Chapter: Internet & World Wide Web HOW TO PROGRAM - e-Business & e-Commerce

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E-Business Models

The transition of a business into an e-business provides many benefits.

E-Business Models

 

The transition of a business into an e-business provides many benefits. An e-business can offer personalization, effective customer service and streamlined supply-chain manage-ment (the strategic management of distribution channels and the processes that support them). In this section, we explore the different types of businesses operating on the Internet, as well as introducing the technologies needed to build and run an e-commerce Web site.

 

Although the term “e-commerce” is relatively new (it was coined in the early 90s), large corporations have been conducting de facto e-commerce for decades by networking their computing systems with those of business partners and clients. For example, the banking industry uses Electronic Funds Transfer (EFT) to transfer money between accounts. In addi-tion, many companies employ Electronic Data Interchange (EDI), which facilitates the stan-dardization of such business forms as purchase orders and invoices, allowing companies to share information with customers, vendors and business partners electronically. Until recently, e-commerce was feasible only for large companies. However, by using the Internet and the World Wide Web, even the smallest businesses can use EDI.

Amazon.com, eBay™, Yahoo! and other e-commerce sites have assisted in defining industry categories and business models on the Web. Entrepreneurs starting e-businesses and people interested in e-commerce should be aware of the various e-business models cur-rently in use. In the subsections that follow, we review the storefront model, the auction model, dynamic pricing models, the portal model and other Web business models.

 

1. Storefront Model

 

The storefront model is what many people think of when they hear the word “e-business.” By providing a combination of transaction processing, security, online payment and infor-mation storage, the storefront model enables merchants to sell their products online. This model is a basic form of e-commerce in which buyers and sellers interact directly.

 

To conduct storefront e-commerce, merchants must organize online product catalogs, take orders through their Web sites, accept payments securely, send merchandise to cus-tomers and manage customer data (such as customer profiles). They must also market their sites to potential customers through various media.

 

2. Shopping-Cart Technology

 

One of the most commonly used e-commerce enablers is the shopping cart. This order-pro-cessing technology allows customers to accumulate items they wish to buy as they browse an e-business Web site. (See the Amazon.com feature.) Support for the shopping cart is provid-ed by a product catalog, which resides on the merchant server in the form of a database. The merchant server is the data storage and management system employed by the merchant. Often, a network of computers performs all the functions necessary to run a Web site. A database is a section of the merchant server designed to store and report on large amounts of information. For example, a database for an online clothing retailer would typically include such product specifications as item description, size, availability, shipping information, stock level and on-order information. Databases also store customer information, including names, addresses, credit-card data and past purchases. The Amazon.com feature contains further information regarding these technologies and their implementations. Additional examples of e-businesses that use shopping-cart technology can be found at www.kbkids.com, www.eddie-bauer.com® and www.cdnow.com.

 

 

Amazon.com

 

Perhaps the most widely recognized example of an e-business that uses shopping-cart technology is Amazon.com.2 Founded in 1994, the company has grown to become one of the world's largest online retailers. Amazon.com offers millions of products to more than 17 million customers in 160 countries.3 The site also hosts online auctions. Although Amazon.com originally served as a mail-order book retailer, its product line has expanded to include music, videos, DVDs, electronic cards, consumer elec-tronics, hardware, tools, beauty items and toys. Amazon.com’s catalog is growing constantly, and the site facilitates convenient navigation among millions of products.

 

Amazon.com uses a database on the server side (the merchant’s computer sys-tems) that offers customers on the client side (the customer’s computer or handheld device) multiple ways to search for products. This system exemplifies a client/server application. The Amazon.com database consists of product specifications, avail-ability, shipping information, prices, sales histories, reviews and in-depth product descriptions. In addition to providing customers with details on items for sale, this extensive database enables Amazon.com to cross-reference products. For example, a novel can be listed under various categories, including fiction, bestsellers and rec-ommended titles.

 

Amazon.com provides personalized service to returning customers. A database keeps records of users’ previous transactions, including items purchased, shipping addresses and credit-card information. Upon returning to the site, customers are greeted by name and presented with lists of titles that are recommended to them on the basis of their previous purchases. This enables the company to offer personalization that would otherwise be handled by sales representatives. Amazon.com also uses customer data to search for patterns and trends among its clientele. Such analysis of consumer behavior can assist the company in the improvement of its products and services.

The purchase process at Amazon.com is simple. The company’s home page pro-vides various search features and categorical options, allowing users to select the product or type of product they wish to locate. For example, the book Internet & World Wide Web How to Program, Second Edition, can be found by using the Search Box in the top-left corner of the home page. To purchase an item once it is found, users simply select the Add to Shopping Cart option in the top-right corner of the page. The shopping-cart technology processes the information and displays a list of the prod-ucts in the shopping cart. Users then can change the quantity of each item, remove an item from the shopping cart, check out or continue shopping.

