DU SOL B.Com 3rd Year E-Commerce Notes Chapter 6 Applications in E-Commerce

DU SOL B.Com 3rd Year E-Commerce Notes Chapter 6 Applications in E-Commerce

Question 1.
Write a short note on E-commerce applications in manufacturing, wholesale, retail and service sector.
Answer:
Online Shopping. When organizations go online, they have to decide which e-business models best suit their goals. A business model is defined as the organization of product, service and information flows, and the source of revenues and benefits for suppliers and customers. The concept of e-business model is the same but used in the online presence. The following is a list of the currently most adopted e-business models:

Online shopping is the process consumers go through to purchase products or services over the Internet. An online shop, e-shop, e-store, Internet shop, webshop, online store, or virtual store evokes the physical analogy of buying products or services at a bricks-and-mortar retailer or in a shopping mall.

The metaphor of an online catalog is also used, by analogy with mail order catalogs. All types of stores have retail web sites, including those that do and do not also have physical storefronts and paper catalogs.

Online shopping is a type of electronic commerce used for business-to- business (B2B) and business-to-consumer (B2C) transactions.

Logistics: Consumers find a product of interest by visiting the website of the retailer directly, or do a search across many different vendors using a shopping search engine.

Once a particular product has been found on the web site of the seller, most online retailers use shopping cart software to allow the consumer to accumulate multiple items and to adjust quantities, by analogy with filling a physical shopping cart or basket in a conventional store. A “checkout” process follows (continuing the physical-store analogy) in which payment and deliveiy information is collected, if necessary. Some stores allow consumers to sign up for a permanent online account so that some or all of this information only needs to be entered once. The consumer often receives an e-mail confirmation once the transaction is complete. Less sophisticated stores may rely on consumers to phone or e-mail their orders (though credit card numbers are not accepted by e-mail, for security reasons).

Payment: Online shoppers commonly use their credit card for making payments, however some systems enable users to create accounts and pay by alternative means, such as –

  1. Debit card
  2. Various types of
  3. electronic money
  4. Cash on delivery (C.O.D., offered by very few online stores)
  5. Cheque
  6. Wire transfer/delivery on payment
  7. Postal money order
  8. PayPal
  9. Google Checkout
  10. Moneybookers
  11. Reverse SMS billing to mobile phones
  12. Gift cards
  13. Direct Debit in some countries

Some sites will not allow international credit cards and billing address and shipping address have to be in the same country in which site does its business. Other sites allow customers from anywhere to send gifts anywhere. The financial part of a transaction might be processed in real time (for example, letting the consumer know their credit card was declined before they tog off), or might be done later as part of the fulfillment process.

While credit cards are currently the most popular means of paying for online goods and services, alternative online payments will account for 26% of e-commerce volume by 2009 according to Gelent.

Product delivery. Once a payment has been accepted the goods or services can be delivered in the following ways.

  • Download: This is the method often used for digital media products such as software, music, movies, or images.
  • Shipping: The product is shipped to the customer’s address.
  • Drop shipping: The order is passed to the manufacturer or third- party distributor, who ships the item directly to the consumer, bypassing the retailer’s physical location to save time, money, and space.
  • In-store pickup: The customer orders online, finds a local store using locator software and picks the product up at the closest store. This is the method often used in the bricks and clicks business model.

Shopping Cart Systems :

  • Simple systems allow the offline administration of products and categories. The shop is then generated as HTML files and graphics that can be uploaded to a webspace. These systems do not use an online database.
  • A high end solution can be bought or rented as a standalone program
    or as an addition to an Enterprise resource planning program. It is usually installed on the company’s own Webserver and may integrate very well into the existing supply chain so that ordering, payment, delivery, accounting and warehousing can be automated to a large extent.
  • Other solutions allow the user to register and create an online shop on a portal that hosts multiple shops at the same time.
  • open source shopping cart packages include Commerce, Magento and Zen Cart. Virtuemart is a shopping extension for the extremely popular CMS Joomla.
  • Commercial systems can also be tailored to ones needs so that the shop does not have to be created from scratch. By using a framework already existing, software modules for different functionalities required by a webshop can be adapted and combined.

Market share. E-commerce product sales totaled $146.4 billion in the United States in 2006, representing about 6% of retail product sales in the country. The $18.3 billion worth of clothes sold online represented about 10% of the domestic market.

For developing countries and low-income households in developed countries, adoption of e-commerce in place of or in addition to conventional methods is limited by a lack of affordable Internet access.

Advantages and Disadvantages:

Convenience: Online stores are usually available 24 hours a day, and many consumers have Internet access both at work and at home. A visit to a conventional retail store requires travel and must take place during business hours.

Searching or browsing an online catalog can be faster than browsing the aisles of a physical store. Consumers with dial-up Internet connections rather than broadband have much longer load times for content-rich web sites, and have a considerably slower online shopping experience. Some consumers prefer interacting with people rather than computers (and vice versa), sometimes because they find computers hard to use. Not all online retailers have succeeded in making their sites easy to use or reliable.

In most cases, merchandise must be shipped to the consumer, introducing a significant delay and potentially uncertainty about whether or not the item was actually in stock at the time of purchase. Bricks-and-Clicks stores offer the ability to buy online but pick up in a nearby store. Many stores give the consumer the delivery company’s tracking number for their package when shipped, so they can check its status online and know exactly when it will arrive.

