Ecommerce Chap 05

Chapter 5
EC in Service Industries

© Prentice Hall, 2000 1

Learning Objectives
Understand how broker-based services are
performed online
Describe online travel tourism services and
their benefits
Discuss the impact of EC on the travel
industry
Describe the online job market, its drivers
and benefits
Describe the electronic real estate market
Understand how stock trading is done online
and its benefits © Prentice Hall, 2000 2

Learning Objectives (cont.)
Discuss cyberbanking, its drivers and
capabilities
Discuss implementation issues of online
financial services and its future
Describe electronic auctions, their benefits,
implementation, and impacts
Describe some innovative applications in the
service industries
Discuss the future of intermediaries and their
role in cyberspace

Opening Vignette:
Ordering Journals Electronically

How a large university automated the
purchasing of magazines and journals,
saving $365,000/year
Direct Marketing: Buyer-to-seller; orders and
payments
Market maker charges $5/transaction Vs.
about $40 (conventional agents)
Ordering time reduced by up to 80%

4

Opening Vignette:
Ordering Journals Electronically (cont.)
EDI Rowe.Com System EDI,
University Order + Internet
Payment BANC ONE Order Publisher
of California
Browsing
Electronic OM Transact
Payment
Catalogs EDI Payments
Automated
Buyer’s Publisher’s
Clearing
Bank Bank
House (ACH)
$5 Fee
Fee
BANC ONE Rowe. Com’s
Account
Buyer Intermediary Seller
Electronic Commerce in Magazine Ordering
5

Broker-Based Services
Brokers work as intermediaries between buyers
and sellers
Agents basically make the markets
Agents provide many services
Most of the value-added tasks of brokers can be
automated
Major electronic agent-based services
travel
employment electronic auctions
at-home banking
real estate
insurance
stocks

Broker-Based Services (cont.)
Service Industries Vs. Manufacturing and
Product’s Retailing
Service Industries
pure EC ⇒ substantially reduced cost
bank and brokerage houses
• possible digitization of the entire process
travel and real estate agents
• viewing an online video clip or seeing photos of a hotel
or a house for sale
Manufacturing and Product’s Retailing
physical delivery cost may be high


Travel and Tourism Services

By the year 2000, close to 25 percent of all
business-to customer Internet commerce will
be related to tourism
The Internet is an ideal place to plan,
explore, and arrange almost any trip
IBM’s vision of seamless electronic travel
using smart cards


Travel and Tourism Services (cont.)
Services Provided
Providing maps
Information and booking
Pictures of major
of airlines, hotels, cars,
attractions
and even golf courses
Information about
Fare comparisons entertainment and ticket
purchasing (such as
360 degree www.ticketmaster.com)
video tours of Tips provided by people
top destinations that experienced certain
Electronic Travel situations (like a visa
magazine Converting 200 problem)
currencies

Frequent
Fare tracker (free
Special discount flier deals
e-mail alerts on
information Restaurant reviews
low fares)
Current status
Chat rooms of flights Major international news
and bulletin (real time)
Worldwide
boards business and Special
Travel news
places locator interest
Shopping for travel vacations
Bed and breakfast
accessories and
recommendations E-mail to
books intermediary
Driving directions
Experts’ options
in the US Weather watch

Benefits and Limitations

Benefits Limitations
Free information is Not all people use
tremendous the Internet
Free information is It may take a long
accessible anytime time to find what
Substantial discounts you want
People are still
reluctant to
provide credit
card numbers

Corporate Travel: New Business Model
The Impact of EC on the Travel Industry
Porter’s framework of competitive advantage (the
five forces)
Focus:
environment
competitive responses
firm’s strategy
The industry is clearly transformed
Taking away some functions traditionally performed
by travel agents


Impacts on the industry
Multimedia helps customers understand the
products
Offering of lower-cost trips
Providing a more personalized service
Saving money in a paperless environment
Increasing the convenience of getting
information at home
Supporting a customer-focused strategy (such
as targeted advertisement and integration of
products); push information to customers


Travel agencies, as we know them today, will
disappear
Only their complex value-added activities will
not be automated
These complex activities will be performed
by a new breed of intermediates



The Future
Collaborative organizational process performed
by multiple organizational intelligent agents
Acting autonomously
Work cooperatively
Work collectively to achieve the collective goal
Example — How will your next vacation be
planned, booked and paid for?


The Employment Placement Market

Job markets
Employers are looking for employees with
specific skills, and individuals are looking for a
job
Very volatile market
Moved to the Internet
Millions of job seekers, hundred of thousands of
jobs


The Employment Placement Market (cont.)

