Electronic Markets - CLICresearch – Center for leading innovation

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Electronic Markets
Dr. Florian Bieberbach
Dr. Christoph Lohse
Dr. Sebastian Brandis
Dr. Ajay P. Singh
General Information
Lecturers:
Dr. Florian Bieberbach ([email protected])
Dr. Sebastian Brandis ([email protected])
Dr. Christoph Lohse ([email protected])
Dr. Ajay P. Singh ([email protected])
Assistant:
Dorith Mayer ([email protected])
Dates:
See schedule (next page)
Lecture hall:
HS 1601
Exam:
60 minutes, open book
All lectures are relevant for the exam, including the case
studies
Credits:
2 LP, ECTS 3
If you have to take the exam please add your name to the list of examinees
which will be available in class. Deadline is tbd.
Page: 2
© Dr. Florian Bieberbach, Dr. Sebastian Brandis, Dr. Christoph Lohse, Dr. Ajay P. Singh 2007
Electronic Markets
Course Schedule
Date
Time
Topic
Lecturer
25 April 17.00 - 20.00 Current Markets and Trends, Industry
Dynamics, Conceptual Framework
Products and Services on Electronic
Markets
Singh,
Lohse,
Bieberbach
9 May 17.00 - 20.00 Pricing Issues in Electronic Markets
Bieberbach
23 May 17.00 - 20.00 Business Models and Competition in
Electronic Markets
Singh,
Lohse
6 June 17.00 - 20.00 The Service Provider Business
Brandis,
Singh
Operations of an E-Commerce
Company
20 June 17.00 - 20.00 Valuation of E-Commerce Companies Bieberbach
4 July 17.00 - 20.00 Case Study M&A
Brandis
Page: 3
Electronic Markets
Florian Bieberbach
Education
1997
2001
2001
2006
Graduated in Computer Science (major) and Management (minor),
Technische Universität München
Certificated Securities & Financial Derivatives Representative (UK)
Doctorate in Economic Science (Dr. oec.),
MBA Jacobs University
Professional Career
1991 - 2000
1997 - 2000
2000 - 2002
since 2002
Freelance Software Developer, IT-Consultant and
IT-Lecturer
Lecturer and Research Fellow, TU München,
Lehrstuhl für Allgemeine und Industrielle BWL
Deutsche Bank AG, London,
Global Investment Banking Division
Stadtwerke München, CFO as of 2006
Page: 4
Electronic Markets
Stadtwerke München GmbH
• Sales: € 3.6bn (2005)
• Products include:
- Electricity
- District Heating
- Underground
- Gas
- Telecommunications
- Tram
- Water
- Public pools
- Buses
• Approx. 7,000 employees
• More information: www.swm.de
Page: 5
Electronic Markets
Sebastian Brandis
Brief profile
Professional Experience
Sebastian has over 10 years of operational experience in the Telecom & IT industry
through sales, marketing, product management, IT, networks, Strategy & M&A.
2001 - present
1998 - 2001
1995 - 1998
BT Global services, currently Director Business management
(Mitglied der Geschäftsleitung, Prokura BT Germany)
Viag Interkom/O2
Booz Allen Hamilton
Education
1991 - 1995
1990 - 1991
1987 - 1990
PhD in Theoretical Physics at University of Hamburg
Master of Philosophy (in theoretical physics) at Cambridge University,
UK
Study of Physics and Philosophy at University of Bonn, Germany
Additional information
Sebastian has been invited to speak in various conferences and has made publications
in a number of books on key trends of the industry. He is married with 4 children and
active in various music ensembles.