For efficiency reasons, online stores generally do not ship products immediately upon receiving an order. Orders are only filled during warehouse operating hours, and there may be a delay of anywhere from a few minutes to a few days to a few weeks before in-stock items are actually packaged and shipped. Many retailers inform customers how long they can expect to wait before receiving a package, and whether or not they generally have a fulfillment backlog. A quick response time is sometimes an important factor in consumers’ choice of merchant.

In the event of a problem with the item – it is not what the consumer ordered, or it is not what they expected – consumers are concerned with the ease with which they can return an item for the correct one or for a refund. Consumers may need to contact the retailer, visit the post office and pay return shipping, and then wait for a replacement or refund. Some online companies have more generous return policies to compensate for the traditional advantage of physical stores.

For example, the online shoe retailer Zappos.com includes labels for free return shipping, and does not charge a restocking fee, even for returns which are not the result of merchant error. (Note: In the United Kingdom, Online shops are prohibited from charging a restocking fee if the consumer cancels their order in accordance with the Consumer Protection (Distance Selling) Act 2000.

Information and reviews: Online stores must describe products for sale with text, photos, and multimedia files, whereas in a physical retail store, the actual product and the manufacturer’s packaging will be available for direct inspection (which might involve a test drive, fitting, or other experimentation).

Some online stores provide or link to supplemental product information, such as instructions, safety procedures, demonstrations, or manufacturer specifications. Some provide background information, advice, or how-to guides designed to help consumers decide which product to buy.

Some stores even allow customers to comment or rate their items. There are also dedicated review sites that host user reviews for different products.

In a conventional retail store, clerks are generally available to answer questions. Some online stores have real-time chat features, but most rely on email or phone calls to handle customer questions.

Price and selection: One advantage of shopping online is being able to quickly seek out deals for items or services with many different vendors (though some local search engines do exist to help consumers locate products for sale in nearby stores). Search engines and online price comparison services can be used to look up sellers of a particular product or service.

Shoppers find a greater selection online in certain market segments (for example, computers and consumer electronics and in some cases lower prices. This is due to a relaxation of certain constraints, such as the size of a “brick- and-mortar” store, lower stocking costs (or none, if drop shipping is used), and lower staffing overhead.

Shipping costs (if applicable) reduce the price advantage of online merchandise, though depending on the jurisdiction, a lack of sales tax may compensate for this.

Shipping a small number of items, especially from another country, is much more expensive than making the larger shipments bricks-and-mortar retailers order. Some retailers (especially those selling small, high-value items like electronics) offer free shipping on sufficiently large orders.

Fraud and security concerns: Given the lack of ability to inspect merchandise before purchase, consumers are at higher risk of fraud on the part of the merchant than in a physical store. Merchants also risk fraudulent purchases using stolen credit cards or fraudulent repudiation of the online purchase. With a warehouse instead of a retail storefront, merchants face less risk from physical theft.

Secure Sockets Layer (SSL) encryption has generally solved the problem of credit card, numbers being intercepted in transit between the consumer and the merchant. Identity theft is still a concern ‘for consumers when hackers break into a merchant’s web site and steal names, addresses and credit card numbers. A number of high-profde break-ins in the 2000s has prompted some U.S. states to require disclosure to consumers when this happens. Computer security has thus become a major concern for merchants and e-commerce service providers, who deploy countermeasures such as firewalls and antivirus software to protect their networks.

Phishing is another danger, where consumers are fooled into thinking they are dealing with a reputable retailer, when they have actually been manipulated into feeding private information to a system operated by a malicious party. On the other hand, dealing with an automated system instead of a population of store clerks reduces the risk of employees stealing consumer information, or dumpster diving of paper receipts. Denial of service attacks are a minor risk for merchants, as are server and network outages.

Quality seals can be placed on the Shop webpage if it has undergone an independent assessment and meets all requirements of the company issuing the seal. The purpose of these seals is to increase the confidence of the online shoppers; the existence of many different seals, or seals unfamiliar to consumers, may foil this effort to a certain extent.

A number of resources offer advice on how consumers can protect themselves when using online retailer services.

These include –

  • Sticking with known stores, or attempting to find independent consumer reviews of their experiences; also ensuring that there is comprehensive contact information on the website before using the service, and noting if the retailer has enrolled in industry oversight programs such as trustmark or trust seal.
  • Ensuring that the retailer has an acceptable privacy policy posted. For example note if the retailer does not explicitly state that it will not share private information with others without consent.
  • Ensuring that the vendor address is protected with SSL (see above) when entering credit card information. If it does the address on the credit card information entry screen will start with “HTTPS”.
  • Using strong passwords, without personal information. Another option is a “pass phrase,” which might be something along the lines: “I shop 4 good a buy!!” These are difficult to hack, and provides a variety of upper, lower, and special characters and could be site specific and easy to remember.

Privacy: Privacy of personal information is a significant issue for some consumers. Different legal jurisdictions have different laws concerning consumer privacy, and different levels of enforcement. Many consumers wish to avoid spam and telemarketing which could result from supplying contact information to an online merchant. In response, many merchants promise not to use consumer information for these purposes, or provide a mechanism to opt-out of such contacts.

Brick-and-mortar stores also collect consumer information. Some ask for address and phone number at checkout, though consumers may refuse to provide it. Many larger stores use the address information encoded on consumers’ credit cards (often without their knowledge) to add them to a catalog mailing list. This information is obviously not accessible to the merchant when paying in cash.

