Notes for BSc CSIT

The difference between a horizontal market and a vertical market. Horizontal markets serve a myriad of different industries. An electronic storefront is an example of a horizontal market in that it tends to carry a wide variety of products that are useful to any number of different industries. Vertical markets, on the other hand, provide expertise and products targeted to a specific industry. EDI (electronic data interchange) systems usually serve vertical markets.

 Supply chain The supply chain refers to the series of transactions that link sets of firms that do business with each other. It includes not only the firms themselves but also the relationships between them and the processes that connect them.  2nd part SCM (supply chain management) systems attempt to coordinate and link the activities of suppliers, shippers, and order entry systems to automate the order entry process from start to finish. This includes the purchase, production, and moving of a product from a supplier to a purchasing firm.  Supply chain simplification entail Supply chain simplification refers to the reduction of the size of a firm’s supply chain. Firms today generally prefer to work closely with a strategic group of suppliers in order to reduce both product costs and administrative costs. Long-term contract purchases containing pre-specified product quality requirements and pre-specified timing goals have been proven to improve end-product quality and ensure uninterru

 Two methods of purchasing goods The two methods of purchasing goods are contract purchases and spot purchases. Contract purchases are long-term agreements to buy a specified amount of a product. There are pre-specified quality requirements and pre-specified terms. Spot purchases are for goods that meet the immediate needs of a firm. Indirect purchases are most often made on a spot purchase basis in a large marketplace that includes many suppliers.

The two types of procurements that firms make are for direct goods and indirect goods. Direct goods are directly involved in the production process such as the sheet steel used to produce an automobile body. Indirect goods are all other goods that are needed to carry out the production process but are not directly involved in creating the end product. They include office supplies and maintenance products, which are often called MRO (maintenance, repair, and operations) goods.

  B2B e-commerce promises many strategic benefits for participating firms, both the buyers and the sellers including: • lower administrative costs • lower search costs for buyers • reduced inventory costs due to increased competition among the suppliers (which increases price transparency) and reducing inventory to a bare minimum • lower transaction costs due to the elimination of paperwork and the partial automation of the procurement process • increased production flexibility by ensuring delivery of parts “just-in-time” • improved quality of products due to increased cooperation among buyers and sellers, reducing quality issues • decreased product cycle time due to the sharing of designs and production schedules with suppliers • increased opportunities for collaborating with suppliers and distributors • increased price transparency

The two key attributes that distinguish an electronic storefront are: • they use the Internet as the communication media instead of private networks • they tend to serve horizontal markets, that is, they carry products that serve a wide variety of industries • Automated order entry systems preceded electronic storefronts.

 The differences among total inter-firm trade, B2B commerce, and B2B  e-commerce. Before the Internet, business-to-business transactions were referred to as the “procurement process.” Today, the procurement process can be thought of as total inter-firm trade, which is the total flow of value among firms. B2B commerce describes all types of computer-assisted, inter-firm trade. B2B e-commerce specifically describes that portion of B2B commerce that uses the Internet to assist firms in buying and selling a variety of goods to each other.

 The two main types of vertical market portals are affinity group portals and focused content portals.  1. Affinity group portals seek to attract statistical aggregates of people who identify themselves by their attitudes, values, beliefs, and behavior. They exist to serve such broad constituencies as women, African Americans, and gays as well as much more focused constituencies like union members, religious groups, and even homeschooling families.  2. Focused content portals contain in-depth information on a particular topic that all members are interested in. They can provide content on such broad topics as sports, news, weather, entertainment, finance, and business, or they can appeal to a much more focused interest group such as boat, horse, or video game enthusiasts.

The main revenue sources for the portal business model are: • Providing ISP services such as Web access and email services for a monthly fee • General advertising such as charging for the number of banner ad impressions delivered • Tenancy deals whereby companies that value having access to their audience will lock in long-term multiple-year deals in which they are guaranteed a certain number of impressions with premium placement on home pages and through exclusive marketing deals, for example, subscription fees • Charging for premium content • Garnering commissions on sales that are generated from consumers originating from the portal site

 A vertical market portal A vertical market portal is a destination site that attempts to attract a highly focused, loyal audience with an intense interest in either a community they belong to or an interest they hold. 2nd part Recent trends in consumer behavior might prove advantageous to this business model because recent studies have found that users with limited time resources are interested in concentrating their Web site visiting on focused searches in areas that appeal to them.

