Assignment W4 (E commease)
Electronic Commerce Tenth Edition
Chapter 6 Social Networking, Mobile Commerce, and Online Auctions
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Learning Objectives
In this chapter, you will learn:
How social networking emerged from virtual communities
How social networking tools such as blogs are used in online business activities
About mobile technologies that are now used to do business online
How online auctions and auction-related businesses have become a major new commercial activity introduced as part of electronic commerce
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From Virtual Communities to Social Networks
Online Web communities
Not limited by geography
Individuals and companies with common interests
Meet online and discuss issues, share information, generate ideas, and develop valuable relationships
Companies make money by serving as relationship facilitators
Combine Internet’s transaction cost-reduction potential with a communication facilitator role
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Virtual Communities
Virtual community (Web community, online community)
Gathering place for people and businesses
No physical existence
Early virtual communities
Bulletin board systems (BBSs)
Revenue source: monthly fees and selling advertising
Usenet newsgroups
Message posting areas on usenets
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Virtual Communities (cont’d.)
Current forms
Web chat rooms
Sites devoted to specific topics or general exchange of information, photos, videos
People connect and discuss common issues, interests
Considerable social interaction
Relationship-forming activities
Similar to physical communities
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Early Web Communities
1985: WELL (“whole earth ‘lectronic link”)
Monthly fee to participate in forums and conferences
1999 bought by Salon.com
1995: Beverly Hills Internet virtual community site
Offered webcams, free Web site space
Grew into GeoCities
Revenue source: advertising, pop-up pages
1999: purchased by Yahoo! ($5 billion)
Closed in 2009
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Early Web Communities (cont’d.)
1995: Tripod virtual community
Offered free Web page space, chat rooms, news, weather updates, health information pages
Revenue source: sold advertising
1995: Theglobe.com Cornell University class project
Included bulletin boards, chat rooms, discussion areas, personal ads
Added more features
Revenue source: sold advertising
Most early Web community businesses closed
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Social Networking Emerges
As the Internet and Web grew:
Experience of sharing new online communication faded
New phenomenon in online communication began
Multiple common bonds joined people with all types of common interests
Social networking sites
Allow individuals to create and publish a profile, create a list of other users with whom they share a connection (or connections), control that list, and monitor similar lists made by other users
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Social Networking Emerges (cont’d.)
Social networking sites
Six Degrees (1997)
Friendster (2002)
Had features found in today’s social networking sites
LinkedIn: devoted to business connections
Tribe.net
YouTube: popularized video inclusion
MySpace: popular with younger Web users
Users can send short messages to other users who sign up to follow their messages (tweets)
Google+
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Social Networking Emerges (cont’d.)
Basic idea behind social networking
People invited to join by existing members
Site provides directory
New members work through friends established in the community
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FIGURE 6-1 Social networking Web sites
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© Cengage Learning 2013
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FIGURE 6-2 Leading social networking sites around the world
© Cengage Learning 2013
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Social Networking Emerges (cont’d.)
Web logs (Blogs)
Web sites containing individual commentary on current events or specific issues
Form of social networking site
Twitter: microblog
Very informal; tweets limited to 140 characters
Early blogs focused on technology topics
2004: blogs used as political networking tool
2008: all major candidates using blogs
Communicating messages, organizing volunteers, raising money, meetups
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Social Networking Emerges (cont’d.)
Retailers embracing blogs
Way to engage visitors not ready to buy from site
Marketing and supply managers saw social networking benefits of enhancing B2B relationships
Business uses
CNN
Blog information included in television newscasts
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Social Networking Emerges (cont’d.)
Business uses (cont’d.)
Newspapers
Inviting information and opinion contributions
Targeting 18- to 35-year-old generation
Participatory journalism
Trend toward having readers help write the online newspaper
Blogs can become businesses in themselves
Must generate financial support (fees, advertising)
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Social Networking Emerges (cont’d.)