E-Procurement: E-procurement (electronic procurement, sometimes also known as supplier exchange) is the business-to-business or business-to- consumer purchase and sale of supplies and services through the Internet as well as other information and networking systems, such as Electronic Data Interchange and Enterprise Resource Planning. Typically, e-procurement Web sites allow qualified and registered users to look for buyers or sellers of goods and services.

Depending on the approach, buyers or sellers may specify costs or invite bids. Transactions can be initiated and completed. Ongoing purchases may qualify customers for volume discounts or special offers. E-procurement software may make it possible to automate some buying and selling. Companies participating expect to be able to control parts inventories more effectively, reduce purchasing agent overhead, and improve manufacturing cycles. E- procurement is expected to be integrated with the trend toward computerized supply chain management.

E-procurement is done with a software application that includes features for supplier management and complex auctions. eBay’s tools for its sellers have similar features.
There are six main types of e-procurement –

  • Web-based ERP (Electronic Resource Planning): Creating and approving purchasing requisitions, placing purchase orders and receiving goods and services by using a software system based on Internet technology. *
  • e-MRO (Maintenance, Repair and Operating): The same as web-based ERP except that the goods and services ordered are non-product related MRO supplies.
  • e-sourcing: Identifying new suppliers for a specific category of purchasing requirements using Internet technology.
  • e-tendering: Sending requests for information and prices to suppliers and receiving the responses of suppliers using Internet technology.
  • e-reverse auctioning: Using Internet technology to buy goods and services from a number of known or unknown suppliers.
  • e-informing: Gathering and distributing purchasing information both from and to internal and external parties using Internet technology.

The e-procurement value chain consists of Indent Management, eTendering, eAuctioning, Vendor Management, Catalogue Management, and f Contract Management. Indent Management is the workflow involved in the preparation of tenders. This part of the value chain is optional, with individual procuring departments defining their indenting process. In works procurement, administrative approval and technical sanction are obtained in electronic format. In goods procurement, indent generation activity is done online. The end result of the stage is taken as inputs for issuing the NIT.

Elements of e-procurement include Request For Information, Request For Proposal, Request for Quotation, RFx (the previous three together), and eRFx (software for managing RFx projects).

Advantages And Disadvantages :

Advantages include getting the right product, from the right supplier, at ‘ the right time, for the right price and the right quantity. In reality e-procurement has the advantage of taking supply chain management to the next level, providing real time information to the vendor as to the status of a customer’s needs.

For example, a vendor may have an agreement with a customer to » automatically ship materials when the customer’s stock level reaches a low, point, thus bypassing the need for the customer to ask for it. A major disadvantage to this type of agreement could be that the vendor has the power 1 – to take advantage of the customer by knowing more information about the customer than they would have if the customer was in a normal supply chain management structure.

Reverse Auction: A reverse auction (also called procurement auction, e- t ‘ auction, sourcing event, e-sourcing or eRA) is a tool used in industrial business-to-business procurement. It is a type of auction in which the role of the buyer j and seller are reversed, with the primary objective to drive purchase prices downward. In an ordinary auction (also known as a forward auction), buyers compete to obtain a good or service. In a reverse auction, sellers compete to obtain business.

Introduction: Reverse auction is a tool used by many purchasing and supply management organizations for spend management, as part of strategic sourcing and overall supply management activities.
In a typical auction, the seller puts an item up for sale. Multiple buyers bid for the item and depending on the nature of the auction (English or Dutch), and one or more of the highest bidders buy the goods at a price determined at the conclusion of the bidding.

In a reverse auction, a buyer contracts with a market maker to help make the necessary preparations to conduct the reverse auction. This includes: finding new suppliers, training new and incumbent suppliers, organizing the auction, managing the auction event, and providing auction data to buyers to facilitate decision making.

The market maker, on behalf of the buyer, issues a request for quotation (RFQ) to purchase a particular item or group of items (called a “lot”). At the designated day and time, several suppliers, typically 5-20, log on to the auction site and will input several quotes over a 30-90 minute period. These quotes reflect the prices at which they are willing to supply the requested good or service.

Quoting performed in real-time via the Internet results in dynamic bidding.
This helps achieve rapid downward price pressure that is not normally attainable using traditional static 3-quote paper-based bidding processes.

The prices that buyers obtain in the reverse auction reflect the narrow market which it created at the moment in time when the auction is held. Thus, it is possible that better value – i.e. lower prices, as well as better quality, delivery performance, technical capabilities, etc. – could be obtained from suppliers not engaged in the bidding or by other means such as collaborative cost management and joint process improvement.

The buyer may award contracts to the supplier who bid the lowest price. Or, a buyer could award contracts to suppliers who bid higher prices depending upon the buyer’s specific needs with regards to quality, lead-time, capacity, or other value-adding capabilities. However, buyers frequently award contracts to incumbent (i.e. current) suppliers, even if prices are higher than the lowest bids, because the switching costs to move work to a new’ supplier are higher than the potential savings that can be realized. This outcome, while very attractive to buyers, is often strongly criticized by both new and incumbent suppliers. An example of this can be seen at a B2B site Printmehappy.com.

The use of Optimization software has become popular since about 2002 to help buyers determine which supplier to source the work to. It includes relevant buyer and seller business data, including constraints.

