Social Media

Information Systems
Chapter 8

Lecture Notes based on the textbook:

Using MIS, 9th Edition
by David M. Kroenke, and Randall J. Boyle

Lecture prepared and presented by:

Clinton A. Benjamin, MBA, BBA, A.Sc.
Course Modules
MGMT205
Management Information Systems

Module 1: Module 2: Module 3: Module 4: Module 5:

MIS Fundamentals IS Components and IS Types and Levels IS Development Contemporary Issues
Technologies and Trends in MIS

Chapter 1 Chapter 4 Chapter 7 Chapter 11 Chapter 10

▪ MIS in business ▪ Hardware ▪ Information silos ▪ Systems analysis ▪ Cyber-crime
▪ Systems concepts ▪ Software ▪ Enterprise systems ▪ Roles of MIS staff, ▪ Information and IS
▪ Value and quality of ▪ Mobility and mobile ▪ MIS in business business operatives security
information systems functional areas and managers

Chapter 2 Chapter 5 Chapter 8 Chapter 12 ▪ The uncertain future

▪ Collaboration ▪ Databases ▪ E-commerce ▪ SDLC of passwords
systems ▪ Data sharing/access ▪ Social media ▪ System deployment ▪ Artificial intelligence
▪ Building effective and security information systems techniques ▪ “Big data” concerns
teams using IS ▪ IS ethical issues

Chapter 6 Chapter 9
Chapter 3 ▪ Network systems, ▪ Business
▪ Competitive telecommunications Intelligence Systems
advantage of MIS ▪ The Cloud ▪ Data mining
and information ▪ SaaS ▪ “Big data” and KMS 2
What We’ll Cover in This Lesson
E-Commerce Systems

Structure and Functions of an E-Commerce System

Social Media Information Systems (SMIS)

SMIS and Social Capital

Social Media Revenue

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Part 1

What is E-Commerce?
• E-commerce, or electronic commerce, is the buying and selling of goods
and services over public and private computer networks.
• Notice that this definition restricts e-commerce to buying and selling transactions.
• Checking the weather at www.yahoo.com is not e-commerce, but buying a weather-
service subscription that is paid for and delivered over the Internet is e-commerce.
• Generally speaking, there are two (2) types of companies that are engaged in
commerce (electronic or traditional). They are:
• Merchant companies: Companies that take title (ownership) of the goods they sell. They buy
goods, then resell them.
• Nonmerchant companies: Companies that arrange for the purchase and sale of goods without
ever owning or taking title to those goods. Agencies are examples of nonmerchant companies.
• A company can be both a merchant and nonmerchant company.
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E-Commerce Merchant Companies
• The three main types of merchant companies are:
 B2C: Those that sell directly to consumers.
 B2B: Those that sell to companies.
 B2G: Those that sell to government.
• Each uses slightly different information systems in the course of doing business.
• B2C, or business-to-consumer, e-commerce concerns sales between a supplier and
a retail customer (the consumer).
• Traditional B2C information systems rely on a Web storefront that customers use to
enter and manage their orders.
• Amazon.com is an example of a B2C e-commerce web storefront.

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E-Commerce Merchant Companies
• The term B2B, or business-to-business, e-commerce refers to sales
between companies.
• Examples of B2B companies include:
• Raw materials suppliers use B2B systems to sell to manufacturers.
• Manufacturers use B2B systems to sell to distributors.
• Distributors uses B2B systems to sell to retailers.
• B2G, or business-to-government, e-commerce refers to sales between companies
and governmental organizations.
• Suppliers, distributors, and retailers sell to the government as well.

