What are the four most common business 2.0 characteristics?

Business Driven Information Systems, Ch. 3.1 & 3.2: Web 1.0: Ebusiness & Web 2.0: Business 2.0

Read Ch. 3.1 & 3.2 of Business Driven Information Systems: "Web 1.0: Ebusiness" and "Web 2.0: Business 2.0".

LEARNING OUTCOMES

3.1Compare disruptive and sustaining technologies and explain how the Internet and WWW caused business disruption.

3.2Describe ebusiness and its associated advantages.

3.3Compare the four ebusiness models.

3.4Describe the six ebusiness tools for connecting and communicating.

3.5Identify the four challenges associated with ebusiness.

DISRUPTIVE TECHNOLOGY

LO 3.1: Compare disruptive and sustaining technologies and explain how the Internet and WWW caused business disruption.

Polaroid, founded in 1937, produced the first instant camera in the late 1940s. The Polaroid camera, whose pictures developed themselves, was one of the most exciting technological advances the photography industry had ever seen. The company eventually went public, becoming one of Wall Street’s most prominent enterprises, with its stock trading above $60 per share in 1997. In 2002, the stock dropped to 8 cents and the company declared bankruptcy.2

How could a company such as Polaroid, which had innovative technology and a captive customer base, go bankrupt? Perhaps company executives failed to use Porter’s Five Forces Model to analyze the threat of substitute products or services. If they had, would they have noticed the two threats—one-hour film processing and digital cameras—which eventually stole Polaroid’s market share? Would they have understood that their customers, people who want instant access to their pictures, would be the first to try these alternatives? Could the company have found a way to compete with one-hour film processing and the digital camera to save Polaroid?

Many organizations face the same dilemma as Polaroid—what’s best for the current business might not be what’s best for it in the long term. Some observers of our business environment have an ominous vision of the future—digital Darwinism. Digital Darwinism implies that organizations that cannot adapt to the new demands placed on them for surviving in the information age are doomed to extinction.

Disruptive versus Sustaining Technology

A disruptive technology is a new way of doing things that initially does not meet the needs of existing customers. Disruptive technologies tend to open new markets and destroy old ones. A sustaining technology , on the other hand, produces an improved product customers are eager to buy, such as a faster car or larger hard drive. Sustaining technologies tend to provide us with better, faster, and cheaper products in established markets. Incumbent companies most often lead sustaining technology to market, but they virtually never lead in markets opened by disruptive technologies. Figure 3.1 positions companies expecting future growth from new investments (disruptive technology) and companies expecting future growth from existing investments (sustaining technology).3

Disruptive technologies typically enter the low end of the marketplace and eventually evolve to displace high-end competitors and their reigning technologies. Sony is a perfect example. Sony started as a tiny company that built portable, battery-powered transistor radios. The sound quality was poor, but customers were willing to overlook that for the convenience of portability. With the experience and revenue stream from the portables, Sony improved its technology to produce cheap, low-end transistor amplifiers that were suitable for home use and invested those revenues in improving the technology further, which produced still-better radios.4

The Innovator’s Dilemma, a book by Clayton M. Christensen, discusses how established companies can take advantage of disruptive technologies without hindering existing relationships with customers, partners, and stakeholders. Xerox, IBM, Sears, and DEC all listened to existing customers, invested aggressively in technology, had their competitive antennae up, and still lost their market-dominant positions. They may have placed too much emphasis on satisfying customers’ current needs and neglected new disruptive technology to meet customers’ future needs, thus losing market share.5

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FIGURE 3.1

Disruptive and Sustaining Technologies

The Internet and World Wide Web—The Ultimate Business Disruptors

The Internet is a massive network that connects computers all over the world and allows them to communicate with one another. Computers connected via the Internet can send and receive information, including text, graphics, voice, video, and software. Originally, the Internet was essentially an emergency military communications system operated by the U.S. Department of Defense Advanced Research Project Agency (DARPA), which called the network ARPANET. No one foresaw the dramatic impact it would have on both business and personal communications. In time, all U.S. universities that had defense-related funding installed ARPANET computers, forming the first official Internet network. As users began to notice the value of electronic communications, the purpose of the network started shifting from a military pipeline to a communications tool for scientists.6

The Internet and the World Wide Web (WWW) are not synonymous. The WWW is just one part of the Internet, and its primary use is to correlate and disseminate information. The Internet includes the WWW and other forms of communication systems such as email. Figure 3.2lists the key terms associated with the WWW and Figure 3.3 lists the reasons for the massive growth of the WWW.7

WEB 1.0: THE CATALYST FOR EBUSINESS

LO 3.2: Describe ebusiness and its associated advantages.

