Online File W2.1 Examples of Digital Products

Chapter Two: E-Commerce: Mechanisms, Infrastructure, and Tools 2-1 Online File W2.1 Examples of Digital Products 1. Information and entertainment products: Paper-based documents: Books, newspapers, magazine journals, store coupons, marketing brochures, newsletters, research papers, and training materials Product information: Product specifications, catalogs, user manuals, and sales training manuals Graphics: Photographs, postcards, calendars, maps, posters, and X-rays Audio: Music recordings, speeches, and lectures Video: Movies, television programs, and video clips Software: Programs, games, and development tools 2. Symbols, tokens, and concepts: Tickets and reservations: Airlines, hotels, concerts, sports events, and transportation Financial instruments: Checks, electronic currencies, credit cards, securities, and letters of credit 3. Processes and services: Government services: Forms, benefits, welfare payments, and licenses Electronic messaging: Letters, faxes, and telephone calls Business-value-creation processes: Ordering, bookkeeping, inventorying, and contracting Auctions, bidding, and bartering Remote education, telemedicine, and other interactive services Cybercafés, interactive entertainment, and virtual communities

2-2 Part 1: Introduction to E-Commerce and E-Marketplaces ONLINE FILE W2.2 HOW RAFFLES HOTEL IS CONDUCTING E-COMMERCE The Problem Raffles Hotel, one of Singapore s colonial-era landmarks, is part of a worldwide group of luxury and business hotels. Raffles Hotel operates in a very competitive environment. To maintain its world-renowned reputation, the hotel spares no effort on every facet of its operation. The success of the group and each of its hotels depends on the group s ability to attract customers to its hotels and facilities and on its ability to contain costs. The group operates Fairmont Raffles and the Swissôtel brand of hotels worldwide. All brands share a reservation system. The Solution To maintain its image and contain costs, Raffles must address two types of issues B2C and B2B. On the B2C side, Raffles maintains a diversified corporate portal, raffles.com, that introduces customers to the company and its services. The portal includes information on the hotels, a reservation system, links to travelers resources, a CRM program, and an online store for Raffles products. The website maintains the luxury of the Raffles hotel brand and communicates this to its online audience. It has a clearly defined and wellconstructed navigation that integrates the brand-level site with the individual hotel websites. The website uses an architecture with logical and consistent navigational tiers, which has proven to be a highly successful approach. Based on the individual hotel strategy, product mix, and target audience, the website navigation reflects the multitiered navigation structure. Each tier represents an order of authority that helps lay out the organization of the website. The tiered structure moves users comfortably and easily toward a set of services, including the reservation process. This helps to focus on incremental reservations growth and dynamic content management. The website has an integrated online reservation system that provides agents with an instant online booking facility. One section of the site, Raffles Direct, is designed to provide the corporate market with a user-friendly tool to book with their negotiated rates online. The strategic focus of using the Internet as a key driver for distribution is based on its being the ultimate direct-to-consumer distribution medium. It conforms to the lowest cost and most inexpensive method to distribute hotel room inventory. A direct-to-consumer model provides long-term competitive advantages. It decreases dependence on intermediaries, discounters, and traditional channels that are slowly becoming obsolete. The website has recently been updated with improved booking functionalities and new interactive features. The site includes information in multiple languages to leverage the fast-growing Internet booking trends in some of the company s key markets. On the B2B side, in 2006 hospitalitybex.com, an e-marketplace for the hospitality and service industry, was set up with a few strategic partners to offer a solution to streamline the procurement process and enable hospitality and service organizations to reduce costs across the supply chain by eliminating inefficiencies. The portal offers product and service sourcing, negotiation, selection, ordering, fulfillment, payment, and reporting. Buyers and suppliers have real-time access to business intelligence to assist in the successful and efficient management of their procurement and supply operations. All procurement activities are deployed through the HospitalityBex data center, so users do not need to purchase or lease any new hardware or software. Buyers use online catalogs of more than 30,000 products and services including office stationery, laundry and cleaning products, and perishable goods, and submit order requests via a standard Web browser. User organizations incur considerable cost savings, because the portal aggregates orders through strategic partnerships with major suppliers and service providers. Procurement negotiations now take place online. Buyer seller relationships have been strengthened by the private, online marketplace. The Results Increased bookings through Raffles proprietary websites resulted in a strong growth of 77 percent in rooms revenue from this channel, exceeding both 2004 s strong growth of 64 percent and the industry-wide 2004 Internet growth rate of 32 percent. Raffles was purchased in 2006 by an investment group that has made it the second-largest luxury hotel chain in the world. Its flagship hotel, the iconic Raffles Singapore, was sold in 2010 (under the name of Fairmont Raffles). Since its acquisition, there is no public financial data. However, the success in 2005 gives us some indication of its success. In 2005, the global portal community consisted of more than 5,900 organizations. Annually, more than 470,000 purchase-order transactions worth over $100 million are completed. Forty-two active buying organizations including hotels, offices, and retailers from around the world provide more than $1 million in savings. The portal also generates regular reports for buyers, showing savings gained from this competitive pricing model. Buyers and sellers garner improvements by using technology to increase productivity per human capital, linking to supply chain solutions through the Internet, increasing inventory management, procurement operations, and B2B collaboration in a knowledge-based environment. 1. Identify the e-marketplaces in this case. 2. List all the EC mechanisms used by Raffles and how they are used. 3. What other EC mechanisms would you recommend to Raffles? 4. List the EC business models used by the company. 5. List the types of transactions conducted by Raffles.