 

When users are ready to place their orders, they proceed to checkout. First-time visitors are prompted to fill out a personal-identification form in which they provide their names, billing addresses, shipping addresses, shipping preferences and credit-card information. Users are also asked to enter a password that they will use to access account data during future transactions. Once the shipping, billing and password infor-mation is confirmed, orders can be placed.

 

Customers returning to Amazon.com can use its 1-ClickSM system. This patented system allows consumers to reuse previously entered payment and shipping informa-tion, enabling them to place orders with a single click of the mouse. The 1-Click system exemplifies how an intelligently designed database application can improve the effi-ciency and convenience of business transactions.4

When the order process is complete, Amazon.com sends a confirmation e-mail to the user. A second e-mail is sent when an order is shipped, and a database monitors the status of all shipments. Users can track the status of their purchases until they leave the Amazon.com shipping center by selecting the Your Account link at the bottom of the page and entering their passwords. This will bring them to an Account Main-tenance page. Orders can be cancelled at any time before the product is shipped, which usually occurs within 24 to 48 hours of purchase. Amazon.com has regional warehouses from which it can ship a majority of packages overnight without having to use express delivery services.

 

Amazon.com operates on secure servers that protect personal information. Users who feel uncomfortable using their credit cards on the Web can initiate orders through Amazon’s Web site by entering the last five digits of their credit-card numbers. To complete such orders, users call Amazon’s Customer Service Department and provide the remaining numbers.

 

 

3. Auction Model

 

The Web offers a wide variety of auction sites, as well as sites that search auction sites to pin-point the lowest prices on available items. Usually, auction sites act as forums through which Internet users can assume the role of either seller or bidder. Sellers can post items they wish to sell, the minimum prices they require to sell the items and deadlines to close the auctions. Some sites allow users to provide additional information, such as a photograph or a descrip-tion of an item’s condition. Bidders may search the site for items they are seeking, view the current bidding activity and place bids—usually in designated increments. Some sites auto

mate the bidding process by allowing bidders to submit the maximum prices they will pay for auction items. On such sites, an electronic system continues bidding for a bidder until the bidder wins the auction or until the auction surpasses the bidder’s maximum bid price. (Auc-tion technology is explained in more depth in the eBay feature.)

 

The reverse-auction model allows buyers to set prices that sellers compete to match, or even beat. One example of a reverse-auction site is priceline.com, which is a pop-ular site for purchasing airline tickets and making travel reservations. Usually, Priceline can process buyers’ bids within one hour. A faster bidding option is available to sellers who are willing to set reserve prices. Although a reserve price is the lowest price that a seller will accept, the seller can set a reserve price that is higher than the minimum bid. If no bids meet the reserve price, the auction is unsuccessful. Most sellers who set reserve prices at priceline.com receive a series of bids within one hour of their initial posting. How-ever, successful bids on items with reserve prices are binding, meaning that the buyer and seller must commit.

 

Auction sites usually receive a commission on each sale. When an auction is complete, the seller and winning bidder are notified, and methods of payment and delivery are decided on by the relevant parties. Most auction sites do not involve themselves in payment or delivery.

 

The auction model also is employed by business-to-business (B2B) Web sites. The buyers and the sellers in these auctions are companies. Companies use online auctions to sell excess inventory and to access new, price-sensitive customers. Three examples of B2B auc-tion sites are DoveBid, Inc., (www.dovebid.com), WorldCall Exchange (www.world-callexchange.com) and U-Bid-It.com.

 

 

eBay™ and the Online Auction Model

 

Online auctions are a successful method of conducting e-commerce. eBay (www.ebay.com) is both the leading online auction Web site and one of the world’s most profitable e-businesses (Fig. 32.1).5 The online auction house’s roots lie in a 50-year-old novelty item—Pez® candy dispensers. Pam Omidyar, an avid collector of Pez® dispensers, came up with the idea of trading them over the Internet. In 1995, she and her husband created a company called AuctionWeb. The company, which was re-named eBay, now has as many as 4 million unique auctions in progress at any given time, adding approximately 450,000 new items each day.6

 

People can buy and sell just about anything on eBay. The company collects both a submission fee and a percentage of each sale amount. Submission fees are based on the amount of exposure sellers want their items to receive. For example, an additional fee wins an item a place among the “featured auctions” in a specific product category, whereas an even higher fee is required to be listed on the eBay home page under Fea-tured Items. Listings are shown on the home page periodically. Alternatively, sellers can publish their product listings in a boldface font (for an additional charge).