As people began learning about the WWW and the Internet, they understood that it enabled a company to communicate with anyone, anywhere, at anytime, creating a new way to participate in business. The competitive advantages for first movers would be enormous, thus spurring the beginning of the Web 1.0 Internet boom. Web 1.0 (or Business 1.0) is a term to refer to the World Wide Web during its first few years of operation between 1991 and 2003. Ecommerce is the buying and selling of goods and services over the Internet. Ecommerce refers only to online transactions. Ebusiness includes ecommerce along with all activities related to internal and external business operations such as servicing customer accounts, collaborating with partners, and exchanging real-time information. During Web 1.0, entrepreneurs began creating the first forms of ebusiness.

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FIGURE 3.2

Overview of the WWW

Ebusiness opened up a new marketplace for any company willing to move its business operations online. A paradigm shift occurs when a new, radical form of business enters the market that reshapes the way companies and organizations behave. Ebusiness created a paradigm shift, transforming entire industries and changing enterprisewide business processes that fundamentally rewrote traditional business rules. Deciding not to make the shift to ebusiness proved fatal for many companies (see Figure 3.4 for an overview of industries revamped by the disruption of ebusiness.)8

FIGURE 3.3

Reasons for Growth of the World Wide Web

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APPLY YOUR KNOWLEDGE

BUSINESS DRIVEN ETHICS AND SECURITY

Unethical Disruption

Did you know you can make a living naming things? Eli Altman has been naming things since he was six years old and has named more than 400 companies and brands while working for A Hundred Monkeys, a branding consulting company. Altman recently noticed an unfamiliar trend in the industry: nonsensical names such as Flickr, Socializr, Zoomr, Rowdii, Yuuguu, and Oooooc. Why are names like this becoming popular?

The reason is “domain squatting” or “cyber squatting,” the practice of buying a domain to profit from a trademarked name. For example, if you wanted to start a business called Drink, chances are a domain squatter has already purchased drink. com and is just waiting for you to pay big bucks for the right to buy it. Domain squatting is illegal and outlawed under the 1999 Anticybersquatting Consumer Protection Act.9

Do you agree that domain squatting should be illegal? Why or why not? If you were starting a business and someone were squatting on your domain, what would you do?

FIGURE 3.4

Ebusiness Disruption of Traditional Industries

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Both individuals and organizations have embraced ebusiness to enhance productivity, maximize convenience, and improve communications. Companies today need to deploy a comprehensive ebusiness strategy, and business students need to understand its advantages, outlined in Figure 3.5. Let’s look at each.

Expanding Global Reach

Easy access to real-time information is a primary benefit of ebusiness. Information richness refers to the depth and breadth of details contained in a piece of textual, graphic, audio, or video information. Information reach measures the number of people a firm can communicate with all over the world. Buyers need information richness to make informed purchases, and sellers need information reach to market and differentiate themselves from the competition properly.

Ebusinesses operate 24 hours a day, 7 days a week. This availability directly reduces transaction costs, since consumers no longer have to spend a lot of time researching purchases or traveling great distances to make them. The faster delivery cycle for online sales helps strengthen customer relationships, improving customer satisfaction and, ultimately, sales.

A firm’s website can be the focal point of a cost-effective communications and marketing strategy. Promoting products online allows the company to target its customers precisely whether they are local or around the globe. A physical location is restricted by size and limited to those customers who can get there, but an online store has a global marketplace with customers and information seekers already waiting in line.

Opening New Markets

Ebusiness is perfect for increasing niche-product sales. Mass customization is the ability of an organization to tailor its products or services to the customers’ specifications. For example, customers can order M&M’s in special colors or with customized sayings such as “Marry Me.” Personalization occurs when a company knows enough about a customer’s likes and dislikes that it can fashion offers more likely to appeal to that person, say by tailoring its website to individuals or groups based on profile information, demographics, or prior transactions. Amazon uses personalization to create a unique portal for each of its customers.

Reducing Costs

Chris Anderson, editor-in-chief of Wired magazine, describes niche-market ebusiness strategies as capturing the long tail , referring to the tail of a typical sales curve. This strategy demonstrates how niche products can have viable and profitable business models when selling via ebusiness. In traditional sales models, a store is limited by shelf space when selecting products to sell. For this reason, store owners typically purchase products that will be wanted or needed by masses, and the store is stocked with broad products because there isn’t room on the shelf for niche products that only a few customers might purchase. Ebusinesses such as Amazon and eBay eliminated the shelf-space dilemma and were able to offer infinite products.

