E-Commerce 2021 Business, Technology, and Society, 16th Edition Kenneth C Laudon Instructor Manuals

Type:

Instructor Manual

Resource:

E-Commerce 2021 Business, Technology, and Society

Edition:

16th Edition

Author(s):

Kenneth C. Laudon Carol Guercio Traver

Instructor's Resource Manual Chapter 1: The Couple is a Unique System

•

E-commerce 2021: business. technology. society Sixteenth Edition Kenneth Laudon, New York University Carol Traver, Azimuth Interactive, Inc.

1 Instructor’s Manual: Chapter 1 The Revolution Is Just Beginning

Learning Objectives After reading this chapter, your students should be able to: • Understand why it is important to study e-commerce.

• Define e-commerce, understand how e-commerce differs from e-business, identify the primary technological building blocks underlying ecommerce, and recognize major current themes in e-commerce.

• Identify and describe the unique features of e-commerce technology and discuss their business significance.

• Describe the major types of e-commerce.

• Understand the evolution of e-commerce from its early years to today.

• Describe the major themes underlying the study of e-commerce.

• Identify the major academic disciplines contributing to e-commerce.

Key Terms business-to-business (B2B) e-commerce, p. 23 business-to-consumer (B2C) e-commerce, p. 22 consumer-to-consumer (C2C) e-commerce, p. 24 customization, p. 20 disintermediation, p. 29 e-business, p. 9 e-commerce, p. 9 first mover, p. 29 friction-free commerce, p. 29 information asymmetry, p. 17 information density, p. 20 interactivity, p. 19 Internet, p. 10 local e-commerce, p. 26 marketplace, p. 18 marketspace, p. 18 mobile e-commerce (m-commerce), p. 25 mobile platform, p. 11 network effect, p. 30 personalization, p. 20 reach, p. 18 richness, p. 19 social e-commerce, p. 25 ubiquity, p. 18 universal standards, p. 19 Web 2.0, p. 31 World Wide Web (the Web), p.11

.

2 Brief Chapter Outline Opening Case: Everything on Demand: The “Uberization” of E-commerce 1.1 The First Thirty Seconds: Why You Should Study E-commerce 1.2

Introduction to E-commerce What Is E-commerce?

The Difference between E-commerce and E-business Technological Building Blocks Underlying E-commerce: The Internet, Web, and Mobile Platform Insight on Technology: Will Apps Make the Web Irrelevant?

Major Trends in E-commerce

1.3

Unique Features of E-commerce Technology Ubiquity Global Reach Universal Standards Richness Interactivity Information Density Personalization and Customization Social Technology: User-Generated Content and Social Networks

1.4

Types of E-commerce Business-to-Consumer (B2C) E-commerce Business-to-Business (B2B) E-commerce Consumer-to-Consumer (C2C) E-commerce Mobile E-commerce (M-commerce) Social E-commerce Local E-commerce

1.5

E-commerce: A Brief History E-commerce 1995–2000: Invention E-commerce 2001–2006: Consolidation E-commerce 2007–Present: Reinvention Insight on Business: Y Combinator’s Startup Boot Camp Assessing E-commerce: Successes, Surprises, and Failures

1.6

Understanding E-commerce: Organizing Themes Technology: Infrastructure Business: Basic Concepts Society: Taming the Juggernaut Insight on Society: Facebook and the Age of Privacy

1.7

Academic Disciplines Concerned with E-commerce Technical Approaches Behavioral Approaches .

3

1.8

Careers in E-commerce The Company Position: Category Specialist in the E-commerce Retail Program Qualifications/Skills Preparing for the Interview Possible First Interview Questions

1.9

Case Study: Pinterest: A Picture Is Worth a Thousand Words

1.10

Review Key Concepts Questions Projects References

Figures Figure 1.1 Figure 1.2 Figure 1.3 Figure 1.4 Figure 1.5 Figure 1.6 Figure 1.7 Figure 1.8 Figure 1.9 Figure 1.10 Figure 1.11

Tables Table 1.1 Table 1.2 Table 1.3 Table 1.4

The Difference between E-commerce and E-business, p. 10 The Deep Web, p. 11 Internet Access in the United States, 2020, p. 12 Eight Unique Features of E-commerce Technology, p. 17 (User-controlled animation in eText) The Growth of B2C E-commerce in the United States, p. 22 Room to Grow, p. 23 (User-controlled animation in eText) The Growth of B2B E-commerce in the United States, p. 24 The Growth of M-commerce in the United States, p. 25 The Relative Size of Different Types of E-commerce in 2020, p. 26 (Usercontrolled animation in eText) Periods in the Development of E-commerce, p. 28 (Whiteboard video in eText) The Internet and the Evolution of Corporate Computing, p. 38 (Drag-anddrop exercise in eText)

Major Trends in E-commerce 2020–2021, p. 15 Business Significance of the Eight Unique Features of E-commerce Technology, p. 21 Major Types of E-commerce, p. 27 Evolution of E-commerce, p. 32

Teaching Suggestions One of the biggest challenges that instructors face in teaching a course on e-commerce is helping students make sense of a very complex phenomenon that involves considerations of markets, firms, consumer behavior, and technology, among others. E-commerce is continually evolving and has become a thriving marketplace not only for products but also for services and content, such as social networks, user-generated content (video, .

4 photos, and blogs), and, of course, entertainment such as movies, TV, video, music, and games. E-commerce is as much a sociological phenomenon as it is a business and technological phenomenon. In addition to the social aspect of e-commerce, two major themes in the text are the full emergence of the mobile platform and the increasing emphasis on local e-commerce. We weave social, mobile, and local topics throughout the text into all chapters, because they are increasingly impacting all aspects of e-commerce.

We also discuss the impact of the Covid-19 pandemic on e-commerce throughout the text. The pandemic is expected to have a broad and lasting impact on many aspects of life, ranging from how businesses operate, to consumer behavior, to social and cultural life.

The updated opening case, Everything on Demand: The “Uberization” of E-commerce, captures some of these changes in the foundations of e-commerce. Uber is at the forefront of the on-demand services business model that is increasingly being used in many different arenas, from transportation, to lodging, to personal services. The case illustrates many of the trends that will be impacting e-commerce over the next few years, including the use of smartphones and tablets for purchasing goods and services, the growth of contract employment, and the disruption of traditional business models. You can also use the case as an introduction to some of the social, legal, and ethical issues facing ecommerce companies, such as the question of whether people who work for a technology platform like Uber are really employees; whether local governments should regulate ondemand service providers to ensure public safety; and the implications of the on-demand business model spreading throughout the economy and labor force. As you discuss the case with your students, you could also pose the following questions to them: • Have you used Uber or any other on-demand service companies?

• What is the appeal of these companies for users and providers?

• Are there any negative consequences to the use of on-demand services like Uber and Airbnb?

• How has the Covid-19 pandemic impacted Uber and other on-demand services?

Key Points We begin the book by addressing an important student concern in Section 1.1: why they should study e-commerce. E-commerce is the fastest growing retail, service, and entertainment channel. Although e-commerce revenues were relatively flat in 2008–2009 during the recession, growth resumed in 2010, and has continued at double-digit rates since then, outpacing traditional retail by a factor of two or three. The Covid-19 pandemic has accelerated the shift from traditional retail to e-commerce even further.

There are thousands of job opportunities in e-commerce as traditional firms move onto the Web. You should let students know that the e-commerce revolution is still in the beginning phase. They may have missed the very early tumultuous years, but there are many powerful, commercial, and technological forces that will push e-commerce along in the next decades. To emphasize this, you can highlight the bullet points noted in Table 1.1.

.

5 Much of the first chapter is aimed at getting some basic definitions straight. The ecommerce field is filled with language that some students might find confusing. In Section 1.2, we distinguish between e-commerce and e-business to set the focus clearly on commercial transactions over the Internet. We also briefly introduce the Internet, the Web, and the mobile platform as the technological building blocks of e-commerce.

Figure 1.3 highlights the growing use of mobile devices to access the Internet, with about 93% of Americans using a mobile device to do so at least some of the time.

The updated Insight on Technology case, Will Apps Make the Web Irrelevant?, looks at the rise in importance of apps as compared to the Web in the e-commerce landscape.

Class discussion questions for this case might include: • What are the advantages and disadvantages of apps, compared with websites, for mobile users?

• What are the benefits of apps for content owners and creators?

• What are progressive web apps (PWAs) and how do they differ from native apps?

• Will apps eventually make the Web irrelevant? Why or why not?

In Section 1.3, we examine the unique features of e-commerce technology. We use a variation of Table 1.2 throughout the text in various contexts, so it’s a good idea to familiarize students with it. Ask students if they think some dimension is missing from the table, or to compare these features with, say, television.

It’s also important for students to understand the differences between the various types of e-commerce, such as B2C and B2B. A short preview of this topic is covered in Section 1.4. Figure 1.5 illustrates the growth of B2C e-commerce, from its inception in 1995 through 2024, when it is projected to top $1.8 trillion. Figure 1.6 focuses solely on the online retail component of B2C e-commerce. The tall tree representing total retail revenues compared to the smaller sapling depicting online retail should help to drive home to students the fact that online retail still comprises a relatively small part of total retail and thus has much room to grow. This is a good time to further discuss the impact of the Covid-19 pandemic, which is expected to continue to accelerate this growth.

Figure 1.6 is presented as a user-controlled animation in the eText for further emphasis.

Figure 1.9 graphically illustrates the relative size of different types of e-commerce, to help drive home the point that although B2C, and social-mobile-local e-commerce may be the types students are most familiar with, or hear about the most, they are all dwarfed

by B2B. An important distinction in Chapter 1 is the contrast between the early years of ecommerce and e-commerce today. We discuss e-commerce in the context of three stages: an early period of invention, a period of consolidation, and then today’s e-commerce, which we refer to as a period of “reinvention.” Figure 1.10 places these periods along a timeline, while Table 1.4 describes the key dimensions of each of these periods. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 1.10 and this topic. .

6

The discussion of the early years of e-commerce and its initial promise in Section 1.5 allows you to introduce some key terms such as disintermediation, friction-free commerce, first mover (versus fast follower), and network effect. These terms appear again and again in later chapters.

The updated Insight on Business case, Y Combinator’s Startup Boot Camp, provides an interesting look at Y Combinator (YC), a startup incubator, including changes to its process required by the Covid-19 pandemic. Students might be inspired by some of the companies that have participated in YC’s boot camp and are now significant successes, such as digital payment service provider Stripe, on-demand room rental service Airbnb, on-demand grocery delivery service Instacart, on-demand restaurant delivery service DoorDash, cloud-based file storage service Dropbox, and video game streaming network Twitch, among others. Class discussion questions for this case might include: • Why do you think investors today are still interested in investing in startups?

• What are the benefits of investing in a company that is a graduate of a YC boot camp?

• Is an incubator the best solution for startups to find funding? Why or why not?

Section 1.6 lays out the organizing themes that we use to understand e-commerce throughout the book: technology, business, and society. Figure 1.11 illustrates how the Internet and the Web fit into the evolution of corporate computing technologies. A drag and drop exercise in the eText associated with this figure asks students to match various business applications to their appropriate technology stage.

The updated Insight on Society case, Facebook and the Age of Privacy, in this section touches on each of these themes (the technology of social networks, Facebook’s business model), but focuses primarily on some of the societal themes that recur throughout the book. Do consumers in a public marketplace have a legitimate expectation of privacy? Is there anything consumers can do to protect their privacy? Can the Web be designed to better protect privacy? You might point out to students that government and business surveillance of their online behavior is now commonplace. Although some students might say, “So what,” you might take this opportunity to ask students if there is any personal information that they would not like anyone to know. If this fails, ask them to close their eyes and think about something they have done that they would not want their parents to know about. Just about everyone has at least one of these memories. Other class discussion questions might include the following: • Why are social networks interested in collecting user information?

• What types of privacy invasion are described in the case? Which is the most privacy-invading, and why?

• Was the FTC’s $5 billion fine and its placement of new restrictions on Facebook’s business operations sufficient in light of Facebook’s history with respect to privacy violations?

• How do you protect your privacy on the Web? .

7

Section 1.7 briefly reviews the various academic disciplines concerned with e-commerce, so that students get a sense of the multidisciplinary nature of the topic.

Section 1.8 focuses on careers in e-commerce. We conclude each chapter of the book with a section that examines a job posting by an Internet/e-commerce company for an entry-level position, giving a brief overview of the company, some details about the position, a list of the qualifications and skills that are typically required, some tips for students about how to prepare for an interview, as well as some possible interview questions and answers. We’ve designed this section to help your students understand how the concepts they’ve learned in the chapter can help them find and get a job, as well as provide a good opportunity for a class discussion about possible careers.

The updated chapter-ending case study, Pinterest: A Picture Is Worth a Thousand Words, in Section 1.9, captures some of the changes in the foundations of e-commerce. Pinterest is at the forefront of a movement toward a more visual social media experience, including visual search. It illustrates many of the trends that will be impacting e-commerce over the next few years, including the growing use of social media to sell goods (social ecommerce), for branding, and to drive traffic to company websites, as well as the growing importance of the mobile platform. You can also use the case as a review of some of the social, legal, and ethical issues facing e-commerce companies, including copyright and security issues.

Case Study Questions 1.

Why does Pinterest view Google as its primary competitor?

Pinterest now describes itself as a visual search tool for discovering and saving creative ideas (and potential purchases) with less emphasis on sharing with friends. Search has become the core part of its mission, and as such, Google, which is dominant in search, is now a primary competitor.

2.

Why does Pinterest focus on the smartphone platform when it develops new features and products?

Pinterest focuses on the smartphone platform when it develops new features and products because the clear majority of Pinterest’s traffic originates from mobile devices.

3.

Why is copyright infringement a potential issue for Pinterest?

Copyright infringement is a potential issue for Pinterest because the basis of Pinterest’s business model involves users potentially violating others’ copyrights by posting images without permission and/or attribution. Although Pinterest’s Terms of Service puts the onus on its users to avoid doing so, the site knowingly facilitates such actions by, for example, providing a Pin It tool embedded in the user’s browser toolbar. Much content on the site reportedly violates its Terms of

.

8 Service. Pinterest has provided an opt-out code to enable other sites to bar its content from being shared on Pinterest, but some question why they should have to take action when Pinterest is creating the problem. Another thing Pinterest has done to try to ameliorate the problem is to automatically add citations (attribution) to content coming from certain specified sources, such as Flickr, YouTube, Vimeo, Etsy, Kickstarter, and SlideShare, among others. It entered an agreement with Getty Images in which it agreed to provide attribution for Getty content and pay Getty a fee. Pinterest says it complies with the Digital Millennium Copyright Act, which requires sites to remove images that violate copyright, but this too requires the copyright holder to be proactive and take action to demand the images be removed.

End-of-Chapter Questions 1.

What is e-commerce? How does it differ from e-business? Where does it intersect with e-business?

E-commerce, in the popular sense, can be defined as: The use of the Internet and the Web to conduct business transactions. A more technical definition would be: E-commerce involves digitally enabled commercial transactions between and among organizations and individuals. E-commerce differs from e-business in that no commercial transaction (an exchange of value across organizational or individual boundaries) takes place in e-business. E-business is the digital enablement of transactions and processes within a firm and, therefore, does not include any exchange in value. E-commerce and e-business intersect at the business firm boundary at the point where internal business systems link up with suppliers. For instance, e-business turns into e-commerce when an exchange of value occurs across firm boundaries.

2.

What is information asymmetry?

Information asymmetry refers to any disparity in relevant market information among the parties involved in a transaction. It generally applies to information about price, cost, and hidden fees.

3.

What are some of the unique features of e-commerce technology?

The unique features of e-commerce technology include: • Ubiquity: It is available just about everywhere and always.

• Global reach: The potential market size is roughly equal to the size of the online population of the world.

• Universal standards: The technical standards of the Internet and, therefore, of conducting e-commerce are shared by all nations in the world.

• Richness: Information that is complex and content-rich can be delivered without sacrificing reach.

• Interactivity: E-commerce technologies allow two-way communication between the merchant and the consumer. .

9 • •

•

4.

Information density: The total amount and quality of information available to all market participants is vastly increased and is cheaper to deliver.

Personalization/Customization: E-commerce technologies enable merchants to target their marketing messages to a person’s name, interests, and past purchases. They allow a merchant to change the product or service to suit the purchasing behavior and preferences of a consumer.

Social technology: Enables user content generation and distribution and supports development of social networks

What is a marketspace?

A marketspace is a marketplace that is extended beyond traditional boundaries because it is removed from the restrictions of geography and time. The ubiquity of e-commerce technologies liberates the market from these limitations.

5.

What are three benefits of universal standards?

• • •

6.

Reduced search costs for consumers Simpler, faster, and more accurate price discovery Lower market entry costs for merchants

Compare online and traditional transactions in terms of richness.

Traditional transactions can provide more richness in terms of face-to-face service including visual and aural cues. However, traditional transactions are limited in terms of how many people can be reached at a single time. Online transactions, which can be global in reach, can provide content that is both complex and rich, overcoming the traditional trade-off between reach and richness.

7.

Name three of the business consequences that can result from growth in information density.

Growth in information density can result in: • Greater price transparency: Consumers can easily find out the variety of prices in a market.

• Greater cost transparency: Consumers can discover the actual costs merchants pay for products.

• Greater opportunities for marketers to practice price discrimination: Because marketers are able to gather much more information about their customers, they can segment the market into groups based on willingness to pay different prices for the same or nearly the same goods.

8.

What is Web 2.0? Give examples of Web 2.0 websites or apps and explain why you included them in your list.

.

10 Web 2.0 is a set of applications and technologies that enable user-generated content, such as online social networks, blogs, video and photo sharing sites, and wikis. Students may list Facebook, Pinterest, Twitter, YouTube, Instagram, Wikipedia, Tumblr, and WordPress, among others, as example sites.

9.

Give examples of B2C, B2B, C2C, and social, mobile, and local e-commerce besides those listed in the chapter materials.

The answers to this question will vary. Possible examples include: • B2C: E-tailers: Bluefly Uncommon Goods • B2C: Service Providers: E*Trade Travelzoo • B2C: Portals: Yahoo MSN • B2C: Content Providers: Wall Street Journal Consumer Reports • B2B: Grainger Ariba Amazon Business • C2C: Facebook Marketplace • Locanto Social e-commerce: Facebook Shops Instagram Shops Snapchat Snap Minis • Mobile e-commerce: Mobile retail websites and apps Mobile banking websites and apps Mobile travel services websites and apps Mobile advertising Mobile content Mobile payment services • Local e-commerce: LivingSocial Locally

10.

How are e-commerce technologies similar to or different from other technologies that have changed commerce in the past?

.

11 E-commerce technologies are similar to other technologies that have changed commerce in the past in that each new technological innovation spawns explosive growth characterized by thousands of start-up companies. Many of these fail in the period of retrenchment and consolidation that follows. As with other technological revolutions, eventually it is the large, already established firms who have the resources to exploit the new technology. The growth of the Internet, when compared to other technologies such as radio and television, has been much more rapid: The Internet and Web achieved a 53% share of U.S. households in only 10 years. In comparison, it took 38 years for radio and 17 years for television to achieve a 30% share.

11.

Describe the three different stages in the evolution of e-commerce.

The three stages in the evolution of e-commerce are invention, consolidation, and reinvention. Invention took place from 1995–2000 and was characterized by excitement and idealistic visions of markets in which quality information was equally available to both buyers and merchants. E-commerce did not fulfill these visions during its early years, however. After 2000, e-commerce entered its second stage of development—consolidation. In this stage, more traditional firms began to use the Web to enhance their existing businesses. Less emphasis was placed on creating new brands. In 2007, though, e-commerce entered its current stage—reinvention—as social network and Web 2.0 applications reinvigorated ecommerce and encouraged the development of new business models.

12.

Define disintermediation and explain the benefits to Internet users of such a phenomenon. How does disintermediation impact friction-free commerce?

Disintermediation means the removal of the market middlemen—the distributors, wholesalers, and other intermediaries—between producers and consumers. The predicted benefits to Internet users include the decline of prices for products and services as manufacturers and content originators develop a direct relationship with their customers, and the elimination of payments to these middlemen.

Disintermediation of markets would create intense competition. This, along with lowered transaction costs, would eliminate product brands, eventually resulting in the elimination of unfair competitive advantages and extraordinary returns on capital—the vision of friction-free commerce.

13.

What are some of the major advantages and disadvantages of being a first mover?

The major advantages of being a first mover are the ability to build a brand name early on and establish a large customer base before followers enter the market, and the ability to build switching costs into the technology or services offered so that customers will find it discomfiting to change to a late entering competitor.

The major disadvantage is that historically, many first movers have not succeeded and are instead replaced by the fast follower, larger firms with the financial,

.

12 marketing, legal, and production assets necessary to develop mature markets.

Generally, only a handful of first-mover firms become successful long-term businesses as the start-up costs and time it takes to build a profitable business are often underestimated.

14.

What is a network effect, and why is it valuable?

A network effect occurs where all participants receive value from the fact that everyone else uses the same tool or product (for example, a common operating system, telephone system, or software application such as a proprietary instant messaging standard or an operating system such as Windows), all of which increase in value as more people adopt them. The network effect is quantified by Metcalfe’s Law, which argues that the value of a network grows by the square of the number of participants.

15.

Discuss the ways in which the early years of e-commerce can be considered both a success and a failure.

The early years of e-commerce can be considered a success because of the technological success that occurred as web-enabled transactions grew from thousands to billions. The digital infrastructure proved to be a solid foundation on which to build a viable marketing channel. From a business perspective, the early years of e-commerce were of mixed success with just a tiny percentage of dotcom companies surviving. However, the survivors have benefited from the continued growth in B2C revenues. The early years of e-commerce can also be considered a success in that the transfer of information has been a huge accomplishment as consumers learned to use the Web to procure information about products they wanted to purchase (Internet-influenced commerce).

16.

What are five of the major differences between the early years of e-commerce and today’s e-commerce?

The major differences between the early years of e-commerce (the Invention stage), the period between 2001 and 2006 (the Consolidation stage), and today’s e-commerce (the Reinvention stage) are as follows: • During the Invention stage, e-commerce was primarily technology-driven.

During the Consolidation stage, it was primarily business-driven. Today’s e-commerce, although still business-driven, is also audience-, customer-, and community-driven.

• During the Invention stage, firms placed an emphasis on revenue growth, quickly achieving high market visibility/market share. During the Consolidation stage, the emphasis was on building profitable firms.

Today, audience and social network growth are being emphasized.

• Start-ups during the Invention stage were financed by venture capitalists, while those in the Consolidation stage were primarily financed by traditional methods. Today, start-ups are once again being financed by .

13

•

•

•

•

•

•

•

17.

venture capitalists, albeit with smaller investments. In addition, many large online firms are now entering the market, and acquiring early-stage firms via buyouts.

During the Invention phase, e-commerce was, for the most part, ungoverned. In the Consolidation stage, there was a rise in the amount of regulation and governmental controls by governments worldwide. Today, there is extensive government regulation and surveillance.

The Invention stage of e-commerce was characterized by the young entrepreneurial spirit. During the Consolidation stage, e-commerce was primarily dominated by the retail giants. Today, large purely Web-based firms are playing a key role.

The Invention phase was characterized by an emphasis on deconstructing traditional distribution channels and disintermediating existing channels.

During the Consolidation stage, intermediaries strengthened. Today, there is a proliferation of small online intermediaries that are renting the business processes of larger firms.

“Perfect markets” in which direct market relationships with consumers, the decline of intermediaries, and lower transaction costs resulted in intense competition and the elimination of brands, are being replaced by imperfect markets. Imperfect markets are characterized by a strengthening of brand name importance, increasing information asymmetries, price discrimination, and network effects.

The early years of e-commerce saw an infusion of pure online businesses that thought they could achieve unassailable first-mover advantages.

During the Consolidation period, successful firms used a mixed “bricksand-clicks” strategy, combining traditional sales channels such as physical stores and printed catalogs with online efforts. Today, there is a return of pure online strategies in new markets, as well as continuing extension of the “bricks-and-clicks” strategy in traditional retail markets.

The early years of e-commerce were dominated by the first movers. In the Consolidation stage, e-commerce was dominated by the well-endowed and experienced Fortune 500 and other traditional firms. Today, first-mover advantages are returning in new markets as traditional Web players catch up. Facebook is an excellent example of not-quite-a-first mover, but close enough to build a huge online audience.

During the Invention stage, e-commerce primarily involved the sale of low-complexity retail products. In the Consolidation phase, e-commerce broadened to also encompass high-complexity retail products and services.

Today, e-commerce involves not only the sale of retail products and services, but also content.

Why is a multidisciplinary approach necessary if one hopes to understand e-commerce?

A multidisciplinary approach is necessary to understand e-commerce because no single academic discipline covers all facets of the e-commerce phenomenon. E.

14 commerce is primarily a technologically driven occurrence, including information technologies developed over the past fifty years, with the Internet and the Web at the core. However, beyond the infrastructure are the business purposes that drive the phenomenon: the changing business models and strategies that will transform old companies and spawn new ones. To understand e-commerce, one must understand some basic business concepts such as industry structures, business models, firm and industry value chains, and consumer behavior. They must also comprehend the nature of electronic markets and information goods. Finally, the impact on society must be considered: global e-commerce can have consequences for individuals concerning their intellectual property and privacy rights. Public policy issues such as equal access, equity, content control, and taxation will need to be addressed.

18.

What are some of the privacy issues that Facebook has created?

Privacy advocates, politicians, and commentators point to the following practices as threats to the privacy of Facebook users: • Facebook collects information without telling users or making it possible for them to easily opt out.

• Facebook has made it more difficult for users to find out how their personal information is being used, or with whom it is being shared.

• Facebook fails to explain how it creates user profiles.

• Facebook makes it difficult for users to change privacy settings.

• Facebook makes it very difficult to understand its information use policy.

19.

What are those who take a behavioral approach to studying e-commerce interested in?

Disciplines that take a behavioral approach to studying e-commerce include information systems researchers, economists, the marketing profession, management scholars, economists, finance and accounting scholars, sociologists, psychologists, and legal scholars. Information systems researchers are primarily interested in e-commerce because of its implications for firm and industry value chains, industry structure, and corporate strategy. Economists have focused on online consumer behavior, pricing of digital goods, and on the unique features of digital electronic markets. The marketing profession is interested in marketing, brand development and extension, online consumer behavior, and the ability of ecommerce technologies to segment and target consumer groups and differentiate products. Economists share an interest with marketing scholars who have focused on e-commerce consumer response to marketing and advertising campaigns, and the ability of firms to brand, segment markets, target audiences, and position products to achieve above-normal returns on investment. Management scholars have focused on entrepreneurial behavior and the challenges faced by young firms who are required to develop organizational structures in short time spans. Finance and accounting scholars have focused on e-commerce firm valuation and accounting practices. Sociologists—and to a lesser extent, psychologists—have .

15 focused on general population studies of Internet usage, the role of social inequality in skewing Internet benefits, and the use of the Web as a social network and group communications tool. Legal scholars are interested in issues such as preserving intellectual property, privacy, and content regulation.

20.

What platform do the majority of Internet users in the United States use to access the Internet?

Over 72% of all Internet users in the United States (about 210 million people) go online using both a desktop/laptop and mobile device.

Projects 1.

Choose an e-commerce company and assess it in terms of the eight unique features of e-commerce technology described in Table 1.2. Which of the features does the company implement well, and which features poorly, in your opinion?

Prepare a short memo to the president of the company you have chosen, detailing your findings and any suggestions for improvement you may have.

The purpose of this exercise is for students to begin looking at the websites they visit from a critical perspective and to begin analyzing the information they can find at those sites. Presentations/reports submitted for this project will differ depending on the example selected by students.

In assessing a website in terms of the eight unique features of e-commerce technology, a student might focus on the following: • Ubiquity: What kinds of m-commerce applications, if any, does the site offer? (Such applications increase ubiquity by making e-commerce available from a wider range of devices.)

• Global reach: Does the website try to reach consumers outside of its host country? If so, how well is this implemented?

• Universal standards: There should not be much variance between websites with respect to this feature of e-commerce technology.

• Richness: Does the website use animated graphics, online video, or streaming media to deliver marketing messages? If so, how effective does the student find these features? Do they aid the consumer’s experience, or hinder it?

• Interactivity: In what ways is the website interactive?

• Information density: Students should note what, if any, information (via registration or through other means) a website overtly collects from visitors or users.

• Personalization/Customization: In what ways does the website personalize its marketing messages? For instance, is the user greeted by name? Can products and services be customized?

• Social technology: Does the website offer ways for consumers to share opinions and preferences? Is there any capacity for content generated by users? .

16

2.

Search the Web for an example of each of the major types of e-commerce described in Section 1.4 and listed in Table 1.3. Create a presentation or written report describing each company (take a screenshot of each, if possible), and explain why it fits into the category of e-commerce to which you have assigned it.

The purpose of this project is for students to begin looking at the websites they visit from a critical perspective and begin analyzing the information they can find at those sites. Presentations/reports submitted for this project will differ depending on the examples selected by students. Examples might include the following: • B2C: Any one of a number of B2C companies such as e-tailers, service providers, portals, content providers, and community providers might be selected.

• B2B: Any one of a number of B2B companies such as Elemica (consortia), Grainger (e-distributor), and Inventory Locator Service (ILS) (exchange) could be selected.

• C2C: Leading examples of C2C e-commerce companies include eBay, Craigslist, Etsy, and others that act as an intermediary between consumers seeking to make transactions.

• M-commerce: Almost all large e-commerce companies now have significant mobile commerce capabilities. Some possibilities students may choose include Amazon, eBay, Orbitz, or any one of a number of others.

• Social e-commerce: Pinterest, Facebook, Twitter, and Instagram are at the center of social e-commerce.

• Local e-commerce: Companies that are involved with local e-commerce include Groupon, LivingSocial, Uber, Airbnb, and a host of others.

For each example chosen, the student should describe the features of the company that indicate which category of e-commerce it falls into. For example, if Barnes & Noble is chosen as a representative of B2C e-commerce, the student might describe the features he/she sees available on the home page. They should note that Barnesandnoble.com focuses primarily on the sale of books, music, software, magazines, prints, posters, and related products to individual consumers.

3.

Given the development and history of e-commerce in the years 1995–2020, what do you predict we will see during the next five years of e-commerce? Describe some of the technological, business, and societal shifts that may occur as the Internet continues to grow and expand. Prepare a brief presentation or written report to explain your vision of what e-commerce will look like in 2025.

Although each student’s answer may differ depending on their personal perspective on e-commerce, here are some possible predictions: • Technological shifts: The Internet will continue to grow, but at a slower pace. Internet usage, however, will become more focused, targeted, and intense. New client platforms will continue to emerge. Mobile devices .

17

•

•

4.

such as smartphones and tablets will become much more predominant than traditional desktop computers.

Business shifts: Larger traditional firms will come to dominate ecommerce. There will be a greater emphasis on profitability for online ventures. Alternatively, as the costs of creating and running an ecommerce presence decline, more innovative small firms will enter the marketplace and challenge the leaders in e-commerce.

Societal shifts: There will be a greater emphasis on regulation and control over the Internet and e-commerce in areas such as taxation, content, and entertainment.

Prepare a brief report or presentation on how companies are using Instagram or another company of your choosing as a social e-commerce platform.

Student answers will vary depending on the company they choose as the subject of their report or presentation. For example, if a student chooses Instagram, they might note that as of the end of 2020, Instagram offers the following shopping features: • Instagram shopping tags: Brands can tag products featured in their image.

Clicking on the tag displays the product’s price as well as a View on Website button that when clicked, takes the user to the brand’s website.

• Instagram Checkout: This feature enables users who tap on Instagram product tags on a shopping post to buy those items without leaving the app.

• Shopping via the Search tab: The Search tab has a Shop option, where posts that are shoppable are listed.

• Instagram Story product stickers: Product stickers are similar to shopping tags on posts, but they are only available for Instagram Stories.

5.

Follow up on events at Uber since July 2020 (when the opening case was prepared). Prepare a short report on your findings.

Given the substantial number of press reports on Uber, students should be able to find a plethora of information by using the Web to search for articles.

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource .

18 Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html.

Learning Tracks and Video Cases for this chapter include: • Learning Track 1.1 Global E-commerce Europe • Learning Track 1.2 Global E-commerce China • Learning Track 1.3 Global E-commerce Latin America • Video Case 1.1 The Importance of the Internet for E-commerce • Video Case 1.2 The Growth of the On-Demand Economy

.

1 Instructor’s Manual: Chapter 2 E-commerce Business Models and Concepts

Learning Objectives After reading this chapter, your students should be able to: ● Identify the key components of e-commerce business models. ● Describe the major B2C business models. ● Describe the major B2B business models. ● Understand key business concepts and strategies applicable to ecommerce.

Key Terms advertising revenue model, p. 60 affiliate revenue model, p. 61 angel investors, p. 68 asymmetry, p. 65 B2B service provider, p. 84 barriers to entry, p. 74 business model, p. 58 business plan, p. 58 business strategy, p. 92 commoditization, p. 92 community provider, p. 74 competitive advantage, p. 65 competitive environment, p. 64 complementary resources, p. 65 content provider, p. 76 crowdfunding, p. 69 customer intimacy, p. 94 differentiation, p. 92 digital disruption, p. 95 disruptive technologies, p. 95 disruptors, p. 96 e-commerce business model, p. 58 e-distributor, p. 83 elevator pitch, p. 68 e-procurement firm, p. 84 e-tailer, p. 74 exchange, p. 84 firm value chain, p. 90 first-mover advantage, p. 65 focus/market niche strategy, p. 94 freemium strategy, p. 60

.

2 incubators, p. 68 industry consortia, p. 85 industry structural analysis, p. 88 industry structure, p. 87 leverage, p. 66 management team, p. 67 market creator, p. 80 market opportunity, p. 61 market strategy, p. 66 marketspace, p. 61 organizational development, p. 66 perfect market, p. 66 portal, p. 77 private industrial network, p. 85 profit, p. 92 revenue model, p. 59 sales revenue model, p. 61 scale economies, p. 84 scope strategy, p. 94 seed capital, p. 68 service provider, p. 81 strategy of cost competition, p. 93 subscription revenue model, p. 60 sustaining technologies, p. 95 transaction broker, p. 80 transaction fee revenue model, p. 61 unfair competitive advantage, p. 66 value chain, p. 89 value proposition, p. 58 value web, p. 91 venture capital investors, p. 69 Brief Chapter Outline Coping with a Pandemic: Small Businesses Reinvent with E-commerce 2.1 E-commerce Business Models Introduction Eight Key Elements of a Business Model Insight on Society: Foursquare’s Evolving Business Model: Leveraging Your Location Raising Capital Insight on Business: Startups Turn to Crowdfunding Categorizing E-commerce Business Models: Some Difficulties 2.2

Major Business-to-Consumer (B2C) Business Models

.

3 E-tailer Community Provider Content Provider Insight on Technology: Connected Cars and the Future of E-commerce Portal Transaction Broker Market Creator Service Provider 2.3

Major Business-to-Business (B2B) Business Models E-distributor E-procurement Exchanges Industry Consortia Private Industrial Networks

2.4

How E-commerce Changes Business: Strategy, Structure, and Process Industry Structure Industry Value Chains Firm Value Chains Firm Value Webs Business Strategy E-commerce Technology and Business Model Disruption

2.5

Careers in E-commerce The Company Position: Assistant Manager of E-business Qualifications/Skills Preparing for the Interview Possible First Interview Questions

2.6

Case Study:

2.7

Review Key Concepts Questions Projects References

Figures Figure 2.1

Weathering the Storm: Twitter Tweaks Its Business Model

The Eight Key Elements of a Business Model, p. 59 (User-controlled animation in eText)

.

4 Figure 2.2 Figure 2.3 Figure 2.4 Figure 2.5 Figure 2.6 Tables Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 2.5 Table 2.6 Table 2.7 Table 2.8 Table 2.9

Marketspace and Market Opportunity in the Software Training Market, p. 64 How E-commerce Influences Industry Structure, p. 87 (Whiteboard video in eText) E-commerce and Industry Value Chains, p. 89 (User-controlled animation in eText) E-commerce and Firm Value Chains, p. 90 Internet-enabled Value Web, p. 91

Examples of Subscription Services, p. 60 Five Primary Revenue Models, p. 61 Key Elements of a Business Model, p. 67 (Drag and drop exercise in eText) Key Elements of an Elevator Pitch, p. 68 E-commerce Enablers, p. 73 B2C Business Models, p. 75 B2B Business Models, p. 83 Eight Unique Features of E-commerce Technology, p. 86 Business Strategies, p. 95 (Drag and drop exercise in eText)

Teaching Suggestions This chapter attempts to briefly summarize the variety of ways that the Internet, Web, and mobile platform can be used to build new business firms—firms that generate revenue and hopefully a profit. The challenge in this chapter is to focus on some simple, unchanging realities of the business world that have nothing to do with the Internet, and then to understand how the Internet can be used within this framework to develop new businesses. What pundits now say about the Internet is, “The Internet changed everything, except the rules of business.”

The chapter starts out with a new opening case, Coping with a Pandemic: Small Businesses Reinvent with E-commerce. The pandemic has obviously had a significant impact on the economy, and small businesses in particular. The case discusses how some of these businesses have taken steps to reinvent their business models, pivoting to ecommerce. Class discussion questions for this case might include the following: ● Prior to the pandemic, did you physically shop at small businesses in your community? ● What steps have small businesses with which you are familiar taken to continue operating during the pandemic? ● How likely are you to continue new consumer behaviors instituted during the pandemic after it is over? For instance, if you ordered groceries online, will you continue to do so?

.

5 Key Points Business Models. One of the most abused phrases in the e-commerce lexicon is “business model.” Put simply, a business model is a plan for making money. Like all models, a business model has several components that we describe in Section 2.1: value proposition, revenue model, market opportunity, competitive environment, competitive advantage, market strategy, organizational development, and management team. Students need to have a good understanding of each of these elements. Figure 2.1 provides a visually striking illustration of these elements in the form of puzzle pieces that fit together as a whole. The figure is presented as a user-controlled animation in the eText for further emphasis. Table 2.3 revisits the key elements of a business model in the form of the key questions that must be asked and answered with respect to each element. This table is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise.

We discuss both business and social issues in the updated Insight on Society case, Foursquare’s Evolving Business Model: Leveraging Your Location, which focuses on Foursquare’s location-based services business. Location-based services, which involve the merger of geo-positioning technology (GPS) and the Internet, promise to deliver advertising and useful content to users based on their location. However, this same technology results in the ability for a company to track a user’s whereabouts and pose significant privacy issues that users should consider. Class discussion questions include the following: ● Why has the shift in Foursquare’s business model been the key to success for Foursquare? ● How comfortable are you with the ability of Foursquare to characterize behavior into various personas? ● What is your opinion of Foursquare’s characterization of itself as one of the “good guys” in the location data industry? ● How is Foursquare attempting to cope with a more privacy-conscious business environment?

Raising Capital. This section provides an overview of the primary ways that e-commerce startups raise capital, including seed capital, incubators, angel investors, venture capital investors, and crowdfunding. A discussion of the various types of crowdfunding has been added to the text. Students are likely to be familiar with GoFundMe, a well-known example of donor-based crowdfunding, and perhaps Kickstarter and Indiegogo, which are examples of rewards-based crowdfunding. They are less likely to know about equity crowdfunding, which is enabled by the Jumpstart Our Business Startups (JOBS) Act. A new Insight on Business case, Startups Turn to Crowdfunding, provides a further look at the crowdfunding phenomenon and the impact of the Covid-19 pandemic. Some of the class discussion questions you might want to pose to your students include the following:

.

6 ● ● ●

Would you feel comfortable investing in a startup that raises capital using equity crowdfunding? Why or why not?

Why is it important to democratize access to capital?

What obstacles are presented in the use of crowdfunding as a method of funding startups?

E-commerce Business Models. With several million commercial websites to consider, there is a vast variety of e-commerce business models. Many firms pursue multiple business models at once. Nevertheless, there clearly are dominant patterns to all this variety on the Web. We describe seven different and typical e-commerce B2C business models in Section 2.2: e-tailers, community providers (including social networks), content providers, portals, transaction brokers, market creators, and service providers.

Students should be able to describe how each of these models typically expects to generate revenue and earn profit.

The updated Insight on Technology case, Connected Cars and the Future of E-commerce, examines how changes in Internet technology, such as the Internet of Things, are driving the emergence of new business models in the online content market. Some questions that might help drive class discussion of this case include the following: ● How is new technology being used to create connected cars also creating new business models? ● What is the potential impact on different forms of e-commerce, such as the content industry? ● Why are tech companies so interested in the connected car platform? ● Are there any issues with respect to “connected” cars?

B2B Models. B2B e-commerce is several orders of magnitude larger than B2C ecommerce. In Section 2.3, we describe the major generic types of B2B e-commerce: edistributors, e-procurement companies, exchanges, industry consortia, and private industrial networks. Each of these models has a distinct revenue model, described further in Table 2.7.

How E-commerce Changes Business. In Section 2.4, we look at how e-commerce can change business in four major areas: ● Industry structure ● Industry value chains ● Firm value chains ● Firm Value Webs E-commerce can change industry structure by introducing substitute products, increasing the bargaining power of suppliers or of consumers and buyers, and by changing existing barriers to entry. Figure 2.3 provides a graphic illustration of these concepts. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 2.3 and this

.

7 topic. The Internet can change industry value chains insofar as suppliers, manufacturers, distributors, retailers, and customers can interact in new and different ways. You can use Figure 2.4 to review this concept. Figure 2.4 is presented in the eText as a user-controlled animation for added emphasis. Firm value chains (see Figure 2.5) can be directly affected by e-commerce through its potential impact on how the business performs various business processes such as warehousing, manufacturing, sales, and customer support. For instance, Amazon uses the Internet to provide consumers with access to a much larger inventory of books than traditional retailers and to accomplish order entry, provide postsales support, and offer ordering from its suppliers. Internet-enabled firm value webs (see Figure 2.6) allows a firm to more easily coordinate with its strategic partners, suppliers, and customers.

Finally, e-commerce and the Internet can change business strategies by allowing the firm to develop new ways of differentiating its products in the marketplace, lowering costs, or changing the scope of its operations. For instance, Dell uses e-commerce as a way of achieving lower costs in the PC business and has created an entirely new way of organizing large-scale production—build to order. Table 2.9 summarizes the basic business strategies with which your students should be familiar. This table is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise.

Students will likely have heard or seen reference to the terms “disruptive technologies” and “digital disruption.” A section on business model disruption examines how ecommerce technology has radically changed entire industries, driving incumbent firms out of business, spawning new firms, and in some cases, radically changing the entire industry.

In Section 2.5, we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as an assistant manager of e-business.

The chapter ends with a new chapter-ending case study on Twitter’s business model, Weathering the Storm: Twitter Tweaks Its Business Model, which focuses on Twitter’s continued efforts to find a workable business model in the midst of a challenging social and political environment. Twitter has amassed some very significant online assets in the form of a large audience and behavioral data on this audience. Twitter is now monetizing these assets by selling online advertising, as well as other methods detailed in the case.

Twitter has had difficulty developing a business model that delivers the profits expected

by Wall Street, but over the last several years, it has taken a number of steps that seem to have put it on the path to consistent profitability, at least until the Covid-19 pandemic hit.

Case Study Questions 1.

What are Twitter’s most important assets?

.

8 Twitter has a number of important assets, such as user attention, significant audience size (unique visitors), and its searchable database of tweets, which contain the real-time comments, observations, and opinions of its audience.

Twitter has become essential in modern society as a media platform for the instant distribution of news that many in the tech industry believe resembles a public utility.

2.

How has Twitter’s business model evolved since it was founded?

Twitter’s basic idea was to marry short text messaging on cell phones with the Web and its ability to create social groups. Twitter has since expanded beyond simple text messages to article previews, photographs, videos, and animated images. Twitter derives the lion’s share of its revenue from a variety of different types of advertising displayed on the platform, although it also derives some revenue from licensing its user data to companies seeking to improve their understanding of customer sentiment. At one point, Twitter also hoped that it would become a hub of social e-commerce and rolled out a Buy Now button in 2014 that allowed users to add products to their Amazon shopping cart. However, in 2016, development on the service halted due to users’ lukewarm response, and it was then phased out. Other services that failed to take off, such as Twitter’s #Music app, have also been shelved and even popular features like its Vine app for short-form video were discontinued. Instead, Twitter has made changes to bolster its ability to deliver the news, including increasing the character limit for tweets from 140 characters to 280 characters and showing more promoted news content in user timelines. In 2018, Twitter redesigned the Explore tab within its app to improve ease of use, added breaking news alerts, and launched dedicated content hubs for significant events that allow users to follow events the way they might follow a person. Twitter is also concentrating on improving its premium streaming video capability, including support for its popular Periscope video service. According to CEO Jack Dorsey, Twitter’s overarching purpose is to serve the public conversation and to function as the digital equivalent of a town square.

3.

Why is machine learning an important initiative for Twitter?

Developing machine learning capabilities has been an important initiative for Twitter. For instance, it purchased artificial intelligence startup Magic Pony in 2016 to bolster this effort. Magic Pony’s technology has enabled Twitter to adjust the way it ranks tweets in users’ feeds, emphasizing relevance to individual users instead of simple chronological order, and its machine learning algorithms now decide what types of push notifications to deliver to users. Twitter has also eliminated its less effective advertising formats, focusing only on those that deliver the best engagement for advertisers. In November 2019, Twitter acquired Aiden, which has developed machine learning software that provides recommendations for social media advertisers and content creators, detecting cost

.

9 anomalies and automatically allocating budget. Twitter intends to deploy the technology to improve Twitter’s self-serve advertising offerings for small businesses. It also has recently acquired startup company Fabula AI, which has developed machine learning technology to detect network manipulation and online disinformation. Twitter intends to use this technology to aid in its efforts to improve “conversational health” on its platform.

4.

What steps has Twitter taken to improve “conversational health” on its platform?

Twitter is also focusing on techniques to promote what it calls conversational health, adjusting its algorithm to ensure that low-quality tweets are less accessible in searches and conversations and changing its API to prohibit links and content from being shared from many accounts at once, which is a common technique used by Twitter bots (dummy accounts that are used to spread misinformation).

Although Twitter continues to aggressively identify and remove these accounts, more continue to pop up in their place. Twitter has also tried to improve its handling of habitual abusers and hate groups using its platform. In 2019, it acquired startup company Fabula AI, which has developed machine learning technology to detect network manipulation and online disinformation. Striking a balance between allowing free speech and policing unacceptable hate speech and deliberate misinformation will continue to be a difficult challenge for Twitter, but Dorsey has candidly embraced it, saying that the company has not done enough and must do better. In November 2019, in an effort to further enhance the conversational health of the platform, Twitter banned political ads, with some minor exceptions (such as ads in support of voter registration), and said it would prohibit issues-based advertisers from targeting users based on geographic location, political leaning, or affiliation.

5.

How has the Covid-19 pandemic impacted Twitter?

Although its first quarter 2020 earnings beat Wall Street expectations on both total revenue and user growth, Twitter, not surprisingly, recorded an overall loss for the first time since the third quarter of 2017. Although results for the period from January through early March were as expected, from that time forward to the end of the quarter, revenue dropped precipitously. Although user engagement increased significantly during that time, advertising declined by almost 30% compared to the similar period in 2018. Twitter is attempting to grapple with the changing environment wrought by the pandemic. Event cancellations due to social distancing and stay-at-home measures, as well as the suspension of major sports leagues and the 2020 Summer Olympics, will likely continue to negatively impact its advertising revenues, which are heavily event-driven. To cope, Twitter is aggressively working on its direct response (DR) advertising formats, which include methods to drive consumers to take an immediate action. It has high hopes, for instance, for its Mobile Application Promotion suite of products, which

.

10 enables advertisers to promote their mobile apps via Twitter, including app installs directly within Twitter. Twitter hopes to tap advertisers promoting mobile games, video services, food delivery services, and other markets that may be more resilient during an economic downtown.

End-of-Chapter Questions 1.

What is a business model? How does it differ from a business plan?

A business model is a set of planned activities (business processes) that are designed to result in a profit in the marketplace. A business plan, on the other hand, is a document that outlines the details of a business model.

2.

What are the eight key components of an effective business model?

The eight key components of an effective business model are: ● Value proposition ● Revenue model ● Market opportunity for the firm (the marketspace and how big it is) ● Competitive environment for the firm (who the competitors are in the marketspace) ● Competitive advantage the firm brings to the marketspace (the unique qualities that set the firm apart from others in the marketspace) ● Market strategy the firm will use to promote its products and services ● Organizational development of the firm that will enable it to carry out its business plan ● Capabilities of the management team to guide the firm in its endeavors

3.

What are Amazon’s primary customer value propositions?

Amazon’s primary customer value propositions are unparalleled selection and convenience.

4.

Describe the five primary revenue models used by e-commerce firms.

The five primary revenue models used by e-commerce firms are: ● Advertising revenue model ● Subscription revenue model ● Transaction fee revenue model ● Sales revenue model ● Affiliate revenue model The advertising model derives its profit by displaying paid advertisements on a website. The goal is to convince advertisers that the site can attract a sizeable viewership, or a viewership that meets a marketing niche sought by the advertiser.

.

11 Firms that use the subscription model offer users access to some or all their content or services for a subscription fee. Firms that use the transaction fee model derive profit from enabling or executing transactions. For instance, transaction fees are paid to eBay when a seller is successful in auctioning off a product.

E*Trade receives a transaction fee when it executes a stock transaction for a customer. In the sales revenue model, companies draw profit directly from the sale of goods, information, or services to consumers. In the affiliate model, sites receive referral fees or a percentage of the revenue from any sales that result from steering business to the affiliate.

5.

Why is targeting a market niche generally smarter for a community provider than targeting a large market segment?

Targeting a market niche is generally a smarter strategy for a community provider than targeting a large market segment because targeting large market segments will only pit a company against bigger and more established competitors. Small sub-segments of larger markets have a greater potential for growth without the intense competitive pressure. Communities that place a strong emphasis on the advertising revenue model will find marketers more interested in placing ads on a site that targets a specific niche.

6.

Would you say that Amazon and eBay are direct or indirect competitors? (You may have to visit the websites or apps to answer.)

Amazon and eBay are direct competitors because they sell products and services that are very similar, and they sell to the same market segment. They both sell books, music, computers and software, games and toys, electronics, tools, movies and DVDs, and camping equipment. The two compete for essentially the same market segment of consumers. eBay may attract the bargain hunter variety of shopper who would not stop at Amazon first, but it is still essentially the same market segment.

7.

What are some of the specific ways that a company can obtain a competitive advantage?

Some specific ways a company can obtain a competitive advantage are by developing a global market while its competitors only have a national or regional market; by obtaining favorable terms from shippers, suppliers, or labor sources that its competitors do not have; by developing a more experienced, knowledgeable, and loyal employee base than its competitors; by obtaining a patent on a product that its competitors will not be able to imitate; by having an inside track to investors willing to put up capital; by establishing a powerful brand name or a popular image that will be difficult for competitors to duplicate; and by

.

12 any type of asymmetry that will give it more resources than its competitors in any area such as financial backing, knowledge, information, and/or power.

8.

Besides advertising and product sampling, what are some other market strategies a company might pursue?

One market strategy is to form strategic alliances with business partners who will help you to attract new customers and extend your market reach. Another market strategy is to use product name, packaging, and advertising to create a distinct mood or feeling about each of your product lines, and carefully target each line to a specific audience. Some firms may choose to pursue a marketing strategy that positions them as a “one-stop shop,” which carries a broad-based line of products, saving the customer search time. Others may choose to position themselves as category experts who have an in-depth and “personal” knowledge of their customers. Such firms will offer extensive customer support networks to assist their customers in their purchasing decisions and will advertise themselves accordingly. One critical factor is that a company needs to find a way to differentiate itself from the competition.

9.

How do venture capitalists differ from angel investors?

Angel investors are typically wealthy individuals (or a group of individuals) who invest their own money in exchange for an equity share in the stock in the business. In general, angel investors make smaller investments (typically $1 million or less) than venture capital firms, are interested in helping a company grow and succeed, and invest on relatively favorable terms compared to later stage investors. Venture capital investors typically become more interested in a start-up company once it has begun generating some revenue, even if it is not profitable. Venture capital investors invest funds they manage for other investors such as investment banks, pension funds, insurance companies, or other businesses, and usually want to obtain a larger stake in the business and exercise more control over the operation of the business. Venture capital investors also typically want a well-defined “exit strategy,” such as a plan for an initial public offering or acquisition of the company by a more established business within a relatively short time (typically 3 to 7 years), that will enable them to obtain an adequate return on their investment.

10.

Why is it difficult to categorize e-commerce business models?

It is difficult to categorize e-commerce business models because the number of models is limited only by the human imagination, and new business models are being invented daily. Even within the broad-based generic types there are overlaps, and fundamentally similar business models may appear in more than one. The type of e-commerce technology used can also affect the classification of

.

13 a business model. Also, some companies may employ multiple business models.

For example, eBay is a C2C marketplace, but also functions as a B2C market maker, and in addition, has an m-commerce business model.

11.

Besides the examples given in the chapter, what are some other examples of vertical and horizontal portals in existence today?

Some other examples of vertical portals (vortals) include ESPN (sports), Bloomberg (business), NFL (sports), WebMD (medical issues), Gamers (games), Away (travel), and Sina (China and Chinese communities). It is more difficult today to find examples of horizontal or general portals, but one is Sympatico.ca (Canadian). Note that many portals can also be considered community providers or online content companies as well.

12.

What are the major differences between virtual storefronts, such as Bluefly, and bricks-and-clicks operations, such as Walmart? What are the advantages and disadvantages of each?

The major difference between virtual storefronts and bricks-and-clicks operations is that virtual storefronts do not have any ties to a physical location. The major advantages of the virtual storefronts are that they have low barriers to entry into the online e-tailer market and that they do not bear the costs associated with building and maintaining physical stores. The disadvantages are that they must quickly build a brand name from scratch and become profitable with no prior brand name or experience, which can be very difficult. The major advantages of the bricks-and-clicks operations are that they have an already established brand name, an established customer base, an established sales force, and the resources to operate on the very thin margins associated with the retail industry. It is also much less expensive for them to acquire new customers than it is for the virtual storefronts. The major disadvantages of the bricks-and-clicks firms are that they face new competition in an extremely competitive environment from new firms who may have more expertise at building credible websites, and who can focus exclusively on building rapid response order systems.

13.

Besides news and articles, what other forms of information or content do content providers offer?

Besides news and articles, content providers may also supply music, photos, video, artwork, educational materials, or games.

14.

What is a reverse auction? What company is an example of this type of business?

A reverse auction is one in which a consumer offers to pay a certain price for a product or service and the bid is either accepted or not. The premier example of

.

14 this type of business is Priceline, in which the consumer makes an offer for airline tickets, hotel rooms, car rentals, and other travel accommodations.

15.

What are the key success factors for exchanges? How are they different from portals?

The key factor to success for exchanges is size—the size of the industry and the number of registered users. If the industry the exchange seeks to serve is not large enough, the site will most likely not survive. The site must also be able to reach a critical mass by attracting both a large number of sellers and buyers, or customers will go elsewhere. An exchange is a digital electronic marketplace where suppliers and commercial purchasers can converge to conduct transactions. Most portals operate in the B2C sector rather than the B2B sector and their primary business objective is to be a destination site for consumers. Although some portals provide a shopping component, that is not their core business objective.

16.

How have the unique features of e-commerce technology changed industry structure in the travel business?

Prior to e-commerce, the travel industry was dominated by industry participants, such as airline and hotel companies, with travel agents acting as intermediaries.

Today, online intermediaries have replaced travel agents, and play an important role, and airlines and hotel company firms conduct much of their business online.

Specifically, the ubiquity of e-commerce has created new marketing channels for both traditional travel industry firms and new entrants and has expanded the size of the overall travel industry market. The global reach of e-commerce has changed industry structure by lowering barriers to entry and enabling new entrants, such as Expedia, Travelocity, and other intermediaries, but at the same time expanding the market. The costs of industry and firm operations have decreased, enabling global competition. The universal standards of e-commerce have also lowered barriers to entry and intensified competition. However, firms have cheaper costs for computing and communication enabling broad-scope business strategies.

The richness of e-commerce reduces the strength of distribution channels, decreases a firm’s reliance on traditional sales forces, and helps a firm develop better post-sales support strategies. Firms can use the interactive properties of ecommerce to develop differentiation strategies and customization techniques to reduce the threat from substitutes. Interactivity, personalization, and customization techniques also decrease a firm’s reliance on traditional sales forces, helping them to reduce operational costs. Using these techniques, some travel industry firms, such as Priceline, have been successful in differentiating themselves from the competition, thereby raising barriers to entry for potential competitors. The information density of e-commerce weakens powerful sales

.

15 channels, shifting some bargaining power to consumers. It also lowers the operational costs for firms associated with obtaining, processing, and distributing information about suppliers and consumers.

17.

Who are the major players in an industry value chain and how are they impacted by e-commerce technology?

The major players in an industry value chain are the suppliers, manufacturers, distributors, transporters, retailers, and customers. E-commerce technology has helped manufacturers to reduce the costs they pay for goods using web-based B2B exchanges. Some manufacturers have also developed direct relationships with their customers online, thereby eliminating the distributors and the retailers from the value chain. Distributors can develop highly efficient inventory management systems to reduce their costs and retailers can develop highly efficient customer relationship management systems to strengthen their services to customers. Customers can use the Web to search for the best quality, delivery, and prices, thereby lowering their overall transaction costs and reducing the final price they pay for goods.

18.

What are five generic business strategies for achieving a profitable business?

Generic business strategies for achieving a profitable business include differentiation, cost, scope, focus, and customer intimacy. Differentiation involves setting your firm or product apart from the competition by establishing some unique property or consumption experience that your competitors do not have. A firm that adopts a cost strategy must have a unique set of business processes, a unique resource, or a low-cost supplier. It is essential that other firms in the marketplace do not have access to, or cannot duplicate, this because it will allow them to charge a lower price while still making a profit. A scope strategy sets out to compete in all markets around the globe, rather than just locally or regionally.

A focus strategy, on the other hand, is a plan to compete within a narrow market segment or product segment. Specialization strategists seek to become the premier provider in a small market segment or niche. A customer intimacy strategy focuses on developing strong ties with customers to increase their switching costs.

19.

What is the difference between a market opportunity and a marketspace?

Marketspace is the area of actual or potential commercial value in which a company intends to operate. Market opportunity refers to the overall potential financial opportunities available to the firm in that marketspace.

20.

What is crowdfunding and how does it help e-commerce companies raise capital?

.

16 Crowdfunding involves using the Internet to enable individuals to collectively contribute money to support a project. The concepts behind crowdfunding have been popularized by Kickstarter and Indiegogo, but they were not able to be used for equity investments in for-profit companies in the United States due to securities regulations. However, the passage of the Jumpstart Our Business Startups (JOBS) Act in 2012 and issuance of regulations by the Securities and Exchange Commission ushered in equity crowdfunding (sometimes also referred to as regulation crowdfunding), which enables companies to use the Internet to solicit investors to invest in small and early-stage start-ups in exchange for stock.

At first, only wealthy accredited investors were allowed to invest, but subsequent regulations (Regulation A+/Title IV and Regulation CF/Title III) now enable a broader group of potential investors with lower net worth and income to also participate. Currently, a company can crowdfund up to $1 million over a 12month period.

Projects 1.

Select an e-commerce company. Visit its website or mobile app and describe its business model based on the information you find there. Identify its customer value proposition, its revenue model, the marketspace it operates in, who its main competitors are, any comparative advantages you believe the company possesses, and what its market strategy appears to be. Also try to locate information about the company’s management team and organizational structure. (Check for a page labeled “The Company,” “About Us,” or something similar.)

Instructors may want to provide some parameters for students in choosing a company (i.e., sector [B2C, B2B, etc.]; industry [retail, services, etc.]) to limit student search time. Students can be asked to provide either a written report or an oral report accompanied by a slide presentation.

A student choosing a company such as PetSmart might provide the following information: PetSmart is a B2C e-tailer. Its main customer value proposition is that it offers the broadest assortment of pet supplies at the lowest prices. PetSmart uses a sales revenue model; it operates in the specialty retail marketspace and focuses on the pet supplies niche. PetSmart is a leading pet supply company; many of its original online competitors, such as Pets.com and Petstore.com, have gone out of business.

Its main competitors appear to be local pet stores and pet supply catalogs and PetSmart’s main comparative advantage is its brand name. PetSmart uses a “bricks-and-clicks” market strategy; it started as a traditional pet supplies retailer with hundreds of physical “superstores” and leveraged its brand to the online environment. Its marketing strategies include: pricing (low prices); providing interesting content and community on its website for its target market; affiliate marketing; and e-mail marketing through free e-mail newsletters. Information

.

17 about PetSmart’s management team is available if the student follows the “More > Management Team” link from its “About” page. A Google search at the beginning of 2021 reveals that Petsmart is currently a private company owned by a private equity firm, which has announced its intention to split Petsmart off from Chewy.com, which it had acquired in 2017.

2.

Examine the experience of shopping online versus shopping in a traditional environment. Imagine that you have decided to purchase a digital camera (or any other item of your choosing). First, shop for the camera in a traditional manner.

Describe how you would do so (for example, how you would gather the necessary information you would need to choose a particular item, what stores you would visit, how long it would take, prices, etc.). Next, shop for the item on the Web or via a mobile app. Compare and contrast your experiences. What were the advantages and disadvantages of each? Which did you prefer and why?

The purpose of this assignment is to help students understand how e-commerce differs from traditional commerce. In reporting on this project, students should identify the product they shopped for and detail how they traditionally shopped for the product. For example, they might have gathered information about the product from newspapers and magazine articles, advertisements, called or visited one or more stores, or perhaps shopped for the product via mail-order catalog.

They should note what stores, if any, they visited or catalogs they looked at; how long it took them to find the product they were seeking; the level of service; the stores’ policies (e.g., on returns); and how long it took them to find and purchase the product.

For their online shopping experience, students should prepare a comparable analysis. They should explain their strategy for finding information on the product (e.g., identify the search engines, if any used, the searches performed, and links followed), and then describe the shopping experience at the company from which they have decided to “purchase” the product.

They should report which shopping experience was quicker, easier, more convenient; which offered better prices; and any other specific advantages or disadvantages of each type noted. They should explain which experience they preferred and why.

3.

During the early days of e-commerce, first-mover advantage was touted as one way to success. On the other hand, some suggest that being a market follower can yield rewards as well. Which approach has proven to be more successful—first mover or follower? Choose two e-commerce companies that prove your point and prepare a brief presentation to explain your analysis and position.

For students that argue for first-mover advantage as a way to success, examples might include Amazon, Yahoo, Travelocity, eBay, VeriSign, Priceline, E*Trade,

.

18 and PayPal. Although each of these has encountered competition, their early arrival and commitment to becoming the predominant player in their respective marketspace have helped to assure their continuing success.

Those who argue for market followers can point to the demise of many of ecommerce’s first movers. Examples might include Pets.com, Garden.com, Webvan, eToys.com, Kozmo.com, and theGlobe.com. They might point instead to companies who were not among the first on the Web, but today are successful such as Walmart, PetSmart, Williams-Sonoma, Fidelity, and Blue Nile.

4.

Select an e-commerce company that has participated in an incubator program such as Y Combinator, TechStars, DreamIt, Capital Factory, or another of your choosing, and write a short report on its business model and the amount and sources of capital it has raised thus far. Include your views on the company’s future prospects for success. Then create an elevator pitch for the company.

Student answers will vary depending on the company chosen. The pitch should include all key elements listed in Table 2.4 (introduction, background, industry size/market opportunity, revenue model/numbers/growth metrics, funding, and exit strategy).

5.

Select a B2C e-commerce retail industry segment such as pet products, sporting goods, or toys, and analyze its value chain and industry value chain. Prepare a short presentation that identifies the major industry participants in that business and illustrates the move from raw materials to finished product.

Instructors may want to suggest industries to limit student research time and provide an example that shows the type of information that should be included in a presentation. A sample presentation on the industry for gourmet gift baskets would include some of the top industry participants: iGourmet, Harry & David, GiftTree, as well as mention many independent, small gourmet gift-basket companies. The firm value chain of a small gourmet gift basket would involve primary activities of designing the gift baskets (identifying which gift baskets to produce and the items in each basket), ordering wholesale items to include in gift baskets, repackaging items into separate gift baskets and wrapping gift baskets, selling gift baskets, and mailing or delivering finished gift baskets. For the industry value chain, the value chains of suppliers and manufacturers of gourmet food items, such as chocolate and cheese, would be included, along with the third parties involved in sales and retail (Internet service providers), and distribution (such as USPS, UPS, and FedEx).

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to .

19 build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html.

Video Cases for this chapter include: ● Video Case 2.1 Glossier ● Video Case 2.2 Angel Investing

.

1 Instructor’s Manual: Chapter 3 E-commerce Infrastructure: The Internet, Web, and Mobile Platform

Learning Objectives After reading this chapter, your students should be able to: ● Discuss the origins of, and the key technology concepts behind, the Internet. ● Explain the current structure of the Internet. ● Understand how the Web works. ● Describe how Internet and web features and services support e-commerce. ● Understand the impact of mobile applications.

Key Terms 5G, p. 139 ad server, p. 160 Application Layer, p. 120 Applications layer, p. 133 attachment, p. 161 augmented reality (AR), p. 171 backbone, p. 133 bandwidth, p. 134 blog (weblog), p. 169 Bluetooth, p. 142 Border Gateway Protocol, p. 120 broadband, p. 135 cable Internet, p. 137 campus/corporate area network (CAN), p. 138 Cascading Style Sheets (CSS), 157 client, p. 122 client/server computing, p. 122 cloud computing, p. 125 database server, p. 160 Digital Subscriber Line (DSL), p. 137 domain name, p. 122 Domain Name System (DNS), p. 122 download, p. 168 edge computing, 129 electronic mail (e-mail), p. 161 eXtensible Markup Language (XML), p. 157 fiber-optic cable, p. 134 File Transfer Protocol (FTP), p. 130 FiOS (fiber-optic service), p. 137 HTML5, 157

.

2 hybrid cloud, 129 hypertext, p. 153 HyperText Markup Language (HTML), p. 154 HyperText Transfer Protocol (HTTP), p. 130 instant messaging (IM), p. 161 Internet, p. 112 Internet Exchange Point (IXP), p. 135 Internet Explorer, p. 153 Internet Layer, p. 120 Internet Message Access Protocol (IMAP), p. 130 Internet of Things (IoT), p. 144 IP, p. 120 IP telephony, p. 162 IPv4 Internet address, p. 121 IPv6 Internet address, p. 121 mail server, p. 160 media server, p. 160 Middleware Services layer, p. 133 mixed reality (MR), p. 171 Mosaic, p. 153 narrowband, p. 135 Netscape Navigator, p. 153 Network Interface Layer, p. 120 Network Technology Substrate layer, p. 133 online message board, p. 162 Packet InterNet Groper (Ping), p. 131 packet switching, p. 118 packets, p. 118 podcast, p. 168 Post Office Protocol 3 (POP3), p. 130 private cloud, p. 128 protocol, p.120 public cloud, p. 126 Really Simple Syndication (RSS), p. 158 redundancy, p. 134 router, p. 119 routing algorithm, p. 119 satellite Internet, p. 138 search engine, p. 163 Secure Sockets Layer (SSL), p. 131 server, p. 123 Simple Mail Transfer Protocol (SMTP), p. 130 streaming media, p. 168 T1, p. 137

.

3 T3, p. 137 TCP, p. 120 Telnet, p. 131 Tier 1 Internet Service Providers (Tier 1 ISPs), p. 134 Tier 3 Internet Service Provider (Tier 3 ISP), p. 135 Tracert, p. 131 Transmission Control Protocol/Internet Protocol (TCP/IP), p. 120 Transport Layer, p. 120 Transport Layer Security (TLS), p. 131 Transport Services and Representation Standards layer, p. 133 Uniform Resource Locator (URL), p. 122 universal computing, p. 153 virtual reality (VR), p. 170 Voice over Internet Protocol (VoIP), p. 162 Web, p. 112 web browser, p. 160 web client, p. 160 web server software, p. 159 Wi-Fi, p. 140 wiki, p. 170 Brief Chapter Outline The Covid-19 Pandemic: Will the Internet Break?

3.1 The Internet: Technology Background The Evolution of the Internet: 1961—The Present The Internet: Key Technology Concepts The Mobile Platform The Internet “Cloud Computing” Model: Hardware and Software as a Service Other Internet Protocols and Utility Programs 3.2

Internet Infrastructure and Access The Internet Backbone Internet Exchange Points Tier 3 Internet Service Providers Campus/Corporate Area Networks Mobile Internet Access Other Innovative Internet Access Technologies: Drones, Balloons, and White Space The Internet of Things Insight on Business: The Apple Watch: Bringing the Internet of Things to Your Wrist Who Governs the Internet?

Insight on Society: Government Regulation and Surveillance of the Internet

.

4

3.3

The Web Hypertext Markup Languages Web Servers and Clients Web Browsers

3.4

The Internet and the Web: Features and Services Communication Tools Insight on Technology: Zoom in the Midst of the Pandemic Search Engines Downloadable and Streaming Media Web 2.0 Applications and Services Virtual Reality and Augmented Reality Intelligent Digital Assistants

3.5

Mobile Apps: The Next Big Thing Is Here Platforms for Mobile Application Development App Marketplaces

3.6

Careers in E-commerce The Company Position: E-commerce Specialist Qualifications/Skills Preparing for the Interview Possible First Interview Questions

3.7

Case Study: Akamai Technologies: Attempting to Keep Supply Ahead of Demand

3.8

Review Key Concepts Questions Projects References

Figures Figure 3.1 Figure 3.2 Figure 3.3 Figure 3.4 Figure 3.5 Figure 3.6 Figure 3.7

Stages in the Development of the Internet, p. 114 Resolution of the Federal Networking Council, p. 118 Packet Switching, p. 119 (User-controlled animation in eText) The TCP/IP Architecture and Protocol Suite, p. 121 Routing Internet Messages: TCP/IP and Packet Switching, p. 122 (Usercontrolled animation in eText) The Hierarchical Domain Name System, p. 123 The Client/Server Computing Model, p. 124

.

5 Figure 3.8 Figure 3.9 Figure 3.10 Figure 3.11 Figure 3.12 Figure 3.13 Figure 3.14 Figure 3.15 Figure 3.16 Figure 3.17 Figure 3.18

The Cloud Computing Model, p. 125 (Whiteboard video in eText) The Result of a Ping, p. 131 The Hourglass Model of the Internet, p. 132 (User-controlled animation in eText) Internet Network Architecture, p. 133 Some Major U.S. Internet Exchange Points (IXPs), p. 136 Wi-Fi Networks, p. 141 Example HTML Code (A) and Web Page (B), p. 156 A Simple XML Document, p. 157 Sample XML Code for a Company Directory, p. 158 How Google Works, p. 167 The Growth of Internet Traffic, p. 178

Tables Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7 Table 3.8 Table 3.9 Table 3.10 Table 3.11

Trends in E-commerce Infrastructure 2020–2021, p. 113 Development of the Internet Timeline, pp. 115–117 Pieces of the Internet Puzzle: Names and Addresses, p. 123 Amazon Web Services, pp. 127–128 Cloud Computing Models Compared, p. 129 Major U.S. Tier 1 (Transit) Internet Service Providers, p. 134 Internet Access Service Levels and Bandwidth Choices, p. 137 Time to Download a 10-Megabyte File by Type of Internet Service, p. 138 Wireless Internet Access Telephone Technologies, p. 140 Wireless Network Internet Access Technologies, p. 141 Examples of Top-Level Domains, p. 155

Teaching Suggestions This chapter provides a description of the Internet, the Web (including Web 2.0 applications and services), and mobile apps. This is a long chapter, so consider breaking it into two or more parts. One of the key takeaways from this chapter is that the Internet has never been a static technology. Instead, it has evolved over a period of 60 years into an unparalleled communication medium that combines elements of text, television, and radio. The challenge in this chapter is to understand the technical elements of the Internet (without becoming too technical) and understand their business implications while not becoming overwhelmed by the details.

The new opening case study, The Covid-19 Pandemic: Will the Internet Break?, describes the impact of the Covid-19 pandemic on Internet usage, and discusses a common question raised early on during the pandemic: “will the Internet break” under the strain of significantly increased usage. (The short answer, thankfully, is No!) Class discussion questions for this case might include: ● How has your usage of the Internet changed as a result of the pandemic?

Do you spend more time streaming video? Videoconferencing? ● Why are fears that the Internet will break misguided?

.

6 ●

How has the pandemic highlighted the issues raised by the “digital divide”?

Key Points Section 3.1 covers the evolution of the Internet and the key technology underlying the Internet, including the development of the mobile platform and cloud computing, and various Internet protocols and utility programs.

Evolution of the Internet. The Internet has evolved over three stages: Innovation (1961 to 1974), Institutionalization (1975 to 1995), and Commercialization (1995 to the present).

Figure 3.1 offers a visual representation of the stages. You may want to point out to students the length of time required to build the Internet as we know it today and the irony of the phrase “Internet time.” You may also want to describe how long it took radio and television to develop into their current national and international networks. Table 3.2 provides a timeline of significant events with respect to the development of the Internet, separated into the three phases.

Internet Foundation Technologies. The Internet relies on three foundation technologies: packet switching, TCP/IP, and client/server technology. Figure 3.3 (which illustrates how packet switching works) and Figure 3.5 (which illustrates how Internet messages are routed using TCP/IP and packet switching) are both presented as user-controlled animations in the eText for further emphasis. You may also want to review with students how Internet addresses work and the basics of client/server computing.

The very nature of the client computer itself is changing by becoming much smaller and more mobile. Smartphones and tablet computers are leading the charge here, and in the next five years we should expect to see these devices continue to shrink by an order of magnitude while increasing in power.

Another important development to discuss with students is the growing importance of “cloud computing,” which refers to a model of computing in which firms and individuals obtain computing power and software applications over the Internet, rather than purchasing the hardware and software, and installing it on their own computers. Cloud computing is the fastest growing form of computing right now, and radically reduces the cost of building and operating websites because the necessary hardware infrastructure and software can be licensed as a service from Internet providers at a fraction of the cost of purchasing these services as products. Figure 3.8 illustrates the cloud computing model. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 3.8 and this topic. Also note the differences between public, private, and hybrid clouds (Table 3.5 provides a summary), because students need to understand to what these terms refer Discuss the concept of edge computing as a method of optimizing cloud computing.

.

7 Internet Protocols and Utility Programs. The Internet relies on a variety of protocols such as HTTP, SMTP, and POP mail protocols, FTP, and utility programs (software applications) such as Ping and Tracert. As noted in the text, many of the Internet’s original protocols have been supplanted by newer, more secure versions or tools, which you can point out to your students. A drag and drop exercise that asks students to match specific protocols to their proper description appears at the end of this section in the eText.

Internet Infrastructure and Access. Section 3.2 reviews the Internet’s current architecture.