Page: 6
Electronic Markets
Brief company profile
• BT is a global ICT company, serves customers with telecommunications & IT services
around the globe
• BT Group (BT Retail, BT Wholesale, BT Global Services)
– Turnover
GBP
18,7 bn
– Operational profit
GBP
2,6 bn
– Cash Flow
GBP
1,7 bn
– Employees
approx. 100.000
• BT Global services
– serves multisite corporate customers & organisations with networked IT solutions
– Runs one of the largest, densest & richest IP networks globally
– Is passionate about customer service
• BT in Germany
– Focussed on corporate customers (as above)
– Generates about GBP 500 million in turnover
– Employs about 1400 employees
Further information at www.bt.com
Page: 7
Electronic Markets
Christoph Lohse
Education
1997
2002
Graduated in Business Studies and Electrical Engineering
(Wirtschaftsingenieurwesen), Technische Universität Braunschweig
Doctorate in Economic Science (Dr. rer. pol.),
Professional Career
1998 - 2001
2000 - 2001
2002 – 2006
Since 2006
Lecturer and Research Fellow, TU München,
Lehrstuhl für Allgemeine und Industrielle BWL
Think Consult. Founding Partner
Nexolab GmbH (BMW Group Company),
Managing Consultant
3D Systems Engineering, Principal
Page: 8
Electronic Markets
3D Systems Engineering GmbH
• 3DSE is a process consultancy, formed in 2001
• Focus on innovation management and product development
• Industry sectors served
– Automotive
– Aerospace
– Transportations
• Clients include R&D senior management of
– OEMs
– Tier 1
• Locations:
– Munich, Germany
– Linz, Austria
• Current headcount of 22
Further information at www.3DSE.de
Page: 9
Electronic Markets
Ajay P. Singh
Brief profile
Professional Experience
Over 20 strategy consulting engagements with leading international
corporate groups from various industry sectors
2004 - present
Munich Partners AG, current role: Principal
2003 - 2004
TNG Technology Consulting GmbH
2000 - 2003
McKinsey & Company, Inc.
Education
1999 - 2000
Post-doctoral research at the TUM Institute for
Theoretical Physics at Garching and La Sapienza
Università di Roma
1996 - 1999
PhD thesis at the chair of Prof. Götze, TUM,
awarded summa cum laude
1990 - 1995
Study of General Physics at the TUM and
Ioeffe Institute in St. Petersburg
Additional information
Ajay was elected member of the Senate of the TUM. Ajay has authored several publications.
Projects have taken him to various places in Germany, Europe, North America, and India.
Page: 10
Electronic Markets
• Munich Partners is a strategy consultancy
• Munich Partners AG was formed in early 2004 by four former McKinseyconsultants
• It supports business owners and managers in making and implementing
decisions
• Clients include:
– Board members and senior managers of leading international corporate groups
– Owners and managers of small and medium-sized enterprises
– Investors and venture capitalists
• Mainly served industry sectors include
– Automotive industry
– Banks and financial services providers
– The telecommunications and high-tech industries
Further information at www.munich-partners.com
Page: 11
Electronic Markets
Current Markets, Trends,
Fact & Figures
Session introduces the class to Electronic Markets
Objectives of this session
!
1
• Provide examples, facts and figures of
day-to-day Electronic Markets examples
2
• Take a business perspective or
“where the money is”
3
• Motivate the following session on
conceptual framework
Page: 13
Electronic Markets
Agenda
• Evolution of Electronic Markets – overview
• Selected business drivers
• Selected enabling technologies
• Forthcoming Electronic Markets example: IPTV
• Main takeaways
Page: 14
Electronic Markets
Electronic Markets play a vivid role in daily life, …
Facts & figures of prominent Electronic Markets
Market participants
Main business model
Selected financials
Online Ad
market
• More than 150
thousand advertisers
• More than 200
million searches per
day
• Sell end consumer
attention to
advertisers
• $ 623 million in free
cash flow in Q1 ‘07
Internet dating
market
• 2.0 million members
across Europe
• Sell online dating
contacts to affluent
singles
• € 20 million revenue in
2006*
Mobile service
market
• 97 thousand service
providers (iMode
sites)
• More than 50 million
customers
• Provide customer
access to mobile
service providers
• Yen 1,990 i-mode
ARPU in Q3 FY 06/07
* Rough estimate
Page: 15
Electronic Markets
and, some Electronic Markets move huge values
Volume of trade over Xetra
Turnover in shares
in Euro billions
Number of transactions
in millions
14,6
253
CAGR 49%
CAGR 62%
9,6
161
6,6
97
March
2005
March
2006
March
2007
March
2005
March
2006
March
2007
Source: Deutsche Börse Group
Page: 16
Electronic Markets
New business models unleashed by Electronic Markets
The Evolution of Electronic Markets
Breaking up of
industry value chains
Emergence of new markets with
innovative business models
Automation of
existing markets
Main timeframe
•
Mid 60’ to late 90’
•
From mid 90’ on
•
Today and future
Main business
drivers
•
•
•
•
In- / Outsourcing
Specialization
Standardization
•
•
•
Market efficiency e.g.