Reverse auctions are used to fill both large and small value contracts for public and private commercial organizations. In addition to items traditionally thought of as commodities, reverse auctions are also used to source buyer designed goods and services, and has even been used to source reverse auction providers. The first time this occurred was in August of 2001, by America West Airlines (now US Airways) using FreeMarkets software.

The majority of purchasing spend subject to reverse auctions over the years has been in the category of buyer-designed goods, followed by services, and then commodity items. Today, an average of 5% of total corporate spending is sourced using reverse auctions. This figure was higher in past years, indicating the goods and services to which reverse auctions can be successfully applied is limited.

Issues and Opportunities: Buyers, sellers, and market makers should adhere to auction rules and industry codes of conduct for the use of reverse auctions, if they exist. Problems arise when one or more parties fail to conform to auction rules. This can range from simple cries of “foul” to litigation.

Buyers should not assume that reverse auctions will, in every case, deliver savings – either on a unit price or total cost basis. Reverse auction savings can range from negative (i.e. it costs the buyer money) to neutral (i.e. no savings) to positive savings (average gross of 10-20%, but net savings is typically half or less).

A true representation of savings can not be achieved if unit price-focused purchasing metrics such as “purchase price variance,” “purchase order variance,” or “material price variance” are used. Instead, total cost savings must be calculated, inclusive of direct and indirect losses associated with using reverse actions, implementing reverse auction results, subsequent procurement activity, and related activities such as customer returns, defective goods or services, warranty expense, litigation, etc.

Suppliers are advised to determine if a value proposition exists for them that would warrant their participation.

Some have characterized reverse auctions as a technologically-assisted form of zero-sum power-based bargaining, or as “going in reverse” with respect to developing buyer-seller relationships, collaboration, and purchasing process improvement. Reverse auctions have also been criticized as “bid shopping” – when a buyer uses a supplier’s bid to obtain lower prices from other suppliers.

Suppliers seeking to avoid reverse auctions can create unique intellectual property, expand the value propositions for its customers by creating new products and services, or seek to extend or improve collaborative activities with their customers.

Reverse auctions used in industrial business-to-business procurement and spend management activities remains controversial, both within buying organizations, among suppliers, and among the academics who study them. As such, buyers considering the use reverse auctions should carefully evaluate all available information, both favorable and unfavorable, to ensure that informed business decisions are made.

Virtual Community: A virtual community, e-community or online community is a group of people that primarily interact via communication media such as letters, telephone, email or Usenet rather than face to face. If the mechanism is a computer network, it is called an online community.

Virtual and online communities have also become a supplemental form of communication between people who know each other primarily in real life. Many means are used in social software separately or in combination, including text-based chatrooms and forums that use voice, video text or avatars. Significant socio-technical change may have resulted from the proliferation of such Internet-based social networks.

The agglomeration of all online communities is sometimes called the metaverse.

Overview: The idea that media could generate a community isn’t a new idea. In the 17th-century, scholars associated with the Royal Society of London formed a community through the exchange of letters. Community without propinquity, coined by urban planner Melvin Webber in 1963 and “community liberated,” analyzed by Barry Wellman in 1979 began the modem era of thinking about non-local community. As well, Benedict Anderson’s Imagined Communities in 1983, described how different technologies, such as national newspapers, contributed to the development of national and regional consciousness among early nation-states.

The term “community”, when used to describe virtual communities, is contentious in some circles. The traditional definition of a community is of a geographically circumscribed entity (neighborhoods, villages, etc). Virtual communities, of course, are usually dispersed geographically, and therefore are not communities under the original definition.

Some online communities are linked geographically, and are known as community websites. However, if one considers communities to simply possess boundaries of some sort between their members and non-members, then a virtual community is certainly a community. The idea of neatly bounded communities is also being critiqued, since communities are fluid just as much as they are static, with members joining and leaving and even being part of different communities simultaneously.

The term virtual community is attributed to the book of the same title by Howard Rheingold, published in 1993. The book discussed his adventures on The WELL and onward into a range of computer-mediated communication and social groups. The technologies included Usenet, MUDs (Multi-User Dungeon) and their derivatives MUSHes and MOOs, IRC (Internet Relay Chat), chat rooms and electronic mailing lists; the World Wide Web as we know it today was not yet used by many people. Rheingold pointed out the potential benefits for personal psychological well-being, as well as for society at large, of belonging to such a group.

Rheingold’s Virtual Community could be compared with Mark Granovetter’s ground-breaking “strength of weak ties” article published twenty years earlier in the American Journal of Sociology. Rheingold translated, practiced and published Granovetter’s conjectures about strong and weak ties in the online world. His comment on the first page even illustrates the social networks in the virtual society:

“My seven year old daughter knows that her father congregates with a family of invisible friends who seem to gather in his computer. Sometimes he talks to them, even if nobody else can see them. And she knows that these invisible friends sometimes show up in the flesh, materializing from the next block or the other side of the world.”. Indeed, in his revised version of Virtual Community, Rheingold goes so far to say that had he read Barry Wellman’s work earlier, he would have called his book “online social networks”.

A virtual community still does not have a universal definition. Rheingold’s definition contains the terms “social aggregation and personal relationships”. Lipnack & Stamps (1997) and Mowshowitz (1997) point out how virtual communities can work across space, time and organizational boundaries; Lipnack & Stamps (1997) mention a common purpose; and Lee, Eom, Jung and Kim (2004) introduce “desocialization” which means that there is less frequent interaction with humans in traditional settings, eg. an increase in virtual socialization. Calhoun (1991) presents a dystopia argument, asserting the impersonality of virtual networks.

