in a paper-based purchasing
process
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How EDI Works (cont’d.)
EDI purchasing process
Mail service replaced with EDI network data communications
Paper flows within buyer’s and vendor’s organizations replaced
with computers
Running EDI translation software
Information flows shown in Figure 5-7
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FIGURE 5-7 Information flows in an EDI purchasing process
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Value-Added Networks
EDI network key elements
EDI network, two EDI translator computers
Direct connection EDI

Businesses operate on-site EDI translator computers
Connected directly to each
Few companies use direct connection EDI
Dedicated leased lines: expensive
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FIGURE 5-8 Direct connection EDI
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Value-Added Networks (cont’d.)
Value-added network (VAN)
Receives, stores, forwards electronic messages containing EDI
transaction sets
Indirect connection EDI
Trading partners use VAN to retrieve EDI-formatted messages
Companies providing VAN services
CovalentWorks, EasyLink Services, GXS, Kleinschmidt,
Promethean Software Services, and SPS Commerce
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FIGURE 5-9 Indirect connection EDI through a VAN
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Advantages
Support one communications protocol (VAN)
VAN records message activity in audit log
Becomes independent transactions record
VAN provides translation between different transaction sets
VAN performs automatic compliance checking
VAN records message activity in audit log
Helps establish nonrepudiation: ability to establish that a
particular transaction actually occurred
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Disadvantages: In the past, cost (fees)
Today, affordable even for small companies
Internet presents low-cost communications medium used by
VAN services
EDI on the Internet: Internet EDI, Web EDI, open EDI (Internet
is open architect network)
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EDIINT (Electronic Data Interchange-Internet Integration, EDI-
INT)
most common protocol for Internet EDI transaction sets
EDI exchanges encoded using
AS2 (Applicability Statement 2) or AS3 (Applicability
Statement 3)
Secure electronic receipts returned to senders for every
transaction, help establish repudiation
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EDI Payments
EDI transaction sets
Provide instructions to trading partner’s bank

Negotiable instruments
Electronic equivalent of checks
Electronic funds transfers (EFTs)
Movement of money from one bank account to another
Automated clearing house (ACH) system
Service banks use to manage accounts with each other
Operated by U.S. Federal Reserve Banks, private ACHs
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Supply Chain Management Using Interne t Technologies
Supply chain management
Job of managing integration of company supply management
and logistics activities
Across multiple participants in a particular product’s supply
chain
Ultimate goal
Achieve higher-quality or lower-cost product at the end of the
chain
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Value Creation in the Supply Chain
Firms engaging in supply chain management
Reaching beyond limits of their own organization’s hierarchical
structure
Creating new network form of organization among members of
supply chain

Originally developed to reduce costs
Today: value added in the form of benefits to the ultimate
consumer
Requires more holistic view of the entire supply chain
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Value Creation in the Supply Chain (cont’d.)
Tier-one suppliers
Small number of very capable suppliers
Original business establishes a long-term relationship
Tier-two suppliers
Larger number of suppliers who tier-one suppliers develop long-
term relationships with for components, raw materials
Tier-three suppliers
Next level of suppliers
Key element: trust
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Supply alliances
Long-term relationships among participants in the supply chain
Major barrier
Level of information sharing
Example: Dell Computer
Reduced supply chain costs by sharing information with
suppliers

Buyers expect annual price reductions, quality improvements
from suppliers
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Marshall Fisher 1997 Harvard Business Review article
Described two types of organization goals
Efficient process goals
Market-responsive flexibility goals
Successful supply chain management key elements
Clear communications
Quick responses to those communications
Internet and Web technologies
Effective communications enhancers
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FIGURE 5-10 Advantages of using Internet technologies in
supply chain management
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Increasing Supply Chain Efficiencies
Internet and Web technologies managing supply chains can:
Yield increases in efficiency throughout the chain
Increase process speed, reduce costs, increase manufacturing
flexibility
Allows response to changes in quantity and nature of ultimate
consumer demand
Example: Boeing
Invested in new information systems increasing production
efficiency of the supply chain
Also launched spare parts Web site
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Increasing Supply Chain Efficiencies (cont’d.)
Example: Dell Computer
Famous for use of Web to sell custom-configured computers
Also used technology-enabled supply chain management
Give customers exactly what they want
Reduced inventory amount (three weeks to two hours)
Top suppliers have access to secure Web site
Tier-one suppliers can better plan their production
Dell accesses suppliers’ information
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Materials-Tracking Technologies
Troublesome task
Tracking materials as they move from one company to another
Optical scanners and bar codes
Help track movement of materials
Integration of bar coding and EDI: prevalent
Second wave of electronic commerce
Integration of new types of tracking into
Internet-based materials-tracking systems
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FIGURE 5-11 Shipping label with bar-coded elements from EDI
transaction set 856, Advance Ship Notification
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Materials-Tracking

