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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

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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.