broadened access,
transparency
Complexity reduction
Operation efficiency
Shifts in consumer
behaviour paradigms
Targeting opportunities
for ad industry
•
•
•
Databases
Standards, e.g. EDI
Public Internet
•
Web technologies,
e.g. Java
Modular application
architectures
•
•
•
Digitalization and
broadband penetration of
homes
Video integration
FMC***
Just-in-time in
Automotive
•
Google, Shift.TV
Main enabling
technologies
Examples
•
CRS*, CATS**
•
•
* Computer Reservation Systems
** Computer Assisted Trading Systems
*** Fixed Mobile Convergence
•
Focus of session
Page: 17
Electronic Markets
Agenda
• Main takeaways
Page: 18
Electronic Markets
Ad targeting opportunities in eMarkets growing fast
US online Ad spending
in USD, billions
19,5
CAGR 02-06:
28%
16,4
12,5
9,6
8,1
7,1
7,3
6
2000 2001 2002 2003 2004 2005 2006 2007E
Source: eMarketer, March 2006
Page: 19
Electronic Markets
Being online catches up with watching TV, …
Shift in consumer behaviour paradigms
Time consumers spend with media
in hours per week (US example)
14
14
Significant
growth
5
3
Reading
News
Print*
Listening
to radio
Being
online**
Watching
TV
Intense TV users
4
5
20
35
Intense Online users
3
5
30
20
Subgroups
* Magazines or Newspapers
** includes online time at work
Note: US-Sample of 3,000 users, that are online at least once per month at home, at work or at school
Source:Jupiter Research 2005
Page: 20
Electronic Markets
and, guess what, it effects personal life
German Internet Dating Market
Market participants
Millions
6,2
Consumer spending
in Euro millions
76,3
CAGR 33%
3,5
CAGR 88%
21,5
2003
2005
2003
2005
Source: Jupiter Research, Der Spiegel 12/2005
Page: 21
Electronic Markets
Agenda
• Main takeaways
Page: 22
Electronic Markets
Rising bandwidth enables new Electronic Markets
Key bandwidth using features
76
Bandwidth availability in top segment on average
Mbps
CAGR
+57%
0,003
0,01
0,5
2
1
3
5
8
48
31
19
12
1980 … 1990 … 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
• Voice
• Telegraphic data
•
•
•
•
PC data
E-Mail
Web surfing
Audio streaming
•
•
•
•
•
•
Moving pictures
TV/movie
3D-Games
Video telephony
Peering
…
Page: 23
Electronic Markets
Compression enables video-based Electronic Markets
Video compression technologies
Codec
Example application
•
WMV 9/10/11, VC1*
•
Microsoft Media Player, HD DVD, Bluray
•
Macromedia Flash
•
Flash Player
•
Real Video
•
Real Player
•
H.264/AVC
•
Quicktime/Apple
•
Sorenson SVQ3
•
Flash Player, Quicktime 4, Linux Mplayer
•
tbd
•
Google video player
•
MPEG-4, DivX
•
DivX
•
H.263
•
Video Telephony applications
•
MPEG-2
•
(sill present, but outdated)
•
Ogg Theora, Ogg Vorbis
•
Open Source applications, e.g. Linux context
* VC1 is a standardized superset of WMV9 as used e.g. in HD-DVD and Bluray
Page: 24
Electronic Markets
SD streaming starts at least 1 Mbps
Requirements for video streaming
In Mbps
MPEG-4/H.264*
9
6
1.2…2.5
HD Sport
HD Film
SD
MPEG-2
18
12
3.0 - 5.0
VC1 (WMV9)
8
5
1.3 - 2.0
* H.264, AVC
Note: Bandwidth on distances below 1000m: VDSL2 35 Mbps, ADSL2+ 22 Mbps
Page: 25
Electronic Markets
Agenda
• Main takeaways
Page: 26
Electronic Markets
New Electronic Markets for video content emerging
Expected IPTV subscribers
In million
31,2
CAGR 77%
3,6
Americas
9,5
Europe
18,1
Asia
11,7
1,1
4,5
0,4
1,4
1,4
3,2
2005
6,1
2007
2009
Source: IRR ISP Forum 2006
Page: 27
Electronic Markets
It is getting real, even in Germany
Maxdome
• Premium VoD content licensed from
KirchMediaLibrary, Paramount, Constantin,
Kinowelt, Epsilon Motion; HollywoodStudios in Negogiations
• TV series/shows online one day before(!)
