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ISBN-13: 978-0-13-460156-4 ISBN-10: 0-13-460156-4

www.pearsonhighered.com

E-commerce 2017 business. technology. society. THIRTEENTH EDITION

Kenneth C. Laudon

Carol Guercio Traver Laudon

Traver

THIRTEENTH EDITION

E-com m

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2017

Complete Listing of Chapter Opening Cases, Insight Cases, E-commerce in Action Cases, and Case Studies

CHAPTER 1 THE REVOLUTION IS JUST BEGINNING Opening Case: Uber: The New Face of E-commerce?

Insight on Technology: Will Apps Make the Web Irrelevant?

Insight on Business: Startup Boot Camp

Insight on Society: Facebook and the Age of Privacy

Case Study: Pinterest: A Picture Is Worth a Thousand Words

CHAPTER 2 E-COMMERCE BUSINESS MODELS AND CONCEPTS Opening Case: Tweet Tweet: Twitter’s Business Model

Insight on Society: Foursquare: Check Your Privacy at the Door

Insight on Business: Crowdfunding Takes Off

Insight on Technology: Will the Connected Car Become the Next Hot Entertainment Vehicle?

Case Study: Freemium Takes Pandora Public

CHAPTER 3 E-COMMERCE INFRASTRUCTURE: THE INTERNET, WEB, AND MOBILE PLATFORM

Opening Case: The Apple Watch: Bringing the Internet of Things to Your Wrist

Insight on Society: Government Regulation and Surveillance of the Internet

Insight on Technology: The Rise of HTML5

Insight on Business: AI, Intelligent Assistants, and Chatbots

Case Study: Akamai Technologies: Attempting to Keep Supply Ahead of Demand

CHAPTER 4 BUILDING AN E-COMMERCE PRESENCE: WEBSITES, MOBILE SITES, AND APPS Opening Case: The Wall Street Journal: Redesigning for Today’s Platforms

Insight on Business: Weebly Makes Creating Websites Easy

Insight on Society: Designing for Accessibility

Insight on Technology: Carnival Cruise Ships Go Mobile

Case Study: Dick’s Sporting Goods: Taking Control of Its E-commerce Operations

CHAPTER 5 E-COMMERCE SECURITY AND PAYMENT SYSTEMS Opening Case: Cyberwar: MAD 2.0

Insight on Society: The Ashley Madison Data Breach

Insight on Technology: Think Your Smartphone Is Secure?

Insight on Business: Bitcoin

Case Study: The Mobile Payment Marketplace: Goat Rodeo

CHAPTER 6 E-COMMERCE MARKETING AND ADVERTISING CONCEPTS Opening Case: Video Ads: Shoot, Click, Buy

Insight on Business: Are the Very Rich Different From You and Me?

Insight on Technology: The Long Tail: Big Hits and Big Misses

Insight on Society: Every Move You Take, Every Click You Make, We’ll Be Tracking You

Case Study: Programmatic Advertising: Real-Time Marketing

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CHAPTER 7 SOCIAL, MOBILE, AND LOCAL MARKETING Opening Case: Facebook: Putting Social Marketing to Work

Insight on Technology: Optimizing Social Marketing with Simply Measured

Insight on Society: Marketing to Children of the Web in the Age of Social Networks

Insight on Business: Mobile Marketing: Ford Goes 3-D

Case Study: ExchangeHunterJumper.com: Building a Brand with Social Marketing

CHAPTER 8 ETHICAL, SOCIAL, AND POLITICAL ISSUES IN E-COMMERCE Opening Case: The Right To Be Forgotten: Europe Leads on Internet Privacy

Insight on Technology: Apple: Defender of Privacy?

Insight on Business: Internet Sales Tax Battle

Insight on Society: The Internet Drug Bazaar

Case Study: The Pirate Bay: Searching for a Safe Haven

CHAPTER 9 ONLINE RETAILING AND SERVICES Opening Case: Blue Nile Sparkles for Your Cleopatra

E-commerce in Action: Amazon

Insight on Technology: Big Data and Predictive Marketing

Insight on Society: Phony Reviews

Insight on Business: Food on Demand: Instacart and GrubHub

Case Study: OpenTable: Your Reservation Is Waiting

CHAPTER 10 ONLINE CONTENT AND MEDIA Opening Case: Cord Cutters and Cord Shavers: The Emerging Internet Broadcasting System (IBS)

Insight on Society: Are Millennials Really All That Different?

Insight on Business: Vox: Native Digital News

Insight on Technology: Hollywood and the Internet: Let’s Cut a Deal

Case Study: Netflix: How Does This Movie End?

CHAPTER 11 SOCIAL NETWORKS, AUCTIONS, AND PORTALS Opening Case: Social Network Fever Spreads to the Professions

Insight on Society: The Dark Side of Social Networks

Insight on Technology: Trapped Inside the Facebook Bubble?

Insight on Business: Verizon Doubles Down on Portals

Case Study: eBay Evolves

CHAPTER 12 B2B E-COMMERCE: SUPPLY CHAIN MANAGEMENT AND COLLABORATIVE COMMERCE

Opening Case: Amazon Takes on B2B with Amazon Business

Insight on Society: Where’s My IPad? Supply Chain Risk and Vulnerability

Insight on Technology: Your Shoes Are in the Cloud

Insight on Business: Walmart Develops a Private Industrial Network

Case Study: Elemica: Cooperation, Collaboration, and Community

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http://www.ExchangeHunterJumper.com
Introductory MIS

Experiencing MIS, 7/e Kroenke & Boyle ©2017

Using MIS, 10/e Kroenke & Boyle ©2018

Management Information Systems, 15/e Laudon & Laudon ©2018

Essentials of MIS, 12/e Laudon & Laudon ©2017

IT Strategy, 3/e McKeen & Smith ©2015

Processes, Systems, and Information: An Introduction to MIS, 2/e McKinney & Kroenke ©2015

Information Systems Today, 8/e Valacich & Schneider ©2018

Introduction to Information Systems, 3/e Wallace ©2018

Database

Hands-on Database, 2/e Conger ©2014

Modern Database Management, 12/e Hoffer, Ramesh & Topi ©2016

Database Concepts, 8/e Kroenke, Auer, Vandenburg, Yoder ©2018

Database Processing, 14/e Kroenke & Auer ©2016

Systems Analysis and Design

Modern Systems Analysis and Design, 8/e Hoffer, George & Valacich ©2017

Systems Analysis and Design, 9/e Kendall & Kendall ©2014

Essentials of Systems Analysis and Design, 6/e Valacich, George & Hoffer ©2015

Decision Support Systems

Business Intelligence, Analytics, and Data Science, 4/e Sharda, Delen & Turban ©2018

Business Intelligence and Analytics: Systems for Decision Support, 10/e Sharda, Delen & Turban ©2014

Data Communications & Networking

Applied Networking Labs, 2/e Boyle ©2014

Digital Business Networks Dooley ©2014

Business Data Networks and Security, 10/e Panko & Panko ©2015

Electronic Commerce

E-Commerce: Business, Technology, Society, 13/e Laudon & Traver ©2018

Enterprise Resource Planning

Enterprise Systems for Management, 2/e Motiwalla & Thompson ©2012

Project Management

Project Management: Process, Technology and Practice Vaidyanathan ©2013

OTHER MIS TITLES OF INTEREST

CVR_LAUD1564_13_SE_FEP.indd 4 21/11/16 3:20 PM

Kenneth C. Laudon Carol Guercio Traver New York University Azimuth Interactive, Inc.

E - c o m m e r c e

business. technology. society.

T H I R T E E N T H E D I T I O N

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Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the docu- ments and related graphics published as part of the services for any purpose. All such documents and related graphics are provided “as is” without warranty of any kind. Microsoft and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all warranties and conditions of merchantability, whether express, implied or statutory, fitness for a particular purpose, title and non-infringement. In no event shall Microsoft and/or its respective suppliers be liable for any spe- cial, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from the services. The documents and related graphics contained herein could include technical inaccuracies or typographical er- rors. Changes are periodically added to the information herein. Microsoft and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time. Partial screen shots may be viewed in full within the software version specified.

Microsoft® Windows® and Microsoft Office® are registered trademarks of Microsoft Corporation in the U.S.A. and other countries. This book is not sponsored or endorsed by or affiliated with Microsoft Corporation.

Copyright © 2018, 2017, 2016 by Kenneth C. Laudon and Carol Guercio Traver.

Published by Pearson Education, Inc. All rights reserved. Manufactured in the United States of America. This publication is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval sys- tem, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. For information regarding permissions, request forms and the appropriate contacts within the Pearson Education Global Rights & Permissions De- partment, please visit www.pearsoned.com/permissions.

Acknowledgments of third-party content appear on the appropriate page within the text and/or page C-1, which constitute an ex- tension of this copyright page.

Unless otherwise indicated herein, any third-party trademarks that may appear in this work are the property of their respective owners and any references to third-party trademarks, logos or other trade dress are for demonstrative or descriptive purposes only. Such references are not intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson’s products by the owners of such marks, or any relationship between the owner and Pearson Education, Inc. or its affiliates, authors, licensees or dis- tributors.

Library of Congress Cataloging-in-Publication Data Names: Laudon, Kenneth C., 1944- author. | Traver, Carol Guercio, author. Title: E-commerce 2017: business, technology, society / Kenneth C. Laudon, New York University, Carol Guercio Traver, Azimuth Interactive, Inc. Description: Thirteenth EDITION. | Boston: Pearson, [2017] | Revised edition of the authors’ E-commerce 2016. | Includes index. Identifiers: LCCN 2016035789| ISBN 9780134601564 | ISBN 0134601564 Subjects: LCSH: Electronic commerce. | Internet marketing. | Information technology. Classification: LCC HF5548.32 .L38 2017 | DDC 658.8/72--dc23 LC record available at https://lccn.loc.gov/2016035789

ISBN-13: 978-0-13-460156-4 ISBN-10: 0-13-460156-4

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E-commerce. Business. Technology. Society. 13E provides you with an in-depth introduc- tion to the field of e-commerce. We focus on key concepts, and the latest empirical and financial data, that will help you understand and take advantage of the evolving world of opportunity offered by e-commerce, which is dramatically altering the way business is conducted and driving major shifts in the global economy.

Just as important, we have tried to create a book that is thought-provoking and current. We use the most recent data available, and focus on companies that you are likely to encounter on a daily basis in your everyday life, such as Facebook, Google, Twitter, Amazon, YouTube, Pinterest, eBay, Uber, WhatsApp, Snapchat, and many more that you will recognize, as well as some exciting startups that may be new to you. We also have up-to-date coverage of the key topics in e-commerce today, from privacy and piracy, to government surveillance, cyberwar, social, local, and mobile marketing, Internet sales taxes, intellectual property, and more. You will find here the most up-to-date and comprehensive overview of e-commerce today.

The e-commerce concepts you learn in this book will make you valuable to potential employers. The e-commerce job market is expanding rapidly. Many employ- ers expect new employees to understand the basics of e-commerce, social and mobile marketing, and how to develop an e-commerce presence. Every industry today is touched in at least some way by e-commerce. The information and knowledge you find in this book will be valuable throughout your career, and after reading this book, we expect that you will be able to participate in, and even lead, management discus- sions of e-commerce for your firm.

WHAT’S NEW IN THE 13TH EDITION

Currency

The 13th edition features all new or updated opening, closing, and “Insight on” cases. The text, as well as all of the data, figures, and tables in the book, have been updated through October 2016 with the latest marketing and business intelligence available from eMarketer, Pew Research Center, Forrester Research, comScore, Gartner Research, and other industry and government sources.