Figure 3.10, the Hourglass Model of the Internet, is very useful for illustrating how Internet hardware and software relate to one another. This figure is presented as a usercontrolled animation in the eText for further emphasis. You can use Figure 3.11 to illustrate how a message moves, from the client on the left of the figure to the client on the right. The remainder of this section examines some of the primary features of the Internet’s infrastructure: the backbone and Tier 1 Internet Service Providers (Tier 1 ISPs); Internet Exchange Points (IXPs); Tier 3 Internet Service Providers (Tier 3 ISPs), which provide the last mile of service to the home or office; campus/corporate area networks; and the mobile platform, including various types of cellular services and WiFi. Students are likely to have seen advertisements by telecommunications providers trumpeting the benefits promised by 5G services, as well as Wi-Fi 6, so you can spend some time discussing what those services currently offer. The use of Bluetooth technologies for contact tracing apps also gives that technology relevance to students.

The section also looks at some innovative new Internet access technologies being developed such as using drones, high-altitude balloons, and unused analog television signals (white spaces), and concludes with a review of the Internet of Things.

The updated Insight on Business case, The Apple Watch: Bringing the Internet of Things to Your Wrist examines the expansion of the mobile digital platform to wearable technologies like the Apple Watch and the new possibilities for e-commerce made possible by these devices. Possible class discussion questions for this case include the following: ● Are you or anyone you know using the Apple Watch? If not, why not? If so, what apps do you use the most? ● What are the potential benefits of wearable technology? Are there any disadvantages? ● What effects will features like the Apple Pay button and the Taptic Engine have? ● Are there any privacy issues raised by wearable technology?

Before leaving this section, take time to discuss the material on who governs the Internet and the updated Insight on Society case, Government Regulation and Surveillance of the Internet. Students might be surprised at the extent to which governments surveil the Internet. Class discussion questions might include the following: ● How is it possible for any government to “control” or censor the Web?

.

8 ● ● ●

Does the Chinese government or the U.S. government have the right to censor content on the Web? How should U.S. companies deal with governments that want to censor content?

What would happen to e-commerce if the existing Web split into a different Web for each country?

How the Web Works. Section 3.3 covers the Web. Key concepts for understanding the Web are hypertext, URLs, HTML (including CSS and HTML5), XML, web servers, and web clients and web browsers (see pages 153 to 160). You may wish to show the HTML code behind a popular web page such as Amazon.

The Internet and the Web: Features and Services. Without the Web and the Internet, ecommerce would be a fraction of its current size. The Web has enabled e-commerce to explode rapidly because of its ability to store and display product information (enabling order entry), receive payments, allow consumers to search for products, and support a wide range of commercial communication. Section 3.4 begins with an overview of the various communication tools that the Internet and Web provide: e-mail; messaging applications; online message boards; Internet telephony; and videoconferencing, video chatting, and telepresence. A new Insight on Technology case, Zoom in the Midst of the Pandemic, looks at how Internet videoconferencing services such as those offered by Zoom have become critical infrastructure for businesses and schools that are operating remotely, as well as a lifeline for the socially isolated. Questions for class discussion include: • What has your experience been like using Zoom and other videoconferencing services during the pandemic?

• What challenges does Zoom face?

• How has Zoom responded to those challenges?

Next, the section looks at search engines, providing a brief review of the history of search engines, including Google, and explaining how they work. Students may be particularly interested in Figure 3.17, How Google Works, given the importance that Google’s search engine plays in everyday life. This is a new, enhanced infographic that should help students better understand what goes on behind the scenes when they type a search query into Google. The section also briefly covers various types of downloadable and streaming media, as well as Web 2.0 applications and technologies that have had a significant impact on e-commerce, most importantly online social networks. The section concludes with a review of two topics that are starting to make an impact on e-commerce: virtual reality and augmented reality (including new mixed reality devices and applications) and intelligent personal assistants such as Apple’s Siri, Amazon’s Alexa and Google Assistant. Ask your students to offer examples of each of these features/services that they have used within the past month.

.

9 Mobile Apps: The Next Big Thing Is Here. Section 3.5 focuses on the explosion of mobile apps and their use as entertainment media and shopping tools. The section also briefly reviews the various mobile app development platforms and app marketplaces available.

In Section 3.6, we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as an e-commerce specialist.

The updated chapter-ending case study on Akamai in Section 3.7 focuses on a company that may be largely unknown to your students, but which is instrumental in providing the infrastructure for the delivery of online content.

Case Study Questions 1.

Why does Akamai need to geographically disperse its servers to deliver its customers’ web content?

The Internet was originally developed to carry text-based e-mail messages among a relatively small group of researchers, not bandwidth-hogging graphics, sound, and video files to tens of millions of people all at once. Also, every 1,500-byte packet of information sent over the Internet must be verified by the receiving server and an acknowledgment sent to the sending server. Each packet can go through many different servers on its way to its final destination, multiplying by several orders of magnitude the number of acknowledgments required to move a packet from New York to San Francisco. This means that the Internet today spends much of its time and capacity verifying packets, causing “latency.” One of the founders of Akamai, Daniel Lewin, came up with the idea to store copies of web content such as pictures and video clips at many different locations around the Internet. This is so that a client can always retrieve a nearby copy, making web pages load faster. Akamai’s main product does just that—it allows customers to move their web content closer to end users, which increases the speed at which the content can be served.

2.

If you wanted to deliver software content over the Internet, would you sign up for Akamai’s service? Why or why not?

Bandwidth requirements of the software or content, the number of simultaneous downloads, and the customer requirements are all factors in determining whether a firm should use a service such as Akamai’s. A small piece of software, less than one megabyte, can be downloaded from a single server to a single user in a few seconds using a DSL or cable modem. However, if 10,000 users sought to download the same software simultaneously, the time required to serve all users would be significantly higher—on the order of several minutes or more. Firms that expect this sort of demand would be well served by Akamai.

.

10 3.

Do you think Internet users should be charged based on the amount of bandwidth they consume, or a tiered plan where users would pay in rough proportion to their usage?

Pay-for-use is a simple principle in economics that is widely accepted. Applied to the Internet in a way similar to telephone systems throughout the world, users would be charged a metered amount for their use of bandwidth. People who streamed Netflix all day long would pay more for their Internet service than people who just send e-mail messages. In general, the ISP industry, from AT&T, Verizon, and Comcast to little mom-and-pop local providers, support pay-for-use in large part because it would allow them to maximize revenue from their technology investments (and to gather up some of the profits that Google, Netflix, Amazon, and others produce). Supporters of net neutrality argue that Internet access should be available to all regardless of use and paid for equally by all (sort of a “freeway”) through flat fees. Charging for use would “discriminate” in their view against certain kinds of content, like high bandwidth video, streaming music, and perhaps games. In general, Internet companies such as Google, Amazon, Yahoo, Netflix, and many others do not want pay-for-use because they are concerned that it would hinder their ability to maximize revenue from their platforms. For a time, FCC regulations mandated net neutrality, but under the Trump administration, those regulations were rescinded in 2018. However, in response, a number of states have taken steps via legislation or executive order to mandate net neutrality.

End-of-Chapter Questions 1.

What are the three basic building blocks of the Internet?

The three basic building blocks are packet switching, the Transmission Control Protocol/Internet Protocol (TCP/IP) communications protocol, and client/server computing. Packet switching is a method of splitting messages up into parcels, routing them along available communications paths, and reassembling them at the destination point. The TCP protocol is the set of rules that specifies how these messages should be formatted, ordered, compressed, and error-checked. The IP protocol provides the addressing scheme for the Internet. Client/server computing refers to networks of powerful client computers that are connected to one or more server computers. The clients are powerful enough to display, process, and store very large files including graphics and sound files. The servers are dedicated to common functions that all clients need, including file storage, and they also house many software applications and utility programs that the clients frequently use.

2.

What is an IPv6 address and why are they necessary?

IPv6 addresses are the latest evolution of Internet addresses, supporting many more addresses than their predecessors, IPv4 addresses. IPv6 addresses are 128

.

11 bits, a large increase from the 32 bits of IPv4. These addresses have become necessary as the Internet has expanded beyond the scope that IPv4 can handle.

3.

Explain how packet switching works.

In packet-switched networks, messages are broken up into fragments (packets) and a digital code with the source address attached. Sequencing and error-control instructions are also added. Instead of being sent directly to their destination, the packets travel between router computers that interconnect the thousands of networks that make up the Internet. The routers use programs called routing algorithms to ensure that each packet takes the best available communication path toward its destination. If some lines are disabled or busy, the packets can be sent along any available line. At the destination point, the packets are reassembled and delivered. This method enables nearly full use of all available communication lines and capacity.

4.

How is the TCP/IP protocol related to information transfer on the Internet?

The TCP/IP protocol determines how messages are formatted, compressed, errorchecked, and how they are addressed, so that they reach the correct destination in the correct order and format. TCP establishes the connections between sending and receiving computers, and it handles the assembly of packets at the point of transmission and their reassembly at the receiving end. IP provides the Internet’s addressing scheme and is responsible for the actual delivery of the packets.

5.

What technological innovation made client/server computing possible?

The technological innovation that made client/server computing possible is the personal computer. Without the invention of the PC and local area networks, we would not have the Internet and the Web. In client/server computing, capacity can be expanded constantly by adding servers and clients to the network. A client/server network is much less vulnerable than the centralized computing architecture that preceded it because if one server malfunctions, backup servers can take over. If a client is down, the rest of the system continues to operate without a hitch. The processing load can be balanced over many powerful, smaller machines rather than being concentrated in a single huge mainframe computer, and both the software and the hardware can be more economically built.

6.

What is cloud computing, and how has it impacted the Internet?

Cloud computing refers to a model of computing in which firms and individuals obtain computing power and software applications over the Internet, rather than purchasing the hardware and software and installing it on their own computers.

Cloud computing is the fastest growing form of computing. Cloud computing has

.

12 impacted the Internet by radically reducing the cost of building and operating websites because the necessary hardware infrastructure and software can be licensed as a service from Internet providers at a fraction of the cost of purchasing these services as products. For individuals, cloud computing means individuals no longer need a powerful laptop or desktop computer to engage in e-commerce or other activities.

7.

Why are smartphones a disruptive technology?

Smartphones are a disruptive technology because they have radically altered the personal computing and e-commerce landscape. They involve a major shift in computer processors and software from the 40-year dual monopolies established

by Intel and Microsoft. The mobile platform also has profound implications for ecommerce because it influences how, where, and when consumers are able to shop and buy.

8.

What role does a Tier 1 ISP play in Internet infrastructure?

Tier 1 ISPs own the long-haul fiber-optic networks that comprise the Internet backbone. Tier 1 ISPs have “peering” arrangements with other Tier 1 ISPs to allow Internet traffic to flow through each other’s cables and equipment without charge. Tier 1 ISPs deal only with other Tier 1 or regional Tier 2 ISPs, and not with end consumers.

9.

What function do the IXPs serve?

Internet Exchange Points (IXPs) use high-speed switching computers to connect the Internet backbone to regional and local networks. They function as the hubs, or interconnect points, where the backbone intersects with these regional and local networks; it is where the backbone owners connect with one another.

10.

What is 5G? 5G is the next frontier for high-bandwidth mobile broadband. It is expected to take several years and billions of dollars to implement fully, but will result in extremely low-latency communications, support for more connections per square kilometer, and most importantly faster download speeds.

11.

What are the differences between a public, a private, and a hybrid cloud?

A public cloud is maintained by a cloud service provider such as Amazon, Google, Microsoft, or IBM. Organizations using these clouds do not own the infrastructure of the cloud. Many tenants and companies can use the same public cloud; thousands of companies use Amazon Web Services, for example. A private

.

13 cloud is operated solely for one tenant. Many companies own their own private cloud infrastructure. Hybrid clouds consist of a mixture of both public and private cloud services.

12.

What is Project Loon?

Project Loon is a Google initiative to use balloons to provide high-speed Internet to areas with low Internet penetration. The balloons circle in the stratosphere of the earth to establish connectivity. For companies like Google, areas of low Internet penetration represent some of the few growth areas left for them and providing Internet to these regions is also beneficial to these communities.

13.

What are some of the challenges of policing the Internet? Who has the final say when it comes to content?

One challenge of policing the Internet is that there are multiple organizations that influence the system and monitor its operations. It is hard to make the Internet conform to the laws of the sovereign nation states in which it operates, and it is difficult to enforce the various and often contradictory laws of all these nations.

Many countries want to put far stricter restrictions on freedom of expression than the United States does. Different cultures have different social morals, and what is acceptable in some countries is decidedly not in others. The issue of who has the final say is also quite controversial and varies from country to country. For instance, in China, the Chinese government has “the final say” about what content is available to viewers who access the Internet from within China. Other countries also regulate the availability of certain types of content. Critics complain that attempting to create “legal harmony” will result in major content restrictions on the Internet with only content that is legally acceptable worldwide being made accessible.

14.

Compare and contrast the capabilities of Wi-Fi and cellular wireless networks.

There are two basic types of wireless Internet connectivity: telephone-based systems and computer network-based systems. Wi-Fi is an example of a computer network-based wireless access system, and 3G/4G/5G wireless networks are telephone-based wireless access systems.

Telephone-based wireless Internet systems, such as 3G/4G/5G systems, connect the user to a telephone system and use a packet-switched technology that is more efficient and faster than traditional circuit-switched networks. The 3G/4G networks have speeds ranging from 384 Kbps for mobile users in a car, to up to 2 Mbps for stationary users. These networks are wide area networks of nearly unlimited range, and are the basis for smartphones, hybrid cellular wireless devices that combine the functionality of a computer with that of a cell phone, and

.

14 require a cellular phone company service connection. They enable consumers to have voice conversations, send and receive text messages or e-mail, and enable Web use. 5G provides for high-bandwidth mobile broadband with speeds reaching 10 Gbps or more, support for up to 100,000 connections per square kilometer (known as massive machine-to-machine (M2M) connections), and ultra-low-latency (less than 10 milliseconds) communications.

Computer network-based wireless Internet systems have a completely different history that is based on corporate local area networks. Here, the task is to connect stationary client computers to server computers within local areas of a few hundred meters. Wi-Fi was the first commercially viable standard for wireless local area networks. In a Wi-Fi network, a wireless access point connects to the Internet directly via a broadband connection (cable or DSL telephone or T1 line), and then transmits radio signals to other transmitters/receivers usually installed in laptop computers. Wi-Fi offers high bandwidth capacity (up to 11 Mbps), suitable for Web surfing and other corporate uses, but a much more limited range (300 feet).

15.

What are the basic capabilities of a web server?

Web server software refers to the software that enables a computer to deliver web pages written in HTML to client computers on a network that request this service by sending an HTTP request. Aside from responding to requests for web pages, all web servers provide some additional basic capabilities such as security services, FTP, search engine modules that enable indexing of a site’s web pages and content, and data capture tools. The term web server can also be used to refer to the physical computer that runs web server software.

16.

What role does CSS play in the creation of web pages?

Cascading Style Sheets (CSS) tells web browsers how to display HTML elements on the screen. If HTML provides the structure, CSS provides the style of a web page.

17.

Why was the development of the browser so significant for the growth of the Web? The development of the browser was an extremely significant breakthrough that enabled rapid growth of the Web. Once it progressed from a simple line interface device to a graphical user interface (GUI), it became possible to view documents with colored backgrounds, images, and animations. Besides the natural interest stimulated by viewing such documents, the graphical web browser also created the possibility of universal computing: the sharing of files including graphics, sound, video, and all sorts of different information by all computer users in the world, no matter what platform or operating system they are using. A browser

.

15 could be made for each operating system, and web pages created for one system could be displayed either exactly or nearly the same on a computer using a different operating system.

18.

What advances and features does HTML5 offer?

HTML5 provides features such as video playback and drag-and-drop that in the past were provided by plug-ins like Adobe Flash. It uses the newest version of Cascading Style Sheets (CSS3) and JavaScript, and another tool, HTML5 Canvas, that can be used to render simple animations, which reduces page-load time.

HTML5 also provides device independence for mobile applications and can more easily access the built-in functionality of mobile devices, including GPS and swiping. HTML5 mobile apps work just like web pages.

19.

Name and describe five services currently available through the Web. There are a variety of services currently available through the Web, including: ● Communication tools such as e-mail; messaging apps; online forums; Internet telephony; and videoconferencing, video chatting, and telepresence. E-mail is the most widely used application on the Internet and allows messages and file attachments to be transferred from one Internet user to another. Messaging apps include both instant messaging, which allows typed text to be displayed on a recipient’s computer almost instantaneously, making real-time conversations between two people possible on the Web, and mobile messaging apps. Online message boards are web applications that enable Internet users to communicate with each other via a message board, bulletin board, or discussion group. IP telephony is a general term for technologies that use Voice over Internet Protocol (VoIP) and the Internet to send voice, fax, and other forms of audio communication over the Internet. Internet videoconferencing is now accessible to anyone with a broadband Internet connection and a web camera and has become a lifeline during the Covid-19 pandemic, for both businesses and social life. Video chatting is a more limited form of videoconferencing, available via apps such as Skype and Apple’s FaceTime. Telepresence takes videoconferencing up several notches with higher broadcast quality and the sensation of “being there.” ● Search engines, which enable users to locate information by matching keywords that the user provides to a list of documents containing those words or the closest matches. ● Web 2.0 applications and services, including online social networks, which are services that support communication within networks of friends and colleagues; blogs (personal web pages created by an individual or corporation to communicate with readers); and wikis (web applications that allow a user to easily add and edit content on a web page).

.

16 ●

●

20.

Virtual reality, which enables users to be immersed within a virtual world; augmented reality, which involves overlaying virtual objects over the real world; and mixed reality, which is an enhanced version of augmented reality.

Intelligent digital assistants, such as Apple’s Siri, Amazon Alexa, and Google’s Google Assistant, have natural language, conversational interface, and situational awareness and can carry out many tasks based on verbal commands by delegating requests to a variety of different web services.

Why are mobile apps the next big thing?

Mobile apps are the next big thing because the use of mobile Internet access devices and mobile apps has truly exploded, with more than 3 million apps available for download on the Apple App Store, and a similar number on Google Play. Mobile apps have usurped TV as the most popular entertainment medium, and are increasingly being used for shopping as well, with m-commerce in the form of purchases of retail and travel products and services via a mobile device expected to generate almost $360 billion in 2020.

Projects 1.

Review the Insight on Business case on Apple Watch. What developments have occurred since the date this case was written in September 2020?

Students should conduct an online search using Google or another search engine on wearable technology, Apple Watch, and any of the other companies mentioned in the case to find new developments on this topic since September 2020.

Answers will vary depending on when the search is conducted.

2.

Call or visit the websites of a cable provider, a DSL provider, and a satellite provider to obtain information on their Internet services. Prepare a brief report summarizing the features, benefits, and costs of each. Which is the fastest? What, if any, are the downsides of selecting any of the three for Internet service (such as additional equipment purchases)?

Student reports should include the name of the companies they called to request information, statistics on upload and download speeds, price, and availability.

Students should discuss at least some of these issues in summarizing the features, benefits, and downsides of the three providers.

3.

Select two countries (excluding the United States) and prepare a short report describing their basic Internet infrastructure. Are they public or commercial?

How and where do they connect to backbones within the United States?

.

17 The purpose of this project is for students to understand the global Internet infrastructure and the significant jump the United States still has on the rest of the world. To prepare this report, students should consult online reference sources.

They are likely to find that New York plays a significant role in connecting the United States to Europe. New York is the “capital” of the global Internet because it has the highest aggregation of Internet capacity that travels between the world’s regions. The United States is still a key staging ground for the rest of the world’s Internet. For example, France Telecom is not based in the United States, but it has a substantial presence in the United States. France Telecom, and other companies like it, must deploy bandwidth in the United States and connect with other ISPs to effectively serve their customers.

Students may also find that Miami has more Internet capacity into Latin American countries than any Latin American city does. If they choose an African country, they will likely find that there are few regional links in Africa, and that almost all upstream Internet circuits connect to the United States (with a few to the United Kingdom, Italy, and France).

ISPs in countries with borders shared with South Africa benefit from low tariff policies of the public South African telecom operator for international links to neighboring countries. As a result, South Africa is a hub for some of its neighbors: Lesotho, Namibia, and Swaziland. There are no other regional backbones or links between neighboring countries aside from Mauritius to Madagascar and the links to South Africa’s neighbors, so much local traffic must go via the United States. This means that significant and rapidly increasing capital outflows from the region are occurring for Internet traffic between African countries paid to U.S. or European telecom operators and ISPs. Vast amounts of telecom transit payments a year leave the continent that could have been invested in local infrastructure. This project should help students grasp the extent of the worldwide digital divide.

4.

Investigate the Internet of Things. Select one example and describe what it is and how it works.

RFID chips are one early example of the Internet of Things. RFID chips use radio waves to send information to RFID readers that can be connected to the Internet.

RFID chips are commonly used for automated payment systems and in manufacturing and retailing to track the location of goods. Sensors in smartphones and embedded in devices are another example of the Internet of Things.

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to

.

18 build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html.

Video Cases for this chapter include: ● Video Case 3.1 How Freshdesk Uses Amazon Web Services ● Video Case 3.2 Compare.com Turns to Microsoft Azure and the Cloud ● Video Case 3.3 Facebook’s Data Centers ● Video Case 3.4 Smart Speakers: Amazon Echo and Google Home

.

Instructor’s Manual: Chapter 4 Building an E-commerce Presence: Websites, Mobile Sites, and Apps

Learning Objectives After reading this chapter, your students should be able to: ● Understand the questions you must ask and answer, and the steps you should take, in developing an e-commerce presence. ● Explain the process that should be followed in building an e-commerce presence. ● Identify and understand the major considerations involved in choosing web server and e-commerce merchant server software. ● Understand the issues involved in choosing the most appropriate hardware for an e-commerce site. ● Identify additional tools that can improve website performance. ● Understand the important considerations involved in developing a mobile website and building mobile applications.

Key Terms A/B testing (split testing), p. 207 acceptance testing, p. 207 accessibility rules, p. 231 Active Server Pages (ASP), p. 228 adaptive web design (AWD), p. 236 agile development, p. 210 ASP.NET, p. 229 benchmarking, p. 208 business objectives, p. 199 ColdFusion, p. 229 co-location, p. 204 Common Gateway Interface (CGI), p. 227 component-based development, p. 210 content management system (CMS), p. 202 DevOps, p. 210 Django, p. 229 Dynamic HTML (DHTML), p. 215 dynamic page generation, p. 215 e-commerce merchant server software, p. 216 hardware platform, p. 220 horizontal scaling, p. 223 hybrid app, p. 234 I/O intensive, p. 223 information requirements, p. 199 Java, p. 227 Java Server Pages (JSP), p. 228 JavaScript, p. 228

.

2 logical design, p. 200 merchant server software package (e-commerce software platform), p. 218 microservices, 211 mobile first design, p. 236 mobile web app, p. 231 mobile website, p. 231 multi-tier architecture, p. 212 multivariate testing, p. 208 native app, p. 231 online catalog, p. 217 open source software, p. 218 outsourcing, p. 200 PHP, p. 229 physical design, p. 200 privacy policy, p. 231 prototyping, p. 210 responsive web design (RWD), p. 236 Ruby on Rails (Ruby, RoR/Rails), p. 229 scalability, p. 223 Scrum, p. 210 service-oriented architecture, 211 shopping cart, p. 217 site management tools, p. 214 stateless, p. 221 SWOT analysis, p. 193 system architecture, p. 211 system design specification, p. 200 system functionalities, p. 199 system testing, p. 207 systems development life cycle (SDLC), p. 198 two-tier architecture, p. 212 unit testing, p. 207 vertical scaling, p. 223 web application server, p. 216 web services, p. 210 widget, p. 230

Brief Chapter Outline Walmart Website Redesign: Going Upscale in Its Fight to Compete with Amazon 4.1 Imagine Your E-commerce Presence What’s the Idea? (The Visioning Process) Where’s the Money: Business and Revenue Model Who and Where Is the Target Audience?

.

3 What Is the Ballpark? Characterize the Marketplace Where’s the Content Coming From?

Know Yourself: Conduct a SWOT Analysis Develop an E-commerce Presence Map Develop a Timeline: Milestones How Much Will This Cost?

Insight on Business: Weebly Makes Creating Websites Easy 4.2

Building an E-commerce Presence: A Systematic Approach The Systems Development Life Cycle Alternative Web Development Methodologies

4.3

Choosing Software Simple versus Multi-tiered Website Architecture Web Server Software Application Servers E-commerce Merchant Server Software Functionality Merchant Server Software Packages (E-commerce Software Platforms)

4.4

Choosing Hardware Right-Sizing Your Hardware Platform: The Demand Side Right-Sizing Your Hardware Platform: The Supply Side

4.5

Other E-commerce Site Tools Website Design: Basic Business Considerations Tools for Search Engine Optimization Tools for Interactivity and Active Content Personalization Tools The Information Policy Set Insight on Society: Designing for Accessibility

4.6

Developing a Mobile Website and Building Mobile Applications Planning and Building a Mobile Presence Mobile Presence: Design Considerations Cross-Platform Mobile App Development Tools Mobile Presence: Performance and Cost Considerations Insight on Technology: Duolingo’s Mobile App Powers Language Learning

4.7

Careers in E-commerce The Company Position: UX Designer Qualifications/Skills Preparing for the Interview

.

4 Possible First Interview Questions 4.8

Case Study: Dick’s Sporting Goods: Taking Control of Its E-commerce Operations

4.9

Review Key Concepts Questions Projects References

Figures Figure 4.1 Figure 4.2 Figure 4.3 Figure 4.4 Figure 4.5 Figure 4.6 Figure 4.7 Figure 4.8 Figure 4.9 Figure 4.10 Figure 4.11 Figure 4.12 Tables Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.7 Table 4.8 Table 4.9 Table 4.10 Table 4.11 Table 4.12

SWOT Analysis, p. 193 E-commerce Presence Map, p. 194 (Whiteboard video in eText) Components of a Website Budget, p. 196 Factors to Consider in Developing an E-commerce Presence, p. 197 (Usercontrolled animation in eText) Systems Development Life Cycle, p. 198 (User-controlled animation in eText) A Logical and Physical Design for a Simple Website, p. 201 Choices in Building and Hosting, p. 202 The Spectrum of Tools for Building Your Own E-commerce Site, p. 203 Costs of Customizing E-commerce Software Packages, p. 203 Factors in Website Optimization, p. 209 Two-tier and Multi-tier E-commerce Site Architectures, p. 213 Degradation in Performance as Number of Users Increases, p. 222

E-commerce Presence Timeline, p. 195 System Analysis: Business Objectives, System Functionalities, and Information Requirements for a Typical E-commerce Site, p. 199 Key Players: Hosting/Co-Location/Cloud Services, p. 204 Basic Functionality Provided by Web Servers, p. 214 (Drag and drop exercise in eText) Application Servers and Their Function, p. 217 Open Source Software Options, p. 219 Factors in Right-Sizing an E-commerce Platform, p. 221 Vertical and Horizontal Scaling Techniques, p. 223 Improving the Processing Architecture of Your Site, p. 224 E-commerce Website Features That Annoy Customers, p. 225 The Eight Most Important Factors in Successful E-commerce Site Design, p. 226 (Drag and drop exercise in eText) Systems Analysis for Building a Mobile Presence, p. 234

.

5 Table 4.13

Unique Features That Must Be Taken into Account When Designing a Mobile Presence, p. 235

Teaching Suggestions This chapter walks students through the general process of building an e-commerce presence. It lays out a methodology for approaching the problem. It also considers the key issues in building an e-commerce presence and identifies some of the tools available that can help entrepreneurs and business managers. The chapter is based on the realworld experiences of the authors.

The key point for students to take away from this chapter is that building an e-commerce presence is a complex undertaking akin to building an entirely new information system.

Major physical and human resources are required, and many firms find it cost-effective to outsource a part or all the effort to specialized firms. On the other hand, building an ecommerce presence has never been easier or cheaper. In general, the cost of building an e-commerce presence today is one-tenth the cost in the year 2000. This should be encouraging to any budding entrepreneurs in your class.

The updated opening case, Walmart Website Redesign: Going Upscale in Its Fight to Compete with Amazon, examines some of the factors involved in the redesign of Walmart’s website and mobile apps. Here are some questions you can pose to the class to spark discussion about the case: ● Why is Walmart considered an underdog in the e-commerce arena? ● What were Walmart’s objectives in redesigning its e-commerce presence? ● How does Walmart’s website differ from Amazon’s website? ● How has the Covid-19 pandemic impacted Walmart?

Key Points Imagining Your E-commerce Presence. Section 4.1 of the chapter (pages 190 to 196) walks the student through the process of creating an e-commerce presence, by developing an idea, understanding how the idea can potentially make money, defining the target audience and the marketplace, and determining what the content looks like. An important part of this effort involves performing a SWOT analysis (see Figure 4.1), developing an e-commerce presence map (see Figure 4.2), and creating a timeline (see Table 4.1). An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 4.2 and this topic.

A Method for Building E-commerce Sites. In the early years of e-commerce, websites were often built one page at a time, with little advance planning. Many disasters resulted.

Section 4.2 of the text borrows the systems analysis and design framework from largescale systems and applies it to building an e-commerce website (which in reality is a large-scale system). Figure 4.4 graphically presents the factors to consider in developing an e-commerce presence as puzzle pieces that need to fit together. Figure 4.5 illustrates

.

6 the systems development life cycle. Both of these figures are presented as user-controlled animations in the eText for further emphasis. Table 4.2 helps you walk students through business objectives, the level of system functionality needed, and information requirements. This plants the idea that systems, information, and business objectives are intimately connected.

This is also a good time to introduce the issue of outsourcing options and tool options.

Figure 4.7 covers most of the outsourcing options, and Figure 4.8 illustrates the range of tool options. You can ask students to investigate options such as Weebly, Wix, WordPress, and Shopify, which enable the relatively quick and inexpensive development of an e-commerce presence. Perhaps this will spark an entrepreneurial spirit in some!

Weebly is the focus of the updated Insight on Business case, Weebly Makes Creating Websites Easy. Weebly was itself once a small start-up, and its business model focuses on enabling small businesses to create websites easily and inexpensively. Some discussion questions for this case might include the following: ● What value does Weebly offer to small businesses? ● Are there any drawbacks to using Weebly to create an e-commerce presence? ● How are service providers like Weebly changing the nature of ecommerce?

Figure 4.10 provides a summary of factors to consider when optimizing the performance of a website. A number of emerging alternative web development methodologies are also introduced, including prototyping, agile development, Scrum, DevOps, component-based development, web services, and new material on service-oriented architecture and microservices.

Choosing the Right Software. Students are curious about the software needed to operate a website. They often confuse web server hardware with web server software, confusion made possible by the widespread use of the generic “web server” phrase. Section 4.3 addresses these concepts. Four figures and tables capture the essence of the section.

Figure 4.11 is a good place to start with a description of both a simple and a complex architecture for a website, from both a software and hardware perspective. Table 4.4 then provides a list of basic functionalities provided by web server software. This table is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise. Table 4.5 provides a list of the many different types of application servers.

Table 4.6 lists some open source software options for students who are interested in “doing it themselves” and “building their own.” You may want to walk students through each of these figures and tables.

Choosing the Right Hardware. We cover the hardware aspects of developing a website in Section 4.4. Students often want to know what hardware is required to run a website and

.

7 how much is needed. Websites can be very simple. You can run a website in your basement with a single server connected to residential Internet access service, but it would not be able to serve many users very effectively. You may wish to start students with Figure 4.12, which shows what happens to processors as load increases. You will want to emphasize the impact of user profile and web page content on performance—the more interactive the content the more processor power is needed.

Site Development Tools. Although the details of website design are beyond the scope of the text, Section 4.5 begins with a brief look at website design basics, and the factors about e-commerce sites that annoy customers (Table 4.10) and conversely, are important in successful e-commerce site design (Table 4.11) Table 4.11 is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise.

The section then provides an updated review of the various tools that site developers can use to build and manage an e-commerce site. Java, JSP, JavaScript/Node.js, tools based on JavaScript (such as React, Vue, AngularJS, D3.js, jQuery, and TypeScript), ASP/ASP.NET, ColdFusion, PHP, Ruby on Rails, and Django are all tools used to add and handle interactive elements on web pages. Design elements such as widgets and mashups enhance user interest and involvement. Personalization and customization tools also are important in developing user engagement and for marketing purposes.

Information Policy Set. Many site developers do not understand that a commercial website needs to have a set of information policies established by management that govern how information gathered at the site will be used. We touch briefly on this topic here and develop it further in Chapter 8.

The updated Insight on Society case, Designing for Accessibility, asks students to think about how a site can be designed to serve the needs of disabled users, including the visually challenged and hearing impaired. There has been increased focus on this topic as a result of several significant legal decisions mentioned in the case. Questions for class discussion might include the following: ● Why might some merchants be reluctant to make their websites accessible to disabled users? ● How can websites be made more accessible? ● Should all websites be required by law to provide “equivalent alternatives” for visual and sound content? ● What additional accessibility problems do mobile devices pose?

Developing a Mobile Website and Building Mobile Applications. Section 4.6 introduces students to some issues surrounding developing a mobile website and building mobile applications. If possible, spend some time talking about the differences between mobile websites that are optimized for the mobile platform versus regular websites that are not, and what impact that might have on the m-commerce opportunities for the site. Although

.

8 students are undoubtedly very familiar with different apps, they may not understand the distinction between a mobile web app, a native app, and a hybrid app. Table 4.12 applies the systems analysis and design framework first introduced in Section 4.1 and Table 4.1 to developing a mobile presence, and Table 4.13 highlights some unique features that students should be aware of that need to be taken into consideration when designing for the mobile platform. The section on mobile presence design considerations also covers several important trends in this area, including mobile first design philosophy, responsive web design (RWD) and adaptive web design (AWD). A section on cross-platform mobile app development tools highlights some of the various tools now available, such as Flutter and React Native, that make creating cross-platform mobile apps relatively easy and inexpensive. A new Insight on Technology case, Duolingo’s Mobile App Powers Language Learning, discusses the development of the Duolingo language learning app.

Questions for class discussion might include the following: ● Why do you think Duolingo’s mobile app has been such a major factor in its success? ● What business model does Duolingo use? ● Why is A/B testing an important part of Duolingo’s process?

Section 4.7 offers students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as a UX (user experience) designer.

The updated chapter-ending case study in Section 4.8 provides a rich discussion of both the business and technology considerations that shaped the decisions by Dick’s Sporting Goods to take over its own e-commerce operations after having outsourced them to eBay for a number of years. An unanticipated side benefit is that these decisions, made for a different reason, may also help Dick’s Sporting Goods to cope with the challenges facing it as a result of the pandemic.

Case Study Questions 1.

Why did Dick’s decide to leave eBay and take over its own e-commerce operations?

The cost of working with eBay was growing rapidly as Dick’s became more successful in online sales. The fees eBay charged rose a percentage of sales even though it cost eBay no more to fulfill an expensive order than an inexpensive order. Dick’s also wanted to customize its web operations to the needs of its customers, in particular to develop an omnichannel business.

2.

What is Dick’s omnichannel strategy?

Dick’s plans to use its physical stores as mini-distribution centers, fulfilling the online orders of local and regional customers from physical stores located nearby.

.

9 The stores can also act as showrooms for its goods, and customers could pick up online orders in nearby stores the same day.

3.

What are the three steps in Dick’s migration to its new e-commerce platform?

Step 1 involves developing the new site and integrating it with their existing systems. Step 2 involves moving its lesser brands to the new platform and continuing to develop the platform. Step 3 involves moving its primary website, Dick’s Sporting Goods, onto the new platform.

4.

What are the primary benefits of Dick’s new system?

Among the primary benefits are the ability to buy online and pick up in store and the ability to test different pricing and marketing approaches by region. Other benefits include an improved search engine and better analytics capabilities.

Dick’s also hopes to achieve higher sales because multi-channel customers spend three times as much as single-channel customers. Finally, the new system allows Dick’s to speed up the innovation and development cycles of its online and physical store operations.

End-of-Chapter Questions 1.

What are the main factors to consider when developing an e-commerce presence?

The main factors to consider when developing an e-commerce presence are the organizational capabilities and human resources needed to build and manage the site, the hardware, the software, the telecommunications infrastructure to meet the demands of your customers, and the site design to implement your business objectives.

2.

Define the systems development life cycle and discuss the various steps involved in creating an e-commerce site.

The systems development life cycle is a methodology for understanding the business objectives of any system so that an appropriate solution can be designed.

The five major steps in the SDLC for an e-commerce site are: systems analysis, systems design, building the system, testing the system, and implementation. In the systems analysis step, the business objectives for the site are identified. The list of the necessary capabilities for the site is translated into lists of the types of information systems and the elements of information that will be needed to achieve them. Next, the main components in the system and their relationships to one another must be identified. The system design includes a data flow diagram and the physical components that will need to be purchased. After the system has been built and programmed, the program modules must be tested one at a time and then the site must be tested as a whole, examining every conceivable path a

.

10 user might try to utilize while on the site. Implementation of an e-commerce site includes the continuing maintenance that will be needed over the life of the site to keep it functional, including correcting mistakes and continuing to improve, update, and modify links and other site features.

3.

Discuss the differences between a simple logical and a simple physical website design.

A simple logical design for a website describes the flow of information at the site, including the processing functions that must be performed and the databases that will provide information. It also includes a description of the security and emergency backup procedures and the controls that will be used in the system. A simple physical design, on the other hand, translates the logical design into the physical components that will be needed such as the servers, software, size of the telecommunications link, backup servers, and security system.

4.

Why is system testing important? Name the types of testing and their relation to each other.

System testing is important because there can be up to thousands of different pathways within a typical e-commerce site and you must make sure that customers can find what they want easily and quickly and, most importantly, that they can complete a purchase without a hitch. The types of testing that must be completed are unit testing, which involves checking each program module; system testing, which includes testing the site as a whole in the way a “typical” user might navigate and make requests for functionality; and acceptance testing, which requires the firm’s key personnel and managers to use the system to verify that the business objectives as originally conceived are being met.

5.

Compare the costs for system development and system maintenance. Which is more expensive, and why?

The costs for system maintenance for an e-commerce site can run anywhere from 50% to 100% per year of the original systems development costs. For small sites, the annual maintenance cost can parallel the development costs, with larger sites achieving some economies of scale. Maintenance is more expensive because ecommerce sites are always in a process of change, improvement, and correction.

E-commerce sites are, in fact, never finished. They are always in the process of being built and rebuilt.

6.

Why is a website so costly to maintain? Discuss the main factors that impact cost.

.

11 Websites are so costly to maintain because code must be debugged; hyperlinks must be tested and repaired continually; emergencies must be handled; and reports, data files, and links to backend databases must be maintained and updated as necessary. General administrative tasks of the site require attention including updating the products and prices. Changes and enhancements to the system are also continually being made so that the site is always adapting to changing market conditions. All of this requires a web team that includes programmers, designers, and business managers from the marketing, sales support, and production departments. This will ensure timely response to customer feedback and that the site is adequately monitored for correct prices and links with updated page display.

7.

What are the main differences between single-tier and multi-tier site architecture?

Single-tier site architecture simply consists of a server machine running the basic web server software. Multi-tier site architecture, on the other hand, provides much more functionality by linking a web server layer that can include multiple web servers to a middle tier that includes many web application servers, which provide a wide variety of transaction processing tasks. This middle layer is also linked to a backend layer that includes existing databases, human resources systems, corporate applications, financial data, and enterprise systems. A multi-tiered site typically employs several or more physical computers each running some of the software applications and sharing the workload across many computers.

8.

Name the basic functionalities a web server should provide.

The basic functionalities a web server should provide are: ● Processing HTTP requests (requests for HTML pages). ● Providing security services to verify the username and password or process the certificates and private/public key information required for credit card processing (Secure Sockets Layer/Transport Layer Security (SSL/TLS)). ● Processing File Transfer Protocol (FTP) requests (transfers of very large files from server to server). ● Providing search engine services. ● Capturing data such as logs of visits, time, duration, and referral sources. ● Providing e-mail services including the ability to send, receive, and store e-mail. ● Providing site management tools to calculate and display key site statistics such as unique visitors, page requests, and the origin of requests, as well as to check the links on the site.

9.

What are the main factors to consider when choosing the best hardware platform for your website?

.

12

In choosing the best platform to use for your website, the main factors to consider are the anticipated number of simultaneous users who will likely visit your site, the customer user profile with their expected requests and behavior while at the site, and the nature of the content on your site. The more visitors you have, the greater the demand will be on your system. If the users will be viewing dynamic pages and large multimedia files, far more capacity will be required.

10.

Why is web server bandwidth an important issue for e-commerce sites?

The factors discussed in question 9 will help to determine the telecommunications link you will need for your site. Web server bandwidth is another important consideration because the larger the bandwidth available, the more customers can hit your site simultaneously. Most ISPs or other site-hosting providers are obligated to provide enough bandwidth so that your site can meet peak demands.

11.

Compare and contrast the various scaling methods. Explain why scalability is a key business issue for websites.

To meet the demands for service at your site, you can scale your hardware vertically, scale your hardware horizontally, or improve the processing architecture at your site. You scale vertically by increasing the processing power of individual components, for example by upgrading the servers from a single processor to multiple processors. You can add up to 20 processors to a machine and also increase chip speeds. The drawbacks to this method are that it can become expensive to purchase new machines with every growth cycle, and that your entire site becomes dependent on just a small number of very powerful computers.

If you horizontally scale your site instead, you add multiple computers to share the workload and increase the “footprint” of the instance, for example adding multiple single processor servers to the site and balancing the load among many servers. You can also create dedicated servers that only handle certain tasks such as HTTP requests, while others handle just database applications. This method requires the use of special load-balancing software to direct the incoming requests to the appropriate server. This is a less expensive method because you can often use older PCs that otherwise might be discarded. Furthermore, if one machine fails, there is a good probability that another one of the many other machines can pick up the load.

The third alternative, improving the processing architecture, is a combination of both vertical and horizontal scaling and system design changes. Scalability is a key business issue for websites because firms must be able to increase the size of

.

13 their sites as demand loads increase, and they must be able to do so efficiently and cost effectively.

12.

What are the eight most important factors impacting website design, and how do they affect a site’s operation?

The most important factors impacting website design are: ● Functionality: The site must have pages that load quickly, perform correctly, and send the user to the requested information about the product offerings. ● Informational: The site must have links that the customer can find easily to obtain information about the company and the products it offers. ● Ease of use: The site must have a simple foolproof navigation scheme. ● Redundant navigation: The site must have alternative paths to reach the same content. ● Ease of purchase: There should be no more than one or two clicks required for the purchasing procedure. ● Multi-browser functionality: The site should work with popular browsers. ● Simple graphics: The site should not use distracting graphics and/or sounds that the user cannot control. ● Legible text: The site should avoid the use of backgrounds that distort text or make it difficult to read.

Failure to pay attention to these factors will adversely affect the operation of a site because users will find the site frustrating to navigate and view, they will have difficulty obtaining information about the products, and they will determine that making a purchase is far too complicated.

13.

What are Java and JavaScript? What role do they play in website design?

Java is a programming language that allows programmers to create interactivity and active content on the client machine, thereby alleviating load on the server because the Java programs or “applets” could be downloaded to the client and executed on the client’s computer. A Java Virtual Machine (VM) was included in browsers that would send a request to the server to download and execute the program and allocate page space to display the results. Today, Java remains one of the most popular programming languages, with many critical technologies, such as the Google Android mobile platform (although not Apple’s iOS), leveraging aspects of the language. However, Java does face some challenges. In recent years, it has been plagued by security flaws, which Oracle has been attempting to address with the frequent release of new versions and security patches. Due to security concerns, Oracle has phased out Java applets and the current versions of most browsers no longer support them. Developers of Javabased web apps now bundle Java within the app, so that applets are not necessary.

.

14 Conversely, JavaScript is a programming language that is used to control the objects on an HTML page and handle interactions with the browser. It is commonly used to control verification and validation of user input, such as confirming that a valid phone number or e-mail address has been entered. It is much more acceptable to corporations and other environments because it is more stable and is restricted to the operation of requested HTML pages.

14.

Name and describe three methods used to treat customers individually. Why are they significant to e-commerce?

There are a number of methods for achieving personalization (the ability to treat people based on their personal qualities and prior history with your site) and customization (the ability to change the product to better fit the needs of the customer). One basic method involves the placement of cookie files on the user’s client computer. A cookie is a small text file placed on the user’s client computer that can contain any kind of information about the customer, such as customer ID, campaign ID, or purchases at the site. When the user returns to the site, or indeed goes further into the site, the customer’s prior history can be accessed from a database. Information gathered on prior visits can then be used to personalize the visit and customize the product. There are also a number of other more sophisticated tools available that offer intelligent customer segmentation, personalization, and individualized product recommendations. Examples include Montetate, Barilliance, and Evergage. Most e-commerce suites, such as Salesforce Commerce Cloud, include similar functionality. At the other end of the spectrum, Google Optimize is a free tool that can customize a website based on visitor location, browser device, and digital behavior. Personalization and customization are significant to e-commerce because they can potentially make it nearly as powerful as a traditional marketplace and perhaps even more powerful than direct mail or shopping at an anonymous suburban shopping mall. Speaking directly to a customer and tailoring a product to that customer are potentially powerful marketing tools that could help to increase sales and revenues.

15.

What are some of the policies e-commerce businesses must develop before launching a site and why must they be developed?

Some of the policies that an e-commerce business site must develop prior to launching are a privacy policy and accessibility rules. The privacy policy is a public statement detailing to customers how the personal information that is gathered at the site will be treated. Accessibility rules are a set of design objectives that ensure disabled users can effectively access a site.

16.

What are the advantages and disadvantages of mobile first design?

.

15 Mobile first design has several advantages. Instead of creating a full-featured design for a desktop website that then needs to be scaled back, mobile first design focuses on creating the best possible experience given mobile platform constraints and then adding back elements for the desktop platform, progressively enhancing the functionality of the site. Proponents of mobile first design argue that it forces designers to focus on what is most important, and this helps create a lean and efficient mobile design that functions much better than a design that begins with a traditional platform that must be stripped down to work on mobile. Mobile first design is not without its challenges, however. It can be more difficult for designers who are more comfortable with the more traditional process.

17.

What is the difference between a mobile web app and a native app?

A mobile web app is an application built to run on the mobile web browser built into a smartphone or tablet computer. In the case of Apple, the native browser is Safari. Generally, it is built to mimic the qualities of a native app using HTML5 and Java. Mobile web apps are specifically designed for the mobile platform in terms of screen size, finger navigation, and graphical simplicity. Mobile web apps can support complex interactions used in games and rich media, perform realtime, on-the-fly calculations, and can be geo-sensitive using the smartphone’s built-in global positioning system (GPS) function. Mobile web apps typically operate faster than mobile websites but not as fast as native apps.

A native app is an application designed specifically to operate using the mobile device’s hardware and operating system. These stand-alone programs can connect to the Internet to download and upload data and can operate on this data even when not connected to the Internet. Download a book to an app reader, disconnect from the Internet, and read your book. Because the various types of smartphones have different hardware and operating systems, apps are not “one size fits all” and, therefore, need to be developed for different mobile platforms. An Apple app that runs on an iPhone cannot operate on Android phones. As you learned in Chapter 3, native apps are built using different programming languages depending on the device for which they are intended, which is then compiled into binary code, and which executes extremely fast on mobile devices, much faster than HTML or Java-based mobile web apps. For this reason, native apps are ideal for games, complex interactions, on-the-fly calculations, graphic manipulations, and rich media advertising.

18.

In what ways does a hybrid mobile app combine the functionality of a mobile web app and a native app?

A hybrid app has many of the features of both a native app and a mobile web app.

Like a native app, it runs inside a native container on the mobile device and has access to the device’s APIs, enabling it to take advantage of many of the device’s

.

16 features, such as a gyroscope, that are normally not accessible by a mobile web app. It can also be packaged as an app for distribution from an App store. Like a mobile web app, it is based on HTML5, CSS3, and JavaScript, but uses the device’s browser engine to render the HTML5 and process the JavaScript locally.

19.

What is PHP and how is it used in web development?

PHP is an open source, general-purpose scripting language that is most frequently used in server-side web applications to generate dynamic web page content, although it can also be used for client-side graphical user interface applications.

PHP is also a part of many web application development frameworks, such as CakePHP, CodeIgniter, and others, and is also part of the LAMP (Linux, Apache, MySQL, and PHP) open source web development model for building dynamic websites and web applications. According to W3Techs, PHP is, far and away, the most commonly used server-side scripting language (used by over 80% of the websites whose server-side programming language it was able to identify).

20.

How does responsive web design differ from adaptive web design?

Responsive web design (RWD) tools and design techniques make it possible to design a website that automatically adjusts its layout and display according to the screen resolution of the device on which it is being viewed, whether a desktop, tablet, or smartphone. RWD uses the same HTML code and design for each device but uses CSS (which determines the layout of the web page) to adjust the layout and display to the screen’s form factor. One problem with RWD, particularly if not coupled with mobile first design, is that the responsive website still has the size and complexity of a traditional desktop site, sometimes making it slow to load and perform on a mobile device. Adaptive web design was developed to deal with this issue. With adaptive web design (AWD), sometimes also referred to as adaptive delivery or responsive web design with server-side components (RESS), the server hosting the website detects the attributes of the device making the request and, using predefined templates based on device screen size along with CSS and JavaScript, loads a version of the site that is optimized for the device. AWD has many advantages compared to RWD, including faster load times, the ability to enhance or remove functionality on the fly, and typically a better user experience, particularly for businesses where user intent differs depending on the platform being used.

Projects 1.

Go to the website of Wix, Weebly, or another provider of your choosing that allows you to create a simple e-tailer website for a free trial period. Create a website. The site should feature at least four pages, including a home page, product page, shopping cart, and contact page. Extra credit will be given for

.

17 additional complexity and creativity. Come to class prepared to present your etailer concept and website.

Students should be able to build a basic website using the tools provided on these sites. Note that it may not be possible for students to build at least four pages (depending on the free functionality provided by these two sites at the time this project is assigned), so credit should not be deducted if that is, in fact, the case.

2.

Visit several e-commerce sites, not including those mentioned in this chapter, and evaluate the effectiveness of the sites according to the eight basic criteria/functionalities listed in Table 4.11. Choose one site you feel does an excellent job on all the aspects of an effective site and create a PowerPoint or similar presentation, including screen shots, to support your choice.

The purpose of this project is to extend the critical thinking skills of students as they examine websites. For each factor listed in Table 4.11, the students should evaluate the website for effectiveness of design. For example, the students should evaluate how clearly the digital catalog conveys the essence of each product using graphics, or other methods such as streaming video, and how effectively products are portrayed in textual descriptions. Students can choose sites at which they are shopping, or they can simply browse, but they should go through the steps of executing a transaction so that they can evaluate the shopping cart/payment system and ease of purchase. They should also navigate to multiple pages at each site so that they can evaluate the ease of use and redundancy of navigation. The presentation might include screen shots of product graphics, navigation bars, and pages from the site displayed in multiple browsers.

3.

Imagine that you are in charge of developing a fast-growing startup’s ecommerce presence. Consider your options for building the company’s ecommerce presence in-house with existing staff, or outsourcing the entire operation. Decide which strategy you believe is in your company’s best interest and create a brief presentation outlining your position. Why choose that approach? And what are the estimated associated costs, compared with the alternative? (You’ll need to make some educated guesses here—don’t worry about being exact.)

The purpose of this project is to get students to begin to consider the managerial decision-making process.

If they choose to build in-house, they might mention such factors as an in-place staff of professionals who are trained for this task including graphic artists, web designers, programmers, and project managers. They may also posit that they are prepared to purchase a top-of-the-line prepackaged site-building tool that will be scalable as the firm expands its customer base. They may also argue that their

.

18 firm sells a highly specialized product so that the need for a customized website is high or that their staff, which is already highly trained, will be able to build a site that does exactly what the company needs. Moreover, they may believe that the staff who will participate in the building of the site will be able to change the site more rapidly to adapt to any changes in the business environment.

Students who opt for outsourcing might mention such factors as the risks involved in building such complex features as shopping carts, credit card authentication and processing systems, inventory management systems, and order processing systems. They may also argue that the risk of ending up with a poorly functioning site is just too great, and that staff will face a long, difficult learning curve. Costs for building in-house might include the salaries of any additional professionals who will have to be hired, the cost of a prepackaged site-building tool, or the costs of additional software or technology that will have to be purchased to build credit card authentication systems. Costs for outsourcing may include an expensive site-building package and costs for hiring an outside vendor to modify the package.

4.

Choose two e-commerce software packages and prepare an evaluation chart that rates the packages on the key factors discussed in the section “Choosing an Ecommerce Software Platform.” Which package would you choose if you were developing a website of the type described in this chapter, and why?

The best way for students to approach this project is to choose two of the ecommerce suites and conduct an online research study to find articles in the popular and technical press that evaluate the products based upon the key factors listed in the chapter. Reading articles and comparisons of the suites will give students insight into just how difficult the process of choosing an e-commerce suite can be for a manager. Answers, of course, will vary according to the suites chosen and the opinions of the authors of the articles collected. One possible comparison based upon product evaluations from various sources is: (Table is based on a scale of 1–10)

Functionality Support for different business models Business process modeling tools Visual site management tools Performance and scalability Connectivity to existing business systems Compliance with standards

.

Sitecore Experience Commerce

HCL Commerce

8.5 7.5 9.2 9.0 7.5 7.5 9.0

7.8 8.0 7.5 8.0 8.2 9.0 8.0

19 Global and multicultural capability Local sales tax and shipping rules

8.0 8.0

9.0 8.0

HCL Commerce (formerly IBM WebSphere Commerce) provides a powerful customer interaction platform for omni-channel commerce. It provides easy-touse tools for business users to centrally manage a cross-channel strategy. Business users can create and manage precision marketing campaigns, promotions, catalog, and merchandising across all sales channels, or use integrated AI enabled content management capabilities. HCL Commerce is a single, unified platform that offers the ability to do business directly with consumers (B2C) and directly with businesses (B2B). HCL Commerce is a customizable, scalable, and high availability solution that is built to use open standards. It uses cloud friendly technology to make deployment and operation easy and efficient including Linux and Windows.

Sitecore Experience Commerce (formerly Microsoft Commerce Server) includes built-in support for omnichannel storefronts, multisites, and multilingual platforms. Capabilities include live edit, templates, and publishing workflows enabling the design of unique digital storefronts. It provides support for A/B and multivariate testing, enabling the optimization of messaging, offers, and promotions. Sitecore also includes Sitecore Experience Accelerator (SXA) and provides a working reference storefront that supports a complete end-to-end B2C shopping experience. The accelerator includes 100+ content and commercespecific components that can be dragged and dropped onto a web page without requiring IT resources, speeding the development and deployment of storefronts.

5.

Choose one of the open source web content management systems such as WordPress, Joomla, or Drupal, or another of your own choosing and prepare an evaluation chart similar to that required by Project 4. Which system would you choose and why?

The first task students must perform to complete this project is to choose an open source web content management system. Once they have done so, the next step, as with Project 4, will be to conduct an online research study to find articles in the popular and technical press that evaluate the product. Answers will vary according to the system chosen and the opinions of the authors of the articles collected. Student evaluation charts should cover the following areas and explain whether they would purchase the system and why or why not: ● Community features ● Shopping cart ● Search engine ● Forum creation ● Ability to create blogs ● Multimedia capability .

20 ● ● ● ● ● ● ●

Templates/themes Document management features Content management features Documentation for system Ease of use/learning curve required SSL/TLS security Internationalization capabilities

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html.

Video Cases for this chapter include: ● Video Case 4.1 E-commerce Platforms: Salesforce Commerce Cloud ● Video Case 4.2 National Kidney Registry Turns to Rackspace for Managed Hosting ● Video Case 4.3 Building a Mobile App

.

1 Instructor’s Manual: Chapter 5 E-commerce Security and Payment Systems

Learning Objectives After reading this chapter, your students should be able to: ● Understand the scope of e-commerce crime and security problems, the key dimensions of e-commerce security, and the tension between security and other values. ● Identify the key security threats in the e-commerce environment. ● Describe how technology helps secure Internet communications channels and protect networks, servers, and clients. ● Appreciate the importance of policies, procedures, and laws in creating security. ● Identify the major e-commerce payment systems in use today. ● Describe the features and functionality of electronic billing presentment and payment systems.

Key Terms access controls, p. 304 Advanced Encryption Standard (AES), p. 290 adware, p. 270 authentication procedures, p. 304 authenticity, p. 261 authorization management system, p. 307 authorization policies, p. 307 availability, p. 262 backdoor, p. 268 BEC (business e-mail compromise) phishing, p. 271 biometrics, p. 304 Bitcoin, p. 319 blockchain, p. 317 blockchain system, p. 318 bot, p. 268 botnet, p. 268 branded store proximity mobile wallets, p. 316 browser parasite, p. 270 CERT Coordination Center, p. 310 certification authority (CA), p. 294 cipher text, p. 288 confidentiality, p. 261 cracker, p. 272 credential stuffing, p. 274 cryptocurrency, p. 319 cryptojacking, p. 270 .

2 cybervandalism, p. 272 data breach, p. 273 Data Encryption Standard (DES), p. 290 Denial of Service (DoS) attack, p. 279 digital certificate, p. 294 digital envelope, p. 293 digital signature (e-signature), p. 293 Distributed Denial of Service (DDoS) attack, p. 279 drive-by download, p. 266 electronic billing presentment and payment (EBPP) system, p. 323 encryption, p. 288 exploit kit, p. 265 firewall, p. 299 hacker, p. 272 hacktivism, p. 273 hash function, p. 291 Heartbleed bug, 281 HTTPS, p. 298 identity fraud, p. 277 implementation plan, p. 304 initial coin offering (ICO), p. 322 integrity, p. 261 intrusion detection system (IDS), p. 301 intrusion prevention system (IPS), p. 301 key (cipher), p. 288 malicious code (malware), p. 264 malvertising, p. 265 man-in-the-middle (MitM) attack, p. 279 merchant account, p. 312 multi-factor authentication (MFA) tools, p. 304 near field communication (NFC), p. 317 nonrepudiation, p. 261 online stored value payment system, p. 314 OpenPGP, p. 296 P2P mobile payment apps, p. 316 PCI-DSS (Payment Card Industry-Data Security Standards), p. 314 pharming, p. 277 phishing, p. 270 potentially unwanted program (PUP), p. 269 Pretty Good Privacy (PGP), p. 296 privacy, p. 261 proxy server (proxy), p. 300 public key cryptography, p. 290 public key infrastructure (PKI), p. 295 .

3 Quick Response (QR) code technology, p. 317 ransomware, p. 267 risk assessment, p. 303 secure negotiated session, p. 297 security audit, p. 307 security organization, p. 304 security policy, p. 303 security token, p. 307 session key, p. 297 sniffer, p. 278 social engineering, p. 270 software supply chain attack, p. 302 spam (junk) websites, p. 278 spoofing, p. 277 spyware, p. 270 SQL injection attack, p. 281 substitution cipher, p. 289 symmetric key cryptography (secret key cryptography), p. 289 transposition cipher, p. 289 Trojan horse, p. 267 two-factor authentication (2FA), p. 304 United States Computer Emergency Readiness Team (US-CERT), p. 308 universal proximity mobile wallets, p. 316 virtual private network (VPN), p. 298 virus, p. 266 worm, p. 266 WPA2, p. 299 WPA3, p. 299 zero-day vulnerability, p. 281 Brief Chapter Outline Cyberwar: MAD 2.0 5.1 The E-commerce Security Environment The Scope of the Problem What Is Good E-commerce Security?

Dimensions of E-commerce Security The Tension between Security and Other Values 5.2

Security Threats in the E-commerce Environment Malicious Code Potentially Unwanted Programs (PUPs) Phishing Hacking, Cybervandalism, and Hacktivism Data Breaches .

4 Insight on Society: Equifax: Really Big Data Hacked Credit Card Fraud/Theft Identity Fraud Spoofing, Pharming, and Spam (Junk) Websites Sniffing and Man-in-the-Middle Attacks Denial of Service (DoS) and Distributed Denial of Service (DDoS) Attacks Insider Attacks Poorly Designed Software Social Network Security Issues Mobile Platform Security Issues Insight on Technology: Think Your Smartphone Is Secure?

Cloud Security Issues Internet of Things Security Issues 5.3

Technology Solutions Protecting Internet Communications Encryption Securing Channels of Communication Protecting Networks Protecting Servers and Clients

5.4

Management Policies, Business Procedures, and Public Laws A Security Plan: Management Policies Insight on Business: Are Biometrics the Solution for E-commerce Security The Role of Laws and Public Policy

5.5

E-commerce Payment Systems Online Credit Card Transactions Alternative Online Payment Systems Mobile Payment Systems: Your Smartphone Wallet Blockchain and Cryptocurrencies

5.6

Electronic Billing Presentment and Payment Market Size and Growth EBPP Business Models

5.7

Careers in E-commerce The Company The Position: Cybersecurity Threat Management Team Trainee Qualifications/Skills Preparing for the Interview Possible First Interview Questions

5.8

Case Study: Mobile Payments: Fintech versus the Bank Giants .

5

5.9

Review Key Concepts Questions Projects References

Figures Figure 5.1 Figure 5.2 Figure 5.3 Figure 5.4 Figure 5.5 Figure 5.6 Figure 5.7 Figure 5.8 Figure 5.9 Figure 5.10 Figure 5.11 Figure 5.12 Figure 5.13 Figure 5.14 Figure 5.15 Figure 5.16 Tables Table 5.1 Table 5.2

Table 5.4 Table 5.5 Table 5.6 Table 5.7 Table 5.8 Table 5.9 Table 5.10

The E-commerce Security Environment, p. 260 (Whiteboard video in eText) A Typical E-commerce Transaction, p. 264 Vulnerable Points in an E-commerce Transaction, p. 265 An Example of a “Nigerian Letter” E-mail Scam, p. 271 Tools Available to Achieve E-commerce Security, p. 288 (User-controlled animation in eText) Public Key Cryptography–A Simple Case, p. 291 (User-controlled animation in eText) Public Key Cryptography with Digital Signatures, p. 292 Public Key Cryptography: Creating a Digital Envelope, p. 294 Digital Certificates and Certification Authorities, p. 295 Secure Negotiated Sessions Using TLS, p. 298 Firewalls and Proxy Servers, p. 301 Developing an E-commerce Security Plan, p. 303 How an Online Credit Card Transaction Works, p. 313 (User-controlled animation in eText) Mobile Wallet App Adoption, p. 316 How Blockchain Works, p. 318 Major Players in the EBPP Marketspace, p. 324 What’s New in E-commerce Security 2020–2021, p. 256 The Cyber Market for Stolen Data, p. 259 Table 5.3 Customer and Merchant Perspectives on the Different Dimensions of E-commerce Security, p. 262 Notable Examples of Malicious Code, p. 269 Internet of Things Security Challenges, p. 287 E-commerce Security Legislation and Regulation, p. 309 Government Efforts to Regulate and Control Encryption, p. 310 Major Trends in E-commerce Payments 2020–2021, p. 311 Notable Bitcoin Hacks, p. 321 Examples of Altcoins, p. 322

.

6 Teaching Suggestions This chapter first summarizes the security threats and solutions of which managers of ecommerce sites need to be aware, and then reviews the different payment systems available on the Web. The key point students should take away from this chapter, with respect to security, is that security is a complex, multi-layered phenomenon that involves a diverse set of risks and a balanced approach. It requires three main elements: special technology, organizational policies and procedures, and laws and industry standards. A good place to start a lecture is with Figure 5.1, which illustrates the interaction and supportive nature of these three elements. No single “magic bullet” solution exists for Internet security any more than for general societal security. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 5.1 and this topic. With respect to payment systems, the key point for students is that the Web has not created completely new methods of payment, although it has changed how methods of payment are implemented.

Online consumers in the United States predominantly use credit cards for purchases, and efforts to wean consumers away from their credit cards have generally failed. The primary exception to this is PayPal, which still relies on the stored value provided by credit cards or checking accounts.

Key Points The updated opening case, Cyberwar: MAD 2.0, highlights the increasing vulnerability of the Web to large-scale attacks, against both “hard” targets such as physical infrastructure, as well as “soft” targets such as the U.S. political process. Ask students to discuss how their daily life might be affected as a result. Indeed, at times it appears that the Internet itself has become a battlefield involving not just rogue groups of terrorists attacking the systems of developed countries but also involving large nation states like the United States as an active participant in conducting its own cyberwar for its own purposes.

Additional questions for class discussion might include the following: ● What is the difference between cyberwar and cyberespionage? ● Why has cyberwar become more potentially devastating in the past decade? ● What damage can be done by cyberweapons like Stuxnet? ● Is it possible to find a political solution to MAD 2.0?

Section 5.1 addresses the e-commerce security environment, including the scope of the problem, the underground economy marketplace, defining good security, the key dimensions of e-commerce security, and the tension between security and other values.

The Scope of the Problem. This section is likely to be of interest to students. Ask students to discuss whether they or anyone they know has ever been a victim of cybercrime. Do they think cybercrime is being overplayed or underplayed in the popular press, given the statistics available and discussed in this section? .

7

Defining Good Security. Good security has many elements. Table 5.3 lists the six key ingredients required for e-commerce sites and how the key stakeholders (consumers and merchants) view the issue. You may want to walk students through this table, so they understand the nature of the problem as well as the different perspectives.

E-commerce Security Threats. Section 5.2 addresses the panoply of security threats in the e-commerce environment with current examples of each type. The e-commerce environment holds threats for both consumers and merchants. Figures 5.2 and 5.3 provide illustrations of typical e-commerce transactions and vulnerable points in the transaction process. Malicious code includes exploit kits, malvertising, drive-by downloads, viruses, worms, ransomware (which is increasingly being focused on small and medium-sized businesses and municipal governments), Trojan horses such as Emotet and Trickbot, and bots. Other security threats include potentially unwanted programs (PUPs) such as adware, browser parasites (including cryptojacking), and spyware; phishing schemes such as Nigerian e-mail attacks and BEC phishing; and hacking, cybervandalism, (including Zoombombing) and hacktivism. Students are likely to have heard a lot about data breaches (including the increasingly used technique of credential stuffing), credit card fraud/theft, and identity fraud. Credit card fraud/theft, although it appears frequently in the news, does not impact consumers as much as students might think because of federal laws that limit liability to $50 for the consumer. However, this leaves the merchant open to much higher losses. Ask students whether they have any personal experience with any of these security threats.

The updated Insight on Society case, Equifax: Really Big Data Hacked, should be a compelling example of the potential damage to users caused by inadequate security.

Questions for class discussion might include the following: ● What organization and technological failures led to the data breach at Equifax? ● What technical solutions are available to combat data breaches? ● Have you or anyone you know experienced a data breach?

Other types of security issues may not be as familiar as some of those mentioned above.

However, spoofing/pharming, sniffing, and man-in-the-middle attacks, as well as DoS/DDoS attacks, are all significant threats to e-commerce security.

Many students may not realize that insider attacks are a leading cause of security issues.

They also may not recognize the relationship between poorly designed software and security issues, so this is something worth pointing out.

The section concludes with a review of security issues specifically related to the use of specific platforms or technologies, such as social networks, mobile devices, cloud computing, and the Internet of Things (IoT). IoT security challenges are detailed in Table 5.5. .

8

The updated Insight on Technology case, Think Your Smartphone Is Secure? highlights the mobile platform security issues. Class discussion questions might include the following: ● Which mobile operating system do you think is more secure—Apple’s iOS or Google’s Android? ● What steps, if any, do you take to make your smartphone more secure? ● What qualities of apps make them a vulnerable security point in smartphone use?

Technology Solutions. Some types of security threats can be ameliorated through technological means, but not all. Section 5.3 focuses on technology solutions for ecommerce security. Figure 5.5 graphically depicts the various tools in the form of a web and is presented as a user-controlled animation in the eText for further emphasis. We separate the section into four major parts: encryption, securing channels of communications, securing networks, and operating system and application software security.

The first part of the section focuses on a variety of encryption techniques, in particular public key encryption, that are useful for protecting Internet communications; these techniques address issues of integrity, authenticity, and confidentiality of messages. It is beneficial to walk students slowly and carefully through Figures 5.6 and 5.7 to illustrate public key encryption and digital signatures. (Figure 5.6 is presented as a user-controlled animation in the eText for further emphasis.) Figure 5.9 is useful for discussing the elements of public key infrastructure. It’s important to remind students that there are limitations to technical security measures, and they often presume a secure organizational environment before they can work. Encryption of any kind is susceptible to disloyal or disgruntled employees and poor client-side security (such as keeping your passwords on an insecure computer directory). Encryption also slows processors and the entire transaction process: the better the security, the worse the performance.

The second part of Section 5.3 focuses on securing channels of communication, and covers TLS, HTTPS, VPNs, and versions of the Wi-Fi Protected Access (WPA) standard, used to secure wireless communications. Figure 5.10 shows how TLS (the successor to SSL) works. TLS is the most common method used in e-commerce transactions.

The third part of Section 5.3 focuses on methods of protecting networks, including firewalls and proxy servers (illustrated by Figure 5.11), and intrusion detection and prevention systems. The final part of Section 5.3 focuses on operating system and application software security enhancements.

Policies, Procedures, and Laws. Even the best technical security is insufficient to protect e-commerce sites. Solid organizational policies and procedures are also required, and laws, covered in Section 5.4, are needed to deter future crime by punishing e-commerce .

9 criminal behavior. Figure 5.12 illustrates the steps managers need to follow to develop a security plan. Access controls (such as the zero trust cybersecurity framework), authentication procedures, and authorization policies are an important part of the toolbox.

Students are likely to be at least somewhat familiar with various multi-factor authentication (MFA) tools, as they have become much more commonly used to secure access to various online services and content.

The updated Insight on Business case, Are Biometrics the Solution for E-commerce Security?, describes the effort to improve e-commerce security by identifying individuals by their physiological characteristics, including face, fingerprints, voice, and more (biometrics). Questions for discussion might include: ● What are biometrics? ● How could the use of biometrics make e-commerce more secure? ● What are some of the potential dangers in using biometrics?

Laws and public policy also play a very important role in e-commerce security. Tables 5.6 and 5.7 illustrate how the U.S. government has used laws and regulations to impose security, while at the same time ensure that government can read secure messages. You might ask students to evaluate the claims of the government to be able to read secure commercial messages. How can messages be secure if the government is able to read them? Does the government have a legitimate claim here? As in all previous communications technologies, governments claim access to private messages in a variety of circumstances: war, criminal conspiracy, or imminent threats to public safety and welfare. Perhaps the real issue is who watches the government? In the United States, reliance is placed on the courts to supervise government intrusions, and on legislatures who exercise the power of the purse to control overly aggressive executive branch members.

Section 5.5 and the end-of-chapter case study focus on e-commerce payment systems.

Before delving into the different types of online payment methods, you should spend a few minutes giving students a quick overview of payment systems and stakeholders.

Online Credit Card Transactions. Payment by credit card is the most common form of ecommerce payment. Figure 5.13 illustrates how a typical online credit card transaction works. This figure is presented as a user-controlled animation in the eText for further emphasis. These transactions carry risks for merchants in particular. Moreover, credit cards are not equally distributed. Millions of U.S. citizens do not have a credit card, making it difficult for them to shop online.

Alternative Online Payment Systems. The limitations of the online credit card system have opened the way for the development of a number of alternative online payment systems, such as PayPal, Amazon Pay, Facebook Pay, Visa Checkout, PayPal Credit, and Afterpay.

.

10 Mobile Payment Systems. Mobile payment systems are the fastest growing type of alternative payment systems and are covered in this section and the chapter-ending case study. Make sure students understand the differences between the three primary types of mobile wallet apps (universal proximity, branded store proximity, and P2P). Figure 5.14 identifies the top universal proximity and P2P mobile payment apps. A drag and drop exercise asking students to sort mobile payment apps into their various types appears at the end of Section 5.5 in the eText.

Blockchain and Cryptocurrencies. Cryptocurrencies such as Bitcoin and their underlying blockchain technology have burst onto the scene in the past few years. Figure 5.15 illustrates how blockchain technology works. Although Bitcoin was created with an aim towards secure, anonymous transactions, it has nevertheless been vulnerable to theft.

Table 5.9 lists some of the largest Bitcoin hacks to date. Table 5.10 lists and describes some examples of altcoins (alternative cryptocurrencies).

Electronic Billing Presentment and Payment. EBPP systems, covered in Section 5.6, are essentially a replacement for the physical check system in the United States, which remains the dominant form of payment. Figure 5.16 provides an overview of the players in this marketplace and the different types of bill payment systems available online.

In Section 5.7, we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as a Cybersecurity Threat Management Team trainee.

The updated chapter-ending case study, Mobile Payments: Fintech versus the Bank Giants, in Section 5.8, provides further detail on mobile payment systems.

Case Study Questions 1.

What are the three types of mobile payments, and how do they differ?

The three types of mobile payment systems are proximity payment systems (such as Apple Pay and Google Pay), branded proximity payment systems (such as Walmart Pay), and P2P payment systems for payments among individuals (such as Venmo and Zelle).

2.

Which age groups are the most likely to adopt mobile payment apps? Why? The age groups that are most likely to adopt mobile payment apps are Millennials and Gen Z-ers. who have significantly decreased their use of checks, and who, unlike their parents, are comfortable handling their financial transactions using a smartphone. For instance, almost 60% of Millennial mobile phone users are expected to use proximity mobile payments in 2020, compared to just 11% of “Baby Boomer” mobile phone users.

.

11 3.

Why have fintech startups had a hard time competing with the tech giants?

Fintech startups have had a tough time competing with the tech giants in the mobile payment market, as evidenced by Venmo’s acquisition by PayPal. Apple, Google, and Samsung own the hardware and software platform of the ubiquitous smartphone, making their devices and services more useful to consumers, while PayPal and Square operate large-scale online payment processing platforms and apps that can be used on all smartphones.

4.

What is Zelle and why has it grown so fast in the last few years?

Zelle is a P2P service allowing instant payments between users and other financial services without the need to use local banks. Zelle has grown so quickly because it is free to use and extremely fast.

End-of-Chapter Questions 1.

Why is it less risky to steal online? Explain some of the ways criminals deceive consumers and merchants.

The potential for anonymity on the Internet can allow criminals to assume identities that look legitimate and at the same time shield them from law enforcement agencies. Using these assumed identities, criminals can place fraudulent orders with online merchants, intercept e-mail, steal customer information, and shut down e-commerce sites using software viruses.

2.

Explain why an e-commerce site might not want to report being the target of cybercriminals.

E-commerce sites are often hesitant to report that they have been the targets of cybercriminals because companies fear losing the trust of consumers. The actual amount of crime is difficult to estimate because of these fears. Companies fear that if they reveal the full extent of the theft of proprietary information and financial fraud, legitimate customers will lose confidence in the e-marketing channel and will take their business offline.

3.

Give an example of security breaches as they relate to each of the six dimensions of e-commerce security. For instance, what would be a privacy incident? ●

Integrity: This is the ability to ensure that information being displayed on a website or being transmitted/received over the Internet has not been altered in any way by an unauthorized party. One type of integrity security breach would be an unauthorized person intercepting and redirecting a bank wire transfer into a different account.

.