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 E-Commerce Merchant Companies:
B2B, B2C and B2G
Government
Organisations
B2G

Raw Materials
B2B Manufacturers B2B Distributors B2B Retailers B2C Consumers
Suppliers

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Nonmerchant E-Commerce
• The most common nonmerchant e-commerce companies are auctions
and clearinghouses.
• E-commerce auctions match buyers and sellers by using an e-commerce version
of a standard auction.
• This e-commerce application enables the auction company to offer goods for sale and
to support a competitive-bidding process.
• Clearinghouses provide goods and services at a stated price and arrange for the
delivery of the goods, but they never take title.
• As a clearinghouse, Amazon.com matches the seller and the buyer and then takes
payment from the buyer and transfers the payment to the seller, minus a commission.
• Another type of clearinghouse is an electronic exchange that matches buyers and
sellers, where sellers offer goods for sale, and buyers offer prices for those goods
through the exchange. When there is agreement, a sale takes place. 8
How Does E-Commerce
Improve Market Efficiency?
• E-commerce improves market efficiency in a number of different ways.
• For one, e-commerce leads to disintermediation, which is the elimination of
the middle layers of distributors and suppliers.
• For example, you can purchase a new TV in a traditional store or via an e-commerce
web storefront.
• Traditional store: Manufacturer → distributor; distributor → retailer; retailer → consumer.
• Web storefront: Manufacturer → consumer.
• Disintermediation leads to a more affordable price for the final consumers of a
product because the costs involved in shipping the product to the distributors and
retailers are eliminated.
• The profit margins of these middlemen are also eliminated since they are no longer
involved in the distribution process of the product to the consumer.
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How Does E-Commerce
Improve Market Efficiency?
• E-commerce also improves the flow of price information.
• As a consumer, you can go to any number of Web sites that offer product price
comparisons.
• The improved distribution of information about price and terms enables you to pay
the lowest possible cost and serves ultimately to remove inefficient vendors.
• As a result, the market as a whole becomes more efficient.

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How Does E-Commerce
Improve Market Efficiency?
• From the seller’s side, e-commerce produces information about price
elasticity that has not been available before.
• Price elasticity measures the amount that demand rises or falls with changes in
price.
• Managing prices by direct interaction with the customer yields better information
than managing prices by watching competitors’ pricing.

