ee Hh eee Business Models for E-commerce mpany can sustain itseli, i ing business by which a co 'A business model is the method of doing business by ee es that is, generate revenue. The busines ae Pe ‘out how a com sfyine where it is positioned in the value chain. tes cnodel ate simple. A company produces goods or services and sells it customers. If all goes well, the revenues from sales exceed the cost of operation and the company realizes profit. Other models can be more intricately woven. Radio and televisio: proadcasting is a good example. The broadcaster is part of a complex network of distributor: ‘content creators, advertisers, and listeners or viewers. Who makes money and how much, + it is not always clear at the outset. The bottom line depends on many competing factors However, a business model does not discuss how the business mission of the compan) will be realized. The marketing strategy of the company is needed to assess the commercidl lit ofa business model and to answer questions like the following: How is competitiv: ge being built? What is the positioning? What is the marketing mix? Which product gy is followed? and so forth. understanding, e-commerce can be defined as any form of business transactiot Parties ae onal A transaction in an electronic market represent’ era between parties. For instance, it could involve sev i % g, ordering, payment, and support for delivery. An ee ae and buyers to exchange goods and services with the aid of i markets have three mai u aid of informatio" i main functions such as: (i) matching bi ting commercial transactions, and (iii) providing legal i ling buyers an neates all the three functions and also bel ing legal infrastructure. Informatio’ “costs, The interaction between ane to increase market efficiency at! Participants is supported by electron Payment and settlement, logistics,x Buyers =| SOO Oris: —S cern Valuation | Logistics | Payment | Authentication 1 2 3 F Y | Setters Fig. 2.1 Representation of an electronic market. E-commerce can be formally defined as technology-mediated exchanges between parties a (individuals, organizations, or both) as well as the electronically-based intra- or inter-organizational ig activities that facilitate such exchanges.? It is global. It favours intangible things—ideas, information, and relationships. And it is intensely interlinked. These three atrbutes produce eto ‘anew type of marketplace and society, one that is rooted in ubiquitous electronic networks. the The effectiveness of an e-commerce website is measured through the various parameters ion that constitute the Web usage analysis for e-commerce. The return on investment is a major cause of worry for the Web merchants. The Web channel provides new opportunities and challenges for analysis. It collects a large amount of detailed information on every user action, There is little experience and knowledge of the end-to-end process—from identifying what usage analysis is interesting to an organization, and what needs to be tracked down and measured, to acting on analysis for revising Web content, and updating advertising and ive promotion strategies.4 ct A company’s business model is the way in which it conducts business in order to generate revenue, In the new economy, companies are creating new business models and on reinventing old models, Reading the literature, we find business models categorized in different its | _WaYs. Presently, there is no single, comprehensive and cogent taxonomy of Web business s, | models that one can point to. Although there are many different ways to categorize vs | e-biisiness models, they can be broadly classified as follows: mn 1. E-business model based on the relationship of transaction parties. % E-business model based on the relationship of transaction types. ___» Classification by revenue model. ‘A revenue model may comprise? (a) product sales _ Model that charges customers directly for the products of services they buy: - (b) subscription model that charges a fixed monthly or annual rental for the service; ? tansaction fee model that charges a service fee based on volume and value of transactions offered; advertising support model that charges advertisers instead br and Bernard J. Jaworski, E-Commerce, rules for the new Economy. &t, al., E-Commerce Intellig. Ff online stores. Tata McGraw Hill, 2002, p. 3. fence: measuring, analysing and reporting on merchandisingE-commerce: An Indian Perspective of charging users; and sponsorship model that provides sponsorship by companieg ly non-financial reasons. | eee 4. Classification by distribution channel. A distribution channel may comprise (@) direct marketing where manufacturers such as Dell, Nike, Lego or Sony marie, directly from company sites to individual customers; (b) pure play e-tailers who ha, ro physical stores, only an online sales presence. Amazon.com is an example of sug, a model; and (c) click-and-mortar retailers who are traditional retailers wit, supplementary website, like Walmart.com. : In Figure 2.2, many of the entities of these models have been assembled together any given the name e-commerce. Seller il Broker Listing abivory lsinans 2. Community Seller and informatio® S. For examp!