He argues that IT has a negative influence on offline interaction between individuals because virtual life takes over our lives. He believes that it also creates different personalities in people which can cause frictions in offline and online communities and groups and in personal contacts. However, more than a decade of research has not supported Calhoun’s arguments. (Wellman & Haythomthwaite, 2002).
Synthesizing the definitions might suggest that:

A virtual community is a social network with a common interest, idea, task or goal that interact in a virtual society across time, geographical and organizational boundaries and is able to develop personal relationships.

Different virtual communities have different levels of interaction and participation among their members. This ranges from adding comments or tags to a blog or message board post to competing against other people in online video games such as MMORPGs. Not unlike traditional social groups or clubs, virtual communities often divide into cliques or even separate to form new communities. Author Amy Jo Kim points out a potential difference between traditional structured online communities (message boards, chat rooms, etc), and more individual-centric, bottom-up social tools (blogs, instant messaging buddy lists), and suggests the latter are gaining in popularity.

Today, virtual community or online community is used for a variety of social groups interacting via the Internet. It does not necessarily mean that there is a strong bond among the members, although Rheingold mentions that virtual communities form “when people carry on public discussions long enough, with sufficient human feeling, to form webs of personal relationships”. An email distribution list may have hundreds of members and the communication which takes place may be merely informational (questions and answers are posted), but members may remain relative strangers and the membership turnover rate could be high. This is in line with the liberal use of the term community.

Virtual communities may synthesize Web 2.0 technologies with the community, and therefore have been described as Community 2.0, although strong community bonds have been forged online since the early days of USENET. Virtual communities depend upon social interaction and exchange between users online. This emphasizes the reciprocity element of the unwritten social contract between community members. Web 2.0 is essentially characterized by virtual communities such as Flickr, Facebook, and Del.icio.us. A similar trend is starting to emerge within businesses where online or virtual communities are taking hold. These communities can be organizational, regional or topical depending on the business. From a technical perspective, software tools abound to create and nurture these communities including Yahoo Groups, Google Groups, and Microsoft Sharepoint.

The ability to interact with like-minded individuals instantaneously from anywhere on the globe has considerable benefits, but virtual communities have bred some fear and criticism. Virtual communities can serve as dangerous hunting grounds for online criminals, such as identity thieves and stalkers, with children particularly at risk. Others fear that spending too much time in virtual communities may have negative repercussions on real-world interaction (see Internet addiction disorder).

The explosive diffusion of the Internet since the mid-1990s has also fostered the proliferation of virtual communities. The nature of those communities is diverse, and the benefits that Rheingold envisioned are not necessarily realized, or pursued, by many. At the same time, it is rather commonplace to see anecdotes of someone in need of special help or in search of a community benefiting from the use of the Internet.

Membership life cycle for virtual communities: A membership life cycle for online communities was proposed by Amy Jo Kim (2000). It states that members of virtual communities begin their life in a community as visitors, or lurkers. After breaking through a barrier, people become novices and participate in community life. After contributing for a sustained period of time they become regulars. If they break through another barrier they become leaders, and once they have contributed to the community for some time they become elders. This life cycle can be applied to many virtual communities, most obviously to bulletin boards, but also to blogs and wiki-based communities like Wikipedia.

Legitimate peripheral participation: Lave and Wengers’ theories on situated cognition can illustrate the cycle of how users become incorporated into virtual communities using the principles of legitimate peripheral participation. They define five types of trajectories amongst a learning community:

  1. Peripheral – An outside, unstructured participation
  2. Inbound – Newcomer is invested in the community and heading towards full participation
  3. Insider – Full committed community participant
  4. Boundary – A leader, sustains membership participation and brokers interactions
  5. Outbound – Process of leaving the community due to new relationships, new positions, new outlooks
    The following shows the correlation between the learning trajectories and Web 2.0 community participation.
  6. Learning trajectory – online community participation
  7. Example – YouTube
  8. Peripheral (Lurker) – Observing the community and viewing content. Does not add to the community content or discussion The user occasionally goes onto YouTube.com to check out a video that someone has directed them to.
  9. Inbound (Newbie) – Just beginning to engage the community. Starts to provide content. Tentatively interacts in a few discussions The user comments on other user’s videos. Potentially posts a video of their own.
  10. Insider (Regular) – Consistently adds to the community discussion and content. Interacts with other users. Regularly posts videos. Either videos they have found or made themselves. Makes a concerted effort to comment and rate other user’s videos.

Boundary (Moderator/ Expert) – Recognized as a veteran participant. Connects with regulars to make higher concepts ideas. Community grants their opinion greater consideration. The user has become recognized as a contributor to watch. Possibly their videos are podcasts commenting on the state of YouTube and its community. The user would not consider watching another user’s videos without commenting on them. Will often correct a user in behavior the community considers inappropriate. Will reference other user’s videos in their comments as a way to cross link content.

Outbound (Legacy) – Leaves the community for a variety of reasons. Interests have changed. Community has moved in a direction that doesn’t agree with. Lack of time. User got a new job that takes up too much time to maintain a constant presence in the community. That and the YouTube culture seems to be drifting to a corporate commercial endorsement model rather than a social, grassroots platform that it once was. The Deletionist versus Inclusionist Controversy in another such case within wiki-based communities.