12 ●

●

●

●

●

4.

Nonrepudiation: The ability to ensure that e-commerce participants do not deny their online actions. An example of a repudiation incident would be a customer ordering merchandise online and later denying that he or she had done so. The credit card issuer will usually side with the customer because the merchant has no legally valid proof that the customer ordered the merchandise.

Authenticity: Authenticity is the ability to identify the identity of a person or entity you are transacting with on the Internet. One instance of an authenticity security breach is “spoofing,” in which someone uses a fake e-mail address, or poses as someone else. This can also involve redirecting a web link to a different address.

Confidentiality: The ability to ensure that messages and data are available only to authorized viewers. One type of confidentiality security breach is “sniffing,” in which a program is used to steal proprietary information on a network including e-mail messages, company files, or confidential reports.

Privacy: The ability to control the use of personal or financial information a customer provides to an e-commerce merchant. An example of a privacy security breach is a hacker breaking into an e-commerce site and gaining access to credit card or other customer information. This violates the confidentiality of the data and also the privacy of the people who supplied the data.

Availability: This is the ability to ensure that an e-commerce site continues to function as intended. One availability security breach is a DoS (Denial of Service) attack in which hackers flood a website with useless traffic that causes it to shut down, making it impossible for users to access the site.

How would you protect your firm against a Denial of Service attack?

One way to protect against DoS attacks would be to increase the redundancy of your network’s servers. Firewalls and proxy servers that filter communications directed at servers should also be used.

5.

Name the major points of vulnerability in a typical online transaction.

The major points of vulnerability are at the client level, at the server level, and over the Internet communications channels.

6.

How does spoofing threaten a website’s operations?

Spoofing can redirect customers to a knock-off website where the customers are fooled into completing an online order with a fraudulent or different company from the one with whom they intended to do business. In this way, business can .

13 be stolen away from a site. Spoof hackers can also alter orders by inflating them or changing the products ordered. The orders can then be sent on to the original site for processing and delivery. Customers will become irate at the poor customer service and will take their business elsewhere. Huge inventory fluctuations caused by these actions can also significantly harm operations.

7.

Why is adware or spyware considered to be a security threat?

Spyware and (to a lesser degree) adware are considered security threats because they are covertly placed on users’ computers, where they then collect and distribute private personal information. Spyware can obtain passwords, e-mail, instant messages, and so on, whereas adware is slightly less harmful once installed.

8.

What are some of the steps a company can take to curtail cybercriminal activity from within a business?

One measure a company can take is to implement access controls to determine which insiders can gain access to the firm’s networks. Insider access controls typically consist of login procedures using usernames, passwords, and access codes. Authorization management systems regulate where and when a user is permitted to access certain parts of a website. Entry rules are established up front for each user, and the authorization management system “knows” who is permitted to go where at all times. The authorization management system encrypts a user session and functions like a passkey following a user from page to page and only allowing access to areas where the user has been granted permission based on data that has been entered in the system database.

9.

Explain some of the modern-day flaws associated with encryption. Why is encryption not as secure today as it was earlier in the century?

Public key encryption is computationally slow—if 128- or 256-bit keys were used to encode large documents, transmission speeds would slow and significant increases in processing times would occur. Symmetric key encryption is computationally faster but requires that the sender and the receiver share the same key, which must be sent over insecure transmission lines. Encryption is also not as secure today as it was earlier in the century because computers are so much more powerful and faster that ancient means of encryption can be easily broken.

Furthermore, to effectively use symmetric key encryption for commercial use today, you would need a secret key for each of the parties in a transaction: one for the bank, one for the merchant, and one for the government. Thousands of millions of keys would be needed to accommodate all e-commerce users.

10.

Briefly explain how public key cryptography works. .

14

Public key cryptography solves the problem of exchanging keys by creating a mathematically related public key and private key. The private key is kept secret by the owner, while the public key is widely disseminated. The main concept behind this method is that a one-way, irreversible mathematical function is used to produce the keys. Both keys can be used to encrypt and decrypt a message, but after it is encrypted, the same key cannot be used to decrypt a message. Only a person with possession of the recipient’s private key can decrypt a message. The addition of a digital signature ensures the authenticity of the message and guarantees nonrepudiation. The sender uses his or her own private key to encrypt the message along with a hash function, which has been added to create a unique digest of the message. When used with the hash function, the digital signature is even more unique than a handwritten signature. This irreversible process creates a cipher text that can be read only by the recipient using his/her private key.

11.

Compare and contrast firewalls and proxy servers and their security functions.

Firewalls and proxy servers are used to build a wall around private networks as well as the attached servers and clients. Firewalls refer to either hardware or software that filter communication packets and prevent packets from entering the network based on a security policy. Proxy servers are software servers that handle all communications originating from or being sent to the Internet. Their primary function is to limit the access of internal clients to external Internet servers; user HTTP requests are routed to a proxy server. The user and the nature of the request must be validated before the request is sent on to the Internet. Pages sent by external Internet servers must pass through the proxy server and be deemed acceptable before they can enter the internal network and be routed to the client machine. Proxy servers also improve web performance by storing frequently used pages locally, reducing upload times, and hiding the internal network’s address so that hackers will have a difficult time monitoring the network.

12.

Is a computer with anti-virus software protected from viruses? Why or why not?

Anti-virus software will protect a computer from many, but not all, of the most common types of viruses. The software will also destroy any viruses already present on the hard drive. However, new viruses are being developed daily, so routine updates of the software are needed to prevent new viruses from causing damage.

13.

Identify and discuss the five steps in developing an e-commerce security plan.

The five steps in developing an e-commerce security plan are: ● Perform a risk assessment: First, an inventory of the information and knowledge assets of a company is taken, and a dollar value amount is .

15

●

● ●

●

14.

placed on each asset. Then, this amount is multiplied by the estimated probability that the information could be compromised. This computation is used to produce a ranked list of the information assets of the firm prioritized by their value.

Develop a security policy: A set of statements should be developed that prioritizes the information risks, identifies acceptable risk targets, and sets out the goals for achieving these targets. Included in the security policy should be a list of the personnel who are or will be entrusted with the information assets. It should also include a description of the security policies that presently exist for these assets and suggestions for improvements. Finally, it should outline the level of risk the firm is willing to accept for each asset, and the estimated cost to achieve this level of acceptable risk.

Develop an implementation plan: The actions to achieve the security plan goals must be set out. The tools, technologies, policies, and procedures needed to achieve the acceptable levels of risk must be developed.

Create a security organization: A security organization must be established that will train users and keep management apprised of the security threats and breakdowns. The access controls that will determine who can gain legitimate access to the firm’s networks and the authentication procedures that will be used to protect data from intruders must be determined.

Authorization policies must also be established for the differing levels of access to information assets for different users.

Perform a security audit: A security audit must be conducted to identify how outsiders are using the site and how insiders are accessing the site’s assets. A monthly report should be generated that will establish the routine and non-routine accesses to the system and identify any unusual patterns.

How do biometric devices help improve security? What particular type of security breach do they reduce?

Biometric devices help improve security by working in conjunction with digital signatures to ensure the authenticity of messages. They guarantee nonrepudiation by verifying the physical attributes of an individual. Biometric devices are often part of a multi-factor authentication (MFA) system. Fingerprints, retina scans, or speech recognition systems can be used to identify individuals before they are allowed to access a website or pay for merchandise with a credit card. Biometric devices also make a spoofing security breach less likely by making it more difficult for hackers to break into a site.

15.

Briefly discuss the disadvantages of credit cards as the standard for online payments. How does requiring a credit card for payment discriminate against some consumers?

.

16 A disadvantage to credit cards is that merchants must pay a significant transaction fee of between 3% and 5% of the sale. The risks of a transaction are largely borne by the merchant. In addition to the percentage fee, merchants must also pay an additional transaction fee of $0.20 to $0.30 per transaction as well as other set-up fees. The high transaction costs make selling small items such as articles and music tracks that are paid for by credit card undesirable. Furthermore, online merchants never see the actual card being used, no card impression is taken, and no signature is available. These last three reasons are why consumers can later dispute charges. The merchant faces the risk that the transaction will be refuted and reversed even though the merchandise has already been shipped, or the digital product has already been downloaded. Existing credit card payment systems also offer poor security because neither the merchant nor the consumer can be fully authenticated. Requiring a credit card for payment also discriminates against some consumers because millions of young adults and almost 100 million Americans who cannot afford credit cards are denied access to online shopping.

16.

Describe the major steps involved in an online credit card transaction.

The major steps involved in an online transaction are: ● The purchase ● The delivery of the order to the merchant using an SSL/TLS secure connection ● The transfer of the order to the clearinghouse over a secure line ● The verification with the consumer’s issuing bank of the availability of a balance sufficient to make the purchase ● The issuing bank crediting the merchant’s account ● A monthly statement including the charge being sent to the consumer When a consumer wants to make a purchase, he/she first adds items to a shopping cart. Next, a secure tunnel to the Internet is created so that the consumer can send the credit card information to the merchant. Then, the merchant contacts the clearinghouse to authenticate the credit card and verify the account balance. Once the sale is approved, the issuing bank credits the merchant’s account at the merchant’s bank and finally, the debit to the consumer’s account is transmitted to the consumer in a monthly statement.

17.

Why is Bitcoin so controversial?

Bitcoin is controversial because it is a currency that cannot be easily controlled by governments or banks. They can be used with nearly complete anonymity, and often are used for criminal or illegal purposes, which law enforcement agencies find troubling. Economists are also skeptical about Bitcoins. Users face substantial risks, including the risk that they will not attain widespread

.

17 acceptance, that governments might halt their production, as well as volatility in terms of their valuation, and the potential that they may be stolen.

18.

What is NFC and how does it work? How does it differ from QR code technology?

Near field communication (NFC) is a set of short-range wireless technologies used to share information among devices within about two inches of each other (50 mm). NFC devices are either powered or passive. A connection requires one powered unit (the initiator, such as a smartphone) and one target device, such as a merchant NFC reader, that can respond to requests from the initiator. NFC targets can be very simple forms such as tags, stickers, key fobs, or readers. NFC peer-topeer communication is possible where both devices are powered. An NFCequipped smartphone, for instance, can be swiped by a merchant’s reader to record a payment wirelessly and without contact. NFC is the primary enabling technology for universal proximity mobile wallets such as Apple Pay and Google Pay while Quick Response (QR) code technology is typically used for branded store proximity mobile wallets. QR code technology uses a mobile app to generate a two-dimensional bar code (the QR code) in which information is encoded. The merchant then scans the QR code and the payment amount is deducted from the customer’s mobile wallet, which is linked to a credit card or debit card. Walmart Pay, Starbucks Pay, Target Pay, Dunkin Donuts, and many other retailers all use QR-based technologies.

19.

Discuss why EBPP systems are becoming increasingly popular.

EBPP (electronic billing presentment and payment) systems are becoming increasingly popular because of the substantial cost savings that will occur if online billing becomes the norm. The savings in postage, processing, and improved cash flow can be astounding, ranging from $0.10 to $1.50 per invoice.

Furthermore, online bills can be used as a sales opportunity, providing many options for marketing and promotion such as offering rebates and savings offers on the Web.

20.

How are the main types of EBPP systems both alike and different from each other?

There are four EBPP business models: online banking, biller-direct, mobile, and consolidator. They are all alike because they all enable bills to be created, delivered, and paid over the Internet. However, they each go about the process in slightly different ways.

To use online banking, consumers share their banking or credit card credentials with the merchant and authorize the merchant to charge the consumer’s bank account. This model has the advantage of convenience for the consumer because .

18 the payments are deducted automatically, usually with a notice from the bank or the merchant that their account has been debited.

In the biller-direct model, consumers are sent bills by e-mail notification, and go to the merchant’s website to make payments using their banking credentials. This model has the advantage of allowing the merchant to engage the consumer by sending coupons or rewards. The biller-direct model is a two-step process, and less convenient for consumers. A mobile device allows consumers to make payments using mobile apps, once again relying on their bank credentials as the source of funds. Consumers are notified of a bill by text message and authorize the payment.

An extension of this is the social-mobile model, where social networks like Facebook integrate payment into their messaging services. The mobile model has several advantages, not least of which is the convenience for consumers of paying bills while using their phones, but also the speed with which bills can be paid in a single step.

In the consolidator model, a third party, such as a financial institution or a focused portal such as Intuit’s Paytrust, Fiserv’s MyCheckFree, Mint Bills, and others, aggregates all bills for consumers and permits one-stop bill payment. This model has the advantage of allowing consumers to see all their bills at one website or app. However, because bills come due at different times, consumers need to check their portals often. The consolidator model faces several challenges. For billers, using the consolidator model means an increased time lag between billing and payment, and also inserts an intermediary between the company and its customer.

Projects 1.

Imagine you are the owner of an e-commerce website. What are some of the signs that your site has been hacked? Discuss the major types of attacks you could expect to experience and the resulting damage to your site. Prepare a brief summary presentation.

To do this project, students should supplement what they have learned in the chapter with online research to explain the clues an e-commerce owner might see to know that their site has been hacked into. Research should also supplement the student’s discussion of what types of attacks site owners should expect to experience, and the damage to the site that might result. The summary presentation should include examples of recent viruses, worms, and Trojan horses. They should provide an explanation in each instance of the damage these types of malicious code cause to the websites they infect.

2.

Given the shift toward m-commerce, do a search on m-commerce (or mobile commerce) crime. Identify and discuss the security threats this type of technology .

19 creates. Prepare a presentation outlining your vision of the new opportunities for cybercrime that m-commerce may provide.

The purpose of this project is for students to begin to appreciate security challenges presented by wireless technology, particularly as it is increasingly being used by employees and customers to access critical enterprise data and systems. Students should consult online research sources to identify and discuss specific threats. For instance, one could integrate wireless safeguards with security processes and technologies that are already in place to protect e-business, such as enforcing passwords and selectively defining user access levels.

Some security threats the students might discuss include the fact that PC-based applications can be secured using strong authentication and encryption while developers must work with somewhat limited memory capabilities of wireless devices. This makes the use of strong authentication and encryption difficult.

Another important point students might discuss is that because wireless devices such as cell phones are small and highly mobile, they are easily and frequently stolen. This means user authentication is critical for secure m-commerce.

Unfortunately, experts say many current wireless protocols come up short on authentication.

3.

Find three certification authorities and compare the features of each company’s digital certificates. Provide a brief description of each company as well, including number of clients. Prepare a brief presentation of your findings.

Students should start by conducting an online search for the names of certification authorities. Certification authorities that students might locate include, but are not limited to: IdenTrust, DigiCert (GeoTrust, Digicert, and Thawte brands), Sectigo, GoDaddy, and Entrust.

Students should gather information about each company and the features of each company’s digital certificates. They should visit the company website and read the product descriptions, “About Us,” or comparable web pages. This information should be supplemented with online research in the popular business and technical press. Similar information should be garnered from two other CAs and a comparison among the three constructed.

4.

Research the challenges associated with payments across international borders and prepare a brief presentation of your findings. Do most e-commerce companies conduct business internationally? How do they protect themselves from repudiation? How do exchange rates impact online purchases? What about shipping charges? Summarize by describing the differences between a U.S. customer and an international customer who each make a purchase from a U.S. e-commerce merchant. .

20

Students should begin by using a search engine to find information about the challenges of conducting e-commerce globally. Although the text has repeatedly emphasized the global nature of e-commerce and its potential for easily crossing international boundaries, there are a number of obstacles, and much inter-firm coordination must take place for e-commerce firms to truly take advantage of the global marketplace.

The first challenge to international e-business is language. Companies who have taken the plunge into international e-commerce have found that simple steps such as adding a native language customer service phone number can make sales in that country double. What holds many companies back is the price of developing a multilingual presence online. Web pages must be translated, and several different sites must be maintained, one for each country or language. It is also difficult to coordinate content and branding between the sites, and there is a myriad of business systems that must be either built or purchased. Producing a website in another language can cost from $50,000 on up and large projects can run as much as $2 million per language, but the upside is that it can quickly turn foreign browsers into buyers.

Language differences aren’t the only challenges—companies must be able to exchange financial information in a variety of currencies and account for currency fluctuations. Countries also use different formats for weights, measures, dates, telephone numbers, addresses, and other common information. Because of this an international customer might find a standard U.S. order form confusing.

Another big problem area for e-business is global trade management. Global ecommerce firms must be able to comply with a variety of complex regulations to engage in global trade. Analysts estimate that a very high percentage of international orders to U.S. e-commerce sites aren’t fulfilled because companies can’t handle the necessary procedures. Shipping goods across borders requires logistics software, yet many international shippers don’t yet have it. Furthermore, many e-businesses don’t have e-procurement software that can analyze the total “landed cost.” (“Landed cost” refers to all costs of sourcing and shipping a product internationally, including customs management, tariffs, transportation, and cost of goods.) The cost of these systems may be too steep for most small etailers’ budgets.

Most world cultures, especially developing nations, don’t rely on credit cards, which creates even more difficulty for international e-commerce. This is even the case in parts of Europe, Japan, Asia, South America, and much of the Middle East. Europeans generally rely on debit cards, many of which can’t be used for online transactions because their use requires a manual swipe. Forrester Research

.

21 reports that few U.S. merchants offer debit/invoice payment alternatives, whereas the majority of European merchants do.

Fraud is a huge issue for merchants going global. As noted in the text, unlike the offline world where banks often take on the cost of fraudulent credit card transactions, online merchants are typically responsible for fraudulent charges.

Higher shipping and tax costs, the lack of address verification systems, and the high incidence of fraud in many Eastern European and African nations add considerable risk to any global venture. Third-party payment gateways are incorporating fraud-protection systems, but these services may increase already high per-transaction pricing without really providing the necessary protections.

Address verification services work only for cardholders living within the United States, leaving foreign transactions unchecked and at risk. As fraud has increased in sophistication in the last several years, many online firms have shut down their international transaction operations.

As far as exchange rates are concerned, most online e-commerce websites do not offer any type of currency conversion from the native sales price. This makes it extremely difficult for international customers to assess the “true” purchase price of the item. Many times, they will not know until their credit card statement arrives how much the item actually costs. For many customers, purchasing blindly in a foreign currency is a risk they won’t undertake. Very few merchants have a default currency selection system that will display the sales prices in multiple currencies. Many countries also levy import fees on goods purchased from beyond their borders. The customer can only get an idea of the initial sales price of goods, and computing the additional tariffs requires extra steps, often done manually, that can substantially affect the final purchase cost and the buyer’s decision on whether to complete the transaction.

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html.

Video Cases for this chapter include: ● Video Case 5.1 The Rise of Cyberwarfare ● Video Case 5.2 Understanding Bitcoin .

1 Instructor’s Manual: Chapter 6 E-commerce Marketing and Advertising Concepts

Learning Objectives After reading this chapter, your students should be able to: • Understand the key features of the Internet audience, the basic concepts of consumer behavior and purchasing, and how consumers behave online.

• Identify and describe the basic digital commerce marketing and advertising strategies and tools.

• Identify and describe the main technologies that support online marketing.

• Understand the costs and benefits of online marketing communications.

Key Terms abandonment rate, p. 407 acquisition rate, p. 407 ad exchanges, p. 370 ad fraud, p. 371 ad targeting, p. 360 advertising networks, p. 369 affiliate marketing, p. 374 attrition rate, p. 407 automated response system, p. 385 banner ad, p. 366 behavioral targeting, p. 381 big data, p. 401 bounce-back rate, p. 408 browse-to-buy ratio, p. 407 bundling, p. 388 cart conversion rate, p. 407 checkout conversion rate, p. 407 click fraud, p. 365 clickstream behavior, p. 353 click-through rate (CTR), p. 405 click-through rate (e-mail), p. 408 completion rate, p. 407 consumer behavior, p. 350 content farms, p. 365 content marketing, p. 369 conversion rate, p. 407 cookie, p. 395 cost per action (CPA), p. 410 cost per click (CPC), p. 410 cost per thousand (CPM), p. 410 cross-platform attribution, p. 409 customer co-production, p. 383

.

2 customer experience, p. 358 customer profile, p. 400 customer relationship management (CRM) system, p. 403 customer touchpoints, p. 403 customization, p. 383 data mining, p. 400 data warehouse, p. 400 database, p. 397 database management system (DBMS), p. 400 delivery rate, p. 408 demand curve, p. 385 deterministic cross-device tracking, p. 396 direct e-mail marketing, p. 372 dynamic pricing, p. 389 effective cost-per-thousand (eCPM), p. 411 Fred, p. 364 frequently asked questions (FAQs), p. 384 Hadoop, p. 402 hits, p. 405 Hummingbird, p. 363 impressions, p. 405 interest-based advertising (IBA), p. 381 keyword advertising, p. 362 Knowledge Graph, p. 363 Law of One Price, p. 385 lead generation marketing, p. 375 link farms, p. 365 long tail effect, p. 390 loyalty, p. 405 marketing analytics software, p. 413 marketing automation systems, p. 402 model-driven data mining, p. 401 native advertising, p. 368 network keyword advertising (context advertising), p. 362 one-to-one marketing (personalization), p. 378 online advertising, p. 359 open rate, p. 407 organic search, p. 362 page views, p. 405 paid inclusion, p. 362 Panda, p. 363 pay-per-click (PPC) search ad, p. 362 Penguin, p. 363 Possum, p. 364 price discrimination, p. 386 pricing, p. 385

.

3 probabilistic cross-device tracking, p. 396 profiling, p. 397 programmatic advertising, p. 370 query-driven data mining, p. 400 reach, p. 405 real-time bidding (RTB) process, p. 370 real-time customer service chat systems, p. 384 recency, p. 405 registration forms, p. 393 relational databases, p. 400 retargeting, p. 381 retention rate, p. 407 rich media ad, p. 367 search engine advertising, p. 361 search engine marketing (SEM), p. 361 search engine optimization (SEO), p. 363 shopping cart database, p. 393 social search, p. 364 spam, p. 373 sponsorship, p. 368 stickiness (duration), p. 407 structured query language (SQL), p. 400 transaction log, p. 393 unique visitors, p. 405 versioning, p. 388 video ad, p. 367 view time, p. 407 viewability rate, p. 405 view-through rate (VTR), p. 405 view-to-cart ratio, p. 407 viral marketing, p. 375 visual search, p. 364 voice search, p. 364 Brief Chapter Outline Video Ads: Shoot, Click, Buy 6.1 Consumers Online: The Internet Audience and Consumer Behavior Internet Traffic Patterns: The Online Consumer Profile Consumer Behavior Models The Online Purchasing Decision Shoppers: Browsers and Buyers What Consumers Shop for and Buy Online Intentional Acts: How Shoppers Find Vendors Online Why Some People Don’t Shop Online Trust, Utility, and Opportunism in Online Markets

.

4 6.2

Digital Commerce Marketing and Advertising Strategies and Tools Strategic Issues and Questions The Website as a Marketing Platform: Establishing the Customer Relationship Traditional Online Marketing and Advertising Tools Social, Mobile, and Local Marketing and Advertising Multi-Channel Marketing: Integrating Online and Offline Marketing Insight on Business: Are the Very Rich Different from You and Me? Other Online Marketing Strategies Insight on Technology: The Long Tail: Big Hits and Big Misses

6.3

Internet Marketing Technologies The Revolution in Internet Marketing Technologies Web Transaction Logs Supplementing the Logs: Cookies and Other Tracking Files Insight on Society: Every Move You Take, Every Click You Make, We’ll Be Tracking You Databases, Data Warehouses, Data Mining, and Big Data Marketing Automation and Customer Relationship Management (CRM) Systems

6.4

Understanding the Costs and Benefits of Online Marketing Communications Online Marketing Metrics: Lexicon How Well Does Online Advertising Work?

The Costs of Online Advertising Marketing Analytics: Software for Measuring Online Marketing Results

6.5

Careers in E-commerce The Company The Position: Digital Marketing Assistant Qualifications/Skills Preparing for the Interview Possible First Interview Questions

6.6

Case Study: Programmatic Advertising: Real-Time Marketing

6.7

Review Key Concepts Questions Projects References

Figures Figure 6.1 Figure 6.2 Figure 6.3 Figure 6.4

A General Model of Consumer Behavior, p. 350 (User-controlled animation in eText) The Consumer Decision Process and Supporting Communications, p. 351 A Model of Online Consumer Behavior, p. 352 Online Shoppers and Buyers, p. 354

.

5 Figure 6.5 Figure 6.6 Figure 6.7 Figure 6.8 Figure 6.9 Figure 6.10 Figure 6.11

Tables Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5 Table 6.6 Table 6.7 Table 6.8 Table 6.9

Online Advertising Spending, p. 360 How an Advertising Network Works, p. 370 (User-controlled animation in eText) Average Time Spent Per Day with Major Media, p. 378 A Demand Curve, p. 386 A Customer Relationship Management System, p. 404 An Online Consumer Purchasing Model, p. 408 (Whiteboard video in eText) Marketing Analytics and the Online Purchasing Process, p. 413 (Usercontrolled animation in eText) What’s New in Online Marketing and Advertising 2020–2021, p. 347 The Digital Marketing Roadmap, p. 357 Online Advertising Spending for Selected Formats (in billions), p. 361 Types of Video Ads, p. 367 Impact of Unique Features of E-commerce Technology on Marketing, p.

394 Marketing Metrics Lexicon, p. 406 Online Marketing Communications: Typical Click-Through Rates, p. 409 Different Pricing Models for Online Advertisements, p. 411 (Drag and drop exercise in eText) Traditional and Online Advertising Costs Compared, p. 412

Teaching Suggestions Chapter 6 introduces the student to e-commerce marketing and advertising concepts. The chapter covers online consumer behavior, digital commerce marketing and advertising strategies and tools, Internet marketing technologies, and understanding the costs and benefits of online marketing communications. If you have students without any background in marketing concepts, you may wish to refer them to Learning Tracks 6.1 and 6.2, which will provide them with some basic information.

The fundamental principles of marketing remain intact online. Building online brands is a major source of financial and strategic strength for online firms; it is a major avenue for avoiding pure price competition and financial ruin. Nevertheless, the Internet provides consumers with a whole new environment for interacting with firms because online behavior is different from offline behavior. The Internet provides consumers a powerful new soapbox from which to either support or dismiss products, and to have these opinions propagate across the nation very rapidly. E-commerce presents marketers with risks as well as opportunities. Moreover, the tools and technologies for online marketing are very different from those for offline marketing.

The updated opening case, Video Ads: Shoot, Click, Buy, focuses on video advertising, particularly on YouTube. Many large firms now have YouTube channels that they use as a marketing and advertising branding platform and YouTube is also a pre-eminent platform for online video ads. Ask your students if they mind watching television-quality

.

6 ads online, and whether they are preferable to other types of online advertisements, such as banner ads. Other questions for class discussion might include the following: • What advantages do video ads have over traditional display ads?

• Where do sites such as YouTube fit into a marketing strategy featuring video ads?

• What are some of the challenges and risks of placing video ads online?

• Do you think Internet users will ever develop “blindness” toward video ads as well?

Key Points Online Consumer Behavior. Section 6.1 provides basic information about the Internet audience and traffic patterns (online consumer profile) as well as online consumer behavior and purchasing decisions. Most students are unaware of the basic behavioral realities with respect to online consumers. A basic ingredient of the old dictum, “know thy customer”—who is online, what they do when there, what they buy and look at—is a very important prerequisite for successful marketing campaigns. Figures 6.1 and 6.3 provide summary models of the complex process of consumer purchasing. Figure 6.1 is presented as a user-controlled animation in the eText for further emphasis.

Some key points to make in this section are: • Online shopping includes both purchasers and browsers.

• Online shopping strongly influences offline purchases.

• Online shopping is largely intentional.

Digital Commerce Marketing Platform Strategies and Tools: Section 6.2 reviews various strategies and tools in digital commerce marketing. E-commerce has now been around long enough that there are tools that can be considered “traditional,” such as search engine marketing, display ad marketing (banner ads, rich media ads, video ads, sponsorships, native advertising and content marketing, as well as the use of advertising networks that employ programmatic advertising, ad exchanges, and real-time bidding), email and permission marketing, affiliate marketing, and lead generation marketing.

Advertising networks and programmatic advertising is an important topic that is covered in the chapter and also in the chapter-ending case study. Figure 6.6, which illustrates how advertising networks work, is presented as a user-controlled animation in the eText for further emphasis. Newer forms of digital commerce marketing, including social marketing, mobile marketing, and local marketing, are reviewed very briefly, and covered in much more depth in Chapter 7. Spend some time on Table 6.2, which illustrates the five main elements of a comprehensive digital marketing program, including website, traditional online marketing, social marketing, mobile marketing, and offline marketing. In today’s environment, multi-channel marketing is becoming increasingly important.

The updated Insight on Business case, Are the Very Rich Different from You and Me?, examines how luxury goods providers are using online marketing in conjunction with their offline marketing efforts. Class discussion questions for this case might include the following:

.

7 • • • •

What distinguishes luxury marketing from ordinary retail marketing?

What challenges do luxury retailers have translating their brands and the look and feel of luxury shops into websites?

How has social media affected luxury marketing?

Visit the Net-a-Porter website. What do you find there?

The chapter then examines some further online marketing strategies such as customer retention strategies like one-to-one marketing (personalization), interest-based advertising (behavioral targeting), customization and customer co-production, customer service, pricing strategies, and “Long Tail” marketing.

The updated Insight on Technology case, The Long Tail: Big Hits and Big Misses, contains a description of collaborative filtering coupled with the use of recommender systems. This provides a good introduction to data mining. Questions for class discussion might include the following: • What are “recommender systems”? Give an example you have used.

• What is the “Long Tail” and how do recommender systems support sales of items in the Long Tail?

• How can human editors, including consumers, make recommender systems more helpful?

Internet Marketing Technologies. The Internet and the Web provide marketers with a set of exciting marketing technologies. Section 6.3 covers web transaction logs, tracking files, databases, data warehouses, data mining, big data, and marketing automation and customer relationship management systems. You will want to spend some time on each of these technologies, noting that many of them come with a social cost, namely, the loss of privacy.

A good place to end the discussion is the updated Insight on Society case, Every Move You Take, Every Click You Make, We’ll Be Tracking You, which describes the privacy implications of tracking files. You could ask students what kinds of controls might allow marketers to use web tracking, but also protect individual privacy. Other class discussion questions might include the following: • Are beacons innocuous? Or are they an invasion of personal privacy?

• Do you think your web browsing should be known to marketers?

• Should online shopping be allowed to be a private activity?

• What impact may the California Consumer Privacy Protection Act have on DNT? The Costs and Benefits of Online Marketing Communications. Section 6.4 introduces the vocabulary of online marketing. A good way to begin is to review Table 6.6, which describes the different metrics used in online advertising. Most research has demonstrated that display ads are effective for producing both brand recognition and immediate sales, and that this effect is positive even when consumers do not click. Table 6.8, which reviews the different pricing models for online advertisements, is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view

.

8 the table in its entirety before attempting to complete the exercise. The online consumer purchasing model in Figure 6.10 gives the students a quantitative idea of the connection between exposure to a banner ad and a subsequent sale. Some may find it surprising that 100,000 untargeted impressions may only lead to a tiny level of purchases (50). This can be improved dramatically by targeting the advertisement or using e-mail or pay for inclusion communications. Indeed, e-mail response rates are considerably higher than direct mail, banner ads, or even traditional media ads. In general, online advertising is more cost-effective than traditional advertising via offline media such as television, radio, and newspapers. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 6.10 and this topic. The section concludes with a quick look at marketing analytics software packages, which can be used to measure online marketing results. Figure 6.11 provides a conceptual overview of how the various types of data that can be collected and analyzed using such software relates to each of the stages in the online purchasing process. This figure is presented as a user-controlled animation in the eText for further emphasis.

In Section 6.5, we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as a digital marketing assistant.

The updated chapter-ending case study, Programmatic Advertising: Real-Time Marketing, in Section 6.6, examines the increasing ability of advertising networks and exchanges to deliver behaviorally tracked display ads directly to users in real time, as well as some of the issues raised by this practice.

Case Study Questions 1.

Pay a visit to your favorite portal and count the total ads on the opening page.

Count how many of these ads are (a) immediately of interest and relevant to you, (b) sort of interesting or relevant but not now, and (c) not interesting or relevant.

Do this 10 times and calculate the percentage of the three kinds of situations.

Describe what you find and explain the results using this case.

The results should be interesting! You might want to ask students whether they have cookies turned off, use an ad blocker, or software to prevent tracking.

Ordinarily, students do not take these steps. In general, it is likely that students will report that only a small percent (at best 20%) of the ads are appropriate in any way for them. This means the online advertising at these sites is not very efficient.

In part this is the case, because the advertisers know very little about the individuals per se. This is not the case at product or service sites where context advertising can be quite effective. If you go to an auto site like Edmunds.com, or a fashion site like Elle.com, you will receive ads appropriate for these contexts.

2.

Advertisers use different kinds of “profiles” in the decision to display ads to customers. Identify the different kinds of profiles described in this case and explain why they are relevant to online display advertising.

.

9

Profiles are built by recording the behavior of people online, and inferring their interests, age, gender, location, preferences, political views, and social attitudes.

The list of possible profiles is very large and dependent upon the relevance to advertisers or others who purchase the profiling service. For instance, the U.S. Army recruiting group may want to target 18-21-year-olds with a preference for online games and war movies. For online display advertisers, profiling is a way to approach the effectiveness of search engine advertising by displaying banner ads that are of interest to the consumer.

3.

How can display ads achieve search-engine-like results?

Search ads work so well because they capture the intentions of people at every instance of searching and can display ads relevant to those searches instantly.

Display ads can achieve a similar result if they are based on behavioral profiles (constructed from information such as what sites users have visited and what products and services users have observed on various sites).

4.

Do you think instant display ads based on your immediately prior clickstream will be as effective as search engine marketing techniques? Why or why not?

Yes and no. For instance, just because you visit a news site, and then a sports site, this does not offer many clues to advertisers. Clickstream behavior that previously happened, even if immediately prior, may not be such a good indicator of current interests. Long-term online behavior can establish patterns that could be more useful. On the other hand, yes, if a person visited a car site such as Ford, stayed a few minutes, then at the next site he/she visits it might be useful to display an ad for Ford cars, and even follow that person around the Web showing Ford cars wherever he/she goes. These techniques are so new that there is little empirical data on which to make a judgment.

End-of-Chapter Questions 1.

Is growth of the Internet, in terms of users, expected to continue indefinitely?

What, if anything, will cause it to slow?

In the United States, the growth of the Internet has slowed to about 1.5% a year, in part because those most likely to use the Internet already have access.

2.

What are some methods of cross-device tracking?

Deterministic cross-device tracking and probabilistic cross-device tracking are two methods of cross-device tracking. Deterministic cross-device tracking relies on personally identifiable information such as an e-mail address used to log into an app and website on different devices. Facebook, Google, Apple, Twitter, and other companies that have very large user bases and have both desktop and mobile properties that require logins are the most likely to be able to effectively

.

10 exploit deterministic matching. Probabilistic cross-device tracking uses algorithms to analyze thousands of anonymous data points, such as device type, operating system, and IP address, to create a possible match. This type of matching is less accurate than deterministic matching.

3.

Would you say that the Internet fosters or impedes social activity? Explain your position.

The Internet both fosters and impedes social activity. It fosters it because e-mail, instant messaging, and social networks help people to easily stay in touch with friends and relatives. Online forums encourage people to ask questions and interact with people with similar interests, or who are going through the same stages in life.

The Internet may impede social activity because it causes people to spend less quality time with family and friends because they spend more time in front of the computer.

4.

Research has shown that many consumers use the Internet to investigate purchases before actually buying, which is often done in a physical storefront.

What implication does this have for online merchants? What can they do to entice more online buying, rather than pure research?

The fact that many consumers use the Internet to research products before making actual purchases has many implications for online merchants because it suggests that e-commerce is a major conduit and generator of offline commerce. This could mean that e-commerce and traditional commerce should integrate to alleviate the concern. It is very important for online merchants to build the information content on their sites to attract browsers, put less attention on selling, per se, and offer products in offline settings where users feel more comfortable and secure.

5.

What are some of the changes that Google has made to its search engine algorithms to improve search results and user experience?

Google has made frequent changes to its search algorithms to improve the search results and user experience. Google, for instance, reportedly makes over 600 search engine changes in a year. Most are small unannounced tweaks. Major changes have included Panda, Penguin, Hummingbird, Knowledge Graph, Possum, an unnamed algorithm that has been nicknamed Mobilegeddon, and Fred. Panda was introduced to weed out low-quality sites from search results.

Those sites with thin content, duplicate content, content copied from elsewhere on the Web, and content that did not attract high-quality hits from other sources were systematically pushed down in the search results. Google introduced Penguin to punish websites and their SEO marketing firms who were manipulating links to their site to improve their rankings. The Google search engine rewards sites that

.

11 have links from many other sites. What some marketers discovered is that Google could not tell the quality of these back links, and they began to manufacture links by putting their clients onto list sites, creating multiple blogs to link to their clients’ sites, and paying others to link to their clients’ sites. Penguin evaluates the quality of links to a site and pushes down in the rankings those sites that have poor-quality back links.

Hummingbird is another major algorithm. Rather than evaluate each word separately in a search, Google’s semantically informed Hummingbird will try to evaluate an entire sentence. Semantic search more closely follows conversational search, or search as you would ordinarily speak it to another human being. Google developed Knowledge Graph as an effort to anticipate what you might want to know more about as you search on a topic or answer questions you might not have thought of asking. Results of Knowledge Graph appear on the right of the screen and contain more information about the topic or person you are searching.

Not all search terms have a Knowledge Graph result. Google displays information based on what other users have searched for in the past, as well as its database on over 1 billion objects (people, places, and things), and more than 70 billion facts.

In 2015, Google introduced an algorithm update, nicknamed Mobilegeddon, that prioritized “mobile-friendliness” of websites. Ads that obscure the screen and requests to download apps are considered suboptimal and happen to be used by many of Google’s biggest competitors in search. In 2016, Google introduced Possum, an algorithm update that varies search results based on the user’s location; for example, the closer a user is to a business’s address, the more likely it is to appear among the local results. In 2017, Google released the Fred algorithm, which excludes websites with low-value, ad-focused content, especially blogs. Since then, Google has released a number of unnamed broad core algorithm updates, about which it has not provided many details.

6.

Why have advertising networks become controversial? What, if anything, can be done to overcome any resistance to this technique?

Advertising networks have become controversial because their ability to track individual consumers across the Internet is alarming to privacy advocates.

Legislation or regulation that would curtail the use of web beacons and other tracking devices without consumer notification could help to overcome resistance to this technique. Giving consumers the option to opt in or opt out and making web beacons visible as an icon on the screen could ease consumers’ concerns.

Finally, privacy advocates believe that if a user clicks the icon, a disclosure statement should indicate any or all of the following: what data is being collected, how the data will be used, what other companies will receive the data, what other data it will be combined with, and if a cookie is associated with the web beacon.

Consumers should be able to opt out of any data collection done by the web beacon, and it should never be used to collect sensitive data such as medical, financial, job-related, or sexual matters.

.

12

7.

What is a marketing automation system and how is it used?

Marketing automation systems are software tools that marketers use to track all the steps in the lead generation part of the marketing process. The marketing process begins with making the potential customer aware of the firm and product and recognizing the need for the product. This is the beginning of a lead— someone who might buy. From there, consumers need to find you as they search for products; they will compare your products with your competitors’ offerings and at some point, choose to purchase. Software can help in each of these stages of the marketing process. A number of firms sell software packages that can visualize most of the online marketing.

8.

List the differences among databases, data warehouses, and data mining.

A database stores records and attributes organized into tables. Databases are maintained for e-commerce transactions, shopping carts, point-of-sale terminals, warehouse inventory levels, field sales reports, and many other types of records.

A data warehouse gathers all the database information from customer and transaction databases and stores it in one logical repository where it can be analyzed and modeled by managers without disrupting or taxing the systems of a firm’s primary transactional systems and databases. Using the data warehouse, managers can query multiple databases to determine the answers to many marketing and financial questions, enhancing their strategic decision-making capabilities.

Data mining is a set of analytical techniques that look for patterns in database information or seek to model the behavior of visitors and customers. Website data can be mined to develop customer profiles that identify patterns in group or individual behaviors on the site. Data mining can be either query-driven, modeldriven, or rule-based. Query-driven data mining is the simplest type; both databases and data warehouses can be queried. Marketers can answer specific questions such as, “What products sell better at different hours of the day?” and adjust website content accordingly. In model-driven data mining, a model analyzes the key variables in a strategic decision so that informed decisions can be made. In rule-based data mining, demographic and transactional data is examined, and general rules of behavior are derived for specific well-defined market segments.

9.

Name some of the drawbacks to the data mining techniques used in Internet marketing.

All the data mining techniques face difficulties in that there can be millions of affinity groups and other patterns in the data that are temporal or meaningless.

.

13 With all data mining techniques, it becomes tricky to isolate the valid, and therefore profitable, data and then act on it quickly enough to make sales.

10.

What pricing strategy turned out to be deadly for many e-commerce ventures during the early days of e-commerce? Why? The pricing strategy that turned out to be deadly for many e-commerce firms in the early days of e-commerce was a low-price leader strategy, which even resulted in “free” pricing. The idea was to attract enough eyeballs with free goods and services to amass a large, committed audience. It was supposed to achieve profitability through advertising and charging a small number of willing customers subscription fees for value-added services. Unfortunately, many early e-commerce businesses were unable to convert eyeballs into paying customers, and the strategy of piggybacking on a small number of users who would be willing to pay for premium services was not a great success.

11.

Is price discrimination different from versioning? If so, how?

Price discrimination is different from versioning because price discrimination is strictly the selling of products to different people or groups based upon their willingness to pay. Versioning involves creating multiple versions of a good or service and offering them at different prices. In versioning, reduced value versions that have less functionality can be offered for free or at reduced prices, whereas premium versions are sold at much higher prices. In this situation, consumers are aware that they are “getting what they pay for.” With price discrimination, it is the exact same product that is offered to different groups at different prices, concealing from each group the amount the other groups are paying.

12.

What are some of the reasons that freebies, such as free Internet service and giveaways, don’t work to generate sales at a website?

Freebies such as free Internet service and giveaways often did not cause the stimulus to sales that firms believed they would. This is because many so-called “freeloaders” never had the intention of paying for the product or additional products. They would simply switch to another free service if the one they were using began to charge fees or stop usage altogether if alternatives no longer existed.

13.

Explain how versioning works. How is this different from dynamic pricing?

Versioning works by having a set of slightly different products that can be sold successfully to different market segments. Low-priced or free versions can be less convenient, less comprehensive, slower, less powerful, and offer less support than higher-priced models. Versioning differs from dynamic pricing because each

.

14 version is sold at a fixed, predetermined price, and there are slight differences in functionality between versions.

In dynamic pricing, auctions can be used to establish an instant market price based upon the price the market will bear. Yield management systems can be used to set prices for different markets and appeal to different segments to sell excess capacity. Auctions work for pricing unusual as well as commonplace goods; the differing price an article will bring in the marketplace is not based upon the version of the good or service, but rather upon the market dynamics at that particular moment in time. Yield management systems are generally profitable for perishable goods or where there are seasonal variations in demand or rapidly changing market conditions. Again, the product itself is no more or less functional than its higher or lower yielding counterparts despite the varying prices preset by managers.

14.

Why do companies that bundle products and services have an advantage over those that don’t or can’t offer this option?

Although consumers are apt to have very diverse ideas about the value of a single product, there is much more agreement on the value of a bundle of products. This often results in a price per product people are willing to pay for a bundle that is higher than the price they would be willing to pay for each product sold separately. Bundling reduces the variance in the market demand for goods, meaning that more people are willing to pay the same price for the bundle of goods. Bundler firms can pay higher prices to their suppliers for content, and they can charge higher prices to their customers for their bundles than can single good firms.

15.

What are some reasons why online advertising now constitutes about 60% of the total advertising market?

Online advertising now constitutes about 60% of the total advertising market for a variety of reasons. The primary reason is that the Internet is where the audience has moved, especially the very desirable 18–34 age group. A second reason is that online advertising enables advertisers to target ads to individuals and small groups and to track performance of advertisements in almost real time. Online advertisements also provide greater opportunities for interactivity—two-way communication between advertisers and potential customers.

16.

What are some of the advantages of direct e-mail marketing?

The major advantage of direct e-mail marketing is that because e-mails are sent to interested users who have elected to “opt in,” they have proven to be one of the most effective forms of marketing communication. These consumers have at one time or another expressed an interest in receiving messages from advertisers.

Therefore, the response rates are much greater than other forms of online

.

15 marketing communications. Another advantage is that the cost is negligible. The primary cost is for the purchase of a list of names, which can be from $0.05 to $0.20 per name, depending on how targeted the list is. Sending the e-mails is virtually cost-free. Furthermore, marketers can rapidly get a targeted direct e-mail advertising campaign off the ground whereas a banner ad or search engine campaign takes more time.

17.

Why is offline advertising still important?

Offline advertising is still important because, so far, the marketing communications campaigns that have been the most successful at driving traffic to a website have combined both offline and online tactics. Research studies have shown that the most effective online advertisements were those that incorporated consistent imagery with ads that were running simultaneously in print media and on television. Furthermore, since offline media such as television and radio have nearly 100% market penetration and millions of adults read a newspaper every day, it would be foolish to ignore these more popular media devices for driving traffic to a website. Meeting the objectives of drawing the attention of people who are already online and attracting the attention of those who will be going online in the near future can best be accomplished with a combined offline/online strategy.

18.

What is the difference between hits and page views? Why are these not the best measurements of web traffic? Which is the preferred metric for traffic counts?

Hits are the number of http requests received by a server, whereas page views are the number of pages requested by visitors. Hits can be a misleading measure of site activity because one page view can include many hits if the page contains multiple images or graphics. Page views are also an inaccurate measure of site activity because of the increased usage of web pages that use frames to divide the page into separate sections. This will cause one page to generate multiple hits: one for each frame on the page. The preferred metric for traffic counts is unique visitors, which counts the number of new visitors to a site, regardless of how many pages they view.

19.

Define CTR, CPM, CPC, CPA, and VTR. CTR (click-through rate) refers to the percentage of people exposed to an online advertisement who click it to visit the site. CPM refers to the cost per thousand impressions. Advertisers originally purchased online ads in lots of 1,000 units.

CPC (cost per click) is a later pricing model in which the advertiser pays a prenegotiated fee for each click an ad receives. CPA (cost per action) refers to a cost structure where advertisers pay a prenegotiated amount only when a user performs a specific action such as a site registration or purchase. VTR (viewthrough rate) refers to the 30-day response rate to an ad, which may be useful for ads that do not lead to an immediate click but may lead to one in the near future.

.

16 20.

What are marketing analytics and how are they used?

Marketing analytics (also called web analytics) are software packages that collect, store, analyze, and graphically present data on each of the stages in the conversion of shopper to customer process on e-commerce sites. Analytics packages can tell business managers how people become aware of their site, and where they come from (e.g., search, self-entered URL, e-mail, social campaigns, or off-line traditional print and TV ads), along with demographic, behavioral, and geographic information. This information can help managers decide the best ways to drive traffic to their sites, the so-called “in-bound” links to a site.

Once on the website, analytics packages can record how engaged visitors are with the site’s content, measured in terms of pages viewed and duration on site. This information can allow managers to change the design of their sites or change the content viewers are seeing. In a social network marketing world, where consumers’ opinions and behavior can be harvested and broadcast to their friends, an important intermediate step in the consumer conversion process is to encourage visitors to interact with content and share their experiences, opinions, preferences, and behaviors with their friends, as well as other visitors to the site.

Analytics packages can track visitor interaction and help managers decide what content leads to higher levels of visitor interaction with friends and other visitors.

The purchase activity on the shopping cart page is a major focus of analytics tools not just because this is where the revenue is generated, but also because this is where the customer frequently exits the entire site and the firm loses a potential sale. Finally, marketing analytics can help managers discover customer loyalty and post-purchase behavior. In an increasingly social marketing environment, marketing managers need to know how their products and services are being talked about on other sites.

The end objective of analytics packages is to help business managers optimize the return on investment on their websites and social marketing efforts, and to do this by building a detailed understanding of how consumers behave when visiting their websites. Analytics also allow managers to measure the impact of specific marketing campaigns involving, say, discounts, loyalty points, and special offers, as well as regional or demographic-based campaigns. Aside from its role in enhancing management decision making, and optimizing the effectiveness of building an e-commerce presence, analytics packages also enable a near real-time marketing capability where managers are able to change the content of a website, respond to customer complaints and comments, and align campaigns with trending topics or news developments.

Projects 1.

Go to www.strategicbusinessinsights.com/vals/surveynew.shtml. Take the survey to determine which lifestyle category you fit into. Then write a two-page paper

.

17 describing how your lifestyle and values impact your use of e-commerce. How is your online consumer behavior affected by your lifestyle?

Student answers will vary depending on the VALS segment profile into which they fall.

For example, an “actualizer/achiever,” according to the profile, is supposed to be interested in possessions and recreation that reflect a cultivated taste for the finer things in life. They prefer established, prestige products and services that demonstrate success to their peers. Such a consumer might use the Web to buy tickets to concerts, opera, and the ballet. They might frequent eBay or other auction sites in search of fine art or antiques. Actualizers and achievers might also be interested in product advertisements from such sites as Tiffany or Bloomingdale’s.

An “experiencer” on the other hand, is supposed to be inclined toward exercise, sports, outdoor recreation, and social activities. This group of individuals is supposedly comprised of avid consumers who spend much of their income on clothing, fast food, music, movies, and videos. Students who fall into this segment profile might express an online purchasing penchant for such sites as REI, Amazon, iTunes, and Hulu.

2.

Visit Net-a-porter.com and create an Internet marketing plan for it that includes each of the following: one-to-one marketing, affiliate marketing, viral marketing, blog marketing, and social network marketing. Describe how each plays a role in growing the business and create a slide presentation of your marketing plan.

To complete this project, all students need is the information in the chapter, a visit to the website, and a marketer’s instincts. Creativity should be rewarded. The students might suggest a campaign noting specific products on the site selected that includes the following: • One-to-one marketing: The information from the market research study must be recorded in one or more customer databases. Database mining can then be used to compile individual profiles. These should be analyzed to identify new market opportunities to specific customers, both current and new. Combine this data with the historical purchasing data of the site’s customers and create a recommendation tool for the website. Aggregate the purchasing psychological profile data to send buyers a personalized email message suggesting new products they might be interested in buying.

As a general rule, a company can expect that 80% of revenue will be contributed by 20% of their customers. Sustaining existing customers is also much less costly than developing new ones. Needs, specific “hotbutton” messages, and offers can be tailored both in e-mail messages and can be displayed on the website to different groups or individuals.

• Affiliate marketing: Set up an affiliate program with other like sites.

Students might look for luxury hotel or vacation sites with which to

.

18

•

•

•

3.

partner. They could try luxury car dealerships such as Mercedes Benz, Ferrari, or Porsche. They might also set up affiliates with sites that are not direct competitors.

Viral marketing: Off the Internet, viral marketing has been referred to as “word-of-mouth,” “creating buzz,” “leveraging the media,” or “network marketing.” Send e-mails to customers with an offer for a free small product of some sort and a $10 off coupon on subsequent referrals for each new customer they refer to the site that makes a purchase. The new customer will also be offered a $10 off coupon code that can be easily transferred to the new customer via e-mail. New customers can then be offered additional incentives when they make their first purchase.

Blog marketing: Set up a store-sponsored blog with commentary on the latest products; send product announcements/samples to leading blog commentators to encourage them to favorably mention products and the site in their blogs.

Social network marketing: Create videos featuring products to post on YouTube and other video-sharing sites, encourage social shopping by providing discounts or other incentives, and set up product pages for specific products on Facebook and similar sites.

Use the Online Consumer Purchasing Model (Figure 6.10) to assess the effectiveness of an e-mail campaign at a small website devoted to the sales of apparel to the ages 18–26 young adult market in the United States. Assume a marketing campaign of 100,000 e-mails (at 25 cents per e-mail address). The expected click-through rate is 5%, the customer conversion rate is 10%, and the loyal customer retention rate is 25%. The average sale is $60, and the profit margin is 50% (the cost of the goods is $30). Does the campaign produce a profit? What would you advise doing to increase the number of purchases and loyal customers? What web design factors? What communications messages?

If 100,000 e-mails are sent out at a cost of $0.25 per e-mail address, the cost of the marketing campaign is $25,000. A click-through rate of 5% will result in 5,000 people clicking through to the site. Of those, 10% will be converted to customers, so 500 people will make a purchase as a direct result of the e-mail.

With an average sale of $60, this would produce gross revenues of approximately $30,000. The profit margin is 50% ($15,000), so the gross profit is $15,000.

Subtract the $25,000 cost of the advertising campaign and the net loss on the initial campaign is $10,000 (not including additional operating costs). If the loyal customer retention rate is 25%, then 125 customers can be expected to make at least one additional purchase of $60 within the year for an additional $7,500 in gross revenue. The campaign still produces an overall net loss of $2,500 over one year’s time. To increase the number of purchases and the retention rate, students can come up with any number of ideas. This is a chance for the marketing students in the class to let the ideas flow. Some possible ideas for website design and communication messages that might keep customers coming back to the site are:

.

19 •

• • • • •

4.

Give the customers recruited from this e-mail campaign regular updates.

When new product lines or products arrive, or perhaps as new apparel arrives for each season, send updates so that they will be more likely to revisit the site.

Add fashion magazine content to the site that discusses the latest fashion trends of your target audience.

Keep your customers informed about what is happening in your company by sending them e-mail newsletters detailing new product information, special offers, etc.

Offer an e-mail-based fashion advice service for your customers.

Add free fashion articles and reports to the site. You can keep customers interested by putting relevant articles on your site for them to download.

This will also help to establish you as a fashion authority.

Set up an online forum or blog on your site. This can often help to get your customers to stay longer on the site.

Surf the Web for at least 15 minutes. Visit at least two different e-commerce sites.

Make a list describing in detail all the different marketing communication tools you see being used. Which do you believe is the most effective and why?

Students are likely to see all or most of the banner and rich media ads described in the chapter in 15 minutes of surfing. Reports should include what each advertised, what the method of delivery was, how effective they thought each ad was, and why it was or was not effective. Some ads may appear to be targeted and specifically placed on the sites visited whereas others may appear to have been randomly placed. Students will likely find the targeted ads more effective. The effectiveness of other ads may depend on the demographic groups to which the student belongs and the delivery method.

5.

Do a search for a product of your choice on two search engines. Examine the results page carefully. Can you discern which results, if any, are a result of a paid placement? If so, how did you determine this? What other marketing communications related to your search appear on the page?

A search for bicycle helmet (in quotation marks) on Google returns approximately 5.7 million results. (Note that student results may vary, depending on when the search is conducted) At the top of the search page, there is a heading labeled “Ads: Browse Bicycle Helmets.” Below this is a horizontal scrolling gallery of ads (with photos and links) for different bicycle helmets. Underneath this is an image of a Google map, with place pins indicating various stores nearby where bicycle helmets may be purchased, followed by 3 links for various retailers represented by those icons. Only then do the “main” Google search results appear, which include links to a variety of companies that sell bicycle helmets such as a link to Amazon, as well as to a few articles about bicycle helmets. Scrolling down, there is the heading “Popular Products” and then more ads for bicycle

.

20 helmets, followed by the heading “Images for “bicycle helmet”,” and then several more links (some articles and some ads).

Students should do a similar search on Microsoft’s Bing and compare it to what they found on Google.

6.

Examine the use of rich media and video in advertising. Find and describe at least two examples of advertising using streaming video, sound, or other rich media technologies. (Hint: Check the sites of online advertising agencies for case studies or examples of their work.) What are the advantages and/or disadvantages of this kind of advertising? Prepare a 3- to 5-page report on your findings.

The best resource for this question is the Google Rich Media Gallery, which provides a rich media showcase highlighting innovative ads from top advertisers.

Advantages of rich media/video advertising include the tendency to be more effective (generate higher click-through rates) because it entertains and engages viewers through sound, video, and interactivity, as well as allows users some level of control (i.e., users can typically stop/close the ad).

Disadvantages of rich media/video advertising include its likeliness to cost more to develop and launch than simple display ads. They may also annoy users if they are deemed overly intrusive, and unresponsive to user control. As they become more commonly used, users may be more likely to “tune them out,” diminishing their effectiveness.

7.

Visit Facebook and examine the ads shown in the right margin and in your News Feed. What is being advertised and how do you believe it is relevant to your interests or online behavior? You could also search on a retail product on Google several times, and related products, then visit Yahoo or another popular site to see if your past behavior is helping advertisers track you.

Facebook’s targeted ad functionality is very sophisticated. Students will likely report that the ads they see on Facebook are quite relevant, although some may still seem random. In general, the more you search on a class of items, or a specific item, the greater the likelihood that an ad network will pick up on your behavior and start showing you related ads in visits to other sites. This works for the most popular sites, most of which are members of a variety of ad networks.

This also assumes that you allow both primary and third-party cookies. If you do not allow any cookies, tracking becomes more difficult, but not impossible. Web bugs and beacons often cannot be eliminated by your browser.

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to

.

21 build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html.

Learning Tracks and Video Cases for this chapter include: • Learning Track 6.1 Basic Marketing Concepts • Learning Track 6.2 Consumer Behavior: Cultural, Social, and Psychological Background Factors • Learning Track 6.3 Social Media Marketing – Blogging • Video Case 6.1 To Ad Block or Not to Ad Block • Video Case 6.2 Pandora’s Recommendation System • Video Case 6.3 Verizon Media

.

1 Instructor’s Manual: Chapter 7 Social, Mobile, and Local Marketing

Learning Objectives After reading this chapter, your students should be able to: ● Understand the difference between traditional online marketing and socialmobile-local marketing platforms and the relationships between social, mobile, and local marketing. ● Understand the social marketing process from fan acquisition to sales and the marketing capabilities of social marketing platforms such as Facebook, Twitter, and Pinterest. ● Identify the key elements of a mobile marketing campaign. ● Understand the capabilities of location-based local marketing.

Key Terms amplification, p. 439 community, p. 439 dark social, p. 438 engagement, p. 439 fan acquisition, p. 438 geo-aware, p. 481 influencer marketing, 439 influencers, 439 location-based marketing, p. 479 location-based services, p. 479 proximity marketing, p. 481 Reactions button, p. 440 social density, p. 440 Brief Chapter Outline Building a Microbrand with Facebook Ads 7.1 Introduction to Social, Mobile, and Local Marketing From Eyeballs to Conversations From the Desktop to the Smartphone and Tablet The Social, Mobile, Local Nexus 7.2

Social Marketing Social Marketing Players The Social Marketing Process Facebook Marketing Insight on Technology: Optimizing Social Marketing with Sprout Social Twitter Marketing Pinterest Marketing .

2

7.3

Marketing on Other Social Networks: Instagram, Snapchat, TikTok, and LinkedIn The Downside of Social Marketing Insight on Society: Marketing to Children of the Web in the Age of Social Networks Mobile Marketing Overview: M-commerce Today Basic Mobile Marketing Features Mobile Marketing Tools: Ad Formats Starting a Mobile Marketing Campaign Insight on Business: Mobile Marketing Revs Up with 3-D and Augmented Reality Measuring Mobile Marketing Results

7.4

Local and Location-Based Mobile Marketing The Growth of Local Marketing The Growth of Location-Based (Local) Mobile Marketing Location-Based Marketing Platforms Location-Based Mobile Marketing: The Technologies Why Is Location-Based Mobile Marketing Attractive to Marketers?

Location-Based Marketing Tools Starting a Location-Based Marketing Campaign Measuring Location-Based Marketing Results

7.5

Careers in E-commerce The Company The Position: Social Media Associate Qualifications/Skills Preparing for the Interview Possible First Interview Questions

7.6

Case Study: ExchangeHunterJumper.com: Building a Brand with Social Marketing

7.7

Review Key Concepts Questions Projects References

Figures Figure 7.1 Figure 7.2 Figure 7.3 Figure 7.4 Figure 7.5 Figure 7.6

The Rapidly Changing Trajectory of Online Ad Spending, p. 435 Social, Mobile, and Local Marketing 2017–2021, p. 436 Online Marketing Platforms, p. 437 (User-controlled animation in eText) The Social Marketing Process, p. 438 (Whiteboard video in eText) The Growth of M-commerce, p. 467 Retail M-commerce Sales: Smartphones versus Tablets, p. 469 .

3 Figure 7.7 Figure 7.8 Figure 7.9

Figure 7.11

Mobile versus Desktop Marketing Expenditures, p. 471 The Top U.S. Mobile Marketing Firms by U.S. Revenue, p. 472 U.S. Mobile Ad Spending by Format, p. 473 (User-controlled animation in eText) Measuring the Effectiveness of a Mobile and Social Marketing Branding Campaign, p. 478 Location-Based Mobile Marketing in Perspective, p. 480

Tables Table 7.l Table 7.2 Table 7.3 Table 7.4 Table 7.5 Table 7.6 Table 7.7 Table 7.8 Table 7.9 Table 7.10 Table 7.11 Table 7.12 Table 7.13 Table 7.14 Table 7.15 Table 7.16 Table 7.17

Basic Facebook Features, p. 441 Basic Facebook Marketing Tools, p. 445 Selected Facebook Marketing Campaigns, p. 446 Measuring Facebook Marketing Results, p. 447 Twitter Features, p. 451 Twitter Marketing Tools, p. 453 Selected Twitter Marketing Campaigns, p. 454 Measuring Twitter Marketing Results, p. 455 Pinterest Features, p. 457 Pinterest Marketing Tools, p. 458 Selected Pinterest Marketing Campaigns, p. 459 Measuring Pinterest Marketing Results, p. 461 Features of Mobile Devices, p. 473 (Drag and drop exercise in eText) Selected Mobile Marketing Campaigns, p. 474 Major Locating Technologies, p. 482 (Drag and drop exercise in eText) Location-Based Marketing Tools and Campaigns, p. 484 Mobile Location-Based Marketing Effectiveness, p. 487

Figure 7.10

Teaching Suggestions Chapter 7 focuses on the social, mobile, and local online marketing platforms. There is a major shift in thinking involved in these marketing platforms. The traditional web marketing emphasis on “eyeballs” and spraying large populations with messages has changed to place a greater emphasis on engaging the customer in conversations. In addition, the primary technology platform has shifted from desktop to mobile devices. This is more than just a technology change. It’s also a behavioral change because customers are much “closer” to their mobile devices than desktops, and hence offer marketers many more opportunities to send messages, and to, in a sense, surround the consumer with the same message on multiple platforms. Social, mobile, and local marketing platforms are connected and self-reinforcing. The mobile audience is a major user of social networks like Facebook, Instagram, and Twitter and local marketing often involves social geo-targeting. Mobile devices are also a major channel for local advertisers who can touch customers as they pass their stores.

A good way to introduce the discussion of social, mobile, and local marketing is to review the updated opening case in Chapter 7, Building a Microbrand with Facebook Ads. Facebook’s success in morphing itself into a marketing and advertising platform is an example of how .

4 Internet technologies and practices can disrupt and challenge existing industries. It’s never been easier for upstart new brands to challenge the established giants using social marketing. Class discussion questions might include the following: ● Have you ever made a purchase based on something you have read or seen on Facebook? What was the product and what made you interested? ● What types of Facebook ads did Hubble use? Which types were the most effective? ● What are some of the issues for firms hoping to use Facebook ads to build a microbrand?

Key Points Social, Mobile, and Local Marketing. Section 7.1 provides an overview of social, mobile, and local marketing, which today are the fastest growing forms of online marketing. In 2020, the amount spent on mobile marketing exceeded online advertising spending on desktop/laptops (Figure 7.1) as well as the amount spent on social and local online marketing (Figure 7.2). It is important for students to understand that although spending on mobile marketing dominates, much of the spending is also social and/or local, and that social, mobile, and local marketing are very connected to one another. For instance, over 90% of Facebook’s and Twitter’s respective advertising revenues are generated by its mobile audience. Local and mobile marketing are also highly related. Figure 7.3 provides a snapshot view of social-mobile-local marketing in 2020 in context and is presented as a user-controlled animation in the eText for further emphasis.

Social Marketing. Section 7.2 focuses on social marketing and social marketing platforms like Facebook, Twitter, and Pinterest. Although Facebook is the dominant social network in terms of visitors and engagement, there is significant competition in this market, and differentiation.

Figure 7.4 illustrates the social marketing process as a series of five steps or stages: fan acquisition, engagement, amplification, community, and finally brand strength or sales. This is a very important concept for understanding the chapter, so take a few minutes to walk students through this diagram and the underlying concepts. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 7.4 and this topic. Take some time to discuss the important role that influencers and influencer marketing have come to play as methods of generating engagement in social marketing. Ask students what influencers they follow on various social networks, and whether they have ever purchased a product as a result of an influencer recommendation.

Before you delve in depth into Facebook marketing, take five minutes to review the basic features of Facebook with students. They probably know all these features already but be sure to illustrate how Facebook develops features to maximize the amount of social interaction on its site by connecting users to one another whether they want to be connected or not. Explain the concept of “social density” and relate this concept to the marketing opportunities on Facebook.

Review with students the list of marketing tools currently being used by Facebook (Table 7.2).

Further questions for class discussion might include the following:

.

5 ●

Which Facebook marketing tools do students find are the most effective in their personal lives? ● Do students pay attention to Facebook ads? ● Are students interested in what their friends buy? ● Do students trust their friends to recommend products? ● What kinds of products would their friends’ choices impact?

To make the conversation more concrete, review Table 7.3, which describes some recent Facebook marketing campaigns. Table 7.4 describes some of the metrics used to measure Facebook marketing campaigns. Ask students how these might be different from a traditional online marketing campaign using display ads.

When you turn to marketing using Twitter, once again take five minutes to review the basic features of Twitter with students. As with Facebook, most will probably already be familiar with many of these features but be sure to illustrate how Twitter takes these features and develops them into marketing tools. It may seem difficult at first for students to understand how marketers can influence consumers using Twitter’s platform, especially since tweets are a relatively small “space.” Twitter’s Timeline is similar to Facebook’s Newsfeed and is an ideal location to expose users to ads. Table 7.7 describes some recent Twitter marketing campaigns.

Questions for class discussion might include the following: ● Which Twitter marketing tools do students find are the most effective in their personal lives? ● Do students tweet during television programs? ● Do students pay attention to Promoted Tweets? ● Do students pay attention to Promoted Trends posted by marketers? ● Do students trust their friends to recommend products?

Table 7.8 describes some of the metrics used to measure Twitter marketing campaigns. Ask students how these might be different from a traditional online marketing campaign using display ads.

Pinterest is the third major social marketing platform that the text covers. Although students are likely to be very familiar with Facebook and Twitter, they may be less familiar with Pinterest, so review the basic features of Pinterest in Table 7.9 with them, as well as the list of Pinterest marketing tools in Table 7.10. To make the conversation more concrete, you can also review Table 7.11, which describes some recent Pinterest marketing campaigns.

Walk students through the process of developing a Pinterest marketing campaign. Pinterest campaigns depend on the graphical nature of the product, demographics of the audience, competitors, and the strengths of a firm. The simplest place to start is to create a brand page and start pinning photos. Walk students through the steps outlined in the text. Ask students to think about how they would measure the success of a Pinterest campaign. The text highlights key dimensions like fan (follower) acquisition, engagement, amplification, community, and sales.

Table 7.12 describes some basic ways to measure the results of a Pinterest marketing campaign. .

6

Questions for class discussion might include the following: ● Which Pinterest marketing tools do students think are most effective? ● Have students used Pinterest to shop? Did shopping lead to a purchase? ● Have students visited brand pages? Which were effective?

A good way to pull all these themes of social marketing and platforms together is to review the updated Insight on Technology case, Optimizing Social Marketing with Sprout Social. This case provides interesting real-world examples of Trek Bicycle and the Chicago Bulls’ use of social media, and the challenges and rewards of developing an integrated social media campaign that crosses many ad platforms, from Facebook to Twitter to Pinterest. Questions for class discussion might include: ● How do social media analytics help companies identify and attract customers? ● What are the challenges in measuring the effectiveness of social marketing campaigns? ● What advantages did Trek Bicycle and the Chicago Bulls find in using Sprout Social’s analytics and tools?

Instagram, Snapchat, TikTok, and LinkedIn are also briefly covered. Again, students are likely to be familiar with these services, but may not be acquainted with the ways these social networks make money. Instagram offers a variety of formats, including allowing advertisers to maintain profiles and market directly to users by sending posts to their individual Instagram feeds. Snapchat, a mobile messaging app/social network, has a number of features that provide advertising opportunities, such as Snapchat Stories, Live Stories, and Discover. TikTok, one of the newer social networks, offers a short-form video sharing app. It provides a variety of ad formats that are beginning to be used by major brands. LinkedIn charges corporations for brand pages and access to its user database, and charges users for premium subscriptions.

Finally, ask students to discuss some of the downsides of social marketing. Obviously, firms do not have total control over the marketing messages if users of their products are able to freely opine on the quality of their products. So, there is a risk for firms that their shortcomings will be widely broadcast. For instance, in 2020, many major brands paused their social media advertising for a period of time due to concerns about hate speech and divisive content.

Because young people (ages 12 to 18) are heavily involved in social networks, and often reveal details of their identity, marketers need to take care how they exploit personal information in their social marketing campaigns. A good way to introduce these issues is to review the updated Insight on Society case, Marketing to Children of the Web in the Age of Social Networks. This case offers a discussion of the social implications of marketing to children and the special care that managers must exercise in this situation. You might ask students with children or younger siblings what kinds of online and offline ads they find objectionable for their loved ones. Other questions for class discussion might include the following: ● Why is online marketing to children a controversial practice?

.

7 ● ● ●

What is the Children’s Online Privacy Protection Act (COPPA) and how does it protect the privacy of children?

What actions must YouTube take as a result of its settlement with the FTC? Should COPPA be revised? If so, how?

Mobile Marketing. Section 7.3 introduces and reviews mobile marketing—the use of mobile devices to deliver consumer marketing messages. Ask students if they have a smartphone or tablet mobile device and how often they use it. Have they ever shopped using their smartphone?

Purchased something? If so, they’ve participated in mobile commerce, along with others who have seen advertising on their phones. Mobile commerce is growing rapidly, and mobile marketing even faster. Review Figure 7.5, which illustrates the growth in mobile commerce.

Also note that while mobile commerce is growing fast, people will still be using their desktops to make purchases over the next five years, although they will increasingly use their mobile devices to shop. Make sure students understand the difference between shopping and purchasing. Because people carry their mobile devices with them everywhere, they make for an ideal marketing tool because marketers can contact consumers just about anytime and anyplace.

Mobile devices have created a multi-screen world for consumers: people watch TV, use their desktop at work (often to shop), and use their tablets and smartphones to watch movies or text with friends. Ask students how many of these screens they use. What are the implications for marketers? The answer: marketers need coordinated campaigns to be on all these platforms.

Figure 7.7 illustrates how fast mobile marketing is growing. In 2015, mobile marketing expenditures surpassed desktop marketing expenditures, and in 2020, will account for more than two-thirds of all spending on online marketing. This is a result of all you have discussed to this point in the class, namely, mobile devices are almost always on (unlike a TV or desktop computer), and they can deliver very relevant ads often tied to local deals. The big players in mobile ads are familiar (Figure 7.8): Facebook (including Instagram) and Google dominate, followed by Amazon (which may be a surprise to students) Verizon Media (Yahoo/AOL), Twitter, Snapchat, and LinkedIn. Although just about all students have a mobile device and will be generally familiar with their basic features, take a few moments to review Table 7.13. This table is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise.

Mobile marketing formats mimic closely desktop formats—search, display video, and text.

Figure 7.9 illustrates U.S. mobile ad spending by type in the form of a pie chart and shows students how much search dominates. This figure is presented as a user-controlled animation in the eText for further emphasis.

Table 7.14 describes some recent mobile marketing campaigns. Starting a mobile campaign involves considering how your product fits into a mobile marketing platform, the demographics you are looking for, and an analysis of what your competitors are doing. Mobile campaigns .

8 should start out simple—translate your web page to a mobile website, develop brand pages on Facebook, Twitter, and Pinterest, and use Google or Apple mobile ad services because they have excellent analytics tools for tracking results.

The updated Insight on Business case, Mobile Marketing Revs Up with 3-D and Augmented Reality, illustrates the evolution of mobile marketing into new areas. Questions for class discussion might include the following: ● Why do mobile devices represent such a promising opportunity for marketers? ● What are the benefits and the appeal of 3-D and AR mobile advertising? ● Have you ever engaged with 3-D or AR mobile ads? ● What types of products are best suited for 3-D or AR mobile ads?

Walk students through Figure 7.10 to illustrate how the effectiveness of a mobile branding campaign can be evaluated. As you can see, there are many parts of a mobile branding campaign that require attention.

Local and Location-Based Marketing. Section 7.4 describes local and location-based marketing.

It’s important for students to understand the difference between the various types of local marketing. Most local marketing involves traditional newspaper and television ads, but online local marketing is rapidly catching up to traditional channels. Location-based marketing targets messages to consumers based on their actual physical location. This is inherently a mobile device situation because mobile phones and tablets can be precisely located by latitude and longitude. The same is not true of a desktop computer. Go over the list of location-based services so students get a clear sense of the matter. Review Figure 7.11 with students to put location-based mobile marketing into the overall context of web marketing.

Location-based marketing is dominated by Google, which also dominates the mobile marketing field. Point out to students the importance of Google Maps: it’s not just to help people find their way. Google Maps is an important advertising tool for local businesses. Ask students why they think location-based ads might be more effective than other ads on mobile devices. Answer: when people search for something locally (a pizza, shoes, clothing, etc.), they are close to a purchasing decision. Local search is immediate.

Be sure to briefly review the technologies that make location-based marketing possible. Most students will know about GPS, but that alone is not enough to precisely locate people. Other techniques involve Wi-Fi, geo-search, cell tower, and sign in/registration. Table 7.15 summarizes these technologies. This table is presented as a drag and drop exercise in the eText.

Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise.

There are two kinds of location-based marketing capabilities based on these technologies: geoaware and geo-fencing techniques. Geo-aware techniques identify the location of a user’s device and then target marketing to the device, recommending actions near that location, which also requires the marketer to know where relevant things like stores are located. For instance, a .

9 marketer may target smartphones within several square city blocks to alert them to available offers from participating merchants. Proximity marketing techniques identify a perimeter around a physical location, and then target ads to users within that perimeter, recommending actions possible within the fenced-in area. Proximity marketing can permit marketing to consumers as they walk by the store or walk through a store. Apple’s iBeacon technology enables stores to automatically contact customers with special offers on their iPhones as they walk into a store, using purchase histories to generate offers that are most relevant to each customer.

Table 7.16 summarizes some of the unique location-based marketing tools. Go over each type in class to ensure students understand all the technical possibilities for marketing based on user location. In general, location-based ads use the same ad formats as desktop advertising—search, display, and video are the top three.

Starting a location-based campaign begins with an assessment of whether your products or services have a local component. Are there local stores or entertainment sites where users can purchase the service? Location-based ads will be most successful with younger, affluent, and more educated consumers. You should also be aware of how your competitors are using location-based marketing, if at all. Measurements of the results of location-based marketing follow a familiar path of measuring fan acquisition, engagement, amplification, community, and brand strength (sales) (Table 7.17).