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E-Commerce Advantages for Sellers
• More and more businesses are establishing their own B2C e-commerce
websites each year, taking advantage of the many advantages this new tool
brings them:
• Overcome geographical limitations: Physical stores typically attract and serve customers who live
or work within the geographic catchment area of that store, limiting the business’s market size.
In the past, expanding market size required huge investments to open new stores. A single e-
commerce storefront can serve customers from all around the world, greatly expanding
company sales.
• 24/7/365 sales: With a global marketplace now within reach for e-commerce businesses,
customers around the world in different time zones can shop at any time. There are no
additional costs to the business for having a 24-hour per day e-commerce storefront, unlike
physical stores which incur tremendous extra costs such as security, additional staff, etc.
• Connecting directly with customers: For many businesses that have historically only sold goods to
distributors or retailers, establishing their own e-commerce website allows the company to build
relationships directly with their consumers. Additionally, businesses can create customized
emails and other communications that can target customers with promotions that appeal to
specific individual customers. 12
E-Commerce Advantages for Sellers
• Digital products can be sold online with little-to-no overhead cost: Thanks to
e-commerce, consumers can purchase and download digital copies of music, videos,
software or books instantaneously. Stores can now sell unlimited copies of these digital
items, without having to worry about where they'll store the inventory.
• Upscale business operations more easily: Upscaling physical business operations is an extremely
expensive endeavour, requiring business location acquisition and outfitting, staffing, and other
costs. Upscaling an elastic e-commerce web storefront to accommodate increased sales may
cost a marginal increase in subscription fees to the cloud service provider who hosts the
business e-commerce website. (See: Chapter 6, The Cloud)
• Save money on rent, utilities, staffing, maintenance and other costs: As more existing customers
switch to shopping via a business’s web storefront, they can choose to close or even downsize
some of their physical stores to match the level of in-store demand. Closing or downsizing
stores will result in savings for the business, even while increasing sales via their web storefront.
• Lower costs: Operating an online business generally has lower costs thanks to cloud service
providers. Also, advertising costs on social media and other online platforms is much cheaper
than traditional advertising media such as newspapers, TV or radio. Other reductions in costs
include requiring fewer employees (many functions are automated) and needing less real estate. 13
E-Commerce Advantages for Buyers
• E-commerce has become a preferred shopping method for millions, and
perhaps over a billion persons around the world, and this increase is driven
by a number of important advantages presented by this technology:
• Convenience: Consumers can easily shop from at home (or at work) at any time. This means not
having to face crowds, traffic, or sold-out stock.
• Affordability: Items available for sale are usually significantly more affordable than the same
items in a store, due to disintermediation.
• More choice: Consumers are exposed to more shopping choices, including where to shop, and
which brands to buy.
• Variety: E-commerce companies provide more product types, sizes and brands than a physical
store can offer, giving shoppers significantly more variety.
• Price information: Consumers can easily “shop around” to find the best deals by visiting different
e-commerce websites, or by visiting a single price comparison website that publishes the prices
offered for various products by dozens of e-commerce websites.
• Global reach: E-commerce allows consumers to shop at online stores anywhere around the
world. 14
E-Commerce Disadvantages
• E-commerce presents its own challenges are drawbacks. These include:
• Loss of “instant gratification”: Traditional in-store shopping provides consumers with the
instant gratification of having their product in their hands right away. Online shopping
requires shoppers to wait for their purchases to arrive, sometimes taking days.
• Security risks: Consumers run the risk of visiting fraudulent e-commerce websites, or even
legitimate e-commerce websites that have been compromised by hackers. In both cases,
customers credit card and identity details may be stolen. Legitimate online retailers invest
heavily in security technologies to keep their shoppers safe, and to grow consumers’ confidence
in online shopping.
• Inability to touch and feel: Many shoppers still prefer traditional in-store shopping because they
have the ability to physically interact with the product to help them make their purchasing
decision. For example, ensuring the right fit for clothing items is impossible via e-commerce, but
really easy when shopping in a store. When purchasing clothes online, e-commerce retailers
often “try and buy” facilities where consumers have free return options if the items don’t fit,
which increases the costs for the business, and consumers take a much longer time to enjoy
their new outfits.
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The Structure of
B2C E-Commerce Transactions
?

16
Functions of an Effective B2C
E-Commerce Information System
• While each online retailer’s custom-built e-commerce system is unique,
reflecting different capabilities and different shopping experiences for their
customers, a good B2C e-commerce IS should perform the following functions:
• Provide an interactive web storefront • Direct orders to relevant warehouse
• Show available stock for sale • Direct workers to stock locations in warehouse
• Show if items are unavailable • Provide customers with order status tracking
• Track customer shopping history • Provide customers with shipping status tracking
• Track customer browsing history • Provide customers with all purchase documents
• Allow customers to share reviews • Provide managers with sales performance reports
• Allow customers to choose shipping method • Provide managers with stock reorder reports
• Securely store customer’s payment details • Automatically reorder stock from suppliers
• Upsell customers • Allow customers to create wish list for future
• Connect with bankers to verify payment purchases
• Store details about all products in stock • Provide protection against data theft by hackers
• Etc., etc., etc. 17
Part 2

What is a Social Media

Information System (SMIS)?
• Social media (SM) is the use of information technology to
Psychology
support the sharing of content among networks of users.
• Social media enables people to form communities
of practice, or simply communities, which are Sociology
Organisational
Theory
groups of people related by a common interest.
• A social media information system (SMIS) is an
information system that supports the sharing of Social Media

content among networks of users.