their broadcast on traditional TV
• Cooperation of ProSiebenSat 1 (Content)
and United Internet (ISP)
• Access via certified STBs and via PC via
Portals 1&1, WEB.DE und GMX
• Service started 2006
• Subscription and pay-per-view pay models
Page: 28
Electronic Markets
Electronic Markets in other regions are ahead
Cinemanow
• Hollywood and adult videos
• 2500 Hollywood style and 1000
adult videos
• MS Media player format & DRM
Page: 29
Electronic Markets
Agenda
• Main takeaways
Page: 30
Electronic Markets
Electronic Markets essential for today’s business world
Main takeaways
• Electronic Markets play a vivid role in daily life and move huge values
• New business models are unleashed by Electronic Markets
• Being online catches up with watching TV and effects personal life
and behaviour
• Accordingly, the online ad spending is growing fast
• Rising bandwidth compression technologies enable forthcoming
video-based Electronic Markets
Page: 31
Electronic Markets
Conceptual Framework
for Electronic Markets
What’s a market?
Picot/
Reichwald/
Wigand
1998, p. 25
“Ein Markt ist ein ökonomischer Ort, auf dem
Güterangebot und -nachfrage
zusammentreffen und der damit
Tauschvorgänge ermöglicht.“
(Institutional Economics view)
Tirole
1998, p. 13
“ “[…] involves either a homogeneous good or
a group of differentiated products that are fairly
good substitutes (or complements) for at least
one good in the group and have limited
interactions with the rest of the economy.”
(Industrial Organization view)
Page: 33
Electronic Markets
Market and hierarchy
•
The first definition refers to the two generic coordination forms of
economic activities:
– Market: exchange of goods or services between
independent participants on the basis of short term contracts
(e.g. purchase of a book)
– Hierarchy: exchange of goods or services with clearly
assigned property rights on the basis of long-term contracts
(e.g. employer-employee relationship)
with its real world
– Hybrid forms: with elements both of market and hierarchy
(e.g. long-term supplier contracts)
Page: 34
Electronic Markets
Important categories of markets
•
The second definition of markets refers to the types of goods
exchanged. Important categories of markets:
– Producer or consumer goods
– Direct or indirect goods
– Vertical or horizontal markets
Page: 35
Electronic Markets
Definition of Electronic Markets
Simple:
Electronic
Markets are
… markets where the market transactions
are supported electronically
More precise:
Electronic
Markets are
… segments of product and service
markets that are characterized by the fact
that at least some stages of their market
transactions are executed over information
and communication systems
Example: The electronic market for German
books is a segment of the German book market
Page: 36
Electronic Markets
Stages of a market transaction
Signing of contract
Phases
Information
Agreement
• Search for
• Negotiation
potential mar- on prices
ket partners
and terms
• Specification of
demand
Completion
• Delivery
• Payment
After-sales
• After-sales
service
Online purchase of a software package
Example • Check
websites of
for
electronic
software
support
providers
• Select best
• Pay with
• Download
credit card via software
offer
upgrades
internet
• Order online
• Download
software
Page: 37
Electronic Markets
Definition of Electronic Marketplaces
• For the electronic market as an economic place of exchange, the
underlying technical systems are a necessary, however, not a
sufficient requirement.
A system is not a market!
• The systems and technical infrastructure enabling the electronic
market transaction constitute the electronic marketplace
• The electronic marketplace is the equivalent to a physical market
place on which supply and demand meet (e.g. Viktualienmarkt,
Munich)
• Several electronic marketplaces can compete with each other in
supporting a specific electronic market
• The Internet is not an electronic market, not even an electronic
marketplace --> why?