Technologies (cont’d.)
Real-time location systems (RTLS)
Bar code tracking system
Used by fulfillment centers
Radio Frequency Identification Devices (RFIDs)
Small chips using radio transmissions to track inventory
RFIDs read much more quickly, higher degree of accuracy than
bar codes
Important development: passive RFID tag
Made cheaply and in very small sizes
No power supply required
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Materials-Tracking
Technologies (cont’d.)
Example: 2003 (Wal-Mart)
Tested RFID tag use on merchandise for inventory tracking and
control
Initiated plan to have all suppliers install RFID tags in shipped
goods
Reduced incidence of stockouts
Retailer loses sales because it does not have specific goods on
its shelves
General acceptance of RFID tagging will not occur in most
industries until 2015
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FIGURE 5-12 Passive RFID tag
Courtesy, Moeller-Horcher. Source: Metro
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Creating an Ultimate Consumer Orientation in the Supply Chain
Ultimate consumer orientation
Customer focus difficult to maintain
Michelin North America
Pioneered use of Internet technology
To go beyond next step in its value chain
1995: launched electronic commerce initiative
BIB NET extranet
Allowed dealer access to tire specifications, inventory status,
and promotional information
Through simple-to-use Web browser interface
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Building and Maintaining Trust in
the Supply Chain

Major issue: developing trust
Key elements
Continual communication and information sharing
Internet and the Web
Provide excellent ways to communicate and share information
Offer new avenues for building trust
Maintain contact with their customers
Afford buyers instant access to their sales representatives
Provide comprehensive information quickly
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Electronic Marketplaces and
Portals
Vertical portals (vortals)
Industry-focused hubs
Offer marketplaces and auctions for contact and business
transactions
Doorway (or portal) to the Internet for industry members
Vertically integrated: each hub services just one industry
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Independent Industry Marketplaces
First vertical portals
Trading exchanges focused on a particular industry
Independent industry marketplaces
Industry marketplaces: focused on a single industry
Independent exchanges: not controlled by established buyer or
seller in the industry

Public marketplaces: open to new buyers and sellers just
entering the industry
Ventro opened industry marketplace Chemdex
Trade in bulk chemicals
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Independent Industry Marketplaces (cont’d.)
SciQuest founded industry marketplace in life science chemicals
By mid-2000: more than 2200 independent exchanges
By 2010: fewer than 70 industry marketplaces still operating
Due to lack of venture capital and profits
B2B marketplace models gradually replaced independent
marketplaces
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Private Stores and Customer Portals
Large established sellers feared industry marketplaces diluting
power
Large sellers have customer portal B2B sites
Offer private stores along with services
B2B private store has password-protected entrance
Offers negotiated price reductions on limited product selection
If large established sellers participated in industry marketplaces
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Private Company Marketplaces
Large companies purchasing from relatively small vendors
Exert power in purchasing negotiations
Using e-procurement software
Allows companies to manage purchasing function through Web
interface
Automates authorizations, other steps
Includes marketplace functions
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Private Company Marketplaces (cont’d.)
Larger companies:
Reluctant to abandon investments in e-procurement software
Make software work with industry marketplaces’ software
Private company marketplace
Marketplace providing auctions, request for quote postings,
other features
For companies that want to operate their own marketplaces
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Industry Consortia-Sponsored Marketplaces
Companies with strong negotiating positions in their industry
supply chains
Not enough power to force suppliers to deal with them through
a private company marketplace
Industry consortia-sponsored marketplace
Marketplace formed by several large buyers in a particular
industry
Characteristics of five general marketplace forms in B2B
electronic commerce today (Figure 5-13)
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FIGURE 5-13 Characteristics of B2B marketplaces
Adapted from: Raisch, W. 2001. The eMarketplace, p. 225.
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Summary
Using Internet and Web technologies
Improves purchasing and logistics primary activities
Improves support activities
Companies and other large organizations extending reach of

