Social Networking, MCommerce & Online Auctions

Electronic Commerce Ninth Edition
Chapter 6 Social Networking, Mobile Commerce, and Online Auctions
Learning Objectives
In this chapter, you will learn about: Social networking and online business activities Using mobile devices to do business online Online auctions and auction-related businesses
Electronic Commerce, Ninth Edition
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 Internets transaction cost-reduction potential with a communication facilitator role
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
Virtual Communities (contd.)

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
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
Early Web Communities (contd.)

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

Electronic Commerce, Ninth Edition 7
Social Networking in the Second Wave of Online Communities

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
Social Networking in the Second Wave of Online Communities (contd.)

Six Degrees (1997) Friendster (2002)
Had features found in todays social networking sites
LinkedIn: devoted to business connections Tribe.net YouTube: popularized video inclusion MySpace: popular with younger Web users Twitter
Users can send short messages to other users who sign up to follow their messages (tweets)

Basic idea behind social networking
People invited to join by existing members Site provides directory
New members work through friends established in the community
10
FIGURE 6-1 Social networking Web sites
11

Web logs (Blogs)
Web sites containing individual commentary on current events or specific issues Form of social networking site
Encourages interaction among people Visitors add comments
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

Retailers embracing blogs to engage site visitors
Bluefly.com online discount apparel retailer
Flypaper blog
Ice.com online jeweler

Blogs may encourage potential customers to visit online store
Business uses
CNN
Blog information included in television newscasts
13

Business uses (contd.)
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)
14

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
16

Social networking Web sites for shoppers (contd.)
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
17
18

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
20

Web portals
Combine portal and social networking features Typical portal offerings
Search engines, directories, free e-mail, news stories, weather reports
Social networking elements

Games and chat rooms Allow site visitors to interact with each other
Examples:
Yahoo!, AOL, MSN
Revenue Models for Social Networking Sites

By 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 revenuegeneration model
Included features offered by virtual community sites, search engine sites, Web directories, other informationproviding and entertainment sites
Goal: be every Web surfers doorway to the Web

Revenue Models for Social Networking Sites (contd.)

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 sites attractiveness
Rough measure of stickiness

Time user spends at the site
FIGURE 6-2 Popularity and stickiness of leading Web sites
24

Advertising-supported social networking sites (contd.)
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

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


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

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


Internal virtual communities
Provide social interaction among organizations employees Run on organizations 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
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
30
Mobile Operating Systems and Applications

Japan and Southeast Asia mobile commerce
Much larger online business activity
Had high-capacity networks early on
Mobile wallets
Mobile phones functioning as credit cards
Japans NTT DoCoMo phones combined capabilities

Generate significant business
31
Mobile Operating Systems and Applications (contd.)

United States mobile commerce capabilities began in 2008
Smart phone and high-capacity network introductions
Mobile commerce smart phone examples

Apple iPhone, Palm Pre, several BlackBerry models
Use the Android operating system Provide serious U.S. mobile commerce for the first time
32
FIGURE 6-3 Smart phones come in a range of different styles
33

Mobile commerce browser display options
Wireless Application Protocol (WAP)
Allows Web pages formatted in HTML to be displayed on devices with small screens
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
34

Mobile commerce browser display options (contd.)
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
35

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
Apple turned old revenue strategy on its head

Apple Apps for iPhone online store
Independent developers create apps and sell them
BlackBerry and Palm followed Apples lead

The Future of Mobile Commerce

Companies wanting mobile user commerce
Review Web sites for compatibility
May create separate Web sites for mobile users
Mobile phones for online banking

In early stages in the United States
Physicians using smart phones Phones global positioning satellite (GPS) service capabilities
Allow mobile business opportunities
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 Internets strength

Bring together geographically dispersed people sharing narrow interests
38
Auction Basics
From Babylon to the Roman Empire to Buddhists Common activity of 17th century England
Sothebys (1744), Christies (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
Auction Basics (contd.)

English auctions
Bidders publicly announce successively higher bids
Item sold to highest bidder (at bidders 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)
40

English auctions (contd.)
Reserve price (reserve)
Sellers 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

English auctions (contd.)
Seller drawback
May not obtain maximum possible price
Buyer drawback
Winners curse psychological phenomenon
Bidder gets caught up in competitive bidding excitement Bids more than their private valuation
42

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

Dutch auctions (contd.)
Often better for the seller Quickly move large numbers of commodity items Successful examples:
Google initial public offering stock sale (2004) LookSmart stock repurchase
44

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
45

Second-price sealed-bid auction
Same as first-price sealed-bid auction Except highest bidder awarded item at secondhighest 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

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

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


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
49
FIGURE 6-4 Key characteristics of seven major auction types

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
Online Auctions and Related Businesses (contd.)