• Among the stakeholders relevant to the use of an Computer
Marketing
Science
SMIS, three (3) key organisational units are of
particular importance:
 Social media providers MIS
 Users
 Communities 18
Social Media Providers
• Social media providers such as Facebook, LinkedIn, Twitter, Instagram,
and Pinterest provide platforms that enable the creation of social networks,
or social relationships among people with common interests.
• The growth of SM has generated extraordinary interest from businesses,
advertisers, and investors.
• Social media providers compete with one another for the attention of users and for
the associated advertising dollars.
• Companies create profiles for their product lines, business units and brands on
social media platforms, creating communities of followers with whom businesses
can build mutually beneficial relationships, while growing their social capital.

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Users
• Users include both individuals and organisations that use SM sites to
build social relationships.
• More than 73% of people with Internet access use SM, and 40% of people access
SM via their mobile phones. These numbers continue to grow annually.
• Organisations are SM users too. It is estimated that 77% of Fortune 500 companies
maintain active Twitter accounts, 70% have Facebook pages, and 69% have YouTube
accounts.
• These companies hire professional staff to maintain their SM presence, promote
their products, build relationships with customers, and manage their image.
• Companies can be both SM users and providers if they possess the necessary name
recognition and/or resources to develop or acquire their own SM platform.
• For example, Google developed Google+, and Microsoft acquired LinkedIn.
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Communities
• Forming communities is a natural human trait; anthropologists claim that
the ability to form them is responsible for the progress of the human race.
• In the past, however, communities were based on family relationships or
geographic location. For example, everyone in the village formed a community.
• The key difference of SM communities is that they are formed based on mutual
interests, and transcend familial, geographic, and organisational boundaries.
• Because of this transcendence, most people belong to several, or even many,
different user communities.
• Social media is a powerful tool, and to use it well, organisations must know their
goals and plan accordingly.

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 SMIS Components
Component Role Description
Hardware Social media providers Elastic, cloud-based servers
Users and communities Any user computing device
Software Social media providers Application, NoSQL or other DBMS, Analytics
Users and communities Browser, iOS, Android, Windows 10, and other applications
Data Social media providers Content and connection data storage for rapid retrieval
Users and communities User-generated content, connection data
Procedures Social media providers Run and maintain application*
Users and communities Create and manage content, informal, copy each other
People Social media providers Staff to run and maintain application*
Users and communities Key users, adaptive, can be irrational
• Content data is data and responses to data that are contributed by users.
• Connection data is data about relationships.
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* Beyond the focus of this course.
How Do SMIS Increase
Social Capital?
• Business literature defines three types of capital:
• Capital as the investment of resources for future profit. This traditional definition refers
to investments into resources such as factories, machines, manufacturing equipment, etc.
• Human capital is the investment in human knowledge and skills for future profit. By taking this
class, you are investing in your own human capital. You are investing your money and time to
obtain knowledge that you hope will differentiate you from other workers and ultimately give
you a wage premium in the workforce.
• Social capital is the investment in social relations with the expectation of returns in the
marketplace. You can see social capital at work in your personal life. You strengthen your social
relationships when you help someone get a job, set a friend up on a date, or introduce a friend
to someone famous. You weaken the strength of your social relationships by continually
freeloading, declining requests for help, and failing to spend time with friends.
In your professional life, you are investing in your social capital when you attend a business function
for the purpose of meeting people and reinforcing relationships. Similarly, you can use social media
to increase your social capital by recommending or endorsing someone on LinkedIn, liking a picture
on Facebook, retweeting a tweet, or commenting on an Instagram picture. 23
What is the Value of Social Capital?
• Social capital adds value in four ways:
 Information
 Influence
 Social credentials
 Personal reinforcement
 Relationships in social networks can provide information about opportunities,
alternatives, problems, and other factors important to business professionals.
• As a business professional, this could be a friend introducing you to a potential new supplier or
letting you know about the opening of a new sales territory.
 Relationships provide an opportunity to influence decision makers at your employer
or in other organizations who are critical to your success.
• Playing golf every Sunday with the CEO of the company you work for could increase your
chances of being promoted. Such influence cuts across formal organizational structures, such as
reporting relationships.
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What is the Value of Social Capital?
 Being linked to a network of highly regarded contacts is a form of social
credential.
• You can bask in the glory of those with whom you are related. Others will be more inclined to
work with you if they believe critical personnel are standing with you and may provide resources
to support you.
 Being linked into social networks reinforces a professional’s identity, image, and
position in an organisation or industry. It reinforces the way you define yourself to
the world.
• Being friends with bankers, financial planners, and investors may reinforce your identity as a
financial professional.