Page: 38
Electronic Markets
Electronic Commerce and Electronic Business
Electronic Commerce
“… refers generally to all forms of transactions relating to
commercial activities, including both organisations and
individuals, that are based upon the processing and
transmission of digitized data, including text, sound, and visual
images.” (OECD, 1997)
“… involves buying and selling processes supported by
electronic means, primarily the Internet.”
(Kotler et al. 2005)
Electronic Business
“... doing business electronically, both within the boundaries of
an organization as well as across them ...” (Singh 2003)
“… involves the use of electronic platforms – intranets,
extranets and the internet – to conduct a company´s
business.” (Kotler et al. 2005)
Page: 39
Electronic Markets
Electronic Commerce and Electronic Business
Electronic Commerce:
commercial transactions
between business partners
via data networks
Electronic Business:
encompass all business contacts via data networks
as well as electronic optimisation of intra-firm processes
Source: Brockhaus 2007.
Page: 40
Electronic Markets
What the heck is B2B, B2C, C2B, C2C ??
Demand
Consumer
Consumer
Business
Consumer-to-Consumer
Consumer-to-Business
(e.g. Internet classified
advertisement,
ebay)
(e.g. jobs wanted on
career networks)
Business-to-Consumer
Business-to-Business
(e.g. Internet bookshop )
(e.g. SWM orders tools)
Supply
Business
Page: 41
Electronic Markets
Conceptual framework for Electronic Marketplaces
Electronic Marketplace
Market support systems
Phases
S
E
L
L
E
R
Information
Signing of contract
Agreement
Completion
After-sales
B
U
Y
E
R
Electronic trading systems
Stores
(1:1)
Auctions
(1:m)
Reverse auctions
(n:1)
Exchanges
(n:m)
Technical infrastructure
Internet, servers, cables, PCs etc.
Page: 42
Electronic Markets
Characteristics of marketplaces
• centrally controlled or decentrally organized
• open or closed to new participants
• independent – industry owned (buy side or sell side)
Page: 43
Electronic Markets
Closed Electronic Marketplaces
•
Closed electronic marketplaces are mostly centrally
controlled by one operator (Market Maker). S/he collects and
distributes information on supply and demand.
•
The Market Maker decides on admission to the market and
standard terms of the market transactions (business rules).
•
The technical basis is a central information system, to
which admitted users are connected.
•
Examples: Flight booking systems (Amadeus, SABRE), stock
trading systems (XETRA)
Page: 44
Electronic Markets
Open Electronic Marketplaces
•
The access to open Electronic Marketplaces is generally
open to all interested market participants (buy side and/or sell
side)
•
The Market Maker (intermediary) may be replaced or
complemented by various participants with different functions
within the marketplace (e.g. ISP, procurement services).
Competition between these is possible
•
The technical basis of open electronic marketplaces are
publicly accessible information infrastructures (open software
standards, distributed hardware infrastructure)
•
Examples: Ebay.com
Page: 45
Electronic Markets
Mixed forms
Buy-side marketplace
• Operated by â few,
concentrated buyers
• To a large extent open to
new sellers
• Few or many sellers
• Focus on products and
efficiency
• Business rationale:
reduction of procurement
costs
Purchase
An open marketplace
on both sides
Sell-side marketplace
• Neutral third party operator
(normally technology
supplier)
• Open to sellers and buyers
• Many sellers and buyers
• Focus on prices and
efficiency
• Business rationale: transaction fees (license fees)
• Operated by few sellers
• Open to all buyers, and
selected suppliers
• Many fragmented buyers
• Focus on cross selling
and CRM
• Business rationale: increase in sales, improved
customer relationship
Purchase/
Sales
Sales
Page: 46
Electronic Markets
Electronic Marketplace
Market support systems
Phases
S
E
L
L
E
R
Information
Signing of contract
Agreement
Completion
After-sales
B
U
Y
E
R
Stores
(1:1)
Auctions
(1:m)
Reverse auctions
(n:1)
Exchanges
(n:m)
Technical infrastructure
Internet, servers, cables, PCs etc.