Shortcomings of the Non-Internet Job Market
Cost—Classified ads are expensive.
Life cycle— Unless renewed, at an additional cost, the
life of the ads is only days or weeks.
Place— Most ads are local. Nationwide ads are very
expensive. International ads are even more expensive.
Minimum information— Because of the high cost, the
information provided is minimal and may not appeal to
some job seekers.
Search— It is very time consuming for individuals to find
all relevant newspapers. A trip to a library results in
finding only major out of town newspapers.


Finding applicants— Most job seekers, in the pre Internet
era, did not place ads about their availability. Some sent
unsolicited letters with resumes. This situation made it difficult
for companies to find employees with special skills. They had to
use employment agencies and pay them high commissions.
Matching— It was difficult to match candidates to open jobs
as well as to match supply and demand.
Lost and dated material— Some applications or letters
of response tended to get lost, or arrive late. A letter in a big
city may travel two weeks to arrive at a distance of a few
blocks.
Speed— Communication by mail is slow and so is the
processing of a large number of applications. Frequently,
employers lose good employees, since by the time the
application is processed, the applicant had taken another job.
Similarly, applicants accept less desirable jobs because they
are afraid to wait too long.


The Internet Job Market
The Internet offers a perfect environment; it is
especially effective for technology-oriented
jobs.
Job seekers
Job offerers
Recruiting firms
Government agencies and institutions



The Advantage of the Electronic Job Market
For job seekers
Ability to find very detailed and timely information on a
large number of jobs world-wide
Ability to quickly communicate with potential employers
Ability to post resumes for large-volume distribution
Ability to search for jobs quickly from any place at any
time
Obtain several support services at no cost
• writing resume ⇒ career development ⇒ how to interview
Find employer profile & industry guides
• www.valuereports.com


For employers
Ability to advertise to a large number of job
seekers
Ability to save on advertisement costs
Lower the cost of processing (using electronic
application forms)
Ability to provide greater ‘equal opportunity’ for job
seekers
Ability to find highly skilled employees
Ability to conduct tests quickly, online
Ability to change and update ads quickly
Ability to fill up positions rapidly
Interviewing from distance


The Limitations of the Electronic Job Markets

Many people do not use the Internet
Security
Privacy
Lack of face-to-face contact


Major Services Available on the Net
Finding a job
Writing and posting resumes
Career planning
Newsgroups
The Intranet Job Market
Most companies organize an internal electronic
job market
Openings are posted for employees to look at,
and search engines enable managers to identify
talents even if the people were not actively
looking for a job change

Real Estate: From Virtual Realtors to Virtual
Reality

You can view many properties on the screen
You can sort and organize properties
You can find detailed information about the
properties
You can search, compare and apply for
loans


Reality (cont.)

Real Estate Applications
International Real Estate Directory and News is
the most comprehensive Web site
www.ired.com
National listing of real estate properties
www.cyberhomes.com
Commercial real estate directory
www.comspace.com
The complete real estate software catalog
www.mnink.com/re/cover.html


Reality (cont.)

Mortgage comparisons and calculations and other
financing information; mortgage application
www.eloan.com ;
www.homeshark.com
Searching residential real estate in multiple databases
www.homescout.com
Real estate related maps are available on:
www.mapquest.com
Automating the closing of real estate transactions,
which is overwhelmed by paperwork


Reality (cont.)

The National Association of Realtors,
www.realtor.com has links to property listings in all
major US cities
To find how much house you can afford,
consult: www.replace.com/links.html
Mortgage brokers can pass on loan applications
over the Net and receive bids from lenders that
want to issue the mortgages


Reality (cont.)

To find mortgage interest rates online use:
www.bankrate.com
www.eloan.com
www.quickenmortgage.com

To rent an apartment or a house try www.rent.net
Several additional services are available
including a virtual walk through of some listings


Trading Stocks Online

Costs between $7 and $20 per transaction (Vs.
$30 - $100 in traditional brokerage)
No waiting on busy telephone lines
No oral communication, less chance for errors
Place orders from anywhere, any time, day or
night
No biased broker to push you
Considerable amount of free information

Trading Stocks Online (cont.)
E*Trade, Schwab Online
Order is placed, as The order is routed to
described earlier, on an Schwab’s host computer
electronic form from in San Francisco and,
any computer with within a split second,
access to the Web, forwarded to the trading
anywhere in the world. floor of the New York
Sock Exchange (NTSE).
Yes No
Order is transferred to Is the order larger than Order is automatically
Schwab’s floor brokers 30,000 shares? transferred to a
at the NYSE, who take specialist and fulfilled
it to the specialist, who based on the bid and ask
finds the best price and, prices.
if satisfactory, the In a few seconds, (most
order is fulfilled. cases), Schwab
confirms that trade and
the price, relaying the
information to the
investor’s PC.