FIGURE 3.5

Ebusiness Advantages

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FIGURE 3.6

The Long Tail

Netflix offers an excellent example of the long tail. Let’s assume that an average Blockbuster store maintains 3,000 movies in its inventory, whereas Netflix, without physical shelf limitations, can maintain 100,000 movies in its inventory. Looking at sales data, the majority of Blockbuster’s revenue comes from new releases that are rented daily, whereas older selections are rented only a few times a month and don’t repay the cost of keeping them in stock. Thus Blockbuster’s sales tail ends at title 3,000 (see Figure 3.6) However, Netflix, with no physical limitations, can extend its tail beyond 100,000 (and with streaming video perhaps 200,000). By extending its tail, Netflix increases sales, even if a title is rented only a few times.10

Intermediaries are agents, software, or businesses that provide a trading infrastructure to bring buyers and sellers together. The introduction of ebusiness brought about disintermediation , which occurs when a business sells directly to the customer online and cuts out the intermediary (see Figure 3.7). This business strategy lets the company shorten the order process and add value with reduced costs or a more responsive and efficient service. The disintermediation of the travel agent occurred as people began to book their own vacations online, often at a cheaper rate. At Lulu.com anyone can publish and sell print-on-demand books, online music, and custom calendars, making the publisher obsolete.11

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FIGURE 3.7

Business Value of Disintermediation

The more intermediaries that are cut from the distribution chain, the lower the product price. When Dell decided to sell its PCs through Walmart many were surprised, because Dell’s direct-to-customer sales model was the competitive advantage that had kept Dell the market leader for years.

In reintermediation , steps are added to the value chain as new players find ways to add value to the business process. Levi Strauss originally thought it was a good business strategy to limit all online sales to its own website. A few years later, the company realized it could gain a far larger market share by allowing all retailers to sell its products directly to customers. As ebusiness matures, it has become evident that to serve certain markets in volume, some reintermediation may be desirable. Cybermediation refers to the creation of new kinds of intermediaries that simply could not have existed before the advent of ebusiness, including comparison-shopping sites such as Kelkoo and bank account aggregation services such as Citibank.12

Operational benefits of ebusiness include business processes that require less time and human effort or can be eliminated. Compare the cost of sending out 100 direct mailings (paper, postage, labor) to the cost of a bulk email campaign. Think about the cost of renting a physical location and operating phone lines versus the cost of maintaining an online site. Switching to an ebusiness model can eliminate many traditional costs associated with communicating by substituting systems, such as Live Help, that let customers chat live with support or sales staff.

Online air travel reservations cost less than those booked over the telephone. Online ordering also offers the possibility of merging a sales order system with order fulfillment and delivery so customers can check the progress of their orders at all times. Ebusinesses can also inexpensively attract new customers with innovative marketing and retain present customers with improved service and support.13

One of the most exciting benefits of ebusiness is its low start-up costs. Today, anyone can start an ebusiness with just a website and a great product or service. Even a dog-walking operation can benefit from being an ebusiness.

Improving Effectiveness

Just putting up a simple website does not create an ebusiness. Ebusiness websites must create buzz, be innovative, add value, and provide useful information. In short, they must build a sense of community and collaboration.

MIS measures of efficiency, such as the amount of traffic on a site, don’t tell the whole story. They do not necessarily indicate large sales volumes, for instance. Many websites with lots of traffic have minimal sales. The best way to measure ebusiness success is to use effectiveness MIS metrics, such as the revenue generated by web traffic, number of new customers acquired by web traffic, and reductions in customer service calls resulting from web traffic.

Interactivity measures advertising effectiveness by counting visitor interactions with the target ad, including time spent viewing the ad, number of pages viewed, and number of repeat visits to the advertisement. Interactivity measures are a giant step forward for advertisers, since traditional advertising methods—newspapers, magazines, radio, and television—provide few ways to track effectiveness. Figure 3.8 displays the ebusiness marketing initiatives allowing companies to expand their reach while measuring effectiveness.14

The ultimate outcome of any advertisement is a purchase. Organizations use metrics to tie revenue amounts and number of new customers created directly back to the websites or banner ads. Through clickstream data , they can observe the exact pattern of a consumer’s navigation through a site. Clickstream metrics can include the length of stay on a website, number of abandoned registrations, and number of abandoned shopping carts. When a visitor reaches a website, a hit is generated, and his or her computer sends a request to the site’s computer server to begin displaying pages. Each element of a request page is recorded by the website’s server log file as a hit. Stickiness is the length of time a visitor spends on a website. Businesses want their websites to be sticky and keep their customer’s attention. To interpret such data properly, managers try to benchmark against other companies. For instance, consumers seem to visit their preferred websites regularly, even checking back multiple times during a given session.15

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THE FOUR EBUSINESS MODELS

LO 3.3: Compare the four ebusiness models.