Social networking Web sites for shoppers
Social shopping
Practice of bringing buyers and sellers together in a social network to facilitate retail sales
Example: craigslist
Operated by not-for-profit foundation
All postings free (except help wanted ads)
Example: Etsy Web site
Marketplace for selling handmade items
We Love Etsy: Etsy buyers, sellers share information
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Social Networking Emerges (cont’d.)
Idea-based social networking
Social networking sites form communities based on connections among people
Idea-based virtual communities
Communities based on connections between ideas
Idea-based networking
Participating in idea-based virtual communities
Examples: del.icio.us site, 43 Things site
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Social Networking Emerges (cont’d.)
Virtual learning networks
Distance learning platforms for student-instructor interaction (Blackboard)
Tools include:
Bulletin boards, chat rooms, drawing boards
Moodle and uPortal
Open-source software projects devoted to virtual learning community development
Open source software
Developed by a programmer community
Software available for download at no cost
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Revenue Models for Social Networking Sites
Late 1990s
Revenue created by selling advertising
Used by virtual communities, search engine sites, Web directories
1998
Purchases and mergers occurred
New sites still used advertising-only revenue-generation model
Included features offered by virtual community sites, search engine sites, Web directories, other information-providing and entertainment sites
Web portal goal: every Web surfer’s doorway to Web
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Revenue Models for Social Networking Sites (cont’d.)
Advertising-supported social networking sites
Smaller sites with specialized appeal
Can draw enough visitors to generate significant advertising revenue
Example: I Can Has Cheezburger site
Recall from Chapter 3
Sites with higher number of visitors can charge more
Stickiness: important element in site’s attractiveness
Rough measure of stickiness
Time user spends at the site
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FIGURE 6-3 Popularity and stickiness of leading Web sites
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Revenue Models for Social Networking Sites (cont’d.)
Advertising-supported social networking sites (cont’d.)
Social networking sites
Members provide demographic information
Potential for targeted marketing: very high
High visitor counts
Can yield high advertising rates
Second-wave advertising fees
Based less on up-front site sponsorship payments
Based more on revenue generation from continuing relationships with people who use the social networking sites
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Revenue Models for Social Networking Sites (cont’d.)
Mixed-revenue and fee-for-service social networking sites
Most social networking sites use advertising
Some charge a fee for some services
Examples: Yahoo! All-Star Games package, Yahoo! premium e-mail service
Monetizing
Converting site visitors into fee-paying subscribers or purchasers of services
Concern: visitor backlash
More examples: The Motley Fool and TheStreet.com
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Revenue Models for Social Networking Sites (cont’d.)
Fee-based social networking
Google Answers site
Early attempt to monetize social networking
Questions answered for a fee
Google operated service from 2002 to 2006
Similar free services
Yahoo! Answers, Amazon (Askville)
Uclue (paid researchers earn 75 percent of total fee)
Advocates claim better quality
Fee-based Web sites can generate revenue by providing virtual community interaction
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Revenue Models for Social Networking Sites (cont’d.)
Microlending sites
Function as clearinghouses for microlending activity
Microlending
Practice of lending very small amounts of money
Lend to people starting or operating small businesses (especially in developing countries)
Microlending key element
Working within social network of borrowers
Provide support, element of pressure to repay
Examples: Kiva and MicroPlace
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Revenue Models for Social Networking Sites (cont’d.)
Internal social networking
Provide social interaction among organization’s employees
Run on organization’s intranet
Save money (less paper)
Provide easy access to employee information
Good for geographically dispersed employees
Adding wireless connectivity
Combine second-wave technology with first-wave business strategy
Wireless communications with internal Web portals
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Mobile Commerce
Short messaging service (SMS)
Allows mobile phone users to send short text messages to each other
2008: United States developments allowing phones as Web browsers
High-speed mobile telephone networks grew dramatically
Manufacturers offered range of smart phones with Web browser, operating system, applications
Potential for mobile commerce (m-commerce)
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Mobile Operating Systems
Japan and Southeast Asia mobile commerce
Much larger online business activity
Had high-capacity networks before U.S.