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What is the Value of Social Capital?
• A social network is a network of social relationships among individuals
with a common interest. Each social network differs in value.
• The social network you maintain with your high school friends probably has less value than
the network you have with your business associates, but not necessarily so.
• The value of social capital is determined by:
 The number of relationships in a social network.
 The strength of those relationships.
 The quantity, value and importance of the resources controlled by the members of the social
network.

When you use social networking professionally, remember:

• You gain social capital by adding more friends and by strengthening the relationships you have
with existing friends.
• You gain more social capital by adding friends and strengthening relationships with people who
control resources that are important to you. 26
How Do Social Networks
Add Value to Businesses?
• Organisations have social capital just as humans do.
• Historically, organisations created social capital via salespeople, customer
support, and public relations. Endorsements by high-profile people are a
traditional way of increasing social capital, but there are tigers in those woods.
• Today, progressive organisations maintain a presence on Facebook, LinkedIn, Twitter,
and possibly other sites.
• They include links to their social networking presence on their Web sites and make
it easy for customers and interested parties to leave comments.
• Same as with individuals, social networks add value to businesses when they:
• Increase the number of relationships in their social network.
• Increase the strength of the relationships in their social network.
• Increase the number of “friends” in their social network that control resources that are
considered important to the business (reputation, market share, credibility, share value, etc.).
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How Do Companies Earn
Revenue from Social Media?
• The methods for earning revenue from social media vary depending on
whether the business is a user or the social media provider.
• For social media providers, earning income from their platform is complex.
• Companies like Facebook or YouTube spend billions of dollars in developing and
growing their technology infrastructure, despite decreasing costs for technology.
• Data centre hardware, storage, data communications, custom developed software, highly skilled
employees, etc.
• Despite the costs, these companies “give it away for free”. Most users of these
platforms, including businesses, pay $0.00 annually to use the social network.
• So, how to social media companies make money?

28
Revenue Models for Social Media Companies:
You Are the Product
• In 2020:
• Facebook has 2.7 billion active monthly users (individuals and businesses).
• YouTube has 2.0 billion active monthly users.
• Instagram has 1.0 billion active monthly users.
• TikTok has 800 million active monthly users.
• Social medial companies offer a free product/service in order to attract users.
• The more users they have, the more revenue they will be able to generate. How?