* are: (i) chats! and (iv) chart— Business Models for E-commerce ‘¢ Direct marketing versus indirect marketing $ pully cybermarketing versus partial cybermarketing § Electronic distributor versus electronic broker {Electronic store versus shopping mall ‘¢ Generalized e-malls versus specialized e-malls $ Proactive versus strategic cybermarketing ‘¢ Global versus regional marketing © Sales versus customer service. nd ; ‘And the list will go on. However, itis possible to classify e-business models according to this criteria. E-business Models Based on the Relationship of | Transaction Parties arkets are emerging in various fields. Different industries have markets with Electronic ms an information B2C market differs in many respects different characteristics. For example, from the automotive B2B market, The former represents companies that sell digital information goods, such as news, articles, music, books, or digital videos. In the information B2C aevkck the electronic infrastructure not only helps match customers and sellers, but also acts In this case, the infrastructure, ‘s the distribution channel, delivering products to customers. such as servers and networks, must support the delivery of large files, streaming media and other types of digital goods in an efficient way. This B2C market over the Internet can be viewed as an open system, where the number of participants is unknown. In the automotive BIB market, the products traded, such as parts and components of cars, have a high degree of specificity. The market infrastructure used is to be mainly based on Electronic Data Interchange (EDI) over expensive VAN services. EDI involves the exchange of standardized, ‘structured information between organizations, permitting direct communication between computer stems, At the heart of B2B applications is the strong integration of different applications. hetworks, and software should provide the infrastructure to integrate ‘Web-based pplications with mainframe and legacy systems. B2B is also a closed market in the sense { the number of participants involved in trading is limited and known a priori. Inderstanding the nature of the ‘market’s requirements is critical for creating the ‘e-business infrastructure. The relation between B2B and B2C models is clearly Figure 2.3. B2B covers business transactions ‘along the various interactions existing ‘chain from producers of raw materials to retailers and consumers including B2B Cc " Fig. 2.3 Relation between 621 ler B2 <> B and B2C models.—_—_ i E-commerce! An Indian Perspective C reflects only the interactions betwee, ing steps: @ accoun, ice negotiation s and distributors. On thi resolution and custome; manufacturer rnd a retailer. Basically, through search an dispute a customer al Tn some cases acquisition, (iv) payment, services May E-commerce can to-consumer (B2C), business: . to-consumer (C2C), | are a number of variations in ome of the current e-busimess models. The contents 0! of a diagram in Figure 2.4. t discovery t delivery. artners such as business, the transaction Pp o-government (B2G), consumer. fe broad categories, ther, | Table 2.1 summarizes jllustrated in the form also exist: bbe classified according 10 -to-busim ess (B2B), pusiness-t . Within thes f this table are TABLE 2.1 SUMMARY OF E-BUSINESS TRANSACTION MODELS Description ‘Examples amazon.com, autobytel.com, eDiets.com, Pets.com Sells products or services directly to consumers. MetalSite.com, VerticalNet.com, SHOP?2gether.com iGov.comBusiness Models for E-commerce Business-to-Consumer (B2C) ige shipment or take delivery of di le, B2C e-business includes retai pss hin ck nen an lal (ah, nd be ne Many traditional brick-and-mortar ves ike hotel rooms, and shares of stock Fees lers such as Barnes & Noble are now e-tailers with a Web storefront. These combined brick-and-mortar/onl ir 4 Pee RAEN Conipanics. i/online businesses are also Some B2C e-businesses provide high- Examples of e-business following this sul (financial news and. articles), Consumer eDiets.com (nutritional counselling). B2C e-business models include virtual malls, merchants. Virtual malls typically charge setup, listing, or transaction fees to online merchants, and may include ‘transaction handling services and marketing options. Examples of virtual Ee include excite.com, choicemall, women.com, networkweb.com, amazon.com, Zshops.com, yahoo.com. E-tailers that offer traditional or Web-specific products or services only over the Internet are sometimes called virtual merchants, and provide another variation on the B2C model. Examples of virtual merchants include amazon.com (books, electronics, toys, and music), eToys.com (children’s books and toys), and ashford.com (personal accessories). é ‘Some businesses supplement a successful traditional mail-order business with an online shopping site, or move completely to Web-based ordering. These businesses are sometimes called catalogue merchants. Examples include avon.com (cosmetics and fragrances), chefs _ (cookware and kitchen accessories), Omaha Steaks (premium steaks, meats, and other ourmet food), and Harry and David (gourmet food gifts). / were very, excited