Page: 47
Electronic Markets
Systematics of electronic trading systems
Number of buyers
n
1
m
Electronic reverse
auctions
Electronic exchanges
Pricing mechanism:
dynamic
Pricing mechanism:
dynamic
3
Number
of sellers
1
4
Electronic stores
Electronic auctions
Pricing mechanism:
static/dynamic
Pricing mechanism:
dynamic
1
2
Page: 48
Electronic Markets
Electronic stores (on the Internet)
•
Operated generally by an individual manufacturer or dealer
(online catalog)
•
Several stores can be hosted together “Electronic Mall”
•
Fixed prices (ideal for, e.g., inferior goods, regular orders)
•
Business rationale:
– Increase in sales by using new distribution channel
(but also potential cannibalization of existing sales!)
– Cost reduction in marketing and sales
•
Examples: www.amazon.com, www.quelle.de
Page: 49
Electronic Markets
Electronic stores – advantages
Buyer
•
More comfortable purchase
•
Time-saving
•
Larger selection
•
Easier price comparison
•
24-7 accessibility
•
Favorable prices
Seller
•
Cost-efficient, especially for
digital products and services
•
Easy integration with complementary goods
•
in conjunction with buyer
data price discrimination
possible
•
Reaching larger audience
for gaining critical mass
(e.g. speciality goods)
Page: 50
Electronic Markets
Electronic auctions
•
Several buyers bid for the offer of a seller (or vice versa)
•
Auctions have gained importance on the internet.
Reasons:
– Economical execution of the auction mechanism
(software)
– Critical mass is reached more easily
•
Four important auction mechanisms:
– English auction
– Dutch auction
– First Price Sealed Bid Auction
– Vickrey Auction (Second Price Sealed Bid Auction)
Page: 51
Electronic Markets
Systematics of market support systems
Signing of contract
Phases
Information
Agreement
• Price
• Conditions
• Product
specification
• Support the
negotiations
Completion
• Payment
process
• Logistics
After-sales
• Service
Market support systems support the transactions phases
before negotiation and after signing the contract:
• Systems supporting the Information Phase
• Systems supporting the Completion Phase
• Systems supporting the After-Sales Phase
Page: 52
Electronic Markets
Services of market support systems in the
information phase
•
Customers must be able to inform themselves about products
and suppliers (procurement market analysis, eRFx)
•
Suppliers must be able inform about their products and
themselves (marketing)
•
Customers and suppliers must be able to be link themselves
directly with each other over a product classification
system (BMECat, ecl@ss)
•
Suppliers and customers must be enabled to take up and
maintain bilateral contact (relationship management)
•
Offering value added services: General search,
communities, newsletters, etc.
Source: Bogaschwesky, 2001.
Page: 53
Electronic Markets
Signing of contract
Phases
Information
Agreement
• Price
• Conditions
• Product
specification
• Support the
negotiations
Completion
• Payment
process
• Logistics
After-sales
• Service
Page: 54
Electronic Markets
Services of market supporting systems in the
completion phase
•
Confidential and legally secure contract conclusion
•
Accomplishment, arrangement or tender of logistic
services
•
Accomplishment of billing and payment process
•
Monitoring of order status
•
Support of completion-referring communication
Page: 55
Electronic Markets
Signing of contract
Phases
Information
Agreement
• Price
• Conditions
• Product
specification
• Support the
negotiations
Completion
• Payment
process
• Logistics
After-sales
• Service
Page: 56
Electronic Markets
Services of market supporting systems in the aftersales phase
•
Warranty services for products traded over
the marketplace
•
Platform for Seller and Buyer to exchange
information over traded products (e.g. new
technical information)
•
Offering updates and upgrades in case of
software products
Page: 57
Electronic Markets
Take-aways ...
• Two views of markets used:
– as a coordination form for the exchange of goods
– in terms of the goods to be exchanged
• A market transaction can be modelled along four phases:
information, agreement, completion, after-sales.
• Each phase can be supported electronically. The infrastructure to
do this constitutes the electronic marketplace.
• A marketplace can be centrally controlled (closed) by one market
maker or organized by various participants (open)
• Electronic trading systems can be categorized along the price
finding mechanism into stores, auctions and exchanges
Page: 58
Electronic Markets
Products and Services on
Electronic Markets
B2B is dominating B2C
Source: BITKOM, EITO
Page: 60
Electronic Markets
Best-Sellers in B2C E-Commerce
Source: Statistisches Bundesamt
Page: 61
Electronic Markets
Why are some goods more suitable for
E-Commerce than others?