In Section 7.5, we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as a social media associate.

The updated chapter-ending case study, ExchangeHunterJumper.com: Building a Brand with Social Marketing, in Section 7.6, provides an interesting example of how a small business in a highly specific market built a brand name for itself on the Internet.

Case Study Questions 1.

Find a site on the Web that offers classified ads for horses. Compare this site to ExchangeHunterJumper.com in terms of the services offered (the customer value proposition). What does The Exchange offer that other sites do not?

Bigeq.com is one popular site that also offers classified ads for horses and is probably ExchangeHunterJumper.com’s strongest competitor. One service that The Exchange offers that this site does not is that The Exchange professionally screens horses that are listed, whereas Bigeq.com allows anyone to post sales ads. Therefore, the horses on The Exchange are more likely to be appropriately described and have a better track record than those on Bigeq.com. However, this does mean that Bigeq.com typically has more horses listed than The Exchange does. Another service that The Exchange provides is that all the horses listed have high-quality videos and photos embedded within the site .

10 that the customer can view, whereas not all the horses on Bigeq.com have videos or photos, and those that do are linked to YouTube, some of which are not very good quality. The Exchange continually updates information on the horses available, whereas the ads on Bigeq.com are static once they have been submitted by the seller.

2.

In what ways were social media effective in promoting The Exchange brand? Which media led to the highest increase in sales and inquiries? Why? ExchangeHunterJumper.com uses the following social media: Facebook, Instagram, Twitter, YouTube, and an iPhone app. The highest increase seems to have come from Facebook although the YouTube videos also appear to have had an impact. Facebook probably worked so well because of its viral recommending features (the Like button) and the ease with which word can be spread.

3.

Make a list of all the ways The Exchange attempts to personalize its services to both buyers and sellers. ● ● ● ● ● ●

Works with individual sellers and trainers on the sell side to create effective ads, including photos and videos Develops a personal strategy for each horse (horses have personalities too!)

Asks buyers to fill out forms and expected budgets Provides personal e-mail responses to buyer queries Screens horses that are listed Makes recommendations

End-of-Chapter Questions 1.

Describe the two factors that make social, local, and mobile marketing different from traditional online marketing.

One change is the transition from unique visitors and ad impressions towards an emphasis on consumer conversations and consumer engagement. A second change is the rapid growth of mobile devices, which provides many more new opportunities to send marketing messages than what is true of the desktop platform.

2.

Why are social, mobile, and local marketing efforts interconnected?

Visits to social sites increasingly originate from mobile devices. As mobile devices become more popular, they can increasingly be used as a platform for location-based and local marketing.

3

Why is the connection between social, mobile, and local marketing important to marketers?

.

11 When marketers design a social marketing campaign, they must also consider that their customers will be accessing the campaign using mobile devices, and often they will also be looking for local content. Social-mobile-local must be seen in an integrated management framework.

4.

What are the objectives of social marketing?

In social marketing, the objective is to encourage your potential customers to become fans of your company’s products and services, to engage with your business by entering into a conversation with it, to encourage your business’s fans to share their enthusiasm with their friends and create a community of fans online. The end objective is to strengthen the brand and drive sales, and to do this by increasing your “share of online conversation.”

5.

What are the major social networks?

The major social networks are Facebook, Instagram, Twitter, Pinterest, LinkedIn, TikTok, and Snapchat.

6.

What are the five elements of the social marketing process?

The five elements of the social marketing process are: fan acquisition, engagement, amplification, community, and building brand strength and ultimately sales.

7.

Why is Snapchat attractive to advertisers?

Snapchat is extremely popular among Millennials and Gen Z-ers, which are appealing advertising demographics. It is also a sticky platform, with users accessing the app many times a day.

8.

List and briefly describe the basic Facebook marketing tools.

Basic Facebook marketing tools are as follows: ● Reactions buttons: a Facebook plug-in that websites and Facebook pages use to enable user feedback and support. ● Brand pages: a central web page for a company that is hosted by Facebook. ● News Feed Page Post Ads: marketing messages inserted into the user News Feed. ● Right-hand Column Sidebar Ads: display ads in the right column. ● Facebook Live: video streaming service within Facebook. ● Video ads: autoplay in silent mode on both desktop and mobile News Feeds. ● Facebook Watch: on-demand video streaming that includes pre-roll and mid-roll video ads.

.

12 ● ●

9.

Mobile ads: ads placed on the Facebook mobile app and Facebook mobile pages, including app install ads and in-app ads.

Sponsored Messages/Broadcasts: messages to customers who have previously engaged with the advertiser via Messenger chatbot, or in the case of small and medium-sized businesses, directly from the company.

How can you measure the results of a Facebook social marketing campaign?

You can measure the results of a Facebook social marketing campaign using the social process marketing model: fan acquisition, engagement, amplification, community, and building brand strength and ultimately sales.

10.

List and briefly describe Twitter marketing tools.

The basic Twitter marketing tools are as follows: ● Promoted Tweets: advertisers pay to have their tweets appear in users’ search results. ● Promoted Trends: advertisers pay to move their hashtags to the top of Twitter’s Trends list. ● Promoted Accounts: advertisers pay to have their branded account suggested to users on the “Who to follow” list. ● Promoted Video: advertisers can distribute videos on the Twitter platform and use Promoted Videos to link directly to app installations. ● Amplify: a Twitter dashboard that allows marketers to send messages to users who followed a show or brand. ● Twitter Cards: marketers can embed a “card” into business tweeters’ standard Twitter messages. ● Mobile Ads: All the above formats are also available on mobile devices, as well as mobile app install and app engagement ads.

11.

How can you measure the results of a Twitter social marketing campaign?

You can measure the results of a Twitter social marketing campaign by looking at the following: ● Fan acquisition: impressions generated by your Promoted Tweets; the number of followers and monthly growth. ● Engagement: the number of comments, responses, and re-tweets of your tweets, and the time that followers stay on your page. ● Amplification: the rate at which fans re-tweet or share your tweets. ● Community: monthly interaction rate (a total of comments, responses, and retweets); average on-site time for all followers; the ratio of positive to negative tweets.

.

13 ●

12.

Building brand strength and ultimately sales: leads generated; percent of revenue generated by Twitter campaigns; the percentage of online conversation for your brand when compared to all other brands in your market.

In what way are Pinterest postings similar to display ads?

Like display ads, commercial Pinterest pins direct users to a corporate website where purchases can be made.

13.

List and briefly describe some of Pinterest’s marketing tools.

Pinterest marketing tools include the following: ● Rich Pins: enable advertisers to include extra information directly on a pin itself. ● Promoted Pin formats: used to promote pins to a targeted audience and encourage users to click through to your website. ● Shopping Pins: allow users to buy items without leaving Pinterest and offer curated lists of items to choose from, respectively. ● Pin It or Follow button on websites: allows visitors to pin photos from your website and to be notified when you post new photos to your site. ● Pin as display ad: a pinned photo acts as a display ad by directing users back to your website. ● Brand page: allows companies to create a corporate brand page. ● Theme-based boards: business boards that are lifestyle-oriented rather than strictly sales-oriented. ● URL link to stores: enables consumers to click through to buy items, allowing retailers to better understand how their pinned photos are driving sales. ● Integration with other social networks: integrates marketing efforts with those on Facebook and Twitter. ● Network with users, followers, and others: allows marketers to participate by commenting, mentioning, and communicating with users, followers, and visitors. ● Search advertising: ad campaigns based on keyword, product catalogs, and visual search.

14.

Why is mobile marketing different from desktop marketing?

Mobile devices are always with consumers and play a central role in their lives. They are more multi-functional than desktop PCs by combining a telephone with media functionality.

15.

What is the fastest growing m-commerce platform and why?

Initial expectations were that tablets would provide the primary m-commerce platform, but that has not proven to be the case. As the size of smartphone screens has grown and their resolution improved, coupled with better mobile search, better location- and .

14 context-based discovery, and better mobile payment systems, the smartphone buying experience has improved, resulting in rapidly growing smartphone m-commerce sales.

16.

Why are in-app ads so important to marketers?

In-app ads are important to marketers because mobile users spend over 80% of their mobile minutes using apps.

17.

What is the multi-screen environment and how does it change marketing?

The multi-screen environment refers to the fact that consumers use TVs, desktop PCs, and mobile devices throughout their daily lives. Marketers need to design their messages for all three platforms and develop an integrated approach.

18.

What kinds of ad formats are found on mobile devices?

The major marketing opportunities in mobile marketing are search ads, display ads, videos and rich media, messaging (SMS/MMS/PPS), as well as other familiar formats like e-mail, classifieds, and lead generation.

19.

Why is location-based marketing so attractive to marketers?

Location-based marketing is attractive to marketers because consumers who search for local products and services are more apt to purchase something than desktop users.

20.

List and describe some basic location-based marketing tools.

Basic mobile marketing tools include the following: ● Geo-social services: sharing locations with friends ● Proximity marketing: sending marketing messages to consumers within a perimeter of your store ● Geo-targeting: targeting messages to consumers based on their location ● In-store messaging: targeting consumers who are in your store

Projects 1.

Choose two different online companies and for each, try to identify the social, mobile, and local marketing efforts the company has implemented. Do they use social plug-ins on their websites? Do they have a Facebook page? If so, visit those pages to see how they are using them. How is the Facebook page different from the company’s website?

Can you identify how the firms use mobile marketing? Use your smartphone or tablet to access their apps, if they have one, and websites. Are their websites designed specifically for each platform? In conclusion, compare and critically contrast these firms, and make recommendations for how you, as a marketing manager, would improve their effectiveness. .

15

Student answers will vary depending on the companies they choose to examine, but the answers should include the following considerations: ● A list for each site of the social, mobile, and local features of the websites. ● An assessment of how effective the web presence of each firm is, as well as how effective the Facebook, Twitter, and/or Pinterest campaigns are. ● Students should be expected to find sites that have social, mobile, and local efforts (although identifying the local efforts may require some extra work). ● Student analysis should use the social marketing process figure in the chapter to organize their assessment and their recommendations for improvement.

2.

Visit your Facebook profile page and examine the ads shown in the right margin. What is being advertised and how do you believe it is relevant to your interests or online behavior? Make a list of ads appearing in your News Feed. Are these ads appropriately targeted to you in terms of your demographics, interests, and past purchases? Surf the web, visiting at least two retail websites. In the next 24 hours, do you see advertising on Facebook related to your surfing behavior?

Student answers will vary depending on the companies they choose to examine, but the answers should include the following considerations: Students should provide a list of right-hand column ads on their page and then assess why they are being shown these ads. Are the ads related to their personal demographics (Profile), to their friends’ recommendations, prior interests, and visits to other websites?

They should perform the same analysis for their News Feed Page Post Ads. If they have a smartphone or tablet, they should visit their pages using these mobile devices and assess how the limitations of a smartphone screen are being managed by Facebook.

3.

Visit two websites of your choice and apply the social marketing process model to both.

Critically compare and contrast the effectiveness of these sites in terms of the dimensions of the social marketing process. How well do these sites acquire fans, generate engagement, amplify responses, create a community, and strengthen their brands? What recommendations can you make for these sites to improve their effectiveness?

Student answers will vary depending on the companies they choose to examine, but the answers should include the following considerations: Students should apply the social marketing process model to each site, and then, for each element of the model, critically compare and contrast the effectiveness of each site. For instance, one site may be much better on fan acquisition than it is engagement. Many sites are strong on acquisition and engagement, but weak on community building.

Students should assess each site on each dimension. Finally, students should present a

.

16 list of recommendations for improvement with a brief explanation on how it would help these firms.

4.

Identify two Pinterest brand pages. Identify how they use Pinterest marketing tools described in this chapter. Are there some tools they are not using? What recommendations can you make for these companies to improve their Pinterest marketing campaigns?

Student answers will vary depending on the companies they choose to examine, but the answers should include the following considerations: Students should first examine the basics of these firms’ photography because the heart of Pinterest marketing is high-quality photography, including how consumers are using or wearing the products. Second, they should examine how the firms organize their boards. Are the boards a sensible introduction to the firms’ products? Third, students should assess how well each firm supports consumer engagement and community building. Does one firm seem to have a “stronger” brand (in the sense of a larger, more lively community and a wide variety of posts indicating engagement and conversation)?

Finally, students should present a list of management improvements.

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.ecommerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/download-instructorresources.html.

Learning Tracks and Video Cases for this chapter include: ● Learning Track 7.1 Social Media Marketing—Facebook ● Learning Track 7.2 Social Media Marketing—Twitter ● Video Case 7.1 Pinterest ● Video Case 7.2 The Full Value of Mobile Marketing ● Video Case 7.3 Yelp

.

1 Instructor’s Manual: Chapter 8 Ethical, Social, and Political Issues in E-commerce

Learning Objectives After reading this chapter, your students should be able to: ● Understand why e-commerce raises ethical, social, and political issues. ● Understand basic concepts related to privacy and information rights, the practices of e-commerce companies that threaten privacy, and the different methods that can be used to protect online privacy. ● Understand the various forms of intellectual property and the challenges involved in protecting it. ● Understand how the Internet is governed and why taxation of e-commerce raises governance and jurisdiction issues. ● Identify major public safety and welfare issues raised by e-commerce.

Key Terms accountability, p. 510 anonymous information, p. 519 anonymous profiles, p. 520 Anticybersquatting Consumer Protection Act (ACPA), p. 558 copyright law, p. 546 cross-device graph, p. 525 cross-device tracking, p. 536 cross-site tracking, p. 536 cyberpiracy, p. 558 cybersquatting, p. 558 data image, p. 520 deep linking, p. 563 device fingerprinting, p. 536 differential privacy software, p. 538 Digital Millennium Copyright Act (DMCA), p. 549 dilemma, p. 511 dilution, p. 558 doctrine of fair use, p. 547 due process, p. 510 ethics, p. 509 framing, p. 563 General Data Protection Regulation (GDPR), p. 532 governance, p. 565 information privacy, p. 513 informed consent, p. 526 Intelligent Tracking Prevention (ITP), p. 537 liability, p. 510 .

2 linking, p. 563 net neutrality, p. 570 opt-in model, p. 526 opt-out model, p. 526 patent, p. 554 pay-for-privacy (PFP), p. 539 persistent location tracking, p. 526 personal profiles, p. 520 personally identifiable information (PII), p. 519 privacy, p. 513 privacy default browsers, p. 538 privacy shield agreements, p. 534 profiling, p. 520 responsibility, p. 510 right to be forgotten, p. 513 safe harbor agreements, p. 534 trade secret, p. 564 trademark, p. 557

Brief Chapter Outline The Right to be Forgotten: Europe Leads on Internet Privacy 8.1 Understanding Ethical, Social, and Political Issues in E-commerce A Model for Organizing the Issues Basic Ethical Concepts: Responsibility, Accountability, Liability, and Due Process Analyzing Ethical Dilemmas Candidate Ethical Principles 8.2

Privacy and Information Rights What Is Privacy?

Privacy in the Public Sector: Privacy Rights of Citizens Privacy in the Private Sector: Privacy Rights of Consumers Privacy Protection as a Business Privacy Advocacy Groups Limitations on the Right to Privacy: Law Enforcement and Surveillance Insight on Technology: Contact Tracing Apps: Trading Privacy for Public Health

8.3

Intellectual Property Rights Types of Intellectual Property Protection Copyright: The Problem of Perfect Copies and Encryption Patents: Business Methods and Processes Trademarks: Online Infringement and Dilution .

3 Trade Secrets Challenge: Balancing the Protection of Property with Other Values 8.4

Governance Can the Internet Be Controlled?

Taxation Insight on Business: Internet Sales Tax Battle Net Neutrality Antitrust, Monopoly, and Market Competition in the Internet Era

8.5

Public Safety and Welfare Protecting Children Cigarettes, Gambling, and Drugs: Is the Web Really Borderless?

Insight on Society: The Internet Drug Bazaar

8.6

Careers in E-commerce The Company The Position: E-commerce Privacy Research Associate Qualifications/Skills Preparing for the Interview Possible First Interview Questions

8.7

Case Study: Are Big Tech Firms Getting “Too Big”?

8.8

Review Key Concepts Questions Projects References

Figures Figure 8.1

Tables Table 8.1 Table 8.2 Table 8.3 Table 8.4 Table 8.5

The Moral Dimensions of an Internet Society, p. 508 (Whiteboard video in eText)

Unique Features of E-commerce Technology and Their Potential Ethical, Social, and/or Political Implications, p. 507 The FTC’s Fair Information Practice Principles, p. 514 (Drag and drop exercise in eText) Federal Privacy Laws Applicable to the U.S. Government, p. 516 (Drag and drop exercise in eText) Privacy Laws Affecting Private Institutions, p. 517 Personal Information Collected by E-commerce Sites, p. 519 .

4 Table 8.6 Table 8.7 Table 8.8 Table 8.9 Table 8.10 Table 8.11 Table 8.12 Table 8.13 Table 8.14 Table 8.15 Table 8.16 Table 8.17

The Internet’s Major Information-Gathering Tools and Their Impact on Privacy, p. 521 Internet Users’ Efforts to Preserve Privacy, p. 522 The FTC’s Current Privacy Framework, p. 528 FTC Privacy Enforcement Actions, p. 529 Criteria to Use When Examining Privacy Policies, p. 532 The General Data Protection Regulation (GDPR) 2018, p. 533 Technological Protections for Online Privacy, p. 537 Privacy Advocacy Groups, p. 540 Fair Use Considerations to Copyright Protections, p. 547 The Digital Millennium Copyright Act, p. 550 (Drag and drop exercise in eText) Selected E-commerce Patents, p. 556 Internet and Trademark Law Examples, p. 560

Teaching Suggestions This chapter summarizes the various ways that e-commerce and Internet technologies have raised serious social issues. More importantly, the chapter helps students learn about ethical, social, and political issues. Students should understand that successful business people take these issues to heart, and do so because good ethics is usually good business in the long term. On the other hand, it can sometimes be expensive to be good, or to do the right thing in the short term. Conversely, the costs of doing the wrong thing can be enormous. The consequences of potential litigation are potentially very negative for the business. In other cases, wise people seek out the ethical solutions to business problems simply because they personally have strong ethical convictions. Although each chapter contains information on social issues, this chapter aims to take a systematic look at relevant ethical principles, ethical analysis, and selected contemporary ethical issues raised by e-commerce.

Perhaps the greatest challenge in this chapter is to encourage students to think systematically in terms of ethical principles, laws, and acceptable behavior, rather than simply express their personal point of view. For example, many students may rationalize their downloading of copyrighted material as something they feel good about because “ethics is all relative,” and “everyone has their own sense of right or wrong.” They may also rationalize their behavior on the grounds that the people they steal from (variously, the record companies, the artists, and the promoters) are all rich. This personalized view of ethics fails to take into account the perceptions of customers, regulators, suppliers, employees, and business partners, as well as the long-term interests of shareholders.

Other students may say, “As long as my business stays within the law, we are OK.” Once again, this view fails to recognize that trust and the perception, let alone the reality, of fairness demand a higher standard than the law. Customers often expect a higher standard of treatment than the minimal treatment required by law.

.

5 A second challenge is to convince students that ethical, social, and political awareness is an important part of business life. You should emphasize to your students that most employers do not want to hire employees who have no ethical convictions or who believe that business is a jungle where it is “every person for themselves.” Many job interviewers will seek to identify the ethical sensibility of potential recruits. Students should prepare for these questions. Ask your students if they, as an employer, would like to hire a person whom they felt had few moral or ethical scruples. Is a potential recruit who glorifies downloading “free” music from the Web more—or less—likely to download and use your firm’s intellectual property for his or her personal gain?

The updated opening case, The Right to Be Forgotten: Europe Leads on Internet Privacy, looks at the thorny question of privacy versus free speech on the Internet. There are many conflicting values involved. Questions for class discussion on this case might include the following: ● Is Google responsible for the accuracy of links to other information? Why or why not? ● Why do European and American views on privacy protection differ so dramatically? ● How can the different perspectives on privacy be managed in a global environment like the Internet?

Key Points Understanding the Ethical, Social, and Political Issues in E-commerce. Section 8.1 provides an overview of ethical, social, and political issues in e-commerce. A good place to start is Table 8.1, which illustrates how the unique features of e-commerce technology can also become ethical liabilities. Figure 8.1 succinctly identifies the key issues discussed in the chapter and attempts to illustrate the idea that the discussion will proceed on three levels: individual (ethical dilemmas), society (social choices), and policy (laws and regulation). Students should keep in mind that there is a connection among these levels: Laws reflect social choices, which in turn are based on fundamental ethical principles strongly held by individuals. Put another way, political debates reflect ethical debates. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 8.1 and this topic. The key terms to emphasize in this section are responsibility, accountability, liability, and due process. These are the bedrock concepts of all ethics.

One way to teach this section is to take a contemporary e-commerce story from the newspaper and analyze the ethical dilemmas. For instance, you might consider a story about file sharing networks encouraging the sharing of copyrighted content, such as movies or music. Have the students use the model proposed in this section to analyze the story. You might also ask them to consider alternative forms of delivery that are legal, and satisfy demand, such as Netflix, Apple’s iTunes Store, Spotify, or Pandora’s service.

Finally, you might ask them to apply the eight ethical principles suggested in this section to any of the existing or potential future music delivery systems. .

6

Privacy and Information Rights. Section 8.2 begins with a definition of privacy and information privacy, as well as the European “right to be forgotten,” which is discussed in further detail in the opening case. Table 8.2 describes the FTC’s Fair Information Practice (FIP) principles, which have been integral to the development of privacy protection in the United States. This table is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise.

The section then distinguishes between privacy issues as they relate to the public sector versus privacy issues in the private sector. Table 8.3 (presented as a drag and drop exercise in the eText) provides a list of privacy laws applicable to the U.S. government, whereas Table 8.4 lists privacy laws affecting private institutions. Ask students why it seems as if the states, particularly California, are leading the way in terms of privacy legislation, rather than the federal government.

Most of the remainder of the section focuses on the privacy rights of consumers. Table 8.5 provides a glimpse of what e-commerce sites collect directly from consumers. Key concepts are personally identifiable information (PII), anonymous information, and profiling. Table 8.6 identifies the ways various devices, applications, and tools can be used to gather user information and potentially violate privacy. The section then looks at some specific privacy issues posed by social networks and mobile devices, and then looks at various regulatory efforts by the FTC and the FCC to help ensure consumer privacy.

One interesting assignment is to ask students to analyze the privacy policy of a website that they use, using the criteria set forth in Table 8.10. They may be surprised by what they find!

Students also usually find it interesting that Europeans in the EU (European Union) have a much stronger set of privacy laws than the United States. Be sure to spend some time explaining the EU approach to privacy protection, including the original 1998 Data Protection Directive and the General Data Protection Regulation (GDPR), which took full effect in 2018 (further described in Table 8.11). Make sure that students understand that the GDPR doesn’t just impact European companies. Discuss its implications for U.S. companies as well.

It is also useful to explore with students the question of whether the industry can regulate itself, as it claims, using voluntary, industry-supported, and privacy seal programs, and various technological approaches to privacy protection. Also encourage students to visit the websites of one or more of the privacy advocacy groups listed in Table 8.13.

The new Insight on Technology case, Contact Tracing Apps: Trading Privacy for Public Health, discusses the issues that have arisen in connection with using cell phone data to track a person’s location and movement for contact tracing to help stem the Covid-19 pandemic. Class discussion questions might include the following: .

7 ● ● ●

Are there circumstances that warrant the invasion of personal digital information and property?

Have you used, or would you be willing to use, a contact tracing app?

Why or why not?

Why has the implementation of contact tracing apps lagged in the United States as opposed to other countries?

Intellectual Property Rights. Section 8.3 defines intellectual property and describes the main ways society has chosen to protect intellectual property: copyright, patent, trademark, and trade secrets law.

In terms of copyright, the main distinction to get across to students is the difference between an idea and its expression. Copyright protects the expression, not the idea. Ideas and expression can merge so that some ideas can only have one expression; take Microsoft’s windows and Apple’s version of windows, for instance. The most important recent development in copyright is the Digital Millennium Copyright Act (DMCA). Two significant provisions in this act are the provision against breaking encryption codes that protect intellectual property and the “safe harbor” provided to ISPs and search engines that take down infringing content. Table 8.15 summarizes the important provisions of the DMCA. This table is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise. The DMCA and its safe harbor provisions are a source of continuing litigation and recent decisions have begun to chip away at the protections it provides.

Patents protect ideas for limited periods of time. The danger of patents is that they may stifle competition. Table 8.16 provides a list of selected e-commerce patents.

Trademarks help identify and distinguish goods in the marketplace; they play an important role in branding. E-commerce has created some novel opportunities for different forms of trademark violations. Table 8.17 provides a list of various Internetrelated trademark issues and related legal cases.

Trade secrets law protects a kind of intellectual property that has to do with business procedures, formulas, and methods of manufacture and service delivery from which a firm derives value and does not want to share with others in the form of a patent or copyright application. Trade secrets are protected by state, and now, with the enactment of the Defend Trade Secrets Act (DTSA), federal law.

One way to conclude this discussion, after students understand the basic concepts of intellectual property, is to debate whether society would be better off without intellectual property law. Intellectual property laws restrict the flow of ideas, music, and other forms of expression. On the other hand, these same laws incentivize people to create new

.

8 expression. A drag and drop exercise at the end of Section 8.3 asks students to sort various important legal decisions into the categories of law to which they relate.

Governance Issues. Section 8.4 examines various governance issues raised by ecommerce. During the early years of e-commerce, it was customary to think about the Internet as far too powerful, yet amorphous, for any government to control. We now know that the Internet—or at least the key players such as ISPs, e-commerce sites, and telecommunication carriers—can be controlled just as in other forms of media. One of the more interesting governance issues in the United States is taxation of online purchases.

States and localities have been pushing hard for a slice of the e-commerce business pie and the Supreme Court ruled in the South Dakota v. Wayfair case that states could indeed collect sales taxes on online sales even if the company does not have a physical location within the state.

The updated Insight on Business case, Internet Sales Tax Battle, takes a closer look at this issue. Questions for class discussion might include the following: ● Given the nature of the Internet, should sales tax be based on the location of the consumer rather than the seller? ● What are the different approaches Amazon has taken with respect to sales taxes? ● Are bricks-and-clicks retailers disadvantaged by local sales tax laws? ● Do you agree with the decision in the South Dakota v. Wayfair case?

Net neutrality is another issue that continues to be in the news. The FCC ruled in 2015 that Internet broadband service providers should be viewed as public utilities similar to telephone companies, and, therefore, regulated by the FCC to ensure fair access to all, deployment of acceptable broadband service levels, and competition among providers.

However, under the Trump administration, net neutrality regulations were repealed, but many states are attempting to reinstate them via state laws and regulations. This is a topic on which you should be prepared to provide an update.

The section concludes with a brief introduction to the topic of antitrust, monopoly, and market competition in the Internet era, a topic which is covered in much further detail in the end-of-chapter case study.

Public Safety and Welfare. How could e-commerce affect public safety and welfare?

Section 8.5 may, at first, puzzle most students. You can start by having students read and discuss the updated Insight on Society case, The Internet Drug Bazaar. You can use the following questions to spark class discussion: ● What’s wrong with buying prescription drugs online, especially if the prices are lower? ● What are the risks and benefits of online pharmacies? ● Should online pharmacies require a physician’s prescription?

.

9 ● ● ●

How do online pharmacies challenge the traditional business model of pharmacies and drug firms?

What are the challenges in regulating online pharmacies?

Who benefits and who loses from online pharmacies?

Drugs (both legitimate and illegitimate types), gambling, pornography, and cigarette sales are just a few areas where e-commerce raises public safety and welfare issues. Another interesting discussion might ensue if you have students come up with ways to control the Internet, so it is less of a threat.

In Section 8.6, we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as an e-commerce privacy research associate.

The updated chapter-ending case study, Are Big Tech Firms Getting “Too Big?” in Section 8.7, discusses the rise of Facebook, Google, Amazon, and other tech titans into companies so multifaceted and huge that they cannot be properly regulated. Each company has been accused of abusing its dominance in particular areas to promote other areas of their businesses. These companies have benefited greatly from network effects and are de facto monopolies in the core areas of their businesses (social networking, search, and online retail, respectively). This is a topic that has been much in the news in 2020 and will likely continue to be, with the U.S. Justice Department and regulators in Europe taking legal action against Google, Facebook, and Amazon, so this is another topic you will want to be prepared to provide an update on.

Case Study Questions 1.

How does the first era of antitrust thinking (1890-1950s) differ from the second era?

The first era of antitrust thinking held that any behavior that resulted in the restraint of free trade would lower product quantity and reduce innovation, and that monopolies should be avoided on this basis. Legislation from this period sought to disperse economic and political power. In the 1960s, concentration in economic power in the form of monopolies came to be seen as the most efficient and cheapest option for consumers. In the name of efficiency, companies were permitted to consolidate their standing within various market segments.

2.

What is a “natural monopoly” and how has the United States dealt with natural monopolies?

A natural monopoly is a monopoly achieved in an industry with entry costs so prohibitive that very few companies are willing to invest enough money to enter that market. In cases such as AT&T, the United States has encouraged natural

.

10 monopolies to improve efficiency, but when telecommunications technology became cheaper, courts broke up AT&T into seven smaller companies.

3.

What are three possible solutions to the market dominance and anti-competitive behavior of Facebook, Google, and Amazon?

One solution to these tech titans’ dominance in their respective markets would be to simply view them as non-traditional companies and arbitrarily decide how much market share is appropriate for them. A second solution would be to break these companies up into smaller units; for example, Amazon’s retail business could be a separate entity from Amazon Web Services. A third solution is to carefully regulate these companies and penalize them with fines for anticompetitive behavior, such as Google pushing its own products higher in its search results.

4.

How does the European model of antitrust differ from the American model?

The European model of antitrust is broader in scope than the American model.

The American model has relied primarily on consumer prices and operational efficiency to define anticompetitive behavior. The European model focuses on whether new innovative firms can impact the market and whether many competitors exist in a given area, indicating the overall health of the market.

End-of-Chapter Questions 1.

What basic assumptions does the study of ethics make about individuals?

The study of ethics makes the basic assumption that individuals are free moral agents who are in a position to make choices.

2.

What are the basic principles of ethics?

The basic principles of ethics are responsibility, accountability, liability, and due process. As free moral agents, individuals, organizations, and societies are responsible for the actions they take and should be held accountable to others for the consequences of those actions. Liability is a characteristic of political systems in which a body of law is in place so that accountability can be enforced. It permits individuals to recover damages for the actions of other individuals, systems, or organizations that cause them damage. Due process is a feature of law-governed societies and refers to a process in which laws are known and understood and there is an ability to appeal to higher authorities to ensure that the laws have been applied correctly.

.

11 3.

Explain Google’s position that YouTube does not violate the intellectual property rights of copyright owners.

Google’s defense against accusations of copyright infringement rests upon the doctrine of fair use and the provision of the Digital Millennium Copyright Act (DMCA) of 1998. The doctrine of fair use permits limited use of copyrighted materials if certain conditions are met, such as the following: ● It does not harm the commercial value of the work. ● It is limited to very small portions. ● The nature of the work. ● The nature of use, e.g., non-commercial purpose. ● The context of use prevents seeking permission.

Google claims that YouTube meets at least some of these criteria. They also claim that it is sometimes impossible to know whether a video is infringing or not.

Google also claims that it qualifies for the “safe harbor” provision of the DMCA, because YouTube promptly removes infringing content if it is requested to do so by copyright holders.

4.

Define universalism, slippery slope, the New York Times test, and the social contract rule as they apply to ethics.

Universalism implies that if a solution is not correct for all situations, then it is not right for any specific situation. In simple terms, Immanuel Kant’s categorical imperative asks: If the rule were to be adopted in every case, would the organization or society survive?

The slippery slope rule states that if an action cannot be undertaken repeatedly, then it should not be taken at all. The solution might appear to work in one instance, but if the solution were repeated, negative outcomes might begin to occur, and in fact continue occurring at a pace that could not be stopped.

The New York Times test, or Perfect Information Rule, states that you must assume that the results of your decision on a matter will be the subject of the lead article in the New York Times the next day. In other words, if you would not want to see the reactions of your friends, family, and neighbors when they read about the results of your decision on the front page of the newspaper, then it is probably not the correct decision. Most criminals and other unethical actors operate under the assumption of imperfect information, meaning that they never expect to be exposed. When faced with an ethical dilemma, it is best to assume that perfect information will be available to all.

.

12 The social contract rule asks the decision maker to consider whether they would like to live in a society where the principle they are advocating was the organizing principle of the entire society.

5.

Explain why someone with a serious medical condition might be concerned about researching his or her condition online, through medical search engines or pharmaceutical sites, for example. What is one technology that could prevent one’s identity from being revealed?

An individual with a serious medical condition might be concerned because in the United States there is no federal agency charged with enforcing privacy law.

Private organizations and businesses can still use personally identifiable information gathered in commercial transactions for other business purposes. If a person with a serious medical condition were to purchase pharmaceuticals online for that illness, he/she would have cookies placed on his/her computer that would identify the person as a potential customer for other drugs for that illness. Because many companies do not even follow their own stated privacy policies, and opt-out procedures are usually difficult to find on a site, personal information or personal profiles might be sold or transferred to other companies, potentially even insurance companies. Advertising networks, or “profiling companies,” that have ads on the search engine site or pharmaceutical site may likely, without the person’s permission, place tags or identifiers on the person’s computer that will be used to track his/her movements as the person surfs the Web. In addition to collected behavioral information, a profile may contain inferential or psychographic data, information that the company infers about that person based on the sites they have visited.

The transition from fee-for-service health care to managed care has led to a demand for an unprecedented depth and breadth of personal information by a growing number of players, including health insurance companies. At the same time, the environment for information is moving rapidly from paper forms and files to electronic media, giving organizations a greater ability to tie formerly distinct information together, including data collected from the Web. The possibility of being dropped by an insurance company, not being able to transfer to a new insurance company along with new employment, or not being able to obtain health insurance at all, or of an employer finding out about a medical condition through the transfer of this data might be daunting. Therefore, as people become more aware that their movements on the Web are being tracked, they might become far less likely to explore sensitive topics such as personal medical conditions.

Some technologies that could prevent one’s identity from being revealed include anonymous surfing products and anonymous remailers.

.

13 6.

Name some of the personal information collected by websites about their visitors.

Personal information that is collected by websites about their visitors includes the person’s e-mail address, postal address, and/or phone number. This is added to demographic data such as their age, occupation, income, education, gender, and ethnicity, and their behavioral data. Behavioral data includes: what websites they have visited (click-stream data), what purchases they have made (transaction data), and what preferences they have professed when filling out preference forms. E-commerce sites also collect bank account information, credit card account data, and sometimes the Social Security number and type of browser the customer uses.

7.

How does information collected through online forms differ from site transaction logs? Which potentially provides a more complete consumer profile?

Transaction logs are anonymous information whereas online forms are personally identifiable information (PII). The transaction log records an entry for each page a visitor views and each object they request. Online forms can be used to collect a variety of personal information about site visitors such as their name, address, email address, and phone number. Online forms potentially provide a more complete consumer profile because this PII can be combined with the visitorgenerated, click-stream behavior and other behavioral data to create a comprehensive personal profile.

8.

How is the opt-in model of informed consent different from opt-out? In which type of model does the consumer retain more control?

In the opt-in model, the default behavior on the part of the website operator is not to approve the collection of data. In the opt-out model, the default is to automatically collect and use information unless otherwise notified. With the optin model, the consumer or site visitor must give consent before information about them can be collected and used. In the opt-out model, the consumer/site visitor must take an action to prevent the collection of data. The consumer retains more control in the opt-in model because no action to collect data will be undertaken unless they first agree to it. Only sites the consumer specifically requests to receive offers and promotions from will be allowed to collect data.

9.

What are the two core principles of the FTC’s Fair Information Practice principles?

The two core principles of the FTC’s Fair Information Practice principles are notice/awareness and choice/consent. The FTC guidelines, which are not yet codified in law, recommend for the notice/awareness principle that sites disclose their information practices before collecting data. This includes identifying the .

14 data collector; all uses of the data; whether the data collection will be active or inactive, voluntary or required; the consequences of refusing to allow data to be collected; and the steps that will be taken to protect the confidentiality, integrity, and quality of the data. The choice/consent principle recommends that there be a choice system in place that allows consumers to choose how their information will be used for secondary purposes, other than supporting transactions. This includes internal uses by the collecting firm and transfer to third parties, and that opt-in/opt-out choices be made available.

10.

What is the GDPR? The General Data Protection Regulation (GDPR), which replaced the EU’s previous Data Protection Directive of 1998, took full effect throughout all EU member states in May 2018. The GDPR protects a wide variety of PII: basic identity information such as name, address, and ID numbers; web data such as location, IP address, cookie data, and RFID tags; health and genetic data; mobile phone number; driver’s license and passport number; biometric and facial data; racial and ethnic data; political opinions; and sexual orientation.

The main objective of the GDPR is to strengthen the rights of citizens to their own personal information and to strengthen oversight of firms to ensure they implement these individual rights. A second thrust is to harmonize conflicting data protection standards among the 28 European nations that are members of the EU and create a single EU agency to implement and enforce the regulation. The third goal is the ability to enforce the framework worldwide, applying it to all organizations that operate in the EU or process data pertaining to EU citizens, regardless of where the organization is located.

For individuals, the GDPR requires organizations to allow consumers to access all their personal information without charge within one month; delete personal data (the right to be forgotten); ensure data portability so consumers are not locked into a particular service (data portability); and the right to sue providers for damages or abuse of PII, including class action lawsuits. Organizational requirements have been strengthened to include requiring organizations to have a data protection officer that reports to senior management; requiring explicit consent before collecting data (positive opt-in) and eliminating default opt-in processes; publishing the rationale for data collection and the length of retention; reporting of breaches and hacks within 72 hours; liability for data shared with partners or other firms and a listing of all firms data is shared with; requiring privacy protections to be built into all new systems (privacy by design); and limiting the targeting and retargeting of individuals to audience-level, anonymized data, rather than targeting based on intimate, personal profiles. Organizations are required to limit the collection of personal data to only that which is needed to support a task, or a transaction, and then delete it shortly thereafter. .

15 Abuse of PII is subject to fines of up to $20 million or 4% of the organization’s global revenue, whichever is greater. Finally, the EU has the ability to enforce the GDPR’s requirements with non-EU countries like the United States via the use of inter-governmental privacy shield agreements, which are designed to ensure that EU data processed in non-EU nations meets GDPR standards.

11.

Name three ways online advertising networks have improved on, or added to, traditional offline marketing techniques.

Online advertising networks now have the ability to precisely track not just consumer purchases, but also all browsing behavior on the Web. This can tell marketers much more about individual consumers than was previously known.

For example, advertising networks can now compile information on all known interests of a consumer by collecting data on all content the viewer has accessed and all inclinations the consumer has expressed on preference forms. Advertising networks can also create the ability to dynamically adjust what the shopper sees on the screen. For instance, they can serve ads that conform to the inferences made from the collected data, and they can adjust the prices to conform to demographic or personal preference data. Furthermore, advertising networks create the ability to build and continually refresh these high-resolution data images or behavioral profiles of consumers. In summary, the scope and intensity of the data collection is strengthened to such an extent that merchants are now able to manipulate the shopping environment to their advantage.

12.

Explain how behavioral targeting is supposed to benefit both consumers and businesses.

Behavioral targeting is supposed to benefit both consumers and businesses by allowing marketers to display ads that are more relevant to consumers. Businesses benefit by not paying for wasted advertising sent to consumers who have no interest in their product or service. The industry argues that by increasing the effectiveness of advertising, more advertising revenues go to the Internet, which in turn subsidizes free content on the Internet. Last, product designers and entrepreneurs benefit by sensing demand for new products and services by examining user searches and profiles.

13.

How could the Internet potentially change protection given to intellectual property? What capabilities make it more difficult to enforce intellectual property law?

The Internet could potentially change the protection given to intellectual property because once a work becomes digital, it becomes much more difficult to control its access, use, distribution, and copying. Because digital media is so easy to replicate, transmit, and alter, unique challenges are presented. Theft is made much .

16 simpler in the digital world, and it becomes more and more difficult to establish the uniqueness of a work. It also becomes harder to enforce intellectual property law because the technology now exists to create perfect digital copies of various files including books, music, plays, poems, journal articles, and films. It is also simple to distribute these copies quickly, easily, and incredibly cheaply.

14.

What does the Digital Millennium Copyright Act (DMCA) attempt to do? Why was it enacted? What types of violations does it try to prevent?

The Digital Millennium Copyright Act attempts to adjust copyright laws for the digital age. It was enacted when a confrontation erupted between the major copyright holders (the publishing, sheet music, record label, and commercial film industries), the providers of Internet content, users of copyrighted materials (libraries, universities), and the general consumer population. The act tries to prevent violations by imposing fines and possible imprisonment on hackers who attempt to break encryption schemes and distribute copyrighted materials worldwide. It also attempts to control the behavior of Internet Service Providers who often host infringing websites, or who provide Internet service to routine infringers. The ISPs do not believe that they should be held accountable, or specifically, that they should have to put their users under surveillance or invade their privacy because they are merely the message carriers.

The Digital Millennium Copyright Act makes it illegal to make, distribute, or use devices that circumvent the technology-based protections of copyrighted materials, and it also holds the ISPs responsible for infringers once they have been notified of these infringements. ISPs must immediately take down violating sites or be subject to prosecution themselves. Copyright owners can subpoena in federal court to obtain the personal identities of suspected violators from the ISP. ISPs must also inform all their subscribers of their copyright management policies. All provisions of the DMCA are designed to prevent the widespread online violation of copyright.

15.

Define cybersquatting. How is it different from cyberpiracy? What type of intellectual property violation does cybersquatting entail?

Cybersquatting means registering, trafficking in, or using a domain name with the bad-faith intent to profit from a trademark belonging to someone else. It refers to the practice of buying domain names that reflect the names or trademarks of existing businesses intending to extort payments from the businesses.

Cybersquatting is different from cyberpiracy because although cyberpiracy involves the same behavior, the intent is to divert traffic away from legitimate sites to infringing sites. It is a bad faith attempt to divert traffic that dilutes the value of the legitimate trademark. Cybersquatting is considered an intellectual property violation because the creator of the trademark or company name owns it .

17 according to the general principles of intellectual property law, which state that any tangible or intangible product of the human mind is protected from infringement.

16.

What is deep linking and why is it a trademark issue? Compare it to framing— how is it similar and different?

Deep linking is the creation of a link to a page deep within another website using a publicly accessible HTML anchor tag. The home page of the target site is bypassed to access a page deep within that site. This becomes a trademark issue, for example, in the case of Ticketmaster versus Tickets.com. When Tickets.com did not have available tickets for a particular event, they would redirect users to a page deep within the Ticketmaster site to obtain those tickets. These customers might not ever realize that they were on a different site and that a different firm, indeed a direct competitor firm, was fulfilling their needs.

Framing on the other hand, is displaying the content of another website on your own site within a frame or window. The user never leaves the original site but can be exposed to advertising that is not that of the content owner. Framing may trigger a dispute under copyright and trademark law theories because a framed site can alter the appearance of the content and create the impression that its owner endorses or voluntarily chooses to associate with the framer. It can also divert advertising revenue from the content owner’s site. It is similar to deep linking in that the site visitor is accessing content from another site, but it is different in that with framing, the site visitor never even clicks a link to leave the site.

17.

What are some of the tactics businesses that are illegal in the United States use to operate outside the law on the Internet?

The main tactic that businesses that are illegal in the United States use to operate outside of the law on the Internet is operating from offshore sites, for example, in Antigua or Costa Rica, so as to operate beyond the jurisdiction of state and federal prosecutors.

18.

Why can’t pornographic sites simply be banned in the United States? Why has the Supreme Court struck down legislation intended to protect children from pornography?

Courts have ruled that banning pornographic sites violates the First Amendment protections of freedom of speech, and second, defining pornography is difficult.

Proscribing pornography may result in some legitimate works of art being banned.

.

18 19.

What is the “right to be forgotten”? What are some of the risks and benefits of establishing this right?

The right to be forgotten is a claim that individuals should be able to access, edit, and change or delete personal information about themselves that has been collected by any website. There are limits on this right having to do with the public’s interest in criminal records, and the records of public figures. The benefit is that ordinary people can have inaccurate, old, or irrelevant information removed from their Internet record. The risk is that criminals will be able to hide their past and pose a risk to the public.

20.

What is the doctrine of “fair use”? Why did the courts decide that Google’s scanning of copyrighted books was a “fair use”?

The doctrine of fair use allows copyrighted material to be used without permission of the copyright holder under certain circumstances. These are: character of use, nature of the work, amount of work used, market effect of use, and context of the use. Courts have concluded that Google’s scanning of copyright books was a fair use because the project had a broad public purpose of making it easier for students, researchers, teachers, and the general public to find books, while also preserving consideration for author and publisher rights. The Google project was “transformative” in the court’s view, giving books a new character and purpose, making it easier to discover old books, and leading to increased sales.

Projects 1.

Go to Google and find the Advanced Search link. Examine its SafeSearch filtering options. Surf the Web in search of content that could be considered objectionable for children using each of the options. What are the pros and cons of such restrictions? Are there terms that could be considered inappropriate to the filtering software but be approved by parents? Name five questionable terms.

Prepare a brief presentation to report on your experiences and to explain the positive and negative aspects of such filtering software.

Google’s SafeSearch filter screens for sites that contain explicit sexual content and deletes them from its search results. No filtering turns off SafeSearch filtering completely. The advantage of such filtering is that it prevents children from being exposed to material that parents deem unsuitable. The disadvantage of such filtering is that in some circumstances it may filter content that has educational value. It is also possible that there might be search terms considered potentially inappropriate by Google’s filter, but not by some parents.

2.

Develop a list of privacy protection features that should be present if a website is serious about protecting privacy. Then, visit at least four well-known websites .

19 and examine their privacy policies. Write a report that rates each of the websites on the criteria you have developed.

Student lists of privacy protection features may vary somewhat but will likely follow the FTC’s FIP (Fair Information Practice) principles as well as their profiling recommendations: ● Consumers must receive notice of network advertisers’ profiling activities on host websites and have the ability to choose not to participate in profiling. ● Clear notification of data collection must be given before it begins for personally identifiable information. Consumers must opt-in before data collection can begin. ● Clear and conspicuous notice must be given when non-personally identifiable information (or “clickstream” data) is collected for profiling.

Consumers can opt out of data collection. ● Once informed about the network advertiser’s information collection practices, consumers must be able to decide whether to participate in profiling. ● Reasonable access must be granted to personally identifiable information and other information that is associated with it to allow for inspection and correction. ● Sites are required to make reasonable efforts to protect the data they collect for profiling purposes from loss, misuse, alteration, destruction, or improper access. ● Enforcement must be done by third parties such as seal programs and accounting firms. ● No collection of sensitive data is permitted at all. This includes sensitive financial, medical, sexual behavior or orientation information, and Social Security numbers. ● Selling or renting of data to third parties is prohibited. ● Customers’ credit card data can only be transferred over secured connections.

3.

Review the provisions of the Digital Millennium Copyright Act of 1998. Examine each of the major sections of the legislation and make a list of the protections afforded property owners and users of copyrighted material. Do you believe this legislation balances the interests of owners and users appropriately? Do you have suggestions for strengthening “fair use” provisions in this legislation?

Title I and Title II of the DMCA are the two most relevant sections in terms of protections afforded property owners and users of copyrighted material. Title I of the DMCA protects the rights of property owners by creating two new prohibitions: one on the circumvention of technological measures used by

.

20 copyright owners to protect their works, and the other on tampering with copyright management information.

Section 1201 of Title I divides technological measures into two categories: measures that prevent unauthorized access to a copyright work and measures that prevent unauthorized copying of a copyrighted work.

Circumventing measures put into place to prevent unauthorized access is prohibited. However, Section 1201 includes a number of exceptions to this rule.

For instance, non-profit library, archival, and educational institutions are not prohibited from circumventing solely for making a good faith determination as to whether they wish to obtain authorized access to the work. There are also exceptions for reverse engineering for the purpose of identifying and analyzing elements of a computer program necessary to achieve interoperability with other programs, for encryption research, for protection of minors (allows a court applying the prohibition to a component or part to consider the necessity of its incorporation in technology that prevents access of minors to material on the Internet), for privacy protection (when the technological measure or the work it protects is capable of collection or disseminating personally identifying information about the online activities of a person), and for security testing.

Circumventing measures that prevent unauthorized copying is not prohibited, to assure that the public will have the continued ability to make fair use of copyrighted works. Making or selling devices that are used to circumvent either category is prohibited, however.

Section 1202 of Title I addresses the integrity of copyright management information (CMI), which is defined as: identifying information about the work, the author, the copyright owner, etc. This section protects copyright owners by prohibiting the knowing provision or distribution of false CMI, if done with the intent to induce, enable, facilitate, or conceal infringement. It bars the intentional removal or alteration of CMI without proper authority, as well as the dissemination of CMI or copies of works. Liability under subsection (b) requires that the act be done with knowledge or for civil remedies with reasonable grounds to know that it will induce, enable, facilitate, or conceal an infringement.

Section 1203 of Title I provides for civil remedies payable to injured parties, while Section 1204 provides criminal penalties of up to a $500,000 fine or 5 years imprisonment for a first offense, and up to a $1,000,000 fine or up to 10 years imprisonment for a subsequent offense.

Title II of the DMCA adds a new section to the Copyright Act to create four new limitations on liability for copyright infringement by online service providers. The limitations are for: .

21 ● ● ●

Transitory communications: This is where the service provider merely acts as a data conduit, transmitting digital information from one point on a network to another at someone else’s request.

System caching: This is the practice of retaining copies, for a limited time, of material that has been made available online by a person other than the provider, and then transmitted to a subscriber at his or her direction.

Infringing material on websites or other information repositories hosted on service providers’ systems: To be eligible for this limitation, the provider must not have knowledge of the infringing activity, it must not receive a financial benefit directly attributable to the infringing activity, and upon receiving notification of claimed infringement it must expeditiously take down or block access to the material. (The service provider must promptly notify the subscriber that it has removed or disabled access to the material and provide the subscriber with the opportunity to object.)

The service provider must also have filed with the Copyright Office a designation of an agent to receive notification of claimed infringement. To be eligible for any of the limitations, a service provider must: ● Adopt and reasonably implement a policy of termination in appropriate circumstances the accounts of subscribers who are repeat infringers. ● Accommodate and not interfere with “standard technical measures.”

The fourth limitation relates to hyperlinks, online directories, search engines, and the like. It limits liability for the acts of referring or linking users to a site that contains infringing material by using such information location tools, with the same eligibility requirements as for the third limitation. Although these provisions appear to offer more protection to the service providers than copyright owners, they are actually a strong tool for copyright owners because they provide a mechanism by which copyright owners can force service providers to block access to or remove infringing material.

Students can be expected to take varying positions as to whether the DMCA appropriately balances the interests of owners and copyright users. Some might note that the provisions of the DMCA can be used in such a way as to chill free speech. Others might argue that the DMCA does not go far enough and provides so many exceptions that it is not as strong a deterrent as it might be.

In terms of strengthening the “fair use” provisions, in some cases, encryption schemes work to prevent “fair use” that would otherwise be legal. One possible suggestion would be to require copyright owners who choose to protect their works through technological measures, to provide a means by which fair use can occur.

.

22 4.

Review the section on net neutrality and search for two articles that take a position on the topic. Summarize each article and then write an essay describing your own position on net neutrality.

There is a plethora of articles available on the topic of net neutrality, so students should not have difficulty finding two that take a position on the topic. For instance, the Electronic Frontier Foundation (Eff.org) offers a number of resources and arguments in favor of net neutrality. Conversely, as of November 2020, the FCC has a web page entitled “Restoring Internet Freedom” (https://www.fcc.gov/restoring-internet-freedom) which outlines the arguments the FCC adopted in repealing its prior rulings in favor of net neutrality. Students should be prepared to identify possible biases in the articles they cite and also to explain their own position.

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html.

Video Cases for this chapter include: ● Video Case 8.1 The Right to Be Forgotten ● Video Case 8.2 Facebook Privacy ● Video Case 8.3 What Net Neutrality Means for You

.

1 Instructor’s Manual: Chapter 9 Online Retail and Services

Learning Objectives After reading this chapter, your students should be able to: • Understand the environment in which the online retail sector operates today.

• Explain how to analyze the economic viability of an online firm.

• Identify the challenges faced by the different types of online retailers.

• Describe the major features of the online service sector.

• Discuss the trends taking place in the online financial services industry.

• Describe the major trends in the online travel services industry today.

• Identify current trends in the online career services industry.

• Understand the business models of on-demand service companies.

Key Terms account aggregation, p. 638 assets, p. 616 balance sheet, p. 616 bricks-and-clicks, p. 625 catalog merchants, p. 627 channel conflict, p. 629 corporate online booking solutions (COBS), p. 643 current assets, p. 616 current liabilities, p. 616 demand-pull model, p. 629 economic viability, p. 614 financial portals, p. 638 gross margin, p. 615 liabilities, p. 616 long-term debt, p. 616 manufacturer-direct, p. 628 net margin, p. 615 omni-channel, p. 608 operating margin, p. 615 supply-push model, p. 629 transaction brokering, p. 632 virtual merchants, p. 616 working capital, p. 616 Brief Chapter Outline Blue Nile Sparkles for Your Cleopatra 9.1 The Online Retail Sector The Retail Industry Online Retailing .

2

9.2

Analyzing the Viability of Online Firms Strategic Analysis Financial Analysis

9.3

E-commerce in Action: E-tailing Business Models Virtual Merchants E-commerce in Action: Amazon Omni-channel Merchants: Bricks-and-Clicks Catalog Merchants Manufacturer-Direct Common Themes in Online Retailing Insight on Technology: Stitch Fix Builds a Business on Big Data and Predictive Marketing

9.4

The Service Sector: Offline and Online

9.5

Online Financial Services Fintech Online Banking and Brokerage Online Mortgage and Lending Services Online Insurance Services Online Real Estate Services

9.6

Online Travel Services Why Are Online Travel Services So Popular?

The Online Travel Market Online Travel Industry Dynamics Insight on Society: Phony Reviews

9.7

Online Career Services It’s Just Information: The Ideal Web Business?

Online Recruitment Industry Trends

9.8

On-Demand Service Companies Insight on Business: Food on Demand: Instacart and Grubhub

9.9

Careers in E-commerce The Company Position: Associate, E-commerce Initiatives Qualifications/Skills Preparing for the Interview Possible First Interview Questions

9.10

Case Study: OpenTable: Your Reservation Is Waiting

.

3 9.11

Review Key Concepts Questions Projects References

Figures Figure 9.1 Figure 9.2 Figure 9.3 Figure 9.4 Figure 9.5

Tables Table 9.1 Table 9.2 Table 9.3 Table 9.4 Table 9.5 Table 9.6 Table 9.7

Composition of the U.S. Retail Industry, p. 606 (User-controlled animation in eText) Online Retail Revenues by Category, 2019, p. 609 The Growth of Online Retail in the United States, p. 610 (User-controlled animation in eText) Share of Online Retail Sales by Type of Company, p. 617 (Whiteboard video in eText) U.S. Online Travel Services Revenues, p. 642 (User-controlled animation in eText) What’s New in Online Retail 2020–2021, p. 605 Online Retail: Advantages and Challenges, p. 611 Retail E-commerce: Omni-channel Integration Methods, p. 613 Amazon’s Consolidated Statements of Operations and Summary Balance Sheet Data, 2017–2019, p. 621 Major Online Travel Sites, p. 644 Popular Online Recruitment Sites, p. 649 Examples of On-demand Service Firms, p. 651

Teaching Suggestions This chapter is the first in the series of “applied e-commerce” chapters in Part 4. This part, entitled “E-commerce in Action,” focuses on understanding the realistic operating environment for e-commerce in four different sectors: (1) online retail and services, (2) online content and media, (3) social networks, auctions, and portals, and (4) B2B ecommerce. A sector-by-sector approach helps students to understand the complexity of ecommerce.

The updated opening case, Blue Nile Sparkles for Your Cleopatra, describes Blue Nile, a truly exciting online retail site that specializes in diamonds. Who would buy a diamond on the Web? How could you trust the quality? How could you buy a diamond without seeing it? Blue Nile has some answers; it is the largest online diamond merchant. Other questions for class discussion on this case might include the following: • Why is selling (or buying) diamonds over the Internet difficult?

• How has Blue Nile built its supply chain to keep costs low?

• How has Blue Nile reduced consumer anxiety over online diamond purchases?

• What are some of Blue Nile’s potential vulnerabilities?

• Would you buy a $5,000 engagement ring at Blue Nile? .

4

One point that students should take away from this chapter is that although the original vision of e-commerce did not work out for most e-tailers, the online retail marketplace is nevertheless one of the fastest growing channels in retail commerce. Today, fast (or slow) followers replace first movers to exploit the extraordinary innovations developed during the early years of e-commerce. This means that established retailers with powerful national brands and international scope of operations increasingly dominate the online retail landscape.

Obviously, one of the major discussion points for this chapter is the impact of the Covid19 pandemic, which is providing both dramatic challenges and also opportunities for online retail and service providers. The pandemic has had disparate effects on various sectors, for instance increasing online retail, but decreasing online travel services. As you review these topics, take some time to ask students how the pandemic has impacted their own consumer behavior with respect to online retail and services.

Key Points The Retail Sector. Chapter 9 begins with the retail sector. Section 9.1 summarizes ecommerce in the retail sector and attempts to provide students with some perspective on the variety and size of retail enterprises in the U.S. economy. The retail sector is huge: Personal consumption of goods accounted for about $4.5 trillion of the United States’ gross domestic product (GDP). It is very helpful to just walk through Figure 9.1 to explain the variety found in the retail sector. This figure is presented as a user-controlled animation in the eText for further emphasis.

Online Retailing. Section 9.1 continues with a contrast of the predictions advanced during the early years of e-commerce with the reality of e-commerce today. You may wish to construct a table with two columns: one with predictions and one column with reality.

Briefly, analysts and others during the early years of e-commerce predicted the following: • Price transparency and brutal price competition • Low entry costs • Lower operational costs for online firms • Lower customer acquisition costs • First-mover advantages; disintermediation • Channel disruption and conflict As it turned out, these predictions were mostly wrong. Despite the erroneous forecasts by consultants, professionals, journalists, industry market researchers, and Wall Street analysts, online retail has become a robust and viable business. Price competition has increased, but price dispersion has not disappeared. Customers appear to be willing to pay extra for trusted brands, and there are many opportunities for branding on the Web. Social and local commerce and the mobile platform are creating even more new opportunities. Figure 9.3 provides an overview of the growth of online retail in the United States from 2014 through 2024. This figure is presented as a user-controlled animation in the eText for further emphasis. .

5

Analyzing the Viability of Online Firms. Section 9.2 describes how to perform a strategic and financial analysis. We are interested in characterizing the viability of online firms over an intermediate horizon of a three-year period. To do this, we look at a firm’s strategic situation and its operating results over the previous three years. In the strategic analysis, we look at both industry level and firm level factors. The financial analyses are based on a firm’s most recent annual reports on Form 10-K, filed with the Securities and Exchange Commission, with updates in the text to the most recent quarter, if available.

The most recent results can be obtained at SEC.gov. Look for Form 10-Q filings for the latest quarter. Consider taking some extra time to walk students through Section 9.2 so they understand the factors to examine when considering the viability of e-commerce firms.

Generally, we look at a firm’s net margins over time to understand how well the firm is performing, and whether the firm is scaling. We would like to see net margins improve over time (positively) as firms achieve size and scales of economy in their operations.

Firms that fail this test are in serious difficulty even if revenues are growing rapidly. On the balance sheet, we look first at whether the firm’s current assets exceed current liabilities and by how much. Obviously, if a firm cannot pay current liabilities, it is a candidate for bankruptcy. Second, we look at the long-term debt and growth. In some cases, long-term debt can become a significant liability for a firm as interest payments consume operating profits. You may wish to augment the case analyses by having students update the operating results to the current quarter, or by asking students to develop any of a number of financial ratios based on the data presented.

E-commerce in Action: E-tailing Business Models. In Section 9.3, we examine four different types of e-commerce retail business models: virtual merchants, omni-channel merchants, catalog merchants, and manufacturer-direct. The challenge is to have students understand how each of these different types of business models offers different opportunities as well as risks. One way to teach this section is to assign a team to each of the four types of business models, have the team choose a company that uses that business model, and perform a strategic and financial analysis of the company, similar to the E-commerce in Action case on Amazon in this section. Figure 9.4 illustrates the share of online retail sales by each type. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 9.4 and this topic.

Common Themes in Online Retailing. Section 9.3 concludes with a summary of the common themes that emerge from looking at the different types of e-tailing business models. In general, established retailers with substantial existing infrastructure have the advantage here. However, they also face problems of integrating their online and offline operations, coordinating channels and avoiding channel conflict, and achieving profitable online operations without subsidies from the offline operations. Obviously, Amazon and a few others offer exceptions to the overall trend. Another important trend, as noted above, is the growth of social, local, and mobile commerce.

.

6 The updated Insight on Technology case, Stitch Fix Builds a Business on Big Data and Predictive Marketing, discusses uses by retailers of big data in their marketing efforts.

Questions for class discussion might include the following: • How does big data enable predictive marketing?

• Are there any drawbacks to the increasing use of predictive marketing?

• Have you experienced predictive marketing in your own shopping? If so, what was the experience like? Were suggestions accurate and helpful?

• How has the Covid-19 pandemic impacted Stitch Fix? The Service Sector: Offline and Online. Section 9.4 provides an overview of the service sector. We live in a service economy. Understanding the prospects for e-commerce in the service sector requires that students understand some of the dynamics that operate in various service industries. The challenge here is to quickly introduce students to the unique features of each service industry, and then to show them how, given the industry dynamics, e-commerce is likely to work out.

Some transaction brokering service industries (such as stock brokerage, travel services, and job listing services) are uniquely suited to e-commerce because they create value from exchanging information—something the Web is good at. Services that have a “hands on” component (including banking that requires physical signatures, ATMs, and other in-person services) are not as well suited to pure online solutions. However, these hands-on services can benefit from online sites as an adjunct to their physical brick-andmortar presence. This suggests that big banks with brand names and existing franchises can successfully migrate some of their consumer relationships to the Web. Service industries in general are information intense and personalized, making them good candidates for e-commerce.

Online Financial Services. The service sector is dominated by financial services. This is an e-commerce success story that has changed the way millions of Americans obtain financial services. Section 9.5 begins with a brief overview of online financial consumer behavior and then examines fintech, online banking and brokerage, mortgages and lending, insurance, and real estate in a bit more depth. Online banking is a tremendous success and has further surged as a result of the Covid-19 pandemic. In contrast, the impact of e-commerce on mortgages and lending, insurance, and real estate (the other major financial service industries) has been somewhat different. In general, these online services have attracted millions of “shoppers” but not as many “buyers.” Most online visitors are looking for prices and terms or other information (such as pictures of houses for sale), and then conducting their actual transactions offline, although this is beginning to change. Nevertheless, the presence of alternative online suppliers has dropped prices for insurance and loans and created a more competitive environment. A drag and drop exercise asking students to sort fintech companies into the appropriate industry categories appears at the end of this section in the eText.

Online Travel Services. Prior to the Covid-19 pandemic, online travel services, covered in Section 9.6, had been one of the most successful B2C e-commerce business models.

However, as previously noted, the travel industry has been one of the most severely .

7 impacted by the Covid-19 pandemic. Figure 9.5 depicts the size and future growth in this market between 2018 and 2024. This figure is presented as a user-controlled animation in the eText for further emphasis. The industry dynamics are also highly volatile with suppliers (airlines, rental companies, hotels) seeking to eliminate intermediaries such as travel agents and global distributors. E-commerce would seem to tilt the competition toward suppliers who can build direct relationships with customers on the Internet. Yet, online intermediaries (like Travelocity and Expedia) have done an excellent job in aggregating online audiences.

The updated Insight on Society case, Phony Reviews, looks at some of the issues surrounding the increased reliance consumers are placing on social media, such as usergenerated reviews, in making decisions about travel services. Ask students if they have ever written a review, or used reviews to make decisions about travel services. Do they trust all the reviews they read, and if not, what factors do they use to distinguish those which they do trust from those which they do not? Other questions for class discussion might include the following: • Should there be repercussions to individuals and/or businesses for posting false reviews of products or services?

• Is it possible for phony reviews to be recognized and moderated?

• Do you rely more on certain types of reviews or comments on websites and blogs over others?

Online Career Services. Section 9.7 covers online career services. Ask your students if they have ever posted a resumè on LinkedIn, Monster, or another online job site, or looked for a job on such a site, or just shopped these sites to look at pay rates. Chances are good that at least half your class will raise their hands. Table 9.6 describes some popular online recruitment sites. One point to discuss with your students is that although online recruitment sites have grown in size and visits, there are many competing ways to find a job, many of which are more successful than online postings. Most jobs are local, and personal networks, along with newspaper classifieds and phone calls, remain the most common way people find jobs. Students need to understand that online job sites have their limitations. In bad times, there are few jobs offered and millions of job seekers.

On-demand Service Companies. Section 9.8 focuses on the emergence of on-demand service companies such as Uber and Airbnb, and makes the point that these companies are big business and involve collection of fees from both buyers and sellers, rather than a free sharing of resources. Table 9.7 lists some additional examples. The updated Insight on Business case, Food on Demand: Instacart and Grubhub, examines two of the most prominent start-ups in the on-demand food services marketplace. Questions for class discussion include the following: • What features or practices have made Instacart successful?

• What challenges do grocery and meal delivery services face?

• Have you used any grocery or meal delivery services? If so, what was your experience?

• How has the Covid-19 pandemic impacted the on-demand food services delivery marketplace? .

8

In Section 9.9, we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an associate with an ecommerce initiatives team.

The updated chapter-ending case study on OpenTable in Section 9.10 provides an example of “services-based” e-commerce, where an entrepreneurial firm took a unique idea and evolved it over several years into a successful business model. OpenTable also illustrates the opportunities in many industries for re-thinking business processes. The restaurant industry for the most part has not taken advantage of the Internet (in part because cooking food is their business, not building web applications). OpenTable is an interesting case of a third-party provider offering a win-win service to restaurants and consumers, helping the industry, rather than destroying it. However, the restaurant industry, and OpenTable obviously face tremendous challenges as a result of the Covid19 pandemic.

Case Study Questions 1.

What characteristics of the restaurant market made it difficult for a reservation system to work?

The market is highly fragmented, with large regional differences. Many, if not most, of the thousands of small restaurants are not computer experienced, and will not have the spare resources to participate.

2.

How did OpenTable change its marketing strategy to succeed?

Originally, OpenTable sought to market itself targeting national chains and by paying online restaurant reviewers for links to the OpenTable website. This was too expensive and was focused solely on the $1 per reservation revenue. In its second strategy, OpenTable focused on just four geographic areas, each of them large and home to expensive large restaurants. It offered not just to send diners to restaurants but also to provide a customer relationship management system so restaurants could know and serve their customers better.

3.

Why would restaurants find the SaaS model very attractive?

Because restaurants do not typically have a trained IT staff, the SaaS model is ideal. All that is required is the purchase of PCs, and training on how to use the system, which is provided by OpenTable.

4.

What challenges does OpenTable face?

OpenTable faces concerns about its pricing model, where competitors like Reserve and Yelp are undercutting it on subscription fees. The company has also invested heavily in international expansion without increased profits to show for .

9 it. The Covid-19 pandemic has created a huge additional challenge for the restaurant industry and OpenTable. OpenTable estimates that 25% of the restaurants in the United States will not survive and the U.S. restaurant industry as a whole is projected to lose an astounding $240 billion in sales in 2020.

End-of-Chapter Questions 1.

Why were so many entrepreneurs drawn to start businesses in the online retail sector initially?

Many entrepreneurs were drawn to start businesses in the online retail sector initially because it was one of the largest market opportunities in the U.S. economy. Many believed that the Internet would revolutionize the retail industry because: • Search costs and transaction costs would both be dramatically reduced.

• Market entry costs would be comparatively low.

• Traditional offline physical stores would be forced out of business by falling prices on the Internet.

• Many industries would be disintermediated, destroying the middleman and the associated markups, establishing the Web as the single dominant marketing channel.

2.

What frequently makes the difference between profitable and unprofitable online businesses today?

Today, the difference between profitable and unprofitable online businesses is, for the most part, dependent upon a strong brand name. Multi-channel firms with a strong brand name have leveraged their supportive infrastructures and financial resources to exploit the new marketing channel.

3.

Which segment of the offline retail business is most like online retailing? Why? Of the different retail segments, the one that is the most like online retailing is MOTO, mail order/telephone order. It is similar because MOTO retailers and pure online retailers do not have physical stores; they both use a catalog to display products and are both very dependent on credit card technologies, without which neither would be possible on a national scale. They both must also have very effective order fulfillment systems and procedures.

4.

Describe the technological retail revolution that preceded the growth of ecommerce. What were some of the innovations that made later online retailing possible?

The technological revolution that preceded the growth of e-commerce was the mail order/telephone order business. Without physical stores, MOTO retailers distribute millions of printed catalogs and operate large telephone call centers to accept orders. They have developed highly efficient order fulfillment centers that .

10 can ship orders within 24 hours. The innovations that occurred in the 1970s and 1980s that made this the fastest growing retail segment during this time were improvements in the national telephone system and the growth of the credit card industry. The efficiencies that were developed in order fulfillment and credit card technologies were the necessary precursors to online retailing.

5.

Name two assumptions e-commerce analysts made early on about consumers and their buying behavior that turned out to be false.

Two assumptions that e-commerce analysts made early on about consumers and their buying behavior that turned out to be false were that they would be rational and cost-driven. Instead, consumers are attracted to stable, well-known retail brands and have demonstrated that other factors such as reliability, trust, fulfillment, and customer service are equally important. This does not mean consumers are non-rational, but simply that they are willing to pay extra for branded goods and services.

6.

Explain the distinction between disintermediation and hypermediation as it relates to online retailing.

Disintermediation in online retailing occurs when manufacturers or their distributors build a direct relationship with the consumer, and the traditional retail intermediaries or middlemen are eliminated. Hypermediation, on the other hand, occurs when virtual firms outsource all their warehousing and order fulfillment functions, creating a number of new intermediaries who are necessary for these firms to function.

7.

Compare and contrast virtual merchants and bricks-and-clicks firms. What other type of online retailer is most like the virtual merchant?

Virtual merchants are single-channel firms that generate almost all their revenue from online sales. Bricks-and-clicks firms, on the other hand, have a network of physical stores as their primary retail channel, but have also introduced online offerings. They are often multi-channel firms with catalog or other retail channels already established. Virtual merchants do not have to bear the costs associated with building and maintaining physical stores, but they face large costs in building and maintaining websites and in building a brand name presence. Bricksand-clicks firms have the high costs of maintaining physical buildings and large sales staffs, but they have an already established brand name, a national customer base, warehouses, large scale, an already trained staff, and consequently, much lower customer acquisition costs. Virtual merchants, like all retail firms, face very low margins (the difference between the retail price for goods and the cost of the goods to the retailer); therefore, they must achieve highly efficient operations to make a profit. Bricks-and-clicks firms are already used to operating in these thin margins and have already invested in the purchasing and inventory control systems that enable them to control costs. Bricks-and-clicks firms must figure out .

11 how to leverage their strengths and assets to the Web. They face the costs of building and maintaining a credible website, hiring new skilled staff, and building rapid response order entry and fulfillment systems, but so do virtual merchants.

MOTO (with an online presence) is the retailing group most like virtual merchants because they typically did not have a physical store presence. For MOTO firms, making the transition from catalog marketing to online marketing is comparatively easy because they have well-developed fulfillment and delivery processes.

8.

What is the difference between a supply-push and a demand-pull sales model?

Why do most manufacturer-direct firms have difficulty switching from the former to the latter?

A supply-push sales model refers to a business model in which products are manufactured prior to orders for them being received, based upon calculations of what the estimated demand for the product will be. Demand-pull, on the other hand, refers to a business model in which products are not manufactured until orders are received.

Manufacturers attempting to successfully pursue a demand-pull sales model must have the supporting supply chain management capabilities, an efficient order center, and the manufacturing capabilities to support it. Many manufacturer-direct firms have difficulty switching to the demand-pull model because they lack these necessary ingredients. They have difficulty in using either sales model when they develop an online strategy of selling directly to consumers because they face channel conflict with the physical retailers of their products. The risk is that the traditional retailers of the manufacturer’s goods will become disadvantaged from a price standpoint as they must compete directly with the manufacturer. They may also be disadvantaged in their ability to maintain inventory that is as current as the manufacturer. The result can be that these traditional marketing channels are cannibalized by the manufacturer’s efforts to establish a direct relationship with its customers. Unless manufacturers can be assured that the elimination of this marketing channel will not negatively impact sales and revenue, they must proceed with caution in pursuing the manufacturer-direct business model, or they must take the necessary steps to assure the continued existence of their retailing business partners.

9.

What are five strategic issues specifically related to a firm’s capabilities? How are they different from industry-related strategic issues?

The five strategic issues that are specifically related to a firm’s capabilities are an evaluation of the firm’s value chain, its core competencies, its available synergies, and the social and legal challenges. In analyzing the economic viability of a firm, one must understand whether the firm has adopted business systems that will enable it to operate at peak efficiency and whether there are looming .

12 technological changes that might force it to change its processes or methods; this is the firm’s value chain. It is also necessary to assess whether the firm has any unique skills that cannot be easily duplicated by its competitors and whether technological changes might invalidate these core competencies. Furthermore, one must examine whether there are competencies or assets available to the firm from related establishments that it owns or with which it has established strategic partnerships. Finally, the social and legal horizon must be considered to determine if the firm may be vulnerable to legal challenges or if it has taken into account consumer trust and privacy issues that could cause it to lose business or cause public relations problems.

These strategic issues are different from those used to assess the industry as a whole because they focus on the particular issues and capabilities of an individual firm. The industry strategic factors concentrate on the competitive forces within the industry such as: • The facility with which competitors can enter the market.

• The existence of substitute products.

• The basis of the competition within the industry.

• The power of the suppliers and customers in the industry.

• The structure and possible changes in the industry production and distribution chains.

10.

Which is a better measure of a firm’s financial health: revenues, gross margin, or net margin? Why? The best measure of a firm’s financial health is net margin, which sums up in one number how successful a company has been at making a profit on each dollar of sales. A negative net margin means that a company is losing money on each sale.

11.

What are some of the difficulties in providing services in an online environment?

What factors differentiate the services sector from the retail sector, for example?

Some of the difficulties involved in providing services online are that many are hands-on type industries such as the legal, medical, and accounting professions.

These professionals need to interact directly with their clients to provide their service, but the Internet can be used to assist these services by providing consumers with information, knowledge, and communication. The factors that differentiate the services sector from the retail sector are that instead of an actual physical product that has value, the value for services is based mainly on the collecting, storing, and exchanging of information.

12.