about the use of B2C on the Internet, because this new m allowed businesses and consumers to get connected in entirely new value content to consumers for a subscription fee. scription model include the Wall Street Journal Reports (product reviews and evaluations), and which are websites that host many online wing market. y one should opt for B2C are: ‘Once on the Internet, opportunities are immense ina small company, the Web can make you appear to nply means that the playing field has been levelled by s accessed by millions of people around the world, and Selling through the Web means cutting down on paper advertising costs, and order processing costs.E-commerce: An Indian Perspective 4. Customer convenience. Searchable content, and user-friendly interfaces facilitate custom business. Customers can also see order status, online. shopping carts, promotions, and interac, er convenience, thus generating Tho, delivery status, and get their Feccing 5. Knowledge management. Through database systems and information managemey, you can find out who visited your site, and how to create, better value for custome;, How Does B2C Work? B2C e-commerce is more than just an online store. It really is about managing the entire process, but just using technology as a tool for order processing and customer Suppor, Figure 2.5 depicts the processes in B2C. The B2C process is now explained in greater det 1. Visiting the virtual mall. The customer ‘visits’ the mall by browsing the Online catalogue—a very organized manner of displaying products and their related informatio such as price, description, and availability. Finding the right product becomes easy by using a keyword search engine. Virtual malls may include a basic to an advance | Customer identifies a need wleGdY jars ever we yb ratioupan, Le Aood ins: 3g) Is ye bier MGque eoresr 009 Shan > Hats > PoNOHas.oN HeNSHE. [,Business Models for E-commerce search engine, product rating system, bulletin boards, newsletters and othe for shoppers. Content management, customer support systems, T components which make shopping convenient Bp Customer, registers. ‘The customer has to register to become part of the site’s shopper registry. allows the customer to avail of the shop’s complete services. The customer becomes a part of the c , ‘ompany’s growing data si same for knowledge management and dae nee ing database and can use the Customer buys products. Through a shopping cart system, order details, shipping charges, taxes, additional charges and price totals are presented in an organized manner. The customer can even change the quantity of a certain product. Virtual malls have a very comprehensive shopping system, complete with check-out forms. 4, Merchant processes the order. The merchant then processes the order that is received from the previous stage and fills up the necessary forms. 5. Credit card is processed. The credit card of the customer is authenticated through a payment gateway ot a bank. Other payment methods can be used as well, such as debit cards, prepaid cards, or bank-to-bank transfers. Operations management. When the order is passed on to the logistics people, the traditional business operations will still be used. Things like inventory management, total quality management, warehousing, optimization and project management should still be incorporated even though it is an e-business. Getting the product to the customer is still the most important aspect of e-commerce. led gerare add _ 7. Shipment and delivery. The product is then shipped to the customer. The customer can track the order/delivery as virtual malls have a delivery tracking module on the ___ Website which allows a customer to check the status of a particular order. pili, od orthiteno 2 e 8. Customer receives. The product is received by the customer, and is verified. The system should then tell the firm that the order has been fulfilled. ‘After the sale has been made, the firm has to make sure that ‘telationship with its customers. This is done through customer yy a company conducts its trading and other Internet and the customer is another business itself. This ‘activity between companies through the Internet as a medium, ommerce whereb: he Web. Companies have by and | huge opportunity area on tl a Hor vy need to go into the next stage ll the operations worldwide and now the— i Perspective E-commerce: An Indian by linking thei integral part of your ERP app! which will support the customer industry specific, catering to a ¢ backward integration. Companies have ac due to their B2B applications. a y chain software, which is ap rs, Ths is done PY MUP gckbone of B2B application, ites are company a i Web. Many B2B sites 3 requirements on He Nor are a combination of forward ay omnmunity Ped huge savings indistribution-related ‘coy, customers and vend! $ : lication, Companies need to set s Major Advantages of B2B fet + advantage of e-business. Thy ‘rect interaction with customers. Thisiis the greates c 1 ict inert posless customer including other businesses, buying the products o are & Gamble through distributors, channels, large MNC like say HLL or Procter hops and the like, now has a name, face, and a profile, Large MNCs pay a fortune for this information on customer buying patterns. 