In addition, we have added new, expanded, and/or updated material throughout the text on a number of e-commerce topics that have appeared in the headlines dur- ing 2016, including the following: • The latest developments with respect to on-demand service companies such as

Uber, Airbnb, Instacart, and many others (Chapters 1, 2, and 9)

• Twitter’s difficulties in finding a workable business model, new federal equity crowdfunding regulations, developing new business models based on the Internet of Things (Chapter 2)

P R E F A C E

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• Developments in wearable computing, including Apple Watch 2; Border Gateway Protocol; HTTP/2; depletion of IPv4 Internet addresses; Tier 1, Tier 2, and Tier 3 ISPs and peering arrangements; Facebook’s satellite Internet access plans; the transition of control over IANA from the U.S. Department of Commerce to ICANN; 5G wireless; Google’s Project Loon and Facebook’s Internet access drone Aquila; IoT developments; the rise of mobile messaging applications and mobile search; virtual and augmented reality; artificial intelligence, intelligent personal assis- tants, and chatbots (Chapter 3)

• Open source Web and app development tools; mobile-first and responsive design; large companies, such as Dick’s Sporting Goods, reclaim their e-commerce infra- structure (Chapter 4)

• New research on tensions between ease of use and security; new security threats (such as the growth of ransomware; hacktivist attacks such as Wikileaks; the Yahoo data breach; the DDoS attack on Dyn); bug bounty programs; HSTS; Cyber- security Information Sharing Act; end-to-end encryption and national security issues; mobile wallets; Bitcoin and blockchain technology; P2P (Venmo; Face- book Messenger) and mobile payment systems (Chapter 5)

• Google search engine algorithm updates; FTC regulation of native advertising; ad fraud issues; new proposed rules on mobile ad viewability; the continuing rise in usage of ad blocking software; mobile supercookie issues; industry and FTC guide- lines on cross-device tracking; big data and marketing (Chapter 6)

• Mobile marketing spending overtakes spending on desktop advertising; new social marketing and social e-commerce tools from Facebook, Twitter, Pinterest, Insta- gram, LinkedIn, and Snapchat; proximity marketing; BLE; Google Eddystone; Apple iBeacons (Chapter 7)

• New, revised section on privacy issues, including facial recognition issues; the impact of the Supreme Court’s Spokeo decision; new E.U. General Data Protection Regulation (Privacy Shield); new FCC privacy regulations on ISPs; Apple/U.S. gov- ernment iPhone privacy fight; Google Library Project final court decision; new DMCA litigation; Apple/Samsung patent battles new section on trade secrets and federal Trade Secrets act; Internet sales tax developments; net neutrality develop- ments; online fantasy sports gambling issues (Chapter 8)

• The rise of social e-commerce; investments in fintech companies and online lending services; consolidation in the online recruitment industry; on-demand service companies (Chapter 9)

• Cord cutters, cord shavers, and cord nevers; industry structure convergence (AT&T/Time Warner; Verizon/Yahoo mergers); native digital news sites; FCC open set top box plan; streaming of pirated content; streaming music services; streaming TV devices; the impact of Pokemon GO (Chapter 10)

• Acquisition of LinkedIn by Microsoft; new section on the the use of algorithms by social networks, such as Facebook’s algorithm for generating personalized content; Facebook Workplace; Verizon acquires AOL and Yahoo (Chapter 11)

• Amazon Business; the rise of B2B sell-side marketplaces; supply chain visibility; cloud-based B2B; mobile B2B; B2B marketing (Chapter 12)

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Themes

E-commerce has significantly evolved over the last decade. The iPhone was intro- duced in 2007. The iPad tablet was first introduced in 2010 and has already gone through several generations! Cloud services for storing and streaming content, and hosting thousands of apps, were not widely available until 2011. Smartphone and tab- let devices have changed e-commerce into a social, local, and mobile experience. The 13th edition spotlights the following themes and content:

Headlines • Social, Mobile, Local: We include an entire chapter describing social, mobile, and

local marketing. Content about social networks, the mobile platform, and local e-commerce appears throughout the book.

» The mobile platform composed of smartphones and tablet computers takes off and becomes a major factor in search, marketing, payment, retailing and ser- vices, and online content, as well as on-demand service companies. Mobile device use poses new security and privacy issues as well.

» Social networks such as Facebook, Twitter, Pinterest, Instagram, LinkedIn, and Snapchat continue their rapid growth, laying the groundwork for a social net- work marketing platform.

» Location-based services lead to explosive growth in local advertising and mar- keting.

• Online privacy continues to deteriorate, driven by a culture of self-revelation and powerful technologies for collecting personal information online without the knowledge or consent of users. A growing number of consumers adopt ad blockers.

• Internet security risks increase; cyberwarfare becomes a new way of conducting warfare among nation-states and a national security issue. A growing perception of online risk supports a growing lack of trust in e-commerce firms and transac- tions.

Business • E-commerce revenues surge, despite slow economic growth.

• Internet advertising growth continues to outpace traditional advertising, including television.

• Social marketing grows faster than traditional online marketing like search and display advertising.

• E-books sales plateau but continue as a major channel for books. Consumers increasingly use smartphones and tablets as reader devices.

• Newspapers struggle to define a digital first news service.

• Streaming of popular TV shows and movies (Netflix, Amazon, YouTube, and Hulu. com) becomes a reality, as Internet distributors and Hollywood and TV producers strike deals for Web distribution that also protects intellectual property.

• “Free” and “freemium” business models compete to support digital content. Sub- scription services show unexpected strength.

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• New mobile payment platforms continue to emerge to challenge PayPal, including Apple Pay, Android Pay, Samsung Pay, and Venmo.

• B2B e-commerce exceeds pre-recession levels as firms become more comfortable with digital supply chains.

Technology • Smartphones, tablets, and e-book readers, along with associated cloud-based soft-

ware applications, and coupled with 4G cellular network expansion, fuel rapid growth of the mobile platform.

• Investment in cloud computing increases, providing the computing infrastructure for a massive increase in online digital information content, and e-commerce.

• Cloud-based streaming services for music and video challenge sales of downloads and physical product.

• Software apps fuel growth in app sales, marketing, and advertising; transforming software production and distribution.

• The cost of developing sophisticated websites continues to drop due to declining software and hardware prices and open source software tools.

• Internet and cellular network capacity is challenged by the rapid expansion in digital traffic generated by mobile devices; the use of bandwidth caps tier-pricing expands.

Society • The mobile, “always on” culture in business and family life continues to grow.

• Congress considers legislation to regulate the use of personal information for behavioral tracking and targeting consumers online.

• European countries develop much stronger privacy policies, including Right to be Forgotten laws, add a new General Data Protection Regulation (Privacy Shield), and continue to expand the rights of citizens vis-à-vis Internet data giants.

• States heat up the pursuit of taxes on Internet sales by e-commerce firms.

• Intellectual property issues remain a source of conflict with significant movement toward resolution in some areas, such as Google’s deals with Hollywood and the publishing industry, and Apple’s and Amazon’s deals with e-book and magazine publishers.

• Net neutrality regulations forbid Internet providers from discriminating against types of content, or providing differential service to large players.

• P2P piracy traffic declines as paid streaming music and video gains ground, although digital piracy of online content remains a significant threat to Hollywood and the music industry.

• Governments around the world increase surveillance of Internet users and web sites in response to national security threats; Google continues to tussle with China and other countries over censorship and security issues. Europe ends safe harbor protections for U.S. Internet firms.

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• Venture capital investing in e-commerce explodes for social, mobile, and local soft- ware applications. Crowdfunding becomes a new source of funding for e-com- merce start-ups.

WELCOME TO E-COMMERCE 2017

Since it began in 1995, electronic commerce has grown in the United States from a standing start to a $600 billion retail, travel, and media business and a $6.7 trillion business-to-business juggernaut, bringing about enormous change in business firms, markets, and consumer behavior. Economies and business firms around the globe are being similarly affected. During this relatively short time, e-commerce has itself been transformed from its origin as a mechanism for online retail sales into something much broader. Today, e-commerce has become the platform for media and new, unique services and capabilities that aren’t found in the physical world. There is no physical world counterpart to Facebook, Twittter, Google search, or a host of other recent online innovations from Pinterest and iTunes to Tumblr. The Internet is about to replace television as the largest entertainment platform. Welcome to the new e-commerce!

E-commerce is projected to continue growing at double-digit rates over the next five years, remaining the fastest growing form of commerce. Just as automobiles, airplanes, and electronics defined the twentieth century, so will e-commerce of all kinds define business and society in the twenty-first century. The rapid movement toward an e-commerce economy and society is being led by both established business firms such as Walmart, Ford, IBM, Macy’s, and General Electric, and online firms such as Google, Amazon, Apple, Facebook, Yahoo, Twitter, and YouTube. Students of business and information technology need a thorough grounding in e-commerce in order to be effective and successful managers in the next decade.

While firms such as Facebook, YouTube, Twitter, Pinterest, and Uber have grown explosively in the last two years and grab our attention, the traditional forms of retail e-commerce and services also remain vital and have proven to be more resilient than traditional retail channels in facing the economic recession. The experience of these firms from 1995 to the present is also a focus of this book. The defining characteristic of these firms is that they are profitable, sustainable, efficient, and innovative, with powerful brand names. Many of these now-experienced retail and service firms, such as eBay, Amazon, E*Trade, Priceline, and Expedia, are survivors of the first era of e-commerce. These surviving firms have evolved their business models, integrated their online and offline operations, and changed their revenue models to become profitable. Understanding how these online businesses succeeded will help students to manage their own firms in the current omni-channel business environment.

It would be foolish to ignore the lessons learned in the early period of e-commerce. Like so many technology revolutions in the past—automobiles, electricity, tele- phones, television, and biotechnology—there was an explosion of entrepreneurial efforts, followed by consolidation. By 2005, the survivors of the early period were moving to establish profitable businesses while maintaining rapid growth in reve- nues. In 2016, e-commerce is in the midst of a new period of explosive entrepreneur-

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ial activity focusing on on-demand services, social networks, and the mobile platform created by smartphones and tablet computers. These technologies and social behav- iors are bringing about extraordinary changes to our personal lives, markets, indus- tries, individual businesses, and society as a whole. E-commerce is generating thousands of new jobs in all fields from marketing to management, entrepreneurial studies, and information systems. Today, e-commerce has moved into the main- stream life of established businesses that have the market brands and financial mus- cle required for the long-term deployment of e-commerce technologies and methods. If you are working in an established business, chances are the firm’s e-commerce capabilities are important factors for its success. If you want to start a new business, chances are very good that the knowledge you learn in this book will be very helpful.

BUSINESS. TECHNOLOGY. SOCIETY.

We believe that in order for business and technology students to really understand e-commerce, they must understand the relationships among e-commerce business concerns, Internet technology, and the social and legal context of e-commerce. These three themes permeate all aspects of e-commerce, and therefore, in each chapter, we present material that explores the business, technological, and social aspects of that chapter’s main topic.

Given the continued growth and diffusion of e-commerce, all students—regard- less of their major discipline—must also understand the basic economic and busi- ness forces driving e-commerce. E-commerce has created new digital markets where prices are more transparent, markets are global, and trading is highly effi- cient, though not perfect. E-commerce has a direct impact on a firm’s relationship with suppliers, customers, competitors, and partners, as well as how firms market products, advertise, and use brands. Whether you are interested in marketing and sales, design, production, finance, information systems, or logistics, you will need to know how e-commerce technologies can be used to reduce supply chain costs, increase production efficiency, and tighten the relationship with customers. This text is written to help you understand the fundamental business issues in e-com- merce.