NTT DoCoMo, Japan’s largest phone company
Pioneered mobile commerce in 2000
U.S. mobile commerce beginning in 2008
Introduction of smart phones and high-capacity networks
Smart phone examples: Apple iPhone, Palm Pre, several BlackBerry models
Android operating system
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FIGURE 6-4 Smart phones come in a range of different styles
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Mobile Operating Systems (cont’d.)
Mobile commerce browser display options
Wireless Application Protocol (WAP)
Allows Web pages formatted in HTML to be displayed on small-screen devices
Display a normal Web page on the device
Made possible by increased screen resolution
Example: Apple iPhone
Design Web sites to match specific smart phones
Much more difficult to accomplish
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Mobile Operating Systems (cont’d.)
Mobile commerce browser display options (cont’d.)
Apple, BlackBerry, Palm
Use proprietary operating systems
HTC, Motorola, Nokia
At one time created their own operating systems and software applications
Now use a standard operating system provided by a third party
Most common third-party operating systems
Android, Windows Mobile, Symbian
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Mobile Operating Systems (cont’d.)
Android operating system
Most popular and fastest growing third-party operating system
Developed by Google
Open source
Smart phone operating system
Cannot be deleted/switched by user
Operating system modifications
Jailbreaking (Apple iphone’s operating system)
Rooting (Android operating system)
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FIGURE 6-5 Smart phones operating systems: U.S. market shares
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Mobile Apps
Common operating systems emergence
Occurred due to a change in the way software applications developed and sold
Old U.S. mobile phone company revenue strategy
Control application software (apps)
Apple turned old revenue strategy on its head
AT&T agreed to be sole carrier for iPhone
Apple Apps for iPhone online store
Independent developers create apps and sell them
BlackBerry and Palm followed Apple’s lead
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Mobile Apps (cont’d.)
Recap from Chapter 4
Some mobile app sellers include advertising element
Messages displayed from advertisers
Part of the app screen or in a separate screen
Mobile apps’ advertising space marketed in same way as Web sites’ banner advertising
Companies moving to mobile commerce
Determine suitability of Web site to mobile devices
May be pertinent to develop separate Web site optimized for mobile users
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Mobile Apps (cont’d.)
Mobile phones for online banking
In early stages in the United States
Physicians using smart phones
Read EKGs, managing diabetic patients
Medical students: Epocrates (drug information database)
Phones’ global positioning satellite (GPS) service capabilities
Allow mobile business opportunities
Apps tools/resources
Swebapps, App Inventor, TaskCity
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Tablet Devices
Tablet devices
2010: Apple’s iPad introduced
Smaller than laptop computer; larger than smart phone
Wireless phone carrier’s service or local wireless network Internet connection
Larger screen size better suited for online consumer products purchases
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Mobile Payment Apps
Mobile wallets
Mobile phones functioning as credit cards
Japan’s NTT DoCoMo phones combined capabilities
Generate significant business
Widespread credit card use in U.S. has limited use of mobile phone payments
2011: Phone readers offered by American Express, Visa, MasterCard
Google Wallet for Android phones introduced
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Online Auctions
Business opportunity perfect for the Web
Auction site revenue sources
Charging both buyers and sellers to participate
Selling advertising
Targeted advertising opportunities available
Online auctions capitalize on Internet’s strength
Bring together geographically dispersed people sharing narrow interests
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Auction Basics
From Babylon to the Roman Empire to Buddhists
Common activity of 17th century England
Sotheby’s (1744), Christie’s (1766), colonial auctions
Auction: seller offering item for sale
Bids: price potential buyer willing to pay
Bidders: potential buyers
Private valuations: amounts buyer willing to pay
Auctioneer: manages auction process
Shill bidders: work for seller or auctioneer
May artificially inflate price
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Auction Basics (cont’d.)