2. Focused sales promotion. This information gives authentic data about the likes, dislikes and preferences of clients and thus helps the company bring out focussed sales promotion drives which are aimed at the’ right audience. 3. Building customer loyalty. It has been observed that online customers can be mor: loyal than other customers if they are made to feel special and their distinct identi Eteeoencd oo concems about privacy are respected. It has‘also been fount tomers develop a binding relationship with a site and its produc, ph loyalties to another site or product. se Seen Bisse that the Web is open and offers round-the-clock acces per ae ret Ino n before, to the customer. This access is across der geographi ees niin able to-handle. many: more ‘customers SESE hituses an e-business model. The company Microsoft is using pecuionsiand make’ regional domains to st S iodel very Successfully, The addition) aa ies down drastically once a crit! eget distribution 1s. Typical example X 5, examp! oo fs. This is) because t¥ -.e88 interaction to such a lev nepnone, of sales and supp" make huge sisiieae cong Store orde; com: for aBusiness Models for E-commerce Tools and Techniques at the Disposal of B2B Enterprises It is important to know the right marketin; ig strategies, which would be required to sell successfully and profitably over the Web. The Web as a medium provides you with a unique platform to enable various strategies, which would not have been possible to execute in a Conventional scenario. Some of these are: 1. Use of pricing as a tool. There is a wealth of research on pricing used as a tool to generate sales on the Internet. The biggest e-tailer of them all, amazon.com, made it by giving substantial discounts. Part of these heavy discounts is attributed to the distributor level commissions, which are now being passed on to the customer. Apart from this, companies have started giving things free on the Internet in order to get a critical mass of subscribers, which helps in getting advertising revenues. The best example is the Apple IMac computer machine being given free if the buyer agrees to make a certain amount of purchase using the Apple’s e-commerce website. Use of application service provider model. This is an old model of the 1970s, which was used among mainframes, and dumb terminals, and which is being revisited with a vengeance. Software companies are offering their packages not in CDs and boxes but through the Web. The customer can log in over the Internet and access the software from the web server of the company and need not download it into his PC. This goes one step further in the age of the networked PCs where one need not _ use even a hard disk and alll critical application data is kept on the Web and can be ‘accessed from anywhere in the world. These services (which are not products) are enh ins oiarednatays9y $3.00, how. models which are known for efficiency as well as personalized us business customers, The Web has given rise to a new partnership tar acturers, ¢-tailers, and express delivery companies s take care of the individual elements of the customer, post sale complaints, if any. dbisbivorc 'n Is has brought in a whole new concept of foday there are sites, which will take you luct to suit your specifications. This acted over an extranet. An extranet ‘where participating companies ms, There are basic B2B Internet business customers with purchase, B2B model is a business trading as a central source of information in Which similar products orE-commerce: An Indian Perspective Examples of broad vertical marks, 1, and transportation. The informay uct nee guides, supplier and proayy _qucti de shows and events, ang your heare), HotelResource (hospitality, can t tical marketspaces. B35, of a é simi joes are developed and sold using si s Fide jnseamee, real estate, banking, heavy manufactur iets at a vertical Web community can include DUVt’ © i Gireciowes, industry news and articles, schedules for ht Glassified advertisements. MediSpeciality.com (he: a irtual vel ‘exchanges are websites that bring mul c d sell to each othe, i and sellers can buy from an 3 marketspace. In this marketspace, buyers an cayman ley 0 i ined by the exchange rules. Table 2. ; = at dynamic pies determines Ty anges canbe furter categorized into several ways eet, wading hubs, post and browse markets, auction markets, and fully automate aggregators, exchanges. TABLE 2.2 COMMON ELEMENTS OF B2B EXCHANGES Element Benefit CRutalized marketspace Neutral and nonaligned with either sellex pee or buyers. appr Standardized documentation Users are prequalified and regulated Price quotes, price history, and Pricing mechanism is self-regulating after-the-sale information provided Confidential transactions between businesses. Clearing and settlement services provided ihe feercaators provide a single marketspace for company purchasing by providing : ee a aa! in one place. Examples of B2B aggregators pa emicals), Chemdex (chemicals), MeralSite’ (steel and other Freightquote.com (shipping services). g hubs ter competitive bids ona y