Compare and contrast the two major types of online services industries. What two major features differentiate services from other industries?

The two major types of service industries are transaction brokering and hands-on services. Transaction brokers act as intermediaries to facilitate a transaction. For .

13 example, stockbrokers facilitate a stock transfer between a buyer and a seller; online mortgage companies refer customers to the actual issuing mortgage company. In contrast, the hands-on services use the Internet by and large to impart information and to communicate with their customers.

The two major features that differentiate the service industry from other industries are that they are for the most part knowledge and information intense, and that just about all services entail some amount of personalization and customization.

Except for the providers of physical services such as cleaning and gardening, service industries generally process a lot of information and employ a highly skilled, educated workforce. Many services, such as the legal, medical, and accounting services, require extensive personalization. Others, such as financial services, benefit from customization by allowing clients to choose from a menu of options that are of interest to them.

13.

What is the biggest deterrent to growth of the online insurance industry nationally?

The biggest deterrent to online insurance industry growth is that insurance products are complex with many different types of coverage in each insurance group (e.g., non-automotive property and casualty, workers’ compensation, marine, accident, liability, fire, homeowners, commercial, etc.). Furthermore, writing a policy can be very information intense, requiring a personal inspection of property or considerable actuarial experience and data. Complicating this situation is the fact that there is no federal regulation of the industry. Instead, each state has its own set of regulations overseen by the 50 different state insurance commissions. Websites must obtain licenses to enter the insurance business in every state where they intend to provide quotes or sell insurance.

14.

Define channel conflict and explain how it applies to the retail industry.

Manufacturer-direct firms, also sometimes referred to as DTC (direct-toconsumer) firms, are either single or multi-channel manufacturers that sell directly online to consumers without the intervention of retailers. Multi-channel manufacturer-direct firms sometimes face channel conflict challenges. Channel conflict occurs when retailers of products must compete on price and currency of inventory directly against the manufacturer, who does not face the cost of maintaining inventory, physical stores, or sales staffs.

15.

What is the most common use of real estate websites? What do most consumers do when they go to them?

The most common use of real estate websites is conducting research, which influences offline decisions. Users visit real estate sites to view the properties that are available for purchase and to research appraisal reports, neighborhood sales histories, school district data, crime reports, as well as social and historical .

14 information on neighborhoods. They can also link to mortgage lenders, credit reporting agencies, house inspectors, or surveyors, and use other features such as loan mortgage calculators.

16.

How have travel services suppliers benefited from consumer use of travel websites?

Travel services suppliers have benefited from consumer use of travel websites because the Internet is becoming the most common channel used by consumers to research travel options, search for prices, and book reservations for airline tickets, rental cars, hotel rooms, cruises, and tours. For the suppliers: the owners of the hotels, rental cars, and airlines, this means that millions of consumers are aggregated into a singular focused customer pool that can be efficiently reached with advertising and promotions. Furthermore, the suppliers of travel services often have excess capacity that they are always looking to fill, and this aggregation of customers makes it easy for them to do so.

17.

Name and describe five traditional recruitment tools companies have used to identify and attract employees. What are the disadvantages of such tools compared to online career sites?

The five traditional recruitment tools that companies have used to identify and attract employees are: classified and print advertising, career expos, on-campus recruiting, private employment agencies, and internal referral programs. The disadvantages of these tools considering the new online sites are: First, print advertising usually includes a per-word charge that limits the amount of detail employers will provide about a job opening and the amount of time an ad will run.

Second, career expos do not allow for a pre-screening process to weed out unsuitable candidates, and they are limited by the amount of time a recruiter can spend with each candidate. Third, staffing firms charge high fees and they have a limited, usually local, pool of candidates. Fourth, on-campus recruiting firms are also limited in the amount of time that can be spent per candidate as well as in how many candidates can be seen each visit, necessitating multiple visits to some campuses. Fifth, internal referral programs can sometimes encourage employees to propose unqualified candidates so that they will qualify for the rewards and incentives offered.

18.

In addition to matching job applicants with available positions, what larger function do online job sites fill? Explain how such sites can affect salaries and going rates.

In addition to matching job applicants with available positions, online sites also serve the larger function of automating this information-intense business process, reducing search times and costs for all parties. These sites can also affect salaries and going rates by establishing market prices and terms. Online recruitment sites identify salary levels for both employers and job hunters and lay out the skill sets .

15 required to achieve those salary levels. They serve as online national marketplaces to establish the terms of trade in the labor market, thus their existence should lead to a rationalization of wages, greater labor mobility, and higher efficiency in recruitment and operations as employers are able to fill positions more quickly.

19.

Describe the business model of on-demand service companies.

On-demand service companies provide a platform that enables the on-demand delivery of numerous services, by connecting providers (“sellers”) who wish to exploit their “spare resources,” such as cars, rooms with beds, and the ability to perform various services via their personal labor, with consumers (“buyers”), who would like to utilize those resources and services. On-demand service companies collect a fee from both sellers and buyers for using their platforms.

20.

Why are on-demand service companies viewed as being disruptive and controversial?

On-demand service companies can significantly lower the cost of various services like urban transportation and lodging, by creating an online platform that uses an online reputation system to establish a trusted relationship between sellers and consumers, enabling owners of underutilized resources to sell access to those resources to consumers who prefer not to, or are unable to, buy those resources themselves. As such they can be very disruptive to existing firms and business models. However, they can also be controversial, for a variety of reasons. For instance, with Airbnb, property renters do not have the regulatory or tax burdens that hotel owners have; the same goes for Uber drivers compared to traditionally licensed taxicab drivers. It is possible that the success of Airbnb could greatly reduce the demand for regulated hotels. The possibility of negative outcomes from transactions on these sharing economy sites (e.g., a driver robs or harms a passenger, or an apartment is destroyed by renters), is leading both firms to require liability insurance, or to offer such insurance for free. It is unlikely that sharing economy firms will escape regulation altogether.

Projects 1.

Access the EDGAR archives at SEC.gov, where you can review 10-K filings for all public companies. Search for the 10-K report for the most recent completed fiscal year for two online retail companies of your choice (preferably ones operating in the same industry, such as Staples Inc. and Office Depot Inc., Amazon and Walmart, etc.). Prepare a presentation that compares the financial stability and prospects of the two businesses, focusing specifically on the performance of their respective e-commerce operations.

Students who choose to investigate Staples and Office Depot will find their most recent Form 10-Ks (annual report) and 10-Qs (quarterly report) in the EDGAR archives. (Office Depot’s SEC filings are under the name ODP Corp.) Because neither Staples nor Office Depot reports Internet sales from their retail sales .

16 results, students will need to supplement the information they can extract from the SEC filings with further research on the Internet sales channel performance of these two companies. This is done by searching industry websites and other information available online.

2.

Find an example not mentioned in the text of each of the four types of online retailing business models. Prepare a short report describing each firm and why it is an example of the particular business model.

Students may find, for example: • Bricks-and-clicks: Macy’s is a successful department store with stores around the country.

• Virtual merchant: Bluefly is an online outlet store with no physical outlets.

It provides brands found in upscale department stores at discounts by buying wholesale from resellers (rather than the designers). It passes the savings on to the customer. However, it must buy what is available at a deep discount, so not all sizes of a particular item will always be in stock.

Bluefly.com is a public company (ticker symbol BFLY).

• Catalog merchant: Fingerhut was already a successful catalog business and has now leveraged that success to an online presence. It offers a broad range of products in a variety of categories.

• Manufacturer-direct: Fortin Ironworks has always been a manufacturerdirect merchant of ornamental ironworks. This metal fabrication company based in Columbus, Ohio and founded in 1946, employs skilled craftsmen, artisans, estimators, salesmen, and installers. It sells ornamental iron products such as driveway gates, walkway gates, fences, handrails, curtain rods, production components, and also several lines of outdoor and indoor furniture with accessories. It also carries a line of sporting equipment including complete basketball units, soccer goals, and lacrosse goals. Most products can now be purchased online, including fencing, gates, planters, and accessories such as pot rings, brackets, trellises, lamps, and tables.

3.

Drawing on material in the chapter and your own research, prepare a short paper describing your views on the major social and legal issues facing online retailers.

Some issues students might discuss in their research paper include: • What will organizations have to do to protect their intellectual property rights?

• What measures will have to be taken regarding privacy issues? How will they address consumer concern over the lack of control they feel they have over personally identifiable information?

• Are online retailers going to be prepared to answer inquiries from customers regarding the content of their specific files? Will managementlevel positions be needed for procedures like the deletion and updating of

.

17

• •

4.

consumer information? If there are mistakes in those files, could it result in legal trouble for companies?

How will they address consumer privacy concerns, convincing consumers that purchasing goods online is a confidential transaction between the consumer and the merchant?

What will online retailers have to do to be prepared for any changes in the tax law?

Choose a services industry not discussed in the chapter (such as legal services, medical services, accounting services, or another of your choosing). Prepare a 3to 5-page report discussing recent trends affecting online provision of these services.

Students may find, for example, legal service firms that provide legal self-help, forms, and occasionally advice; two such sites are RocketLawyer.com and Nolo.com. Nolo’s mission is to make the legal system work for everyone—not just lawyers. Nolo tries to help people handle their own everyday legal matters or learn enough about them to make working with a lawyer a more satisfying experience. It offers “plain-English” books, software, and forms. Nolo’s value proposition is, of course, convenience and 24-hour access to legal help.

5.

Together with a teammate, investigate the use of mobile apps in the online retail or financial services industries. Prepare a short joint presentation on your findings.

Students will likely discover that in the highly competitive financial services industries in which the value proposition for customers is convenience, banks and financial institutions have some of the most advanced apps. Smartphones have increased the demand for mobile financial services. Analysts and industry experts believe this is so because mobile apps are a natural fit for the financial services industries, which are high-demand and high-value and must be conducted in realtime. Students might also include in their papers a discussion of the security issues involved with the use of mobile apps in the financial services industries, how wireless safeguards will be integrated with security processes, technologies that are already in place, and what new security threats exist. Students might discuss the limitations facing developers due to the relatively limited screen size of smartphones, how strong authentication and encryption will play a part, and whether security concerns might put a damper on the market for mobile financial services.

Fidelity Investments offers a variety of mobile services and apps that lets users access their accounts whenever and wherever they want. Fidelity offers e-apps for iOS (iPhone and iPad) and Android devices, and mobile browsing via a mobile website. The apps allow users to track their portfolio, pay bills, trade, review details of their Fidelity brokerage accounts, deposit checks remotely, get news and research, and more. .

18

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html.

Video Cases for this chapter include: • Video Case 9.1 Walmart Takes on Amazon • Video Case 9.2 Etsy: A Marketplace and a Community

.

1 Instructor’s Manual: Chapter 10 Online Content and Media

Learning Objectives After reading this chapter, your students should be able to: • Understand the major trends in the consumption of media and online content, the major revenue models for digital content delivery, digital rights management, and the concept of media convergence.

• Understand the key factors affecting the online publishing industry.

• Understand the key factors affecting the online entertainment industry.

Key Terms agency model, 702 content convergence, p. 682 digital rights management (DRM), p. 681 Electronic Sell-Through (EST), p. 709 industry convergence, p. 684 Internet Video on Demand (iVOD), p 709 magazine aggregator, p. 698 metered subscription, p. 692 over-the-top (OTT) services, p. 706 paywall, p. 693 release window, p. 710 Subscription Video on Demand (SVOD), p. 709 technological convergence, p. 682 walled garden, p. 681 wholesale model, 702 Brief Chapter Outline The “Internet Broadcasting System” Goes Primetime 10.1 Online Content Content Audience: Where Are the Eyeballs?

Insight on Society: Are Millennials Really All That Different?

Content Market: Entertainment and Media Industry Revenues Online Content: Consumption, Revenue Models, and Revenue Digital Rights Management (DRM) and Walled Gardens Media Industry Structure Media Convergence: Technology, Content, and Industry Structure 10.2

The Online Publishing Industry Online Newspapers Insight on Business: Vox: Native Digital News Magazines Rebound on the Digital Platform E-books and Online Book Publishing

.

2 10.3

The Online Entertainment Industry Home Entertainment: Television and Movies Music Games Insight on Technology: Game On: Twitch

10.4

Careers in E-commerce The Company Position: Digital Audience Development Specialist Qualifications/Skills Preparing for the Interview Possible First Interview Questions

10.5

Case Study: Netflix: How Does This Movie End?

10.6

Review Key Concepts Questions Projects References

Figures Figure 10.1 Figure 10.2 Figure 10.3 Figure 10.4 Figure 10.5 Figure 10.6 Figure 10.7 Figure 10.8 Figure 10.9 Figure 10.10 Figure 10.11 Figure 10.12 Figure 10.13 Figure 10.14 Figure 10.15 Figure 10.16 Figure 10.17 Figure 10.18

Annual Media Consumption in the United States, p. 674 U.S. Media Revenues by Channel, p. 675 (User-controlled animation in eText) Online Content Consumption in the United States, p. 679 Growth of U.S. Online Entertainment Content Revenues, p. 680 Convergence and the Transformation of Content: Books, p. 683 (Whiteboard video in eText) U.S. Newspaper Revenues 2000–2019, p. 685 Online Newspaper Models 1995–2020, p. 687 (User-controlled animation in eText) Unique Monthly Visitors at U.S. Online Newspapers, p. 690 Where People Get News Online, p. 691 Unique Monthly Visitors at Native Digital News Sites, p. 695 E-book Sales in the United States, p. 700 The Major Players in the U.S. Entertainment Industry by Revenue Share, p. 704 Projected Growth in U.S. Online Entertainment Revenue, p. 705 U.S. Home Entertainment Revenue by Format, p. 709 (User-controlled animation in eText) U.S. Music Revenues: Digital versus Physical, p. 712 U.S. Digital Music Revenues by Format, p. 713 Pokemon Go, p. 716 U.S. Online Gaming Audience, 2020, p. 717 (User-controlled animation in eText) .

3

Tables Table 10.1 Table 10.2 Table 10.3 Table 10.4

What’s New in Online Content and Media 2020–2021, p. 673 Native Digital News Sites, p. 694 Digital Media Devices, p. 706 Major Over-the-Top (OTT) Services, p. 707

Teaching Suggestions This chapter summarizes the various businesses that are based on the delivery of online content. Table 10.1 provides an overview of the major trends for 2020–2021. Obviously, the Covid-19 pandemic has had a major impact: although it has resulted in increased time spent with media and engagement, it has also significantly reduced advertising revenues on which most online content and media business models rely. The chapter then begins with a review of the overall size, growth, and structure of the media industries in the United States, and then focuses on publishing (newspapers, magazines, and e-books) and entertainment (movies, television, music, and games).

The content industries have been challenged by the Internet simply because the Internet is, at its heart, a media network distribution platform of extraordinary power that has the capability to disrupt traditional media distribution and business models. The Internet has disrupted media industries like music and newspapers, cutting revenues and employment in half over the course of a decade. For other media industries, such as book publishing and entertainment (movies, television, and games), thus far, the Internet has proved challenging but not devastating to revenues, and in some cases, has added to revenues by making it more convenient for consumers to consume more content. Even for these content industries, however, the Internet has had a significant impact and has created entirely new business models. The overall pattern is that physical products are being replaced by digital versions delivered on computers, tablets, and smartphones. Even as consumers reduce consumption of traditional physical content products, they maintain and often increase their exposure to content on digital platforms. What’s changing is how people consume media.

The key point students should take away from this chapter is that one of the primary challenges facing online content companies is how to achieve profitability when so much online content is free, especially when many consumers still have an expectation that content should be free. To achieve profitability, content providers need to create highperceived value products that can be uniquely delivered online. Content companies need to develop new types of content products, encourage new delivery technologies, and agree on industry platform standards. This process of change is well underway but will still take many years. Fortunately for the media industry, Apple’s iTunes Store platform succeeded while charging for music, videos, and books. Other platform owners such as Google and Amazon followed suit. Firms like Netflix, Hulu, and YouTube generate significant new revenues for television and movie producers. The concept of paying for online content has become acceptable, even cool. This has become especially critical as the advertising business model, supporting online content like music or news through

.

4 advertising, has become less successful, and media companies need to rely on paid subscriptions to survive and profit.

The updated opening case, The “Internet Broadcasting System” Goes Primetime, is a good way to begin the discussion about the issues raised in this chapter. The case illustrates the blurring of lines between traditional television and movie distribution and online content distribution, and the impact of changing viewership habits on traditional business models. Some questions you might pose include: • Do you subscribe to any online video streaming services? If so, which ones?

• What sites have given you the best overall viewing or entertainment experience, and why?

• What advantages does watching traditional television have over watching online TV and films?

Key Points Section 10.1 provides an overview of the audience for online content and the online content industries in the United States. In 2020, the average American consumed various media for almost 5,000 hours. The focus of many advertisers today is the demographic known as “Millennials,” or the generation of people born between 1980 and 2000. The updated Insight on Society case, Are Millennials Really All That Different?, takes a closer look at Millennials and Gen-Zers and their importance to the online media landscape.

Questions for discussion might include the following: • What are some of the defining socioeconomic and behavioral patterns of Millennials?

• In what ways does the hard evidence about Millennials not fit stereotypes about them?

• Why are Millennials so sought after by advertisers?

• Do students self-identify as Millennials? Why or why not?

Figure 10.2 provides an illustration of the revenues generated by various sectors of the U.S. media industry in the form of a pie chart. The various entertainment industries generate over 75% of U.S. media revenues and are still dominated by broadcast/pay TV. This figure is presented as a user-controlled animation in the eText for further emphasis.

Today, there are three primary revenue models for delivering content: subscription, a la carte, and advertising-supported (both free and freemium). Media convergence, covered on pages 682 to 684, is a key factor in achieving profitable online content businesses.

Figure 10.5 illustrates the concept of convergence as it applies to the transformation of books. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to Figure 10.5 and this topic.

Online Publishing. Section 10.2 covers the online publishing industries. The publishing industry is an $80 billion industry that has an opportunity to move toward a new .

5 generation of online newspapers, books, and magazines. However, achieving profitability has proved difficult.

The newspaper industry faces four primary challenges. Increasingly, consumers use mobile devices to view news and ads, which detracts from newspaper print ad and subscription revenues. Alternative online sources and portals of news that challenge the exclusive content of newspapers have emerged. Newspaper management has failed to adjust to these changes in a timely manner. The growth of social media has meant that consumers discover news on social media sites, not by browsing newspapers.

Newspapers have become increasingly dependent on social media platforms to direct consumers to news articles, bypassing the front pages of newspapers, and reducing advertising revenue for newspapers. Newspapers are struggling to develop a digital centric model of the newspaper. Figure 10.7 illustrates the development of various online newspapers models over the time period 1995-2020. This figure is presented as a usercontrolled animation in the eText for further emphasis.

The updated Insight on Business case, Vox: Native Digital News, provides a closer look at these efforts. Questions for class discussion on this case might include the following: • How do you read the news online? Which sites do you prefer, and why?

Have you visited any Vox sites?

• How are all-digital news sites changing journalism?

• What unique qualities have made Vox Media being regarded as the future of digital news publishing?

Magazines, which had been written off as basically dead, have received new life with the advent of the tablet computer and magazine aggregator apps, such as Apple News+.

The book publishing industry’s experience with the Internet has been very different from that of the newspaper and magazine industries. E-books and various e-reader devices such as the Kindle, iPhone and iPad, and Nook have become commonplace. Amazon dominates the e-book market.

Online Entertainment. Section 10.3 takes an in-depth look at the major entertainment industry groups: television, movies, music, and games. Students should have little trouble relating to these topics, given how much time they typically spend consuming online entertainment! The section begins with an overview of these entertainment industries and then looks at audience size and growth. We next drill down into each of the industry groups, starting with television and movies. Figure 10.14 illustrates U.S. home entertainment revenues by format, both digital and physical, in the form of a pie chart.

Not surprisingly, digital revenues dominate, and within digital, subscription stream (SVOD) services. This figure is presented as a user-controlled animation in the eText for further emphasis. You can ask students about their own television and video viewing habits, and how they have changed over their lifetime. Are they cord-cutters or cordshavers? How many tweet or engage in other social media experiences while viewing television? How many watch TV shows on mobile devices? Which online distributors have they had experience with, besides YouTube? .

6

The chapter concludes with reviews of the music industry, where streaming services such as Pandora, Spotify, and now Apple Music have gained a foothold, and the gaming industry, which is also experiencing explosive growth. Figure 10.18 illustrates the different components of the U.S. online gaming audience in the form of a bubble chart.

This figure is presented as a user-controlled animation in the eText for further emphasis.

A new Insight on Technology case, Game On: Twitch, takes a look at Twitch, now owned

by Amazon, which provides a popular live-streaming game platform. Case discussion questions for the class might include the following: • Have you ever viewed a live-streamed game or other content on Twitch?

• What challenges does Twitch face?

• How has the Covid-19 pandemic impacted Twitch?

In Section 10.4, we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as a digital audience development specialist.

The chapter-ending case study on Netflix in Section 10.5 provides further information about the online video industry.

Case Study Questions 1.

What are three challenges that Netflix faces?

The cost of content is very high and growing faster than revenues. The risk of creating new popular content is high. Netflix has limited experience creating content. Netflix has very powerful competitors in technology (Google and Apple), content creation (HBO), and content distribution (Amazon).

2.

What are the key elements of Netflix’s strategy today?

The elements of Netflix’s strategy are (1) strike deals with Comcast and other ISPs to deliver high-speed Internet service to its customers, (2) reduce content costs by producing their own content, (3) expand offshore where opportunities for growth are higher than in the United States, and (4) expand its offerings of highquality television series.

3.

Why is Netflix in competition with Apple, Amazon, HBO, and Google, and what strengths does Netflix bring to the market?

Apple, Amazon, HBO, and Google (via YouTube) all provide substitute products and services by providing Internet consumers access to movies and TV shows.

The strengths of Netflix are its differentiating factors like brand recognition, algorithms to help consumers find movies and TV shows, and a growing list of production studios supplying it with original content (although its competitors also employ these strategies as well, although in some instances not as effectively as Netflix). .

7

End-of-Chapter Questions 1.

What are the three dimensions in which the term “convergence” has been applied? What does each of these areas of convergence entail?

The three dimensions where the term convergence has been applied are technology platform, content, and industry structure.

Technology platform convergence refers to the integration of previously separate platform functionalities into a singular digital device. It refers to the development of hybrid devices that can combine the functionality of many different existing media.

Content convergence includes three dimensions: design, production, and distribution. Content design convergence has occurred when the design becomes measurably different due to the new skills that have been learned from fully exploiting the new technological capabilities. Content production convergence drives content design convergence as new tools are developed for economically producing content for delivery to multiple platforms. Content distribution convergence occurs when the distributors and consumers have the new devices needed to receive, store, and experience the product.

Industry structure convergence is the merger of various enterprises into powerful synergistic combinations that can cross-market content on many different platforms and create works that use multiple platforms.

2.

What are the basic revenue models for online content, and what is their major challenge?

There are three revenue models for delivering content on the Internet. The two “pay” models are subscriptions (usually all you can eat) and a la carte (pay for what you use). The third model uses advertising revenue to provide content for free, usually with a “freemium” (higher price) option. The major challenge is that consumers still expect much content to be available for free and are not necessarily willing to pay for online content.

3.

What are the two primary e-book business models?

The two primary e-book business models are the wholesale model, in which prices are determined by the retailer, and the agency model, in which the retailer is an agent and prices are set by the manufacturer.

4.

What effect is the growth of tablet computing having on online entertainment and content?

.

8 The growth of tablet computing has led to an explosion in reading of newspapers, magazines, and books, but digital versions, not the printed versions. The television and movie industry are also in the midst of a transition to a new delivery platform, which includes tablet computers. The number of gamers who play mobile games on their tablet computer is also rapidly increasing.

5.

What techniques do music subscription services use to enforce DRM? Most music firms with subscription services use technologies that limit the time that a song can be played without re-subscribing. For instance, songs downloaded from Rhapsody, the largest music subscription service, will not play after 30 days unless the user pays the monthly subscription fee. And if you don’t pay, you will lose access to all your songs.

6.

What type of convergence does the Apple iPad represent?

The Apple iPad represents technological convergence.

7.

What are the three different business models that newspapers have used to try to adapt to the Internet?

The three business models are: Print-centric (1995–2000), Integrated Print/Web (2000–2010), and the most current model, Digital First (2010–present).

8.

What are the different revenue models that newspapers have used?

Newspapers have used a number of different revenue models. In 1995, when the first newspaper websites appeared, newspapers offered their content for free, with registration. The hope was that advertising would support the website’s operation and provide a new revenue stream for the print edition content. But new ad revenue from digital publication did not cover the cost of digital production and was completely unable to replace the drastic fall in print ad revenues that occurred beginning in 2000.

Charging for general newspaper content was an obvious answer, but publications that tried this during the 1995–2005 period were punished by an Internet culture that expected online content such as music and news to be free. However, the introduction of the iTunes Store in 2003 and the iPhone in 2007 changed the public perception of paid content. Newspapers and online magazines have benefited from this change in popular culture. A recent survey of 236 U.S. newspapers found that 77% had some sort of charge for online access. Of these, 72% used a metered subscription model (which provides access to a limited number of articles for free, but requires payment of a subscription fee once that limit is exceeded), 20% provide most content for free, but charge a subscription fee to access premium content, and only the Wall Street Journal used a hard paywall (no access without a paid subscription) model. .

9

9.

What advantages do pure digital news sites have over print newspapers? What advantages do traditional newspapers have over pure digital sites?

Pure digital news sites have many advantages over print newspapers. They don’t have the cost of printing papers; they can create new work flows and business processes that are more efficient and timelier; they have a lower cost structure, often relying on user-generated content and minimal payments to reporters and bloggers, with lower pension costs; and they can take advantage of newer technologies for producing the news. Although the quality of journalism on these pure digital sites is not as good as traditional print newspapers, this situation is changing rapidly as the pure digital sites hire talented journalists and editors from print newspapers that are experiencing financial difficulties. However, traditional newspapers have an advantage over pure digital sites when it comes to credibility and trust. Without trust and quality, online news sites are simply distractions filled with celebrity photos, and there is significant competition for this kind of content.

10.

How has the book publishing industry’s experience with the Internet differed from the newspaper and magazine industries’ experience?

The book publishing industry’s experience with the Internet is very different from the newspaper and magazine industries. E-book editions of fiction and non-fiction books (so-called trade books) have been very successful, yet printed book sales have not collapsed and have remained about the same over time. Professional books, which include college textbooks, remain almost entirely printed for a variety of reasons. Book publishing revenues have been stable over the last five years.

11.

How has the Internet changed the packaging, distribution, marketing, and sale of traditional music tracks?

The recorded music industry has suffered more than any other content industry from the onslaught of digital devices and Internet distribution. Since the 1950s, the physical music product was an album—a collection of bundled songs that sold for a much higher price than singles. The Internet changed all that when, in 2000, a music service called Napster began distributing pirated music tracks over the Internet to consumers using their PCs as record players. Despite the collapse of Napster due to legal challenges, hundreds of other illegal sites showed up, resulting in U.S. music industry revenues falling from $14 billion in 1999 to a low of $6.7 billion in 2015. Beginning in 2011, the appearance of powerful mobile media players that could be connected to the Internet, like Apple’s iPod, and later the iPhone and iPad, further eroded sales of CD albums. With the growth of cloud computing and cloud-based music services, the very concept of “owning” music has begun to shift instead to “access” to music from any device, anywhere. Today, it’s a different industry from what it was, no longer totally dependent on highly profitable physical products, less able to sell bundled music as albums, but with a .

10 rapidly growing demand for its high-quality, popular products from a variety of Internet distributors who are competing with one another to buy musical content.

The explosive growth in smartphones and tablets has further driven demand for cloud-based streaming music access.

12.

How has streaming technology impacted the television industry?

Streaming television shows over the Internet poses a direct threat to the cable TV industry, which wants to be the sole source of television shows and sports events.

Cable channels like HBO create their own content and are loath to share with their Internet competitors like Netflix, Apple, Google, or Amazon. The streaming companies are, therefore, making costly deals with the television producers to get access to popular TV series. They are also seriously considering creating their own TV shows.

13.

Why is the growth of cloud storage services important to the growth of mobile content delivery?

Mobile content delivery is only possible if the content is stored on cloud servers simply because smartphones do not have the storage capacity for movies and TV shows. The only exception to this is e-books. Smartphones can store thousands of e-books. But even here cloud storage is important because users may switch among their various devices and have a need for a copy stored on a cloud server that they can access from anywhere on any device.

14.

Has the average consumer become more receptive to advertising-supported Internet content? What developments support this?

In general, yes. Consumers are used to television advertising, and Internet advertising is often seen as no worse, or not as annoying, as television ads, which are often raised several decibels from the background television shows. Yet Internet advertising is a source of annoyance insofar as users perceive it as something they cannot control—for instance, video ads that cannot be skipped or animated graphics that cannot be turned off. Internet advertising also generates popular resentment when users believe the ads being shown to them are targeted, and in some sense, a violation of their privacy.

15.

What factors are needed to support successfully charging the consumer for online content?

Content needs to be focused, exclusive, high value, and unique before users are willing to pay for it. Content that is focused attracts a highly intense consumer who is deeply interested in the topic and willing to pay. High-value content generally refers to content that has some financial value but a limited period of utility (old news is no news). High-value content more generally might be thought of as content that can be used to help make a decision in the near term. Unique .

11 (exclusive) means the content can only be found at one website and is not generally or freely available elsewhere.

16.

Why are apps helping the newspaper and magazine industries where websites failed?

News and magazine apps provide users much faster access to content, and a wider variety of effects that improve the user experience such as smartphone features of zooming, list scrolling, and sliding screens. Content publishers like apps because users cannot be distracted by ads or other websites when using an app.

17.

What alternatives do magazine publishers have for online distribution channels?

They can create their own newsstands. The magazine industry is highly concentrated, and the publishers have sufficient brand power to open online newsstands that can display all their branded magazines on a single site or single app. On the other hand, the publishers do use third-party newsstands when the economic terms are satisfactory. Third-party newsstands offer additional audiences to the publishers.

18.

Why did the Justice Department sue major publishing firms and Apple?

In the e-book marketplace, the large publishers started out using a wholesale model of distribution and pricing, in which the retail store pays a wholesale price for the book and then decides at what price to sell it to the consumer. In the past, the wholesale price was 50% of the retail price. With e-books, publishers discovered that some online retailers like Amazon and Apple began to sell books below their cost in order to encourage customers to purchase their e-book reader devices or to sell them other goods. The real value in e-books for Amazon and Apple is selling digital devices. Amazon not only sold millions of Kindles but also sold 90% of all e-book titles on the Web in 2011. Amazon had a de facto monopoly on e-books.

In response, the top five publishers, along with Apple, introduced an agency model of distribution in which the distributor is an agent of the publisher and can be directed to sell e-books at a price determined by the publisher, around $14.99 and higher for certain titles. In return for a 30% commission, Apple agreed to support this model, as did Google, neither of whom were comfortable watching as Amazon dominated one of the hottest areas of web content sales. Amazon’s prices rose to this level, and its market share fell to 60%.

As a result, however, the Justice Department sued the five publishers and Apple for price fixing in violation of antitrust laws. The case was settled and Apple paid a fine of $450 million. Today, each publisher (and not an industry consortium) makes an agreement with Amazon about the price of their books (agency model),

.

12 but the book publishers pay a “listing fee” to Amazon. Today, e-book prices from major publishers are variable, but generally sell for around $15.

19.

How will the Music Modernization Act impact the streaming music industry?

The Music Modernization Act will enable songwriters and artists to receive royalties on older songs recorded before 1972, create a legal process for music professionals to obtain unclaimed royalties due to them (previously these were held onto by the streaming services), and create a licensing database paid for by the streaming services but overseen by music publishers and songwriters that should streamline how songwriters are paid, all of which should help ensure that artists are paid more and have an easier time collecting royalties owed to them.

20.

How are mobile devices transforming the gaming industry?

The rapid growth in the number of people playing mobile games is a sea change for the gaming industry that was previously dominated by closed-platform console games and hardware firms like Microsoft, Nintendo, and Sony, and software firms like Activision and Electronic Arts. The growth of smartphones, tablets, and mobile games has catapulted Apple’s App Store and the Google Play store into the leading merchants of digital games, which, of course, use Apple and Google Android hardware and software. Apple and Google take 30% of game sales and also benefit from the sales of the hardware and software needed to play the games.

Mobile games appeal to a younger demographic, offer lower prices, and initially are often free. You can play mobile games anywhere you can use a phone, which is nearly everywhere. Console games take much longer to develop, have very large budgets, and are expensive to purchase. The mobile platform is a more open platform that allows thousands of developers to create entertaining games on much smaller budgets, as well as new and innovative games on a faster schedule.

Although console, PC, and online social games will continue to grow their audience size slowly, the fastest audience growth in the future will be in mobile games that can be played anywhere and anytime, such as Pokemon GO, which has tens of millions of players and has generated hundreds of millions of dollars in revenue.

Projects 1.

Research the issue of media convergence in the newspaper industry. Do you believe that convergence will be good for the practice of journalism? Develop a reasoned argument on either side of the issue and write a 3- to 5-page report on the topic. Include in your discussion the barriers to convergence and whether these restrictions should be eased.

Students who believe that convergence will be good for journalism may present arguments that the ability to deliver news across many platforms will lead to a better-informed public. They may believe that reporters working more closely .

13 together will lead to more objectivity in stories than was previously the case.

Furthermore, stories that are presented in one medium may drive readers to another medium to find out more information. These viewers/readers will not be satisfied with simply a rehash of the same story but rather will want in-depth coverage of particular stories that interest them.

If, indeed, as some convergence advocates are claiming, increased advertising will result from higher ratings and increased website traffic, students may argue that additional resources will be available for developing news stories more fully.

More visibility for a story may increase interest and consequently result in an increase in more in-depth reporting. Students may believe that they can do more together than they could as separate units (i.e., that the sum will be greater than the two parts alone). They may even go so far as to posit that convergence is the economic foundation upon which a resurgence in journalistic standards can be built. On the other side, students who argue that convergence is bad for journalism might posit that less objectivity, less aggressive reporting methods, and less editorial integrity will result with industry convergence into the hands of a few big oligopolies.

Overriding corporate issues can easily dampen journalistic zeal. Students may argue that if the goal of convergence is to cut costs and produce news more cheaply, the quality of news stories can’t help but be harmed. Instead, a dumbingdown of journalism will occur as “print” journalism takes on the entertainment values and aspects of television journalism. Furthermore, a homogenization of journalism might occur as fewer voices are heard and less variety of opinion is expressed. News stories might increasingly be used to promote large corporate partners either in their endeavors or more menacingly their viewpoints. These students will likely believe that the foundation upon which a resurgence of journalistic standards can be built is competition, and that trends toward industry and media convergence are going to decrease competition and damage the likelihood that controversial stories will be covered, especially stories that will reveal problems in the boardrooms and business practices of corporate partners.

Another possible problem students might discuss is protections for unnamed sources when multiple parties are working on a story and it is being shared across platforms.

In the past, there have been substantial barriers to cross platform ownership and concentration in television and other media that are enforced by the Federal Communications Commission (FCC). However, in 2017, the FCC voted to eliminate the newspaper/broadcast and radio/television cross-ownership rules.

The decision represents a substantial departure from the FCC’s 2010/2014 Quadrennial Ownership Review (2016 Media Ownership Order), which largely left the FCC’s then-existing rules intact. The new regulations were challenged in court and in October 2020, the U.S. Supreme Court agreed to review a lower court’s decision requiring the FCC to revisit the issue before implementing the regulations. .

14

Students should discuss the issue of the possibility of lifting the ban on crossplatform ownership within the context of their arguments.

2.

Go to Amazon and explore the different digital media products that are available.

For each kind of digital media product, describe how Amazon’s presence has altered the industry that creates, produces, and distributes this content. Prepare a presentation to convey your findings to the class.

Amazon sells three main types of digital media: e-books, music, and video. It sells e-books only for its proprietary Kindle platform. In music and video, it has both a la carte purchase of physical products (CDs and DVDs), a la carte downloads of single tunes or shows, and also streaming of music and videos. Amazon’s e-books business has had a significant impact on the publishing industry and book distribution market, with the Kindle platform unleashing a torrent of selfpublished works. Amazon’s physical products business played a role in the demise of physical record stores. Its streaming video service involves older movie titles and television shows as well as original content. Titles that it licenses from movie and television networks support revenue to the movie and television industry, whereas its original content poses a threat to those revenues.

3.

Identify three online sources of content that exemplify one of the three digital content revenue models (subscription, a la carte, and advertising-supported) discussed in the chapter. Describe how each site works, and how it generates revenue. Describe how each site provides value to the consumer. Which type of revenue model do you prefer, and why?

Three online sources of content that exemplify the three digital content revenue models are Netflix (subscription), iTunes (a la carte), and Pandora (advertisingsupported). Netflix is a video streaming service. The value to the consumer is access to older movies and TV shows, and some very popular original TV shows, on demand for a small monthly fee. iTunes primarily sells its content on an a la carte basis via individual downloads (it is also a cloud storage site), and sells more current movies and TV shows, and of course millions of individual single music titles. All sales are through an Apple account with a customer credit card.

Pandora is mostly ad-supported and provides curated radio programs reflecting customer choice of singers and musicians. The future of each type of service is best approached by looking at what works now. Currently, iTunes is very profitable (although not as profitable as Apple’s physical device products), Netflix is marginally profitable, and Pandora loses money every year. Student opinions will vary as to their own preferences for a revenue model, but they should explain why they prefer one model compared to another.

4.

Identify a popular online magazine that also has an offline subscription or newsstand edition. What advantages (and disadvantages) does the online edition have when compared to the offline physical edition? Has technology platform, .

15 content design, or industry structure convergence occurred in the online magazine industry? Prepare a short report discussing this issue.

Perhaps the best place for students to start is to identify newsstand magazines first, and then find their online counterparts. Many online magazines have a free first month offer. The online editions will likely have video, music, and interactive elements that users find captivating and entertaining. The online photography is also excellent but perhaps not quite up to the level of physical print magazines. There are few advantages for the newsstand versions of magazines, except for the physical look and feel of turning pages. With respect to convergence, until recently, there had been very little convergence in the online magazine industry. This is changing, especially in the fashion industry as fashion websites take on many of the features of slick fashion magazines (Cosmopolitan.com). Content convergence in the areas of creation, production, and distribution has begun to occur. Online editions of national news magazines increasingly use streaming video, social network links, and user comments (Time.com). Newsweek merged with the Daily Beast and no longer publishes a print version. Many magazines now have e-reader editions or apps that enable magazines to be read on smartphones and tablet computers such as the iPad. In some instances, the print versions of magazines have disappeared entirely, and now only a web-based version is available. The Web and e-readers have created the opportunity to leverage print content to the different distribution channels.

Industry structure convergence has not occurred.

5.

In 2014, as discussed in the Insight on Technology case, Amazon purchased Twitch, which lets users stream their video game sessions, for almost $1 billion.

Why would Amazon spend so much money on Twitch? Create a short presentation either defending the purchase or explaining why you think it was a bad idea.

Student answers may vary, but some rationales for defending the purchase might include the following: • The acquisition bought Amazon a significant audience (young, male, technophiles, wealthy) for a decent price. At the time of its acquisition, Twitch had an online audience of about 55 million. Amazon paid about $18 per viewer. Twitch is a large source of Internet traffic, which could be valuable to Amazon.

• The acquisition helps Amazon’s push into online video. Amazon is trying to develop video content delivery infrastructure, and Twitch has this.

• The acquisition was a defensive move to prevent Google from buying Twitch.

Rationales for criticizing the purchase might include the following: • Because Twitch was a private company, it is unclear if it was profitable or not at the time of its acquisition or will be thereafter.

.

16 • •

The acquisition might detract from Amazon’s main line of business, which is online retailing. Amazon has little management experience as a creator or broadcaster of video content.

It is unlikely that Twitch will ever generate enough revenue to make a difference for a company the size of Amazon. Twitch, in the best case, will be a rounding error in the financial statements of Amazon.

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of video cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html. Video Cases for this chapter include: • Video Case 10.1 YouTube: Secrets of Successful Content Creation • Video Case 10.2 Vox Media • Video Case 10.3 ESPN: Sports Broadcasting Evolves • Video Case 10.4: Disney+

.

1 Instructor’s Manual: Chapter 11 Social Networks, Auctions, and Portals

Learning Objectives After reading this chapter, your students should be able to: • Describe the different types of social networks and online communities and their business models.

• Describe the major types of auctions, their benefits and costs, how they operate, when to use them and the potential for auction abuse and fraud.

• Describe the major types of Internet portals and their business models.

Key Terms affinity communities, p. 747 affinity groups, p. 748 algorithms, p. 747 business-to-consumer (B2C) auctions, p. 754 computer algorithms, p. 747 consumer-to-consumer (C2C) auctions, p. 753 Dutch Internet auction, p. 757 English auction, p. 757 enterprise portals, p. 762 general communities, p. 746 general-purpose portals, p. 766 herd behavior, p. 760 interest-based social networks, p. 747 loser’s lament, p. 760 Name Your Own Price auction, p. 757 online social network, p. 739 penny (bidding fee) auction, p. 757 practice networks, p. 747 seller’s lament, p. 760 social network, p. 738 sponsored communities, p. 747 vertical market portals, p. 766 winner’s regret, p. 760 Brief Chapter Outline Social Network Fever Spreads to the Professions 11.1 Social Networks and Online Communities What Is an Online Social Network?

The Growth of Social Networks and Online Communities Turning Social Networks into Businesses Insight on Society: The Dark Side of Social Networks Types of Social Networks and Their Business Models Social Network Technologies and Features .

2 Insight on Technology: Trapped Inside the Facebook Bubble?

11.2

Online Auctions Benefits and Costs of Auctions Auctions as an E-commerce Business Model Types and Examples of Auctions When to Use Auctions (and for What) in Business Auction Prices: Are They the Lowest?

Consumer Trust in Auctions When Auction Markets Fail: Fraud and Abuse in Auctions

11.3

E-commerce Portals The Growth and Evolution of Portals Insight on Business: Verizon Pivots Its Portal Strategy Types of Portals: General-Purpose and Vertical Market Portal Business Models

11.4

Careers in E-commerce The Company Position: Social Marketing Specialist Qualifications/Skills Preparing for the Interview Possible First Interview Questions

11.5

Case Study: eBay Evolves

11.6

Review Key Concepts Questions Projects References

Figures Figure 11.1 Figure 11.2 Figure 11.3 Figure 11.4 Figure 11.5

Top U.S. Social Networks 2020, p. 739 U.S. Ad Spending on Top Social Networks, 2019, p. 743 (Whiteboard video in eText) Facebook’s Algorithm for Generating Personalized Stories, p. 749 (Usercontrolled animation in eText) The Top U.S. Portal/Search Engine Sites, 2020, p. 763 Two General Types of Portals: General-Purpose and Vertical Market Portals, p. 767

Tables Table 11.1 Other Social Networks, p. 740 (Drag and drop exercise in eText) Table 11.2 Time Spent on Top Social Networks, 2020, p. 742 Table 11.3 Types of Social Networks and Online Communities, p. 746 .

3 Table 11.4 Table 11.5 Table 11.6 Table 11.7

Social Network Features, p. 753 Leading Online Auctions, p. 754 Factors to Consider When Choosing Auctions, p. 759 Typical Portal Revenue Sources, p. 767 (Drag and drop exercise in eText)

Teaching Suggestions This chapter introduces students to social networks, auctions, and portals. The thread relating these three topics is that each in its own way involves communities on the Internet.

Key Points Social Networks and Online Communities. The updated opening case, Social Network Fever Spreads to the Professions, focusing primarily on LinkedIn, is a good way to introduce the chapter. Social networks and online communities are places where people who share common ties, gather and communicate. People tend to think of social network sites as merely involving people 18 years and under. But, in fact, social networks have expanded far beyond that limited demographic and now encompass a broad swath of professionals and business people. Some questions you could pose to your class on this case include the following: • How has the growth of social networks enabled the creation of more specific niche sites?

• What are some examples of social network sites with a financial or business focus?

• Describe some common features and activities on these social network sites.

• What features of social networks best explain their popularity?

Section 11.1 covers social networks and online communities. Figure 11.1 illustrates the reach of the top social networks. TikTok is a new entrant to the list and is further discussed in the text. You can ask students to visit a social network and make a list of ten features or functions available at the site. You can also ask students to talk about their use of social networks and how social networks have changed their lives. Table 11.1 lists some less well-known social networks. This table is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise. Table 11.2 illustrates the different levels of engagement on top social networks, based on the amount of time users spend each month. The text also discusses the impact of the Covid-19 pandemic on social network engagement. You can ask students which social networks they spend the most time on, how much time they estimate they spend, and how the Covid-19 pandemic impacted their own use of social networks.

Previous generations of online community sites fell much more into the traditional model of a broadcast cable network focused on a single group. Today’s social networks are much different, with a strong user-generated content base, and more many-to-many communications channels. They are enablers of social interaction. The rapid adoption and

.

4 intense use of mobile devices has also contributed to the continued growth of social networks.

Now it’s time to talk about the business side of social networks, both from the social network’s perspective, and from the perspective of businesses that would like to use social networks for marketing, advertising, and social e-commerce. Figure 11.2 illustrates U.S. ad spending on top social networks. Not surprisingly, Facebook dominates, and even more so if the revenues of Instagram, which it owns, are added. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to this topic.

It’s important for students to realize that the use of social networks by businesses is not risk-free. The updated Insight on Society case, The Dark Side of Social Networks, examines some of these risks and highlights some recent social network “fails.” Class discussion questions might include the following: • How can businesses accurately judge whether negative comments are trolling or have merit and should be responded to?

• Have you ever left a negative comment about a product or business? Have others’ negative comments influenced a purchase you were considering?

• Should a business have any say in how an employee uses social networks outside of the office?

Table 11.3 discusses the variety of generic types of social networks and gives examples of each type. A drag and drop exercise, presented in the eText at the end of Section 11.1, gives students an opportunity to further classify various social networks, based on their reading of the text.

The section concludes with a look at various technologies used by, and features of, social networks. Software algorithms used to deliver personalized content have become a fundamental technology for social networks and also a very controversial one. Figure 11.3 illustrates Facebook’s algorithm for generating personalized stories. This figure is presented as a user-controlled animation in the eText, for further emphasis. The updated Insight on Technology case, Trapped Inside the Facebook Bubble?, further focuses on this topic. Questions for class discussion might include the following: • How did Facebook’s Trending algorithm work? How does the News Feed algorithm work?

• Facebook has been described as an echo chamber. What is this, and is this a feature of other social networks?

• Should Facebook be held responsible for presenting an equal number of both liberal and conservative opinions?

• Should algorithms for presenting news to readers be monitored and adjusted by human editors? Why or why not?

Online Auctions. Section 11.2 covers online auctions. In the early days of e-commerce, online auctions were a popular method for the purchase and sale of goods, and eBay leveraged the online auction model to become one of the most successful online retail .

5 companies. Students may think of online auctions as producing the lowest prices for consumers, but in fact there are many situations where auctions induce consumers to pay higher prices than offered by traditional liquidators. You might want to spend some extra time in class walking students through the figures and tables describing auctions.

Auctions are dynamically priced markets. Consider reviewing with students the definition of dynamic pricing (introduced in Chapter 6), and the various types of dynamic pricing, and contrasting these to fixed pricing. You might ask students to think about the costs and benefits of fixed pricing. Why do merchants want to charge fixed prices?

Walk through the benefits and risks section. Most students think auctions are all benefit and no costs. For many students, the risks and costs of auctions will be a new topic so spend extra time on this section. The business of auctions, the market-maker business, also should be explained. Ask students why the auction model was very profitable, particularly in the early years of e-commerce, and discuss why it has become less popular in recent years.

There are many different types of auctions. Here is where your students may get confused. The text focuses on four primary types of auctions: English auctions (eBay), Dutch Internet auctions, Name Your Own Price auctions (Priceline), and penny (bidding fee) auctions.

Table 11.6 provides a list of factors that managers should take into account when considering auctions for various products from the type of product, to product life cycle, to closed versus open bidding.

Consumer behavior at auctions is very interesting because at times, it is non-rational.

Consumers behave at auctions in ways contrary to neo-classical, profit maximizing decision makers. Prices are influenced by the number of units, length of the auction, the arrival rate of bidders, and herd behavior (where bidders follow other bidders and bid the price higher). Students, who are also consumers, should be aware of these factors to protect themselves, and they should also be aware of the numerous opportunities for fraud on popular auction sites.

E-commerce Portals. Section 11.3 covers portals. Portals originally acted as search engine gateways to the Web. Today they seek to operate as destination sites, like television networks attracting huge audiences to their proprietary offerings of news, products, entertainment, and content. While attracting the largest audiences of all sites on the Web, portals face a difficult challenge in producing profits. The portal market is characterized by network effects, which has led inevitably to the dominance of a few sites. You can demonstrate this effect by discussing Figure 11.4. Figure 11.5 illustrates the different types of portals: general-purpose and vertical market portals. To motivate this discussion, you could visit one of each type in class.

The portal business is quite complex. Table 11.7 depicts the major revenue sources for portals. This table is presented as a drag and drop exercise in the eText. Make sure to

.

6 remind students that they should click to view the table in its entirety before attempting to complete the exercise. In general, deep vertical content pitched to a targeted audience produces the highest revenues per customer. The survival strategy for general-purpose portals is, therefore, to attract a general audience and then offer deep channels of specialized interest where consumers can be exposed to highly targeted advertising.

The Insight on Business case, Verizon Pivots Its Portal Strategy, focuses on the reasons behind Verizon’s decision to acquire both AOL and Yahoo and how it has been forced to pivot from its initial strategy to a new one. The following are some possible class discussion questions for this case: • What prompted Verizon’s change in business focus?

• What steps did Verizon initially take to accomplish its goal?

• Why did Verizon decide to change its initial business strategy?

• What are the elements of Verizon’s new plan?

In Section 11.4 we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as a social marketing specialist.

The updated chapter-ending case study in Section 11.5 discusses eBay’s transformation from millions of small mom-and-pop auction sellers into a major name brand location for the heavy hitters who sell millions of dollars of goods at fixed prices every year and large corporations looking for new retail outlets. As previously noted, the popularity of auctions has faded as more consumers want to “buy it now,” which required eBay to come up with a new strategy. So far, its revival plan appears to be working.

Case Study Questions 1.

Contrast eBay’s original business model with its current business model. eBay started out as a pure play “all auction” website, which was a novelty at the time. It relied on millions of small sellers cleaning out their attics to sell unwanted goods. It then morphed into a more professional seller environment where small retailers would purchase goods from others, and then re-sell on eBay at a profit.

Between 2007 and 2009, eBay struggled, and Amazon’s model of “fixed price” retail grew in popularity as the novelty of the auction format declined. The current business model relies more on professional retailers and large online stores to sell products at fixed prices, just like Amazon.

2.

What are the problems that eBay is currently facing? How is eBay trying to solve these problems? eBay faces both challenges and opportunities. In 2019, Walmart jumped over eBay to become the nation’s second-largest online retailer by share of online retail sales. Even prior to the Covid-19 pandemic, analysts were predicting that the value of goods sold through eBay’s marketplace would drop in 2020 compared to the previous year, as a result of lower marketing investment, increases in some .

7 seller fees, and new Internet sales tax laws. However, on a more positive note, in February 2020, eBay completed the sale of its StubHub sports and entertainment ticket marketplace for $4 billion, which in light of the significant anticipated downturn in the events due to the Covid-19 pandemic, was a fortuitous transaction. In addition, eBay is well positioned to support the shift of small businesses to online platforms in the wake of the pandemic. For instance, in response to the pandemic, eBay launched a program providing a free eBay store for three months and waiving selling fees. Although these efforts will reduce eBay’s results in the short-term, it believes it will pay long-term dividends. In April 2020, eBay selected Jamie Iannone, previously chief operating officer for Walmart’s e-commerce division, as its new chief executive officer, replacing Devin Wenig, who had stepped down from his position in November 2019 due to disagreements with eBay’s Board of Directors over sales of assets. Investors hope that Iannone will bring innovation and new ideas to eBay as he takes the lead through what is likely to be a tumultuous period.

3.

Are the solutions eBay is seeking to implement good solutions? Why or why not?

Are there any other solutions that eBay should consider? eBay clearly has to meet competition from Amazon and Walmart. The online culture has changed, people are more impatient, and when they want a product, they want to purchase it immediately. There are a few other options for eBay, which is now seeking to present itself as a “general” retailer that also offers auctions.

4.

Who are eBay’s top competitors online, and how will eBay’s strategy help it compete? eBay’s top competitors are in both the non-auction and auction market. In the non-auction market, Amazon, Walmart, Costco, Sam’s Club, and similar mass merchandisers are top competitors. In the B2B auction market, eBid and Liquidation.com are the primary competitors. In consumer auctions, eBay has no serious competition. eBay’s strategy will help it compete for the reasons discussed in the answer to question 3 above.

End-of-Chapter Questions 1.

What do social networks, auctions, and portals have in common?

Social networks, auctions, and portals are all based on feelings of shared interest and self-identification—in short, a sense of community. Social networks and online communities explicitly attract people with shared affinities, such as ethnicity, gender, religion, and political views, or shared interests, such as hobbies, sports, and vacations. The auction site eBay started as a community of people interested in trading unwanted but functional items for which there was no ready commercial market. That community turned out to be huge—much larger than anyone expected. Portals also contain strong elements of community by

.

8 providing access to community-fostering technologies such as e-mail, chat groups, bulletin boards, and discussion forums.

2.

What are the four defining elements of a social network—online or offline?

Social networks involve (a) a group of people, (b) shared social interaction, (c) common ties among members, and (d) people who share an area for some period.

3.

Why is Pinterest considered a social network, and how does it differ from Facebook?

Pinterest is a visually oriented site that allows users to curate their tastes and preferences, expressed in visual arts. Pinterest is similar to a visual blog.

Facebook, on the other hand, focuses on sharing of news and comments among “friends.”

4.

What are three mobile social networks?

Today, almost all social networks can be considered “mobile social networks,” given that users predominantly access them using mobile devices. Students should be given credit for mentioning any three of the following: Facebook, Twitter, Instagram, Pinterest, Snapchat, Twitter, LinkedIn, WhatsApp, or TikTok.

5.

Why are mobile social networks growing so fast?

Mobile social networks are growing so fast due to the rapid adoption and intense use of mobile devices.

6.

What are two measures that can be used to understand the importance of social networks and to compare them to other Internet experiences?

Two measures that can be used to understand the importance of social networks and to compare them to other Internet experiences are monthly unique visitors and time on site (engagement).

7.

What is an affinity community, and what is its business model?

An affinity community is one in which members can participate in focused discussions with others who share the same affinity, or group identification, such as religion, ethnicity, gender, sexual orientation, or political beliefs. The business model is a mixture of subscription revenue from premium content and services, advertising, tenancy/sponsorships, and distribution agreements.

8.

List and describe four different types of auctions.

.

9 The English auction is the easiest to understand and the most common form of auction on eBay. Typically, there is a single item up for sale from a single seller.

There is a time limit when the auction ends, a reserve price below which the seller will not sell (usually secret), and a minimum incremental bid set. Multiple buyers bid against one another until the auction time limit is reached. The highest bidder wins the item (if the reserve price of the seller has been met or exceeded). English auctions are considered to be seller-biased because multiple buyers compete against one another—usually anonymously.

The Dutch Internet auction format is perfect for sellers that have many identical items to sell. Sellers start by listing a minimum price, or a starting bid for one item, and the number of items for sale. Bidders specify both a bid price and the quantity they want to buy. The uniform price reigns. Winning bidders pay the same price per item, which is the lowest successful bid. This market clearing price can be less than some bids. If there are more buyers than items, the earliest successful bids get the goods. In general, high bidders get the quantity they want at the lowest successful price, whereas low successful bidders might not get the quantity they want (but they will get something).

The Name Your Own Price auction was pioneered by Priceline and is the second most-popular auction format on the Web. In Name Your Own Price auctions, users specify what they are willing to pay for goods or services, and multiple providers bid for their business. Prices do not descend and are fixed: the initial consumer offer is a commitment to purchase at that price.

To participate in a penny auction (also known as a bidding fee auction), you typically must pay the penny auction site for bids ahead of time, typically 50 cents to $1 dollar, usually in packs costing $25–$50. Once you have purchased the bids, you can use them to bid on items listed by the penny auction site (unlike traditional auctions, items are owned by the site, not third parties). Items typically start at or near $0 and each bid raises the price by a fixed amount, usually just a penny. Auctions are timed, and when the time runs out, the last and highest bidder wins the item. Although the price of the item itself may not be that high, the successful bidder will typically have spent much more than that. Unlike a traditional auction, it costs money to bid and that money is gone even if the bidder does not win the auction. The bidder’s cumulative cost of bidding must be added to the final price of a successful bid to determine the true cost of the item.

9.

What is the difference between a C2C and a B2C auction?

The most widely known auctions are consumer-to-consumer (C2C) auctions, in which the auction house is simply an intermediary market maker, providing a forum where consumers—buyers and sellers—can discover prices and trade. Less well known are business-to-consumer (B2C) auctions, where a business owns or controls assets and uses dynamic pricing to establish the price.

.

10 10.

How does a Name Your Own Price auction, such as Priceline’s, work?

In a Name Your Own Price auction, users specify what they are willing to pay for goods or services, and multiple providers bid for their business. Prices do not descend and are fixed: the initial consumer offer is a commitment to purchase at that price.

11.

List and briefly explain three of the benefits of auction markets.

The benefits of auction markets are: • Liquidity: Sellers and buyers are connected in a global marketplace.

• Price discovery: Even difficult to price items can be competitively priced based on supply and demand.

• Price transparency: Everyone in the world can see the asking and bidding prices for items, although prices can vary from auction site to auction site.

• Market efficiency: Consumers are offered access to a selection of goods that would be impossible to access physically, and consumer welfare is often increased due to reduced prices.

• Lower transaction costs: Merchants and consumers alike are benefited by the reduced costs of selling and purchasing goods compared to the physical marketplace.

• Consumer aggregation: A large number of consumers who are motivated to buy are amassed in one marketplace—a great convenience to the seller.

• Network effects: The larger an auction site becomes, in both the numbers of users and products, the greater all the above benefits become and, therefore, the more valuable a marketplace it becomes.

• Market maker benefits: Auction sites have no inventory carrying costs or shipping costs, making them perhaps the ideal online business in that their main function is the transfer of information.

12.

What are the four major costs to consumers of participating in an auction?

The major costs to consumers of participating in an auction are: • Delayed consumption costs: Auctions can go on for days and the product must then be shipped to the buyer. Buyers will typically want to pay less for an item they cannot immediately obtain.

• Monitoring costs: Buyers must spend time monitoring the bidding.

• Equipment costs: Buyers must purchase, or have already purchased, computer systems and Internet service, and learned how to operate these systems.

• Trust risks: Consumers face an increased risk of experiencing a loss as online auctions are the largest source of Internet fraud.

• Fulfillment costs: Buyers must pay for packing, shipping, and insurance, and will factor this cost into their bid price.

13.

Why has the FTC warned consumers about penny (bidding fee) auctions? .

11

To participate in a penny auction (also known as a bidding fee auction), you typically must pay the penny auction site for bids ahead of time. Once you have purchased the bids, you can use them to bid on items listed by the penny auction site. Items typically start at or near $0 and each bid raises the price by a fixed amount, usually just a penny. Auctions are timed, and when the time runs out, the last and highest bidder wins the item. Although the price of the item itself may not be that high, the successful bidder will typically have spent much more than that.

Unlike a traditional auction, it costs money to bid and that money is gone even if the bidder does not win the auction. The bidder’s cumulative cost of bidding must be added to the final price of a successful bid to determine the true cost of the item. For this reason, the Federal Trade Commission has warned that bidders may find that they spend far more than they intended.

14.

What is herd behavior and how does it impact auctions?

Herd behavior is the tendency to gravitate toward, and bid for, auction listings with one or more existing bids, by making multiple bids on some auctions (coveted comparables) and making no bids at auctions for comparable items (overlooked comparables). Herd behavior results in consumers paying higher prices than necessary for reasons having no foundation in economic reality.

15.

Name and describe five types of possible abuses and frauds that may occur with auctions.

Some of the possible abuses and frauds include: • Bid rigging: Agreeing offline to limit bids or using shills to submit false bids that drive prices up.

• Price matching: Agreeing informally or formally to set floor prices on auction items below which sellers will not sell in open markets.

• Shill feedback, defensive: Using secondary IDs or other auction members to inflate seller ratings.

• Shill feedback, offensive: Using secondary IDs or other auction members to deflate ratings for another user (feedback bombs).

• Feedback extortion: Threatening negative feedback in return for a benefit.

• Transaction interference: E-mailing buyers to warn them away from a seller.

• Bid manipulation: Using the retraction option to make high bids, discovering the maximum bid of the current high bidder, and then retracting the bid.

• Non-payment after winning: Blocking legitimate buyers by bidding high, then not paying.

• Shill bidding: Using secondary user IDs or other auction members to artificially raise the price of an item.

• Transaction non-performance: Accepting payment and failing to deliver.

.

12 • •

16.

Non-selling seller: Refusing payment or failing to deliver after a successful auction.

Bid siphoning: E-mailing another seller’s bidders and offering the same product for less.

What types of products are well-suited for an auction market? At what points in the product life cycle can auction markets prove beneficial for marketers?

The types of products that are well-suited for an auction market include rare and unique products where prices are difficult to discover and where there may have been no market for the goods. These include perishable items such as airline tickets, hotel rooms, car rentals, or tickets to plays, concerts, and sporting events.

Traditionally, auctions have been used by businesses to generate a higher profit on items at the end of their life cycle than they would receive from product liquidation sales. However, they are now more frequently being used at the beginning of a product’s life cycle to generate premium prices from highly motivated early adopters, for example: early releases of music, books, DVDs, video games, and digital appliances.

17.

What three characteristics define a portal site today?

The three characteristics that define a portal site today are navigation of the Web, providing content, and serving as the starting point for pursuing commerce. Web portals are gateways to billions of web pages available on the Internet. Originally, their primary purpose was to help users find information on the Web, but they have evolved into destination sites that provide a myriad of content from news to entertainment.

18.

What are the two main types of vertical market portals, and how are they distinguished from one another?

The two main types of vertical market portals are affinity group portals and focused-content portals. Affinity group portals seek to attract statistical aggregates of people who identify themselves by their attitudes, values, beliefs, and behavior.

They exist to serve such broad constituencies, such as ethnic, minority and large special interest groups, as well as much more focused constituencies like union members, religious groups, and even home-schooling families. Focused-content portals contain in-depth information on a particular topic in which all members are interested. They can provide content on such broad topics as sports, news, weather, entertainment, finance, and business. Or they can appeal to a more focused interest group such as boat, horse, or video game enthusiasts.

19.

List and briefly explain the main revenue sources for the portal business model.

The main revenue sources for the portal business model are:

.

13 • • •

• •

20.

Providing ISP services such as online access and e-mail services for a monthly fee.

General advertising such as charging for the number of banner ad impressions delivered.

Tenancy deals whereby companies that value having access to their audience will lock in long-term multiple-year deals in which they are guaranteed a certain number of impressions with premium placement on home pages and through exclusive marketing deals, for example, subscription fees.

Charging for premium content.

Garnering commissions on sales that are generated from consumers originating from the portal site.

Why have online auctions declined in popularity compared to the early years of ecommerce?

Over the years, the popularity of online auctions has significantly declined, with most listings on eBay, for example, using posted prices rather than auction pricing. Research indicates that this change has been driven, at least in part, by changes in consumer preferences for convenience and also because of increased retail competition.

Projects 1.

Find two examples of an affinity portal and two examples of a focused-content portal. Prepare a presentation explaining why each of your examples should be categorized as an affinity portal or a focused-content portal. For each example, surf the portal and describe the services each provides. Try to determine what revenue model each of your examples is using and, if possible, how many members or registered visitors the portal has attracted.

One example of an affinity portal is the Gifted Homeschoolers Forum (GHF, at ghflearners.org). The group is a nonprofit, all-volunteer organization that works to educate and advocate for homeschooling families with gifted children. The website includes resources and articles from parents and experts, an online community for support and advice, sponsorship of events with nationally known speakers, and a schedule of conferences, lectures, and other opportunities. The group also has a Facebook and Instagram page and a Twitter feed.

One focused-content portal is Fantasysp.com, which offers a central location for fantasy sports news and data. The site’s revenue model appears to be a mix of advertising, freemium, and subscription services. It also sells content (depth charts for various sports). This is a focused-content portal providing in-depth information on all aspects of fantasy sports in which its members have a keen interest.

.

14 Information such as that presented above should be included for all four examples chosen by the students in their presentation. Presentations might also include any current information the students can find on the status of these companies, and whether their niche strategies are, in fact, working.

2.

Examine the use of auctions by businesses. Go to any online auction of your choosing and look for outlet auctions or auctions directly from merchants.

Research at least three products for sale. What stage in the product life cycle do these products fall into? Are there quantity purchasing requirements? What was the opening bid price? What are the bid increments? What is the auction duration? Analyze why these firms have used the auction channel to sell these goods and prepare a short report on your findings.

At Liquidation.com, students will find a variety of auctions. One example is a lot of 22 Sony wireless portable speakers, boom boxes, and clock radios with a manufacturer’s suggested retail price of $2,214, offered by Sony Consumer Electronics. The minimum bid was $445. The auction type utilized was a normal, increasing-price format for a single lot of merchandise, with only one winner— the highest bidder at the close of the auction. With 5 hours left in the auction, there had been 4 bidders, 45 bids, and the current price was $544. The lot consisted of items returned by consumers, with Sony utilizing the auction channel as a method of liquidating the items.

3.

Visit one for-profit and one nonprofit sponsored social network. Create a presentation to describe and demonstrate the offering at each social network.

What organizational objectives is each pursuing? How is the for-profit company using community-building technologies as a customer relations management tool?

The Campbell Soup Company has a sponsored community site at Campbellnutrition.com. The site offers articles on nutrition basics, fitness and exercise, simple steps to eating smart, lifestyle changes, and making them work.

Campbell’s objective is to promote the inclusion of Campbell’s soups in a healthy diet. A menu plan has been set up to give users recipes for all three meals of the day, including snacks that meet the daily recommended guidelines for fat, saturated fat, protein, carbohydrates, and sodium. The obvious goals are to extend brand influence and loyalty and to increase offline product sales. In addition to being able to sign up for a newsletter, other community building technologies that are being used as customer relations management tools on the site are relating company news and product information including a complete listing and product information on all Campbell’s brands (Pepperidge Farms, V8, Pace, Prego, etc.).

At a nonprofit sponsored community site such as LiveBaltimore.com, offerings include information on communities; home buying, including home buying incentive programs; renting; calendars of community events; lists of schools; and lists of books written about and movies filmed in the area. Objectives of this site

.

15 include: relaying community information and events to current residents; helping newcomers to settle in the area; and most of all, to promote Baltimore and its many communities as vibrant and active communities in which to live. Relocation products and services are a major offering of the site. Preferred real estate agents are recommended, houses are listed for sale or rent, and listings are offered for attractions, events, bars, restaurants, entertainment, employers, and local media.

This site has no interactive community building technologies in use, mainly concentrating on the distribution of information. Projects might include visual presentations of site offerings that back up the organizational objectives students believe the sites are pursuing.

4.

Visit one of the social networks listed in Table 11.1 and compare it to Facebook.

In what ways is it similar to Facebook, and in what ways is it different? Which do you prefer, and why?

Student answers will vary depending on the social network chosen.

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.

Video Cases for this chapter include: • Video Case 11.1 Instagram • Video Case 11.2 Small Businesses Find a Home on eBay

.

1 Instructor’s Manual: Chapter 12 B2B E-commerce: Supply Chain Management and Collaborative Commerce

Learning Objectives After reading this chapter, your students should be able to: • Discuss the evolution and growth of B2B e-commerce, as well as its potential benefits and challenges.

• Understand how procurement and supply chains relate to B2B ecommerce.

• Identify major trends in supply chain management and collaborative commerce.

• Understand the different characteristics and types of Net marketplaces.

• Understand the objectives of private industrial networks, their role in supporting collaborative commerce, and the barriers to their implementation.

Key Terms accountable supply chain, p. 801 adaptive supply chain, p. 801 automated order entry systems, p. 787 B2B commerce, p. 787 B2B e-commerce (B2B digital commerce), p. 787 B2B e-commerce website, p. 789 Bring Your Own Device (BYOD) policy, p. 805 buyer-side solutions, p. 788 cloud-based B2B system, p. 806 collaborative commerce, p. 810 collaborative resource planning, forecasting, and replenishment (CPFR), p. 828 contract purchasing, p. 795 direct goods, p. 795 e-distributor, p. 817 electronic data interchange (EDI), p. 788 enterprise systems, p. 798 e-procurement Net marketplace, p. 819 exchange, p. 821 horizontal markets, p. 789 hub-and-spoke system, p. 789 indirect goods, p. 795 industry consortium, p. 823 just-in-time production, p. 799 lean production, p. 799 legacy computer systems, p. 798 liquidity, p. 822 MRO goods, p. 795 multi-tier supply chain, p. 796

.

2 Net marketplace, p. 789 private industrial networks (private trading exchange, PTX) p. 789 procurement process, p. 792 seller-side solutions, p. 788 spot purchasing, p. 796 supply chain, 787 supply chain competition, p. 785 supply chain management (SCM), p. 799 supply chain management (SCM) systems, p. 807 supply chain simplification, p. 799 supply chain visibility, p. 797 sustainable supply chain, p. 803 tight coupling, p. 799 trans-organizational business process, p. 826 value chain management (VCM) services, p. 820 vertical market, p. 789 Brief Chapter Outline Amazon Takes on B2B with Amazon Business 12.1 An Overview of B2B E-commerce Some Basic Definitions The Evolution of B2B E-commerce The Growth of B2B E-commerce Potential Benefits and Challenges of B2B E-commerce Insight on Society: Where Did All the Toilet Paper Go? The Covid-19 Pandemic Creates Major Supply Chain Disruption 12.2

The Procurement Process and Supply Chains Steps in the Procurement Process Types of Procurement Multi-tier Supply Chains Visibility and Other Concepts in Supply Chain Management The Role of Existing Legacy Computer Systems and Enterprise Systems in Supply Chains

12.3

Trends in Supply Chain Management and Collaborative Commerce Supply Chain Simplification and Just-in-Time and Lean Production Supply Chain Black Swans: Adaptive Supply Chains Accountable Supply Chains: Labor Standards Sustainable Supply Chains Electronic Data Interchange (EDI) Mobile B2B B2B in the Cloud Supply Chain Management Systems Blockchain and Supply Chain Management Insight on Technology: Blockchain Takes on the Diamond Supply Chain

.

3 Collaborative Commerce Social Networks and B2B: The Extended Social Enterprise B2B Marketing 12.4

Net Marketplaces: The Selling Side of B2B Characteristics of Net Marketplaces Types of Net Marketplaces

12.5

Private Industrial Networks Objectives of Private Industrial Networks Insight on Business: Walmart’s Private Industrial Network Supports Omni-channel Growth Private Industrial Networks and Collaborative Commerce Implementation Barriers

12.6

Careers in E-commerce The Company Position: Junior Supply Chain Analyst Qualifications/Skills How to Prepare for the Interview Possible First Interview Questions

12.7

Case Study: Elemica: Cooperation, Collaboration, and Community

12.8

Review Key Concepts Questions Projects References

Figures Figure 12.1 Figure 12.2 Figure 12.3 Figure 12.4 Figure 12.5 Figure 12.6 Figure 12.7 Figure 12.8 Figure 12.9 Figure 12.10 Figure 12.11 Figure 12.12 Figure 12.13 Figure 12.14

The Evolution of the Use of Technology Platforms in B2B E-commerce, p. 788 (Whiteboard video in eText) The Growth of B2B E-commerce in the United States, p. 790 B2B Commerce 2019, p. 791 The Procurement Process, p. 795 (User-controlled animation in eText) The Multi-tier Supply Chain, p. 797 (User-controlled animation in eText) The Evolution of EDI as a B2B Medium, p. 804 Cloud-based B2B Platforms, p. 807 Supply Chain Management Systems, p. 808 Elements of a Collaborative Commerce System, p. 813 Pure Types of Net Marketplaces, p. 818 E-distributors, p. 819 E-procurement Net Marketplaces, p. 820 Exchanges, p. 821 Industry Consortia, p. 824

.

4 Figure 12.15 Procter & Gamble’s Private Industrial Network, p. 826 Figure 12.16 Pieces of the Collaborative Commerce Puzzle, p. 831 (User-controlled animation in eText) Tables Table 12.1 Table 12.2 Table 12.3 Table 12.4 Table 12.5

Major Trends in B2B E-commerce, 2020–2021, p. 786 Concepts and Challenges in Supply Chain Management, p. 798 Characteristics of Net Marketplaces: A B2B Vocabulary, p. 817 (Drag and drop exercise in eText) Examples of Independent Exchanges, p. 822 Industry Consortia by Industry, p. 825

Teaching Suggestions This chapter discusses B2B e-commerce, supply chain management, and collaborative commerce. Many students will be completely unfamiliar with business-to-business commerce, as well as supply chain management (although they may have become much more aware of supply chains due to the very visible impacts of the Covid-19 pandemic, resulting in major supply chain disruptions in 2020), and collaborative commerce.

Therefore, it is worthwhile to spend some time introducing these topics before going into depth on the various types of B2B digital commerce relationships.

The challenge in this chapter is to make some sense out of very confusing literature and portray to students the basic ideas without getting them lost in the details. B2B e-commerce is much less visible to students than B2C e-commerce, but it is having a profound impact on how businesses operate.

The updated opening case, Amazon Takes on B2B with Amazon Business, highlights the growing interest in B2B, particularly from a sell-side marketplace perspective. Some class discussion questions for this case might include the following: • Why did Amazon Business move from being a distributor of supplies to providing a B2B marketplace?

• What benefits over other B2B marketplaces does Amazon Business offer buyers?

• What benefits do suppliers have in using Amazon Business?

• Does Amazon Business pose any disadvantages for buyers or sellers?

Key Points Overview of B2B E-commerce. Section 12.1 provides an introduction to, and overview of, B2B e-commerce. B2B trade among business firms is huge, about $14.65 trillion in the United States. Define B2B commerce as all types of computer-enabled inter-firm trade; it has evolved over a 50-year period. You can help anchor students in this evolution by discussing Figure 12.1, which traces the evolutionary path of B2B. This allows students to put the Internet-enabled variant of B2B commerce into perspective as an evolutionary migration. An engaging whiteboard video created by the authors and narrated by Ken Laudon, available in the eText, provides additional context and background with respect to this topic. Figure 12.2 describes the current and estimated future size of B2B e-

.

5 commerce. Figure 12.3 illustrates the components of B2B e-commerce and compares it to traditional B2B commerce. The promise of B2B e-commerce is to reduce the transaction costs involved in this inter-business trade. The estimated benefit to the U.S. economy of such a change is in the trillions, money that could be put to more productive uses.