Investment Information
For municipal bond pricing see :
www.bondmarkets.org and www.investinbonds.com
For overall market information and many links see:
www.cyberinvest.com
For free Gurus’ advice see:
www.upside.com
For stock screening and evaluation try:
www.marketguide.com
www.aaii.com provides articles from the Journal of
the American Association of Individual Investors

pomaven.com reports the latest findings and pricing
of IPOs
For chart lovers try www.bigcharts.com
For mutual funds evaluation and other interesting
investment information see www.morningstar.net
Almost anything that you need will be provided to
you by www.yahoo.com
www.firstcall.com provides earning estimates and
much more
Initial public Offerings (IPOs)
Spring Street Brewing

Cyberbanking and Personal Finance

Electronic banking
Saves time and
money for users
Offers an inexpensive
alternative to branch
banking
Application Case:
Cyberbanking at
Wells Fargo


Cyberbanking and Personal Finance (cont.)
Implementation Issues in Banking and Online
Trading
Securing Financial Transactions
Application Case: Security at NationsBank

B of A
Web Site

Customer’s Encrypted External Logon Screen B of A Internal B of A
Computer SSL Session Firewall •User ID Web Server Firewall Application
& Digital •User Password Server
Certificate
Verification
Initiated Bank of America Security System

Cyberbanking and Personal Finance (cont.)

Using the Extranet
Imaging Systems
Pricing Online Vs. Offline Services
The Future of Banking
building alliances quickly with banks, and software
vendors, and information providers
effective outsourcing without neglecting to build in-
house skills, particularly with respect to customer
information systems
focusing on the profitable customers to provide
broad channels for services and products
keeping a central role in the payment environment

Alternative Strategies for Banking
Customers’ Agents— banks unable to achieve economies of scale
Offer customers the widest possible choices, including products
from multiple sources, and provide the customers with integrated
information services
Product Manufacturers— banks able to achieve economies of
scale
It will strengthen a trend that can already be seen in a number of
product segments and in core processing services for small and
medium sized institutions
Integrated Players— banks with a strong brand and position from
manufacturing to delivery
Many banks will adopt a hybrid strategy, but every player needs
to make crucial decisions about which areas are strategically too
risky to outsource and which capabilities need to be built up in-
house

Billing Online
Automatic transfer of mortgages
This method has existed for several years. The
payer authorizes its bank to pay the mortgage,
including tax escrow payments.
Automatic transfer of funds to pay monthly
utility bills
As of fall 1997, the city of Long Beach has
allowed its customers to pay their gas and water
bills automatically form their bank accounts.
In 1999, many utility companies worldwide,
including those in Hong Kong, allow customers to
pay from bank accounts, or ATMs.

Billing Online (cont.)
Paying bills from online banking account
Such payments can be made into any bank
account. Many people pay their monthly rent and
other bills directly into the payee’s bank
accounts.

Bill Consolidator Billers

Phone
Credit Card

Utility
Consumer



A merchant-to-customer direct billing
Under this model, a merchant like American Express
posts bills on its Web site, where customers can
view and pay them . This means that the customers
have to go to many Web sites to pay all their bills.
Several utilities in Los Angeles allow customers to
pay bills on the utilities’ Web site, charging
customers 20 cents per transaction, which is less
than the price of a postage stamp.


Using an intermediary
According to this model, a third party like MSFDS
(Microsoft and First Data Corporation)
consolidates all bills related to each customer in
one site, and in a standard format. Collecting a
certain commission, this intermediary makes it
convenient both for the payee and payer to
complete transactions. This model is of interest
to vendors such as E*Trade, and Intuit.
Personal finance online
Available from many banks and other financial
institutions, frequently free of charge.

Auctions: From Theory to Practice

Used when the conventional marketing
channels are ineffective or inefficient
Offer trading opportunities for both buyers and
sellers which are not available in the
conventional channels
Internet provides much cheaper infrastructure
with many more involved sellers and buyers
Individual consumers and corporations alike can
participate in this rapidly growing and very
convenient form of electronic commerce

Auctions: From Theory to Practice (cont.)
Types of Auctions
Auction Co-ordination Price Allocation Distribution
Type Mechanism Discovery Mechanism Mechanism
Buyer Short term acquisition Often experts/ Bargain hunting, Bargain hunting,
Role of resources, e.g. for professional collectors gambling motive gambling motive;
demand peaks, auction trying to acquire rare possible side motive:
as a mechanism to items at a reasonable charity
achieve an equilibrium price
Supplier Short term allocation of Exposing items for Clearance of Attention, direct
Role resources, load balance sale to a sufficient inventory sales channel, public
breadth of demand, relations; possible
hope for a high price side motive: charity