steel and other metals). (auto dealer auctions). >auction markets’ may include reverse auctions or “, auction, a product's selling price continues to dei jour price” auctions, which allow. buye can then provide at the bid price, are also called res of a B2B site conducting reverse auction, TS to enter nter a a : Qt ay ‘tse auctions. FreeMarkets is an example Business-to-Business Transactions and Model, 528 interactions involve much more complexity than Psa include, among others, the following steps: () ue ae i) Menify Rae efine requirements, (iy) post request for proposals REE te useteeuie aaa (oi) select vendor. (vi) Hill out purchase orders (PO), (is) iG oe to vendor, (5) prepare invoice (3) make payment, (xi) arrange shipment and tay organize product inspection and czepton. Due to the large numberof transactions mokono eas canbe too risky if e-business sites cannot guarantee lesa performance, availability, and security aa Several models and classifications approach (e.g. office supply, and logistics), Electronic Marketplace Sellers Fig. 2.6 Business-to-Business (B2B) marketplace. The models can now be described as follows: 1. Aggregators. In the aggregation model, one company aggregates buyers to form a virtual buying entity and/or aggregates suppliers to constitute a virtual distributor. For example, in the science marketplace, one company became the central buying location for thousands of buyers to implement their own purchasing rules and obtain volume discounts, The aggregator takes the responsibility for selection and fulfillment, pricing, ‘and marketing segmentation. Another example is an electronic company that offers “total home buying service, from search to financing, under one site, Or process integration. Hubs or process integration focusses on producing tegrated value proposition through @ managed process. Hubs have beens on a specific industry ,, ‘ ‘aries that focu: rt et Lee markets and create value by Teducing bs host electroni ts atare examples of Yering ff such aS energy, Steg, defined as neutral inte ee a specific business proves tions bet en ; the costs of transacton® tery that serve a vertical peer ab spec a “s ng Sane hubs focus on business Processes suey Ba rent i jes. Functional \s 5 4 industries. See eel se a markets across different 1 Fea Denil = e i ny industries j as project management at provides office supplies to many ies ig tronic business P see peer arate of a functional hub in B2B com! i liances are used to achiev, community model, all " os ee In the control. Members and fate pay key i tes ; re He cae and customers. Basically, communities produce knowledge wit economic value, such as Linux, ‘Mp3, and Open Source. ity or alliance. n See aa le fthout hierarchical 4. Content, Content is the end product of this model of B2B commerce. Tt has the i purpose of facilitating trading. Revenue can be generated from subscriptions, membership, or advertising, For example, there are e-companies that sell information about contrac to bid market intelligence and analysis, and jobs by industry. 5, Auctions or dynamic pricing markets. Auctions or dynamic pricing markets hand: complex exchanges between buyers and sellers in B2B commerce. Auctions (2 English, Dutch, Vickrey, Reverse) are dynamic and efficient mechanisms for media __ and brokering in complex marketplaces, like supply-chain and procurement systems auctions allo agents to bid for bundles of items and are useful for B23 such as automatic supply-chain or procurement. B2B exchange, multiple buyers and sellers competitively bid ot ey ee mel orders are matched automatically 1 B2B exchange. A summary of B2B models is give! UB Ot- ane rie && exchange model is the business-to-governmer! has eFederal.com and Gov.com in the U' ernment procurements that do 10! Pao d consumers via onlit ine. Examp!* “and TraderOnline.<0"Y or ing Ica] rel, tal Ich 2), is 2B vertical markets iS B2B aggregators Py th 2B trading hubs e >, B2B post and ie browse markets B2B auction markets B2B fully automated exchanges Business Models for E-commerce TABLE 2,3 Purchase, order fulfillment, and other value-added services Provide a trading community for a specific industry Provide a single marketspace for business purchasing from multiple suppliers Provide a marketspace for multiple vertical markets Provide a marketspace where Participants post buy and sell opportunities Provide a marketspace for buyers and sellers to enter competitive bids on contracts Provide a marketspace for the automatic matching of standardized buy and sell contracts 828 SUMMARY 2B storefronts Provide businesses with Staples.com OfficeDepot.com HotelResource.com MetalSite.com VerticalNet.com CATEX.com CreditTrade.com TechEx.com e-STEEL.com HoustonStreet.com Altra.com FreeMarkets.com PaperExchange.com There are also a number of new consumer-to-consumer expert information exchanges that are expected to generate $6 billion in revenue by 2005. Some of these exchanges, such as AskMe.com and abuzz, are free, and some allow their experts to negotiate fees with clients. TnfoRocket.com, one of the first question-and-answer marketplaces, is driven by a -person auction format. The InfoRocket.com