One way you can motivate students to understand B2B is by discussing the potential benefits discussed on pages 791-792. It is important for students to understand that there are also some risks created by the increasing globalization and consolidation enabled by B2B e-commerce and supply chains, as was vividly demonstrated by widespread shortages of various types of goods during the onset of the Covid-19 pandemic. A new Insight on Society case, Where Did All the Toilet Paper Go? The Covid-19 Pandemic Creates Major Supply Chain Disruption, focuses on this issue. Class discussion questions for this case might include the following: • What weaknesses did the Covid-19 pandemic reveal with respect to the supply chain management practices of many companies?

• Why does concentrating production on fewer suppliers and locations also concentrate risk?

• What types of tools are available, and what procedures could be implemented to reduce risk?

The Procurement Process and Supply Chains. Section 12.2 covers the procurement process and supply chains. Figures 12.4 and 12.5 are a good way to introduce students to the procurement process and the supply chain. Figure 12.4 describes the procurement business process, and Figure 12.5 describes the multi-tiered nature of the supply chain.

Both of these figures are presented as user-controlled animations in the eText for further emphasis. Be sure students understand the different types of procurement: direct versus indirect goods and spot versus contract purchasing. MRO goods should also be explained.

Trends in Supply Chain Management and Collaborative Commerce. Section 12.3 covers trends in supply chain management and collaborative commerce. The first step is to make sure your students understand what supply chain management entails. Then review the major trends detailed in this section, including supply chain simplification, just-in-time and lean production, adaptive supply chains, accountable supply chains, sustainable supply chains, EDI, mobile B2B, and cloud-based B2B systems. Figure 12.6 is a good way to describe how B2B and EDI objectives have changed from simple automation into continuous replenishment. The holy grail of supply chain managers is to produce only enough goods to meet immediate demand and, therefore, to eliminate buffers and inventory in all tiers of the supply chain. Material on mobile B2B and cloud-based B2B software platforms highlights the increasing use of both technologies and their impact on B2B e-commerce. Figure 12.7 illustrates a cloud-based B2B platform.

Blockchain is one of the newer technologies that is beginning to have an impact on supply chain management. For example, Walmart is using it in its Food Traceability Initiative. The text covers the basics of how blockchain works in Chapter 5 (see pages 317 through 319 and Figure 5.15), and it may be a good idea to review those concepts again. The updated Insight on Technology case, Blockchain Takes on the Diamond

.

6 Supply Chain, examines how famed diamond merchant De Beers is using blockchain technology to deal with issues in the diamond supply chain. Questions for class discussion might include the following: • What challenges is De Beers hoping to deal with by implementing a blockchain system?

• How does De Beer’s blockchain system work?

• If you were purchasing a diamond, would you want to know its provenance? Would you be willing to pay more for this information? If so, how much more?

The section concludes with a discussion of collaborative commerce, and the impact of social networks on B2B. Figure 12.8 provides an illustration of a contemporary supply chain management system, and Figure 12.9 provides an illustration of a collaborative commerce system.

Net Marketplaces. Section 12.4 goes into greater detail on Net marketplaces. Table 12.3 provides a summary of the different characteristics of Net marketplaces and what each means. This table is presented as a drag and drop exercise in the eText. Make sure to remind students that they should click to view the table in its entirety before attempting to complete the exercise. It is important that students understand the various biases built into Net marketplaces. Market bias has been one reason that Net marketplaces have not flourished as expected; suppliers would rather not compete with one another for large contracts.

There are four “pure” types of Net marketplaces. Figure 12.10 graphically categorizes these four types into a matrix, with example companies for each type. The chapter next provides descriptions and examples of each of the four primary types: e-distributors, eprocurement companies, independent exchanges, and industry consortia.

Private Industrial Networks. Section 12.5 covers private industrial networks. Private industrial networks are extensions of earlier EDI technology to an Internet but support a much wider variety of communications and file types including e-mail, chat, CAD diagrams, and graphics formats. Figure 12.15 illustrates a private industrial network developed by Procter & Gamble. Figure 12.16 describes the key elements of collaborative commerce. This figure is presented as a user-controlled animation in the eText for further emphasis. The ultimate objective is to closely coordinate the requirements of large manufacturers and distributors with a limited set of suppliers and transportation firms.

The updated Insight on Business case, Walmart’s Private Industrial Network Supports Omni-channel Growth, describes Walmart’s efforts to build a private industrial network, based first on EDI, then expanding it into a system named Retail Link, and then adding another system called the Global Replenishment System (GRS). Class discussion questions for this case might include the following: • What is Walmart’s Retail Link system, and how has it changed since the early 1990s?

.

7 • • •

What functionality does Walmart’s GRS provide?

Why did Walmart have an inventory problem and what steps did it take to solve that problem?

Do you prefer to shop online at Walmart or Amazon? Why?

In Section 12.6 we offer students information and tips about how the concepts they’ve learned in this chapter can help them prepare for an interview for an entry-level position as a junior supply chain analyst.

The updated chapter-ending case study, Elemica: Cooperation, Collaboration, and Community, in Section 12.7, is a good wrap-up to the chapter. Elemica began as an industry consortium and although now it is privately owned, remains a wonderful example of a B2B cloud-based, digital supply chain platform that aims not to just foster cooperation and collaboration on a one-to-one or even multi-firm basis, but rather an entire industry.

Case Study Questions 1.

If you were a small chemical company, what concerns would you have about joining Elemica?

Although small and medium firms do not need to have an ERP system to connect to Elemica, they do require some level of technological sophistication even to use the online portal. Elemica offers an online portal for those companies not as technically sophisticated as the larger global chemical companies. For all firms, Elemica reduces the burden on IT staff. In fact, one of the missions of Elemica is to help companies do more with fewer resources—including IT staff. As a small firm, you would be concerned that you would be able to respond to requests for large quantities of commodities that might be requested by partners.

2.

Elemica provides a community for participants where they can transact, coordinate, and cooperate to produce products for less. Yet these firms also compete with one another when they sell chemicals to end-user firms in the automobile, airline, and manufacturing industries. How is this possible?

This is a difficult question. The chemical industry is very interrelated with a long history of firms buying/selling from each other. All firms in the industry at one point or another end up with spare inventory they would like to sell, or come up short on specific chemicals preventing order execution. The Elemica hub is perceived as a neutral trading platform where all can benefit from lower-cost-toserve, greater efficiencies, and overall more efficient operations that can serve customers better. By keeping bids and quotations anonymous, and the community fairly large and open, members can get a sense of “market price” and available quantities quite easily without revealing their names.

3.

How did the purchase of Elemica by Thoma Bravo, a private equity firm, change how Elemica fits into the B2B framework illustrated in Figure 12.10?

.

8

With the purchase by Thoma Bravo, a private equity firm, Elemica can no longer technically be considered an industry consortium, as it was originally, although it still retains most of the attributes associated with being one.

End-of-Chapter Questions 1.

Explain the differences between total B2B commerce and B2B e-commerce.

Total B2B commerce describes all types of computer-assisted, inter-firm trade. whereas B2B e-commerce relates to that portion that uses the Internet to assist firms in buying and selling a variety of goods to each other.

2.

What are the key attributes of a B2B e-commerce website? What early technology are they descended from?

The two key attributes that distinguish a B2B e-commerce website are: • They use the Internet as the communication media instead of private networks.

• They tend to serve horizontal markets, that is, they carry products that serve a wide variety of industries.

Automated order entry systems preceded B2B e-commerce websites.

3.

List at least five potential benefits of B2B e-commerce.

B2B e-commerce promises many strategic benefits for participating firms, both the buyers and the sellers, including: • Lower administrative costs.

• Lower search costs for buyers.

• Reduced inventory costs due to increased competition among the suppliers (which increases price transparency) and reducing inventory to a bare minimum.

• Lower transaction costs due to the elimination of paperwork and the partial automation of the procurement process.

• Increased production flexibility by ensuring delivery of parts “just-intime.”

• Improved quality of products due to increased cooperation among buyers and sellers, reducing quality issues.

• Decreased product cycle time due to the sharing of designs and production schedules with suppliers.

• Increased opportunities for collaborating with suppliers and distributors.

• Increased price transparency.

4.

Name and define the two distinct types of procurements firms make. Explain the difference between the two.

.

9 The two types of procurements that firms make are for direct goods and indirect goods. Direct goods are directly involved in the production process such as the sheet steel used to produce an automobile body. Indirect goods are all other goods that are needed to carry out the production process but are not directly involved in creating the end product. They include office supplies and maintenance products, which are sometimes also called MRO (maintenance, repair, and operations) goods.

5.

Name and define the two methods of purchasing goods.

The two methods of purchasing goods are contract purchases and spot purchases.

Contract purchases are long-term agreements to buy a specified amount of a product. There are pre-specified quality requirements and pre-specified terms.

Spot purchases are for goods that meet the immediate needs of a firm. Indirect purchases are most often made on a spot purchase basis in a large marketplace that includes many suppliers.

6.

Define the term supply chain and explain what SCM systems attempt to do. What does supply chain simplification entail?

The supply chain refers to the series of transactions that links sets of firms that do business with each other. It includes not only the firms themselves, but also the relationships between them and the processes that connect them. SCM (supply chain management) systems attempt to coordinate and link the activities of suppliers, shippers, and order entry systems to automate the order entry process from start to finish. This includes the purchase, production, and moving of a product from a supplier to a purchasing firm. Supply chain simplification refers to the reduction of the size of a firm’s supply chain. Firms today generally prefer to work closely with a strategic group of suppliers to reduce both product costs and administrative costs. Long-term contract purchases containing pre-specified product quality requirements and pre-specified timing goals have been proven to improve end product quality and ensure uninterrupted production.

7.

Explain the difference between a horizontal market and a vertical market.

Horizontal markets serve a myriad of different industries. An electronic storefront is an example of a horizontal market in that it tends to carry a wide variety of products that are useful to any number of different industries. Vertical markets, on the other hand, provide expertise and products targeted to a specific industry. EDI (electronic data interchange) systems usually serve vertical markets.

8.

How do the value chain management services provided by e-procurement companies benefit buyers? What services do they provide to suppliers?

The value chain management services benefit buyers by automating a firm’s entire procurement process including purchase orders, requisitions, sourcing,

.

10 business rules enforcement, invoicing, and payment. For the suppliers, they provide automation of the entire selling business process including catalog creation and content management, order management, fulfillment, invoicing, shipment, and settlement.

9.

What are the three dimensions that characterize an e-procurement market based on its business functionality? Name two other market characteristics of an eprocurement Net marketplace.

The three dimensions that characterize an e-procurement market based on its business functionality are that (1) they are horizontal marketplaces (2) in which long-term contractual purchasing agreements are used (3) to buy indirect goods.

Other market characteristics of e-procurement Net marketplaces are that they are independently owned, that they are many-to-many markets, and that they use fixed price catalogs.

E-procurement companies serve as intermediaries connecting hundreds of online suppliers offering millions of MRO goods to business firms who pay a fee to join the market, thus it is a public marketplace. They are mediated by an independent third party that purports to represent both buyers and sellers; however, they are likely to have a bias in favor of the buyer because they include the catalogs of competing suppliers and competing e-distributors.

10.

Identify and briefly explain the anticompetitive possibilities inherent in Net marketplaces.

The anti-competitive possibilities inherent in Net marketplaces include: • The possibility that they may provide some firms with an ideal platform to collude on pricing, market sharing, and market access. For example, in a Net marketplace owned by large industry players, owner-members could collude with one another on the prices they are willing to pay for inputs.

• The sharing of information to reach market-sharing agreements in which they divide the market up into segments and agree to produce only enough for their allocated segment.

• The coordination of a reduction in purchases, forcing the suppliers to sell their inputs below market prices.

• The restriction of market access if large industry players exclude smaller rivals, thus forcing them to pay higher prices for their inputs.

11.

List three of the objectives of a private industrial network.

The objectives of a private industrial network may include to: • Develop efficient industry-wide purchase and selling business processes.

• Develop industry-wide resource planning to supplement enterprise-wide resource planning.

.

11 • • • •

12.

Create increasing supply chain visibility so that the inventory levels of buyers and suppliers will be known to the participants.

Achieve closer buyer-supplier relationships, including demand forecasting, communications, and conflict resolution.

Foster operations on a global scale.

Reduce industry risk by preventing imbalances in supply and demand, including developing financial derivatives, insurance, and future markets.

What is the main reason why many of the independent exchanges developed in the early days of e-commerce failed?

The main reason is that they failed to attract enough players to achieve liquidity.

That is, the number of buyers and sellers in the market, the transaction volume, and the size of the transactions were insufficient to sustain a profit.

13.

Explain the difference between an industry consortium and a private industrial network.

Private industrial networks, which presently dominate B2B commerce, are webenabled networks for coordinating trans-organizational business processes (collaborative commerce). These networks range in scope from a single firm to an entire industry. Although the central purpose of a private network is to provide industry-wide global solutions to achieve the highest levels of efficiency, they generally start with a single sponsoring company that “owns” the network. This differentiates private markets from industry consortia, which are usually owned collectively by major firms through equity participation.

14.

What is CPFR, and what benefits could it achieve for the members of a private industrial network?

CPFR (collaborative resource planning, forecasting, and replenishment) involves working with network members to forecast demand, develop production plans, and coordinate shipping, warehousing, and stocking activities. The goal is to ensure that retail and wholesale shelf space is precisely maintained. The benefits it could achieve for private industrial network members are that hundreds of millions of dollars of excess inventory and capacity could be wrung out of an industry.

15.

What are the barriers to the complete implementation of private industrial networks?

One barrier is that participating firms are required to share sensitive data with their business partners up and down the supply chain. This is a huge corporate mindset change as what was previously considered proprietary and secret must now be shared. Furthermore, in the digital environment, it can be difficult to

.

12 control the limits of this information sharing. Information that a firm willingly gives to its largest customer may wind up being shared with its closest competitor.

Other barriers include difficulties in integrating private industrial networks into existing ERP (enterprise resource planning) systems and EDI (electronic data interchange) networks. Most ERP systems were not designed initially to work with extranets or even to be particularly Internet compliant; they were based on business models that use entirely internal business processes. Furthermore, changes in corporate culture and attitudes organization-wide and among all employees are essential so that a shifting of allegiances occurs from the firm to the wider trans-organizational enterprise. This is difficult to achieve. Employees must recognize that the firm’s fate is intertwined with that of their suppliers and distributors. Suppliers, in turn, must change how they manage and allocate resources because their own production is closely aligned with the demands of the private industrial network partners. A loss of independence among all participants in the supply and distribution chains occurs and this requires huge behavioral changes in individual organizations for their participation to reap the benefits of participation.

16.

What is EDI and why is it important?

EDI is a communications standard for sharing business documents such as invoices, purchase orders, shipping bills, product stocking numbers (SKUs), and settlement information among a small number of firms. Virtually all large firms have EDI systems, and most industry groups have industry standards for defining documents in that industry. Today, EDI remains a general enabling technology that provides for the exchange of critical business information between computer applications supporting a wide variety of business processes. EDI is an important industrial network technology, suited to support communications among a small set of strategic partners in direct, long-term trading relationships.

17.

Describe six major trends in supply chain management and collaboration.

Major trends in supply chain management and collaboration include: • Just-in-time production, which is a method of inventory cost management that aims to keep excess inventory at a bare minimum.

• Lean production, which is a set of production methods and tools that focuses on elimination of waste throughout the customer value chain, not just inventory.

• Supply chain simplification, which involves working with a strategic group of suppliers to reduce product and administrative costs and improve quality.

• Adaptive supply chains, which seek to reduce the risks caused by relying on single suppliers who are subject to local instability by creating regional- or product-based supply chains.

.

13 • •

18.

Accountable supply chains, which involve efforts to make global supply chains more accountable in terms of labor conditions.

Sustainable supply chains, which take social and ecological interests into account and seek to use the most efficient environment for production, distribution, and logistics.

Describe the challenges inherent to B2B e-commerce.

Although there are many potential benefits to B2B e-commerce, there are also considerable risks and challenges. Often real-world supply chains fail to provide visibility into the supply chain because they lack real-time demand, production, and logistics data, and have inadequate financial data on suppliers. The result is unexpected supplier failure and disruption to the supply chain. Builders of B2B supply chains often had little concern for the environmental impacts of supply chains, the sensitivity of supply chains to natural events, fluctuating fuel and labor costs, or the impact of public values involving labor and environmental policies.

The result is that many Fortune 1000 supply chains are risky, vulnerable, and socially and environmentally unsustainable.

19.

What is a multi-tier supply chain and why does it pose a challenge for B2B ecommerce?

A multi-tier supply chain is the chain of primary, secondary, and tertiary suppliers that together constitute the supply chain for a firm. For a large company, the number of suppliers can be in the thousands. The sheer number of companies involved makes it difficult to manage the supply chain and to obtain supply chain visibility.

20.

What is a cloud-based B2B platform and what advantages does it offer?

In cloud-based B2B systems, much of the expense of B2B systems is shifted from the firm to a B2B network provider, sometimes called a data hub or B2B platform. The cloud platform owner provides the computing and telecommunications capability, establishes connections with the firm’s partners, provides software on-demand (software-as-a-service or SaaS) to connect the firm’s systems to its partners’ systems, performs data coordination and cleaning, and manages data quality for all members. Network effects apply here: the cost of these tasks and capabilities is spread over all members, reducing costs for all.

B2B network providers also provide communication environments and file storage services that allow partners to work together more closely, and to collaborate on improving the flow of goods and transactions. B2B network providers charge customers on a demand basis, rather than on a percentage of their transactions’ value, depending on their utilization of the network. Another advantage of cloud-based B2B systems is that, unlike traditional firm-based B2B systems, cloud-based B2B data networks can be implemented in short periods of time to respond to corporate mergers and rapidly changing markets.

.

14

21.

Describe the differences and similarities between B2C and B2B marketing.

B2B e-commerce is in some respects very different from B2C e-commerce, and as a result, there are substantial differences between B2B and B2C marketing.

Long-term sourcing typically involves large purchases with commercial relationships that can last several years or longer. The sellers and buyers may have known about each other for years; the capabilities and financial situations of the firms are known. Both parties share an understanding of the price and quality of what is being exchanged in the market. In these situations, B2C retail marketing tactics are not appropriate. Instead, interpersonal relationships, networking, brand, and informative content marketing using white papers, videos, podcasts, webinars, blogs, e-books, conferences, and professional associations are the primary and most effective marketing tools. However, in spot purchase markets for MRO or other commodity products, B2B marketing uses many of the same marketing tactics and tools found in B2C marketing: display ads, search engine marketing, websites, social network channels, videos, and mobile ads.

Projects 1.

Choose an industry and a B2B vertical market maker that interests you.

Investigate the site and prepare a report that describes the size of the industry served, the type of Net marketplace provided, the benefits promised by the site for both suppliers and purchasers, and the history of the company. You might also investigate the bias (buyer versus seller), ownership (suppliers, buyers, independents), pricing mechanism(s), scope and focus, and access (public versus private) of the Net marketplace.

Students should use Google to do research on B2B Net marketplaces. Resources include Digitalcommerce360.com and Practicalecommerce.com, among others.

See for example: https://www.digitalcommerce360.com/2020/02/26/morevertical-marketplaces-are-dotting-the-b2b-landscape/. The next step is for the student to select a company. The directory provides further information on the company. Finally, to perform the analysis required by the project, the student should visit the website of the company chosen and also use Google or other search engines to find relevant information in trade, industry, popular journals, and newspapers.

2.

Examine the website of one of the e-distributors listed in Figure 12.10 and compare and contrast it to one of the websites listed for e-procurement Net marketplaces. If you were a business manager of a medium-sized firm, how would you decide where to purchase your indirect inputs—from an e-distributor or an eprocurement Net marketplace? Write a short report detailing your analysis.

A student choosing to compare Grainger (e-distributor) versus Ariba Network (eprocurement) might provide the following analysis:

.

15 •

•

3.

E-distributors are the most common type of electronic marketplace; they sell products on an “as needed” basis. Grainger efficiently organizes goods from more than one source for potential buyers. E-distributors such as Grainger offer a reasonable compromise between price and service and provide the convenience of one-stop shopping for a wide range of products from processed materials to finished goods. This is especially valuable to customers in the MRO or office supplies market. Buyers like placing one order, tracking one order, and having only one invoice to pay.

E-procurement companies are typically used for long-term contractual purchasing of indirect goods. They expand on the business model of edistributors by including the online catalogs of their suppliers and value chain management services. Ariba Network (https://www.ariba.com/aribanetwork) encourages new levels of communication and collaboration between buyers and suppliers. An e-procurement system automates and streamlines the purchasing process by eliminating managers and multiple orders while reducing the cost of processing an order. For a medium-sized company, the advantages of an e-procurement system allow the company to control expenses on indirect goods as well as direct goods. This gives companies more control over the bottom line. However, if a company does not want to make an expensive investment into an e-procurement system or get locked into one e-procurement system, then e-distributors are another way companies can make their indirect purchases less expensive and more streamlined.

Assume you are a procurement officer for an office furniture manufacturer of steel office equipment. You have a single factory located in the Midwest with 2,000 employees. You sell about 40% of your office furniture to retail-oriented catalog outlets such as Quill in response to specific customer orders, and the remainder of your output is sold to resellers under long-term contracts. You have a choice of purchasing raw steel inputs—mostly cold-rolled sheet steel—from an exchange and/or from an industry consortium. Which alternative would you choose and why? Prepare a presentation for management supporting your position.

An e-procurement officer’s goal is to find the best product at the best prices.

Exchanges and consortia offer both. The benefits of exchanges are reduced search costs for parts, spare capacity, and lower prices due to a global marketplace fueled by competition among suppliers. Suppliers are often reluctant to join exchanges due to the fierce competition and price wars that can make profit margins miniscule, so the exchange might not have all the suppliers with which a company might wish to do business. Exchanges also usually don’t provide value-added services.

An industry consortium helps to develop long-term, stable relationships between buyers and sellers. Consortia are mainly developed by established Fortune 1000 companies. Both supplier and buyer benefit in a consortium. The buyer benefits

.

16 because buyers control access to market channels. Suppliers benefit by having access to large procurement systems and large order sizes. This, in turn, leads to long-term purchasing relationships.

The best alternative is to join the industry consortia to secure long-term, low prices on the firm’s basic inputs. This does not mean that the e-procurement officer should ignore prices and goods available from an exchange: these should be purchased when good deals become available, but they should not be relied upon as the major source of sheet steel.

4.

You are involved in logistics management for your company, a national retailer of office furniture. In the last year the company has experienced a number of disruptions in its supply chain as vendors failed to deliver products on time, and the business has lost customers as a result. Your firm only has a limited IT department, and you would like to propose a cloud-based solution. Go to the Infor.com website and read about its various supply chain management products.

Read several case studies on the site. Write a report to senior management why you believe that a cloud-based B2B solution is best for your firm.

Although student answers will vary, they should all reference several of the points highlighted on the Infor.com website, including the ability to decrease costs, gain visibility into the firm’s extended supply chain, and improve speed to market, among other benefits.

Companion Website, Learning Tracks, and Video Cases You can also direct your students to the Companion Website for the book, located at www.e-commerce2021.com. There they will find a collection of additional projects and exercises for each chapter, links to various technology tutorials, information on how to build a business plan and revenue models, information on careers in e-commerce, and more.

Learning Tracks that provide additional coverage of various topics and a collection of Video Cases that integrate short videos, supporting case study material, and case study questions are also available for download from the book’s Online Instructor Resource Center at https://www.pearson.com/us/higher-education/subject-catalog/downloadinstructor-resources.html. Video Cases for Chapter 12 include: • Video Case 12.1 Elementum • Video Case 12.2 Mechan Groep Streamlines with Sana Commerce

.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

CHAPTER 1: THE REVOLUTION IS JUST BEGINNING LEARNING TRACK 1.1 GLOBAL E-COMMERCE 2021: EUROPE

WESTERN EUROPE

A

dvanced telecommunications infrastructure, established payment and logistics systems, a large population of established online consumers, and a growing population of mobile shoppers mark the retail e-commerce market in Western Europe. Sales in the region represent about 12.6% of total retail e-commerce sales worldwide in 2020 and grew at over 25%, in part due to the impact of the Covid-19 pandemic. Leading the way is the United Kingdom, which logged one-third of the region’s $539 billion in 2020 sales. Germany and France follow, combining with the United Kingdom to account for nearly two-thirds of Western Europe’s e-commerce sales.

Retail e-commerce sales in 2021 are expected to level off after mushrooming in 2020 due to the pandemic. Even still, some countries are expected to see significant growth, such as France (over 8%), Switzerland and Austria (both around 6%) and Italy (5%).. Total e-commerce retail sales in Western Europe are still expected to comprise only about 13% of total retail sales in the region in 2021, leaving much room for future growth. The United Kingdom leads the way on this measure, with retail e-commerce sales expected to represent over 28% of total UK retail sales in 2021. E-commerce retail sales in the Scandinavian countries of Denmark, Finland, Norway, and Sweden are all expected to account for over 15% of total retail sales in those countries as well. Conversely, the countries with the greatest expected growth are those whose current e-commerce retail sales penetration are among the lowest: Italy (5.6%), Austria (6.8%), and Switzerland (7.5%).

Throughout Western Europe, about 250 million people are expected to make at least one digital purchase in 2021. This represents about 80% of the region’s Internet users. Of course, the proportion of the population that is online varies widely from country to country. In Italy, only about 60% of Internet users are expected to become digital buyers in 2021, while in the United Kingdom, 90% of Internet users are expected to make an online purchase.

continued .

Learning Track 1.1 GLOBAL E-COMMERCE 2021: EUROPE

2

Likewise, the amount each digital buyer spends on e-commerce purchases per year varies widely. In the United Kingdom, the average annual amount in 2020 was about $4,000; in Germany, about $1,850, while in Italy, average annual per-person online spending was just a little over $1,000. To pay for these purchases, credit and debit cards are the predominant choice. PayPal and other similar online payment systems are also widely used.

The biggest drivers of e-commerce growth are mobile devices, cross-border purchasing, and new delivery options. In Western Europe, for instance, retail m-commerce grew over 35% in 2020, with sales reaching over $230 billion, over 42% of total retail e-commerce sales.

Support from the European Commission’s EU Digital Single Market strategy has encouraged growth. Since December 2018, e-commerce sites operating in the EU can no longer refuse to sell products or services to consumers based on where they live, a practice known as geoblocking. The European Commission has also implemented rules to make cross-border parcel delivery prices more transparent and affordable. The EU Directive on Consumer Rights is designed to ensure that all e-commerce sites comply with the laws of all EU nations with which they do business. The Directive lays out specific consumer protections. All fees and charges associated with a sale must be clearly outlined before an order is placed, orders can be canceled for any reason within 14 days of receipt (including online auctions from professional sellers) and returned for a full year if the buyer was not informed of his or her rights, and refunds must include delivery costs and be paid within 14 days of transaction cancellation. If a seller requires the buyer to pay for return delivery costs, this must be clearly outlined before a sale is completed along with the maximum transaction cost, else the seller will have to assume that cost. All digital content must clearly outline compatibility and product use limitations.

Cross-border buying is especially popular in Spain and Italy and less common in France, Germany, and the United Kingdom. From a consumer perspective, cross-border purchasing is most attractive in markets where domestic product lines are limited and foreign sites offer better value. The unified legal framework and e-commerce infrastructure created by the EU decision-making bodies has stimulated cross-border transactions. Naturally, cross-border sales are simplified within the Eurozone—the 28 EU member nations that have adopted the euro (€) as their common currency. The number of cross-border buyers in the UK is expected to decrease in 2021, due to the impact of exit of the UK from the EU (Brexit).

Consumers worldwide want to receive goods as soon as possible, particularly if they have paid for the purchase up front. A French survey, for example, found that consumers specifically choose e-tailers offering speedier delivery, and in Spain, 20% of digital buyers have left a site upon discovering that the delivery time was longer than expected. In mature markets, this is increasingly translating to e-commerce victors that can provide same-day or nextcontinued .

Learning Track 1.1 GLOBAL E-COMMERCE 2021: EUROPE

3

day delivery. In Germany, relatively stable economic conditions enabled some retailers to invest in the necessary logistics and provided a pool of buyers willing to pay express shipping charges. However, two-thirds of customers would be perfectly happy to wait longer if offered free shipping. The takeaway is that a range of delivery options can confer a competitive advantage.

CENTRAL AND EASTERN EUROPE

T

he Central and Eastern European e-commerce sector is much less developed, garnering 2020 sales of about $95 billion, 8% of total retail sales in that region. Projected to reach about $165 billion by 2024 (compared to Western Europe’s $635 billion), the biggest contributor to these totals is Russia. Poland, the Czech Republic, Ukraine, Hungary, and Slovakia contribute most of the rest, with Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Estonia, Greece, Latvia, Lithuania, Macedonia, Romania, and Slovenia bringing up the rear. The bulk of Central and Eastern European Internet users are Russian, but digital buyer penetration is highest in the Czech Republic and Estonia.

About 102 million Russians (72% of the population) are expected to have Internet access in 2021, making Russia the largest market in all of Europe. Russia accounts for about 35% of the region’s retail e-commerce sales (about $33 billion in 2020). Still, only 41.5 million Russians—around 47% of its Internet users—are expected to make an online purchase in 2021. Russia’s retail e-commerce sales are expected to grow to over $55 billion by 2024, but this would still represent only about 10% of Russia’s total retail sales.

With its still growing Internet audience, over half of its current Internet users as yet untapped, slim competition, rapid growth, and adequate, but still expanding broadband infrastructure, Russian e-commerce has been forecast to grow by over 15% a year between 2020 and 2024. Cross-border buying is more popular with Russian shoppers than in most countries in Western Europe, engaged in by almost 70% of Russia’s digital buyers. However, the postal system is both unreliable—lost or stolen packages, excessive delivery time, and nondistributed parcel rates of up to 100% in remote areas—and expensive. Cash is the predominant payment method due to an under-developed financial services sector, exorbitant bank charges, and lack of consumer trust in electronic payments. Pre-authorization is often required for card use, merchants lack the infrastructure to store card data, and fraud poses a significant threat to merchants. However, card and online payment systems such as Yandex Money, Qiwi Wallet and WebMoney are gaining increased acceptance, particularly for digital goods. Linked to domestic bank accounts or debit cards or loaded with funds at kiosks or offline stores, these instruments are often subject to daily transaction limits. With a large percentage of e-commerce in Russia still conducted in cash, numerous COD “pick-up stores” have arisen continued

.

Learning Track 1.1 GLOBAL E-COMMERCE 2021: EUROPE

4

for consumers to collect their purchases. A system of payment kiosks on street corners, and in grocery stores, small shops, and convenience stores serve as bill payment centers and often include multiple terminals from different companies, fashioning comprehensive payment islands.

Successful retailers, such as Alibaba’s AliExpress (by far and away the leading e-commerce platform in Russia), online shopping mall Ozon, and German-based trading company Otto Group, have developed their own logistics and delivery infrastructure, complete with warehouses, fulfillment centers, pickup and return centers, and fleets of trucks for home deliveries.

Ulmart, a hybrid online-offline retailer based in Russia, complements its online selling with 30 Kibermarkets. These cybermarkets are essentially warehouses attached to selling floors that use state-of-the-art touch screens as virtual display cases.

Still, these success stories are concentrated in the population and income centers of European Russia. The nearly 88% of Russia’s landmass that lies beyond the reach of these logistics networks must still depend on the government-owned Russian Post, Pochta Rossii, which struggles to transport goods between St. Petersburg and Moscow (400 miles) in less than two weeks.

Poland, with a total population of around 38 million, around 77% of whom are Internet users and two-thirds of which are digital buyers, is one of the fastest developing e-commerce markets in Europe. E-commerce sales in Poland are expected to grow to over $13.5 billion in 2021. Shoppers in the 25-to-34-year age group, most with a secondary education, comprise the bulk of Polish e-commerce consumers. Around a third of digital buyers hail from rural regions, and they shop online to save money, time, and avoid crowded stores. Price comparison websites, group shopping sites, and online stores are their three top online destinations. Top Polish e-commerce sites include Allegro.pl (the Polish eBay) and Ceneo.pl. Online payments are dominated by real-time bank transfers, with C.O.D. still the most popular means of paying for digital purchases. Credit/debit card purchases still comprise a small percentage of sales. In 2019, Poland had over 16 million cross-border buyers. Like Western Europe, it is anticipated that cross-border purchasing will be one of the biggest drivers of e-commerce growth in Central and Eastern Europe going forward.

The Czech Republic is also one of the most rapidly expanding e-commerce markets in the EU. Around 8.5 million people in the Czech Republic are online, giving it an Internet penetration of almost 80%. This represents an impressive leap over the last decade, when Internet penetration was less than 60%. About 73% of the Czech Republic’s Internet users are digital buyers. Like Poland, a younger demographic (25-34 years-old) leads the digital buying population, and most Czechs use C.O.D. to pay for their purchases, with online banking transfers as the second most popular payment method. Credit card use is minimal, and lack of online payment systems could continue to hamper e-commerce development. In both Poland continued .

Learning Track 1.1 GLOBAL E-COMMERCE 2021: EUROPE

and the Czech Republic, and for that matter, in Russia, a major challenge is finding ways to convert browsers to buyers.

Overall, e-commerce in Central and Eastern Europe is primed for advancement. Internet access is still on the upswing, as is the number of Internet users who are becoming online consumers. Mobile commerce and cross-border e-commerce will be potent drivers of growth in the next five years. In many countries, government support aimed at increasing productivity and improving standards of living through the development of an Internet society is building a solid foundation for private investment to capitalize on. While distrust of entering personal financial data online must still be overcome, secure online payment systems developed, and logistics systems improved, there is substantial potential for growth.

SOURCES: Eurostat, “ICT Usage in Households and by Individuals 2019,” January 16, 2020; Statista.com, “Ecommerce-Poland,” accessed January 12, 2021; eMarketer, Inc., “Retail & Ecommerce Sales, by Country,” December 2020, eMarketer, Inc., “Digital Buyers, by Country,” December 2020; European Commission, “Shaping the Digital Single Market,” October 29, 2020.

. for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

5

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

CHAPTER 1: THE REVOLUTION IS JUST BEGINNING LEARNING TRACK 1.2 GLOBAL E-COMMERCE 2021: CHINA

OVERVIEW

I

n 2019, China’s gross domestic product (GDP) hit $15.1 trillion, growing by 6% compared to 2018. China currently accounts for almost 18% of the world’s estimated GDP, and its economy is expected to rebound faster from the impacts of the Covid-19 pandemic faster than many other countries, with its GDP estimated to grown by almost 6% a year between 2021 and 2025. With a population of about 1.45 billion, China still has the potential for explosive growth as it develops its manufacturing, services, and logistics capabilities, and transforms itself into a consumer-driven economy. Nowhere is this potential more evident than in the retail and e-commerce sectors.

Currently, China is the world’s second largest retail market at $5.1 trillion, surpassed only by the U.S. retail market of $5.5 trillion in 2020. By 2024, it is estimated that China’s retail market will hit $6.1 trillion. However, China was by far the world’s largest retail e-commerce market in 2020 with almost $2.3 trillion in sales, almost 54% of all e-commerce retail sales worldwide, while the U.S. retail e-commerce market was in second place, with about $795 billion in sales. China tops all countries with almost 45% of its total retail trade occurring digitally.

DEMOGRAPHICS

T

he demographic patterns of digital buying in China are similar to, but different from, other regions like Europe and North America. E-commerce is China is more unevenly spread among age groups and physical location than in more developed economies. E-commerce is a much more recent phenomenon in China. Young people (18-to-25-year-olds) are always early adopters of new technologies in all countries, but in China the disparities in wealth and education among age groups means young people have far more income than their parents, grew up in an Internet world unlike their parents, and are far more comfortable using mobile platforms for transactions.

continued .

LEARNING TRACK 1.2 GLOBAL E-COMMERCE 2021: CHINA

2

These patterns characterize many areas of e-commerce in China from use of the Internet, to the use of smartphones, attitudes about buying online, social media use, video consumption, and music streaming services. These patterns would have been even more evident had it not been for the “one child” policy of Chinese authorities which retarded the growth of China’s Millennial generation, created a male-dominated age band and lessened overall reproduction rates. One result is that China now has one of the oldest populations in the world. That policy has been abandoned, and the next generation will grow up in a far different world, accelerating the growth of digital purchases.

CHINA’S LARGEST RETAIL E-COMMERCE PLAYERS

L

ike the United States, there has been an explosion in online retailers in China, numbering over an estimated 1 million sellers. But over 80% of all e-commerce in China occurs on the country’s top three sites. Alibaba is the largest online retailer by far, garnering over 55% of all Chinese retail e-commerce, followed by JD and Pinduoduo (PDD), a manufacturerto-consumer networking platform for group buying and social commerce that is growing rapidly. China’s largest retail e-commerce sites typically do not stock items like Amazon does, but rather leave the stocking of goods to merchants selling on the platform. These merchants generally use Alibaba’s payment and logistics systems, called Alipay, similar to PayPal in the US. Alibaba operates several marketplaces similar to eBay (which no longer operates in China) that provides a platform for millions of merchants to sell their goods. Taobao specializes in listings from consumers and small businesses. Tmall serves a platform for the sale of highquality products from Chinese and international brands. Alibaba also runs Alibaba.com, the leading B2B site in China, focusing on sales of industrial parts, chemicals, and maintenance goods, as well as 1688.com, focused on wholesale sales within China.

As in the United States and Europe, China is experiencing rapid growth in “click and collect” commerce where consumers purchase goods or services online, and then pick up the products in physical store, or consume the service offline. This is sometimes also referred to as “Online-2-Offline” or “O2O.” Food delivery and restaurant meals are the most commonly purchased services. This category also includes hotel and room reservations (similar to Airbnb), travel, transportation, and other services. O2O also includes purchasing retail goods online and picking them in local physical stores and drop-off points. Much of the rapid growth of O2O in China, and elsewhere around the world, is due to the widespread adoption of mobile devices and payment systems. Growth of O2O is most rapid in urban areas and is dominated by younger online consumers.

continued .

LEARNING TRACK 1.2 GLOBAL E-COMMERCE 2021: CHINA

3

SOCIAL E-COMMERCE AND PAYMENT SYSTEMS IN CHINA

S

ocial networks are playing an increasing role in China’s e-commerce growth. According to eMarketer, over 97% of Internet users in China (over 890 million people) regularly used social networks in 2020. The key to Chinese social networks is their evolution from mobile messaging apps into full-fledged social networks where users can post and share usergenerated content, and which provide other functionality like payment services and crowdsourced reviews. Access to U.S. and Western social networks is severely restricted or illegal in China, so Facebook, Twitter, Pinterest, and other popular U.S. and EU services are not available. In their place, China has developed its own social networks.

WeChat (owned by Tencent) is both China’s largest mobile messaging service as well as its top social network, with over 705 million users in 2020. WeChat expanded from being a messaging service to a full-fledged social network for sharing photos (Moments), transferring money to individuals or institutions (WeChat Pay), paying for content both offline (tickets) and online (streaming music), utility bills, and shopping. Weibo (Sina Weibo) is another popular social network, with 410 million users in 2020.

ONLINE PAYMENT SYSTEMS

W

hile mobile platforms play an important role in online payment systems in China, large retailers and banks also have their own online payment systems. Alipay (owned by Alibaba) is the most popular online payment system and accounts for over 55% of the total online payment market in China. Nearly all online users with a cell phone account have the app. The second-largest online payment provider is Tencent, which offers WeChat Pay and TenPay. Alipay and WeChat Pay can also be used as mobile wallets for offline transactions at restaurants, theaters, and retail merchants.

M-COMMERCE

M

-commerce in China in 20120 generated almost $1.9 trillion in revenue, growing almost 35% from the previous year. To put this in perspective, m-commerce accounted for 82.5% of all e-commerce sales in China in 2018. Around 30% of Millennials (those born after 1990) are estimated to make eight or more smartphone purchasers per month.

continued .

LEARNING TRACK 1.2 GLOBAL E-COMMERCE 2021: CHINA

CROSS-BORDER E-COMMERCE

A

libaba, as well as its big Chinese competitors, such as JD.com, are also selling more imported goods to Chinese online shoppers. Cross-border e-commerce generated over $150 billion in revenue in 2020, with an estimated 37% of digital buyers in China making at least one cross-border purchase.

China’s cross-border digital purchasing, as with e-commerce in general in China, is growing so rapidly in part because of growing disposable income, expansion of Internet access in rural and ex-urban areas, and international payment systems making it convenient and safe to purchase overseas goods and brands. Total cross-border retail ecommerce purchases are expected to grow to over $220 billion by 2024. The United States and Japan are the most popular sources of e-commerce cross-border purchases, especially for consumers seeking quality, and brand recognition.

CONCLUSION

C

hina’s e-commerce is expected to continue growing at faster rates than other regions of the world, driven by rapid expansion in disposable income, large unserved populations outside of urban areas, expanding college attendance levels, and closer integration with digital economies in Europe and North America.

SOURCES: Reuters, “China to Leapfrog U.S. as World’s Biggest Economy by 2028: Think Tank,” Reuters. com, December 25, 2020; eMarketer, Inc. “Cross-Border Retail Ecommerce-China,” December 2020; Retail & Ecommerce Sales, by Country,” December 2020, “Digital Buyers, by Country,” December 2020, “China Ecommerce”, by Ethan Cramer-Flood, June 10, 2020; “China’s Online-to-Offline Behemoth Pulls $4 Billion in Fresh Funds,” eMarketer, Inc., October 20, 2017; “Millennials in China Have an Outsized Impact on Ecommerce Spending,” eMarketer, Inc., December 19, 2016; “China’s Millennials : Understanding the Post-80s and Post90s Generation,” by David Peter Green, eMarketer, Inc., December 2016.

.

4

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

CHAPTER 1: THE REVOLUTION IS JUST BEGINNING LEARNING TRACK 1.3 GLOBAL E-COMMERCE 2021: LATIN AMERICA

G

rowth in the number of Internet users in Latin America, like in other areas of the world, has slowed, but continues to incrementally increase. In 2020, there were over 400 million users, an increase of about 2% over 2019,and second in terms of total number of users behind Asia-Pacific. Broadband penetration, however, still lags below the world average. Insufficient competition and inadequate bandwidth have kept broadband prices beyond the means of much of the population, which faces persistent poverty. What’s more, many inhabitants of rural and mountainous regions have yet to experience passable fixed-line connectivity.

Fully cognizant of the socio-economic importance of widespread broadband access, governments and telecommunications companies throughout Latin America have been launching various initiatives aimed at expanding service. Nations that have committed to some type of broadband expansion plan include Brazil, Chile, Argentina, Colombia, Costa Rica, Ecuador, and Uruguay. The plans vary in scope and implementation, many going so far as to target universal access.

As the fundamental infrastructure needed to support e-commerce continues to take shape, countries across the region have reached varying stages of e-commerce market development. Mexico, Brazil and Argentina are leading the way. Most South American countries are significantly ahead of their Central American neighbors. Two factors driving growth across the region are decreasing costs for mobile broadband and the widespread popularity of social networks. Over 50% of the population uses a mobile device to access the Internet.

According to marketing research firm eMarketer, over 87% of Latin American Internet users frequent social networks, with Facebook topping the list, followed by Instagram, Twitter, and Snapchat. Brazil has the highest number of social network users in the region (around 130 million), and the fourth-highest number of social network users worldwide, behind China, India, and the United States, and it is third worldwide in terms of the number of Facebook users, behind the United States and India (Facebook does not operate in China).

continued .

LEARNING TRACK 1.3 GLOBAL E-COMMERCE 2021:

LATIN AMERICA

Brazilians use social media to research products, discover new merchandise, seek discounts, and increasingly, to make purchases, with about 25 million doing so in 2020. Social media in Brazil is therefore a key driver of e-commerce. Around 30% of Brazilian Internet users like and follow retailers to find sales, promotions, and special offers. Facebook has become a key tool for developing brand loyalty.

Online video content is also extremely popular, driving potential consumers online. Thus, between government and telecom initiatives and the popularity of social networks and video content, future prospects for e-commerce in Latin America are bright. According to eMarketer, retail e-commerce sales in Latin America reached almost $85 billion in 2020, growing by over 35% and are expected to reach over $130 billion by 2024. In 2020, m-commerce generated about 40% of all retail e-commerce sales in Latin America, leaving mich room for growth, considering that worldwide, m-commerce generated about 65% of retail e-commerce sales.

Mexico is now the largest Latin American market for e-commerce, vaulting over Brazil in 2019, with Mexico’s retail e-commerce sales growing by 35% compared to Brazil’s 14% growth rate. Mexico generated about $26 billion in retail e-commerce sales in 2020, another major increase (27%) from the previous year. There are over 80 million Internet users in Mexico, second only to Brazil in Latin America, and constituting about 63% of the population.

Internet usage grew by about 2% in 2020, similar to other areas in the region, with increasing smartphone adoption rates and expanding 4G cell service a significant factor. There are over 23 million digital buyers in Mexico, representing just about 35% of Internet users and only 24% of the population, leaving much room for growth. The move toward retail e-commerce was initially slower in Mexico compared to other Latin American markets such as Brazil and Argentina, but is now on the upswing, with the number of digital buyers expected to increase to over 28 million by 2024. MercadoLibre, a regional online marketplace, is the top retail e-commerce site, followed by Amazon and Walmart.

However, the growth of e-commerce in Mexico still faces signficant challenges, including an underdeveloped logistics infrastructure, low credit card adoption rates, and rampant income inequality, as a large percentage of the population still languishes below the proverty line, with little disposable income to spare, stalling technology adoption.

Brazil, with the largest number of Internet users, had the second-highest online sales, accounting for about 30% of the region’s purchases (about $25 billion). Around 35% of Latin America’s digital buyers are from Brazil. These 67 million consumers represent 55% of Brazil’s Internet users and about 40% of the populationl. An emerging middle class with more disposable income and continued growth in the number of users are expected to propel continued Brazilian retail e-commerce gains. Digital marketplace MercadoLibre (available in continued .

2

LEARNING TRACK 1.3 GLOBAL E-COMMERCE 2021:

LATIN AMERICA

both Spanish and Portuguese) is the most popular retail ecommerce platform in Brazil, with apparel and accessories the most popular products purchased.

Argentina has superior infrastructure and high Internet penetration, and logged around $6.8 billion in retail e-commerce sales in 2020, about 8% of the region’s total. Retail e-commerce sales are expected to increase to about $9.2 billion in 2024, driven in part by improvements in distribution and delivery. Argentinians engage in both webrooming (browsing online and then buying offline) and showrooming (browsing offline and then buying online). Showrooming is particularly popular for clothing purchases. Consumers can try on different styles and sizes in bricks-and-mortar fitting rooms and then purchase online at the lowest priced competitor.

Around 17 million Argentineans (around 65% of Internet users in Argentina and about 50% of the population) were digital buyers in 2020, and this number is expected to increase to around 19 million by 2024. High Internet penetration, lots of room for expansion in converting current and new users to online consumers, and increasing credit card adoption fare also expected to lead to continued retail e-commerce sales growth through 2024.

Internet penetration has rapidly expanded in Argentina, to over 73% of the population in 2020.

Moreover, online buyers cross socio-economic boundaries in Argentina more so than in any other Latin American country. Almost half of low-income adults with Internet access have made an online purchase. Although digital marketplace MercadoLibre is the leading retail ecommerce platform in Argentina, followed by eBay, more Argentinian retailers are entering the marketplace. Over 35% of small and medium-sized enterprises (SMEs) now sell online. Travel purchases such as airline and train tickets and hotel reservations top the products bought by Argentinians online. Consumer electronics are the second most frequently purchased followed by home products and appliances.

While Latin America has significant hurdles to overcome before its e-commerce sector can fully blossom, government support, telecommunication company investment, mobile growth, and increased consumer demand for online content are combining to position the region for substantial growth in the next five years. As logistics infrastructure and online payment systems develop and mature to meet a growing middle class in some nations, engagement with e-commerce, electronic payments, and mobile broadband will flourish. Countries such as Columbia, where a public-private partnership, Plan Vive Digital, focused on extending optical fiber access across the country, should help drive regional numbers as sales growth slows to single digits in established markets like Brazil. Medellin, Columbia has emerged as a global technology hub, attracting tech companies, training centers, and new innovative startups. It is developments such as this that are expected to make e-commerce in Latin America increasingly successful over the next five years.

.

3

LEARNING TRACK 1.3 GLOBAL E-COMMERCE 2021:

LATIN AMERICA

SOURCES: eMarketer, Inc, .”Social Buyers, Brazil,” January 2021; “Retail & Ecommerce Sales, by Country,” and “Digital Buyers, by Country,” December 2020; “Social Network Users, by Country,” October 2020;” “Internet Users,

by Country,” April 2020. .

.

4

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

CHAPTER 6: E-COMMERCE MARKETING AND ADVERTISING LEARNING TRACK 6.1: BASIC MARKETING CONCEPTS

M

arketing describes the strategies and actions firms take to establish a relationship with a consumer and encourage purchases of its products or services. The key objective of Internet marketing is to use the Web and mobile platform—as well as traditional channels—to develop a positive, long-term relationship with customers (who may be online or offline) and thereby create a competitive advantage for the firm by allowing it to charge a higher price for products or services than its competitors can charge.

Marketing directly addresses the competitive situation of industries and firms, seeking to create unique, highly differentiated products or services that are produced or supplied by one trusted firm (“little monopolies”). There are few, if any, substitutes for an effectively marketed product or service, and new entrants have a difficult time matching the product or service’s feature set (the bundle of capabilities and services offered by the product or service). When successful, these little monopolies reduce the bargaining power of consumers because they are the sole sources of supply; they also enable firms to exercise significant power over their suppliers.

Marketing is designed to avoid pure price competition and to create markets where returns on investment are above average, competition is limited, and consumers are willing to pay premium prices for products that have no substitute because they are perceived as unique.

Marketing encourages customers to buy on the basis of nonmarket (i.e., nonprice) qualities of a product. Firms use marketing to prevent their products and services from becoming commodities. A commodity is a good or service for which there are many dealers supplying the same product and all products in the segment are essentially identical. Price and delivery terms are the only basis for consumer choice. Examples of commodities include wheat, corn, and steel.

FEATURE SETS

A

central task of marketing is to identify and then communicate to the customer the unique, differentiated capabilities and services of a product or service’s feature set. A product or service can be describe as having three levels: core, actual, and augmented.

continued .

LEARNING TRACK 6.1:

BASIC MARKETING CoNCEPTS

Core product: The core product is at the center of the feature set. The core product is the primary benefit the customer receives from the product, and it may be a nonphysical benefit, such as status or convenience. If product is a generic wristwatch, the core product would be the ability to tell the time. If it were a platinum Rolex, the core product would be to confer status.

Actual Product: The actual product is the physical product itself and the set of characteristics that deliver the product’s core benefits. In the case of a cell phone like Apple’s iPhone, the actual product is a cell phone and music player with a wide screen that connects through wireless networks to the Internet. It comes with the Apple name and with certain features and capabilities, such as high-speed network connectivity, a large screen for web browsing, design elegance, extraordinary packaging, and selected utility programs. A key marketing activity is to identify the actual features of the cell phone that differentiate it from those of other manufacturers.

Augmented product: The augmented product comprises the additional nonphysical benefits to customers beyond the core benefits embodied in the actual product. In the case of the iPhone, the augmented product includes a standard one-year warranty, an available AppleCare Protection Plan that extends the warranty and support for an additional year, iPhone support web pages, and other after-sale support. The augmented product forms the basis for building the iPhone brand (a process known as branding) described next. The augmented product is the foundation for the product brand.

BRANDS AND BRANDING

W

hat makes products truly unique and differentiable in the minds of consumers is the product’s brand. A brand is a set of expectations that a consumer has when consuming, or thinking about consuming, a product or service from a specific company. These expectations are based in part on past experiences the consumer has had actually using the product, on the experiences of trusted others who have consumed the product, and on the promises of marketers who extol the unique features of the product in a variety of different channels and media.

The most important expectations created by brands are quality, reliability, consistency, trust, affection, loyalty, and ultimately, reputation. Marketers create promises, and these promises engender consumer expectations. The promise made by cosmetic manufacturers to consumers is: “If you use this product, you will perceive yourself to be more beautiful.” In the case of Apple’s iPhone, marketers have artfully created expectations among users for superb industrial design, quality construction, and unique products. The Apple iPhone brand connotes to iPhone owners a cool, hip, technologically advanced style of life. Consumers are

continued . for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

2

LEARNING TRACK 6.1:

BASIC MARKETING CoNCEPTS

willing to pay a premium price for Apple iPhones not only because of the augmented product features, but also because of these brand expectations.

As mentioned earlier, a key activity of branding is to identify the differentiating features of the actual and augmented product. With a product’s feature set in hand, marketers engage in a variety of marketing communications activities to transmit these features to the consumer.

Based on the consumers’ experiences and the promises made by marketers in their communications, consumers develop expectations about a product. For instance, when a consumer purchases an Apple iPhone, he or she expects to receive a unique, high-quality, very easyto-use smartphone. Consumers are willing to pay a premium price in order to obtain these qualities. If iPhones do not in fact perform according to these expectations, the brand will be weakened and consumers will be less willing to pay a premium price. In other words, a strong brand requires a strong product. But if iPhones do perform according to expectations, then customers will feel loyal to the product; they will purchase again or recommend it to others; and they will trust, feel affection for, and ascribe a good reputation to both the product and the company that makes it.

Ideally, marketers directly influence the design of products to ensure the products have desirable features, high quality, correct pricing, product support, and reliability. When marketers are able to directly influence the design of a core product based on market research and feedback, this is called closed loop marketing. While ideal, it is more often the case that marketers are hired to “sell” a product that has already been designed. As discussed in the text, e-commerce offers some unique opportunities to achieve closed loop marketing.

In branding, marketers devise and implement brand strategies. A brand strategy is a set of plans for differentiating a product from its competitor and communicating these differences effectively to the marketplace. In developing new e-commerce brands, the ability to devise and develop a brand strategy has been crucial in the success and failure of many companies.

What kinds of products can be branded? According to many marketing specialists, there is no limit. Every product can potentially be branded. Sneakers that make you soar from Nike, cars from Volvo that make you feel safe on dark rainy nights, shirts from Ralph Lauren that make you appear as if you were on the way to a country club—these are all examples of products with extraordinary brand names for which consumers pay premium prices.

How much is a brand worth? Brands differ in their power and value in the marketplace. In addition to being seen as a set of associations that consumers have about products, and representing customer loyalty and attachment, a brand also has value as a corporate asset.

Brand equity is the estimated value of the premium customers are willing to pay for using a branded product when compared to unbranded competitors. According to Interbrand’s continued . for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3

LEARNING TRACK 6.1:

BASIC MARKETING CoNCEPTS

2020 Best Global Brands ranking, the top five brands and their estimated equity value are Apple ($322 billion), Amazon ($200 billion), Microsoft ($166 billion), Google ($165 billion), and Coca-Cola ($57 billion). Brand equity also affects stock prices insofar as brands strengthen future revenue streams, and insofar as brands are intangible assets that have a market value.

There are several methodologies used to calculate brand value, but this discussion is beyond the scope of this Learning Track.

ARE BRANDS RATIoNAL?

C

oca-Cola is one of the most enduring, powerful brands in U.S. commercial history and is the only non-tech company in the top six global brands. The core product is colored, flavored, carbonated sugar water. The augmented branded product is a delightful, refreshing, reputable, unique-tasting drink available worldwide, based on a secret formula that consumers are willing to pay up to twice as much for when compared to unbranded grocery store cola. Coca-Cola is a marketing-created micro-monopoly. There is only one Coke and only one supplier. Why would consumers pay twice as much for Coke compared to unbranded cola drinks? Is this rational?

The answer is a qualified yes. Brands introduce market efficiency by reducing the search costs and decision-making costs of consumers. Strong brands signal strong products that work.

Brands carry information. Confronted with many different drinks, the choice of Coke can be made quickly, without much thought, and with the assurance that you will have the drinking experience you expect based on prior use of the product. Brands reduce consumer risk and uncertainty in a crowded marketplace. Brands are like an insurance policy against nasty surprises in the marketplace for which consumers willingly pay a premium—better safe than sorry.

The ability of brands to become a corporate asset (to attain brand equity) based on future anticipated premiums paid by consumers also provides an incentive for firms to build products that serve customer needs better than other products. Therefore, although brands create micro-monopolies, increase market costs, and lead to above-average returns on investment (monopoly rents), they also introduce market efficiencies for the consumer.

For business firms, brands are a major source of revenue and are obviously rational. Brands lower customer acquisition costs and increase customer retention. The stronger the brand reputation, the easier it is to attract new customers. Customer acquisition costs refer to the overall costs of converting a prospect into a consumer, and include all marketing and advertising costs. Customer retention costs are those costs incurred in convincing an existing customer to purchase again. In general, it is much more expensive to acquire a new customer than to retain an existing customer. For instance, Reichheld and Schefter calculated that e-commerce sites lose from $20 to $80 on each customer in the first year because of the continued . for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

4

LEARNING TRACK 6.1:

BASIC MARKETING CoNCEPTS

high cost of acquiring a customer, but potentially can make up for this loss in later years by retaining loyal customers. In some instances, however, e-commerce companies have gone out of business before they ever reached that point.

A successful brand can constitute a long-lasting, impregnable unfair competitive advantage.

A competitive advantage is considered “fair” when it is based on innovation, efficient production processes, or other factors that theoretically can be imitated and/or purchased in the marketplace by competitors. An “unfair competitive advantage” cannot be purchased in the factor markets and includes such things as patents, copyrights, secret processes, unusually skilled or dedicated employees and managers, and, of course, brand names. Brands cannot be purchased (unless one buys the entire company).

BRAND LoNGEVITY

B

rands do not necessarily last forever, and the micro-monopolies they create may not be stable over the long term. In a study of brand endurance, Golder et al found that half of the leading brands studied across sub-samples of different eras and category types lost their brand leadership positions in periods ranging from 12 to 25 years, and that once market leadership is lost, it is very rarely regained. Some brands that have disappeared in the last several years include Blockbuster, Borders Books, Bear Stearns, Merrill Lynch, and Lehman Brothers.

Life at the top is sweet, but often short, and market efficiency is restored long-term as entrepreneurs exploit new technologies and new public tastes at a faster rate than the incumbent market leaders.

THE MARKETING MIX

I

n formulating a marketing plan, marketers bring together a variety of tactics, often referred to as the product’s marketing mix. A marketing mix refers to the variety of controllable product features and marketing and sales tactics that can be used to create and sell a product. Selling a product at the lowest price and via the biggest distributor is no guarantee that the product will sell. The goal is to use the most effective marketing mix in order to reach the right customer at the right time and with the right message.

There are several models used to help formulate a product’s marketing mix, each of which outlines the major decision-making areas. The most widely known are the Four P’s, the Seven P’s, and the Four C’s. Other models typically expand upon these.

continued . for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

5

LEARNING TRACK 6.1:

BASIC MARKETING CoNCEPTS

The Four P’s

Originally outlined by E. J. McCarthy in the 1960s, the Four P’s are: Product (or Service), Place, Price, and Promotion. ◆

◆

◆

◆

Product refers to the features and benefits of the product: its quality, image, branding, features, versions, support, customer service, etc.; in short, all of the features related to the customer having and using the product.

Place refers to all of the elements related to distributing the product: when, where, and how the product will be sold.

Price refers to the pricing strategy for the product, and elements in determining the price of a product include not only the product’s value and demand, but competitor’s prices, the sensitivity of the customer to the product’s price, and discounting strategies.

Promotion refers to the decisions involved in advertising and marketing the product, such as the type, length, and channels or media used for advertising.

The Seven P’s (Extended Marketing Mix)

The Four P’s model was expanded by Bernard Booms and Mary Jo Bitner in 1981 to include elements geared to marketing services (although some marketers consider these factors as included in the Four P’s). ◆

◆

◆

People refers to all of the organization’s staff who can impact the customer’s use and perception of the product or service, from call-center support personnel to the skill of waitstaff at a restaurant.

Processes refers to the activities involved in delivering the product’s benefits to the customer, such as credit-card processing or handling customer support.

Physical evidence refers to all of the physical evidence related to purchasing the product or service, from a store’s layout to a certificate of ownership.

The Four C’s

In 1990, Robert Lautenborn reformulated the Four P’s marketing mix model to reflect the customers’ point of view: ◆

Customer needs and wants (from Product)

◆

Cost to the customer (from Price)

◆

Convenience (from Place)

◆

Communication (from Promotion)

. for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

6

LEARNING TRACK 6.1:

BASIC MARKETING CoNCEPTS

SOURCES: Interbrand, “Best Global Brands,” accessed January 12, 2021; “The Marketing Mix and 4 Ps: Understanding How to Position Your Market Offering,” MindTools.com, accessed January 18, 2016; Peter N. Golder, Julie R. Irwin, and Debanjan Mitra, “Long-Term Market Leadership Persistence: Baselines, Economic Conditions, and Category Types,” Marketing Science Institute, Working Paper No. 13-110, April 2013; Jim Blythe, Key Concepts in Marketing (Sage Publications, 2009); Fiona EllisChadwick, Richard E. Mayer, Kevin James Johnston, Internet Marketing: Strategy, Implementation and Practice (Prentice Hall/Financial Times, 2009); .

. for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

7

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

CHAPTER 6: E-COMMERCE MARKETING AND ADVERTISING LEARNING TRACK 6.2 CONSUMER BEHAVIOR MODELS

C

onsumer behavior models seek to predict the wide range of decisions that consumers make on the basis of background demographic factors, and on a set of intervening, more immediate variables that shape the consumer’s ultimate decisions.

Background factors are cultural, social, and psychological in nature. Firms must recognize and understand the behavioral significance of these background factors and adjust their marketing efforts accordingly. Culture is the broadest factor in consumer behavior because it shapes basic human values, wants, perceptions, and behaviors. Culture creates basic expec tations that consumers bring to the marketplace, such as what should be bought in different markets, how things should be bought, and how things should be paid for. Generally, culture affects an entire nation, and takes on major significance in international marketing. For instance, an American-style e-commerce site that sells cooking spices might have difficulty in an Asian culture such as China or Japan, where food and spice shopping takes place at local neighborhood markets, large food stores do not exist, and shoppers tend to pick out and smell each spice before purchasing it.

Within nations, subcultures are extremely important in consumer behavior. Subcultures are subsets of cultures that form around major social differences such as ethnicity, age, lifestyle, and geography. In the United States, ethnicity plays a very large role in consumer behavior.

In 2019, there were an estimated 60 million Hispanics with a total annual purchasing power of also about $1.7 trillion, 47 million Black Americans with an annual purchasing power of about $1.4 trillion, and around 20 million Asian Americans with a total purchasing power of about $1.2 trillion. Each of these ethnic groups represents a significant market segment that firms can target. For instance, Toyota was one of the first automotive manufacturers to use the Internet to target Hispanic customers. Toyota places online advertisements on Spanish language portals such as MSN Latino, Yahoo en Español, and Univision to direct Hispanic customers to its Toyota.com Spanish-language website. A number of major retailers, such as Best Buy, Lowe’s, and Home Depot, have Spanish-language websites as well. Among the important social factors that shape consumer behavior are the many reference groups to continued .

LEARNING TRACK 6.2 CoNSumER BEHAvIoR modELS

2

which all consumers “belong,” either as direct participating members, or as indirect members by affiliation, association, or aspiration. Among the more powerful intervening variables are the social networks and communities to which a person belongs and which invariably send market stimuli. In the offline face-to-face world, these groups are referred to as direct reference groups and include one’s family, profession or occupation, religion, neighborhood, and schools. In the online world, these groups are simply referred to as online social and profes­ sional networks and communities to which consumers belong. Indirect reference groups include one’s life-cycle stage, social class, and lifestyle group (discussed later). In the online world, an analog would be celebrity blog and news sites, commentary sites of all sorts, fashion sites, and fan sites where consumers tend to be consumers of content and iden­ tify with the content and activities at the site. Online social networks are important for under­ standing how viral marketing works on the Internet.

Within each of these reference groups, there are opinion leaders (or viral influencers, as they are termed by online marketers), who because of their personality, skills, or other factors, influence the behavior of others. Marketers seek out opinion leaders (so-called influentials) in their communications and promotional efforts because of their presumed influence over other people. Some have argued that these “influentials” are about 10% of any population and directly influence the other 90% in the population. For instance, many websites include testimonials submitted by successful adopters of a product or service. Generally, those giving the testimonials are portrayed as opinion leaders—“smart people in the know.” At Procter & Gamble’s website, for example, testimonials come from “P&G Advisors,” who are consumers who take an active interest in Procter & Gamble products.

The concept of “influentials,” while intuitively attractive, may not in fact describe how or why viral messages spread across the Web. A counterview is that the “Like” buttons on websites are not very powerful in influencing brand identification or sales because they spread messages from one person to another regardless of their social position in a network.

A unique kind of reference group is a lifestyle group, which can be defined as an integrated pattern of activities (hobbies, sports, shopping likes and dislikes, social events typically attended), interests (food, fashion, family, recreation), and opinions (social issues, business, government). Lifestyle group classification systems—of which there are several—attempt to create a classification scheme that captures a person’s whole pattern of living, consuming, and acting. The theory is that once you understand a consumer’s lifestyle, or the lifestyles typical of a group of people—such as college students, for instance—then you can design products and marketing messages that appeal specifically to that lifestyle group. Lifestyle classification then becomes another method of segmenting the market.

continued . for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

LEARNING TRACK 6.2 CoNSumER BEHAvIoR modELS

In addition to lifestyle classification, marketers are interested in a consumer’s psychologi­ cal profile. A psychological profile is a set of needs, drives, motivations, perceptions, and learned behaviors—including attitudes and beliefs. Marketers attempt to appeal to psycho­ logical profiles through product design, product positioning, and marketing communications.

For instance, many health e-commerce sites emphasize that they help consumers achieve a sense of control over their health destiny by providing them with information about diseases and treatments. This message is a powerful appeal to the needs of a wealthy, educated, professional, and technically advanced set of online users for self-control and mastery over what might be a complex, health-threatening situation.

Marketers cannot influence demographic background factors, but they can adjust their brand­ ing, communications, and firm capabilities to appeal to demographic realities. For instance, the National Basketball Association’s website, NBA.com, appeals to a variety of basketball fan subgroups from avid fans interested in specific team statistics, to fashion-conscious fans who can purchase clothing for specific NBA teams, to fans who want to auction memorabilia.

. for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

CHAPTER 6 E-COMMERCE MARKETING AND ADVERTISING LEARNING TRACK 6.3: BLOGGING FOR BUSINESS

T

he genesis of the blog can be traced to personal journals published on the Open Pages webring as early as 1994. News “weblogs” began appearing several years later.

By 1999, blog hosting sites such as Open Diary, SlashDot, LiveJournal, Pitas.com, and Blogger.com (which can be considered a forerunner of Twitter) were making the online publishing process accessible to a wider, less technically savvy contingent. How-To manuals and journalism school research heralded the blog’s entrance into the mainstream in 2001.

The precursor to the corporate blog is the “What’s New” or “News” page, still a feature of many websites, on which items of note are posted in reverse chronological order. Technology leaders Microsoft and Macromedia launched the first corporate blogs in 2002. By 2003, 30 to 40 Microsoft employees were regular bloggers. This grew to several hundred the following year, the same year in which Merriam Webster announced “blog” as its Word of the Year. By 2005, advertisers were spending approximately $100 million on blog ads, and the benefits of corporate blogging were already well-recognized.

Understanding that a well-tended blog could position a company as a thought leader and provide a forum for positive news, managers directed bloggers to post market segment exper tise, product guidelines, and consumer tips. In an environment in which customer feedback was valued, negative product or company reviews could be efficiently dispatched. What’s more, the process of fashioning blog posts encouraged teamwork, communication, and inno­ vative thinking among employee contributors. Most persuasively, corporate blogs were proving fruitful at customer relationship building, word-of-mouth advertising, and driving website traffic.

Most well-established companies host company blogs on their own websites, while smaller businesses often choose a blogging platform such as WordPress, Blogger, or Live Journal.

Keywords are your next hurdle. Think about what visitors would be searching for on Google that would direct them to your blog. What problem does your product or service solve?

Compose three- to four-word phrases using industry-specific and geography-specific terms, if applicable. These long tail keywords can also consist of technical terms, rarely used rele­ vant words, and precise, but little-known words. Long tail keywords are more easily ranked continued .

LEARNING TRACK 6.3:

BLoGGING FoR BUSINESS

2

and thus more likely to land your site on the first search results page. Head terms are the opposite—more common, more popular, and more frequently searched. The head terms will account for most visits to your website. The long tail keywords each contribute only a small amount of traffic, but there are many of them. In order to maximize website traffic, you will have to spend some time figuring out the long tail keywords that people use to find your site.

Make a list of your keywords and phrases. When you begin posting, use these phrases in posts that educate visitors and explain how your product can meet their needs. The more posts you compose, the more indexed pages there are for search engines to locate. Busi­ nesses that blog 16 to 20 times per month receive more than double the traffic of those that post four times or less per month. Compose a post for each keyword and phrase. Invent titles that use these brand and market-segment specific terms. Avoid sales-oriented posts. Blog­ ging is most effective as a marketing tool when you offer expertise and knowledge. However, do explain how your product outstrips its competitors.

Your goal is to keep visitors engaged long enough to entice them into a call-to-action (CTA).

For example, you can offer a free download of a guide or e-book or invite them to attend a webinar. When they respond, you will capture their e-mail address and other identifying infor­ mation. CTAs are often placed in the blog sidebars. Clickable banners for your most popular offers can also be placed in different parts of the blog. The body of a blog post is not off limits. Contextual CTAs can link a word or phrase in the post to its corresponding offer.

Whether a single company blog is sufficient, or whether you should have multiple blogs is dependent on your audience. If you have several niche audiences with distinct needs, sepa­ rate blogs may be necessary. Start with a single blog, segregated into content categories based on the keywords in each post. Regular, frequent blogging will drive diverse audiences to your content.

Finding new topics to blog about is a constant challenge. You can answer questions frequently posed by customers, explain how a product or service functions, or outline its advantages vis-à-vis its competitors. You can also review trends in your market segment or industry, interview subject matter experts, and conduct price comparisons. Reviewing inter nal communications often uncovers topics that can be tweaked into blog posts. After remov ing any confidential material, you may have an engaging post that highlights your company persona by appearing to divulge its inner workings. Key marketing, advertising, or customer service employees can be recruited to list questions they encounter from customers in the course of a day. This will result in blog topics galore. Circulate a document between depart ments to troll for suggestions, encouraging coworkers to build on one another’s ideas. Orga nize brainstorming groups and invite group members to guest blog. Rather than interview

continued . for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

LEARNING TRACK 6.3:

BLoGGING FoR BUSINESS

ing subject matter experts, invite them to guest blog to expand their audience and raise their SEO. Finally, if you are going to provide links to external articles, proper organization, or content curation, is essential. Thoroughly vet all material to select the most worthwhile and relevant pieces for each topic. Save your readers time by presenting a coherent, focused collection.

Curating also enables you to develop relationships with industry leaders and other bloggers.

Always obtain permission and credit your sources.

In order to increase website traffic and generate leads, you must blog regularly. This may mean several times a week, or once daily, depending on how many new visitors it takes to garner the requisite number of leads. Once you acquire a readership, it is important to blog on a schedule so that followers know when to check back. A content calendar can help you to schedule posts that target a specific keyword so that you can analyze the results. Alter­ nating between brief, trendy posts and more substantial topics is another sound strategy.

Every blog post should be furnished with buttons so that it can be shared on Twitter, Face­ book, and LinkedIn. A photograph, infographic, comic, or other type of image should accom­ pany each post. Catchy blog titles are crucial. Keep headline length between eight and ten words. Tell readers precisely what the post will teach them how to do, what they will learn, or how many tips they will get. Effective headlines convince the reader that a topic is significant, useful, or newsworthy. Current research, new product launches, or a hint of controversy will attract readership. Search engine optimization that maximizes lead generation will generate increased website sales.

SOURCES: An Introduction to Business Blogging,” by Magdalena Georgieva, HubSpot, accessed January 12, 2021; “7 Ways Businesses Benefit from Blogging,” by Ron Leiback, Searchenginejournal.com, August 19, 2020; “How to Create an Award-Winning Business-To-Business Blog,” by Lisa Alloca, Forbes.com, December 5, 2017; “The Early Years,” by Clive Thompson, New York Magazine, February 20, 2006; “The Rise and Rise of Corporate Blogs,” CNN, December 20, 2005; “A Brief [and Subjective] History of Corporate Blogging at Microsoft,” by Korby Parnell, MSDN Blogs, May 20, 2005.

. for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

CHAPTER 7: SOCIAL, MOBILE, AND LOCAL MARKETING LEARNING TRACK 7.1 SOCIAL MEDIA MARKETING: FACEBOOK

H

aving a company Facebook page has quickly evolved from an option to a requirement.

Businesses now use it to post hours of operation and other basic information, promote press releases (which are linked to the company Facebook page), announce new partnerships or community events in which it is participating, facilitate word-of-mouth advertising, elicit customer feedback on both current and forthcoming products and services, direct product development, showcase merchandise, drive website traffic, and run contests. Facebook contests, whether proffered directly from your wall or through a specialized Facebook app, are a popular method for expanding your community. Even after attrition (as long as you do not overuse them), contest entries usually net an increase in followers.

Beyond connecting with customers, Facebook is used to recognize employee accomplishments, awards, and even birthdays, making it a potent employee retention tool as well as a customer acquisition and retention tool. A temporary tab can be created to house details for an upcoming event. This easily shared location can serve as your event coordination headquarters. Event-day questions posted by participants either on your wall or in your Twitter stream can be answered by your social media event planner in both locations. Facebook events can be created for local community service activities in which your company is participating. Persuading your customers, business partners, and other local merchants to participate in charitable giving, park cleanups, walkathons, etc. is a public relations boon that will garner you loyal supporters. You can also incorporate a software service such as MailChimp to add a simple e-mail sign-up form and create an e-mail newsletter to send to your most ardent fans.

Facebook also has a smartphone app with which users can check-in to local businesses. You can offer a discount to customers when they check-in for the first time and build a customer loyalty program around app use, rewarding specific check-in milestones.

To create a Facebook business page, you must first have a Facebook profile. To start creating the page on a desktop computer, either go to your Facebook home page, select Create and then choose Page or go to: https://www.facebook.com/pages/creation. The first step is continued

.

LEARNING TRACK 7.1 SoCIAL MEdIA MARKETING: FACEbooK

2

to fill in the Page Information that Facebook requires: Page name, Category, and Description. The Page name which should be the name of your business, brand, or organization, or a name that explains what the Page is about. Category describes the type of business, organization, or topic that the page represents. Begin by typing and Facebook will automatically generate a list of possible categories. When you choose a category, Facebook suggests a template for the Page layout, with tabs and sections customized to fit the category. For instance, if you select a category that involves the sale of products, Facebook will provide a shopping template. You can always change the template later. After you have chosen the business type and category and entered any additional information, select Continue. Next, you are prompted to either upload or import a profile picture. This is the icon that will accompany all of your posts on Facebook. For a company or brand, this is generally your logo. The profile picture displays in the shape of a circle at 170 x 170 pixels on desktop computers, 128 x 128 pixels on smartphones, and a thumbnail size of 32 x 32 for status update posts, so make sure that it looks good in all sizes. The next step is to choose a cover image, which will display at 820 x 312 pixels on a desktop computer, and 640 x 360 pixels on a smartphone.