A business model is a plan that details how a company creates, delivers, and generates revenues. Some models are quite simple: A company produces a good or service and sells it to customers. If the company is successful, sales exceed costs and the company generates a profit. Other models are less straightforward, and sometimes it’s not immediately clear who makes money and how much. Radio and network television are broadcast free to anyone with a receiver, for instance; advertisers pay the costs of programming.

The majority of online business activities consist of the exchange of products and services either between businesses or between businesses and consumers. An ebusiness model is a plan that details how a company creates, delivers, and generates revenues on the Internet. Dot-com was the original term for a company operating on the Internet. Ebusiness models fall into one of the four categories: (1) business-to-business, (2) business-to-consumer, (3) consumer-to-business, and (4) consumer-to-consumer (see Figure 3.9).

Business-to-Business (B2B)

Business-to-business (B2B) applies to businesses buying from and selling to each other over the Internet. Examples include medical billing service, software sales and licensing, and virtual assistant businesses. B2B relationships represent 80 percent of all online business and are more complex with greater security needs than the other types. B2B examples include Oracle and SAP.

Electronic marketplaces, or emarketplaces, are interactive business communities providing a central market where multiple buyers and sellers can engage in ebusiness activities. By tightening and automating the relationship between the two parties, they create structures for conducting commercial exchange, consolidating supply chains, and creating new sales channels.

FIGURE 3.8

Marketing Benefits from Ebusiness

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FIGURE 3.9

Ebusiness Models

Business-to-Consumer (B2C)

Business-to-consumer (B2C) applies to any business that sells its products or services directly to consumers online. Carfax offers car buyers detailed histories of used vehicles for a fee. An eshop , sometimes referred to as an estore or etailer , is an online version of a retail store where customers can shop at any hour. It can be an extension of an existing store such as The Gap or operate only online such as Amazon.com. There are three ways to operate as a B2C: brick-and-mortar, click-and-mortar, and pure play (see Figure 3.10).

Consumer-to-Business (C2B)

Consumer-to-business (C2B) applies to any consumer who sells a product or service to a business on the Internet. One example is customers of Priceline.com, who set their own prices for items such as airline tickets or hotel rooms and wait for a seller to decide whether to supply them. The demand for C2B ebusiness will increase over the next few years due to customers’ desire for greater convenience and lower prices.

FIGURE 3.10

Forms of Business-to-Consumer Operations

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APPLY YOUR KNOWLEDGE

BUSINESS DRIVEN STARTUP

Nasty Gal–8 Years Old and Worth $100 Million

Sophia Amoruso is the founder and CEO of Nasty Gal, an 8-year-old online fashion retail company worth over $100 million. Nasty Gal sells new and vintage clothing, accessories, and shoes online. Founder Sophia Amoruso started the company on eBay, selling one-of-a-kind vintage pieces that she sourced, styled, photographed, and shipped herself. The following is excerpted from her new book, #GIRLBOSS.

“I never started a business. I started an eBay store, and ended up with a business. I never would have done it had I known it was going to become this big. I was 22 and, like most 22-year-olds, I was looking for a way to pay my rent and buy my Starbucks chai. Had someone shown me the future of where Nasty Gal would be in 2014, I would have gasped in revulsion, thinking, ‘Oh, no, that is way too much work.’

There are different kinds of entrepreneurs. There are the ones who start a business because they’re educated and choose to, and the ones who do it because it is really the only option. I definitely fall into the latter category.”19

The Internet is a great place to start a business! If Sophia Amoruso started her business in a traditional store, would she have found success? List the advantages Sophia Amoruso gained by selling her items on eBay. If you could start a business on eBay, what would it be and how would you use ebusiness to your advantage?

Consumer-to-Consumer (C2C)

Consumer-to-consumer (C2C) applies to customers offering goods and services to each other on the Internet. A good example of a C2C is an auction where buyers and sellers solicit consecutive bids from each other and prices are determined dynamically. Craigslist and eBay are two examples of successful C2C websites, linking like-minded buyers with sellers. Other types of online auctions include forward auctions where sellers market to many buyers and the highest bid wins, and reverse auctions where buyers select goods and services from the seller with the lowest bid.

Ebusiness Forms and Revenue-Generating Strategies

As more and more companies began jumping on the ebusiness bandwagon, new forms of ebusiness began to emerge (see Figure 3.11). Many of the new forms of ebusiness went to market without clear strategies on how they would generate revenue. Google is an excellent example of an ebusiness that did not figure out a way to generate profits until many years after its launch.16