Increasing participation in virtual communities:  Several motivations lead people to contribute to virtual communities. Various online media (i.e. Wikis, Blogs, Chat rooms, Internet forums, Electronic mailing lists) are becoming ever greater knowledge-sharing resources. Many of these communities are highly cooperative and establish their own unique culture. They also involve significant time from contributors with no monetary gain. Some key examples of online knowledge sharing infrastructures include the following –

  • Usenet : Established in 1980, as a “distributed Internet discussion system,” it became the initial Internet community. Volunteer moderators and votetakers contribute to the community.
  • The WELL : A pioneering online community established in 1985. The WELL’s culture has been the subject of several books and articles. Many users voluntarily contribute to community building and maintenance (e.g., as conference hosts).
  • AOL : The largest of the online service providers, with chat rooms which for years were voluntarily moderated by community leaders. It should be noted that rooms and most message boards are no longer moderated, however.
  • Slashdot : A popular technology-related forum, with articles and readers comments. Slashdot subculture has become well-known in Internet circles. Users accumulate a “karma score” and volunteer moderators are selected from those with high scores.
  • Wikipedia : Wikipedia is now the largest encyclopedia in the world. Its editors, who voluntarily publish and revise articles, have formed an intricate and multi-faceted community.

Several researchers have investigated motivation in virtual communities. Studies show that over the long term users gain a greater insight into the material that is being discussed and a sense of connection to the world at large.

Kollock’s framework: Peter Kollock (1998) researched motivations for contributing to online communities. In “The Economies of Online Cooperation: Gifts and Public Goods in Cyberspace”, he outlines three motivations (Kollock:227) that do not rely on altruistic behavior on the part of the contributor:

  1. Anticipated Reciprocity
  2. Increased Recognition
  3. Sense of efficacy

There is another motivation, implicit in the above, which Mark Smith mentions in his 1992 thesis: Voices from the WELL: The Logic of the Virtual Commons:

Communion, as Smith terms it, or “ sense of community” as it is referred to in social psychology.

Anticipated reciprocity: A person is motivated to contribute valuable information to the group in the expectation that one will receive useful help and information in return. Indeed, there is evidence that active participants in online communities get more responses faster to questions than unknown participants.

Increased recognition: Recognition is important to online contributors such that, in general, individuals want recognition for their contributions. Some have called this Egoboo. Kollock outlines the importance of reputation Online: “Rheingold (1993) in his discussion of the WELL (an early online community) lists the desire for prestige as one of the key motivations of individuals’ contributions to the group. To the extent this is the concern of an individual, contributions will likely be increased to the degree that the contribution is visible to the community as a whole and to the extent there is some recognition of the person’s contributions. … the powerful effects of seemingly trivial markers of recognition (e.g. being designated as an “official helper”) has been commented on in a number of online communities…”

One of the key ingredients of encouraging a reputation is to allow contributors to be known or not to be anonymous. The following example.

from Meyers (1989) study of the computer underground illustrates the power of reputation. When involved in illegal activities, computer hackers must protect their personal identities with pseudonyms. If hackers use the same nicknames repeatedly, this can help the authorities to trace them. Nevertheless, hackers are reluctant to change their pseudonyms regularly because the status associated with a particular nickname would be lost.

Profiles and reputation are clearly evident in online communities today. Amazon.com is a case in point, as all contributors are allowed to create profiles about themselves and as their contributions are measured by the community, their reputation increases. Myspace.com encourages elaborate profiles for members where they can share all kinds of information about themselves including what music they like, their heroes, etc. In addition to this, many communities give incentives for contributing.

For example, many forums award you points for posting. Members can spend these points in a virtual store. eBay is an example of an online community where reputation is very important because it is used to measure the trustworthiness of someone you potentially will do business with. With eBay, you have the opportunity to rate your experience with someone and they, likewise, can rate you. This has an effect on the reputation score.

Sense of efficacy: Individuals may contribute valuable information because the act results in a sense of efficacy, that is, a sense that they have had some effect on this environment. There is well-developed research literature that has shown how important a sense of efficacy is (e.g. Bandura 1995), and making regular and high quality contributions to the group can help individuals believe that they have an impact on the group and support their own selfimage as an efficacious person.

Wikipedia is a good example of an online community that gives contributors a sense of efficacy. Wikipedia is an online encyclopedia which uses online software to enable anyone to create new articles and change any article in the encyclopedia. The changes you make are immediate, obvious, and available to the world.

Sense of community: People, in general, are fairly social beings and it is motivating to many people to receive direct responses to their contributions. Most online communities enable this by allowing people to reply back to contributions (i.e. many Blogs allow comments from readers, one can reply back to forum posts, etc). Again, using Amazon.com as an example, other users can rate whether one’s product review was helpful or not. Granted, there is some overlap between increasing reputation and gaining a sense of community. However, it seems safe to say that there are some overlapping areas between all four motivators.

Bishop’s framework: A problem for providers of online communities is some of their members will not participate through posting messages. These members do not participate for a number of reasons, including that they believe they did not need to post and that they believe they are being helpful by not doing so. Other community members that have been participating for a long time, known as elders, regularly participate because they believe that their actions will have positive outcomes. Previous attempts to understand why community members participate or do not participate has suggested that individuals are needs-driven or goal driven. Maslow’s Hierarchical needs theory has suggested that the reason lurkers do not participate is that ‘lower needs’ are not being met, or ‘higher needs’ are being met elsewhere and that the reason elders do participate is that they are meeting their ‘higher needs’.