We spend a considerable amount of effort analyzing the business models and strategies of both online companies and established businesses now employing “bricks-and-clicks” business models. We explore why e-commerce firms fail and the strategic, financial, marketing, and organizational challenges they face. We also dis- cuss how e-commerce firms learned from the mistakes of early firms, and how estab- lished firms are using e-commerce to succeed. Above all, we attempt to bring a strong sense of business realism and sensitivity to the often exaggerated descriptions of e-commerce.

The Web and mobile platform have caused a major revolution in marketing and advertising in the United States. We spend two chapters discussing online marketing and advertising. Chapter 6 discusses “traditional” online marketing formats like search engine marketing, display advertising, and e-mail, as well as various Internet marketing technologies underlying those efforts, and metrics for measuring market-

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ing success. Chapter 7 provides an in-depth examination of social, mobile, and local marketing, which relies on mobile devices and social networks.

E-commerce is driven by Internet technology. Internet technology, and infor- mation technology in general, is perhaps the star of the show. Without the Internet, e-commerce would be virtually nonexistent. Accordingly, we provide three chapters specifically on the Internet and e-commerce technology, and in every chapter we provide continuing coverage by illustrating how the topic of the chapter is being shaped by new information technologies. For instance, Internet technology drives developments in security and payment systems, marketing strategies and advertis- ing, financial applications, media distribution, business-to-business trade, and retail e-commerce. We discuss the rapid growth of the mobile platform, the emergence of cloud computing, new open source software tools and applications, and new types of Internet-based information systems that support digital business-to-business markets.

E-commerce is not only about business and technology, however. The third part of the equation for understanding e-commerce is society. E-commerce and Internet technologies have important social consequences that business leaders can ignore only at their peril. E-commerce has challenged our concepts of privacy, intellectual property, and even our ideas about national sovereignty and governance. Google, Facebook, Amazon, and assorted advertising networks maintain profiles on millions of shoppers and consumers worldwide. The proliferation of illegally copied music, videos, and books on the Internet, and the growth of social network sites often based on displaying copyrighted materials without permission, are challenging the intel- lectual property rights of record labels, Hollywood studios, artists, and writers. And many countries—including the United States—are demanding to control the content of websites displayed within their borders for political and social reasons. Tax author- ities in the United States and Europe are demanding that e-commerce sites pay sales taxes just like ordinary brick and mortar stores on Main Street. As a result of these challenges to existing institutions, e-commerce and the Internet are the subject of increasing investigation, litigation, and legislation. Business leaders need to under- stand these societal developments, and they cannot afford to assume any longer that the Internet is borderless, beyond social control and regulation, or a place where market efficiency is the only consideration. In addition to an entire chapter devoted to the social and legal implications of e-commerce, each chapter contains material highlighting the social implications of e-commerce.

FEATURES AND COVERAGE

Strong Conceptual Foundation The book emphasizes the three major driving forces behind e-commerce: business development and strategy, technological innovations, and social controversies and impacts. Each of these driving forces is represented in every chapter, and together they provide a strong and coherent conceptual frame- work for understanding e-commerce. We analyze e-commerce, digital markets, and e-business firms just as we would ordinary businesses and markets using concepts from economics, marketing, finance, sociology, philosophy, and information sys-

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tems. We strive to maintain a critical perspective on e-commerce and avoid industry hyperbole.

Some of the important concepts from economics and marketing that we use to explore e-commerce are transaction cost, network externalities, information asym- metry, social networks, perfect digital markets, segmentation, price dispersion, tar- geting, and positioning. Important concepts from the study of information systems and technologies play an important role in the book, including Internet standards and protocols, client/server computing, cloud computing, mobile platform and wireless technologies, and public key encryption, among many others. From the literature on ethics and society, we use important concepts such as intellectual property, privacy, information rights and rights management, governance, public health, and welfare.

From the literature on business, we use concepts such as business process design, return on investment, strategic advantage, industry competitive environment, oli- gopoly, and monopoly. We also provide a basic understanding of finance and account- ing issues, and extend this through an “E-commerce in Action” case that critically examines the financial statements of Amazon. One of the witticisms that emerged from the early years of e-commerce and that still seems apt is the notion that e-com- merce changes everything except the rules of business. Businesses still need to make a profit in order to survive in the long term.

Currency Important new developments happen almost every day in e-commerce and the Internet. We try to capture as many of these important new developments as possible in each annual edition. You will not find a more current book for a course offered for the 2017 academic year. Many other texts are already six months to a year out of date before they even reach the printer. This text, in contrast, reflects extensive research through October 2016, just weeks before the book hits the press.

Real-World Business Firm Focus and Cases From Akamai Technologies to Google, Microsoft, Apple, and Amazon, to Facebook, Twitter, and Tumblr, to Netflix, Pandora, and Elemica, this book contains hundreds of real-company examples and over 60 more extensive cases that place coverage in the context of actual e-commerce busi- nesses. You’ll find these examples in each chapter, as well as in special features such as chapter-opening, chapter-closing, and “Insight on” cases. The book takes a realistic look at the world of e-commerce, describing what’s working and what isn’t, rather than presenting a rose-colored or purely “academic” viewpoint.

In-depth Coverage of Marketing and Advertising The text includes two chapters on marketing and advertising, both traditional online marketing and social, mobile, and local marketing. Marketing concepts, including market segmentation, personaliza- tion, clickstream analysis, bundling of digital goods, long-tail marketing, and dynamic pricing, are used throughout the text.

In-depth Coverage of B2B E-commerce We devote an entire chapter to an examina- tion of B2B e-commerce. In writing this chapter, we developed a unique and easily understood classification schema to help students understand this complex arena of e-commerce. This chapter covers e-distributors, e-procurement companies, exchanges,

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and industry consortia, as well as the development of private industrial networks and collaborative commerce.

Current and Future Technology Coverage Internet and related information tech- nologies continue to change rapidly. The most important changes for e-commerce include dramatic price reductions in e-commerce infrastructure (making it much less expensive to develop a sophisticated e-commerce presence), the explosive growth in the mobile platform such as iPhones, iPads, and tablet computers, and expansion in the development of social technologies, which are the foundation of online social networks. What was once a shortage of telecommunications capacity has now turned into a surplus, PC prices have continued to fall, smartphone and tablet sales have soared, Internet high-speed broadband connections are now typical and are continu- ing to show double-digit growth, and wireless technologies such as Wi-Fi and cellular broadband are transforming how, when, and where people access the Internet. While we thoroughly discuss the current Internet environment, we devote considerable attention to describing emerging technologies and applications such as the Internet of Things, advanced network infrastructure, fiber optics, wireless and 4G technolo- gies, Wi-Fi, IP multicasting, and future guaranteed service levels.

Up-to-Date Coverage of the Research Literature This text is well grounded in the e-commerce research literature. We have sought to include, where appropriate, refer- ences and analysis of the latest e-commerce research findings, as well as many classic articles, in all of our chapters. We have drawn especially on the disciplines of eco- nomics, marketing, and information systems and technologies, as well as law jour- nals and broader social science research journals including sociology and psychology.

We do not use references to Wikipedia in this text, for a variety of reasons. Most colleges do not consider Wikipedia a legitimate or acceptable source for academic research and instruct their students not to cite it. Material found on Wikipedia may be out of date, lack coverage, lack critical perspective, and cannot necessarily be trusted. Our references are to respected academic journals; industry sources such as eMarketer, comScore, Hitwise, Nielsen, and Gartner; newspapers such as the New York Times and Wall Street Journal; and industry publications such as Computerworld and InformationWeek, among others. Figures and tables sourced to “authors’ estimates” reflect analysis of data from the U.S. Department of Commerce, estimates from vari- ous research firms, historical trends, revenues of major online retailers, consumer online buying trends, and economic conditions.

Special Attention to the Social and Legal Aspects of E-commerce We have paid special attention throughout the book to the social and legal context of e-commerce. Chapter 8 is devoted to a thorough exploration of four ethical dimensions of e-com- merce: information privacy, intellectual property, governance, and protecting public welfare on the Internet. We have included an analysis of the latest Federal Trade Commission and other regulatory and nonprofit research reports, and their likely impact on the e-commerce environment.

A major theme throughout this chapter, and the remainder of the book, is the impact of social, mobile, and local commerce on how consumers use the Internet.

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Writing That’s Fun to Read Unlike some textbooks, we’ve been told by many stu- dents that this book is actually fun to read and easy to understand. This is not a book written by committee—you won’t find a dozen different people listed as authors, co- authors, and contributors on the title page. We have a consistent voice and perspec- tive that carries through the entire text and we believe the book is the better for it.

OVERVIEW OF THE BOOK

The book is organized into four parts. Part 1, “Introduction to E-commerce,” provides an introduction to the major

themes of the book. Chapter 1 defines e-commerce, distinguishes between e-commerce and e-business, and defines the different types of e-commerce. Chapter 2 introduces and defines the concepts of business model and revenue model, describes the major e-commerce business and revenue models for both B2C and B2B firms, and introduces the basic business concepts required throughout the text for understanding e-commerce firms including industry structure, value chains, and firm strategy.

Part 2, “Technology Infrastructure for E-commerce,” focuses on the technology infrastructure that forms the foundation for all e-commerce. Chapter 3 traces the historical development of the Internet and thoroughly describes how today’s Internet works. A major focus of this chapter is mobile technology, new software applications, and the near-term future Internet that is now under development and will shape the future of e-commerce. Chapter 4 builds on the Internet chapter by focusing on the steps managers need to follow in order to build an e-commerce presence. This e-com- merce infrastructure chapter covers the process that should be followed in building an e-commerce presence; the major decisions regarding outsourcing site develop- ment and/or hosting; how to choose software, hardware, and other tools that can improve website performance; and issues involved in developing a mobile website and mobile applications. Chapter 5 focuses on e-commerce security and payments, building on the e-commerce infrastructure discussion of the previous chapter by describing the ways security can be provided over the Internet. This chapter defines digital information security, describes the major threats to security, and then dis- cusses both the technology and policy solutions available to business managers seek- ing to secure their firm’s sites. This chapter concludes with a section on e-commerce payment systems. We identify the various types of online payment systems (credit cards, stored value payment systems such as PayPal, digital wallets such as Google Wallet, and others), and the development of mobile and social payment systems such as Apple Pay, Venmo, and Facebook Messenger.

Part 3, “Business Concepts and Social Issues,” focuses directly on the business concepts and social-legal issues that surround the development of e-commerce. Chap- ter 6 focuses on e-commerce consumer behavior, the Internet audience, and intro- duces the student to the basics of online marketing and branding, including traditional online marketing technologies and marketing strategies. Topics include the website as a marketing platform, search engine marketing and advertising, display ad market- ing, e-mail campaigns, affiliate and lead generation marketing programs, multichan-

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nel marketing, and various customer retention strategies such as personalization (including interest-based advertising, also known as behavioral targeting) and cus- tomer service tools. The chapter also covers other marketing strategies such as pric- ing and long-tail marketing. Internet marketing technologies (web transaction logs, tracking files, data mining, and Big Data) and marketing automation and CRM sys- tems are also explored. The chapter concludes with a section on understanding the costs and benefits of various types of online marketing, including a new section on marketing analytics software. Chapter 7 is devoted to an in-depth analysis of social, mobile, and local marketing. Topics include Facebook, Twitter, and Pinterest market- ing platforms, the evolution of mobile marketing, and the growing use of geo-aware technologies to support proximity marketing. Chapter 8 provides a thorough intro- duction to the social and legal environment of e-commerce. Here, you will find a description of the ethical and legal dimensions of e-commerce, including a thorough discussion of the latest developments in personal information privacy, intellectual property, Internet governance, jurisdiction, and public health and welfare issues such as pornography, gambling, and health information.