The image must be at least 400 pixels wide and 150 pixels high. The image you use for your cover photo should exemplify the image you and your company want to convey. You will also need to select a Page username, which will appear below the profile picture and with any posts.

After you decide whether to set up paid advertising (enable ads), your Facebook page appears. It has a menu bar that includes several tabs, including Messages, Notifications, Publishing Tools, Settings, and Help. Once your page has at least 30 people that follow it, an Insights tab that provides Facebook Page analytics will also appear. This menu bar (the Admin Panel) is visible only to Page administrators. The Messages tab enables you to check private messages from followers. The Notifications tab provides a quick look at your page’s most recent activity. The Publishing Tools tab allows you to see published posts, as well as posts you have scheduled to appear at a later time. The Settings tab contains a number of useful tools. It enables you to modify the general settings for the page (including managing the permissions of what people can and can’t do), edit the information that appears on the page, manage notifications, set and modify the Page administrators, edit the settings for any apps installed on the page, see suggested edits, see details about the various way you can post to the page from a mobile device, and also view an activity log that shows all the activity on the page.

Use the Call-to-Action button to create a call-to-action for your fans to help them learn more about your business or take some action. Options include Book Services, Get in Touch, Learn More, Make a Purchase or Donation, and Download App or Game, each with their own alternatives. The Call-to-Action button allows you to link to an external landing page. continued . for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

LEARNING TRACK 7.1 SoCIAL MEdIA MARKETING: FACEbooK

After you publish your finished page, you are ready to begin posting. While varying your posts to keep the content fresh and appealing, keep in mind the demographics of your audience.

What do they want or expect from you? Post updates, blog links, and images that provide value and will be of interest to your audience, and encourage them to share your updates.

To highlight a post by extending it horizontally across the page, hover the cursor in the upper right corner of the entry and click the star button. Use this to magnify posts that announce new products, coupons, special promotions, or CTAs. Click the Edit button (pencil icon) to either pin a story to the top of your Timeline (which you can do for up to seven days) or to hide it. Pinning a story to the top of your Timeline is another way of highlighting it so that more recent updates do not overshadow it.

You can also create a special post called a Milestone to highlight company achievements such as a certain number of Likes, a product release, or an award. Facebook has found that posts that include images or videos generate up to double the response rate of text status updates, and the Timeline format is particularly conducive to the use of visual content.

Charts, infographics, and comics are formats that can concisely and engagingly convey complex information.

However, your social media staff’s most important task is monitoring users’ posts, not creating content. While responding to every fan comment is not necessary, it is important to demonstrate that you are engaged, accessible, and caring. Ignoring a negative post can be downright destructive. The attrition rate, commonly referred to as the churn rate, measures the number of members leaving a group. It can spike as high as 15% following an improperly handled response. This statistic highlights the importance of having social network policies in place and employees dedicated to the task. Just because you have the option to delete posts does not mean that you should employ it. Posts that can be clearly identified as trolling can either be ignored or quickly deleted, but criticisms that have merit must be responded to with candor, admission of guilt when appropriate, and by outlining the steps that will be taken to remedy the problem. Sometimes, after an appropriate public response has been posted, you can take a conversation with a disgruntled customer to private messages to bring it to resolution.

Finally, once you have 30 fans, use the Insights tab to monitor your Facebook page activity. The Insights tab has several different dashboards. The first is Overview, which, as its name suggests, provides an overview of page likes, post reach, and engagement in the form of charts. The Likes dashboard provides further data on page likes. The Reach dashboard provides statistics on post reach, likes, comments, and shares. The Visits dashboard provides information on the number of page and tab visits and other page activity. The Posts dashboard provides data on the performance of different types of posts based on reach

. for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3

LEARNING TRACK 7.1 SoCIAL MEdIA MARKETING: FACEbooK

and engagement, and details on the most recent posts on your page’s Timeline. The People dashboard provides demographic information on fans, people reached, people engaged, and check-ins, with aggregated data on gender, age, country, city, and language. Because social media operates at such an accelerated pace, analyze the impact of your content on a daily basis. Once you know how many people like your page, how many friends they have (your total reach), and the ratio of how many people were actually reached to your total reach, you can set your Marketing department analysts to work dissecting which types of content are and are not working. The goal is to expand your reach thereby creating more opportunities to turn Facebook fans into leads that you may then be able to convert into customers. The more you can engage current friends in your content, the better chance you have of attracting more fans, thus increasing the number of leads you garner from your Facebook business page.

SOURCES: “How to Create a Facebook Page to Grow Your Business,” Facebook.com, accessed January 12, 2021; Christina Newberry and Dara Fontein, “How to Create a Facebook Business Page in 7 Easy Steps,” Hootsuite.com, February 10, 2020; Christina Newberry, “Facebook Analytics and Insights: A Guide for Beginners,” Hootsuite.com, January 20, 2020.

. for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

4

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

CHAPTER 7: SOCIAL, MOBILE, AND LOCAL ADVERTISING LEARNING TRACK 7.2 SOCIAL MEDIA MARKETING: TWITTER

I

n the years since its inception, Twitter has evolved into a potent customer relationship management and marketing tool. Partially supplanting traditional means such as trade shows and networking events, it is used to follow leads and prospect for customers. By developing Twitter relationships with industry leaders, journalists, bloggers, and top customers, businesses can harvest product development ideas and develop brand advocates.

Disseminating news, offering promotions, and responding to customer service requests, be they explicit demands or implicit calls to action, are all tasks that can be adapted to the Twitter format.

As with any channel that you may be using for the first time, there is a learning curve. While some advice is cross-channel, developing effective Twitter communications requires commitment and the adoption of clear policies and metrics for measuring success. Integration into your overall marketing and customer service strategies begins with creating an account that accurately captures the image you want to portray. Company and individual employee accounts can both be used to good effect. Your company account will publicize events and company news, provide product updates, promote blog posts, and deliver immediate feedback and updates at conferences and trade shows. Moreover, it will serve as your primary Twitter customer service center. A personal account for a key marketing person is better for liaising directly with the public, forming personal relationships with customers and business partners, and expanding your network of contacts. This person can reveal appropriate personality traits and discuss tangential events and topics that bolster your company’s image as well as update the network about projects he or she is overseeing.

Company usernames, or handles, should simply be your brand name and should not include any underscores. Underscores are a breach of Twitter social norms and will make your company look uninformed and unhip. Likewise, including numbers in your Twitter handle imparts the impression that you are mired in turn-of-the century Internet convention.

Company representatives should use their full name, not an arbitrary handle. Rather than immediately choosing accounts to follow, after you create your company account your next task should be to construct the profile. The Who to Follow link can be accessed at any time continued .

LEARNING TRACK 7.2 SoCIAL MEdIA MARKETING: TwITTER

2

later. Twitter is integrated with Gmail, Hotmail, Yahoo, AOL, and LinkedIn so that people in your address book or network of contacts who have a Twitter account can be automatically contacted and invited to follow you. To customize your profile, go to your Profile page (http:// twitter.com/USERNAME) and use the Edit profile button to upload header and profile photos.

Also on the Profile page, enter your full company name, location, and company Web site URL. If you do not have a Web site, you can enter the address for a company blog, Facebook page, LinkedIn page, or dedicated Twitter landing page. A dedicated landing page is designed to drive traffic to your company Web site. It can include information similar to the About page on your Web site. In the Bio section, you have 160 characters in which to sell your company to potential followers. Include what you sell, your position within your market segment, perhaps a brief description of your industry, and items of note such as company achievements, community service, or upcoming projects and special events. You can also pin a tweet to your Profile page.

In your Security and privacy settings, make sure the Protect my Tweets box is not selected.

This would make your Twitter stream private, hiding your updates from everyone but your followers and defeating the purpose for creating your Twitter account. You want others to be able to see your tweets, become intrigued, and become your followers. Company updates are public announcements.

You should customize the background of your profile to visually trumpet your company persona and the product or service you sell. Keep in mind that attracting new prospects is your primary goal. When designing your background image, make sure to leave space at the top to accommodate the Twitter toolbar. The columns on the left and right hand side of the page adapt to the size of the browser window, so design the background for smaller monitor sizes and do not tile the image. The background image will be left-aligned. Links are traditionally placed in the left column, and you should have ample room for a company description and company logo.

You can also add a header image and cover photo. Because you can use a larger image, cover photos expand your ability to display your brand’s personality. Your company description can be included here, rather than in the left column, along with your username and a bio for an individual account. Calls-to-action- (CTAs), links that send users to an action page, are often included in a header image along with text to educate followers about a specific social media campaign.

After you have set up your profile and inserted a background image, your account will no longer appear inactive. Now you are ready to send your first tweet. Having a professionallooking page set up before you begin tweeting and following people will ensure that you are not automatically rebuffed as a possible spammer. Initial tweet topics include links to special continued . for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

LEARNING TRACK 7.2 SoCIAL MEdIA MARKETING: TwITTER

3

offers, recent company blog articles, or conferences or webinars your company is hosting.

You can also tweet links to useful content from external sources, retweet some else’s pertinent post, or simply post a status or picture from your workplace. After many years of being limited to 140 characters for each tweet, Twitter dropped the 140-character limit in 2017, extending it to 280 characters in English and most other languages.

Adding accounts to follow populates your Twitter stream with their status updates. This in turn allows you to learn what people you are following are interested in and who they are following and interacting with. If you provide information of value to them, they will likely decide to follow you back, and you will begin to build your network. Use the Who to Follow link to find trending topics or enter keywords related to your business or industry to find pertinent businesses and individuals to follow. Use Twitter Search to find people who are tweeting about topics relevant to your company. After people begin following you, look at who they are chatting with by watching the @replies. These may reveal people who would be beneficial for you to follow. You can also collect Twitter handles at conferences and events (attendees often prominently display them on their name tags) and follow hashtags (#) that have been created around an event. Hashtags are combined with words, acronyms, and phrases to create tags within tweets to aggregate a conversation around a particular topic. Prominent bloggers within your market segment may have a link to their Twitter account on their blog page.

Following leaders in your industry is always a good idea.

Although you may be enthusiastic about building a productive network and cognizant of the fact that this will require an investment of time, do not be overhasty. Adding about 25-50 accounts to follow per day is a good practice in order to ensure that the people you select have time to reciprocate. You want viewers to see a favorable ratio of those you are following to those who are following you in your profile. Lopsided ratios with many less followers can be negatively construed to mean that others have decided you are not worth following. Your total number of followers is referred to as your Twitter reach.

In order to extend your Twitter reach, make sure your usernames are easy to find. If your company has a number of individual accounts, create a page that lists all of their handles.

Twitter Follow buttons should be placed on your company website and company blogs.

You can either use the Follow button generator provided by Twitter or you can create your own button and link it to your Twitter page. Gaining followers is dependent upon the value you provide. Do not rely solely on promoting your brand. Think of Twitter like a newsletter— provide useful links and items of interest. If you are following people who are not yet following you back, engage them and comment on their tweets. Giving positive feedback and compliments motivates people to follow you.

continued . for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

LEARNING TRACK 7.2 SoCIAL MEdIA MARKETING: TwITTER

To reference another Twitter user and direct a tweet towards them, use @USERNAME anywhere in the post. These are the @replies that you should be monitoring from your followers. Each @reply is a link to that user’s profile, making it simple to view and chat directly with that person. To send a direct message (DM) that will not be included in your Twitter stream, click the Messages link in the top navigation bar. DMs can only be exchanged between users who are following one another, can be much longer than tweets (up to 10,000 characters), and are stored in the Messages tab on the Twitter toolbar.

In order to make Twitter an effective tool for driving traffic to your Web site you must offer unique content in addition to coupons or special offers. Monitoring your account will require time and almost certainly a third-party software tool. People tweeting about your products must be engaged. If your product can meet the needs or solve the problem of a tweeter, he or she must be discovered and contacted. Tweets complimentary to your company should be aggregated in the Favorites list (hover the cursor over the tweet and click the star, turning it yellow). Use Twitter Search regularly to mine for public posts to add. Create hashtags to promote company events and solicit signups. Share industry knowledge, advice, and guidelines to build your bona fides. Your customer service team must ensure that each tweet pertinent to their task is assigned a case number, a status, a priority level, and a dedicated representative. Negative tweets cannot be allowed to fester or multiply. Followers must observe that you are accessible, responsive, and desirous of building a satisfied customer base. All of this will require dedicated policies and procedures that are integrated with your marketing, customer service, and advertising departments as well as analytics systems to measure success. Only then can Twitter’s full potential as a CRM and marketing tool be realized.

SOURCES: Isabelle Hahn, “The Ultimate Guide to Using Twitter for Business in 2020,” Blog.hubspot.com, accessed January 12, 2021; Ashley Grant, “How to Use Twitter for Business,” Godaddy.com, May 19, 2020; “How to Use Twitter for Business,” Hubspot.com, 2021; Jenn Chenn, “Twitter Tips for Small Businesses,” Sproutsocial.com, November 14, 2018..

. for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

4

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 1

The Revolution Is Just Beginning

case 1.1

The Importance of the Internet for E-commerce

watch the video at

https://www.youtube.com/watch?v=zQjaqn5BqfQ

summary In this video, you will learn more about the fundamental technology powering e-commerce and its role in serving and retaining customers. L: 2:46

case

The Internet is one of the fundamental technologies powering all of e-commerce.

Defined as a worldwide network of computer networks built on common standards, the Internet has become the foundation for all business in the modern world. Sending and receiving e-mail, completing financial transactions, purchasing retail goods, reading the news, and countless other tasks are now performed using the Internet.

The Web is often mentioned synonymously with the Internet, but the two things are not the same. The Internet is a collection of computer networks, but the Web is a service that allows users to access information available on those networks, such as web pages. The Internet before the Web was used for text communications similar to instant messaging, file transfers, and remote

continued .

1.1: The Importance of the Internet for E-commerce

2

computing; the Internet after the Web opened up a world of new possibilities in addition to these baseline functions.

More than a billion computers and wireless devices are connected to the Internet at any given point in time, and many of these devices belong to businesses of all shapes and sizes. The Internet, and by extension, the Web, have become indispensable for practically every business because of its importance in serving and retaining customers. Increasingly, the first impression of a business that a prospective customer will have is on the Web. If a company’s website is fast and easy to use, customers will quickly be impressed. But if a company’s site is slow and information is difficult to locate, it will lose prospective customers just as fast.

While the Internet and the Web are two of the fundamental technologies behind e-commerce, the third pillar is the mobile platform. As wireless networks have improved and as smartphones and tablets have become more powerful and multifunctional, the mobile platform has usurped the desktop as the most common way to access the Internet and use the Web. But even on the mobile platform, web applications are still commonplace. As the video describes, an overwhelming majority of businesses consider web applications critical to their ability to serve and retain mobile customers.

As the Internet has grown in size and activity, companies that specialize in the distribution of computing power and content have filled the growing needs of Internet users. One such company is Akamai, which posted the video used in this case on its YouTube channel. Akamai is a cloud services provider and operator of a content delivery network used by nearly every Fortune 500 company with a global Internet presence. Akamai maintains servers around the world and offers space on those servers to companies hoping to optimize their website speed by distributing content from areas closer to each user. The continued growth of the Internet is a boon to Akamai’s bottom line.

video case questions

1. What are some examples cited in the video as to how a customer might use the Internet on a typical morning?

2. Why is a company’s web presence important for attracting and retaining new customers?

3. According to the video, how important are web applications?

.for the use of

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 1

The Revolution Is Just Beginning

case 1.2

The Growth of the On-Demand Economy

watch the video at

https://www.youtube.com/watch?v=2ZBfd66-LYU

summary As Uber and Airbnb continue to grow and showcase the strength of the on-demand economy, a slew of other companies have emerged offering practically any service or product you can think of on demand, using only an app. In this video, the co-founder of BloomThat, an on-demand flower delivery service, discusses his experience in this fast-changing new area of e-commerce. L: 6:14.

case

The growth of the on-demand economy is one of the most disruptive trends in e-commerce today. Ride service Uber and a slew of other companies providing similar on-demand, app-based services have risen to prominence in recent years

continued .

1.2: The Growth of the On-Demand Economy

2

and many more of these companies are on the way. Room rental service Airbnb is perhaps the best known example of these companies apart from Uber. Others include Lyft, a competitor to Uber in on-demand transportation, Instacart, a grocery shopping service, Washio, a laundry service, and GreenPal, a lawn mowing service. There are companies offering on-demand services for medical marijuana delivery, dog walking, alcohol delivery, veterinarian visits, and many others. In this video, Matthew Schwab, co-founder of BloomThat, an on-demand flower delivery service, describes his views on the on-demand economy and how his business fits in.

Since 2010, these and similar firms have garnered over $26 billion in venture capital funding, and that number is only going to increase as smartphone users become more comfortable with using these types of services. Starting an on-demand service platform requires very little overhead—once these companies develop their app platforms, freelancers provide nearly all of the legwork. In general, these services focus on under-utilized assets, including cars, spare rooms, and the spare time of contract workers, and create efficiencies based on making use of these assets.

Many critics of these services worry that as the on-demand economy grows and more work becomes freelance and temporary, more secure, full-time jobs will shift to part-time, poorly paid jobs with no benefits. As stated in this video, 3.2 million people performed labor involved in on-demand delivery services in 2015, and that number is expected to more than double to 7.6 million by 2020. Also, many of these services, including Uber and Airbnb, have raised major regulatory issues that are still ongoing. Existing taxi services believe Uber needs to obey the rules and regulations put in place to govern the taxi industry, and landlords believe that Airbnb should be scrutinized more closely as well.

On-demand e-commerce is a subgenre of local e-commerce, which is focused on engaging consumers at their current geographic location. For the time being, many of these companies have struggled to find profitability, even Uber and Airbnb. But each of these companies is hoping to develop sufficient size and scale that they will become profitable over time. Uber and Airbnb are also hoping that the expenditures they incur on legal fees and changing regulations

continued

Copyright © 2022 Kenneth C. Laudon and Carol Guercio Traver. This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

1.2: The Growth of the On-Demand Economy

3

will at some point decrease significantly, allowing the natural profitability of their business model to take over.

Many of the companies springing up in the on-demand economy are likely to die out if the problem they are “solving” simply isn’t important enough to consumers.

In Schwab’s opinion, many more people would send flowers if it were easier to do.

If he’s right, BloomThat has a bright future.

video case questions

1.

Why did BloomThat opt to partner with existing delivery services like UPS rather than use local deliverers or florists?

2. Compared to other on-demand companies, what type of regulatory hurdles does BloomThat face?

3. What level of delivery speed is most important to BloomThat customers, according to Schwab?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 2

E-commerce Business Models and Concepts

case 2.1

Glossier

watch the video at

https://www.youtube.com/watch?v=TxAOWaAsD3k

summary Direct-to-consumer beauty brand Glossier’s CEO Emily Weiss discusses her company at length in this interview. L: 6:03

case

Glossier is a beauty company founded in 2014 by Emily Weiss, a former fashion blogger and assistant at Vogue. In 2010, Weiss created her blog, Into The Gloss, to expose readers to the beauty regimens of some of the fashion industry’s most widely recognized people. The blog was successful enough that she subsequently decided to launch her own beauty company, Glossier, with just four different products and $1 million in venture capital. By just five years later, Glossier had raised $100 million in funding at a valuation of $1.2 billion and by 2020, had raised nearly $200 million in total to date.

At 33 years old, Weiss is part of the Millennial generation that is extremely comfortable with social media. Weiss herself has over 540,000 followers on Instagram, and Millennials and the Gen-Z generation comprise a significant portion of Glossier’s customer base. Glossier uses social media extensively to market its products, eschewing more traditional advertising formats, and the continued

.

2.1: 

2

strategy has worked, with the company’s revenue jumping to around $160 million in 2019. The company has expanded far beyond its initial four products to full lines of skincare, makeup, body, and fragrance products. Glossier’s Instagram page has 2.7 million followers, and Into The Gloss remains active with an extremely engaged readership that records two million unique visitors per month.

Like many other startup companies like Dollar Shave Club and Warby Parker, Glossier also offers its customers extremely low prices thanks to its direct-toconsumer business model. The model enables the company to avoid the markups associated with placing their products in department stores and prominent beauty chains like Sephora. In the past, Glossier had opened just three physical locations (New York, Los Angeles, and London) and used pop-up shops to build brand awareness without the overhead costs required to maintain a retail space over the long term. However, in 2020, in the wake of the Covid-19 pandemic, it closed its physical stores to focus solely on its online channel.

Glossier also uses minimalist packaging and design features that keep costs low, though the company is looking into launching a line of higher-end products to compete with luxury beauty brands. Despite the company’s low price point, celebrities as prominent as Beyoncé have used Glossier products at events like the Grammys. Expect Glossier to continue growing and disrupting the beauty industry going forward.

1. What percentage of women does Weiss suggest buy new beauty products due to peer recommendations? Do these recommendations need to be faceto-face from a friend?

2. According to Weiss, what is the core value of Glossier as a company and how does this differ from traditional beauty brands?

3. What is the price range of Glossier’s product line and how does it compare to other beauty brands?

4. Does Glossier pay celebrities to endorse their products? Why or why not?

5. What does Weiss mean when she says that Glossier’s brand and brands of the future will be “co-created”?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 2

E-commerce Business Models and Concepts

case 2.2

Angel Investing

watch the video at

https://www.youtube.com/watch?v=40ra9LtmKfM

summary Angel investors are key to the growth of new companies. Here, Elizabeth Crowell, of the angel investing group eLuminate, discusses how entrepreneurs can find and work with angel investors. L: 16:47.

case

While angel investors for online startups are a hot topic today, angel investors have actually been key to economic development for much longer, and for all types of industries. In fact, without angel investors, few companies would make it past the startup stage and to the venture capital investment stage, let alone private equity or IPO funding. Companies that found early funding through angel investors include Home Depot, Microsoft, Amazon, and Best Buy. Although individual angel investments are far smaller than venture capital investments, angel investments overall contribute similar amounts to the economy as do venture capitalists. And the importance of startups to the economy can’t be overstated: Startup companies are key to job creation.

Angel investors do more than just provide cash. They are typically experienced business professionals and entrepreneurs, and also mentor a startup, serve as continued

.

2.2: Angel Investing

2

board members or executives help develop relationships with venture capital firms, and more.

Today, angel investment has become a trend in the arena of individual investing; and angel groups and networks have formed to take a professional approach to startup investment. In an angel network, members work as a team in screening deals, valuating firms, and due diligence (research, reporting, firm assessments).

However, compared with individual investors, they are typically much slower to act, requiring more time to manage the investment process.

video case questions

1. What types of people are angel investors, and how are they different from venture capitalists?

2. Explain Angel math and the 10X formula 3. Why is it recommended that a startup exhaust all other forms of investment before turning to angel investors?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 3

E-commerce Infrastructure: The Internet, Web, and Mobile Platform

case 3.1

How Freshdesk Uses Amazon Web Services

watch the video at

https://www.youtube.com/watch?v=oZJJr7P7uNs

summary In this video, you will learn how Freshdesk, a startup company, used Amazon Web Services’ cloud services to build its online helpdesk platform. L: 2:50 case

Freshdesk is a cloud-based platform that offers Software as a Service (SaaS) solutions for common customer service functions, such as automated handling of customer support tickets, maintenance of community forums, live chat support and phone support, and an automatically updated knowledge base that converts common customer service responses into permanent articles. Businesses sign up for one of several payment plans depending on their budgets and needs, ranging from as low as $15 per month to pricier plans for businesses with more significant customer service demands.

Founded in 2010, Freshdesk has found a niche among companies requiring a customer support platform that could scale along with their growth. Along with competitors Zendesk and Salesforce.com’s Desk.com, Freshdesk has experienced rapid growth, reaching over 150,000 customers as of 2019. As an SaaS-based continued

.

3.1: How Freshdesk Uses Amazon Web Services

2

platform, Freshdesk realized that it made more sense to move its own operations to the cloud than to invest heavily in its own in-house infrastructure. So while thousands of companies are now relying on Freshdesk for their customer service software, Freshdesk itself relies on Amazon Web Services (AWS) to house its software platform.

When Amazon revamped its retail computing infrastructure over the course of several years starting in 2003, it also had the idea to sell access to its virtual servers to other companies in need of computing power. Today, AWS has grown far beyond that initial idea, offering a full suite of remote computing services that are distributed across 11 geographical regions across the world to maximize availability and speed. AWS data and applications are stored redundantly in multiple regions to ensure uninterrupted uptime. The most well known AWS service is the Elastic Compute Cloud (EC2), which offers virtual computing power to customers to run their own computer applications. Customers pay by the hour for the computing power they use and select the geographical location that optimizes speed.

Amazon’s own flagship retail website is also housed on EC2 and is fully powered by other AWS services. AWS also includes products for databases, networking, security, analytics, mobile services, deployment and management, enterprise applications, and more.

When Freshdesk decided that it would use the cloud to power its software platform, it selected AWS over competing services like Google Compute Engine and Microsoft’s Windows Azure Virtual Machines. AWS appealed to Freshdesk because of its wide variety of services, its rapid scalability, and its pay-as-yougo payment plan. AWS Enterprise Support also helped Freshdesk minimize its costs further by picking the most efficient services for operating its platform. For Freshdesk, that meant Amazon Redshift database services and Amazon OpsWorks deployment and management services.

Amazon Redshift is one of Amazon’s data warehouse services. The primary selling points of Redshift are its scalability, its ability to seamlessly integrate with all of the major business intelligence tools needed to run queries on and analyze the data it contains, and its built-in encryption feature. Building a data warehouse is a challenging task, requiring expensive investment and in-house infrastructure and staff. Scaling the system to grow as the business grows is also challenging.

Freshdesk preferred to use Redshift for its data warehousing needs for these reasons. continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3.1: How Freshdesk Uses Amazon Web Services

3

As with the rest of AWS’ offerings, payment for Redshift is pay-as-you-go, with options to commit to full years of service for a discount. There are also options for type of storage. Dense Storage (DW1) nodes allow for very large data warehouses using hard disk drives. Dense Computer (DW2) nodes allow for higher performance with large amounts of RAM and solid-state disks. DW1 nodes are more costeffective, but DW2 nodes are better for performance. Scaling is as easy as updating the number of nodes in your Redshift console.

Redshift houses Freshdesk’s data, but Amazon OpsWorks manages its software applications, the cornerstone of Freshdesk’s business. OpsWorks is an application management service that allows companies to use Amazon’s computing resources to deploy and run their applications. Coding and operating applications is a complicated, time-intensive task. OpsWorks minimizes the effort required for Freshdesk to maintain its customer service applications. With OpsWorks, Freshdesk can use Amazon’s application servers and databases, and use simple tools to manage application deployment, software configurations, software package installations, and database setups.

OpsWorks offers more convenience tool than other Amazon offerings like CloudFormation or EC2, at a cost of some customizability. But it also offers more customizability than Amazon’s Elastic Beanstalk service, which is intended to simplify the application deployment process as much as possible. Freshdesk opted for OpsWorks to maintain control of its applications, while allowing Amazon to manage many of the tasks relating to the operation and deployment of the applications. An increasing number of businesses are turning to remote computing services on the cloud to reap benefits like these.

video case questions

1. Why was Freshdesk a good candidate for remote computing services on the cloud?

2. What was Freshdesk’s experience working with AWS? 3. What made Amazon Redshift and OpsWorks good fits for Freshdesk?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 3

E-commerce Infrastructure: The Internet, Web, and Mobile Platform

case 3.2

Compare.com Turns to Microsoft Azure and the Cloud

watch the video at summary

case

https://www.youtube.com/watch?v=WauhfUKpmUQ

More and more companies are turning to public cloud providers like Microsoft for their computing needs. See how one such company, insurance comparison site Compare.com, got results from switching to Microsoft Azure. L: 2:35

Many of the largest tech firms, including Google, Apple, Amazon, and Microsoft, have spent hundreds of millions of dollars to improve their information technology infrastructure. Now, these companies offer computing power to businesses of all shapes and sizes, from other Fortune 500 companies to small businesses looking to harness a small portion of the computing power of these tech giants.

Companies offering processing, storage, networking, and other computing resources to individual businesses or customers are said to offer ‘infrastructure as a service’ (IaaS), following in the footsteps of other models, such as software as a service (SaaS). Foremost among these companies is Amazon. Amazon continued

.

3.2: Compare.com Turns to Microsoft Azure and the Cloud

2

Web Services (AWS) offers a variety of services that span all major functions of a business. Amazon’s Elastic Compute Cloud (EC2) is the most popular feature of AWS. EC2 allows businesses to purchase exactly the amount of computing power that they need from Amazon. AWS’s Simple Storage Service allows businesses to store data using Amazon’s always-on network of data storage servers. Amazon also offers many analytical tools and services that perform simple business tasks, such as e-mail and database services. Microsoft Azure, featured in the video, is another widely used platform, with an array of similar capabilities for businesses.

For a smaller company, using the tech giants’ existing infrastructure and built-in business services is much easier than developing their own internal systems from scratch. More and more businesses are turning to Amazon, Microsoft, and its peers in the public cloud computing marketplace, cutting costs and improving scalability in the process. AWS is the dominant player in this area. It isn’t just small companies, either—Netflix relies heavily on AWS, as do other large organizations like Nike, Pfizer, and Airbnb. Microsoft Azure is in a commanding second place position.

Prominent organizations using Azure include Pearson, Ford, and NBC News.

Microsoft and Amazon have been competing fiercely to lower their prices. Microsoft Azure may be a better option for companies with significant investment in other Microsoft technology and services, whereas Amazon may better suit companies willing to take extra time and effort to create a setup that exactly corresponds to their computing needs. For most companies, both cloud providers are good choices, and in each case companies can look forward to having an experienced partner as they move to the cloud.

Since its launch in 2010, Microsoft Azure has grown rapidly. Azure’s services fall in three classes—infrastructure services, platform services, and software as a service. Azure’s infrastructure services include virtualization capability for both Windows and Linux operating systems as well as cloud data storage via Microsoft Azure StorSimple. Customers pay only for the computing power they need. Azure’s platform services allow users to develop and distribute apps for Android, iOS, and Windows that use the cloud. Lastly, Azure offers software as a service in several ways. Azure powers all of Microsoft’s Office 365 applications, which are cloudbased versions of Microsoft’s flagship Office series of programs. Azure also allows customers to run Windows Intune management software and Dynamics CRM software, among many other options.

continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3.2: Compare.com Turns to Microsoft Azure and the Cloud

3

In this video, you’ll learn more about the experiences of Compare.com, an insurance comparison website, as it switched from a physical infrastructure to a cloud-based computing infrastructure using Microsoft Azure.

video case questions

1. Why is Compare.com’s Web site critical to their business? How does Compare. com work?

2. How much did Compare.com save on its infrastructure costs after switching to Azure?

3. How did Microsoft help Compare.com ease into their transition to Azure?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case case 3.3 watch the video at summary

case

Facebook’s Data Centers https://www.youtube.com/watch?v=_r97qdyQtIk

Businesses today run on the Internet, and the Internet runs on data centers.

Today, data centers might be more accurately called business centers.

Data centers drive nearly every aspect of many businesses, especially ones with a significant online presence like Facebook. But data centers are significant users of expensive electricity to cool their servers, and they make a significant contribution to pollution and global warming. Cloud data center operators are using a variety of new techniques to become more efficient in their use of electricity. L: 8:20

Consumers of technology constantly demand devices that are smaller, more efficient, and more powerful than the ones they have. But most consumers don’t understand the massive back-end infrastructure that powers their “front end” continued

.

3.3: Facebook’s Data Centers

2

devices, like mobile phones, smartphones, tablets, and desktop computers.

Take, for example, smartphones and tablet computers. iPhones, Androids, BlackBerrys, iPads, and other tablets represent a trend in all forms of mobile technology towards smaller devices that perform an increasingly large number of functions. But every time a smartphone or tablet user connects to the Internet, places a call, or sends an instant message, it uses power not only on their phone, but at every step of the infrastructure used to perform that function. More often than not, data centers are intimately involved in any Internetbased communication.

In 2020, there were approximately 3 million data centers in the United States and around 7 million data centers of all sizes worldwide. The total number of data centers had been growing at around 15% a year but will likely begin to decline due to the growth of very large cloud mega-data centers. Because most data centers use air conditioning of one sort or another to keep operating temperatures of microprocessor chips within a safe range, they are significant contributors to pollution and global warming . Many data centers do not practice effective energy management and waste billions of kilowatt hours annually. The growth of cloud computing, in particular streaming of music, television, and movies, is expected to accelerate data center power consumption in the next ten years even as the number of data centers decline.

Data centers are growing not only in number, but also in sheer size. For instance, Facebook has a 1.1 million square-foot data center in Prineville, Oregon. The cost of running large data centers is a significant component of the overall IT budget of firms. There are two components to the energy cost of data centers: the cost of running the computers, and the cost of cooling them. For this reason, large-scale data center operators are seeking a variety of new ways to cool their servers.

Of all the Web sites in the world, Google and YouTube may get the most hits per day, but no site can top Facebook as far as raw traffic. Facebook is by far the “stickiest” of the top sites, meaning its users spend more time per visit there, so it’s reasonable to argue that no site has a greater need for a robust infrastructure than the social networking giant. With a mind-boggling 2.7 billion monthly active users as of 2020, Facebook faces computing demands that no other company has ever faced.

continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3.3: Facebook’s Data Centers

3

To manage this demand, Facebook has 17 data centers around the world.

Facebook has chosen locations that allow it to use environmental factors (such as cooling water from rivers, and cooler northern climates) to reduce the costs of cooling computers and to minimize their carbon footprint. Each location consumes roughly 30 megawatts of electricity. To ensure 100% uptime of the flagship Facebook site, each site has backup power. For example, the Oregon location has 14 diesel generators capable of 3 megawatts apiece in case of a power generation.

video case questions

1. Why does Facebook’s data center specialist argue that “The Internet is not a cloud?”

2. What are some of the techniques Facebook uses to cool its data centers?

3. Facebook had 2.7 billion users as of 2020. If Facebook continues to employ engineers at the same rate as stated in the video, how many engineers does Facebook have?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 3

E-commerce Infrastructure: The Internet, Web, and Mobile Platform

case 3.4

Smart Speakers: Amazon Echo and Google Home

watch the video at summary watch the video at

https://www.youtube.com/watch?v=FQn6aFQwBQU

Amazon introduces Echo, its voicecontrolled digital assistant. L: 2:53 https://www.youtube.com/watch?v=W8mOcd-ICWw

summar y Amazon illustrates the capabilities of the Amazon Echo Plus, a second generation Echo with smart home functionality. L: 1:00 watch the video at summary

https://www.youtube.com/watch?v=oy2y7rs2z64

Google shows how a family can use Google Home, its version of a voice-controlled digital assistant. L: 2:17 continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3.4: Smart Speakers: Amazon Echo and Google Home

case

2

Voice-controlled devices and utilities are growing more popular as smartphone and cloud technology become more robust. Amazon initially entered the fray with voice controls for its Amazon Fire TV technology.

Amazon’s Echo voice-controlled speaker and digital assistant (Alexa) raises the stakes even further. Echo was first released in 2015 to mixed but mostly positive reviews, which emphasized the future potential of the device. By 2017, the Amazon Echo had become the dominant voice-controlled device, with a 70% market share. In September 2017, Amazon introduced the Echo Plus, a version of the Echo that also has smart home functionality.

Echo is always on, and you can ask its digital assistant, Alexa, questions, have it play music, create a to-do list, or get the weather. Echo can also play a digest of the biggest news stories or play reports of specific issues that users ask to hear. The Alexa companion app allows you to customize settings, keep a record of your queries and the answers to those queries, and view the shopping and to-do list items that you’ve previously dictated to Echo. A developer’s kit allows developers to create Alexa apps (called Alexa Skills), which are likely to make it even more multi-functional in the future.

Echo was a move by Amazon to enter the voice-controlled technology space, but the Echo Plus also operates as a “smart home” appliance, which is another growing market. The Echo Plus functions as a “hub” that enables you to manage and connect with all of the smart appliances in your home in one centralized location.

It’s not clear how Amazon uses the information it gleans from users’ questions and commands, or whether there’s any capacity for storing things you say that aren’t directed at Echo itself. From Amazon’s perspective, the Echo is an invaluable new tool for learning more about its customers, with an ability to generate heaps of granular data about the routines and preferences of each individual user. On the other hand, privacy advocates have ample reason to be concerned about a device that can quickly transmit your every word to the cloud, where it can be stored along with the rest of Amazon’s trove of your personal information and used to make product

continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3.4: Smart Speakers: Amazon Echo and Google Home

3

recommendations and generate marketing materials. However, Amazon notes that any users uncomfortable with the collection of their data can simply go into their “History” using their Alexa app, and delete queries either individually or in bulk, which will also delete the information from Amazon’s servers.

Google introduced its entry into the smart speaker marketplace, which is named Google Home, in late 2016. Google Home uses an intelligent digital assistant that it calls Google Assistant (Google’s version of Amazon Alexa) and provides similar functionality to Amazon Echo and Alexa, including the ability to play music, control home devices, and provide information in response to verbal requests. Subsequent versions include the Google Home Mini, Google Home Max, and Google Home Hub. Although neither Amazon nor Google officially report sales of the Echo or Google Home, analysts believe that Amazon still maintains a dominant position in the smart speaker device market, although Google Home is beginning to make inroads. Apple has also entered the fray with its HomePod device, and other competitors such as Samsung and Facebook are also looming. At this point, there is no telling which device will emerge as the ultimate winner, ore even whether smart speakers will become even more of a staple in homes across the country than they already are. However, given the resources that Amazon, Google, and Apple have committed to the effort, its likely that they will become a part of everyday life in the future.

video case questions

1. What functionality does the first-generation Amazon Echo display during the video that introduced it?

2. What kind of technology does Amazon Echo use?

3. What might be some privacy concerns involving Echo? Are these well founded? Why or why not?

4. Why was releasing a developers’ kit for Echo important for Amazon to keep pace with services offered by Apple, Google, and Microsoft?

5. What are some of the smart home devices that Echo Plus can control?

6. What functionality does Google Home display during the video?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 4

Building an E-commerce Presence: Websites, Mobile Sites, and Apps

case 4.1

E-commerce Platforms: Salesforce Commerce Cloud

watch the video at summary

watch the video at summary

case

https://www.youtube.com/watch?v=6YPdqfBZoYo

PetSmart, an omni-channel retailer of pet products, discusses its experience using Salesforce Commerce Cloud. L: 3:08 https://www.youtube.com/watch?v=8rGesr2TviI

Rituals, a Dutch-based cosmetics company, discusses its experience using Salesforce Commerce Cloud. L: 2:22 In 2016, Salesforce.com, a cloud-based software company originally focused on customer relationship management, acquired Demandware, an e-commerce platform provider, for $2.8 billion and rebranded it as Salesforce Commerce Cloud. Salesforce Commerce Cloud is a highly scalable, hosted SaaS (software continued

.

.1: 

2

as a service) omni-channel e-commerce platform. Some of Salesforce Commerce Cloud’s strengths include its scalability, omni-channel capabilities (enabling merchants to unify e-commerce, order management and offline store operations), advanced merchandising functionality, including the ability to manage multiple product catalogs and complex product data, 1:1 level personalization functionality via its Einstein personalization engine, built in A/B testing capabilities, localization capabilities (including multi-language, multi-currency, and multi-store capabilities), and machine learning abilities.

As a SaaS solution, technology issues such as server maintenance, software updates, and other associated services are handled by Salesforce, rather than the merchant itself.

Companies using Salesforce Commerce Cloud, in addition to PetSmart and Rituals, include Adidas, the GAP, Brooks Brothers, GoPro, Converse, Godiva, New Balance, L’Oreal, among others.

Competitors include Magento Commerce (owned by Adobe), SAP Hybris, Oracle Commerce, Sitecore, Intershop, and Elastic Path, among others.

video case questions

1. Why did PetSmart switch to Salesforce Commerce Cloud?

2. PetSmart implemented Salesforce Commerce Cloud just prior to “Black Friday.” Why was this of concern to PetSmart?

3. What are the challenges that Rituals faces in translating its brand to the online channel?

4. How does Salesforce help Rituals meet these challenges

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 4

Building an E-commerce Presence: Websites, Mobile Sites, and Apps

case 4.2

National Kidney Registry Turns to Rackspace for Managed Hosting

watch the video at

https://www.youtube.com/watch?v=A6vvQLHylQc

summary For many organizations like the National Kidney Registry, outsourcing their site hosting and data storage tasks to a cloud provider is a better option than handling it themselves. In this video, you’ll learn about how Rackspace helped them fulfill this need. L: 1:34 case

For small and medium-sized businesses, outsourcing computing-intensive tasks like website hosting has always been an appealing option. Taking this approach allows those businesses to focus on their core competencies while other companies with site hosting and data storage expertise handle those tasks for them. In the past, outsourcing was too expensive for all but the largest companies, but options for site hosting and data management have never been more plentiful, thanks to the growth in, and reduced costs of, cloud computing. Prices range from a few dollars a month for very basic needs to hundreds of thousands of dollars per month for businesses with greater site traffic or data storage requirements. continued

.

4.2: NaTioNal KidNey RegisTRy TuRNs To RacKspace

2

The largest cloud computing providers are Amazon, Microsoft, IBM, and Google, all of which have the size and deep pockets to achieve economies of scale with their cloud platforms. These companies offer full arrays of cloud services for businesses, including website hosting. However, there are many smaller companies that specialize in specific areas of cloud computing, such as Rackspace. Founded in 1998 as an Internet service provider, Rackspace has become one of the largest website hosting companies in the U.S., and is competitive even with Amazon in its area of expertise, hosted private clouds or infrastructure as a service (IaaS). Rackspace routinely ranks among the top on lists of best companies to work for and is renowned for its commitment to highquality customer support, which it calls Fanatical Support.

Private clouds serve individual organizations, as opposed to public clouds, which rent space to large numbers of organizations simultaneously and offer less customizability. Rackspace offers dedicated servers, databases, storage capacity, and networking tools in a single-tenant, private environment. The security options for private clouds are also more appealing to organizations that prefer to have more direct control over their data and to use firewalls and other measures to limit the number of people who can access the organization’s data.

The National Kidney Registry (NKR) is an example of a company with unique security concerns who turned to Rackspace for its site hosting and data storage needs. The NKR is the largest paired exchange program for organ donors in the United States, connecting pairs of donors who would otherwise be incompatible because of differences in blood type or antibody. The NKR uses complex algorithms to determine potential matches, which may involve as many as 30 donors and recipients to find a swap that will lead to a successful match for all of the recipients. To date, the NKR has facilitated over 3,000 transplants.

video case questions

1. Why does the NKR outsource its data infrastructure and site hosting to Rackspace?

2. Which components of the NKR’s infrastructure is Rackspace responsible for managing?

3. What concerns do the hospitals have regarding the data housed by Rackspace?

4. How does Rackspace ease security concerns for donors, recipients, and participating hospitals?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 4

Building an E-commerce Presence: Websites, Mobile Sites, and Apps

case 4.3

Building a Mobile App

watch the video at summary

watch the video at summary

case

https://www.youtube.com/watch?v=fq4N0hgOWzU;

Flutter is Google’s open source mobile user interface (UI) framework/toolkit that enables developers to create native applications for both iOS and Android devices. This video provides an introduction to Flutter. L: 1:52 https://www.youtube.com/watch?v=kfd-oLypqFI

This video looks at how Posse, a New York development team, used Flutter to create a mobile app for the popular Broadway show, Hamilton. L: 2:36 In December 2018, Google announced that Flutter version 1.0, its open source

continued .

.3:

2

framework/toolkit for developing mobile apps for both iOS and Android devices, was now officially available. During the time that Flutter was in beta development, a number of companies, including Alibaba, Groupon, Tencent, and others, used it, as well as developers of the Hamilton app, as discussed in the second video.

Flutter is based on Dart, Google’s in-house programming language and also uses a number of other Google technologies and ideas, including Google Material Design, its design language, and a rendering engine based on the Skia Graphics Library, used by Chrome. Google believes that Flutter will help developers overcome the traditional limitations of cross-platform approaches by enabling a “code once” environment. By using Google’s Material Design and an external widget catalog, Flutter enables developers to easily create user interfaces that match the design and brand experience desired for the mobile app.

There are a number of other cross-platform development environments available for mobile apps, including Microsoft’s Xamarin, Facebook’s React Native, Corona SKD, JQuery Mobile, and Iconic, among others.

video case questions

1. How is Flutter able to be used to create native applications for both iOS and Android devices?

2. What does stateful “hot reload” functionality allow?

3. How long did it take to develop the Hamilton app?

4. What is some of the functionality offered by the Hamilton app?

5. What were some of the advantages to using Flutter?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 5

E-commerce Security and Payment Systems

case 5.1

Cyberwar

watch the video at summary

watch the video at summary

https://www.youtube.com/watch?v=MXWyQZ-2qB8

These videos explore the ever-more concerning issue of cyberwarfare, the subject of Chapter 5’s opening case.

The first video, from CNBC, focuses on how governments can defend against cyberattacks, highlighting the notorious cyberwar attack on Estonia and the steps the Estonian government has taken to prevent new attacks. L: 4.44 https://www.youtube.com/watch?v=1_WMxJgafTM

The second video, from PBS, focuses on U.S. cyberwarfare deterrence operations.

L: 6:12

continued .

5.1:

2

case

In recent years, cyberwar has left the realm of science fiction and has become the cold, hard reality of the modern age. Every statistic having to do with the increase in frequency and size of cyberattacks is on the rise. In 2016, the much-publicized intrusion into the United States presidential election became one of the most influential cyberattacks to date, and the WannaCry worm’s spread throughout government agencies in the United States, Great Britain, Europe, and Asia proved that most organizations lack the necessary cybersecurity to guard against cutting-edge malware. Hackers continue to target private companies as well, including credit reporting agency Equifax in 2018, leading to the release of the personal data of 148 million U.S. consumers. But unlike past examples of warfare, the online battlefield doesn’t just belong to the strongest nations, although the U.S., China, and Russia are all actively engaged in both offensive and defensive cyberwar efforts.

As described in the first video, Estonia was the victim of a coordinated cyberattack in 2007 that brought the heavily-digital country to its knees. As a result, the country is now boasts one of the most comprehensive cybersecurity programs of any nation, despite its tiny size. Other smaller nations such as North Korea also have built powerful cyber capabilities, which was on display when Sony was hacked in response to their provocative movie The Interview, whose eventual release was delayed and number of screenings dramatically reduced.

Between bot networks, DDoS attacks, Trojans, phishing, ransomware, data theft, identity theft, credit card fraud, and spyware, there’s no shortage of ways for cybercriminals to make an impact online. However, the difference between these types of attacks, which can be extremely annoying to the victims and have major implications for e-commerce, and the next wave of cyberattacks, which have the potential to damage or destroy important components of national infrastructure as in Estonia, is significant. Restoring a stolen identity is annoying, as anybody who’s had to do it understands. Canceling or interfering with a movie release has dire implications for creative expression. But attacks to systems such as self-driving car guidance systems, airplanes, or municipal power and water supplies, all of which are increasingly becoming computerized and automated, could have much more serious consequences, including loss of life.

The Stuxnet worm, which destroyed thousands of Iranian nuclear centrifuges in an effort by the U.S. and Israel to cripple Iran’s nuclear program, was an example of this type of attack in action. While it was successful in this regard, it was also

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

5.1:

3 a proof of concept of this type of attack, and similar attacks have been made against industrial control modules, computer systems, and networks. Furthermore, the world has continued to move towards the Internet of Things, where everyday objects such as TVs, thermostats, appliances, cars, and other equipment gain the ability to connect to the Internet and share information. The potential applications of these technologies to improve our lives are limitless, but the Internet of Things also creates a whole new area of attack for potential cybercriminals.

The second video focuses on U.S. cyberwarfare deterrence operations, more specifically U.S. military efforts to infiltrate the power grid, and the potential issues and consequences surrounding such operations.

video case questions

1. What was the reason for the cyberattacks made against Estonia in 2017?

2. How has cooperation with other nations helped Estonia improve its ability to respond to cyberattacks?

3. How long has the United States been dedicating resources to understanding the cyber vulnerabilities of other nations?

4. In what way is the current cybersecurity environment like the Wild West?

5. What can be an unintended consequence of executing a cyberattack, such as the United States’ use of Stuxnet against the Iranian nuclear program?

6. According to John Yang, how important is Cybercommand to U.S. military power?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 5

E-commerce Security and Payment Systems

case 5.2

Understanding Bitcoin

watch the video at

https://www.youtube.com/watch?v=cRxL2GKDU5E

summary This video, from the British Broadcasting Corporation (BBC), discusses the concepts behind Bitcoin and explains how Bitcoin mining works. L: 7:05 case

Bitcoin, the most prominent example of cryptocurrency presently in use, has grown from a valueless asset in 2008 into a flourishing currency with a market capitalization in the hundreds of billions of dollars. As the video describes, Bitcoin is fully decentralized and controlled with a distributed ledger, as opposed to any type of central banking authority. Proponents of Bitcoin believe that it is the currency of the future, but proponents and detractors alike agree that the blockchain technology that powers the ledger has wide-ranging potential even beyond Bitcoin. Blockchain technology is being explored in a variety of fields that involve transactions between multiple parties.

Although Bitcoin is touted for its security with respect to the blockchain, the storage services that allow Bitcoin users to maintain digital wallets and online exchanges dedicated to cryptocurrency trading are have proven themselves to be anything but. In 2014, the Mt. Gox Bitcoin exchange was hacked, leading to losses of $473 million worth of BitcoinI. In subsequent years, hacks continued unabated, including a hack of Japanese exchange Coincheck that totaled losses continued

.

5.2: Understanding Bitcoin

2

of $534 million. Continued hacks have undermined confidence in Bitcoin as a currency for some. A scandal involving the digital coin Tether, which alleges that Tether was used to manipulate and increase the price of Bitcoin, cast further doubt over Bitcoin.

Bitcoin has also struggled to find regulatory footing with governments worldwide.

Many countries have understandably been unwilling to sanction a currency without a central banking authority, feeling that it undermines their existing banking authorities’ ability to properly regulate currency. Bitcoin supporters have been hopeful that more countries would begin to embrace the currency, but after China forbade all Bitcoin exchanges from operating within the country, the U.S. Securities and Exchange Commission refused in 2018 to approve a bitcoin exchange-traded fund.

Since the video was filmed, the value of Bitcoin has fluctuated widely, dropping from $20,000 per coin in December 2017, to a low of about $3,200 in December 2018, to about $7,300 in December 2019, and then in the wake of the Covid-19, rising to again to over $30,000 per coin by the end of 2020. Whether this is just another “bubble” remains to be seen.

video case questions

1. How many transactions does a block contain in the Bitcoin blockchain?

2. What does the effect of having more computers running mining software have on the security of the Bitcoin network?

3. How does Bitcoin’s carbon footprint compare to our existing financial system’s carbon footprint?

4. How many Bitcoins can be generated and when will all of the Bitcoins be generated?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 6

E-commerce Marketing and Advertising Concepts

case 6.1

To AdBlock or Not to AdBlock

watch the video at

https://www.youtube.com/watch?v=BnlVTNjeWrg

summary

case

Ad blockers provide an advertising-free Internet experience for users, but at what cost? This video explores the issue from the points of view of advertisers, content providers, and individual users. L: 10:24

The rise of ad blockers has begun to make a dent in the advertising revenue earned by content creators and providers. Ad blockers identify and eliminate content based on its IP address, functioning much like a firewall. The most common ad blocker, AdBlock Plus, is offered as an extension to all major web browsers, and about 30% of Internet users currently use an ad blocker. AdBlock is free to use in its basic iteration, extremely simple, and highly effective, making it an online advertiser’s worst nightmare.

Ad blockers often make websites look nicer and more streamlined while reducing battery usage and data consumption. They also stop the tracking cookies that many Internet users find distasteful—advertisers use these to keep comprehensive information on you and your activities online. These are the continued

.

6.1: To AdBlock or NoT To AdBlock

2

benefits to web users. The drawbacks? If too many people use ad blockers, your favorite sites on the Internet won’t be able to provide the free content you enjoy most.

Many websites have begun making direct appeals to visitors to turn off their ad blockers, including Wired, The Guardian, and OKCupid. Others have dramatically altered the types of advertising they are willing to accept. However, the perception of advertising as an unwanted and unnecessary intrusion does not help these sites to change the way their visitors view ads.

Content consumers often forget that the free content they enjoy is actually paid for by advertising dollars. However, we haven’t explicitly agreed to this arrangement, or even been asked about it. Viewing advertising that doesn’t pertain to your interests feels like work during moments that are supposed to be leisure time, and most people bristle at the imposition. As the video describes, advertisers hope that the ads you view will be about things you’d like to know more about, but it more often feels like ads are about things you aren’t interested in and that the advertisers want you to like against your will.

video case questions

1. What is the “ethical ad blocker” described in the video?

2. Why are algorithmic advertising technologies increasingly important to advertisers?

3. Where do you stand on the use of ad blockers?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 6

E-commerce Marketing and Advertising Concepts

case 6.2

Pandora’s Recommendation System

watch the video at summary

case

https://www.youtube.com/watch?v=PgjjAyv567Q

In the increasingly crowded field of streaming music services, Pandora stands out from the pack with a unique recommender system that emphasizes quality over popularity. L: 4:06

Pandora is a music streaming service now owned by SiriusXM with around 63 million active listeners and around 6 million paid subscribers. Other online music streaming services such as Spotify, Apple Music, and Amazon Prime Music offer larger selections of music than Pandora does, and Spotify uses a similar freemium business model. Pandora sets itself apart with its recommendation system and its reliance on the Music Genome Project. In most recommendation systems, your browsing and purchasing data is used to generate selections you might like, such as consumer goods on Amazon or movies and TV shows on Netflix. These sites match your patterns to their internal databases to find the subset of other continued

.

6.2: PandoRa’S Recommendation SyStem

2

customers similar to you. If that subset of customers tends to like a product or a show that you haven’t seen before, it’ll be recommended to you. These systems tend to reward popular products and movies, because these items show up more often on most customers’ lists.

On Pandora, you type in a song or artist to create a radio station, and by giving a thumbs up or thumbs down to the tracks you hear (or by skipping tracks), you provide Pandora with valuable information on which tracks you like. That’s where the Music Genome Project comes in. Pandora calls itself the “custodian” of the project, and is the sole developer and proprietor of the technology, though at one point it licensed the technology to other entities. With sufficient data about your musical preferences, Pandora begins playing music that features similar attributes to tracks you’ve thumbed-up and avoids music with features you’ve thumbed­ down or skipped. In this way, Pandora is much less about finding popular selections that everybody else likes, and more about finding selections that you specifically will like on their musical merits. Tim Westergren describes one of the guiding principles behind Pandora as finding a way to help the underdog in an industry where attention is concentrated among a small number of hugely popular artists. Its recommendation system does an excellent job of this without compromising users’ listening experience. In side-by-side comparisons of online music streaming services, Pandora’s reputation is one of musical exploration—it’s the site to choose if you’re looking for new music and aren’t sure where to turn.

video case questions

1. What sets Pandora’s recommendation system apart from other sites like Amazon and Netflix?

2. According to the video, how many stations does Pandora allow you to create?

3. What is the Music Genome Project? How is the musical “genome” mapped?

4. Why is Pandora a good example of the success of the “Long Tail” on the Web?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 6

E-commerce Marketing and Advertising Concepts

case 6.3

Verizon Media

watch the videos at

https://www.youtube.com/watch?v=oqjNpeTQY6Y L: 6:12 https://www.youtube.com/watch?v=TFFiXMk6Wro L: 3:15 https://www.youtube.com/watch?v=mx7rYhUe2VA L: 2:17

summary

These three videos explore the efforts of Verizon Media (formerly Oath) to become a significant force in the online advertising ecosystem. Verizon Media operates a demand-side platform (DSP) for selling ads, which allows buyers of digital ads to use one unified interface to manage multiple accounts.

In these videos, you’ll learn about Verizon Media’s goals with respect to how they run their DSPs and other platforms, and how a typical client like Hulu works with them to advertise their brand. continued

.

6.3:

2

case

When telecommunications giant Verizon purchased AOL in 2015 for $4.4 billion, the move reflected Verizon’s desire to develop new growth streams with many mobile markets reaching saturation points. Once one of the most prominent tech companies in the world, AOL’s fortunes had greatly diminished along with the demise of dial-up internet, but in its attempts to pivot away from dial-up, AOL built a diverse stable of content offerings and an array of advertising services, especially for video content. Verizon’s aim was to become a digital advertiser and content platform.

In 2017, Verizon continued down this path, purchasing Yahoo for $4.48 billion.

Much like AOL, Yahoo was fueled primarily by its advertising business, but also boasted a portfolio of popular web content. Yahoo had at one point achieved a market value of $125 billion, so just as with AOL, Verizon was buying at a steep discount. Verizon then announced that it would be merging the operations of its two acquisitions into a combined entity it initially entitled Oath, in reference to the company’s ‘oath’ to focus on digital media and advertising. Verizon hoped that the increased scale created by the combination of Yahoo and AOL would lead to increases in advertising revenue that would establish Oath as a strong alternative to Google and Facebook in digital advertising, with the company’s highly profitable wireless business backing attempts at future growth.

In late 2018, Verizon rebranded Oath to Verizon Media and wrote down the value of the company by nearly five billion dollars, signaling that the revenue increases it was hoping to achieve in digital advertising had not materialized. Verizon Media continues to be further challenged in the wake of the Covid-19 pandemic, and in 2020, its share of the online advertising market dropped to just over 2%.

video case questions

1. In which three ways is trust foundational to Verizon Media?

2. What are the platforms that Verizon Media sought to consolidate?

3. Which metrics best indicate the success of advertising for a company like Hulu?

4. How does Hulu determine what ads work best and who do advertise to?

continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

6.3:

3

5. What makes mobile devices an especially effective platform for Oath and other similar companies to deliver advertising?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 7 case 7.1 watch the video at summary

watch the video at summary

case

Social, Mobile, and Local Marketing Pinterest https://www.youtube.com/watch?v=7knUves_008

These videos feature examples of the ways businesses, large and small, are using Pinterest. This video features a large and very well-known business, Home Depot.

L: 1:38 https://www.youtube.com/watch?v=ksbKU7lRrZI

This video features Jonas Paul, a small startup focused on children’s eyewear.

L: 1:43 Pinterest is a rapidly growing social network that allows users to “pin” pictures to their own online board, creating a highly interactive and social online scrapbook.

The site offers a wide array of content categories, including fashion, animals, art, cars, and food. Pinterest is one of the fastest growing sites in the history of the Web and has quickly become a staple of marketing campaigns for companies continued

.

7.1: Pinterest

2

with products that can be represented visually. In 2012, Pinterest had just 10,000 users, but in 2020, it had over 440 million users.

Because Pinterest users are specifically hoping to generate ideas about things to buy, companies with large advertising budgets have all flocked to Pinterest to tap into this valuable audience. One company that has been on the forefront of Pinterest marketing is Home Depot, the largest home improvement retailer in the United States. Home Depot primarily offers products that are visual in nature, making the company an excellent fit for Pinterest. However, many of Home Depot’s products show homes and gardens after a home improvement project has been finished; customers often want to see the transformation from “before” to “after.”

To that end, Home Depot has taken advantage of some of Pinterest’s newer pin formats, including Built-In Pins, which can contain media such as 30-second time lapse videos, fully three-dimensional images that allow Pinterest users to look “inside” a room, and the ability to identify individual items within a room that they might like to buy. Home Depot has also experimented with other forms of augmented reality, including the ability to artificially place items within a room in your house, such as a Christmas tree, just to see how it might look. The ads much more effectively capture the process of renovating a room or otherwise upgrading a home than traditional still images.

Pinterest is also a hugely valuable resource for smaller companies hoping to jumpstart their growth. The subject of the first video, Jonas Paul Eyewear, is a children’s eyewear company founded in 2013 by Ben and Laura Harrison and named after the couple’s son, Jonas. They founded the company when they struggled to find fashionable eyeglasses for Jonas, who was born legally blind and now has minimal vision capability after many surgeries. Jonas Paul Eyewear has grown rapidly since then, forging a successful partnership with Walmart to place their products in stores, but the company does much of its business online.

Eyeglasses are an excellent candidate for a visual search platform like Pinterest, and Jonas Paul considers Pinterest to be a core component of its marketing efforts.in a particular area.

video case questions

1. How many unique Built-in Pins did Home Depot create as part of its Pinterest marketing efforts? continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

7.1: Pinterest

3

2. How many views and clicks to site did Home Depot’s 360-degree pins generate?

3. What is Jonas Paul’s customer demographic and what is this demographic looking for on Pinterest?

4. How does Jonas Paul’s order value generated by Pinterest traffic compare to order value generated by other marketing platforms?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 7

Social, Mobile, and Local Marketing

case 7.2

The Full Value of Mobile Marketing

watch the video at summary

case

https://www.youtube.com/watch?v=6vG0feZbj8Q

Determining return on investment for marketing campaigns has gotten tougher with the advent of multi-channel marketing and the rise of the mobile platform. Adidas and iProspect have teamed up to determine where their marketing efforts are most effective. L: 2:15

As consumers continue to move more of their media consumption and computing tasks to mobile devices, marketers have followed, devising an array of methods to extend their branding and marketing efforts to the mobile platform. These include many different types of in-app advertising and mobile search advertising. This shift towards mobile has required both brands and the advertising and analytics companies they work with to analyze the impact of their mobile marketing in a different way from other marketing channels. The better companies understand continued

.

7.2: The Full Value oF Mobile MarkeTing

2

the impacts of their mobile marketing, the more return on investment they can expect to see from their marketing campaigns.

When the only way to access a website was using a desktop computer, using a less granular approach to assess the viability of a marketing campaign made more sense. Now, however, consumers not only can access the same website on different platforms, but two customers can reach the same site in very different ways. In this video, global sporting goods giant Adidas describes its experiences working with digital performance marketing agency iProspect to better understand the value of its mobile marketing efforts.

With clients ranging from GM, Hilton Hotels, Neiman Marcus, and T-Mobile, iProspect is familiar with marketing initiatives in very different industries. The company specializes in search engine optimization, paid search, display ads, and other social and mobile marketing techniques, while placing an emphasis on delivering measurable return on investment. For a business like Adidas, which relies on bricks-and-mortar outlets, mobile marketing that drives customers to a physical location nearby is critical. The video describes how iProspect focused on Adidas’s mobile store locator to determine its effectiveness as a mobile marketing tool.

Determining the precise number of customers originating from mobile marketing efforts over a given period of time is difficult. To try and solve this problem, iProspect analyzed the effect of advertisements featuring a store locator using Adidas’ internal data. They accurately estimated of the percentage of store locator clicks that resulted in in-store traffic and the value of their eventual purchases. They then incrementally increased these amounts, because potential customers who clicked on the store locator already display a higher level of intent to make a purchase.

Different types of businesses might see different returns on the same type of advertising campaigns. It’s up to each individual business to accurately determine the type of mobile advertising that best drives their business.

video case questions

1. Of the mobile users who clicked on the store locator, what fraction did iProspect estimate entered a physical store?

2. What did iProspect determine to be the worth of each individual store locator click? What implications did this have for return on investment?

3. Why did iProspect increase the average order value per visit from its initial amount? What were the amounts?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 7

Social, Mobile, and Local Marketing

case 7.3

Yelp

watch the video at summary

watch the video at summary

case

https://www.youtube.com/watch?v=96bHyjJXhmc

Many local businesses use online business directory Yelp, which specialized in user­ contributed reviews, to build their brand and drive customer acquisition. This video features climbing gym, SenderOne Climbing. L: 2:51 https://www.youtube.com/watch?v=7GgbFwnwfF4

This video features pet supply retailer, Healthy Spot. L: 2:38 Founded in 2004, Yelp is an online business directory specializing in user­ contributed reviews of local businesses. As of the third quarter of 2020, the site had over 220 million cumulative reviews of restaurants, retail outlets, home services, beauty and fitness-based businesses, and many other types of businesses. Yelp currently has about 32 million unique mobile app users and continued

.

7.3: Yelp 2

over 60 million desktop visitors per month. Yelp’s users skew towards college graduates and higher income individuals in major metropolitan areas, making the website an attractive marketing platform for local businesses in these areas, but Yelp has grown to become an important marketing platform for all types of businesses throughout the country. Yelp competes with TripAdvisor, Foursquare, and Google Maps’ review feature in customer reviews.

Approximately half the reviews (51%) on Yelp are five stars, the maximum possible rating, with a much lower number of one-star reviews (17%). For businesses, obtaining high Yelp reviews has been shown to be directly correlated with improved sales, but not every business has a positive experience with Yelp.

For years, Yelp has been fighting an ongoing battle against fake reviews, or ‘astroturfing.’ Many businesses have sought to artificially inflate their rating by paying services that provide phony reviews praising their business, and others have attempted to damage the ratings of their competitors with unsubstantiated one-star reviews. Astroturfing has gradually risen as an overall percentage of Yelp reviews over time, and represents a major threat to the company’s business model, which relies on trust in the authenticity of reviews.

However, Yelp has continued to use machine learning and algorithmic approaches to identify and eliminate phony reviews as efficiently as possible, and the site remains a critically important tool for small businesses to grow their customer bases. Yelp makes the majority of its revenue when local businesses run advertising campaigns on their site promoting their business when potential customers search for certain keywords. Yelp boasts an impressive return­ on-investment for advertising dollars spent on their platform, as Yelp users are already highly motivated to purchase a certain product or service when they perform searches. Businesses can also pay to remove competitors’ advertisements from their own business pages on the site and to add a variety of extra features, including a photo slideshow of the business, videos, and a ‘call to action’ button where businesses can offer customers a quote or other opportunities for engagement.

Although businesses often have a love-hate relationship with Yelp, it’s clear that the site has become a core component of social, mobile, and local marketing budgets for all types of local businesses and learning to harness the site for the value it can provide is the best course of action for small business owners. Two examples of the many businesses that have done just that are climbing gym continued

.

7.3: Yelp 3

Sender One Climbing and pet supply retailer Healthy Spot, featured in this case’s videos.

video case questions

1. According to Sender One, who are the best ambassadors for a business?

2. When Sender One was launched, what advertising platforms did it target and why?

3. When Healthy Spot was launched, how did they build their customer base?

Did they find success immediately?

4. What are some of Yelp’s features that Healthy Spot uses creatively?

5. What percentage of Healthy Spot’s Yelp page views turn into leads and customers?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 8

Ethical, Social, and Political Issues in E-commerce

case 8.1

The Right to Be Forgotten

watch the video at summary

case

https://www.youtube.com/watch?v=CD37vwUD8Us

This video complements the Chapter 8 opening case on the Right to Be Forgotten.

L: 13.22. Note: The portion of the video that discusses the Right to Be Forgotten ends at 8:14.

In this video, Mike Rugnetta, the host of the PBS web series Idea Channel, undertakes an entertaining, yet also insightful examination of the Right to Be Forgotten. Rugnetta reviews the current state of affairs with respect to the still evolving Right to Be Forgotten as of the date of publication of the video (February 2015), He reviews the case filed by Mario Costeja Gonzalez, which led to establishment of the Right to Be Forgotten by the European Court of Justice. He places the Right in the context of previous European law and history. He also discusses the current limitation of the Right to Be Forgotten to just Europe and the implications of adopting such a Right on a global basis. Rugnetta proposes that the Right to Be Forgotten can be re-conceptualized as the “right to be

continued .

8.1: The RighT To Be FoRgoTTen

2

different from oneself” as suggested by Norberto Nuno Gomes de Andrade. He finishes with some speculation about why some people habitually post and then quickly delete those posts on social media, and notes the way developers have responded to this behavior.

video case questions

1.

What is the Right of Oblivion and how does it differ from the Right to Be Forgotten?

2. According to Dr. Victor Mayer-Schoenberger, how has past history in Europe impacted current European attitudes toward personal privacy?

3. What are the concerns about the potential adoption of the Right to Be Forgotten on a worldwide basis?

4. What are some of the apps that the video notes are premised on the notion of impermanence and anonymity?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 8

Ethical, Social, and Political Issues in E-commerce

case 8.2

Facebook Privacy

watch the video at summary

case

https://www.youtube.com/watch?v=Ajrt_U_UrUQ

The business model of Facebook is to collect as much personal information on its users as is technically possible, and socially acceptable, and then to sell that information to advertisers in the form of targeted advertising on Facebook’s website, mobile site, and mobile apps, and on partner websites, who use the information to personalize ads. This video provides some suggestions for how users can gain greater control over their personal information that they have placed on their Facebook pages.

L: 3:13.

Mark Zuckerberg, the founder of Facebook, once proclaimed in an interview that the “age of privacy” had to come to an end. According to Zuckerberg, social norms had changed and people were no longer worried about sharing their personal continued

.

8.2: Facebook Privacy

2

information with friends, friends of friends, or even the entire Web. This view is in accordance with Facebook’s broader goal, which is, according to Zuckerberg, to make the world a more open and connected place. Many Facebook features are premised on this position. Supporters of Zuckerberg’s viewpoint believe the 21st century is an age of “information exhibitionism,” a new era of openness and transparency.

Although Facebook started out at Harvard and other campuses with a simple privacy policy of not giving anyone except friends access to your profile, this quickly changed as its founder Mark Zuckerberg realized the revenue-generating potential of a social networking site open to the public.

Facebook has a long history of invading the personal privacy of its users. In fact, the very foundation of Facebook’s business model is to sell the personal information of its users to advertisers. In essence, Facebook is like any broadcast or cable television service that uses entertainment to attract large audiences, and then once those audiences are in place, to sell air time to advertisers in 30- to 60-second blocks. Of course, television broadcasters do not have much if any personal information on their users, and in that sense are much less of a privacy threat. Facebook, currently with over 2 billion users worldwide, clearly attracts a huge audience.

In late 2017 and 2018, concerns about Facebook and privacy invasion came to the fore with the Cambridge Analytica scandal mentioned in the video. In March 2018, Facebook announced changes to its privacy settings, which are discussed in the video.

video case questions

1. Do people who use Facebook have a legitimate claim to privacy when they themselves are posting information about themselves?

2. Why did Facebook announce changes to its privacy settings in March 2018?

3. What changes to privacy settings did Facebook announce?

4. How will changing your settings on Facebook help protect your privacy?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 8

Ethical, Social, and Political Issues in E-commerce

case 8.3

What Net Neutrality Means for You

watch the video at summary

https://www.youtube.com/watch?v=2psly3euy78

Net neutrality refers to the idea that Internet service providers (ISPs), should treat all data on the Internet in the same manner, and not discriminate or price differentially based on content, protocol, platform, hardware, or application. ISPs have long opposed the idea of net neutrality. In 2015, the FCC issued regulations that mandated net neutrality. However, the Trump administration opposed the regulations and in December 2017, the FCC voted to repeal them. Since then, a variety of lawsuits have been filed, including by a number of state attorneys general, in an effort to halt the repeal, as well as actions at the state level and in Congress. L: 3:06

continued .

8.3: What Net NeutralitY MeaNs for You

watch the video at summary

case

2

https://www.youtube.com/watch?v=ltzy5vRmN8Q

This video, from Burger King, takes a humorous look at what would happen if Burger King did not apply the concepts behind net neutrality to its customers. L: 2:50

Net neutrality is the idea that Internet service providers (ISPs) like Comcast, Charter, Verizon, and AT&T, must allow customers equal access to content and applications, regardless of the source or nature of the content. ISPs may not discriminate against any content, or types of files, by refusing to transmit these files, or charging more for these files and content. For some, it also means that everyone will be charged the same flat fee regardless of how much bandwidth they consume. This means that people who download very large video files pay no more for this service than people who just send emails.

Under net neutrality, most Internet traffic is treated equally (or “neutrally”) by ISPs in the sense that all activities—word processing, e-mailing, video downloading, music and video files, etc.—are charged the same flat rate regardless of how much bandwidth is used. Someone who streams a Netflix movie each day to his or her computer pays no more for Internet service than someone who uses the Internet for e-mail and web surfing. This is not true for the cell phone system, where there are many different data plans, and the more bandwidth you use, the higher the charges .

However, ISPs would like to be able to charge differentiated prices based on the amount of bandwidth consumed by content being delivered over the Internet. The carriers claim they need to introduce differential pricing in order to properly manage and finance their networks.

Plans to ration bandwidth are controversial. For instance, in 2007, Comcast, the largest ISP in the United States, began to slow down traffic and specific websites

continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

8.3: What Net NeutralitY MeaNs for You

3

using the BitTorrent protocol not because the content was pirated, but because these video users were consuming huge chunks of the Comcast network capacity during peak load times. Comcast claimed its policy was a legitimate effort to manage capacity. In 2008, the Federal Communications Commission (FCC) disagreed and ordered Comcast to stop discriminating against certain websites.

Comcast filed suit and in 2010, a federal appeals court ruled against the FCC and for Comcast, arguing that Comcast had the right to manage its own network, including charging some users more for bandwidth or slowing down certain traffic such as BitTorrent files.

In 2009, the FCC began developing a national broadband strategy. In 2010, the FCC approved “compromise” net neutrality rules. The rules forced ISPs to be transparent about how they handle network congestion, prohibited them from blocking traffic such as BitTorrent or Skype protocols on wired networks, and outlawed “unreasonable” discrimination on such networks. The regulations did not cover wireless cellular networks, nor did they prohibit “paid prioritization,” in which broadband companies could enable premium customers to have access to higher-speed, higher-priced “fast lanes.” In 2011, Verizon sued the FCC to stop its net neutrality rules from going into effect. In January 2014, a federal appeals court threw out the FCC regulations on blocking and price discrimination, but allowed the FCC to have some jurisdiction over Internet providers, and also upheld transparency rules (e.g., ISPs are required to make public their network management practices).

In May 2014, the FCC issued new proposed regulations that would reinstitute the no-blocking rule, with certain changes to conform to the federal appeals court decision, bar commercially unreasonable actions from threatening Internet openness, and enhance the transparency rule that it had previously adopted. In February 2015, these proposed regulations were adopted. As noted above, the Trump administration opposed the regulations and in December 2017, the FCC voted to repeal them. Since then, a variety of lawsuits have been filed, including by a number of state attorneys general, in an effort to halt the repeal, as well as actions at the state level and in Congress.

In the end, net neutrality is about distributing the costs of building high speed broadband Internet networks. Companies like YouTube and Netflix, very heavy users of Internet bandwidth, want no price rationing, caps, metering, or toll pricing in order to maximize their revenues. One price fits all. ISPs and landline carriers of the Internet want to charge heavy bandwidth users more than light users, in order to maximize their revenues.

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

8.3: What Net NeutralitY MeaNs for You

video case questions

4

1. Are you in favor of network neutrality going forward? Why or why not?

2. What is the problem with ISPs, which are private business firms, charging whatever they want to charge and that the market will bear?

3. Major cities of the world have adopted “congestion pricing” in which cars pay a toll to enter the core of the city during daylight hours. Congestion pricing is also used to regulate demand by businesses for electricity. During the day when electricity is in high demand, many businesses pay a “demand” fee in addition to the regular charge for electricity. Why is the Internet any different?