FIGURE 3.11

Ebusiness Forms

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Google’s primary line of business is its search engine; however, the company does not generate revenue from people using its site to search the Internet. It generates revenue from the marketers and advertisers that pay to place their ads on the site. About 200 million times each day, people from all over the world access Google to perform searches. AdWords, a part of the Google site, allows advertisers to bid on common search terms. The advertisers simply enter in the keywords they want to bid on and the maximum amounts they want to pay per click per day. Google then determines a price and a search ranking for those keywords based on how much other advertisers are willing to pay for the same terms. Pricing for keywords can range from 5 cents to $10 a click. Paid search is the ultimate in targeted advertising because consumers type in exactly what they want. A general search term such as tropical vacation costs less than a more specific term such as Hawaiian vacation. Whoever bids the most for a term appears in a sponsored advertisement link either at the top or along the side of the search-results page.17

A search engine is website software that finds other pages based on keyword matching similar to Google. Search engine ranking evaluates variables that search engines use to determine where a URL appears on the list of search results. Search engine optimization (SEO) combines art with science to determine how to make URLs more attractive to search engines resulting in higher search engine ranking. The better the SEO, the higher the ranking for a website in the list of search engine results. SEO is critical because most people only view the first few pages of a search result. After that a person is more inclined to begin a new search than review pages and pages of search results. Websites can generate revenue through:

Pay-per-click: Generates revenue each time a user clicks a link to a retailer’s website.

Pay-per-call: Generates revenue each time a user clicks a link that takes the user directly to an online agent waiting for a call.

Pay-per-conversion: Generates revenue each time a website visitor is converted to a customer.

Ebusinesses must have a revenue model, or a model for making money. Adwords are keywords that advertisers choose to pay for and appear as sponsored links on the Google results pages. Keywords are chosen by the advertiser and are displayed on the results pages when the search keywords match the advertiser’s keywords. The advertiser then pays a fee to Google for the search display. For instance, will it accept advertising or sell subscriptions or licensing rights? Figure 3.12 lists the different benefits and challenges of various ebusiness revenue models.18

EBUSINESS TOOLS FOR CONNECTING AND COMMUNICATING

LO 3.4: Describe the six ebusiness tools for connecting and communicating.

As firms began to move online, more MIS tools were created to support ebusiness processes and requirements. The tools supporting and driving ebusiness are highlighted in Figure 3.13 and covered below in detail.

Email

Email, short for electronic mail, is the exchange of digital messages over the Internet. No longer do business professionals have to wait for the mail to receive important documents; email single-handedly increased the speed of business by allowing the transfer of documents with the same speed as the telephone. Its chief business advantage is the ability to inform and communicate with many people simultaneously, immediately, and with ease. There are no time or place constraints, and users can check, send, and view emails whenever they require.

An Internet service provider (ISP) is a company that provides access to the Internet for a monthly fee. Major ISPs in the United States include AOL, AT&T, Comcast, Earthlink, and Netzero, as well as thousands of local ISPs, including regional telephone companies.

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FIGURE 3.12

Ebusiness Revenue Models

FIGURE 3.13

Ebusiness Tools

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Instant Messaging

Real-time communication occurs when a system updates information at the same rate it receives it. Email was a great advancement over traditional communication methods such as the U.S. mail, but it did not operate in real time. Instant messaging (IMing) is a service that enables instant or real-time communication between people. Businesses immediately saw what they could do:

Answer simple questions quickly and easily.

Resolve questions or problems immediately.

Transmit messages as fast as naturally flowing conversation.

Easily hold simultaneous IM sessions with multiple people.

Eliminate long-distance phone charges.

Quickly identify which employees are at their computers.

Podcasting

Podcasting converts an audio broadcast to a digital music player. Podcasts can increase marketing reach and build customer loyalty. Companies use podcasts as marketing communication channels discussing everything from corporate strategies to detailed product overviews. The senior executive team can share weekly or monthly podcasts featuring important issues or expert briefings on new technical or marketing developments.

Videoconferencing

A videoconference allows people at two or more locations to interact via two-way video and audio transmissions simultaneously as well as share documents, data, computer displays, and whiteboards. Point-to-point videoconferences connect two people, and multipoint conferences connect more than two people at multiple locations.

Videoconferences can increase productivity because users participate without leaving their offices. It can improve communication and relationships because participants see each other’s facial expressions and body language, both important aspects of communication that are lost with a basic telephone call or email. It also reduces travel expenses, a big win for firms facing economic challenges. Of course, nothing can replace meeting someone face to face and shaking hands, but videoconferencing offers a viable and cost-effective alternative.

Web Conferencing

Web conferencing , or a webinar , blends videoconferencing with document sharing and allows the user to deliver a presentation over the web to a group of geographically dispersed participants. Regardless of the type of hardware or software the attendees are running, every participant can see what is on anyone else’s screen. Schools use web conferencing tools such as Illuminate Live to deliver lectures to students, and businesses use tools such as WebEx to demonstrate products. Web conferencing is not quite like being there, but professionals can accomplish more sitting at their desks than in an airport waiting to make travel connections.