Part 4, “E-commerce in Action,” focuses on real-world e-commerce experiences in retail and services, online media, auctions, portals, and social networks, and busi- ness-to-business e-commerce. These chapters take a sector approach rather than the conceptual approach used in the earlier chapters. E-commerce is different in each of these sectors. Chapter 9 takes a close look at the experience of firms in the retail mar- ketplace for both goods and services, as well as on-demand service companies such as Uber and Airbnb. Chapter 9 also includes an "E-commerce in Action" case that provides a detailed analysis of the business strategies and financial operating results of Amazon, which can be used as a model to analyze other e-commerce firms. Chap- ter 10 explores the world of online content and digital media and examines the enor- mous changes in online publishing and entertainment industries that have occurred over the last two years, including streaming movies, e-books, and online newspapers and magazines. Chapter 11 explores the online world of social networks, auctions, and portals. Chapter 12 concentrates on the world of B2B e-commerce, describing both Net marketplaces and the less-heralded, but very large arena of private indus- trial networks and the movement toward collaborative commerce.

PEDAGOGY AND CHAPTER OUTLINE

The book’s pedagogy emphasizes student cognitive awareness and the ability to ana- lyze, synthesize, and evaluate e-commerce businesses. While there is a strong data and conceptual foundation to the book, we seek to engage student interest with lively writing about e-commerce businesses and the transformation of business models at traditional firms.

Each chapter contains a number of elements designed to make learning easy as well as interesting.

Learning Objectives A list of learning objectives that highlights the key concepts in the chapter guides student study.

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Chapter-Opening Cases Each chapter opens with a story about a leading e-com- merce company that relates the key objectives of the chapter to a real-life e-com- merce business venture.

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“Insight on” Cases Each chapter contains three real-world cases illustrating the themes of technol- ogy, business, and society. These cases take an in-depth look at rel- evant topics to help describe and analyze the full breadth of the field of e-commerce. The cases probe such issues as the ability of govern- ments to regulate Internet content, how to design websites for accessibility, the challenges faced by luxury marketers in online marketing, and smartphone security.

Margin Glossary Throughout the text, key terms and their definitions appear in the text margin where they are first intro- duced.

Real-Company Examples Drawn from actual e-commerce ventures, well over 100 pertinent examples are used throughout the text to illustrate concepts.

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Chapter-Closing Case Studies Each chap- ter concludes with a robust case study based on a real-world organization. These cases help students synthesize chapter concepts and apply this knowledge to concrete prob- lems and scenarios such as evaluating Pan- dora’s freemium business model, ExchangeHunterJumper’s efforts to build a brand, and the evolution of eBay.

Chapter-Ending Pedagogy Each chap- ter contains extensive end-of-chapter materials designed to reinforce the learning objectives of the chapter.

Key Concepts Keyed to the learn- ing objectives, Key Concepts pres- ent the key points of the chapter to aid student study.

Review Questions Thought-pro- voking questions prompt stu- dents to demonstrate their

comprehension and apply chapter con- cepts to management problem solving.

Projects At the end of each chapter are a number of projects that encourage students to apply chapter concepts and to use higher level evaluation skills. Many make use of the Internet and require students to present their findings in an oral or electronic pre- sentation or written report. For instance, students are asked to evaluate publicly avail- able information about a company’s financials at the SEC website, assess payment

system options for companies across international boundaries, or search for the top 10 cookies on their own computer and the sites they are from.

Web Resources Web resources that can extend stu- dents’ knowledge of each chapter with projects, exercises, and additional content are available at www.azimuth-interactive.com/ecommerce13e. The website contains the following content provided by the authors: • Additional projects, exercises, and tutorials

• Information on how to build a business plan and revenue models

• Essays on careers in e-commerce

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INSTRUCTOR RESOURCES

At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers.

The following supplements are available with this text:

• Instructor’s Resource Manual

• Test Bank

• TestGen® Computerized Test Bank

• PowerPoint Presentation

• Image Library

• Video Cases The authors have created a collection of video case studies that inte- grate short videos, supporting case study material, and case study questions. Video cases can be used in class to promote discussion or as written assignments. There are 29 video cases for the 13th edition, of which 14 are entirely new, and the remainder with updated supporting case study material.

Chapter 1 1.1 The Importance of the Internet for E-commerce 1.2 The Growth of the On-Demand Economy

Chapter 2 2.1 Twitter for Business 2.2 Angel Investing 2.3 Deals Galore at Groupon

Chapter 3 3.1 How Freshdesk Uses Amazon Web Services 3.2 Compare.com Turns to Microsoft Azure and the Cloud 3.3 Facebook’s Data Centers 3.4 Amazon Echo

Chapter 4 4.1 WL Gore Expands Using Demandware 4.2 National Kidney Registry Turns to Rackspace for Managed Hosting

Chapter 5 5.1 The Rise of Cyberwarfare 5.2 Tech Titans Clash over Future of Mobile Payments

Chapter 6 6.1 To Ad Block or Not to Ad Block 6.2 Pandora’s Recommendation System

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http://247.pearsoned.com
http://www.Compare.com
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Chapter 7 7.1 Pinterest Users Engage with Sephora 7.2 The Full Value of Mobile Marketing

Chapter 8 8.1 The Right to Be Forgotten 8.2 Facebook Privacy 8.3 What Net Neutrality Means for You

Chapter 9 9.1 Walmart Takes On Amazon 9.2 Etsy: A Marketplace and a Community

Chapter 10 10.1 YouTube: Secrets of Successful Content Creators 10.2 Vox Media 10.3 ESPN: Sports Broadcasting Evolves

Chapter 11 11.1 Instagram 11.2 Small Businesses Find a Home on eBay

Chapter 12 12.1 Flextronics Uses Elementum’s Cloud-based Mobile Supply Chain Apps 12.2 Mechan Groep Streamlines with Sana Commerce

• Learning Tracks These additional essays, created by the authors, provide instruc- tors and students with more in-depth content on selected topics in e-commerce.

Chapter 1 1.1 Global E-commerce Europe 1.2 Global E-commerce Latin America 1.3 Global E-commerce China

Chapter 6 6.1 Basic Marketing Concepts 6.2 Consumer Behavior: Cultural, Social, and Psychological Background Fac- tors 6.3 Social Media Marketing—Blogging

Chapter 7 Social Media Marketing: Facebook Social Media Marketing: Twitter

ACKNOWLEDGMENTS

Pearson Education has sought the advice of many excellent reviewers, all of whom have strongly influenced the organization and substance of this book. The following individuals provided extremely useful evaluations of this and previous editions of the text:

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Deniz Aksen, Koç University (Istanbul) Carrie Andersen, Madison Area

Technical College Subhajyoti Bandyopadhyay, University of

Florida Christine Barnes, Lakeland Community

College Reneta Barneva, SUNY Fredonia Rathin Basu, Ferrum College Dr. Shirley A. Becker, Northern Arizona

University Prasad Bingi, Indiana-Purdue University,

Fort Wayne Joanna Broder, Pima Community

College Lisa Bryan, Southeastern Community

College James Buchan, College of the Ozarks Ashley Bush, Florida State University Cliff Butler, North Seattle Community

College Carl Case, St. Bonaventure University Teuta Cata, Northern Kentucky

University Adnan Chawdhry, California University

of Pennsylvania Mark Choman, Luzerne City Community

College Andrew Ciganek, Jacksonville State

University Daniel Connolly, University of Denver Tom Critzer, Miami University Dr. Robin R. Davis, Claflin University Dursan Delen, Oklahoma State

University Abhijit Deshmukh, University of

Massachusetts Brian L. Dos Santos, University of

Louisville Robert Drevs, University of Notre Dame Akram El-Tannir, Hariri Canadian

University, Lebanon Kimberly Furumo, University of Hawaii

at Hilo

John H. Gerdes, University of California, Riverside

Gurram Gopal, Illinois Institute of Technology

Philip Gordon, University of California at Berkeley

Allan Greenberg, Brooklyn College Bin Gu, University of Texas at Austin Norman Hahn, Thomas Nelson

Community College Peter Haried, University of Wisconsin-La

Crosse Sherri Harms, University of Nebraska at

Kearney Sharon Heckel, St. Charles Community

College David Hite, Virginia Intermont College Gus Jabbour, George Mason University Thaddeus Janicki, University of Mount

Olive Kevin Jetton, Texas State University, San

Marcos Jim Keogh, Saint Peter’s University Ellen Kraft, Georgian Court University Gilliean Lee, Lander University Zoonky Lee, University of Nebraska,

Lincoln Andre Lemaylleux, Boston University,

Brussels Haim Levkowitz, University of

Massachusetts, Lowell Yair Levy, Nova Southeastern University Richard Lucic, Duke University Brenda Maynard, University of Pikeville Vincent McCord, Foothill College John Mendonca, Purdue University John Miko, Saint Francis University Dr. Abdulrahman Mirza, DePaul

University Natalie Nazarenko, SUNY - Fredonia Barbara Ozog, Benedictine University Kent Palmer, MacMurray College Karen Palumbo, University of St. Francis

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We would like to thank eMarketer, Inc. and David Iankelevich for their permission to include data and figures from their research reports in our text. eMarketer is one of the leading independent sources for statistics, trend data, and original analysis cover- ing many topics related to the Internet, e-business, and emerging technologies. eMar- keter aggregates e-business data from multiple sources worldwide.

In addition, we would like to thank all those who have worked so hard to make sure this book is the very best it can be, including Samantha McAfee Lewis, Senior Portfolio Manager at Pearson and Revathi Viswanathan, Project Manager at Cenveo

James Pauer, Lorain County Community College

Wayne Pauli, Dakota State University Sam Perez, Mesa Community College Jamie Pinchot, Thiel College Selwyn Piramuthu, University of Florida Kai Pommerenke, University of

California at Santa Cruz Barry Quinn, University of Ulster,

Northern Ireland Mahesh (Michael) Raisinghani, TWU

School of Management, Executive MBA Program

Michelle Ramim, Nova Southeastern University

Jay Rhee, San Jose State University Jorge Romero, Towson University John Sagi, Anne Arundel Community

College Carl Saxby, University of Southern

Indiana Patricia Sendall, Merrimack College Dr. Carlos Serrao, ISCTE/DCTI, Portugal Neerja Sethi, Nanyang Business School,

Singapore Amber Settle, DePaul CTI Vivek Shah, Texas State University-San

Marcos Wei Shi, Santa Clara University Seung Jae Shin, Mississippi State

University Sumit Sircar, University of Texas at

Arlington Toni Somers, Wayne State University

Mike Ilitch School of Business

Hongjun Song, University of Memphis Pamela Specht, University of Nebraska at

Omaha Esther Swilley, Kansas State University Tony Townsend, Iowa State University Bill Troy, University of New Hampshire Susan VandeVen, Southern Polytechnic

State University Hiep Van Dong, Madison Area Technical

College Michael Van Hilst, Nova Southeastern

University Mary Vitrano, Palm Beach Community

College Andrea Wachter, Point Park University Nitin Walia, Ashland University Catherine Wallace, Massey University,

New Zealand Biao Wang, Boston University Haibo Wang, Texas A&M International

University Harry Washington, Lincoln University Irene Wheeler, CVCC Rolf Wigand, University of Arkansas at

Little Rock Erin Wilkinson, Johnson & Wales

University Alice Wilson, Cedar Crest College Dezhi Wu, Southern Utah University Gene Yelle, SUNY Institute of Technology Kaimei Zheng, Isenberg School of

Management, UMass, Amherst David Zolzer, Northwestern State

University

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Publisher Services. Very special thanks to Megan Miller and Will Anderson at Azi- muth Interactive, Inc., for all their hard work on the production of, and supplements for, this book.