bidding system allows a person who m to review the profiles of the “experts” who offer to answer the question. biking the ei accepts an “expert” offer, InfoRocket.com bills the d, delivers the answer, and takes a 20 per cent commission. reverse auction ot demand collection model, enables buyers binding, for a specific good or service generating demand, bids” and then offers the bids to the participating sellers,An Indian Perspective (54) er electronics) and p’ om (travel, tele : everseAuction.com (wavel, autos, COMSUEE Tye erreages) are examples of C2B €-busin : the Relationshi High E-business Models Based on th P of Transaction Types This business model is essentially ruled by the following two parameters: c ee ty ° On the basis of value addition. Value addition is the addition of value to a Produe, N service because of the opportunities that it offers on the Web. 4 R On the basis of control. At the high end of control there is hierarchical contro] ay, ° the low end there is no control, so that it is self-organizing. Normally, the control js gy, L through the policies of the website. ay Based on these, nine types of transactions can be identified as listed below: © Brokerage * Aggregator Low eosin io: shiek awit Advant Followit ‘er, any given firm a - Figure 2.7). ° ° ° ° . Broker: ‘There ari Model. T MN. / 2. F 3.Aggre [ | Lem | =e Community r High VALUE INTEGRATION Fig. 27 traneaction model, year eidfT Al bie iS LBid‘E-commerce: An Indian Perspective ice di nism based 1 examples of price discovery mechat B2B = B2B sell side FastParts.com = B2B buy side FreeMarket.com = B2B exchanges Covisint.com @ B2C Priceline.com ¢ C2XC ebay.com ‘Some Indian brokerage sites are: www.baazee.com ‘www.automartindia,com indiacar.com lexchangeindia.com © mechanisms listed, the first two—auction and reverse auction—can , models are: Som oker. Many different auction formats have emerged since the first auction in about 500 B.C. Today, different auction formats are aggregated q ites. There are open and sealed-bid auctions. There are auctions wher ends as the auction proceeds and there are auctions where the rie ntervals. There are single auctions and double auctions. The English auction is one of the most cor mmon auction formats. |i N-outcry auction or the ascending-price auction. It is frequently usei do not have a limited lifetime. indicates that the high he bid for. Sometimes, happen when the auctic when he wishes the bidd eserve price, the item lest bidder will receive the item it the reserve price will not be ma ‘Oneer is uncertain about the prict “ts t0 totally set the price level. A’ will never be sold if the highest bid it the bidding occurs through electron the bidders. A well-known bidder msi = 4 Petson known to him has entere! Kind of bidding will not be beneficial ‘mous’ bidding process, if he wan’ 8 Keep in mind that some biddes Ower final price for the selle also bidd ora to th occu actu: than incre and | a Dt pred Whe clain left. clain prod used depai a per a des decisi buyer near | of no} bids ; collec Durin The t resolu lowesi Tf mu bids u Not all Tefinar US Tr the exy the bidees I Moc for E-commerce (57) hin an electronic Engli ae oo Beye wil nic English auction. Someti bidders with alert messages if ther dy we Sametime BepereanibalatvePinction it depends on nooo mess to the actual bidder to decide if he tests Winner's curses is a widespread pier boatis when the bidder gets to0 excited in a een, Mee ti actual valuation. On the other hand, the bidder varion a4 Pays more for an item s the auction site may provide the is function is just a service function ‘ages are formatted. It is always up nanipulated or not, incremental steps. Dutch auction, and other products. wit a Dutch auction, the opening pric, The Dutch aui ith a limited |j bidder’s perspective, ie bidder to make a bidding Hier if he really wants the product, compared to the English auction whee ie Possibility to bid at a lower price. This means that the bidder may bid at or nice sealed-bid auction. The first-price sealed-bid auction h, B Open-cry auction, like the English or Dutch auction, en from other bidders. tion has two different phases—a bidding phase, in which all the bids are esolution phase, in which the bids are opened and the winner is determined, hase, each bidder submits his bid, which is based on his own valuation, totally ignorant of all the other bids that have been submitted. The forks like this: all the bids are opened and sorted from the highest to the only one item that is auctioned, the highest bid will be the winning bid. # of the same product are auctioned, the items are awarded to the highest items are left. This is called a Discriminatory Sealed- Auction, since 'y the same price. The first-price sealed-bid auction is often used for foreign exchange. Until 1993, this auction format Was used by the debt securities. From a bidder's perspective, a high bid (compared to luation) raises the probability of winning. To avoid the winner's curse, lower his bid to reflect his own (and probably the market’s) valuation, as the main characteristic and thus the individualE-commerce: An Indian Persp i lobel Prize in Econ cacy, he wont