Content Management Systems

In the fourth century BC, Aristotle catalogued the natural world according to a systematic organization, and the ancient library at Alexandria was reportedly organized by subject, connecting like information with like. Today content management systems (CMS) help companies manage the creation, storage, editing, and publication of their website content. CMSs are user-friendly; most include web-based publishing, search, navigation, and indexing to organize information; and they let users with little or no technical expertise make website changes.

A search is typically carried out by entering a keyword or phrase (query) into a text field and clicking a button or a hyperlink. Navigation facilitates movement from one web page to another. Content management systems play a crucial role in getting site visitors to view more than just the home page. If navigation choices are unclear, visitors may hit the Back button on their first (and final) visit to a website. One rule of thumb to remember is that each time a user has to click to find search information, there is a 50 percent chance the user will leave the website instead. A key principle of good website design, therefore, is to keep the number of clicks to a minimum.

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Taxonomy is the scientific classification of organisms into groups based on similarities of structure or origin. Taxonomies are also used for indexing the content on the website into categories and subcategories of topics. For example, car is a subtype of vehicle. Every car is a vehicle, but not every vehicle is a car; some vehicles are vans, buses, and trucks. Taxonomy terms are arranged so that narrower/more specific/“child” terms fall under broader/more generic/“parent” terms. Many companies hire information architects to create their website taxonomies. A well-planned taxonomy ensures search and navigation are easy and user friendly. If the taxonomy is confusing, the site will soon fail.

THE CHALLENGES OF EBUSINESS

LO 3.5: Identify the four challenges associated with ebusiness.

Although the benefits of ebusiness are enticing, developing, deploying, and managing ebusiness systems is not always easy. Figure 3.14 lists the challenges facing ebusiness.20

Identifying Limited Market Segments

The main challenge of ebusiness is the lack of growth in some sectors due to product or service limitations. The online food sector has not grown in sales, in part because food products are perishable and consumers prefer to buy them at the supermarket as needed. Other sectors with limited ebusiness appeal include fragile or consumable goods and highly sensitive or confidential businesses such as government agencies.

Managing Consumer Trust

Trust in the ebusiness exchange deserves special attention. The physical separation of buyer and seller, the physical separation of buyer and merchandise, and customer perceptions about the risk of doing business online provide unique challenges. Internet marketers must develop a trustworthy relationship to make that initial sale and generate customer loyalty. A few ways to build trust when working online include being accessible and available to communicate in person with your customers; using customers’ testimonials that link to your client website or to provide their contact information; and accepting legitimate forms of payment such as credit cards.

Ensuring Consumer Protection

An organization that wants to dominate with superior customer service as a competitive advantage must not only serve but also protect its customers, guarding them against unsolicited goods and communication, illegal or harmful goods, insufficient information about goods and suppliers, invasion of privacy and misuse of personal information, and online fraud. System security, however, must not make ebusiness websites inflexible or difficult to use.

FIGURE 3.14

Challenges Facing Ebusiness

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Adhering to Taxation Rules

Many believe that U.S. tax policy should provide a level playing field for traditional retail businesses, mail-order companies, and online merchants. Yet the Internet marketplace remains mostly free of traditional forms of sales tax, partly because ecommerce law is vaguely defined and differs from state to state. For now, companies that operate online must obey a patchwork of rules about which customers are subject to sales tax on their purchases and which are not.

section 3.2

Web 2.0: Business 2.0

LEARNING OUTCOMES

3.6Explain Web 2.0 and identify its four characteristics.

3.7Explain how Business 2.0 is helping communities network and collaborate.

3.8Describe the three Business 2.0 tools for collaborating.

3.9Explain the three challenges associated with Business 2.0.

3.10Describe Web 3.0 and the next generation of online business.

WEB 2.0: ADVANTAGES OF BUSINESS 2.0

LO 3.6: Explain Web 2.0 and identify its four characteristics.

In the mid-1990s the stock market reached an all-time high as companies took advantage of ebusiness and Web 1.0, and many believed the Internet was the wave of the future. When new online businesses began failing to meet earning expectations, however, the bubble burst. Some then believed the ebusiness boom was over, but they could not have been more wrong.

Web 2.0 (or Business 2.0 ) is the next generation of Internet use—a more mature, distinctive communications platform characterized by new qualities such as collaboration, sharing, and free. Business 2.0 encourages user participation and the formation of communities that contribute to the content. In Business 2.0, technical skills are no longer required to use and publish information to the World Wide Web, eliminating entry barriers for online business.