Theories that suggest that individuals are needs-driven and so-called needs are met in the order of a hierarchy are not suitable for online communities. It is quite likely that community members will desire to do two things at the same time, something that needs-based theories do not take into account. Theories that suggest that individuals are goal-driven are more appropriate for online communities as users will develop and change goals based on their interactions in an online community. However, these theories are not entirely appropriate for explaining why some individuals desire to participate in an online community, but do not actually do so.

Virtual community pioneer Jonathan Bishop proposed an alternative framework for understanding such behaviours (see Bishop, 2007), which is based on the principles that individuals are driven to action by desires, these t desires lead to plans that need to be consonant with their existing plans as well as their goals, values and beliefs, and how they carry out an action will depend on their interpretation of their environment. Some online community members, such as lurkers, believe that they do not need to post messages to online communities or believe that they are being helpful by not posting. Such beliefs prevent these individuals from carrying out their desires to be social and participate in the community.

Bishop argues that online community providers should attempt to change these beliefs, even if it creates a degree of Cognitive dissonance with the individual’s cognitions. The use of persuasive text is the main means by which an individual’s beliefs can be challenged, though providing alternative information to the beliefs that the individual holds whilst not being consonant with an actor’s goals. Challenging these beliefs may lead to the individual increasing their participation in online communities through allowing them to act out their desires.

Collaboration Platforms:

An emerging category of computer software, collaboration platforms are unified electronic platforms that support synchronous and asynchronous communication through a variety of devices and channels.

Collaboration platforms offer a set of software components and software services that enable individuals to find each other and the information they need and to be able to communicate and work together to achieve common business goals. The core elements of a collaboration platform are messaging (email, calendaring and scheduling, and contacts), team collaboration (file synchronization, ideas and notes in a wiki, task management, full-text search), and real-time collaboration and communication (e.g., presence, instant messaging, Web conferencing, application / desktop sharing, voice, audio and video conferencing), and Social Computing tools (e.g., blog, wiki, tagging, RSS, shared bookmarks).

Third Party Marketplace. Amazon Marketplace ( i.e:Third-party Marketplace ) is Amazon.com’s fixed-price online marketplace that allows sellers to survey their goods alongside Amazon’s offerings. Buyers can buy new and used items sold directly by a third party through Amazon.com using Amazon Marketplace. This concept is similar to eBay’s successful half.com.

This sales strategy and program has been very profitable forAmazon.com: Amazon charges a commission rate of 6 to 15 percent (for books it is 15 %) of the sale price, a $0.99 per-transaction fee, as well as a variable closing fee (for books $1.35).

For example, if a book is sold for $6.01, minimum shipping costs are $3.00 plus $0.99 per book. So the buyer pays $ 10.00, the seller receives $6.76, Amazon receives $3.24, which is 32 %. If a book is sold for $16.01, minimum shipping costs are $3.00 plus $0.99 per book. So the buyer pays $20.00, the seller receives $15.26, Amazon receives $4.74, which is 24 %.

Users can leave feedback on transactions, similar to eBay’s feedback system, except that Amazon uses a five star rating system instead of just positive, neutral, or negative. Any feedback less than four stars will negatively affect the seller’s rating. It is important to note that this rating system is different from Amazon’s regular book rating system – while their book rating system should be used to vote on the content of the book, the quality of the publication, the individual’s opinion of the book, or any number of other factors, the Amazon Marketplace rating system should only be used to describe the quality of the transaction and whether the product meets the criteria in the seller’s listing. Negative feedback, for instance, because a book is old and expensive, affects the seller’s feedback rating negatively, and causes other buyers to be less likely to purchase from that seller.

Another big difference between the Amazon and eBay feedback models is reciprocity. Amazon’s is a one way street. The seller is always judged for the feedback left; but whilst the seller can affect the feedback of a buyer, this is of much less significance because the buyer’s feedback is not included in any metric Amazon uses. (Though it is discoverable, and thus may influence how subsequent sellers approach resolving a dispute with the same buyer.) If a buyer on eBay has bad feedback a seller can block them; but on Amazon sellers have to accept sales from all customers regardless of feedback. Thus, customers can leave poor feedback with no consequence to themselves, however unreasonable. Powersellers on eBay who are also selling on Amazon will commonly have feedback ratings 5% lower on Amazon than on eBay.

Vitual Value Chain: The virtual value chain, created by John Sviokla and Jeffrey Rayport, is a business model for the information services industry.

This value chain begins with the content supplied by the provider, which is then distributed and supported by the information infrastructure, and then the context provider supplies actual customer interaction. It differs from the physical value chain of manufacturing/sales of traditional companies.

To illustrate the distinction between the two value chains consider the following: “when consumers use answering machines to leave a message, they are using an object that is both made and sold in the physical world, however when they buy electronic answering services from the phone company they are using the marketspace – a virtual realm where products and services are digital information and are delivered through information-based channels.”

There are many businesses that employ both value chains including banks which provide services to customers in the physical world at their branch offices and virtually online. The value chain is separated into two separate chains because both the marketplace (physical) and the marketspace (virtual) need to be managed in different ways to be effective and efficient (Samuelson 1981).