English auctions
Bidders publicly announce successively higher bids
Item sold to highest bidder (at bidder’s price)
Also called ascending-price auction
Open auction (open-outcry auction)
Bids publicly announced
Minimum bid
Beginning price
If not met, item removed (not sold)
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Auction Basics (cont’d.)
English auctions (cont’d.)
Reserve price (reserve)
Seller’s minimum acceptable price
Not announced
If not exceeded, item withdrawn (not sold)
Yankee auction
Multiple item units offered for sale (bidders specify quantity)
Highest bidder allotted bid quantity
Remaining items allocated to next highest bidders until all items distributed
Bidders pay lowest successful bidder price
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Auction Basics (cont’d.)
English auctions (cont’d.)
Seller drawback
May not obtain maximum possible price
Buyer drawback
Winner’s curse psychological phenomenon
Bidder gets caught up in competitive bidding excitement
Bids more than their private valuation
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Auction Basics (cont’d.)
Dutch auctions
Open auction
Bidding starts at a high price
Drops until bidder accepts price
Also called descending-price auctions
Seller offers number of similar items for sale
Common implementation
Use a clock (price drops with each tick)
Bidders stop clock and take items at the given price
If items remain, clock restarted
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Auction Basics (cont’d.)
Dutch auctions (cont’d.)
Often better for the seller
Quickly move large numbers of commodity items
Successful examples:
Google initial public offering stock sale (2004)
LookSmart stock repurchase
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Auction Basics (cont’d.)
First-price sealed-bid auctions
Sealed-bid auctions
Bidders submit bids independently
Prohibited from sharing information
First-price sealed-bid auction
Highest bidder wins
If multiple items auctioned, next highest bidders awarded remaining items at their bid price
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Auction Basics (cont’d.)
Second-price sealed-bid auction
Same as first-price sealed-bid auction
Except highest bidder awarded item at second-highest bidder price
Commonly called Vickrey auctions
William Vickrey: 1996 Nobel Prize in Economics
Findings:
Yields higher seller returns
Encourages all bidders to bid private valuation amounts
Reduces tendency for bidder collusion
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Auction Basics (cont’d.)
Open-outcry double auctions
Example: Chicago Board of Trade auctions of commodity futures and stock options
Buy and sell offers shouted by traders in trading pit
Each commodity, stock option traded in own pit
Quite frenzied
Double auctions (either sealed bid or open outcry)
Good for items of known quality traded in large quantities
No item inspection before bidding
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Auction Basics (cont’d.)
Double auctions
Buyers, sellers submit combined price-quantity bids
Auctioneer
Matches sellers’ offers
Starts with lowest price and then goes up
To buyers’ offers
Starts with highest price and then goes down until all quantities offered are sold
Operation format: Sealed bid or open-outcry
Example: New York Stock Exchange
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Auction Basics (cont’d.)
Reverse (seller-bid) auction
Multiple sellers submit price bids
Auctioneer represents single buyer
Bids for given amount of specific item to purchase
Prices go down as bidding continues
Until no seller willing to bid lower
Occasionally operated for consumers
Most involve businesses as buyers and sellers
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FIGURE 6-6 Key characteristics of seven major auction types
Click to edit Master text styles
Second level
Third level
Fourth level
Fifth level
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Online Auctions and Related Businesses
Online auction business: rapidly changing
Three auction Web site categories
General consumer auctions
Specialty consumer auctions
Business-to-business auctions
Varying opinions on categorizing consumer auctions
Business-to-consumer
Consumer-to-consumer
Consumer-to-business
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Online Auctions and Related Businesses (cont’d.)
General consumer auctions
eBay: registration required, seller fees, rating system
Seller’s risk: buyer uses stolen credit card; buyer fails to conclude transaction
Buyer’s risk: no item delivery; misrepresented item
Most common auction format: English auction
Seller may set reserve price
Bidders listed: bids not disclosed (until auction end)
Continually updated high bid amount displayed
Private auction option available
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Online Auctions and Related Businesses (cont’d.)