Traditional companies tended to view technology as a tool required to perform a process or activity, and employees picked up information by walking through the office or hanging out around the water cooler. Business 2.0 technologies provide a virtual environment that, for many new employees, is just as vibrant and important as the physical environment. Figure 3.15 highlights the common characteristics of Web 2.0.22

FIGURE 3.15

Four Characteristics of Web 2.0

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APPLY YOUR KNOWLEDGE

BUSINESS DRIVEN GLOBALIZATION

Collaborating for Nonprofits—Kiva

Kiva’s mission is to connect people through lending for the sake of alleviating poverty. Kiva is a micro-lending online nonprofit organization that enables individuals to lend directly to entrepreneurs throughout the world. If you want to participate in Kiva you simply browse the website (www.kiva.org) and choose an entrepreneur that interests you, make a loan, then track your entrepreneur for the next 6 to 12 months while he or she builds the business and makes the funds to repay the loan. When the loan is up you can relend the money to someone else who is in need.21

Kiva is an excellent example of blending ethics and information technology. How is Kiva operating differently than traditional nonprofits? What are the risks associated with investing in Kiva? When you invest in Kiva you run three primary risks: entrepreneur risk, local field partner risk, and country risk. Analyze each of these risks for potential unethical issues that might arise when donating to Kiva.

Content Sharing Through Open Sourcing

An open system consists of nonproprietary hardware and software based on publicly known standards that allow third parties to create add-on products to plug into or interoperate with the system. Thousands of hardware devices and software applications created and sold by third-party vendors interoperate with computers, such as iPods, drawing software, and mice.

Source code contains instructions written by a programmer specifying the actions to be performed by computer software. Closed source is any proprietary software licensed under exclusive legal right of the copyright holder. Open source refers to any software whose source code is made available free (not on a fee or licensing basis as in ebusiness) for any third party to review and modify. Business 2.0 is capitalizing on open source software. Mozilla, for example, offers its Firefox web browser and Thunderbird email software free. Mozilla believes the Internet is a public resource that must remain open and accessible to all; it continuously develops free products by bringing together thousands of dedicated volunteers from around the world. Mozilla’s Firefox now holds over 20 percent of the browser market and is quickly becoming a threat to Microsoft’s Internet Explorer. How do open source software companies generate revenues? Many people are still awaiting an answer to this very important question.23

User-Contributed Content

Ebusiness was characterized by a few companies or users posting content for the masses. Business 2.0 is characterized by the masses posting content for the masses. User-contributed content (or user-generated content ) is created and updated by many users for many users. Websites such as Flickr, Wikipedia, and YouTube, for example, move control of online media from the hands of leaders to the hands of users. Netflix and Amazon both use user-generated content to drive their recommendation tools, and websites such as Yelp use customer reviews to express opinions on products and services. Companies are embracing user-generated content to help with everything from marketing to product development and quality assurance.

Native advertising is an online marketing concept in which the advertiser attempts to gain attention by providing content in the context of the user’s experience in terms of its content, format, style, or placement. One of the most popular forms of user-generated content is a reputation system , in which buyers post feedback on sellers. eBay buyers voluntarily comment on the quality of service, their satisfaction with the item traded, and promptness of shipping. Sellers comment about prompt payment from buyers or respond to comments left by the buyer. Companies ranging from Amazon to restaurants are using reputation systems to improve quality and enhance customer satisfaction.

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Collaboration Inside the Organization

A collaboration system is a set of tools that supports the work of teams or groups by facilitating the sharing and flow of information. Business 2.0’s collaborative mind-set generates more information faster from a wider audience. Collective intelligence is collaborating and tapping into the core knowledge of all employees, partners, and customers. Knowledge can be a real competitive advantage for an organization. The most common form of collective intelligence found inside the organization is knowledge management (KM) , which involves capturing, classifying, evaluating, retrieving, and sharing information assets in a way that provides context for effective decisions and actions. The primary objective of knowledge management is to be sure that a company’s knowledge of facts, sources of information, and solutions are readily available to all employees whenever it is needed. A knowledge management system (KMS) supports the capture, organization, and dissemination of knowledge (i.e., know-how) throughout an organization. KMS can distribute an organization’s knowledge base by interconnecting people and digitally gathering their expertise.

A great example of a knowledge worker is a golf caddie. Golf caddies give advice such as, “The rain makes the third hole play 10 yards shorter.” If a golf caddie is good and gives accurate advice, it can lead to big tips. Collaborating with other golf caddies can provide bigger tips for all. How can knowledge management make this happen? Caddies could be rewarded for sharing course knowledge by receiving prizes for sharing knowledge. The course manager could compile all of the tips and publish a course notebook for distribution to all caddies. The goal of a knowledge management system is for everyone to win. Here the caddies make bigger tips and golfers improve their play by benefiting from the collaborative experiences of the caddies, and the course owners win as business increases.