General consumer auctions eBay: registration required, seller fees, rating system
Sellers risk: stolen credit cards; buyer fails to conclude transaction Buyers 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
52

General consumer auctions (contd.)
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

eBays success due to unspecified audience
Also spends $1 billion each 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
Overstock.com (still active)


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%)
55

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
56

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 buyers criteria
All these types of sites now closed


Consumer reverse auctions (contd.) 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
58

Group shopping sites
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

Group shopping sites (contd.) 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
Group purchasing sites closed


Business-to-business auctions
Evolved to meet specific existing need
Excess inventory disposal (manufacturing)
Two methods
Liquidation specialists: find buyers for unusable items Liquidation broker: firm that finds buyers for items
Online auctions
Logical extension of these inventory liquidation activities to a new and more efficient channel (Internet)
61

Business-to-business auctions (contd.)
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
62

Business-to-business auctions (contd.)
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
63

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
64

Business-to-business reverse auctions (contd.)
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
65
FIGURE 6-5 Supply chain characteristics and reverse auctions
66
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
67
Auction-Related Services (contd.)

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 items cost; subject to minimum fee

Auction escrow services (contd.)
Examples: Escrow.com, eDeposit, Square Trade May sell auction buyers 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 sellers rating Use Web site listings of unreliable sellers

Auction directory and information services
Example: Auctionguide.com
Guidance for new auction participants Helpful hints and tips for experienced participants Directories of online auction sites
Example: AuctionBytes
Publishes e-mail newsletter Online auction industry articles
70

Auction directory and information services (contd.)
Example: PriceWatch
Advertiser-supported site Advertisers post current selling prices Computer hardware, software, electronics
Example: PriceSCAN
Similar price-monitoring service Also includes books, movies, music, sporting goods
71

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
72

Auction software (contd.)
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 owners limit) Snipe: act of placing winning bid at the last second Almost always wins out over human bidder
73

Auction software (contd.)
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
Sniping software and services business information

AuctionBytes Web site
FIGURE 6-6 AuctionBytes home page


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, USA AuctionDrop

Auction consignment services (contd.)
Key to success
Convenient locations for customer drop off Open own stores, franchise stores
Electronic commerce first wave

Online auction business made possible by the Web
Electronic commerce second wave

Online auction business created opportunities:
For even more entirely new types of business
77
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

Summary (contd.)
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

Social Networking, MCommerce &amp; Online Auctions

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Electronic Commerce Ninth Edition

Chapter 6 Social Networking, Mobile Commerce, and Online Auctions

Electronic Commerce, Ninth Edition

From Virtual Communities to Social Networks

Companies make money by serving as relationship facilitators

Electronic Commerce, Ninth Edition

Early virtual communities

Electronic Commerce, Ninth Edition

Virtual Communities (contd.)

Electronic Commerce, Ninth Edition

Early Web Communities

1995: Beverly Hills Internet virtual community site

Electronic Commerce, Ninth Edition

Early Web Communities (contd.)

1995: Theglobe.com Cornell University class project

Revenue source: sold advertising

Most early Web community businesses closed

Social Networking in the Second Wave of Online Communities

Social networking sites

Social Networking in the Second Wave of Online Communities (contd.)

Electronic Commerce, Ninth Edition

Social Networking in the Second Wave of Online Communities (contd.)

Electronic Commerce, Ninth Edition

FIGURE 6-1 Social networking Web sites

Electronic Commerce, Ninth Edition

Social Networking in the Second Wave of Online Communities (contd.)

Social Networking in the Second Wave of Online Communities (contd.)

Ice.com online jeweler

Electronic Commerce, Ninth Edition

Social Networking in the Second Wave of Online Communities (contd.)

Blogs can become businesses in themselves

Electronic Commerce, Ninth Edition

Social Networking in the Second Wave of Online Communities (contd.)

Example: Etsy Web site

Electronic Commerce, Ninth Edition

Social Networking in the Second Wave of Online Communities (contd.)

Electronic Commerce, Ninth Edition

Electronic Commerce, Ninth Edition

Social Networking in the Second Wave of Online Communities (contd.)

Moodle and uPortal

Electronic Commerce, Ninth Edition

Social Networking in the Second Wave of Online Communities (contd.)

Social networking elements

Revenue Models for Social Networking Sites

Goal: be every Web surfers doorway to the Web

Revenue Models for Social Networking Sites (contd.)

Recall from Chapter 3:

Rough measure of stickiness

FIGURE 6-2 Popularity and stickiness of leading Web sites

Electronic Commerce, Ninth Edition

Revenue Models for Social Networking Sites (contd.)

High visitor counts

Second-wave advertising fees

Revenue Models for Social Networking Sites (contd.)

More examples: The Motley Fool and TheStreet.com

Revenue Models for Social Networking Sites (contd.)

Similar free services

Uclue (paid researchers earn 75 percent of total fee)

Revenue Models for Social Networking Sites (contd.)

Microlending key element

Examples: Kiva and MicroPlace

Revenue Models for Social Networking Sites (contd.)

2008: United States developments allowing phones as Web browsers

Electronic Commerce, Ninth Edition

Social Networking, MCommerce & Online Auctions

Social Networking, MCommerce & Online Auctions