General consumer auctions (cont’d.)
Another eBay auction format: Dutch auction
Both formats require minimum bid increment
Amount by which one bid must exceed previous bid
Proxy bid
Bidder specifies maximum bid
May cause bidding to rise rapidly
eBay stores
Integrated into auction site
Sellers generate additional profits
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Online Auctions and Related Businesses (cont’d.)
Competition in general consumer auctions
eBay’s success due to unspecified audience
Also spends $1 billion per year to market and promote Web site
Major determinants of Web auction site success
Attracting enough buyers and sellers
Yahoo! Auction operation closed in 2007
Amazon.com with “Auctions Guarantee”
Offered buyer protection through escrow service
Closed in 2006
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Future challengers to eBay
Must overcome lock-in effect
New auction participants inclined to patronize established marketplaces
Example: Japanese general consumer auction
Yahoo! first to enter market
Now dominates (more than 90% market share)
eBay maintains low market share (less than 3%)
Online Auctions and Related Businesses (cont’d.)
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Specialty consumer auctions
Identify special-interest market targets
Create specialized Web auction sites
No need to compete with eBay
Examples:
JustBeads.com, Cigarbid.com, Winebid
Online Auctions and Related Businesses (cont’d.)
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Consumer reverse auctions
Reverse bid
Visitor describes desired items or services
Site routes visitor to participating merchants
Reply to visitor by e-mail
Offer item at particular price
Buyer accepts
Lowest offer
Offer best matching buyer’s criteria
All these types of sites now closed
Online Auctions and Related Businesses (cont’d.)
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Consumer reverse auctions (cont’d.)
Priceline.com
Considered a seller-bid auction site
Visitor states desired airline ticket, car rental, hotel room price
If sufficiently high price: transaction completed
Many transactions come from inventory
Priceline operates more as a liquidation broker
Online Auctions and Related Businesses (cont’d.)
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Group shopping sites
Also known as group purchasing site
Seller posts item with tentative price
Individual buyers enter bids
Agreement to buy one unit (no price provided)
Site negotiates with seller for lower price
Posted price decreases
As number of bids increases (only if number of bids increases)
Result: buyers force seller to reduce price
Similar to consumer reverse auction
Online Auctions and Related Businesses (cont’d.)
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Group shopping sites (cont’d.)
Well-suited product types
Branded products, well-established reputations
Produces buyer confidence of good bargain
High value-to-size ratio, non-perishable
Disadvantages
Difficulty attracting sellers’ interest
Well-suited companies
Find no advantage, fear sites cannibalize product sales, reluctant to offend current distributors
Mercata and LetsBuyIt sites closed
Successful sites: Groupon, LivingSocial, Gilt
Online Auctions and Related Businesses (cont’d.)
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Business-to-business auctions
Evolved to meet specific existing need
Excess inventory disposal (manufacturing)
Two methods
Liquidation specialists: find buyers for unusable items
Liquidation brokers: firms that finds buyers for items
Online auctions
Logical extension of these inventory liquidation activities to a new and more efficient channel (Internet)
Online Auctions and Related Businesses (cont’d.)
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Business-to-business auctions (cont’d.)
Emerging business-to-business Web auction models
Large-company model: creates own auction site
Small-company model: uses third-party Web auction site instead of liquidation broker
Both are direct descendants of traditional methods
Online Auctions and Related Businesses (cont’d.)
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Business-to-business auctions (cont’d.)
Third emerging business-to-business Web auction model
New business entity enters market lacking efficiency and creates a site at which buyers and sellers who have not historically done business with each other can participate in auctions
Resembles consumer online auctions
Example: hospitals using online auctions to fill temporary employment openings
Online Auctions and Related Businesses (cont’d.)