enterprise planning and control activities
Beyond organization’s legal definitions
Emerging network model of organization
Describes growth in interorganizational communications and
coordination
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Summary (cont’d.)
History of EDI and how it works
Freight companies first introduced electronic commerce
Spread of EDI to virtually all large companies
Requires smaller businesses to seek an affordable way to
participate in EDI
Internet providing inexpensive communications channel EDI
lacked
Important force driving supply chain management technique
adoption
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Summary (cont’d.)
Supply chain management
Incorporates several elements

Implemented, enhanced through Internet and Web use
Industry electronic marketplaces led to B2B electronic
commerce models
Private stores
Customer portals
Private marketplaces
Industry consortia-sponsored marketplace
Models coexist with industry marketplace model
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Electronic Commerce
Tenth Edition
Chapter 6
Social Networking, Mobile Commerce, and Online Auctions
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Learning Objectives
In this chapter, you will learn:
How social networking emerged from virtual communities
How social networking tools such as blogs are used in online
business activities
About mobile technologies that are now used to do business
online

How online auctions and auction-related businesses have
become a major new commercial activity introduced as part of
electronic commerce
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From Virtual Communities to Social Networks
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
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Virtual Communities
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
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Virtual Communities (cont’d.)
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
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Early Web Communities
1985: WELL (“whole earth ‘lectronic 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
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Early Web Communities (cont’d.)
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
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Social Networking Emerges
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
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Social Networking Emerges (cont’d.)
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)
Google+
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Basic idea behind social networking
People invited to join by existing members
Site provides directory

New members work through friends established in the
community
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FIGURE 6-1 Social networking Web sites
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FIGURE 6-2 Leading social networking sites around the world
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Web logs (Blogs)
Web sites containing individual commentary on current events
or specific issues
Form of social networking site

Twitter: microblog
Very informal; tweets limited to 140 characters
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
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Retailers embracing blogs
Way to engage visitors not ready to buy from site
Marketing and supply managers saw social networking benefits
of enhancing B2B relationships
Business uses
CNN
Blog information included in television newscasts
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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)
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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
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Idea-based social networking
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
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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
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Revenue Models for
Social Networking Sites
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
Web portal goal: every Web surfer’s doorway to Web
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Revenue Models for
Social Networking Sites (cont’d.)
Advertising-supported social networking sites
Smaller sites with specialized appeal
Can draw enough visitors to generate significant advertising
revenue
Example: I Can Has Cheezburger 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
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FIGURE 6-3 Popularity and stickiness of leading Web sites
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Revenue Models for
Advertising-supported social networking sites (cont’d.)
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
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Revenue Models for
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
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Revenue Models for
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
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Revenue Models for
Microlending sites
Function as clearinghouses for microlending activity
Microlending
Practice of lending very small amounts of money
Lend to people starting or operating small businesses
(especially in developing countries)
Microlending key element
Working within social network of borrowers
Provide support, element of pressure to repay
Examples: Kiva and MicroPlace
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Revenue Models for
Internal social networking
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
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Mobile Commerce
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
Potential for mobile commerce (m-commerce)
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Mobile Operating Systems
Japan and Southeast Asia mobile commerce
Much larger online business activity
Had high-capacity networks before U.S.
NTT DoCoMo, Japan’s largest phone company
Pioneered mobile commerce in 2000
U.S. mobile commerce beginning in 2008
Introduction of smart phones and high-capacity networks
Smart phone examples: Apple iPhone, Palm Pre, several
BlackBerry models
Android operating system