New developments lead to new strategies: In the last decade the advancement of Information Technology (IT) and the development of various concepts in manufacturing, like Just In Time (JIT) have led to the situation where businesses no longer focus on purely the physical aspect of the value chain as the virtual value chain is equal in importance.

Michael Porter, creator of the value chain, stated that there is no value added by the Internet itself, however the Internet should be incorporated into the business’ value chain. As a result the Internet affects primary activities and the activities that support them in numerous ways. Porter describes the value chain in the following:

“The value chain requires a comparison of all the skills and resources the firm uses to perform each activity.”
The products and services the business supplies to the market need to conform to a channel that fits the customer’s needs. Therefore this channel controls the strategy of the business. The channel comprises different events, and each of these events should be in accordance to the overall strategy of the business.

In the virtual value chain (VVC), information has become a dynamic, element in the formation of a business’ competitive advantage. The information collected is utilized to generate innovative concepts and ‘new knowledge’. This translates to a new value for the consumer. An examination of the VVC model informs the business to what function they have in the chain, and if they are not currently offering services that are information based (i.e. Internet services), how they can make the transition to the infonnation based model.

In the virtual value chain the ‘virtual’ indicates that the value adding steps are performed with information. The transfer of information between all events and among all members is a fundamental component in using this model. In the VVC the creation of knowledge/added value involves a series of five events: gathering, organization, selection, synthesization, and distribution of information. The completion of these five events, allows businesses to generate new markets and new relationships within existing markets. The process of a business refining raw material into something of value and the sequence of events involved is similar to that of a business collecting information and adding value through its cycle of events.

Stages of the value adding information process: Businesses implement value-adding information by using the three stages of the Rayport and Sviokla model:

Visibility: By using information businesses learn the ability to view physical operations more effectively. This means that the foundation for the virtual value chain is used to co-ordinate the activities of the physical value chain. Furthermore, with the assistance of IT, it is then fully possible to plan, implement, and assess events with greater precision and speed.

Mirroring Capability: Businesses duplicate their once physical activities for virtual, by producing a parallel value chain in the marketspace. In other words, the business moves the value adding activities from the marketplace to the marketspace.

New Customer Relationships: Businesses present value to the customer by new means and in new fashions. IT creates value in the marketspace. The new relationship between business and customer is strongly based on using IT. This implies that products and services are presented by IT and part of these products and services are in the form of bits.

Relevance to the business world: The Virtual Value Chain has the benefit of having a view that encompasses the entire network along with its strong employment of IT. The VVC model has a strong relationship to the supply chain and the goal of that relationship is to produce materials, information and knowledge for the market. IT maintains the relationship among the members of the chain. The VVC model does not indicate any shifts in the market, or how and when the customer’s needs will change.

New technological developments in IT are drastically changing the way businesses operate. Each business’ internal and external relationships are managed by IT and value adding and generation of ideas are relying more and more on IT. This trend has led to a different approach to value chain thinking. Using this approach Mary Cronin separates the VVC into three elements: inputs from supplier, internal operations, and customer relations.

1. The inputs lfom supplier element is focused of the Internet and how it can add value to the business’s acquisition activities. In other words, business’ with use of the Internet have the capability to find different suppliers quickly (effective) and for different purposes (efficient).

2. The internal operations element is in regards to the business’ value adding events which are based on the effective procurement and distribution of the information within the business. It is essential that businesses can emulate this model because of the increasing large role
information plays in the business world. With use of the Internet, the business can procure and distribute information globally with relative ease and low cost.

3. The customer relations element concentrates on applying the information directly from the customers’ needs and attitudes about the product or service to add value. The internet is a useful tool in acquiring the direct information about the customer’s needs and attitudes. The internet is also used to distribute information about the pfoducts and services to the market (i.e. electronic catalogues). Following the distribution, forums and discussion groups collect the necessary information about the products and services that the business provides.

Management: Today managers need to concentrate on how their business creates value in both the physical and virtual world. However, the methods for creating value are different in these worlds. By careful interpretation of the differences and interactions among the value adding events of the physical and virtual worlds, managers can more clearly visualize the strategic issues facing the business.

Managers must learn to utilize and value the virtual world of information. “By thinking boldly about the integration of place and space,” Sviokla and Rayport comment, “executives may be able to create valuable digital assets that, in turn, could change the competitive dynamics of industries.” (Rayport et al. 1996) To properly use the information, that is to create value from it, managers must explore the marketspace. Although the value chain or the marketspace is similar to that of the marketplace, there is an increased dynamic involved. The processes for transferring raw information to products and services are unique to the information world.

The conventional value chain model uses information for solely support, not as a source of value itself. However, with the arrival of the Internet the virtual value chain has been enabled, allowing businesses to use information for the creation of innovative products and services that are exclusive to the marketspace. An example of using the VVC to create such services includes the Federal Express Corporation which recently created a customer designed website to track packages by using their air bill number. FedEx has been able to capitalize using the VVC by adding value for the customer (for free) and in turn has increased customer loyalty in an intensely competitive market. In this increasingly information based economy managers must extract value from both the physical and virtual value chains to succeed.

This study establishes that the strategy of IT is an important issue for a business. Productivity, quality, cost structure and profitability are all characteristics that are directly affected by IT. It is essential for businesses to use IT in the most effective way and to have knowledge to implement IT systems. Lastly, both users and businesses need to realize the potential that IT has for their business.

DU SOL B.Com 3rd Year E-Commerce Notes

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