Finally, last but not least, we would like to thank our family and friends, without whose support this book would not have been possible.

Kenneth C. Laudon Carol Guercio Traver

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xxiii

B r i e f C o n t e n t s

PART 1 Introduction to E-commerce

1 THE REVOLUTION IS JUST BEGINNING 2

2 E-COMMERCE BUSINESS MODELS AND CONCEPTS 52

PART 2 Technology Infrastructure for E-commerce

3 E-COMMERCE INFRASTRUCTURE: THE INTERNET, WEB, AND MOBILE PLATFORM 106

4 BUILDING AN E-COMMERCE PRESENCE: WEBSITES, MOBILE SITES, AND APPS 186

5 E-COMMERCE SECURITY AND PAYMENT SYSTEMS 250

PART 3 Business Concepts and Social Issues

6 E-COMMERCE MARKETING AND ADVERTISING CONCEPTS 334

7 SOCIAL, MOBILE, AND LOCAL MARKETING 422

8 ETHICAL, SOCIAL, AND POLITICAL ISSUES IN E-COMMERCE 494

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PART 4 E-commerce in Action

9 ONLINE RETAIL AND SERVICES 582

10 ONLINE CONTENT AND MEDIA 648

11 SOCIAL NETWORKS, AUCTIONS, AND PORTALS 716

12 B2B E-COMMERCE: SUPPLY CHAIN MANAGEMENT AND COLLABORATIVE COMMERCE 760

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C o n t e n t s

Learning Objectives 2

Uber: The New Face of E-commerce? 3

1.1 The First Thirty Seconds: Why You Should Study E-commerce 7

1.2 Introduction to E-commerce 8 What Is E-commerce? 8

The Difference Between E-commerce and E-business 9

Technological Building Blocks Underlying E-commerce: The Internet, Web, and Mobile Platform 9

Insight on Technology: Will Apps Make the Web Irrelevant? 13 Major Trends in E-commerce 15

1.3 Unique Features of E-commerce Technology 17 Ubiquity 18

Global Reach 18

Universal Standards 19

Richness 19

Interactivity 20

Information Density 20

Personalization and Customization 21

Social Technology: User-Generated Content and Social Networks 21

1.4 Types of E-commerce 21 Business-to-Consumer (B2C) E-commerce 22

Business-to-Business (B2B) E-commerce 23

Consumer-to-Consumer (C2C) E-commerce 24

Mobile E-commerce (M-commerce) 25

PART 1 Introduction to E-commerce

1 THE REVOLUTION IS JUST BEGINNING 2

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Social E-commerce 25

Local E-commerce 26

1.5 E-commerce: A Brief History 27 E-commerce 1995–2000: Invention 28

E-commerce 2001–2006: Consolidation 31

E-commerce 2007–Present: Reinvention 32

Assessing E-commerce: Successes, Surprises, and Failures 33

Insight on Business: Startup Boot Camp 34

1.6 Understanding E-commerce: Organizing Themes 38 Technology: Infrastructure 38

Business: Basic Concepts 40

Society: Taming the Juggernaut 40

Insight on Society: Facebook and the Age of Privacy 41

1.7 Academic Disciplines Concerned with E-commerce 43 Technical Approaches 43

Behavioral Approaches 43

1.8 Case Study: Pinterest: A Picture Is Worth a Thousand Words 44

1.9 Review 48 Key Concepts 48

Questions 50

Projects 50

References 51

Learning Objectives 52

Tweet Tweet: Twitter’s Business Model 53

2.1 E-commerce Business Models 56 Introduction 56

Eight Key Elements of a Business Model 56

Value Proposition 57

Revenue Model 58

Insight on Society: Foursquare: Check Your Privacy at the Door 60 Market Opportunity 62

Competitive Environment 62

Competitive Advantage 63

2 E-COMMERCE BUSINESS MODELS AND CONCEPTS 52

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Market Strategy 65

Organizational Development 65

Management Team 66

Raising Capital 66

Categorizing E-commerce Business Models: Some Difficulties 68

Insight on Business: Crowdfunding Takes Off 69

2.2 Major Business-to-Consumer (B2C) Business Models 71 E-tailer 71

Community Provider 74

Content Provider 75

Portal 76

Insight on Technology: Will the Connected Car Become the Next Hot Entertainment Vehicle? 77

Transaction Broker 79

Market Creator 79

Service Provider 80

2.3 Major Business-to-Business (B2B) Business Models 81 E-distributor 82

E-procurement 82

Exchanges 83

Industry Consortia 84

Private Industrial Networks 84

2.4 How E-commerce Changes Business: Strategy, Structure, and Process 84

Industry Structure 86

Industry Value Chains 88

Firm Value Chains 89

Firm Value Webs 90

Business Strategy 91

E-commerce Technology and Business Model Disruption 94

2.5 Case Study: Freemium Takes Pandora Public 97

2.6 Review 101 Key Concepts 101

Questions 103

Projects 103

References 104

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Learning Objectives 106

The Apple Watch: Bringing the Internet of Things to Your Wrist 107

3.1 The Internet: Technology Background 110 The Evolution of the Internet: 1961—The Present 112

The Internet: Key Technology Concepts 116

Packet Switching 116

Transmission Control Protocol/Internet Protocol (TCP/IP) 118

IP Addresses 118

Domain Names, DNS, and URLs 120

Client/Server Computing 121

The New Client: The Mobile Platform 123

The Internet “Cloud Computing” Model: Hardware and Software as a Service 123

Other Internet Protocols and Utility Programs 128

3.2 The Internet Today 130 The Internet Backbone 132

Internet Exchange Points 134

TIER 3 Internet Service Providers 134

Campus/Corporate Area Networks 137

Intranets 138

Who Governs the Internet? 138

3.3 The Future Internet Infrastructure 140 Limitations of the Current Internet 140

Insight on Society: Government Regulation and Surveillance of the Internet 141 The Internet2® Project 144

The First Mile and the Last Mile 145

Fiber Optics and the Bandwidth Explosion in the First Mile 146

The Last Mile: Mobile Internet Access 146

Telephone-based versus Computer Network-based Wireless Internet Access 147

Internet Access Drones 150

The Future Internet 151

Latency Solutions 151

PART 2 Technology Infrastructure for E-commerce

3 E-COMMERCE INFRASTRUCTURE: THE INTERNET, WEB, AND MOBILE PLATFORM 106

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Guaranteed Service Levels and Lower Error Rates 152

Declining Costs 152

The Internet of Things 152

3.4 The Web 154 Hypertext 155

Markup Languages 156

HyperText Markup Language (HTML) 156

Insight on Technology: The Rise of HTML5 159 eXtensible Markup Language (XML) 161

Web Servers and Clients 162

Web Browsers 164

3.5 The Internet and the Web: Features and Services 164 Communication Tools 164

E-mail 165

Messaging Applications 165

Online Message Boards 166

Internet Telephony 166

Video Conferencing, Video Chatting, and Telepresence 167

Search Engines 167

Downloadable and Streaming Media 170

Web 2.0 Applications and Services 171

Online Social Networks 171

Blogs 171

Wikis 172

Virtual Reality and Augmented Reality 172

Intelligent Personal Assistants 173

3.6 Mobile Apps: The Next Big Thing Is Here 174

Insight on Business: AI, Intelligent Assistants, and Chatbots 175 Platforms for Mobile Application Development 177

App Marketplaces 177

3.7 Case Study: Akamai Technologies: Attempting to Keep Supply Ahead of Demand 178

3.8 Review 181 Key Concepts 181

Questions 183

Projects 183

References 184

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Learning Objectives 186

The Wall Street Journal: Redesigning for Today’s Platforms 187

4.1 Imagine Your E-commerce Presence 190 What’s the Idea? (The Visioning Process) 190

Where’s the Money: Business and Revenue Model 190

Who and Where Is the Target Audience? 191

What Is the Ballpark? Characterize the Marketplace 192

Where’s the Content Coming From? 192

Know Yourself: Conduct a SWOT Analysis 193

Develop an E-commerce Presence Map 194

Develop a Timeline: Milestones 195

How Much Will This Cost? 196

4.2 Building an E-commerce Presence: A Systematic Approach 197 Planning: The Systems Development Life Cycle 198

Systems Analysis/Planning: Identify Business Objectives, System Functionality, and Information Requirements 198

System Design: Hardware and Software Platforms 199

Building the System: In-house Versus Outsourcing 200

Build Your Own versus Outsourcing 202

Host Your Own versus Outsourcing 204

Insight on Business: Weebly Makes Creating Websites Easy 205 Testing the System 208

Implementation and Maintenance 208

Factors in Optimizing Website Performance 209

4.3 Choosing Software 210 Simple Versus Multi-Tiered Website Architecture 210

Web Server Software 212

Site Management Tools 212

Dynamic Page Generation Tools 213

Application Servers 216

E-commerce Merchant Server Software Functionality 217

Online Catalog 217

Shopping Cart 217

Credit Card Processing 217

Merchant Server Software Packages (E-commerce Software Platforms) 217

Choosing an E-commerce Software Platform 218

4.4 Choosing Hardware 220 Right-sizing Your Hardware Platform: The Demand Side 220

4 BUILDING AN E-COMMERCE PRESENCE: WEBSITES, MOBILE SITES, AND APPS 186

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Right-sizing Your Hardware Platform: The Supply Side 222

4.5 Other E-commerce Site Tools 225 Website Design: Basic Business Considerations 225

Tools for Search Engine Optimization 226

Tools for Interactivity and Active Content 227

Common Gateway Interface (CGI) 227

Active Server Pages (ASP) and ASP.NET 228

Java, Java Server Pages (JSP), and JavaScript 228

ActiveX and VBScript 229

ColdFusion 230

PHP, Ruby on Rails (RoR), and Django 230

Other Design Elements 231

Personalization Tools 231

The Information Policy Set 232

4.6 Developing a Mobile Website and Building Mobile Applications 232

Insight on Society: Designing for Accessibility 233 Planning and Building a Mobile Presence 235

Mobile Presence: Design Considerations 237

Cross-platform Mobile App Development Tools 238

Mobile Presence: Performance and Cost Considerations 239

Insight on Technology: Carnival Cruise Ships Go Mobile 240

4.7 Case Study: Dick’s Sporting Goods: Taking Control of Its E-commerce Operations 242

4.8 Review 245 Key Concepts 245

Questions 247

Projects 248

References 248

Learning Objectives 250

Cyberwar: MAD 2.0 251

5.1 The E-commerce Security Environment 254 The Scope of the Problem 255

The Underground Economy Marketplace: The Value of Stolen Information 256

What Is Good E-commerce Security? 258

Dimensions of E-commerce Security 259

5 E-COMMERCE SECURITY AND PAYMENT SYSTEMS 250

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The Tension Between Security and Other Values 260