29
Revenue Models for Social Media Companies:
You Are the Product
• Facebook, for example, accumulates a tremendous amount of data about
their users, enabling the social media giant to develop complex and
sophisticated profiles about each user’s demographics, likes and dislikes,
behaviour, likely reactions, and more.
• Some of the user data that Facebook collects to build their user profiles include:
• Demographic data (age, race, etc.) • Social media videos of interest
• Employment data (past and present) • Social justice opinions, interests and passions
• Education history • Social groups, clubs and affiliations
• Places visited (FB mobile app location tracking) • Social connections (friends, family, classmates, colleagues, etc.)
• Places where users shop (physical and online) • Online ads viewed and clicked on
• Places lived • News and current affairs events of interests
• Interests (books, magazines, TV, movies, music, etc.) • Political interests, affiliations and passions
• Daily, weekly, monthly and annual activities • Web browsing habits and web sites visited
• Social media stories and articles of interest • FB activities (posts, photos, comments, likes, loves, dislikes,30etc.)
Revenue Models for Social Media Companies:
You Are the Product
• Social media companies like Facebook and YouTube then use all the data
they accumulate about each user to build a sophisticated profile model for
that user, allowing the company’s SMIS to predict the user’s likely future:
• Product choices
• Places of interest to visit
• Reactions in response to causes of interest (politics, social justice activism, etc.)
• Behaviours (liking online posts, clicking on ads, etc.)
• Videos they will want to watch
• Articles they will want to read
• Social groups they will want to be part of
• Etc.
• This detailed understanding of user interests and behaviours are then used to:
• Keep users engaged on the social media platform for longer and longer periods of time.
• Target users with ads that interest them, and that are relevant to each user’s current context. 31
Revenue Models for Social Media Companies:
Advertising
• Social media companies monetize their user base by selling ad space to
advertisers, and advertisers get access to billions of potential viewers of
their ads.
• As stated previously, social media companies have developed extensive techniques
for profiling their users to ensure that the right user sees the right ads that they will
likely be have an interest in.
• Facebook, for example, has developed models for learning and understanding the
interests, preferences, tastes, triggers, dislikes, passions, locations visited, and
potential purchases of their users, which allows them to target specific ads to users
who will have a greater likelihood of responding positively.
• In 2019, Facebook’s ad revenue ranged from US$15 billion to US$21 billion for each of
quarter in the year.
• For most social media companies, ads make up the vast majority of their revenues. 32
Revenue Models for Social Media Companies:
Freemium
• The freemium revenue model offers users a basic service for free and then
charges a premium for upgrades or advanced features.
• LinkedIn earns part of its revenue by selling upgrades to its standard free service.
• The freemium model is now being adopted by YouTube, who has recently launched
the YouTube TV subscription service, which allows subscribers to view videos
without ads.
• Smartphone apps have long used the freemium model, where free versions of apps
expose users to ads (which can be annoying), and the paid versions of the apps
having zero ads.

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How Do Users Earn
Revenue from Social Media?
• While users are the product of social media companies, content is the
product of social media users.
• Content is the collective term that represents everything that users post, submit,
upload or share online with the intention of having other users see, consume, react
to, enjoy or dislike.
• Content types include:
• Narrative posts
• Photos and illustrations
• Videos
• Audio clips
• Articles
• Promotions
• Comments
• Likes, dislikes, loves, etc. (emoji) 34
How Do Users Earn
Revenue from Social Media?
• Users of social media platforms are typically exposed to new content that
have been posted by other users with whom they have established online
relationships with.
• Social media relationships are called friends, but other relationships include persons
who users follow.
• The more interesting and enjoyable the content, the longer users remained engaged
on the SM platform, which creates more opportunities for users to be exposed to
the many ads that social media companies are paid to show to users.

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How Do Users Earn
Revenue from Social Media?
• To encourage users to produce more and more interesting and high
quality content, which will attract more and more viewers and followers, SM
companies allow special users called content creators to monetize their accounts,
which directly places ads within their posts, especially video content.
• As content creators attract larger numbers of followers to view their content, these
users will be able to see the many ads available.
• In return, the content creators are paid a share of the ad revenue earned by the SM
company.
• Content creators who are able to attract millions of followers earn very large
amounts of money each week.
• Many successful businesses have been founded on the basis of revenue earned
from social media content they develop.
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User Revenue from Social Media:
Content Creator Revenue on YouTube
• Google pays out 68% of their ad revenues to YouTube content creators
(called channels), at an average rate of US$0.18 per ad view. (Advertisers
actually pay between US$0.10 and US$0.30 per ad view.)
• If a channel has managed to garner 1 million followers, and all of these followers
watch 2 new videos per week, the channel will be able to earn US$36,000 per week.
• Many YouTube channels have many millions of followers, and produce several new
videos each week. The following represents the annual earnings of some highly
popular channels:
• 8-year old Ryan from Ryan’s World earns an estimated US$26 million.
• Another child, Nastya, earns US$18 million from her channel.
• The channel Dude Perfect, run by 5 high school friends, earns US$20 million.
• The former top YouTube earner PewDiePie has suffered a drop in earnings, which now stand at
US$15.5 million per year.
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