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FIGURE 6-4 Smart phones come in a range of different styles
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Mobile Operating Systems (cont’d.)
Mobile commerce browser display options
Wireless Application Protocol (WAP)
Allows Web pages formatted in HTML to be displayed on
small-screen devices
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
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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
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Android operating system
Most popular and fastest growing third-party operating system
Developed by Google
Open source
Smart phone operating system
Cannot be deleted/switched by user
Operating system modifications
Jailbreaking (Apple iphone’s operating system)
Rooting (Android operating system)
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FIGURE 6-5 Smart phones operating systems: U.S. market
shares
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Mobile Apps
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 (apps)
Apple turned old revenue strategy on its head
AT&T agreed to be sole carrier for iPhone
Apple Apps for iPhone online store
Independent developers create apps and sell them
BlackBerry and Palm followed Apple’s lead
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Mobile Apps (cont’d.)
Recap from Chapter 4
Some mobile app sellers include advertising element
Messages displayed from advertisers
Part of the app screen or in a separate screen
Mobile apps’ advertising space marketed in same way as Web
sites’ banner advertising

Companies moving to mobile commerce
Determine suitability of Web site to mobile devices
May be pertinent to develop separate Web site optimized for
mobile users
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Mobile Apps (cont’d.)
Mobile phones for online banking
In early stages in the United States
Physicians using smart phones
Read EKGs, managing diabetic patients
Medical students: Epocrates (drug information database)
Phones’ global positioning satellite (GPS) service capabilities
Allow mobile business opportunities
Apps tools/resources
Swebapps, App Inventor, TaskCity
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Tablet Devices
Tablet devices
2010: Apple’s iPad introduced
Smaller than laptop computer; larger than smart phone
Wireless phone carrier’s service or local wireless network
Internet connection
Larger screen size better suited for online consumer products

purchases
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Mobile Payment Apps
Mobile wallets
Mobile phones functioning as credit cards
Japan’s NTT DoCoMo phones combined capabilities
Generate significant business
Widespread credit card use in U.S. has limited use of mobile
phone payments
2011: Phone readers offered by American Express, Visa,
MasterCard
Google Wallet for Android phones introduced
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Online Auctions
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
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Auction Basics
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
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Auction Basics (cont’d.)
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)

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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
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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

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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
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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)
LookSmart stock repurchase
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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
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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
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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
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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
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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
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FIGURE 6-6 Key characteristics of seven major auction types
Second level
Third level
Fourth level
Fifth level
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Online Auctions and
Related Businesses
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
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Online Auctions and
Related Businesses (cont’d.)
General consumer auctions
eBay: registration required, seller fees, rating system
Seller’s risk: buyer uses stolen credit card; 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
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Online Auctions and
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
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Online Auctions and
Competition in general consumer auctions
eBay’s success due to unspecified audience
Also spends $1 billion per 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
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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%)
Online Auctions and
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Specialty consumer auctions
Identify special-interest market targets
Create specialized Web auction sites
No need to compete with eBay
Examples:
JustBeads.com, Cigarbid.com, Winebid
Online Auctions and
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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

Online Auctions and
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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
Online Auctions and
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Group shopping sites
Also known as group purchasing site
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
Online Auctions and

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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
Mercata and LetsBuyIt sites closed
Successful sites: Groupon, LivingSocial, Gilt
Online Auctions and
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Business-to-business auctions
Evolved to meet specific existing need
Excess inventory disposal (manufacturing)
Two methods
Liquidation specialists: find buyers for unusable items
Liquidation brokers: firms that finds buyers for items
Online auctions

Logical extension of these inventory liquidation activities to a
new and more efficient channel (Internet)
Online Auctions and
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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
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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

Online Auctions and
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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
Online Auctions and
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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

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FIGURE 6-7 Supply chain characteristics and reverse auctions
Second level
Third level
Fourth level
Fifth level
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Auction-Related Services
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
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Auction-Related Services (cont’d.)
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
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Auction escrow services (cont’d.)
Examples: Escrow.com, eDeposit
May sell auction buyer’s insurance
Protect buyers from nondelivery 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
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Auction directory and information services
Example: AuctionBytes
Publishes e-mail newsletter
Online auction industry articles
Example: Price Watch
Advertiser-supported site
Advertisers post current selling prices
Computer hardware, software, electronics
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Auction software
Target: sellers
Helps manage online auctions
Example: AuctionHawk and Vendio
Seller management software and services
Automate tasks
Create attractive page layouts
Manage hundreds of auctions
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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
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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
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Target: people and small businesses
Want to use online auction
Do not have skills, time to become a seller

Take item and create online auction for that item
Handle transaction
Remit proceeds balance (after deducting fee)
Main auction consignment businesses
ePowerSellers, iSold It
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Summary
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
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Summary (cont’d.)
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
77

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