KM has assumed greater urgency in American business over the past few years as millions of baby boomers prepare to retire. When they punch out for the last time, the knowledge they gleaned about their jobs, companies, and industries during their long careers will walk out with them—unless companies take measures to retain their insights.

Explicit and Tacit Knowledge Not all information is valuable. Individuals must determine what information qualifies as intellectual and knowledge-based assets. In general, intellectual and knowledge-based assets fall into one of two categories: explicit or tacit. As a rule, explicit knowledge consists of anything that can be documented, archived, and codified, often with the help of MIS. Examples of explicit knowledge are assets such as patents, trademarks, business plans, marketing research, and customer lists. Tacit knowledge is the knowledge contained in people’s heads. The challenge inherent in tacit knowledge is figuring out how to recognize, generate, share, and manage knowledge that resides in people’s heads. Although information technology in the form of email, instant messaging, and related technologies can help facilitate the dissemination of tacit knowledge, identifying it in the first place can be a major obstacle.

Collaboration Outside the Organization

The most common form of collective intelligence found outside the organization is crowd-sourcing , which refers to the wisdom of the crowd. The idea that collective intelligence is greater than the sum of its individual parts has been around for a long time (see Figure 3.16). With Business 2.0, the ability to tap into its power efficiently is emerging. For many years organizations believed that good ideas came from the top. CEOs collaborated only with the heads of sales and marketing, the quality assurance expert, or the road warrior salesman. The organization chart governed who should work with whom and how far up the chain of command a suggestion or idea would travel. With Business 2.0, this belief is being challenged as firms capitalize on crowdsourcing by opening up a task or problem to a wider group to find better or cheaper results from outside the box.

Crowdfunding sources capital for a project by raising many small amounts from a large number of individuals, typically via the Internet. With Business 2.0, people can be continuously connected, a driving force behind collaboration. Traditional ebusiness communications were limited to face-to-face conversations and one-way technologies that used asynchronous communications , or communication such as email, in which the message and the response do not occur at the same time. Business 2.0 brought synchronous communication , or communications that occur at the same time, such as IM or chat. Ask a group of college students when they last spoke to their parents. For most the answer is less than hour ago as opposed to the traditional response of a few days ago. In business too, continuous connections are now expected in today’s collaborative world.

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APPLY YOUR KNOWLEDGE

BUSINESS DRIVEN STARTUP

Using Hashtags

If you have ever seen a word with a # before it in Facebook or Twitter, you have seen a hashtag. A hashtag is a keyword or phrase used to identify a topic and is preceded by a hash or pound sign (#). Hashtags provide an online audience to expand business exposure and directly engage with customers. Customers can type any search keyword in a social media site with a hashtag before the word and the search results will show all related posts. Hashtags can be used to reference promotions, observe market trends, and even provide links to helpful tips.

When you understand hashtags, you can use them to find business ideas and research potential employers. Pick a company you would like to work for and see whether you can find any related hashtags including what they are tweeting and posting. See whether you can find any information on partners and competitors. Which hashtags generate discussion or offer business insights? Check Twitter’s and Facebook’s trending topics and see whether there are any issues or insights on your career area.

NETWORKING COMMUNITIES WITH BUSINESS 2.0

LO 3.7: Explain how Business 2.0 is helping communities network and collaborate.

Social media refers to websites that rely on user participation and user-contributed content, such as Facebook, YouTube, and Digg. A social network is an application that connects people by matching profile information. Providing individuals with the ability to network is by far one of the greatest advantages of Business 2.0. Social networking is the practice of expanding your business and/or social contacts by constructing a personal network (see Figure 3.17). Social networking sites provide two basic functions. The first is the ability to create and maintain a profile that serves as an online identity within the environment. The second is the ability to create connections between other people within the network. Social networking analysis (SNA) maps group contacts (personal and professional) identifying who knows each other and who works together. In a company it can provide a vision of how employees work together. It can also identify key experts with specific knowledge such as how to solve a complicated programming problem or launch a new product.

FIGURE 3.16

Crowdsourcing: The Crowd Is Smarter Than the Individual

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FIGURE 3.17

Social Network Example24

Business 2.0 simplifies access to information and improves the ability to share it. Instead of spending $1,000 and two days at a conference to meet professional peers, business people can now use social networks such as LinkedIn to meet new contacts for recruiting, prospecting, and identifying experts on a topic. With executive members from all the Fortune 500 companies, LinkedIn has become one of the more useful recruiting tools on the web.

Social graphs represent the interconnection of relationships in a social network. Social networking sites can be especially useful to employers trying to find job candidates with unique or highly specialized skill sets that may be harder to locate in larger communities. Many employers also search social networking sites to find “dirt” and character references for potential employees. Keep in mind that what you post on the Internet stays on the Internet.25