  Three characteristics that define a portal site today The three characteristics that define a portal site today are navigation of the Web, providing content, and serving as the starting point for pursuing commerce. Web portals are gateways to the more than four billion Web pages available on the Internet. Originally, their primary purpose was to help users find information on the Web, but they evolved into destination sites that provided a myriad of content from news to entertainment.

  The types of products that are well-suited for an auction market include rare and unique products where prices are difficult to discover and where there may have been no market for the goods. These include perishable items such as airline tickets, hotel rooms, car rentals, or tickets to plays, concerts, and sporting events. Traditionally, auctions have been used by businesses to generate a higher profit on items at the end of their life cycle than they would receive from product liquidation sales. However, they are now more frequently being used at the beginning of a product’s life cycle to generate premium prices from highly motivated early adopters, for example: early releases of music, books, DVDs, video games, and digital appliances.

   An auction aggregator uses a Web crawler or another similar type of search engine computer program to search thousands of Web auction sites, scouring for information on products, bids, auction duration, and bid increments. Consumers can use auction aggregator sites to look for products of interest, and the program will return a list of both fixed-price sales locations and auction locations where the product is for sale.

The two price allocation rules in auction markets are uniform pricing and discriminatory pricing. When a uniform pricing rule is in effect, there are multiple winners who all pay the same price, usually the lowest winning bid. The lowest accepted offer sets the price. When a discriminatory pricing rule is in effect, winners pay different amounts depending on the amount they bid. Each customer pays its winning bid.

A seller bias exists in an auction market when there is a single, or only a few, sellers and multiple buyers, such that buyers compete against one another to determine the ultimate price of the product. If there are a small number of sellers there is also the possibility that they could freely and openly signal “acceptable” prices to one another through a transparent marketplace, thereby disadvantaging the buyer. A buyer bias exists in an auction market when there are one of only a few buyers and many sellers. Sellers must compete against one another for the available business. Examples include Priceline’s reverse auctions and auctions that are conducted in a sealed bid atmosphere, like construction or other contracting bids.

The major costs to consumers of participating in an auction are: • Delayed consumption: Auctions can go on for days and the product must then be shipped to the buyer. Buyers will typically want to pay less for an item they cannot immediately obtain. • Monitoring costs: Buyers must spend time monitoring the bidding. • Equipment costs: Buyers must purchase, or have already purchased, computer systems and Internet service, and learn how to operate these systems. • Trust risks: Consumers face an increased risk of experiencing a loss as online auctions are the largest source of Internet fraud. • Fulfillment costs: Buyers must pay for packing, shipping, and insurance, and will factor this cost into their bid price.

The benefits of auction markets are: • Liquidity: Sellers and buyers are connected in a global marketplace. • Price discovery: Even difficult-to-price items can be competitively priced based on supply and demand. • Price transparency: Everyone in the world can see the asking and bidding prices for items, although prices can vary from the auction site to auction site. • Market efficiency: Consumers are offered access to a selection of goods that would be impossible to access physically, and consumer welfare is often increased due to reduced prices. • Lower transaction costs: Merchants and consumers alike are benefited by the reduced costs of selling and purchasing goods compared to the physical marketplace. • Consumer aggregation: A large number of consumers who are motivated to buy are amassed in one marketplace—a great convenience to the seller. • Network effects: The larger an auction site becomes, in both the numbers of users and products, the greater all of the above benefit

  Personalization or personal value pricing is when merchants adjust prices based on their estimate of how much a customer truly values the product. For example, Web merchants may charge committed fans of a musician a higher price for the privilege of receiving a new CD before its official release to retail stores. It is a specific type of dynamic pricing in which merchants match their prices to the personal value that consumers will receive from a purchase by estimating what they believe any given consumer is willing to pay.  It can be used at the beginning of a product’s life cycle to increase revenues because a certain consumer segment, the so-called early adopters, is willing to pay more for a newly released product.

 Affinity community An affinity community is one in which members can participate in focused discussions with others who share the same affinity, or group identification, such as religion, ethnicity, gender, sexual orientation, or political beliefs.  Business Model The business model is a mixture of subscription revenue from premium content and services, advertising, tenancy/sponsorships, and distribution agreements.

Social networks involve a group of people, shared social interaction, common ties among members, and people who share an area for some period of time. Portals are general-purpose content providers that have a varied selection of features and capabilities.  Social networks are different from portals in that content creation is done almost exclusively by the members of social networks, whereas portals both create and aggregate content from elsewhere.  The two are similar in that their goal is to keep visitors on their sites for a long time or to mold themselves as a “sticky” destination site. Also, many portals have social networking features.