of We WT eompice auction, Ilec bidder bids from his own inti, n this auction format. compa," der will pay the price of “ highest unsuccessful bid. Thus, the winner fied to include multiple rey auction is appl cm : iy ae the same price: This price will be y, Bymtcion. William Viekse 1 Vickrey auction. It is also c2 ickrey auction the bids are sealed and ei ge ignorant of all the other bids. What is diffe id auction is that, ach rent il sful bid. , e ive, one might wonder why anybody would like to use i, recy soa te Viekrey auction with the second-price rule zener eller than the first-price sealed-bid auction? Theoretical literature fy, siimption of private value (i.e. when an item is wanted for person, “and the first-price sealed-bid auction will both yield the san, be explained with the fact that in a Vickrey auction the bidder yj ses the price upwards, since he knows that he needs only to pa fore, the actual bids will better reflect the bidder's valuatio jon than in a firstsprice sealed-bid auction. tions may be used when other trading procedures fil ss is needed. Two main motives for auctions ar css hanism to determine a price listribution allocation mechanism. to mot ae identifies auction as a procedure ice em am eaine for Products that are not traded ot eee for products with highly fluctuating prices Bertisis pronn identifier for these auctions is th! le purchase and sale orders and hen deation mechanism identi BEh the ondingg a eatifies auctions for consumer prot 3 et channels because they are: ch as airpl : airplane seats (which are Worthless after the pla” 'need to be sey Bltated from the new incoming prod ® te distributioy n : oducts will channel which is created to att often have z ; Homers as possib) latge discount. The auctione*’ le, s Major price reductions, ang’: AEKEL will be li . ns: These kinds of auctions *” Sel Int In su the— Sines Models for E-commerce often attract bargain hunters w ho are well. products they are looking for, ell-informed customers and who know what specific Buyers and sellers are attracted to the distrib 1 s ted i eee the price discovery mechanism and the distribution z t reas mechanisms, ‘ons. Table 2.4 shows a comparison between the two TABLE 2.4 ROLE OF BUYER, SELLER AND AUCTIONEER ‘Auction group Price discovery mechanism Daye To determine an equilibrium Price, to acquire rare items ata reasonable price, Distribution allocation mechanism To make a bargain, to acquire Products at a low price. Seller To determine an equilibrium To off load excess inventory, to sell Price, to find a customer base products with limited life. for rare items. To achieve high trading To achieve high trading volumes, volumes, which will lead to which will lead to high returns. high returns, lic auction process is illustrated in Figure 2.8. The auctioneer brings together the sellers) and the customers (buyers or bidders) within the auction process. During Bidding Bid evaluation >| and auction Trade settlement 2.8 Functional model ‘of an online auction.ee nt, The electronic aucy, eae ie ¢ Web on the electronic auction 15 signific: lowing Web-related features: ‘cture with millions of potential us The impact of th the fo : ais sers, which increases the possi, i d customers. n potential suppliers and custo : \ for displaying the trade objects (Le. items to 5, “romic feasibility of the electronic auctions tions, which help suppliers and custom, 1. Common infrastru of an auction to occur betwee! 2. Standardized hypertext protocol auctioned), which increases the eco 3, Development of standardized search fu to find each other. ; 4, Standards for secure payments (e.g. SSL and SET), which encourage suppliers anj customers to actually use the war main factors that characterize electronic auctions. At lea, ic auction appears. The four factors are Web medium for trading. Critical factors. There are fo t ‘one of these factors will be present where an electroni ‘ Perishability fe Scarcity ‘* Goods that may be moved electronically Goods that are geographically constrained. Perishability. This is a valid factor, if the value of the products to be sold at a g n time is zero. An example of a perishable product is an airplane ticket. Each flight fixed cost to cover the fuel, maintenance, and the salaries bill. Each sold tickei ‘revenue to cover part of these elements of cost. When the airplane leaves the id tickets go waste. If these tickets can be sold at an auction site at a pris Covers the marginal cost of the ticket, the company would make a greate: without the said auction. This is valid, assuming that the cost of the Jess than the revenue that the actual auction will generate. ‘occurs when there is an excess demand, compared to the actual suppl) ae Fae can be used to provide a price discovery mechanism er pes Be Dees to reflect the excess demand uni i quals demand. Some prox E © used for price discovery are: a | electronical In terms Beene Boods have a great possibility o! Fens etonie auctions, securities are one of ti’ occur, the largest entry barriers ts 2 are th p °S) around the world, Pacuations Set up by various es : se Commissions have bee" a establishe reporting may thin! Gor part of a exceeds