Ease of Use 260

Public Safety and the Criminal Uses of the Internet 261

5.2 Security Threats in the E-commerce Environment 262 Malicious Code 263

Potentially Unwanted Programs (PUPs) 268

Phishing 268

Hacking, Cybervandalism, and Hacktivism 270

Insight on Society: The Ashley Madison Data Breach 271 Data Breaches 273

Credit Card Fraud/Theft 274

Identity Fraud 275

Spoofing, Pharming, and Spam (Junk) websites 275

Sniffing and Man-in-the-Middle Attacks 276

Denial of Service (DOS) and Distributed Denial of Service (DDOS) Attacks 277

Insider Attacks 278

Poorly Designed Software 279

Social Network Security Issues 280

Mobile Platform Security Issues 280

Insight on Technology: Think Your Smartphone Is Secure? 282 Cloud Security Issues 284

Internet of Things Security Issues 284

5.3 Technology Solutions 286 Protecting Internet Communications 286

Encryption 287

Symmetric Key Cryptography 287

Public Key Cryptography 288

Public Key Cryptography Using Digital Signatures and Hash Digests 290

Digital Envelopes 292

Digital Certificates and Public Key Infrastructure (PKI) 293

Limitations of PKI 294

Securing Channels of Communication 295

Secure Sockets Layer (SSL) and Transport Layer Security (TLS) 295

Virtual Private Networks (VPNs) 297

Wireless (Wi-Fi) Networks 297

Protecting Networks 298

Firewalls 298

Proxy Servers 299

Intrusion Detection and Prevention Systems 300

Protecting Servers and Clients 300

Operating System Security Enhancements 300

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Anti-Virus Software 300

5.4 Management Policies, Business Procedures, and Public Laws 301 A Security Plan: Management Policies 301

The Role of Laws and Public Policy 303

Private and Private-Public Cooperation Efforts 304

Government Policies and Controls on Encryption 306

5.5 E-commerce Payment Systems 307 Online Credit Card Transactions 309

Credit Card E-commerce Enablers 310

PCI-DSS Compliance 310

Limitations of Online Credit Card Payment Systems 311

Alternative Online Payment Systems 311

Mobile Payment Systems: Your Smartphone Wallet 313

Social/Mobile Peer-to-Peer Payment Systems 313

Regulation of Mobile Wallets and Rechargeable Cards 314

Digital Cash and Virtual Currencies 315

5.6 Electronic Billing Presentment and Payment 315

Insight on Business: Bitcoin 316 Market Size and Growth 318

EBPP Business Models 318

5.7 Case Study: The Mobile Payment Marketplace: Goat Rodeo 320

5.8 Review 326 Key Concepts 326

Questions 329

Projects 330

References 330

Learning Objectives 334

Video Ads: Shoot, Click, Buy 335

6.1 Consumers Online: The Internet Audience and Consumer Behavior 338

Internet Traffic Patterns: The Online Consumer Profile 338

Intensity and Scope of Usage 339

PART 3 Business Concepts and Social Issues

6 E-COMMERCE MARKETING AND ADVERTISING CONCEPTS 334

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Demographics and Access 340

Type of Internet Connection: Broadband and Mobile Impacts 341

Community Effects: Social Contagion in Social Networks 341

Consumer Behavior Models 342

Profiles of Online Consumers 342

The Online Purchasing Decision 343

Shoppers: Browsers and Buyers 346

What Consumers Shop for and Buy Online 347

Intentional Acts: How Shoppers Find Vendors Online 347

Why Some People Don’t Shop Online 348

Trust, Utility, and Opportunism in Online Markets 348

6.2 Digital Commerce Marketing and Advertising Strategies and Tools 349

Strategic Issues and Questions 349

The Website as a Marketing Platform: Establishing the Customer Relationship 351

Traditional Online Marketing and Advertising Tools 352

Search Engine Marketing and Advertising 354

Display Ad Marketing 358

E-mail Marketing 366

Affiliate Marketing 368

Viral Marketing 369

Lead Generation Marketing 369

Social, Mobile, and Local Marketing and Advertising 370

Social Marketing and Advertising 370

Mobile Marketing and Advertising 371

Local Marketing: The Social-Mobile-Local Nexus 372

Multi-channel Marketing: Integrating Online and Offline Marketing 372

Other Online Marketing Strategies 373

Insight on Business: Are the Very Rich Different from You and Me? 374 Customer Retention Strategies 376

Pricing Strategies 381

Long Tail Marketing 386

6.3 Internet Marketing Technologies 386

Insight on Technology: The Long Tail: Big Hits and Big Misses 387 The Revolution in Internet Marketing Technologies 389

Web Transaction Logs 390

Supplementing the Logs: Cookies and Other Tracking Files 391

Databases, Data Warehouses, Data Mining, and Big Data 393

Databases 393

Data Warehouses and Data Mining 393

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Insight on Society: Every Move You Take, Every Click You Make, We’ll Be Tracking You 394

Hadoop and the Challenge of Big Data 397

Marketing Automation and Customer Relationship Management (CRM) Systems 398

6.4 Understanding the Costs and Benefits of Online Marketing Communications 400

Online Marketing Metrics: Lexicon 400

How Well Does Online Advertising Work? 404

The Costs of Online Advertising 406

Marketing Analytics: Software for Measuring Online Marketing Results 408

6.5 Case Study: Programmatic Advertising: Real-Time Marketing 411

6.6 Review 415 Key Concepts 415

Questions 417

Projects 418

References 419

Learning Objectives 422

Facebook: Putting Social Marketing to Work 423

7.1 Introduction to Social, Mobile, and Local Marketing 426 From Eyeballs to Conversations 426

From the Desktop to the Smartphone and Tablet 426

The Social, Mobile, Local Nexus 428

7.2 Social Marketing 429 Social Marketing Players 430

The Social Marketing Process 431

Facebook Marketing 432

Basic Facebook Features 432

Facebook Marketing Tools 434

Starting a Facebook Marketing Campaign 438

Measuring Facebook Marketing Results 439

Insight on Technology: Optimizing Social Marketing with Simply Measured 441 Twitter Marketing 443

Basic Twitter Features 443

Twitter Marketing Tools 443

Starting a Twitter Marketing Campaign 446

7 SOCIAL, MOBILE, AND LOCAL MARKETING 422

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Measuring Twitter Marketing Results 448

Pinterest Marketing 448

Basic Pinterest Features 449

Pinterest Marketing Tools 449

Starting a Pinterest Marketing Campaign 452

Measuring Pinterest Marketing Results 454

Marketing on Other Social Networks 454

The Downside of Social Marketing 457

7.3 Mobile Marketing 457 Overview: M-commerce Today 457

Insight on Society: Marketing to Children of the Web in the Age of Social Networks 458

How People Actually Use Mobile Devices 460

In-App Experiences and In-App Ads 462

How the Multi-Screen Environment Changes the Marketing Funnel 463

Basic Mobile Marketing Features 464

The Technology: Basic Mobile Device Features 465

Mobile Marketing Tools: Ad Formats 466

Starting a Mobile Marketing Campaign 468

Insight on Business: Mobile Marketing: Ford Goes 3-D 469 Measuring Mobile Marketing Results 472

7.4 Local and Location-Based Mobile Marketing 473 The Growth of Local Marketing 473

The Growth of Location-Based (Local) Mobile Marketing 474

Location-Based Marketing Platforms 475

Location-Based Mobile Marketing: The Technologies 476

Why Is Local Mobile Attractive to Marketers? 478

Location-Based Marketing Tools 478

A New Lexicon: Location-Based Digital Marketing Features 478

Proximity Marketing with Beacons 479

Starting a Location-Based Marketing Campaign 481

Measuring Location-Based Marketing Results 481

7.5 Case Study: ExchangeHunterJumper.com: Building a Brand with Social Marketing 483

7.6 Review 489 Key Concepts 489

Questions 491

Projects 492

References 492

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Learning Objectives 494

The Right to Be Forgotten: Europe Leads on Internet Privacy 495

8.1 Understanding Ethical, Social, and Political Issues in E-commerce 498 A Model for Organizing the Issues 499

Basic Ethical Concepts: Responsibility, Accountability, and Liability 501

Analyzing Ethical Dilemmas 503

Candidate Ethical Principles 504

8.2 Privacy and Information Rights 505 What Is Privacy? 505

Privacy in the Public Sector: Privacy Rights of Citizens 506

Privacy in the Private Sector: Privacy Rights of Consumers 507

Information Collected by Websites 510

Key Issues in Online Privacy of Consumers 511

Marketing: Profiling, Behavioral Targeting, and Retargeting 513

The Harm of False Data: That’s Not Me! 515

Social Networks: Privacy and Self Revelation 516

Mobile Devices: Location-Based Privacy Issues 517

Consumer Privacy Regulation: The FTC 518

Consumer Privacy Regulation: The Federal Communications Commission (FCC) 521

Privacy Policies 522

The European Data Protection Directive 524

Industry Self-Regulation 525

Technological Solutions 526

Privacy Protection as a Business 527

Privacy Advocacy Groups 528

Limitations on the Right to Privacy: Law Enforcement and Surveillance 528

8.3 Intellectual Property Rights 530

Insight on Technology: Apple: Defender of Privacy? 531 Types of Intellectual Property Protection 534

Copyright: the Problem of Perfect Copies and Encryption 535

Look and Feel 536

Fair Use Doctrine 536

The Digital Millennium Copyright Act of 1998 538

Patents: Business Methods and Processes 542

E-commerce Patents 545

Trademarks: Online Infringement and Dilution 546

Trademarks and the Internet 549

8 ETHICAL, SOCIAL, AND POLITICAL ISSUES IN E-COMMERCE 494

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Cybersquatting and Brandjacking 550

Cyberpiracy 551

Metatagging 552

Keywording 553

Linking 553

Framing 554

Trade Secrets 554

Challenge: Balancing the Protection of Property with Other Values 555

8.4 Governance 555 Can the Internet Be Controlled? 556

Taxation 557

Net Neutrality 558

Insight on Business: Internet Sales Tax Battle 559

8.5 Public Safety and Welfare 562 Protecting Children 562

Cigarettes, Gambling, and Drugs: Is the Web Really Borderless? 564

Insight on Society: The Internet Drug Bazaar 565

8.6 Case Study: The Pirate Bay: Searching for a Safe Haven 569

8.7 Review 573 Key Concepts 573

Questions 575

Projects 576

References 577

Learning Objectives 582

Blue Nile Sparkles For Your Cleopatra 583

9.1 The Online Retail Sector 586 The Retail Industry 587

Online Retailing 588

E-commerce Retail: The Vision 589

The Online Retail Sector Today 590

PART 4 E-commerce in Action

9 ONLINE RETAIL AND SERVICES 582

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9.2 Analyzing the Viability of Online Firms 596 Strategic Analysis 596

Financial Analysis 597

9.3 E-commerce in Action: E-tailing Business Models 599 Virtual Merchants 600

E-commerce in Action: Amazon 600

The Vision 601

Business Model 601

Financial Analysis 602

Strategic Analysis—Business Strategy 604

Strategic Analysis—Competition 606

Strategic Analysis—Technology 606

Strategic Analysis—Social and Legal Challenges 607

Future Prospects 607

Omni-Channel Merchants: Bricks-and-Clicks 607

Catalog Merchants 609

Manufacturer-Direct 610

Common Themes in Online Retailing 612

9.4 The Service Sector: Offline and Online 614

Insight on Technology: Big Data and Predictive Marketing 615

9.5 Online Financial Services 617 Online Financial Consumer Behavior 617

Online Banking and Brokerage 618

Multi-Channel vs. Pure Online Financial Services Firms 619

Financial Portals and Account Aggregators 620

Online Mortgage and Lending Services 620

Online Insurance Services 621

Online Real Estate Services 623

9.6 Online Travel Services 624 Why Are Online Travel Services So Popular? 624

The Online Travel Market 625

Online Travel Industry Dynamics 626

9.7 Online Career Services 627

Insight on Society: Phony Reviews 628 It’s Just Information: The Ideal Web Business? 630