Auctioneer/ Often electronic auction Achieve high breadth Achieve high breadth Limited role because
Intermedi- without auctioneer and depth of the and depth of the of 1:n supplier -
ary auctions, high trading auctions, high trading buyer relation;
Role volume results in high volume results in high possible function as
returns, competitive returns, competitive service provider for
advantage over other advantage over other the supplier side
auctions auctions


Limitations of traditional auctions
Last only a few minutes for each item sold
Give buyers little time to make a decision
The bidders do not have much time to
examine the goods
Exclude many potential bidders
May be complicated for sellers to move goods
to the auction site
Commissions are fairly high (rent, advertising,
auctioneer and other employees)

Electronic Auctions
Early auctioning done on local area networks
the auctioning of pigs in Taiwan and Singapore
the auctioning of flowers in Holland
the auctioning of cars in Japan
Auctions on the Internet started in 1995
similar to offline auctions, except for the fact that they are
done on a computer
some last days, others a short time
detailed information is available
start bidding by sending e-mail or filling out an electronic
form
names of bidders are kept coded to maintain privacy


Electronic Auctions
Auctioning methods
Yankee method
Dutch (Reverse bidding) method
“Straight sale” method

Examples
www.usaweb.com/auction.html ; a directory of
sites, search
Onsale, eBay, uBid


Benefits and Limitations
Benefits Limitations
For seller Inability to
• Sells goods efficiently physically see the
• Sells goods with little action
items
or effort
• Creates a greater range of Possibility of
potential buyers fraud
• Sells excess inventories
Less competitive
quickly via this process
atmosphere may
For buyers prevail on the Net
• Gets a huge variety of goods
• Finds quality goods for largely
discounted prices

Impacts
Parameter Impact of the Web
Auctioneer Lower entry barriers, opportunity for direct sales
Access rules Customizable, theoretically millions of potential customers
can be reached
Items Focused product segments can be auctioned off, the
auctioned technology extends the complexity of the product
description
Trading rules The trading rules reflect the lack of a guaranteed service

Execution For digital products the entire trading cycle can be
process handled on the Web; for physical products the trading
process and the physical logistics of the trade objects can
be separated, leading to a reduction of costs


Online Publishing
The electronic delivery of newspapers,
magazines, news, and other information
through the Internet
Online Publishing Today and Tomorrow
Today— mainly used for disseminating
information and for conducting sales
transactions interactively
Tomorrow— include more customized material
that the reader will receive free, or will pay for


Online Publishing (cont.)
Publishing Modes
newspapers, magazines, news, textbooks,
music, artwork, video clips, and movies
Publishing Methods
online archive approach— a digital archive such
as library catalogs and bibliographic databases
new medium approach— add extra
comprehensiveness to any issue or topic
publishing intermediation approach— an online
directory for news services
dynamic or just-in-time approach— create
content in real-time and transmitted on the fly

Knowledge Dissemination
Virtual Teaching and Universities
Many universities are offering limited courses
and degrees but use innovative teaching
methods and multimedia support
MBA program in Hong Kong
lectures are delivered as an interactive TV (iTV)
students can decide what and when they want to
‘attend’ the lecture
lecture, support material, exercises etc. are
provided on the Web


Knowledge Dissemination (cont.)
Online Consulting
Medical advice— provide consultation with top
experts
Management consulting— provide accumulated
expertise from knowledge bases
Legal advice— delivery of legal consultation services
to business has considerable prospects
Financial advice— offer extensive financial advice
Other service online
insurance, healthcare, future exchanges, matchmaking,
venture capital, finding a college, digital delivery of
documents, and electronic stamps

The Impact on Intermediaries and
Their Changing Roles

Change the role of agents to :
Assist in comparison shopping from
multiple sources
Providing total solutions by combining
services from several vendors
Providing certifications and trusted third
party control and evaluation systems


Their Changing Roles (cont.)
Issues that could impact the future of the
intermediaries
The success of intelligent agents— In addition to
the travel intelligent agents, there are agents to
support job matching and to interpret resumes.
The more intelligent the software agents will be,
the less you will need human agents.
Customer attitudes and behavior are important—
If you have good experience with online
insurance or stock purchasing, or with virtual
travel agencies would you ever return to use a
human agent?

Their Changing Roles (cont.)

New roles of electronic marketing intermediaries
To extend what we are familiar with in physical
markets to the virtual world (e.g., search services
and electronic malls)
To extend payment clearing functions into the
Internet (e.g. electronic cash and digital credit card
services)


Managerial Issues

Effectiveness of out-of-town recruitment

Privacy may be in danger

International legal issues may impact services
more than products

Ethical issues are prevalent in services

The intermediaries and their roles are changing


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