4. If your business model depended for its success on millions of people being able to inexpensively stream videos on demand (like YouTube or Netflix), would you be in favor of net neutrality or against it?

5. How does Burger King explain the concept of net neutrality?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 9

Online Retail and Services

case 9.1

Walmart Takes On Amazon

watch the videos at

summary

https://www.youtube.com/watch?v=WxQXvmnfCaw L: 2:58 https://www.youtube.com/watch?v=gdkZRpyw_FY L: 6:47

In what promises to be the retail battle of the decade, Walmart and Amazon are going head-to-head for the retail consumer dollar. Walmart brings to the fray the largest physical retail presence in the United States, with over 5,200 stores. But for many years, it lacked a powerful online presence. Amazon brings to the fray the largest online retail presence in the United States, but until recently Amazon lacked a physical footprint in retail commerce.

Walmart is moving towards an omni-channel approach that combines online and offline retail, while Amazon is emphasizing same-day delivery, local drop-off boxes, and may well introduce local physical stores in the future, especially with its purchase of Whole Foods in 2017. The videos for this video case provide further information on Walmart’s strategy for developing a competitive online presence.

continued

.

9.1: WAlmArT TAkes On AmAzOn

case

2

Traditional retail in the United States, the kind you find at the malls, and urban department stores, is in trouble. The revenues of very large retailers such as Walmart, Macy’s, Kohls, Sears, and Nordstrom from retail sales at physical locations have all been relatively flat for many years.. Over the last few years, Target, Macy’s, Sears, JCPenny, and others have closed hundreds of stores.

The much bigger threat to traditional retail is coming from online retail, mostly Amazon, which has gobbled up the lion’s share of online retail and continues to grow at astounding rates. Apparel and electronics are among the most frequently purchased items for online retailers, so traditional retailers and the online giant all compete selling the same goods.

Traditional retailers have spent more than $1 billion in the last decade trying to become online retailers and meeting consumers wherever they want to buy: online or at a physical store. It’s called an “omni-channel” strategy: using multiple channels like physical stores and the Web and mobile apps to sell products. Many traditional large retailers such as Walmart, Macy’s, and Costco, have wound up in the top ten online retail rankings. But so far the omni-channel strategy has not been especially successful in keeping up with Amazon’s growth.

In what promises to be the online battle of the decade, the two biggest players, the heavy weights, Walmart and Amazon, are going head-to-head for the consumer dollar. In a broader sense, it’s the online-business model versus the physical- department-store business model that was invented by Macy’s in 1870.

But to be fair to the traditional retailers who have developed their online and mobile sales channel, it’s more accurate to say it’s the omni-channel model versus the pure-online digital model of Amazon.

Walmart’s revenues for fiscal 2020 (ending January 31, 2020) were about $525 billion, the highest of any American company, and it had net income for the year of about $15 billion. E-commerce revenues grew by almost 40% and reportedly totaled around $28 billion, lifting Walmart into the number 3 online retail spot behind Amazon and eBay. In 2016, Walmart bought startup Jet.com, a small but fast-growing Amazon competitor, and since then it has invested billions on various digital initiatives. Those efforts have had a significant impact, boosting its e-commerce revenues, a trend that Walmart expects to continue. But Walmart’s online business still has a long way to go in challenging Amazon.

continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

9.1: WAlmArT TAkes On AmAzOn

video case questions

3

1. Why did Walmart acquire Jet.com?

2. How does Jet.com’s fulfillment process work?

3. Is Walmart’s increase in market share coming at Amazon’s expense?

4. What are some of the omni-channel efforts Walmart is employing?

5. What competitive advantages does Walmart have vis-a-vis Amazon?

6. Are the stock analysts in the second video positive or negative about Walmart’s long-term prospects?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 9

Online Retail and Services

case 9.2

Etsy: A Marketplace and a Community

watch the video at summary

case

https://www.youtube.com/watch?v=lALzP8OqhnQ

Etsy is an online marketplace for handmade items and art and craft supplies and strives to build a sense of community among buyers and sellers. L=2:00.

Etsy is more than a marketplace: it’s a community of artists, creators, collectors, thinkers and doers. This e-commerce Web site focuses on handmade or vintage items as well as art and craft supplies, including art, photography, clothing, jewelry, edibles, bath & beauty products, quilts, knick-knacks, and toys. The site follows in the tradition of open craft fairs, giving sellers personal storefronts where they list their goods for a fee of $0.20 plus a transaction fee (sales commission) of 5% for each item. Etsy has been described as “a crafty cross between Amazon and eBay,” “your grandma’s basement,” and as “one of the largest, most chaotic flea markets the world has ever known.”

Etsy says its mission is to empower people to change the way the global economy works, to bring heart to commerce, and make the world more fair, more sustainable, and more fun.

continued .

9.2: Etsy: A MArkEtplACE And A CoMMunity

2

Etsy is headquartered in Brooklyn, New York, and also has offices in Hudson, New York, and San Francisco, California, as well as international offices in Berlin, Dublin, London, Melbourne, Paris, and Toronto. The Hudson, New York location is an old cannonball factory housing Etsy’s call center and Web site design facilities.

Etsy’s head office in Brooklyn houses the company’s technology, customer support, public relations, business, and communications teams as well as “Etsy Labs,” where employees can experiment with handmade projects themselves. It also features a Monday craft night where Etsy Labs is open to the public.

As of 2020, Etsy had over 45 million active buyers. Over 2.7 million active shops sell on Etsy, and gross merchandise sales on its platform in 2019 were around $5 billion.

Etsy offers multiple options for paying for items, including credit card, money order, and PayPal. Very few of these sellers make a living solely through Etsy, but according to an Etsy’s Seller Survey, 76% of sellers in the US consider their Etsy store to be a business, and a third of respondents said they were focusing on their Etsy store as their primary job.

Etsy requires that all new products listed on the site be made by the people selling them—the use of mass production is prohibited. Etsy has made it possible for a lot of small businesses to get off the ground. According to Etsy, about 30% of Etsy entrepreneurs sell creative goods as their sole occupation, while around 45% use their earnings to cover household expense.

Meanwhile, the site has been adding features at a furious pace. For instance, Etsy now provides social networking functions similar to those of Facebook that allow users to make friends with other Etsy members and keep track of their friends’ favorite shops and purchases. There’s also a gift service, which looks at the Facebook profiles of your friends and suggests items they might like, and something called Taste Test, which asks you to rate a smattering of random items and then suggests things to buy. You are invited, of course, to share the recommendations with your friends on Facebook and Twitter and with other Etsy members.

Etsy’s founder and former CEO Rob Kalin hopes that these moves will make it easier for buyers to discover new products, but he also sees the new emphasis on social networking as part of a deepening of Etsy’s mission that goes beyond continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

9.2: Etsy: A MArkEtplACE And A CoMMunity

3

buying and selling. Etsy is also committed to its core values of craftsmanship, transparency, and responsibility. In 2016, Etsy became the first U.S. company to change its standing to a Certified B Corporation after going public in 2015. B Corporation certification requires the company to maintain a high level of social and environmental sustainability as well as transparency to the public with every aspect of their business.

video case questions

1. What is Etsy’s business model and revenue model?

2. How important is “community” at Etsy? Visit Etsy’s website and describe its community-building features.

3. Visit the Help Center page on Etsy’s website and do a search on SEO to learn about search engine optimization. What tips does Etsy offer to sellers about this topic?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 10

Online Content and Media

case 10.1

YouTube: Secrets of Successful YouTube Content Creators

watch the video at summary

case

https://www.youtube.com/watch?v=6R6UO_a34FM

Content creators on YouTube have more options than ever before to establish a thriving channel and attract subscribers.

YouTuber Matt Koval describes the ten fundamentals that nearly all top YouTube content creators have mastered to find success. L: 20:04

Today’s digital media companies are locked in an arms race to generate original, high-quality content that can only be seen on their proprietary platforms. Netflix, Amazon, and Hulu have all been developing their own TV shows to lure users to their services, for example. Although most people don’t think of it in the same way as those sites, YouTube is no different. For much of its existence, YouTube has been synonymous with “home videos” and other less professional offerings. More recently, YouTube has struck agreements with other media companies to offer paid streams of television shows and movies. However, many completely original, high-quality content creators on YouTube have developed fan bases consisting of continued

.

10.1: SeCreTS of SuCCeSSful YouTube ConTenT CreaTorS

2

millions of subscribers, forging lucrative careers for themselves in the process.

YouTubers earn money primarily from the advertising associated with their videos.

However, these numbers are deceptively large. Becoming a YouTube Partner allows content creators to earn 55% of the ad revenue generated by their videos, which means that high-flying YouTube stars keep only a little more than half of their sizable earnings right from the get-go, even before taxes.

Even so, there are now plenty of content creators making a living simply by posting videos to YouTube, and once users have built a brand, they can monetize it in many other ways beyond YouTube, such as live events or concerts for musicians or comedians, TV appearances, product lines, and so on. YouTube wants these users to be successful, since it enriches their platform as a source for original content on practically any topic of interest to people. In 2014, YouTube launched its YouTube Red service, which offers original, premium content to paying subscribers and allows users to watch videos on YouTube without advertisements. YouTube hopes that YouTube Red will allow it to compete more directly with Netflix, Amazon, Hulu, and other similar platforms.

In this video, Matt Koval, a YouTuber with well over 100,000 subscribers of his own, breaks down some of the important components of a successful YouTube channel. He lists “ten fundamentals” of the top YouTube creators, and describes each of them in turn. The top creators on YouTube have all mastered the platform and understand how to balance engaging content, the unique relationship creators can have with fans, and using technology like analytics and optimization to improve channel performance.

video case questions

1. What are Koval’s “ten fundamentals” of top YouTube creators?

2. List some ways that YouTube content differs from traditional TV and movie content using the ten fundamentals.

3. What three levels of targeting does Koval describe and how are they different?

4. What is the difference between “trending topics” and “evergreen topics?”

Which fundamental deals with these ideas?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 10

Online Content and Media

case 10.2

Vox Media

watch the video at

https://www.youtube.com/watch?v=88Em_5A265U

summary

watch the video at summary

case

In this video, James Bankoff, Chief Executive Officer and Chairman of Vox Media, discusses Vox Media’s approach to digital media. L: 6.29 https://www.youtube.com/watch?v=PQnhigbI4g4

In this video, learn more about Vox Media’s news site, Vox.com. L: 2:43 The problem of developing engaging online content that serves the interests of readers, journalists, and advertisers alike has persisted since the explosion of the Web in the 1990s. Information may want to be free, but high quality journalism also wants to be compensated. Although modern media companies have learned valuable lessons about how to create high quality, profitable online content, the industry still has more to learn about how to create content better suited for the capabilities of the Web. One company, Vox Media, is hoping to develop answers to these problems and to other important challenges in online journalism.

continued .

10.2: Vox Media

2

Founded in 2003, Vox Media is a digital media company that manages a set of editorial brands focusing on major content categories like sports (SB Nation), technology (The Verge), gaming (Polygon), and real estate (Curbed). Vox Media hopes to become a purely online version of media companies like Conde Nast, Time Inc., and Disney. Vox Media consists of hundreds of different sites, such as those part of the SB Nation brand which are focused on individual professional sports teams, all of which are built on its proprietary Chorus digital publishing platform. Vox Media also launched a news and politics site under its flagship domain, Vox.com, in 2014.

Vox.com plans to use the persistence of the Web and freedom from the space restrictions of traditional print media to cover the news more effectively and engagingly. In traditional print media, there are space constraints for every article, and each inch of column space is precious. Space online is more abundant, and the editorial compromises required to get the most information possible into a fixed space are no longer necessary. Vox hopes to avoid oversimplifying a complicated topic or omitting any details except the most pertinent.

Not only that, but the Web makes it much easier to find older material or to search within archives. Most home pages emphasize only the newest developments. In print media, each day’s news is forgotten, as staff and management continually focus on the next day’s content. But on the Web, this doesn’t need to happen.

Topics can build organically, and journalists can focus on new developments instead of repeatedly explaining the same concepts each day. In this way, the Web is “persistent” in a way that print media is not; the previous day’s content is still readily available, and the next day’s content can build on it, enriching coverage and reducing journalists’ workloads.

Sites like Wikipedia use the persistence of the Web to great effect, as articles continue to build over time, retaining information that is still relevant while updating information that has become outdated. But very few online news outlets take advantage of the persistence of the Web. Vox envisions this type of approach to covering the news. In the past, many of the most important topics in the news have been troublesome for media companies because they’re distasteful, difficult to understand, and difficult to cover. If Vox reaches those lofty goals, it will likely be because of unique features like the card stack. Card stacks are modular topic resources that are updated to reflect the most recent developments in a particular area. For example, there are card stacks for Bitcoin, where each continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

10.2: Vox Media

3

card discusses one specific element of the topic, such as “How do people get bitcoins?” and “Does Bitcoin have a security problem?” For complicated topics with a lot of jargon or subordinate topics that need to be frequently explained, card stacks are a perfect companion to relevant news articles. Highlighted text within these articles indicates when a card can better explain a phrase or a topic.

Card stacks have some things in common with Wikipedia, including persistence and contemporariness. However, card stacks are focused on explaining topics fully and clearly, whereas Wikipedia is more interested in defining topics. Card stacks are also edited by individual expert journalists working for Vox, not by other readers. A change log exists that shows how each card stack has been updated over time.

video case questions

1. How does James Bankoff, Chief Executive Officer and Chairman of Vox, describe Vox Media?

2. What does Bankoff say Vox Media’s approach is to digital media?

3. What does Bankoff think about the issue of trust and quality with respect to online content as it relates to Vox Media?

4. According to Bankoff, how does Vox Media intend to grow?

5. What is the difference between Vox Media and Vox (Vox.com)?

6. What does Matthew Yglesias say that he is hoping to achieve at Vox.com?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 10

Online Content and Media

case 10.3

ESPN: Sports Broadcasting Evolves

watch the video at summary

case

https://www.youtube.com/watch?v=zv7q1Wx_QHw

ESPN is the world’s largest cable television sports programming network. In addition, it is the Web’s most popular online source for sports results, content, and commentary.

L: 7:18

ESPN is a global cable television network and media company with headquarters in Bristol, Connecticut. Founded in 1979, ESPN grew along with the cable television industry to become a mainstay of American popular culture. After a series of investments by Hearst Publications and ABC (the American Broadcasting Network), 80% of ESPN finally ended up in the hands of entertainment giant The Walt Disney Company, and 20% with the Hearst Corporation, a 100-year-old media company based largely on newspaper and magazine businesses. ESPN focuses on sports programming including live and pre-taped event telecasts, sports talk shows, and other original programming. While originally a cable television network, ESPN has since expanded aggressively to the Internet as well as radio and print magazines.

continued .

10.3: ESPN: SPortS BroadcaStiNg EvolvES

2

ESPN is actually a family of sports networks and individual shows. There are nine 24-hour domestic television sports networks: ESPN, ESPN2, ESPNEWS, ESPN Classic, ESPN Deportes (a Spanish language network), ESPNU (a network devoted to college sports), and the regionally focused Longhorn Network (a network dedicated to The University of Texas athletics), SEC Network (focused on Southeastern Athletic Conference sports) and the ACC Network (focused on Atlantic Coast Conference sports). ESPN also operates five high-definition television simulcast services: ESPN HD, ESPN2 HD, ESPNEWS HD, ESPNU HD, and ESPN Deportes HD. ESPN programs the sports schedule on the ABC Television Network, which is branded ESPN on ABC. ESPN International has ownership interests in 26 television networks that reach households in 61 countries and territories across seven continents. In addition to its media outlets, ESPN is well-known for its ownership of the rights to various professional and college sports programming.

On the Internet, ESPN owns ESPN.com, which delivers comprehensive sports programming news, information, and video. ESPN3 is a broadband service that delivers thousands of live events. Other sites include espnW, ESPNRadio, ESPNDeportes, ESPNFC, ESPNCricinfo, ESPNScrum, ESPNFL, and a variety of market-specific sites. In 2018, ESPN launched ESPN+, a streaming subscription service as part of a redesigned ESPN app, that offers live events, original content, and on-demand programming for a monthly subscription fee. ESPN+ can also be accessed via the ESPN.com website.

In 2019, ESPN Digital Media had over 95 million unique U.S. users per month who spent an average of 5.9 billion minutes a month using ESPN’s digital properties each month. In terms of reach, ESPN is the industry leader in terms of unique visitors to, and minutes watched on, its mobile website and mobile apps.

ESPN has also had to change core programming elements such as SportsCenter to fit the new digitally-dominated landscape. ESPN’s new SportsCenter set has 114 monitors compared to the older one’s 15, nearly 10,000 square feet of space, 1,100 miles of fiber optic cable, and the ability to accommodate emerging technologies that may arise. The trouble for ESPN is that even the most cutting-edge TV studio may not be enough to draw viewers, and the most comprehensive network of national and regional sports networks may no longer be ESPN’s greatest strength. More users are accessing ESPN content via mobile devices at the expense of TV, and services that allow users to avoid traditional continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

10.3: ESPN: SPortS BroadcaStiNg EvolvES

3

cable packages that contain ESPN are proliferating. Typical sports fans are now interested in fantasy football and getting their sports news the instant it happens, not hours later. Still, ESPN has committed itself to embracing change, and maintains a dominant presence on mobile. Its media personalities are all extremely active on Twitter. If users should become interested in 3D technology, virtual reality, or something totally unforeseen, ESPN hopes that it’s taken the necessary steps to be at the cutting edge for years to come.

video case questions

1. How has ESPN handled the rise of Twitter? How has it incorporated Twitter into SportsCenter?

2. What has ESPN, originally a cable-only service, done to adjust to the rise in users canceling their cable subscriptions in favor of unbundling services?

3. What is the most important show on ESPN? What has ESPN done to upgrade it?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 10

Online Content and Media

case 10.1

Disney+

watch the video at summary

case

https://www.youtube.com/watch?v=T18BtHW­ BDc&t=31s

As streaming services continue to replace traditional television viewing, traditional content creators like Disney, HBO, and Comcast NBCUniversal, as well as tech giant Apple, have begun to launch their own proprietary services to compete with Netflix.

L: 10:12

For years, online content streaming services have been growing at the expense of traditional television viewing. While overall media consumption hours have remained steady, the use of Internet-connected devices and smart TVs to view streaming content is rising rapidly, while time spent viewing live TV continues to drop, according to Nielsen. In 2020, there were more subscribers of video streaming services than viewers with a cable connection. Netflix has long been the king of streaming services, with more than 195 million subscribers worldwide as of the third quarter of 2020, and thousands of hours of streaming content, including hundreds of original shows developed exclusively for its own platform. continued

.

10.1:

2

However, Netflix’s continued dominance in the content streaming market is far from assured. It has encountered resistance from third-party content creators, who have begun to demand increasingly large fees for the rights to license their content. Netflix has also sought to offset the rising costs of both licensing and developing its own content by raising the price of its most commonly used subscription plan. After the company’s fifth price increase within the last five years in 2019, Netflix experienced the first decrease in the number of its US subscribers since 2011. This resulted in a tumble in its stock price as investors fretted that the company might finally have pushed its prices too high.

Another significant threat to Netflix’s ongoing dominance is the increasing number of competing streaming services launched in recent years, including Hulu and Amazon Prime Video. Still, Hulu has roughly 35 million total subscribers, a far cry from Netflix’s 195 million. Perhaps more troubling for Netflix is the rise of content creators pulling their content off Netflix’s platform and moving it to their own proprietary services. This is what Disney has done with the creation of its Disney+ streaming service. Disney joined other companies who have already launched similar services, such as Time Warner’s HBO GO for HBO content, CBS All Access, and Comcast’s Xfinity streaming service. These services have also been joined by HBO’s new service HBO Max, and Comcast NBCUniversal’s Peacock).

INetflix’s decision to develop an increasing amount of its own content makes more sense in light of this trend. Disney in particular boasts an incredibly diverse array of television and movie franchises, and the departure of that content from Netflix and other platforms will be a significant loss for Netflix subscribers. From Disney’s perspective, convincing Netflix subscribers to abandon that platform for Disney+ is somewhat unlikely; but they may be able to convince many viewers to subscribe to both services concurrently. In the future, as more companies create their own streaming platforms, most content consumers will be forced to make tough choices about which services they subscribe to.

video case questions

1. Which of the new services has the best chance of being successful, and why?

2. What does cable still offer that streaming services do not?

3. What kind of approach is NBCUniversal taking?

4. What kind of content will HBO Max offer?

5. What will be the initial price of a yearly or monthly subscription to Disney+?.

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 11

Social Networks, Auctions, and Portals

case 11.1

Instagram

watch the video at

https://www.youtube.com/watch?v=oCoNVzWhweU

summary Instagram offers a rich social networking experience for its users, but also provides unprecedented new opportunities for advertisers to connect with young people. See how three major brands are doing just that.

L: 7:55 case

Facebook turned heads and raised eyebrows with its purchase of Instagram for a whopping $1 billion in 2012. Few question the logic of the acquisition today. At the time, Instagram only had 30 million active users, but that number has grown explosively to over 1 billion, at a time when Facebook’s own growth has stagnated and its popularity with younger people has waned. Instagram’s core business is still as a social network, making the two companies a logical fit, but Instagram’s unique image-driven format makes it a unique experience both for users as well as advertisers, who are seizing the opportunity to extend their marketing and branding efforts in creative and appealing ways.

Instagram has overtaken Facebook and Twitter as the most popular social network for teens and the coveted millennial demographic, with about one-third of continued

.

11.1: Instagram

2

teenagers in the United States citing it as their most important social network.

Two-thirds of Instagram users are female, and Instagram users tend to be urban and college-educated. The premise is simple—users take photos or short videos that are immediately visible to friends, applying filters and other techniques to make them more visually appealing as well as text and hashtags.

Just like Facebook, Instagram posts allow other users to ‘like’ them. Instagram’s interface is clean, simplistic, and most importantly extremely fast.

In many ways, Instagram is more suitable to mobile social networking than Facebook itself—while on the go, it’s easier to view and engage with an image than it is with the blocks of text that often appear on Facebook, where the many different types of content make for a less streamlined experience. The world’s ongoing shift from desktop to mobile is excellent news for Instagram.

Advertisers have long understood the power of evocative images, and Instagram is doing its best to offer them a multitude of ways to use these types of images to connect with its user base. Instagram began selling advertising in 2013 and its ad revenues have grown so rapidly that they reached over $12 billion in 2019.

Instagram’s $1 billion price tag looks awfully cheap in hindsight.

Instagram offers direct-response advertisements that take users to a specified link when they tap or click the ad, as well as more interactive advertisements that allow users to customize a product without leaving Instagram. Some advertisements are images, some are videos, and others are a bit of both— known as “cinemagraphs,” these advertisements are essentially high quality versions of .gif files. Newer products like Carousel, which is featured in the video, allow brands to offer even more information to Instagram users who engage with advertising. By swiping left on Carousel ads, users can view a series of images in sequence as opposed to one individual ad. One Carousel ad might show off multiple features of a product, while another might tell a story or show a transition, such as multiple ingredients becoming a full meal. Instagram’s challenge is to introduce these ads without diluting the social networking experience its increasingly large user base has come to love.

video case questions

1.

Why is it useful to have an Instagram Business profile?

2. What some ways a business can use Instagram Live?

3. What is a Shoppable Instagram Gallery?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 11

Social Networks, Auctions, and Portals

case 11.2

Small Businesses Find a Home on eBay

watch the video at summary

case

https://www.youtube.com/watch?v=1EDel2lpUKU

As more businesses look to the Internet as a way to reach more customers and boost sales, sites like eBay have sought to provide ways to allow small businesses to set up storefronts with minimal fuss. In this video, the family that runs one such business, StreetSounds NYC, describes its experiences with eBay. You can find other examples of these types of businesses on eBay’s YouTube channel, such as a video on BDH Bikes, referred to in the case. L: 2:13 As more of online retailing moves away from auctions and towards fixed-price retailing of all shapes and sizes, eBay has followed suit. While eBay continues to generate significant revenue from auctions and maintains its status as the continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

11.2: Small BuSineSSeS Find a Home on eBay

2

Web’s leading auction site, it has also become an online storefront for both large retailers and small businesses. Though eBay’s total revenue pales in comparison to Amazon’s, its profit margins put Amazon to shame, particularly when the income from Amazon Web Services (AWS) is removed from Amazon’s results. In 2019, eBay generated $2.5 billion in operating income on revenues of about $11 billion, while Amazon generated only $5.2 billion on revenue of $245 billion (not including AWS). eBay had an operating margin of 23.5% compared to Amazon’s 2.2% (again, not including AWS’s results).

The reason for eBay’s excellent profit margins is that it makes a commission on every transaction made on its site, whether it’s made through an auction or a fixed-price sale. Most of eBay’s expenditures go towards maintaining its e-commerce platform. However, in an effort to better compete against Amazon, the company is continuing to tinker with its business model. eBay announced changes in 2016 to help them jumpstart its flagging growth, including improving its ranking in Google search, and improving its proprietary search tool to provide more granular categories, such which items are newest and which are the best value. eBay is also focusing on courting small businesses, such as StreetSounds NYC, described in the video. Rocky Schiano, the owner of StreetSounds, founded the business as a CD store, and watched as CDs boomed and then subsequently faltered with the rise of digital music. Realizing he needed to change to survive, Schiano focused on selling musical instruments and other equipment. eBay allowed him to reach a wider audience. Today, StreetSounds has grown into a multi-million dollar business and has opened a music studio.

BDH Bikes, a Canadian bike shop located in Quebec, found that in the winter months, local sales were difficult to come by due to the extreme cold. By opening a storefront with eBay, owner Jean-Francois LaPointe found that he was able to avoid his winter sales malaise by selling to other areas. LaPointe reports that 85 percent of his sales are to the United States, a market he could never have reached without an e-commerce storefront. BDH Bikes used eBay Selling Manager Pro to develop their storefront and use analytical tools to boost their performance.

Selling Manager Pro allows small businesses like StreetSounds and BDH Bikes to automate a variety of tasks such as listing items and re-listing items that continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

11.2: Small BuSineSSeS Find a Home on eBay

3

have not sold as well as providing customer feedback. It also allows businesses to create profit and loss reports and gauge the success rate of different products quickly. Seller Manager Pro also allows sellers to manage inventory and automatically adjust inventory based on demand. There is a free version of the tool, but Selling Manager Pro is a paid service with more features. For many businesses, it’s well worth the expense.

video case questions

1.

Visit StreetSounds’ eBay Storefront. What types of items do you see? Are there any auctions?

2. What is StreetSounds’ seller rating? How important is customer service to their success?

3. Look up Selling Manager Pro on eBay’s site. Compare the free and paid versions. If you were an seller, which version would you opt for?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 3

B2B E-commerce: Supply Chain Management and Collaborative Commerce

case 3.4

Elementum

watch the video at summary

watch the video at summary

watch the video at summary

https://www.youtube.com/watch?v=FMNMHNNwcKo

Elementum offers mobile, cloud-based supply chain management software. This video reviews its various products. L: 2:21 https://www.youtube.com/watch?v=aht4rmMeHn0

This video focuses on how Dyson, the U.K. manufacturing firm best known for its Dyson vacuum cleaners, uses Elementum. L: 2:24 https://www.youtube.com/watch?v=MsvUqshK8_0

This video focuses on Ken’s Foods, a U.S. food (sauces and dressings) supplier. L: 2:16 continued

.

3.4: ElEmEntum

case

2

In 2012, Flextronics International Ltd. (Flex), one of the world’s largest contract manufacturers, spun off its expertise in supply chain management systems, forming a new company called Elementum which offers mobile, cloud-based software to a variety of customers (some of whom are already customers of Flex). To date, Elementum has raised nearly $200 million in several rounds of venture funding to build its software services business.

Coordinating the flow of goods among vendors and manufacturers is an inherently difficult task. A single manufacturer may have 100 primary suppliers, each of which has its own suppliers (tertiary suppliers), and so forth. The “supply chain” is very large collection of independent firms that do not share information systems, and often still rely on fax machines, email, and the telephone to coordinate the flow of parts and goods. The result is a kind of controlled chaos that is highly inefficient and error­ prone. The traditional solution for this problem was to have the primary product manufacturer, say a personal computer manufacturer, build its own proprietary, enterprise-wide supply chain management system, often purchased from a major software firm like SAP, Oracle, IBM, or HP, and then have all the suppliers tie into the primary firm’s system.

This approach has several problems, not least of which is that there are hundreds of primary manufacturers, each with its own proprietary supply chain system, forcing suppliers to learn many software systems. For instance, a supplier of wiring harnesses based in Malaysia may supply products to several hundred electronic component manufacturers, each with different supply chain systems. Moreover, the entire supply chain is usually not visible to the primary manufacturer, which cannot “see” the lower-level suppliers of components, just its largest suppliers. Many elements of the supply chain remain invisible. In addition, it’s nearly impossible for one primary manufacturer to understand how its purchasing decisions are effected by the decisions of other primary manufacturers. These kinds of systems do not operate in real-time but often rely on data that is weeks old.

continued

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

3.4: ElEmEntum

3

Finally, this traditional approach is poor at risk management, understanding the complexities of many different suppliers, in different parts of the world.

Elementum’s approach is very different because it relies on a cloud-based software-as-a-service model. All firms tie into one supply chain database system, regardless if they are primary manufacturers or component suppliers.

Manufacturers and supply chain management systems have lagged behind other areas such as customer relationship management (such as Salesforce. com), and work flow management (firms like Workday), in moving to cloud­ based SaaS models. Elementum’s software has three components: Transport, Exposure, and Perspective. Each is presented to users as a mobile app for tablets or smartphones. Transport offers visibility into existing shipments and offers predictive and rules-based alerts to notify managers of any potential delays.

Exposure is a supply chain risk management product that monitors various external content sources, and then based on an adverse event at a certain location, analyzes how suppliers, suppliers’ suppliers, and all actors in the supply chain might be affected. Perspective offers a mobile dashboard with a variety of graphics and charts showing how suppliers are performing. Rather than create hundreds of separate databases at primary manufacturers, Elementum’s goal is to build a single supply chain platform that leverages multiple data sources, and then to use common mobile apps to present the results to managers in a real time environment.

Dyson, the U.K. manufacturing firm best known for its Dyson vacuum cleaners and other household appliances, was one of Elementum’s early adopters. Dyson needs to keep track of two billion parts, 300 suppliers, and four factories in order to manufacture eight million appliances a year. Dyson built a research facility in Singapore that includes a room that displays real-time logistics and supply chain information, helping Dyson to maintain its complicated global supply chain.

video case questions

1. What are some of the unforeseen problems that can happen along the supply chain, according to Elementum?

2. What is an “issue”, as that term is used by Elementum’s platform?

3. How does Elementum help deal with underperforming shipping routes?

4. What does Dyson CEO Rowan mean when he says that in business, it’s not “the big that eat the small”? What saying does he suggest is more accurate?

5. What does Ken’s Foods Senior Director of Supply Chain say is the greatest benefit of using Elementum?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

video case chapter 12

B2B E-commerce: Supply Chain Management and Collaborative Commerce

case 12.2

Mechan Groep Streamlines with Sana Commerce

watch the video at summary

case

https://www.youtube.com/watch?v=9OhW_vVzfEw

B2B agricultural supplies distributor Mechan Groep needed help to streamline its order processing and after-sales functions. Sana Commerce was the perfect fit. L: 2:10 As B2B e-commerce continues to grow, companies are placing more emphasis on upgrading their e-commerce infrastructure, taking many cues from B2C companies in the process. Streamlining their online stores and ensuring that potential customers can make purchases across a variety of channels has become just as important for B2B companies as it is for B2C companies. B2B e-commerce accounted for $7.5 trillion of the total $14.65 trillion in B2B trade in 2019, and B2B e-commerce is expected to increase to around $9.8 trillion by 2024. For B2B e-commerce companies, there’s a lot at stake.

Sana Commerce is a B2B e-commerce software company founded in 2008 and headquartered in the Netherlands. Sana provides B2B enterprise multichannel e-commerce, which is integrated with ERP systems. This means that Sana allows continued

.

12.2: MeChan Groep StreaMlineS with Sana CoMMerCe

2

its clients to initiate transactions from physical stores, online stores, mobile app stores, telephone sales, or any other method. A number of companies offer these types of services, but Sana is unique in that it integrates within already installed enterprise resource planning (ERP) systems.

Sana Commerce allows businesses to achieve better customer service, higher sales efficiency, and increased revenue. It’s compatible with many major ERP systems, including most versions of Microsoft Dynamics and SAP systems, and its Webshop is installed within that system, as opposed to functioning separately and interfacing with that system externally. This ensures that companies using Sana don’t have to make large investments in new ERP systems. Sana uses the pre-existing ERP’s business logic and information rather than forcing a complicated integration.

This feature of Sana Commerce appeals to many companies, including Mechan Groep, distributor of agricultural machinery, wholesale goods, and aftersales supplies. Mechan Groep is based in Achterveld, Netherlands, employs 180 people, with clients in both the Netherlands and Belgium. The company earns 180 million euro per year, according to Mechan Groep CFO Rene Schwiete, who is featured in the video.

Mechan Groep’s aftersales department uses Sana to better serve the needs of its dealers. Mechan Groep implemented Sana because of its preexisting use of SAP ERP software, and Sana’s Webshop worked within its larger SAP systems flawlessly. There are 105 dealers in Mechan Groep’s network. These dealers use Sana’s Webshop to access Mechan Groep supplies. Dealers can view inventory on a daily basis and select the urgency with which they need supplies. Mechan Groep’s custom Webshop offers over 700,000 items to Mechan Groep’s dealers.

video case questions

1. How does Mechan Groep staff fulfill each order as it comes in on Sana Webshop?

2. What type of clients does Mechan Groep serve? Why is the speed of Sana Webshop important?

3. What types of B2B e-commerce companies is Sana best suited for?

.for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted. This work should not be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor its pedagogical purpose.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

Laudon/Traver E-commerce 2021 Video Case Questions and Answers Case 1.1: The Importance of the Internet for E-commerce 1. What are some examples cited in the video as to how a customer might use the Internet on a typical morning?

Some of the ways a customer might use the Internet on a typical morning include responding to work-related e-mail, purchasing items online, and doing banking transactions and paying bills online.

2. Why is a company’s web presence important for attracting and retaining new customers?

A company’s website is often its most effective way to make a first impression on customers. If the site is fast and easy to use, that’s a great way to attract new customers.

The reverse is also true – an unappealing site drives customers away.

3. According to the video, how important are web applications?

According to research conducted by Forrester for Akamai and IBM, over 90% said web applications were absolutely critical for companies in order for them to be able to win, serve, and retain customers.

Case 1.2: The Growth of the On-Demand Economy 1. Why did BloomThat opt to partner with existing delivery services like UPS rather than use local deliverers or florists?

BloomThat discovered that 60 percent of the time, customers don’t even see the delivery person. BloomThat decided that the floral quality was more important than the delivery experience and opted to use best-in-class delivery services instead.

2. Compared to other on-demand companies, what type of regulatory hurdles does BloomThat face?

BloomThat has an advantage over companies like Uber in that it faces no significant regulatory hurdles to its business. That allows the company to focus entirely on the user experience.

3. What level of delivery speed is most important to BloomThat customers, according to Schwab?

Schwab notes that customers aren’t really interested in receiving flowers in 20 minutes or less. Food delivery service users are interested in receiving their food quickly. But BloomThat © Kenneth C. Laudon and Carol Guercio Traver, 2022. This work is provided solely for use by instructors in evaluating student work. Dissemination or sale of any part of this work in any form, including online, for any other purpose is not permitted

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

users simply want to receive their flowers on the same day as their order. BloomThat and many otheron-demand companies are likely to tweak their business models in light of what their consumers want and expect, potentially becoming more efficient in the process.

Case 2.1: Glossier 1. What percentage of women does Weiss suggest buy new beauty products due to peer recommendations? Do these recommendations need to be face-to-face from a friend?

Weiss suggests that 60% of women buy new products due to peer to peer recommendations. Increasingly, this can be someone they see on social media, not necessarily a close personal friend.

2. According to Weiss, what is the core value of Glossier as a company and how does this differ from traditional beauty brands?

Weiss indicates that a strong brand requires high quality products and a relatable set of values. She notes that the core value of Glossier is its inclusivity, which differs from traditional beauty retailers that are often focused around exclusivity, pricing products too expensively for most to afford or ostracizing those that are not the right weight, skin tone, or socioeconomic background for various products.

3. What is the price range of Glossier’s product line and how does it compare to other beauty brands?

Glossier products range from as low as $12 to a high of only $38, representing a steep discount compared to many bricks-and-mortar beauty brands.

4. Does Glossier pay celebrities to endorse their products? Why or why not?

Glossier does not pay celebrities to endorse their products, believing instead that social media has democratized the beauty industry significantly. Rather than relying on celebrities and brand experts, many women in the age of social media prefer to listen to other women who more closely resemble them than celebrities.

5. What does Weiss mean when she says that Glossier’s brand and brands of the future will be “co-created”?

When Weiss refers to Glossier being co-created, she is referring to the especially close relationship between the brand and the customer, with customers having a significant role in shaping the product offerings, values, and advertising of the brand. As opposed to traditional brands, which are heavily reliant on celebrity endorsements, Glossier and other companies that depend heavily on social media will form a richer partnership with their customers.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

Case 2.2: Angel Investing 1. What types of people are angel investors, and how are they different from venture capitalists?

They are high net worth individuals, typically successful business people, and accredited investors. Whereas venture capitalists are professional investors, angel investors are investing as a hobby, and don’t make salaries from investments. They also bring contacts and connections to the table as part of the deal.

2. Explain Angel math and the 10X formula.

Angel math is gambling odds for an angel investor. Out of a portfolio of ten companies with equivalent investments, they will lose their investment in three to four companies. They will stay relatively even in another three to four, and one to two companies will be successful.

In order to make their investments in all ten companies back with a profit, those one or two successful companies need to bring the investor ten times their initial investment. This is called the “10X” formula.

3. Why is it recommended that a startup exhaust all other forms of investment before turning to angel investors?

An angel investor brings cash to your company in exchange for equity; whereas friends and family may need less equity. Giving up equity means that you give up some control over your company.

Case 3.1 How Freshdesk Uses Amazon Web Services 1. Why was Freshdesk a good candidate for remote computing services on the cloud?

Freshdesk is a SaaS customer service company, and already relies on the cloud to perform customer service functions for its clients. As the company grew, it decided to turn to Amazon Web Services to store its data and deploy and manage its customer service software platform.

2. What was Freshdesk’s experience working with AWS? Freshdesk originally signed up for AWS’s Enterprise Support. The experience was very positive. As noted in the video, it was the first time that Krishnenjit Roy, Freshdesk’s Director-IT Operations, felt that he was working with a company that was concerned about reducing Freshdesk’s cost and optimize efficiency.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

3. What made Amazon Redshift and OpsWorks good fits for Freshdesk?

Redshift was a good choice of data warehouse for Freshdesk because of its scalability and integration with all of the major business intelligence tools on the market today. OpsWorks was the right blend of low cost and just enough customizability for Freshdesk, which wanted to deploy its own customer service applications, but was willing to use many of Amazon’s tools to deploy and maintain them.

Case 3.2: Compare.com Turns to Microsoft Azure and the Cloud 1. Why is Compare.com’s website critical to their business? How does Compare. com work?

Compare.com’s website is its storefront. It needs to be both available at all times as well as secure for all of the site’s visitors and potential customers. Customers enter their details one time on the site, and are able to pick from over 50 insurance companies to get the best deal, saving money in the process.

2. How much did Compare.com save on its infrastructure costs after switching to Azure?

Compare saved 40 percent on its data management costs nearly immediately.

3. How did Microsoft help Compare.com ease into their transition to Azure?

Microsoft experts visited with Compare.com management, understood Compare’s business model and business needs, and tailored their Azure solution to meet those needs.

Case 3.3: Facebook’s Data Centers 1. Why does Facebook’s data center specialist argue that “The Internet is not a cloud?”

The Internet and the Cloud are better described as a series of data centers that can share data, connected by miles of fiber-optic cable.

2. What are some of the techniques Facebook uses to cool its data centers?

Cool air from outside is used to regulate the internal temperature; mist distributed by sprinklers controls the humidity in the center, keeping the temperature more stable; and excess warm air is pushed out by fans.

3. Facebook had 2.7 billion users as of 2020. If Facebook continued to employ engineers at the same rate as stated in the video, how many engineers did Facebook have as of 2020?

2,700

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

Case 3.4: Smart Speakers: Amazon Echo and Google Home 1. What functionality does the first-generation Amazon Echo display during the video that introduced it?

In the video, Amazon Echo exhibits the following functionality: answering questions about the number of tablespoons in 3/4ths of a cup; the ability to hear you from anywhere in a room, creating and adding items to a shopping list, provide news, control lights, setting timers, creating a calendars, getting a traffic report, reordering from your Amazon shopping history, streaming music from Pandora, TuneIn, and iHeartRadio, and Prime Music, the ability to listen to audiobooks from Audible, telling jokes, learning how to decipher an accent, and getting a weather report.

2. What kind of technology does Amazon Echo use?

Amazon Echo is connected to Alexa, a cloud-based voice service. It gets information from the cloud.

3. What might be some privacy concerns involving Echo? Are these well founded?

Why or why not?

Because Amazon stores and manages the data you generate when using Echo, they’ll be able to use that information for marketing and advertising efforts, which users might not feel comfortable with. Amazon claims it will be possible to delete queries from user histories.

Answers will vary over the legitimacy of privacy concerns.

4. Why was releasing a developers’ kit for Echo important for Amazon to keep pace with services offered by Apple, Google, and Microsoft?

The voice-controlled utilities on these other platforms are likely to be supported by app developers. Apple has a long history of its devices gaining functionality via apps, for example.

For Echo to gain similar multi-purpose functionality, allowing developers to create apps was a must.

5. What are some of the smart home devices that Echo Plus can control?

The Echo Plus can control smart home devices such as light switches, light bulbs, and locks. It can also play music from a variety of sources, such as Apple Music, Pandora, SiriusXM, iHeart Radio, Spotify, and TuneIn. 6. What functionality does Google Home display during the video?

In the video, Google Home exhibits the following functionality: Acting as an alarm clock, setting up routines such as interfacing with a Nest thermometer to increase the temperature and start coffee brewing, providing a calendar, broadcasting information,

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

providing reminders about events, playing music, providing directions, the ability to find a phone, and reading a audio book aloud.

Case 4.1: E-commerce Platforms: Salesforce Commerce Cloud 1. Why did PetSmart switch to Salesforce Commerce Cloud?

PetSmart, an omni-channel retailer of pet products, wanted its customer experience to be the same across all channels, and from a technology standpoint, believed it could move more quickly with fewer technology platforms. Also, its previous platform did not allow it to innovate as easily as it wanted. It also enabled it to create more personalized interactions with its customers, increasing customer loyalty. It also wanted a platform that could better handle volume and scalability.

2. PetSmart implemented Salesforce Commerce Cloud just prior to “Black Friday.”

Why was this of concern to PetSmart?

“Black Friday” and the holiday retail period is the time of year when most people are shopping and putting a lot of demand on online systems. Also, it was not only its web store that was being re-platformed; it was also introducing new capabilities, so there were a lot of different pieces that it had to implement before the holiday period.

3. What are the challenges that Rituals faces in translating its brand to the online channel?

Rituals is a cosmetics brand whose customers want to touch, smell, and feel their products.

Achieving this via the online channel is quite difficult. Rituals is also brand that is attempting to communicate a message of slowing down and turning bland routines into meaningful rituals; in many ways, this is at odds with using modern technology such as computers and smartphones to shop for goods.

4. How does Salesforce help Ritualsmeet these challenges?

Rituals works with Salesforce to combine customer information from both online engagement and offline activity at physical stores into a unified profile. This allows Rituals to market products more effectively to customers that are already familiar with them. The wealth of options Salesforce provides also allows the company to get creative with its marketing efforts.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

Case 4.2 National Kidney Registry Turns to Rackspace for Managed Hosting 1. Why does the NKR outsource its data infrastructure and site hosting to Rackspace?

The NKR wanted to focus on its main mission of matching donors to recipients. The NKR’s time is best spent connecting donors and recipients, not managing its data infrastructure.

2. Which components of the NKR’s infrastructure is Rackspace responsible for managing?

The database of donors and recipients as well the website that front-ends that database and offers connectivity to all the transplant centers is managed by Rackspace.

3. What concerns do the hospitals have regarding the data housed by Rackspace?

Hospitals are very concerned about the privacy of the data on donors and recipients in the NKR’s database. Rackspace has a dedicated team ensuring that user data is protected to a high standard.

4. How does Rackspace ease security concerns for donors, recipients, and participating hospitals?

Rackspace is a large organization with a strong reputation and boasts security certificates that attest to its expertise in this area.

Case 4.3 Building a Mobile App 1. How is Flutter able to be used to create native applications for both iOS and Android devices?

Flutter uses a single code base that is compiled directly to the device’s central processing unit (CPU) and graphics processing unit (GPU) and can access platform application programming interfaces (APIs) and services. Flutter’s widgets enable Flutter apps to follow platform conventions and interface details for both iOS and Android apps.

2. What does stateful “hot reload” functionality allow?

Hot reload functionality allows developers to change code without losing the “state” of the app (i.e., without having to stop or restart the app).

3. Why did Hamilton’s producers create a mobile app?

They wanted something to make the show more accessible for its fans as it expanded the brand.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

4. How long did it take to develop the Hamilton app?

Three months.

5. What is some of the functionality offered by the Hamilton app?

Fans can enter a daily lottery to buy a $10 ticket, buy merchandise through an e-commerce store, take selfies with the “Ham Cam” and get daily news and updates.

6. What were some of the advantages to using Flutter?

The fact that it is a single code base (for both Android and iOS) improved the team’s ability to deliver a consistent experience across platforms. The “hot reload” feature enabled the team to build more features in less time, enabling developers to make changes quickly and iterate them through the user interface without having to stop and restart the app.

Case 5.1: The Rise of Cyberwarfare 1. What was the reason for the cyberattacks made against Estonia in 2017?

Moving the Bronze Soldier of Tallinn war memorial to a nearby cemetery precipitated tensions between Russia and Estonia, and soon afterwards highly coordinated cyberattacks believed to originate from Russia began to ravage Estonian government and municipal systems.

2. How has cooperation with other nations helped Estonia improve its ability to respond to cyberattacks?

First, Estonia has relied on other countries to back up its data, such as Luxembourg, where it stores copies of its information. Next, Estonia has participated in NATO operations such as the Cooperative Cyber Defense System of Excellence, which allows member countries to share techniques for defending against cyberattacks. The Tallinn Manual, named after Estonia’s capital, analyzes how to apply international law to cyber operations.

3. How long has the United States been dedicating resources to understanding the cyber vulnerabilities of other nations?

The U.S. Cyber Command has operated for roughly a decade, allocating billions of dollars to analyze things such as the power grid of other nations.

4. In what way is the current cybersecurity environment like the Wild West?

The current cyber environment resembles the Wild West in the sense that regulations have not caught up to the offensive capability of cybercriminals to do serious damage. For

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

example, nuclear weapons have treaties and regulations regarding their development and use. Cyberattacks do not, and nations can and do disagree about what different types of cyber operations mean.

5. What can be an unintended consequence of executing a cyber attack, such as the United States’ use of Stuxnet against the Iranian nuclear program?

Once a cyberattack is made, the technique used can be repurposed by other countries. This means that cyberweapons can easily fall into the hands of people who countries would prefer not have them. Learning to defend from a cyberattack is just as important for the countries deploying it as for the ones on the receiving end.

6. According to John Yang, how important is Cybercommand to U.S. military power?

Extremely important, given the potential impacts of a cyberattack on the U.S. infrastructure.

Case 5.2: Understanding Bitcoin 1. How many transactions does a block contain in the Bitcoin blockchain?

Each block in the Bitcoin blockchain contains roughly two and a half thousand transactions.

2. What does the effect of having more computers running mining software have on the security of the Bitcoin network?

The more computers and computing power involved mining Bitcoin, the more secure the Bitcoin network is. This is because miners are also processing transactions, and the more miners that are active, the faster that transactions are verified and errors are detected.

3. How does Bitcoin’s carbon footprint compare to our existing financial system’s carbon footprint?

Many estimates suggest that Bitcoin mining consumes as much energy worldwide as countries like Monaco and Ireland, and the computers used to mine coins are becoming increasingly powerful. However, the energy required to mint coins, power ATMs, and generate the paper required for traditional financial transactions are considerable as well.

4. How many Bitcoins can be generated and when will all of the Bitcoins be generated?

The Bitcoin source code only allows the creation of 21 million Bitcoin. All Bitcoins are estimated to be generated by the year 2140.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

Case 6.1: To Ad Block or Not to Ad Block 1. What is the “ethical ad blocker” described in the video?

The ethical ad blocker blocks any site that is advertising supported completely, allowing “ethical” Internet content consumers to avoid any site that they do not feel comfortable viewing with advertising blocked. This way, these consumers can avoid freeloading and consuming content they have not “paid” for by viewing advertising.

2. Why are algorithmic advertising technologies increasingly important to advertisers?

Algorithmic advertising is intended to overcome the issue of increasing decentralization in the way content consumers get their content, whether it be news, TV, or anything else. In the past, advertisers could run comprehensive TV and print campaigns to generate interest in their products. Now, people consume content at all different times and out of sync from one another. Algorithmic advertising allows advertisers to distribute their messages across a variety of platforms in a highly targeted way.

3. Where do you stand on the use of ad blockers?

Answers will vary. Possible points or suggestions to improve the situation could include: changing the way advertising is perceived by individuals and calling more attention to its role in supporting content creation; improving the quality and relevance of advertising even further; or perhaps by making ad blocking a paid service that returns revenues to content creators, although free alternatives would continue to proliferate.

Case 6.2 Pandora’s Recommendation System 1. What sets Pandora’s recommendation system apart from other sites like Amazon and Netflix?

Pandora’s system focuses more on the attributes of songs than your similarity to other users, without regard to their popularity. Amazon and Netflix compare your preferences with other users who like those same things in order to generate recommendations. This approach favors more popular selections.

2. According to the video, how many stations does Pandora allow you to create?

100

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

3. What is the Music Genome Project? How is the musical “genome” mapped?

The Music Genome Project is an attempt to classify music by a variety of attributes.

Pandora employs a team of 25 trained musicians to manually listen to individual songs and classify them by over 400 different attributes, such as melody, harmony, rhythm, and form.

4. Why is Pandora a good example of the success of the “Long Tail” on the Web? The “Long Tail” describes a distribution of a small group of events with very high amplitude and a much larger group of events with low amplitude. On Pandora, the Music Genome Project system gives listeners a chance to sample many songs and artists from the Long Tail of less popular artists that nevertheless may fit within their preferences perfectly.

Pandora is currently the market leader in online music streaming services, indicating that users enjoy the feeling of discovery associated with exploring the Long Tail of the music industry.

Case 6.3 Verizon Media 1. In which three ways is trust foundational to Verizon Media?

Trusted content, trusted data, and trusted platforms are the ways that Oath CRO John DeVine describes trust to be foundational to oath. Trusted content refers to “brand-safe” content that will not create any public relations headaches for advertisers. Trusted data refers to accurate, granular customer data advertisers can use to learn more about their customers. Trusted platform refers to the Oath DSP, which allows advertisers to measure the return on investment of their advertising campaigns themselves, rather than “grading their own homework,” as some advertisers have done in the past (such as Facebook overreporting the viewability and interaction rates of their video ads).

Systems

2. What are the platforms that Verizon Media sought to consolidate?

After the merger of AOL and Yahoo, the combined company had several advertising platforms to consolidate, including adap.tv, Brightroll, and Yahoo’s proprietary platform, Gemini. Oath used the Brightroll platform as its starting point and was working in features of its other platforms via cross-coding.

3. Which metrics best indicate the success of advertising for a company like Hulu?

The metrics that best indicate success of advertising campaigns for Hulu are brand familiarity and number of subscribers; Hulu finds that it does best focusing primarily on these two areas when advertising.

4. How does Hulu determine what ads work best and who do advertise to?

Hulu looks at their own subscribers, especially the “healthiest” (likely the subscribers who watch the most hours of content on the site). Then they try to understand more about who

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

those subscribers are and what they like to watch, and then advertise to similar groups of people demographically, finding “look-alikes” and other similarities between current customers and potential future customers.

5. What makes mobile devices an especially effective platform for Oath and other similar companies to deliver advertising?

Smartphone users are constantly checking their phones and are interested in content when they want it, where they want it. If an advertiser can deliver the right content at the right time to these users, they can provide a “home run” of value, as Jeff Lucas states in the third video.

Case 7.1: Pinterest 1. How many unique Built-in Pins did Home Depot create as part of its Pinterest marketing efforts?

Home Depot created over 60 unique pins.

2. How many views and clicks to site did Home Depot’s 360-degree pins generate?

IThe 360-degree pins generated 36 million views and 350,000 clicks to site.

3. What is Jonas Paul’s customer demographic and what is this demographic looking for on Pinterest?

Jonas Paul’s customer demographic is mom and dads, who are searching on Pinterest for inspiration for their kids.

4. How does Jonas Paul’s order value generated by Pinterest traffic compare to order value generated by other marketing platforms?

Jonas Paul’s order value is 65% higher when generated by Pinterest. The traffic is of a higher quality, since users are already searching for products with the intent to buy.

Case 7.2: The Full Value of Mobile Marketing 1. Of the mobile users who clicked on the store locator, what fraction did iProspect estimate entered a physical store? iProspect estimated that one in five store locator clicks led to a visit to the store.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

2. What did iProspect determine to be the worth of each individual store locator click? What implications did this have for return on investment?

The worth of each store locator click was estimated to be $3.20, showing mobile advertising using a store locator to have a very strong return on investment.

3. Why did iProspect increase the average order value per visit from its initial amount? What were the amounts?

Because customers clicking on a store locator already have a demonstrated intent to buy, iProspect believed it was reasonable to assume a higher percentage of these customers would purchase goods. The increase was from $71 to $80 dollars per average order.

Case 7.3: Yelp 1. According to Sender One, who are the best ambassadors for a business?

The best ambassadors for a business are its customers - people who are not paid to talk about the business, but people who want to because they feel that strongly about the business.

2. When Sender One was launched, what advertising platforms did it target and why?

When Sender One was launched, it was a new business with no brand identity. The company felt it was important to reach out on every platform possible to establish a brand identity as a community-focused business that was less intimidating for newcomers, and Yelp was extremely important to that effort. Many people in Sender One’s location of Los Angeles used Yelp, so it was one of the many platforms the business used to attract new customers.

3. When Healthy Spot was launched, how did they build their customer base? Did they find success immediately?

Healthy Spot did not find immediate success, as they offered high-quality products that many customers were unfamiliar with. However, through word-of-mouth and platforms like Yelp, the company began to grow quickly and now has 11 stores.

4. What are some of Yelp’s features that Healthy Spot uses creatively?

Healthy Spot uses the Yelp Event feature to advertise events they are holding at their stores. This feature is typically used for concerts or other entertainment-style events, but Healthy Spot customers can see what upcoming events will be held at the stores close by

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

to them in the near future. Healthy Spot also encourages users to use the Check-in feature by offering customers a free cookie if they check in on Yelp.

5. What percentage of Healthy Spot’s Yelp page views turn into leads and customers?

Healthy Spot reports that 40% of Yelp page views turn into future customers.

Video Case 8.1: The Right to Be Forgotten 1. What is the Right of Oblivion and how does it differ from the Right to Be Forgotten?

French and Italian law provide for a Right of Oblivion, under which convicts can block the printing of details regarding their misdeeds after they have paid their debt to society. The Right of Oblivion is much older than the Right to Be Forgotten and is not Internet-specific.

2. According to Dr. Victor Mayer-Schoenberger, how has past history in Europe impacted current European attitudes toward personal privacy?

Personal information collected innocently by European cities in the early 20th century was later used by the Nazis to track people down by religion and ethnicity. Europe’s past may have inspired a suspicion toward permanent comprehensive records, engendering a more careful attitude toward the collection and storage of personal data.

3. What are the concerns about the potential adoption of the Right to Be Forgotten on a worldwide basis?

The first concern relates whether the Right to Be Forgotten encroaches on the freedom of speech.

The second concern, related to the first, is whether the Right to Be Forgotten may actually become an act of censorship. The third concern is that this may allow the rewriting of history.

4. What are some of the apps that the video notes are premised on the notion of impermanence and anonymity?

Apps mentioned in the video as being premised on the notion of impermanence and anonymity include Snapchat, Yik Yak, Secret, and Whisper.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

Case 8.2: Facebook Privacy 1. Do people who use Facebook have a legitimate claim to privacy when they themselves are posting information about themselves?

People post personal information on Facebook in the belief that it will be shared only with their friends or those they choose. This belief is encouraged by Facebook through its public pronouncements on holding data private, but in practice, causing the information to be widely shared. At times in the past, the FTC has explicitly charged Facebook with misleading its users about the privacy of their Facebook information. Given all the instances of Facebook changing its information policies without informing users, and expanding its sharing of personal information, users would be wise not to join or to remove their profiles if they want to preserve their privacy. On the other hand, users who post information and make no effort to control its use, arguably do not have a claim to privacy any more than a speaker in a public forum can make a believable claim to privacy.

2. Why did Facebook announce changes to its privacy settings in March 2018?

It is likely that Facebook announced changes to its privacy settings in March 2018 in response to the Cambridge Analytica scandal, although it claimed they were in the works long before that scandal came to light.

3. What changes to its privacy settings did Facebook announce?

The changes to privacy settings do not include any new restrictions on which information Facebook can collect. Instead, they are intended to make it the privacy settings more intuitive and easier to navigate. Users will now be able to see all of their settings on a single screen rather than having to visit 20 separate screens. The redesign also includes a new Privacy Shortcuts menu and a new feature called Access Your Information, which will provide a more straightforward way to delete things you no longer want shared on Facebook.

Case 8.3: What Net Neutrality Means for You 1. Are you in favor of network neutrality going forward? Why or why not?

Students can argue that the growth of the Internet, and continuing innovation in new products and services, requires that Internet bandwidth remains very inexpensive, and that ISPs do not impose any additional charges for selected users, or selected services (like Pandora, Netflix, or YouTube) but instead spread the cost over all users, essentially offering a single rate plan for all. Others could argue this is unfair, burdens the light users of the Internet, and is irrational in so far as the resource is not priced according to usage (like the telephone and wireless cellular systems, or like toll highways, and electric utilities).

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

2. What is the problem with ISPs, which are private business firms, charging whatever they want to charge and that the market will bear?

The FCC and industry critics argue that the ISPs (generally cable TV and telephone companies) are effective monopolies and there is no competition for their services in local service areas. Therefore markets do not work well, and consumer choice is non-existent.

Also, there are conflicts of interest: the very same ISPs that deliver Internet service, deliver telephone and television service. They may want to restrict Internet telephone service like Skype in order to force consumers to use their cell or land line service. They may want to restrict Netflix in order to build their own video streaming service.

3. Major cities of the world have adopted “congestion pricing” in which cars pay a toll to enter the core of the city during daylight hours. Congestion pricing is also used to regulate demand by businesses for electricity. During the day when electricity is in high demand, many businesses pay a “demand” fee in addition to the regular charge for electricity. Why is the Internet any different?

Some argue the Internet is different from highways or other physical assets and resources because supply is practically infinite, and the cost of adding another user whether a heavy user or light user is nearly zero. If resources are not constrained then why impose congestion pricing? Others argue that Internet bandwidth and resources are finite, and that there are real costs involved when adding millions of “heavy hitter” users. One cost is a slow down in the transmission of email, greater Internet latency, and potentially major “brown outs” of the Internet which in fact have occurred when usage peaks (say during presidential nomination ceremonies or the Super Bowl).

4. If your business model depended for its success on millions of people being able to stream videos on demand (like YouTube or Netflix), would you be in favor of net neutrality or against it?

At first glance the obvious answer is that you would support net neutrality because it means your customers (who are really heavy users of bandwidth) would not pay extra for consuming your video service. However, you would be running the risk that so many of your customers using your service all at once will result in declines in service and a clogging up of the Internet arteries. By allowing ISPs to charge more for heavy users, they might be willing to develop high bandwidth capacities for your users, making your service more reliable. In this light, Google has switched positions on net neutrality, at first a supporter, and now less supportive and even understanding of the need to develop “differentiated service” which costs more but is a lot faster.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

5. How does Burger King explain the concept of net neutrality?

Burger King explains the concept of net neutrality by showing what would happen if it required that people pay higher prices in order to be served more quickly, as ISPs would like to do in the context of Internet service.

Case 9.1 Walmart Takes on Amazon 1. Why did Walmart acquire Jet.com?

Walmart acquired Jet.com in an effort to better compete with Amazon. Jet.com has a workforce with IT and online sales expertise (including Millennials and urbanites, an area where Walmart is weak), and an interesting business plan aimed at competing with Amazon. It is also is more nimble than Walmart and willing to experiment with interesting ideas, such as offering items at lower cost in exchange for using a debit card or forgoing the right to return an item.

2. How does Jet.com’s fulfillment process work?

Less than one-third of the orders actually ship from Jet.com’s own warehouses. Instead, Jet has over 2,000 partners, enabling it to route orders to the closest location, saving on shipping costs, enabling it to pass those savings along to consumers.

3. Is Walmart’s increase in market share coming at Amazon’s expense?

According to analysts, no. Instead, Walmart is taking market share from grocers and other general merchandisers.

4. What are some of the omni-channel efforts Walmart is employing?

Some of the omni-channel efforts being employed by Walmart that are identified in the second video include curbside pickup, delivery, buy online/pickup in store, and automated pickup towers.

5. According to the second video, what competitive advantages does Walmart have?

Walmart’s competitive advantages include grocery/food/curbside delivery.

6. Are the stock analysts in the second video positive or negative about Walmart’s long-term prospects.

Both analysts are positive.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

Case 9.2: Etsy: A Marketplace and a Community 1. What is Etsy’s business model and revenue model?

Etsy is a market creator with a transaction fee revenue model. There are no membership fees and sellers pay just 20 cents to list an item.

2. How important is “community” at Etsy? Visit Etsy’s website and describe its community-building features.

Community is extremely important at Etsy, both for promoting the sales process, for soliciting new ideas, and for bringing the company closer to its sellers and the public.

Each item listed includes a personal profile of the shop owner. Etsy’s website features a blog, a “featured seller” of the day, and special “community” section where website visitors can share ideas, attend an event in the area, join a streaming workshop, or watch an archived workshop. They can also connect by joining a team with other members of Etsy’s marketplace and community, in order to meet people with common interests, and collaborate.

3. Visit the Help page on Etsy’s website and do a search on SEO to learn about search engine optimization. What tips does Etsy offer to sellers about this topic?

Etsy’s Help section offers a variety of information about SEO. Best practices for improving Esty shop SEO include having a great product, selecting the best possible keywords, Shop title, Shop Section names, item titles and descriptions. It also suggests linking your Etsy shop to your personal blog and networking with other sites to get them to feature your listings.

Case 10.1: YouTube: Secrets of Successful YouTube Content Creators 1. What are Koval’s “ten fundamentals” of top YouTube Creators.

The ten fundamentals of top YouTube Creators are shareability, conversation, interactivity, consistency, targeting, sustainability, discoverability, accessibility, collaboration, and inspiration.

2. List some ways that YouTube content differs from traditional TV and movie content using the ten fundamentals.

YouTube content differs from much traditional TV and movie content in its interactivity with the audience made possible by the online platform and specific features of YouTube. While most traditional TV content relies on shareability (telling your friends about your favorite show), consistency (knowing what type of show you’ll get week to week), and sustainability (a show that maintains quality and energy throughout its run), it’s rare to see a great deal of interactivity, with entire episodes of content being created from a single user’s

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

comment or suggestions. Similarly, conversation, where content creators can talk directly to the audience, and even name individual users, is much more possible on YouTube than in traditional TV. Collaboration between different channels and content creators is also arguably more common on YouTube than on traditional TV shows, although some shows have featured cross-over episodes in the past.

3. What three levels of targeting does Koval describe and how are they different?

Koval describes breaking down targeting efforts by the channel level, the series level, and the individual video level. When creating a channel, creators need to target their intended audience right off the bat. Will the audience be gamers? Sports fans? Pop culture fans? Fashion and beauty enthusiasts? Targeting at the series level involves taking a particular subset or series within a larger channel and focusing on an audience for that specific series. And sometimes, an individual video will have a unique target compared to the other videos within a channel.

4. What is the difference between “trending topics” and “evergreen topics?” Which fundamental deals with these ideas?

The discoverability of a video is connected to whether topics in the video are trending or evergreen topics. Trending topics pertain to more recent events that are in the news currently, and are experiencing a major spike in user interest. The Oscars, the Super Bowl, a presidential election, and other sudden occurrences are trending topics. Creating a video addressing these sorts of trending topics can help boost your channel. Evergreen topics are, like evergreen trees, persistent over time. A video showing how to tie a tie is a good example.

Video Case 10.2: Vox Media 1. How does James Bankoff, Chief Executive Officer and Chairman of Vox, describe Vox Media?

Bankoff describes Vox Media as a company that creates high-quality large media brands for a new generation of consumers that prefer to consume their content digitally. He likens Vox Media to magazine companies such as Time Inc. and Conde Nast, and cable companies like USA Networks, Disney and Comcast. Vox is similarly creating new media titles such as Verge, Vox and SB Nation in the same way, in a digital medium.

2. What does Bankoff say Vox Media’s approach is to digital media?

Bankoff notes that Vox Media takes a verticalized approach, with a number of individual brands, such as SBNation, which enables it to command more authority within the topic,

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

rather than being another generalized portal. Each brand has a distinct voice, which he believes is critical.

3. What does Bankoff think about the issue of trust and quality with respect to online content as it relates to Vox Media?

Bankoff feels that all of Vox Media’s various brands must be rooted in quality and authority.

In the past, there was a period where a lot of web content could not be trusted and Vox is focused on bringing back that trust. In doing so, it enables “blue chip” advertisers to trust Vox Media, and therefore willing to spend to advertise on its sites.

4. According to Bankoff, how does Vox Media intend to grow?

It may acquire certain properties, but it primarily intends to grow by increasing traffic to its existing sites, and grow properties from the ground up, such as Vox.com, its general news site.

5. What is the difference between Vox Media and Vox (Vox.com)?

Vox Media is a content company that manages a portfolio of several hundred sites focusing on high quality content in specific vertical markets, including Vox.com. Vox.com is a news outlet covering current events and politics.

6. How does Matthew Yglesias say that he is hoping to achieve at Vox.com?

For Yglesias, success would be creating the single greatest resource available for people to understand the issues that are in the news.

Case 10.3 ESPN: Sports Broadcasting Evolves 1. How has ESPN handled the rise of Twitter? How has it incorporated Twitter into SportsCenter?

A: ESPN has developed the capability to post to social sites like Twitter and Facebook in a few moments after the action takes place on its cable TV feeds. ESPN recognizes it has to provide sports center coverage to whatever devices and services their customers use.

ESPN has posted about 70 million items to various over-the-top (non-cable) outlets for video like Netflix, Snapchat, Twitter and Facebook.

2. What has ESPN, originally a cable-only service, done to adjust to the rise in users canceling their cable subscriptions in favor of unbundling services?

ESPN knows that cable cutting is growing, and viewers of its content are using alternative sources for sports news. It is trying to build an infrastructure that can deliver live sports content to wherever its customers are located (mobile apps) and whatever device or channel they are using. Delivering sports news anytime, anywhere, any platform.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

3. What is the most important show on ESPN? What has ESPN done to upgrade it?

SportsCenter has always been the most important show on ESPN and in 2015 it got a major upgrade, a new 10,000 square foot studio in DC2, the newest and highest-tech building on ESPN’s campus in Bristol, Connecticut, featuring a huge collection of screens, cameras, and cables, designed to be live 18 hours a day and helping SportsCenter move at the speed of the Internet.

Case 10.4 Disney+ 1. Which of the new services has the best chance of being successful, and why?

Barry Diller believes Disney’s Disney+ does, because of its very popular content and the money and money and distribution that the Disney name is putting behind it.

2. What does cable still offer that streaming services do not?

Primarily, live news and live sports. Also, many consumers find it difficult to have to navigate multipe apps, and a cable bundle brings it all together. Cable providers are also at an advantage because they provide the Internet access that makes streaming possible.

3. What kind of approach is NBCUniversal taking?

NBCUniversal is taking a more cable-focused approach, which makes sense given that its parent company is cable company Comcast. NBCUniversal’s service will be free for Comcast’s cable subscribers. It will also be ad-supported.

4. What kind of content will HBO Max offer?

HBO Max will feature content from a variety of assets owned by its parent company, AT&T and Warner Media. It will offer all of the programming already offered on HBO, all of the programming owned by Warner Brothers, and original programming as well.

5. What will be the initial price of a yearly or monthly subscription to Disney+?

The service cost $69.99 a year or $6.99 a month when the service first launched in November 2019. Disney also offered a bundle option that included Disney+, ESPN+ and advertising-supported Hulu, for an unspecified price.

Case 11.1 Instagram 1. Why is it useful to have an Instagram Business profile It enables you to monitor real-time metrics on the performance of posts and add additional content to your profile, such as a customer support number.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

2. What are some ways a business can use Instagram Live?

Instagram Live is a good method to use for Question and Answer sessions, launches of new products or services, and important announcements.

3. What is a Shoppable Instagram Gallery?

A Shoppable Instagram Gallery is a page you can add to your website that includes all of the business’s Instagram posts. It includes clickable links that customers can use to buy products.

Case 11.2: Small Businesses Find a Home on eBay 1. Visit StreetSounds’ eBay Storefront. What types of items do you see? Are there any auctions?

Answers may vary, but StreetSounds is a fixed-price retailer without auctions.

2. What is StreetSounds’ seller rating? How important is customer service to their success?

As of this writing, StreetSounds had an amazing 100% positive seller rating, which clearly is why customers continue to come back.

3. Look up Selling Manager Pro on eBay’s site. Compare the free and paid versions.

If you were a seller, which version would you opt for?

Students answers will vary.

Case 12.1 Elementum 1. What are some of the unforeseen problems that can happen along the supply chain, according to Elementum?

Elementum lists factory fires, shipping delays, part malfunctions, and demand spikes as four of the many things that can go wrong in the supply chain.

2. What is an ‘issue’, as that term is used within Elementum’s platform??

An ‘issue’ can be created when there’s a problem along the supply chain, and comments and updates regarding that problem are aggregated in one place under that issue. The issue can be tracked from all over the world, and all of the relevant personnel involved in resolving the issue can be brought together in one place.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

3. How does Elementum help deal with underperforming shipping routes?

Elementum allows senior management to track the success of various shipping routes in the supply chain in real time, and when some are habitually underperforming, Elementum allows companies to shift production to more efficient routes. For example, Dyson switches its supply to other factories when one of them is suffering from an issue with a certain component.

4. What does Dyson CEO Rowan mean when he says that in business, it’s “not the big that eat the small?” What saying does he suggest is more accurate?

Rowan suggests that rather than the big eating the small, in today’s supply chain landscape, it’s “the fast that eat the slow.” Elementum enables businesses to adjust to issues with their supply chain with unprecedented speed.

5. What does Ken’s Foods Senior Director of Supply Chain say is the greatest benefit of using Elementum?

The greatest benefit is accountability, in terms of who “owns” the next step in terms of dealing with an issue when things do not go as planned. It also enables them to better determine the root cause of problems.

Case 12.2: Mechan Groep Streamlines with Sana Commerce 1. How does Mechan Groep staff fulfill each order as it comes in on Sana Webshop?

All orders are placed into the SAP system from Sana Webshop and are printed in-house.

Staff members at Mechan Groep pick the orders and fulfill the parts from their warehouse.

2. What type of clients does Mechan Groep serve? Why is the speed of Sana Webshop important?

Mechan Groep serves farmers, who often need new parts immediately for critical machinery. The ability for these clients to specify their need for a particular part and to see Mechan Groep’s inventory in real-time is critical for them.

3. What types of B2B e-commerce companies is Sana best suited for?

Answers may vary, but Sana is well suited for small to medium sized B2B e-commerce companies, who may lack the resources or expertise to create their own proprietary web store.

VIDEO CASES

E-commerce 2021: business. technology. society.

KENNETH C. LAUDON AND CAROL G. TRAVER

CHAPTER 1

THE REVOLUTION IS JUST BEGINNING The Importance of the Internet for E-commerce The Growth of the On-Demand Economy

CHAPTER 2

E-COMMERCE BUSINESS MODELS AND CONCEPTS From Startup to Success Glossier

CHAPTER 3

E-COMMERCE INFRASTRUCTURE: THE INTERNET, WEB, AND MOBILE PLATFORM How Freshdesk Uses Amazon Web Services Compare.com Turns to Microsoft Azure and the Cloud Facebook’s Data Centers Smart Speakers: Amazon Echo and Google Home

CHAPTER 4

BUILDING AN E-COMMERCE PRESENCE: WEB SITES, MOBILE SITES, AND APPS E-commerce Platforms: Salesforce Commerce Cloud National Kidney Registry Turns to Rackspace for Managed Hosting Building a Mobile App

CHAPTER 5

E-COMMERCE SECURITY AND PAYMENT SYSTEMS The Rise of Cyberwarfare Understanding Bitcoin

CHAPTER 6

E-COMMERCE MARKETING AND ADVERTISING CONCEPTS To Ad Block or Not to Ad Block Pandora’s Recommendation System Verizon Media

CHAPTER 7

SOCIAL, MOBILE, AND LOCAL MARKETING Pinterest The Full Value of Mobile Marketing Yelp

CHAPTER 8

ETHICAL, SOCIAL, AND POLITICAL ISSUES IN E-COMMERCE The Right to Be Forgotten Facebook Privacy What Net Neutrality Means for You

CHAPTER 9

ONLINE RETAIL AND SERVICES Walmart Takes on Amazon Etsy: A Marketplace and a Community

Case 1.1 Case 1.2

Case 2.1 Case 2.2

Case 3.1 Case 3.2 Case 3.3 Case 3.4

Case 4.1 Case 4.2 Case 4.3

Case 5.1 Case 5.2

Case 6.1 Case 6.2 Case 6.3

Case 7.1 Case 7.2 Case 73

Case 8.1 Case 8.2 Case 8.3

Case 9.1 Case 9.2

Systems

CHAPTER 10

ONLINE CONTENT AND MEDIA YouTube: Secrets of Successful Content Creators Vox Media ESPN: Sports Broadcasting Evolves Disney+

CHAPTER 11

SOCIAL NETWORKS, AUCTIONS, AND PORTALS Instagram Small Businesses Find a Home on eBay

CHAPTER 12

B2B E-COMMERCE: SUPPLY CHAIN MANAGEMENT AND COLLABORATIVE COMMERCE Elementum Mecham Groep Streamlines with Sana Commerce

Case 10.1 Case 10.2 Case 10.3 Case 10.4

Case 11.1 Case 11.2

Case 12.1 Case 12.2

Systems