Online Recruitment Industry Trends 632

9.8 On-Demand Service Companies 633

Insight on Business: Food on Demand: Instacart and GrubHub 635

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9.9 Case Study: OpenTable: Your Reservation Is Waiting 638

9.10 Review 642 Key Concepts 642

Questions 644

Projects 645

References 646

Learning Objectives 648

Cord Cutters and Cord Shavers: The Emerging Internet Broadcasting System (IBS) 649

10.1 Online Content 651 Content Audience and Market: Where Are the Eyeballs and the Money? 651

Media Utilization: A Converging Digital Stream 653

Insight on Society: Are Millennials Really All That Different? 654 Internet and Traditional Media: Cannibalization versus

Complementarity 657

Media Revenues 657

Three Revenue Models for Digital Content Delivery: Subscription, A La Carte, and Advertising-Supported (Free and Freemium) 657

Online Content Consumption 658

Free or Fee: Attitudes About Paying for Content and the Tolerance for Advertising 659

Digital Rights Management (DRM) and Walled Gardens 660

Media Industry Structure 661

Media Convergence: Technology, Content, and Industry Structure 661

Technological Convergence 662

Content Convergence 662

Industry Structure Convergence 663

10.2 The Online Publishing Industry 664 Online Newspapers 665

From Print-centric to Digital First: The Evolution of Newspaper Online Business Models, 1995–2016 667

Online Newspaper Industry: Strengths and Challenges 669

Magazines Rebound on the Tablet Platform 676

Insight on Business: Vox: Native Digital News 677 E-Books and Online Book Publishing 679

Amazon and Apple: The New Digital Media Ecosystems 681

E-Book Business Models 682

The Challenges of the Digital E-Book Platform 684

10 ONLINE CONTENT AND MEDIA 648

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Interactive Books: Converging Technologies 685

10.3 The Online Entertainment Industry 686 Online Entertainment Market Size and Growth 688

Television 688

Feature-Length Movies 692

Insight on Technology: Hollywood and the Internet: Let’s Cut a Deal 697 Music 699

Games 703

10.4 Case Study: Netflix: How Does This Movie End? 707

10.5 Review 712 Key Concepts 712

Questions 713

Projects 714

References 714

Learning Objectives 716

Social Network Fever Spreads to the Professions 717

11.1 Social Networks and Online Communities 719 What Is an Online Social Network? 720

The Growth of Social Networks and Online Communities 721

Turning Social Networks into Businesses 724

Types of Social Networks and Their Business Models 726

Insight on Society: The Dark Side of Social Networks 727 Social Network Technologies and Features 730

Insight on Technology: Trapped Inside the Facebook Bubble? 733

11.2 Online Auctions 736 Benefits and Costs of Auctions 736

Benefits of Auctions 736

Risks and Costs of Auctions 738

Auctions as an E-commerce Business Model 738

Types and Examples of Auctions 739

When to Use Auctions (and for What) in Business 740

Auction Prices: Are They the Lowest? 742

Consumer Trust in Auctions 743

When Auction Markets Fail: Fraud and Abuse in Auctions 743

11.3 E-commerce Portals 744 The Growth and Evolution of Portals 745

11 SOCIAL NETWORKS, AUCTIONS, AND PORTALS 716

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Types of Portals: General-Purpose and Vertical Market 746

Insight on Business: Verizon Doubles Down on Portals 747 Portal Business Models 750

11.4 Case Study: eBay Evolves

11.5 Review 755 Key Concepts 755

Questions 757

Projects 757

References 758

Learning Objectives 760

Amazon Takes on B2B with Amazon Business 761

12.1 An Overview of B2B E-commerce 765 Some Basic Definitions 767

The Evolution of B2B E-commerce 767

The Growth of B2B E-commerce 769

Potential Benefits and Challenges of B2B E-commerce 771

12.2 The Procurement Process and Supply Chains 772 Steps in the Procurement Process 772

Insight on Society: Where’s My iPad? Supply Chain Risk and Vulnerability 773 Types of Procurement 775

Multi-Tier Supply Chains 776

Visibility and Other Concepts in Supply Chain Management 777

The Role of Existing Legacy Computer Systems and Enterprise Systems in Supply Chains 777

12.3 Trends in Supply Chain Management and Collaborative Commerce 778

Just-in-Time and Lean Production 778

Supply Chain Simplification 779

Supply Chain Black Swans: Adaptive Supply Chains 779

Accountable Supply Chains: Labor Standards 780

Sustainable Supply Chains: Lean, Mean, and Green 782

Electronic Data Interchange (EDI) 783

Mobile B2B 785

B2B in the Cloud 786

Supply Chain Management Systems 787

12 B2B E-COMMERCE: SUPPLY CHAIN MANAGEMENT AND COLLABORATIVE COMMERCE 760

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Insight on Technology: Your Shoes Are in the Cloud 788 Collaborative Commerce 791

Collaboration 2.0: Cloud, Web, Social, and Mobile 792

Social Networks and B2B: The Extended Social Enterprise 793

B2B Marketing 793

12.4 Net Marketplaces: The Selling Side of B2B 794 Characteristics of Net Marketplaces 795

Types of Net Marketplaces 795

E-distributors 796

E-procurement 798

Exchanges 799

Industry Consortia 802

12.5 Private Industrial Networks 804 Objectives of Private Industrial Networks 805

Private Industrial Networks and Collaborative Commerce 806

Insight on Business: Walmart Develops a Private Industrial Network 807 Implementation Barriers 810

12.6 Case Study: Elemica: Cooperation, Collaboration, and Community 811

12.7 Review 816 Key Concepts 816

Questions 819

Projects 820

References 820

Index I-1

Credits C-1

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CHAPTER 1 The Revolution Is Just Beginning

CHAPTER 2 E-commerce Business Models and Concepts

Introduction to E-commerce

P A R T 1

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1C H A P T E R

The Revolution Is Just Beginning

L E A R N I N G O B J E C T I V E S

After reading this chapter, you will be able to:

■ Understand why it is important to study e-commerce. ■ Define e-commerce, understand how e-commerce differs from e-business, identify the

primary technological building blocks underlying e-commerce, and recognize major current themes in e-commerce.

■ Identify and describe the unique features of e-commerce technology and discuss their business significance.

■ Describe the major types of e-commerce. ■ Understand the evolution of e-commerce from its early years to today. ■ Describe the major themes underlying the study of e-commerce. ■ Identify the major academic disciplines contributing to e-commerce.

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3

© Lenscap/Alamy

If you were trying to pick iconic examples of e-commerce in the two decades since it began in 1995, it is likely that companies such as Amazon, eBay, Google, Apple, and Facebook would be high on the list. Today, there’s a new company that is becoming the face of e-commerce as it enters its third decade: Uber. Uber and other firms with similar business models, such as Lyft (a ride service similar to Uber’s), Airbnb (rooms for rent), Heal (doctor home visits), Handy (part-time household helpers), Instacart (grocery shopping), Washio (laundry service), and BloomThat (flower delivery), are the pio- neers of a new on-demand service e-commerce business model that is sweeping up billions of investment dollars and disrupting major industries, from transportation to hotels, real estate, house cleaning, maintenance, and grocery shopping. On-demand service firms have collected over $26 billion in venture capital funding over the last five years, making this the hottest business model in e-commerce.

Uber offers a variety of different services. The two most common are UberX, which uses compact sedans and is the least expensive, and UberBlack, which provides higher- priced town car service. UberPool is a ride-sharing service that allows users to share a ride with another person who happens to be going to the same place. In several cities, Uber is developing UberEats, a food delivery service; UberRush, a same-day delivery service; and UberCargo, a trucking service.

Uber, headquartered in San Francisco, was founded in 2009 by Travis Kalanick and Garrett Camp, and has grown explosively since then to over 480 cities in 69 countries. Drivers are signing up at an exponential rate: as of the beginning of 2016, there were over 450,000 drivers in the United States and over 1 million worldwide. According to an Uber-sponsored survey, over 44% of Uber drivers have college degrees (compared to 15% of taxi drivers), 71% say they have boosted their income and financial security by driving for Uber, and 73% say they prefer a job where they choose their hours rather than a 9-to-5 job. It is estimated that Uber’s revenue will reach around $2 billion in 2016, but it is still not expected to generate an overall profit, with losses in developing markets

U b e r : T h e N e w F a c e o f E - c o m m e r c e ?

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4 C H A P T E R 1 T h e R e v o l u t i o n I s J u s t B e g i n n i n g

such as China and India swallowing up profits being generated in North America, Europe, and elsewhere. Uber’s strategy is to expand as fast as possible while foregoing short-term profits in the hope of long-term returns. As of July 2016, Uber has raised over $12.5 billion in venture capital. Uber is currently valued at around $68 billion, more than all of its competitors combined. In August 2016, Uber agreed to sell Uber China, where it had been engaged in a costly turf war for Chinese riders, to Didi Chuxing Technology, its primary Chinese rival. Uber will receive a 18% interest in Didi Chuxing and Didi will invest $1 billion in Uber. In doing so, Uber converted a reported $2 billion loss on its Chinese operations into a new merged entity valued at around $7 billion, and freed up capital to invest more heavily in other emerging markets such as Indonesia and India where it does not have such significant competition.

Uber offers a compelling value proposition for both customers and drivers. Customers can sign up for free, request and pay for a ride (at a cost Uber claims is 40% less than a traditional taxi) using a smartphone and credit card, and get picked up within a few minutes. No need to stand on a street corner frantically waving, competing with others, or waiting and waiting for an available cab to drive by, without knowing when that might happen. Instead, customers using the Uber app know just how long it will take for the ride to arrive and how much it will cost. With UberPool ride-sharing, the cost of a ride drops by 50%, making it cost-competitive with owning a car in an urban area, according to Uber. Uber’s value proposition for drivers is that it allows them to set their own hours, work when they like, and put their own cars to use generating revenue.

Uber is the current poster child for “digital disruption.” It is easy to see why Uber has ignited a firestorm of opposition from existing taxi services both in the United States and around the world. Who can compete in a market where a new upstart firm offers a 50% price reduction? If you’ve paid $1 million for a license to drive a taxi in New York City, what is it worth now that Uber has arrived? Even governments find Uber to be a disruptive threat. Governments do not want to give up regulatory control over passenger safety, driver training, nor the healthy revenue stream generated by charging taxi firms for a taxi license and sales taxes.

Uber’s business model differs from traditional retail e-commerce. Uber doesn’t sell goods. Instead it has created a smartphone-based platform that enables people who want a service—like a taxi—to find a provider with the resources, such as a personal automobile and a driver with available time, to fill the demand. It’s important to understand that although Uber and similar firms are often called “sharing economy” companies, this is a misnomer. Uber drivers are selling their services as drivers and the temporary use of their car. Uber itself is not in the sharing business either: it charges a hefty fee for every transaction on its platform. Uber is not an example of true “peer-to-peer” e-commerce because Uber transactions involve an online intermediary: a third party that takes a cut of all transactions and arranges for the marketplace to exist in the first place.