 

eBay uses a database to manage its auctions. This database evolves dynamically as sellers and buyers enter personal identification and product information. The seller entering a product to be auctioned provides a description of the product, keywords, an initial price, a closing date for the auction and personal information. eBay then uses this data to produce the product profile seen by potential buyers (Fig. 32.2).


The auction process begins when the seller posts a description of the item for sale and fills in the appropriate registration information. The seller must specify a minimum opening bid. If potential buyers think this price is too high, the item might not receive any bids. In many cases, a reserve price is also set. Sellers often set an opening bid that is lower than the reserve price to generate bidding activity.

 

If a successful bid is made, the seller and the buyer negotiate the shipping details, warranty and other particulars. eBay serves as a liaison between the parties, providing an interface through which sellers and buyers can conduct business. However, eBay does not maintain a costly physical inventory or deal with shipping, handling or other services that other e-retailers must provide.

 

eBay’s success has had a profound effect on the e-business industry. The com-pany’s founders took a limited-access offline business model and, by using the Internet, were able to bring it to the desktops of consumers worldwide. By implementing tradi-tional marketing strategies and keeping the process simple, eBay has created a viable alternative to storefront-style e-commerce.

 

Other online auction sites include Yahoo! Auctions (auctions.yahoo.com), Amazon Auctions (www.amazon.com), FairMarket, Inc. (www.fairmarket.com) and Sotheby’s (www.sothebys.com).


 

4. Portal Model

 

Portal sites offer visitors the chance to find almost anything they are looking for in one place. They often provide news, sports and weather information, as well as the ability to search the Web. When most people hear the word “portal,” they think of search engines. Search engines are horizontal portals, or portals that aggregate information on a broad range of topics. Other portals are more specific, offering a great deal of information per-taining to a single area of interest; such portals are called vertical portals.

Online shopping is a popular feature of many major portals. Sites such as

Hotbot.com, About.com®, altavista.com and Yahoo.com® provide shopping pages that link users to thousands of sites carrying a variety of products.

 

Portals that link consumers to online merchants, online shopping malls and auction sites provide several advantages. These portals help users collect information on products and services, thus facilitating comparison shopping. Portals also allow users to browse independently owned storefronts—a capability that some online shopping malls fail to pro-vide. For example, Yahoo! permits users to browse a variety of sites while maintaining the convenience of paying through their Yahoo! account.

 

5. Name-Your-Price Model

 

The name-your-price business model empowers customers by allowing them to state the price they are willing to pay for products and services. Many e-businesses that offer this service have formed partnerships with leaders of various industries, such as travel, lending and retail. The online business passes each customer’s price request to an appropriate in-dustry partner, who decides whether to sell the product or service to the customer at the stat-ed price. A customer whose price is rejected can offer another price. However, if a price is accepted, the customer is obligated to make the purchase.

 

Many e-businesses use intelligent agents (such as shopping bots) to enhance their Web sites. Intelligent agents are programs that search, arrange and analyze large amounts of data. Shopping bots can both scour data contained within a single database or search the entire Web to find products and prices.

 

6. Comparison-Pricing Model

 

The comparison-pricing model allows customers to poll various merchants in search of the lowest price for a desired product or service. Comparison-pricing sites often generate rev-enue from partnerships with particular merchants. Although such sites can be convenient, users should be careful when employing these services, because they might not be getting the best prices available on the Web. Some services promote the products of merchants with which they have partnerships.


7. Demand-Sensitive Pricing Model

 

The Web empowers customers to demand better, faster service at cheaper prices by en-abling them to shop in large groups and obtain group discounts. The concept behind the de-mand-sensitive pricing business model is to sell products to groups of people in a single transaction, thus reducing the cost per person. The sale of individual products can be ex-pensive, because the vendor must include retail and overhead costs in the price while still generating a profit. By selling larger quantities to fewer buyers, a business can reduce sell-ing costs, enabling it to offer lower prices while retaining or increasing its profit margins. MobShopSM (www.mobshop.com) sells products for the home, electronics and comput-ers using the demand-sensitive pricing model. Pricing and products vary between Mob-Shop and similar sites. Therefore, customers should visit several such sites before making a purchase.

 

8. Bartering Model

 

Another popular e-business model is bartering, or the offering of one item in exchange for another. Itex.com (formerly Ubarter.com) allows individuals and companies to trade products through its site. At the site, traders make initial offers with the intention of bartering until they reach final agreements with buyers.

 

The business-to-business Web site iSolveSM (www.isolve.com), through which businesses can sell overstocked products and unneeded assets, also allows the sale of items on a barter basis. To conduct transactions at this site, potential customers send their pricing preferences to the merchant, who evaluates the offers. Final agreements often involve a combination of bartering and monetary payment.


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