•
Obviously some goods are sold more easily over the
Internet than others
•
Two theoretical concepts can explain this:
– Classical categories of goods
– Categories of goods in information economics
•
Does price range matter?
Page: 62
Electronic Markets
Explanation #1: Classical categories of goods
Products
(built without external
production factors)
Services
(built with external
production factors)
Physical products
(e.g. bread,
cucumber, screw,
diamond)
A
Physical services
(e.g. haircut, cab
drive, vacation)
Information products
(e.g. book, CD)
incl. rights
(e.g. ticket, share) B
Information services
(e.g. business
consulting)
D
C
Page: 63
Electronic Markets
A) Physical goods: delivery is not supportable
Signing of contract
Phases
Information
Agreement
• Search for
• Agreement
potential mar- on prices
ket partners
and terms
• Specification
of demand
Completion
After-sales
• Delivery
• Payment
• After-sales
service
• Pay with
credit card
over internet
• Have book
sent to you
• Learn about
new books of
that author
online
Example Online purchase of a book
• Check
websites of
booksellers
• Select book
and order
online
Page: 64
Electronic Markets
B) Information products: transaction can be
executed completely over Electronic Markets
Signing of contract
Phases
Information
Agreement
Completion
• Search for
• Agreement on • Delivery
potential mar- prices and
• Payment
ket partners
terms
• Specification of
demand
After-sales
• After-sales
service
Example Online purchase of a software package
• Check
websites of
software
providers
• Select best
• Pay with
credit card
offer
over internet
• Order online
• Download
software
• Download
software
upgrades
Page: 65
Electronic Markets
C) Physical services
• Physical services are supportable like physical products: everything
but the delivery can be executed on Electronic Markets
• However, Electronic Markets do not seem to be very successful for
physical services
Why?
• The benefits of Electronic Markets are smaller
because a physical meeting has to take place anyway
• Important exception: The right to get a service can
be exchanged completely on Electronic Markets!
(e.g. flight ticket, hotel room)
A right (as a voucher) resembles an information
product
Page: 66
Electronic Markets
D) Information services
Transactions of information services can, in principle, be fully
executed over Electronic Markets (like information products)
But
1. The necessary integration of the external
production factor (information from the customer)
can be difficult via electronic media for many
services (e.g. business consulting)
2. Innovation replaces information services on
electronic markets with information products that
are used by the customer and mimic these
services
Huge economic power as economies
of scale can be exploited!
(see next page)
Page: 67
Electronic Markets
Information services: substitution by information
products improves economic efficiency
Info-Services
• Telling stories
• Opera
• Court jester
• Financial consulting
at a bank
• Advice in a book shop
• Teaching
• Doctor’s consultation
• Travel agent’s advice
• Train timetable
• Translation Service
Info-Product
Traditional
substitution
effect
• Book
• Record
• TV Late Night Show
Substitution
effect
enforced by
Electronic
Markets
• Online Banking and analysis
tools
• Communities and online-order
• Educational software and
online-support
• Medical expert system online
• Photos, videos, hotel
description and online booking
• Online timetable database
• Translation server
Page: 68
Electronic Markets
Explanation #2: categorization of goods in
information economics
Search
goods
The consumer can determine the quality of the
goods before the purchase (i.e. book, electricity,
screw)
Experience
goods
The consumer can determine the quality of the
goods only after the purchase (i.e. food in a
restaurant)
Credence
goods
Not even after the purchase can the consumer
determine the quality of the goods (i.e. medical
treatment, fire extinguisher)
Page: 69
Electronic Markets
Can you check an offering’s quality and
characteristics before an online purchase?
• For some search goods the necessary information for the
purchase can easily be transmitted over the Internet.
Examples: flight tickets, shares, books,...
• However, many search goods become experience goods
on the Internet. Examples?
• What to do with experience and credence goods?
(see next chapter)
Page: 70
Electronic Markets
Summary
Information
product, right
Information
service
Physical
product
Physical
service
it
l
i
b
ta
r
po ts
p
u ke
s
g ar
n
i
s ic M
a
re ron
c
In ct
e
El
Credence goods
Experience
goods
y
b
y
Search goods
Page: 71
Electronic Markets

Electronic Markets - CLICresearch – Center for leading innovation

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