Uber has disrupted the traditional taxi business model because it offers a superior, fast, convenient taxi-hailing service when compared to traditional taxi companies. With a traditional taxi service, there is no guarantee you will find a cab. Uber reduces that uncertainty: the customer enters a request for pickup using his or her smartphone and

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U b e r : T h e N e w F a c e o f E - c o m m e r c e ? 5

nearly instantly (under the best of circumstances), Uber finds a provider and notifies the customer of the estimated time of arrival and price. Riders can accept the price or find an alternative.

Uber’s business model is much more efficient than a traditional taxi firm. Uber does not own taxis and has no maintenance and financing costs. Uber calls its drivers “independent contractors,” not employees. Doing so enables Uber to avoid costs for workers’ compensation, minimum wage requirements, driver training, health insurance, and commercial licensing.

Quality control would seem to be a nightmare with over 1 million contract drivers. But Uber relies on user reviews to identify problematic drivers and driver reviews to identify problematic passengers. Drivers are evaluated by riders on a 5-point scale. Drivers that fall below 4.5 are warned and may be dropped if they don’t improve. Customers are also rated with a 5-point system. Drivers can refuse to pick up troublesome customers, and the Uber server can delay service to potential customers with low ratings or ban them entirely. Uber does not publicly report how many poorly rated drivers or passengers there are in its system. Academic articles have found that in similar on-demand companies, such as Airbnb, there is a built-in bias for both sellers and buyers to give good reviews regardless of the actual experience. If you routinely give low reviews to sellers (drivers), they will think you are too demanding and not service you in the future. If a driver gives low reviews to passengers, they might not rate you highly in return.

Rather than having a dispatcher in every city, Uber has an Internet-based app service running on cloud servers located throughout the world. It does not provide radios to its drivers, who instead must use their own smartphones and cell service, which the drivers pay for. It does not provide insurance or maintenance for its drivers’ cars. Uber has shifted the costs of running a taxi service entirely to the drivers. Uber charges prices that vary dynamically with demand: the higher the demand, the greater the price of a ride. Therefore, it is impossible using public information to know if Uber’s prices are lower than traditional taxis. Clearly, in high-demand situations they are higher, sometimes ten times higher, than a regulated taxi. There is no regulatory taxi commission setting uniform per mile fares. Consumers do face some traditional uncertainties regarding availability: during a rain storm, a convention, or a sports event, when demand peaks, not enough drivers may be available at any price.

If Uber is the poster child for the new on-demand service economy, it’s also an iconic example of the social costs and conflicts associated with this new kind of e-commerce. Uber has been accused by attorney generals in several states of misclassifying its drivers as contractors as opposed to employees, thereby denying the drivers the benefits of employee status, such as minimum wages, social security, workers’ compensation, and health insur- ance. In June 2015, the California Labor Commission ruled that an Uber driver was, in fact, an employee under the direct, detailed supervision and control of Uber management, notwithstanding Uber’s claims that it merely provides a “platform.” However, the ruling applied only to that individual driver, and Uber is appealing the decision. In April 2016, Uber settled two federal class action lawsuits brought in California and Massachusetts on behalf of an estimated 385,000 drivers, who sued the company for mistreatment and

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6 C H A P T E R 1 T h e R e v o l u t i o n I s J u s t B e g i n n i n g

lack of due process, including barring them from the app without explanation, lack of transparency in how driver ratings are calculated, and deactivating drivers who regularly declined to accept requests. Uber agreed to pay up to $84 million to the drivers, give them more information about why they are barred from using the app, assist drivers in forming “driver associations” in these two states, and review its policy of no tipping. Uber also agreed to pay an additional $16 million if it goes public next year with a valuation exceeding $93.75 billion. The company retained the right to shut out drivers temporarily if their acceptance rates are low and can deactivate drivers completely if they have high cancellation rates. Most importantly, the settlement allowed Uber to continue classifying its drivers as independent contractors in California and Massachusetts, enabling Uber to continue not paying for workers’ compensation insurance, health insurance, or overtime work. However, in August 2016, a federal district court judge in California rejected the terms of the settlement on the grounds that it was unfair and unreasonable, and as a result, Uber and the parties to the lawsuit have resumed negotiations. The terms on which the lawsuit are finally resolved may have a significant effect on the on-demand services business model.

Uber has also been accused of violating public transportation laws and regulations throughout the United States and the world; abusing the personal information it has collected on users of the service; seeking to use personal information to intimidate jour- nalists; failing to protect public safety by refusing to do adequate criminal, medical, and financial background checks on its drivers; taking clandestine actions against its chief competitor Lyft in order to disrupt its business; and being tone-deaf to the complaints of its own drivers against the firm’s efforts to reduce driver fees. Uber has been banned in several European cities.

Critics also fear the long-term impact of on-demand service firms, because of their potential for creating a society of part-time, low-paid, temp work, displacing traditionally full-time, secure jobs—the so-called “uberization” of work. As one critic put it, Uber is not the Uber for rides so much as it is the Uber for low-paid jobs. Uber responds to this fear by claiming that it is lowering the cost of transportation, making better use of spare human and financial resources, expanding the demand for ride services, and expanding opportunities for car drivers, whose pay is about the same as other taxi drivers.

Despite the controversy surrounding it, Uber continues to have no trouble attracting additional investors and according to CEO Kalanick, plans to remain a private company for the foreseeable future. Although Uber currently has a host of rivals, both big and small, most analysts expect that ultimately, only one or two major players will remain. Uber is doing everything it can to assure that it will be the one to prevail.

SOURCES: “Uber Driver Settle- ment Rejected, Both Parties Resume Negotiations,” by Robert Lawson, Norcalrecord.com, October 12, 2016; “Even Uber Couldn’t Bridge the China Divide,” by Farhad Manjoo, New York Times, August 1, 2016; “Uber Sells China Operations to Didi Chuxing,” by Alyssa Abkowitz and Rick Carew, Wall Street Journal, August 1, 2016; “Why Uber Keeps Raising Billions,” by Andrew Ross Sorkin, New York Times, June 20, 2016; “Uber Points to Profits in All Developed Markets,” by Leslie Hook, FT.com, June 16, 2016; “An Uber Shakedown,” Wall Street Journal, April 24, 2016; “Uber Settlement Takes Customers For a Ride,” by Rob Berger, Forbes, April 22, 2016; “Uber Settles Cases With Concessions, but Drivers Stay Freelancers,” by Mike Isaac and Noam Scheiber, New York Times, April 21, 2016; “Leaked: Uber’s Financials Show Huge Growth, Even Bigger Losses,” by Brian Solomon, Forbes, January 12, 2016; “Twisting Words to Make ‘Sharing’ Apps Seem Selfless,” by Natasha Singer, New York Times, August 9, 2015; “Uber Dealt Setback on Labor Rules,” by Lauren Weber, Wall Street Journal, June 18, 2015; “The $50 Billion Question: Can Uber Deliver?,” by Douglas Macmillan, Wall Street Journal, June 15, 2015; “How Everyone Misjudges the Sharing Economy,” by Christopher Mims, Wall Street Journal, May 25, 2015; “The On-Demand Economy Is Reshaping Companies and Careers,” The Economist, January 4, 2015; “The On-Demand Economy: Workers on Tap,” The Economist, January 3, 2015.

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http://www.Norcalrecord.com
http://www.FT.com
T h e F i r s t T h i r t y S e c o n d s : W h y Y o u S h o u l d S t u d y E - c o m m e r c e 7

In 1994, e-commerce as we now know it did not exist. In 2016, just 22 years later, around 177 million American consumers are expected to spend about $600 billion, and businesses around $6.7 trillion, purchasing goods, services, and digital content via a desktop computer or mobile device. A similar story has occurred throughout the world. And in this short period of time, e-commerce has been reinvented not just once, but twice.

The early years of e-commerce, during the late 1990s, were a period of business vision, inspiration, and experimentation. It soon became apparent, however, that establishing a successful business model based on those visions would not be easy. There followed a period of retrenchment and reevaluation, which led to the stock market crash of 2000–2001, with the value of e-commerce, telecommunications, and other technology stocks plummeting. After the bubble burst, many people were quick to write off e-commerce. But they were wrong. The surviving firms refined and honed their business models, and the technology became more powerful and less expensive, ultimately leading to business firms that actually produced profits. Between 2002–2008, retail e-commerce grew at more than 25% per year.

Today, we are in the middle of yet another transition. Social networks such as Facebook, Twitter, YouTube, Pinterest, Instagram, and Tumblr, which enable users to distribute their own content (such as videos, music, photos, personal information, commentary, blogs, and more), have rocketed to prominence. Never before in the history of media have such large audiences been aggregated and made so accessible. At the same time, mobile devices, such as smartphones and tablet computers, and mobile apps have supplanted the traditional desktop/laptop platform and web browser as the most common method for consumers to access the Internet. Facilitated by technologies such as cloud computing, cellular networks, and Wi-Fi, mobile devices have become advertising, shopping, reading, and media viewing machines, and in the process, are transforming consumer behavior yet again. Mobile, social, and local have become driving forces in e-commerce. The mobile platform infrastructure has also given birth to yet another e-commerce innovation: on-demand services that are local and personal. From hailing a taxi, to shopping, to washing your clothes, these new businesses are creating a marketspace where owners of resources such as cars, spare bedrooms, and spare time can find a market of eager consumers looking to buy a service in a few minutes using their smartphones. Uber, profiled in the opening case, is a leading example of these new on-demand service firms that are disrupting traditional business models.

1.1 THE FIRST THIRTY SECONDS: WHY YOU SHOULD STUDY E-COMMERCE

The rapid growth and change that has occurred in the first two decades of e-com- merce represents just the beginning—what could be called the first 30 seconds of the e-commerce revolution. Technology continues to evolve at exponential rates. This

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8 C H A P T E R 1 T h e R e v o l u t i o n I s J u s t B e g i n n i n g

underlying ferment presents entrepreneurs with new opportunities to create new business models and businesses in traditional industries and in the process, disrupt, and in some instances, destroy existing business models and firms.

Improvements in underlying information technologies and continuing entrepre- neurial innovation in business and marketing promise as much change in the next decade as was seen in the previous two decades. The twenty-first century will be the age of a digitally enabled social and commercial life, the outlines of which we can still only barely perceive at this time. Analysts estimate that by 2020, consumers will be spending around $933 billion and businesses around $9.1 trillion in digital transactions. It appears likely that e-commerce will eventually impact nearly all commerce, and that most commerce will be e-commerce by the year 2050, if not sooner.

Business fortunes are made—and lost—in periods of extraordinary change such as this. The next five years hold exciting opportunities—as well as risks—for new and traditional businesses to exploit digital technology for market advantage. For society as a whole, the next few decades offer the possibility of extraordinary gains in social wealth as the digital revolution works its way through larger and larger segments of the world’s economy.

It is important to study e-commerce in order to be able to perceive and understand the opportunities and risks that lie ahead. By the time you finish this book, you will be able to identify the technological, business, and social forces that have shaped, and continue to shape, the growth of e-commerce, and be ready to participate in, and ultimately guide, discussions of e-commerce in the firms where you work. More specifi- cally, you will be able to analyze an existing or new idea for an e-commerce business, identify the most effective business model to use, and understand the technological underpinnings of an e-commerce presence, including the security and ethical issues raised, as well as how to optimally market and advertise the business, using both traditional e-marketing tools and social, mobile, and local marketing.

1.2 INTRODUCTION TO E-COMMERCE

In this section, we’ll first define e-commerce and then discuss the difference between e-commerce and e-business. We will also introduce you to the major technological building blocks underlying e-commerce: the Internet, Web, and mobile platform. The section concludes with a look at some major current trends in e-commerce.