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Business-to-business reverse auctions
Example: Owens Corning purchases
Examples: Agilent, Bechtel, Boeing, Raytheon, Sony
Potential disadvantage
Suppliers compete on price alone
Cut corners on quality or miss scheduled delivery dates
Potential advantage
Useful for nonstrategic commodity items with established quality standards
Online Auctions and Related Businesses (cont’d.)
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Business-to-business reverse auctions (cont’d.)
Companies opting out
Cisco, Cubic, IBM, Solar Turbines
If suppliers do not participate:
Impossible to conduct reverse auctions
If competition high among suppliers:
Reverse auctions provide efficient way to conduct, manage price bidding
Online Auctions and Related Businesses (cont’d.)
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FIGURE 6-7 Supply chain characteristics and reverse auctions
Click to edit Master text styles
Second level
Third level
Fourth level
Fifth level
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Auction-Related Services
Entrepreneurs encouraged by eBay and other auction site growth
Provide various kinds of auction-related services
Escrow services
Auction directory and information services
Auction software (for sellers and buyers)
Auction consignment services
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Auction-Related Services (cont’d.)
Auction escrow services
Buyers’ common concern: seller reliability
Buyers protect interests in high-value items
Independent party holds payment until:
Buyer receives item
Buyer satisfied item is as expected
May take delivery of item from seller
Perform buyer inspection (qualified to do so)
Charge fees
Percent of item’s cost, subject to minimum fee
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Auction-Related Services (cont’d.)
Auction escrow services (cont’d.)
Examples: Escrow.com, eDeposit
May sell auction buyer’s insurance
Protect buyers from nondelivery and quality risks
Avoid escrow fraud
Determine if licensed, bonded (licensing agency)
Avoid offshore escrow companies entirely
Other buyer protections
Check seller’s rating
Use Web site listings of unreliable sellers
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Auction-Related Services (cont’d.)
Auction directory and information services
Example: AuctionBytes
Publishes e-mail newsletter
Online auction industry articles
Example: Price Watch
Advertiser-supported site
Advertisers post current selling prices
Computer hardware, software, electronics
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Auction-Related Services (cont’d.)
Auction software
Target: sellers
Helps manage online auctions
Example: AuctionHawk and Vendio
Seller management software and services
Automate tasks
Create attractive page layouts
Manage hundreds of auctions
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Auction-Related Services (cont’d.)
Auction software (cont’d.)
Target: buyers
Helps manage online auctions
Sniping software
Observes auction progress until last second
As auction expires: places bid high enough to win (unless bid exceeds sniping software owner’s limit)
Snipe: act of placing winning bid at the last second
Almost always wins out over human bidder
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Auction-Related Services (cont’d.)
Auction software (cont’d.)
Example: Cricket Sniping Software site
Created in 1997 by David Eccles
Companies offer sniping service
Sniping software runs on company Web site
Customer enters instructions on site
Company may offer subscriptions
Company may offer mixed-revenue model
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Auction-Related Services (cont’d.)
Auction consignment services
Target: people and small businesses
Want to use online auction
Do not have skills, time to become a seller
Auction consignment services
Take item and create online auction for that item
Handle transaction
Remit proceeds balance (after deducting fee)
Main auction consignment businesses
ePowerSellers, iSold It
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Summary
Companies using the Web for entirely new things
Creating social networks
Using mobile technologies to make sales and increase operational efficiency
Operating auction sites
Conducting related businesses
Businesses creating online communities to connect with customers and suppliers
Individuals using social networking sites
Personal and business-related interactions
Mobile commerce opportunities emerging
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Summary (cont’d.)
Companies’ internal social networking sites
Facilitate employee communication
Online auctions used to sell goods to customers and buy from suppliers
Seven major auction types
Consumer online auction business dominated by eBay (United States)
Ancillary service businesses support auctions
B2B auctions and reverse auctions
New methods of inventory disposal, procurement
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