auction. has to be excellent Electror three di pairs ar . ° . Cc classifi or fixi perisha B public only b not to I eBay eBay | an effi busine collec coins, gemst chintz toa busin, do m chatti : Pees,auction. Therefore, a global has to be kept in mind that the excellent for electronic auctions. ic auction seller- i ee an oe From a seller-buyer Perspective, there are hee ES S$ Mat appear in electronic auctions. These different . Consumer-to-Consumer (C2c) ¢ Business-to-Consumer (B2C) ‘ Business-to-Business (B2B) or fixing prices for new products. Petishability and scarcity market factors. py, business-to-Business auctions are mainly used by companies and governments to sell Public contracts and surplus property. B2B auctions are to some extent privately held since, ‘only business companies can qualify as potential buyers. Therefore, B2B auction sites tend _ Rit to be as vigorously promoted to the general public as C2C and B2C auction sites are. _ Inthe following section, eBay (C2C) [htp:/www:ebay.com/) is analyzed in detail. ® world’s largest personal online trading community. eBay created a new market, ent one-to-one trading system in an auction format on the Web. Individuals—not big ‘eBay to buy and sell items in more than 4320 categories, including automobiles, antiques, sports memorabilia, computers, toys, Beanie Babies, dolls, figures, , books, magazines, music, pottery, glass, photography, electronics, jewellery, and much more. Users can find the unique and the interesting—everything from ‘to chairs, teddy bears to trains, and furniture to figurines on eBay. ng person-to-person trading site, buyers are compelled to trade on eBay due riety of items available. Similarly, sellers are attracted to eBay to conduct Provides over 4 million new auctions and 450,000 new items every day. community is made up of individual buyers and sellers who visit the site to st buy or sell—they have fun, shop around, and get to know each hes (by fay Café) and much more. Through the bulletin boards, users meet and getE-commerce: An Indian Perspective aaa: and petition one another for inform, \ to know each other, di ics of mutual interest, eae. , discuss topics of ane fen commrication between ‘These bulletin boards are public forums that encovs y eBay also encourages onal ‘and honest communication between the ey and company. Frequently, the members of the community organize Bee ovement, i improve the environment in which they work and play. More than 60 ae ion auctions been completed on eBay since its inception. Figure 2.9 describes the eBay model, Payment for items buyers and sellers who make up th eo the company. To oyercom » ©Bay invented the industry's fis! exclusive to one- i ‘one-to-one trading, the Feedback Forum. UTE tesistration j can then enter th Ae registration is free and takes ot!! 00k for What he is bidding op eee SSiNE His id and passwoe fe'mhaximum bi bid bon ge onsider, for example, an it bid oan the bottom of the page Theo ehalf of the person, up toh file with eBa Y. The sell ts and Watch the suc n for his p=" ave the reputati Putation oF bus > where users leave ee Practices of anyone at eB! ; nis about each other’s buying 2” selling ex a bid, to a seller, Eve program. in a forn the stanc An inyolvin it to the buyer. 7 the buy Revers The rey pioneer consum enablit proposi custom set by | private to enak sellers. flexibl increm structt F trumpe lowest Pricel with « servic websi varion explai an ad deale: Some Progr their for Pthe ne rst service provides added g involving expensive items. eBay's escron, it Partner j. it to the seller only after the merchandise hag ha 2 buyer. The seller also is given the opportunity to nengsPected and given the buyer gets the refund, inspect A aAtY to both the buyer and the seller, 70) ¥ will hold the pay in transactions ayment and send ;Pproval by the and approve a returned item before Reverse Auction sellers, The fulfilled offers generally cannot be cancelled, B flexible with respect to brands, sellers and/or product features, incremental revenue without di structures. Priceline.com was founded in October 1997. It launched its website in April 1998, trumpeting the idea of buyer-driven commerce as a way to use the Intemet to secure the lowest possible price on airline fares. Patent claims have been a key factor in driving Priceline’s remarkable value. Priceline.com has succeeded in part due to alliances formed with customers in areas of airline service industry, automobile industry, hotel reservation Services industry, home financing services industry, adaptive marketing programs, and through a eS alliances, Priceline.com has been able Loar aS the aa ot ese Various service areas, using their patented “name your price’ Peano ae ene a u Se ee a crea paaiantase. fark Ninanirea fevibrensaevalabl en Prieincon Some rie Me cicek Priceline.com for their rental car Sena ih eee ie Program enables the qualified independent websites to place the Pr hat ecce seen ee i independent website 0 Priceline com tt rests in busines for ee es $10 for first time qualified user and SI for subsea they enable sellers to generate ‘srupting their existing distribution channels or retail pricing