REFERENCES FOR ONLINE FILE W2.2 Chapter Two: E-Commerce: Mechanisms, Infrastructure, and Tools 2-3 en.wikipedia.org/wiki/raffles_hotel (accessed January 2011). raffles.com (accessed January 2011). Teo, E. Raffles Hotel Sold. Straitstimes.com, April 8, 2010. straitstimes.com/breakingnews/singapore/ Story/STIStory_511970.html (accessed January 2011). ONLINE FILE W2.3 EBAY: THE WORLD S LARGEST AUCTION SITE The Opportunity EBay is one of the most profitable e-businesses. The successful online auction house has its roots in a 55-year-old novelty item PEZ candy dispensers. Pam Omidyar, an avid collector of PEZ dispensers, came up with the idea of trading them over the Internet. When she expressed this idea to her boyfriend (now her husband), Pierre Omidyar, he was instantly struck with the soon-to-be-famous e-business auction concept. The Solution In 1995, the Omidyars created a company called AuctionWeb. The company was renamed ebay and has since become the premier online auction house in many countries, with millions of unique auctions in progress and over 500,000 new items added each day. Almost 194 million registered buyers and sellers use ebay. Today, ebay is much more than an auction house, but its initial success was in electronic auctions. EBay s initial business model was to provide an electronic infrastructure for conducting mostly C2C auctions. EBay auctions do not require an auctioneer; technology manages the auction process. People can buy and sell just about anything on ebay. The company collects a posting fee up front, plus a commission that is a percentage of the final sale amount. The posting fee is based on the amount of exposure the seller wants the item to receive, with a higher fee if the seller would like the item to be among the featured auctions in a specific product category, and an even higher fee if the seller wants the item to be listed on the ebay homepage under Featured Items. Another attention-grabbing option is to publish the auction listing in a boldface font (for an additional charge). The auction process begins when the seller fills in the appropriate registration information and posts a description of the item for sale. The seller must specify a minimum opening bid. If potential buyers feel this price is too high, the item may not receive any bids. Sellers may set the opening bid lower than the reserve price, a minimum acceptable bid price, to generate bidding activity. If a successful bid is made, the seller and the buyer negotiate the payment method, shipping details, warranty, and other particulars. EBay serves as a liaison between the parties; it is the interface through which sellers and buyers can conduct business. EBay does not maintain a costly physical inventory or deal with shipping, handling, or other services that businesses such as Amazon.com and other retailers must provide. The ebay site basically serves individuals, but it also caters to small businesses. In 2001, ebay started to auction fine art in collaboration with Icollector.com (icollector.com) of the United Kingdom and with the art auction house Sotheby s (sothebys.com), whose auction page is on ebay s main menu. Due to a lack of profit, as of May 2003, ebay and Sotheby s discontinued separate online auctions and began promoting Sotheby s live auctions through ebay s Live Auctions technology while continuing to build ebay s highly successful arts and antiques categories. Sotheby s website still exists, but now it is focused on supporting Sotheby s live auction business. In addition, ebay operates globally, enabling international auctions. Country-specific sites are located in over 31 countries, including the United States, Canada, France, Sweden, Brazil, the United Kingdom, Australia, Singapore, and Japan. EBay also has equity in or owns several countryspecific sites, such as those in China, India, Korea, and Japan; these sites generate 46 percent of ebay s business. Buyers from more than 150 other countries participate. EBay also operates a business exchange in which SMEs can buy and sell new and used merchandise in B2B or B2C modes. EBay has over 60 local sites in the United States that enable users to easily find items located near them, to browse through items of local interest, and to meet face-toface to conclude transactions. In addition, some ebay sites, such as ebay Motors, concentrate on specialty items. Trading can be done anywhere, anytime. Wireless trading also is possible. In 2002, ebay Seller Payment Protection was implemented to make it safer to sell on ebay. Now sellers are protected against bad checks and fraudulent credit card purchases. The service offers credit card chargeback protection, guaranteed electronic checks, secure processing, and privacy protection. Today, ebay owns PayPal, the P2P payment company, which many buyers use to pay for their purchases. After a few years of successful operation and tens of millions of loyal members, ebay decided to leverage its large customer base and started to do e-tailing, mostly at fixed prices. This may have been in response to

2-4 Part 1: Introduction to E-Commerce and E-Marketplaces ONLINE FILE W2.3 Amazon.com s decision to start auctions, or it may have been a logical idea for a diversification. By 2003, ebay operated several specialty sites, as well as half.com, the famous discount e-tailer. A special feature is ebay Stores. These stores are rented to individuals and companies. The renting companies can use these stores to sell from catalogs or conduct auctions. In 2002, ebay introduced the ebay Business Marketplace, located at pages.ebay.com/sellerinformation/growing/ business.html. This site brings together all business-related listings on ebay at one destination, making it easier for small businesses to find the equipment and supplies they need. EBay also offers software for building customized storefronts that ebay hosts (ProStores products) and provides templates for building standard storefronts. EBay is used by individuals, small businesses, large enterprises, and governments (see auctionbiz.com). Many individuals are using ebay to make a living. Some of them are very successful. Holden (2006) describes how 10 different entrepreneurs have tapped into the power of ebay and are making millions. According to Kelsey (2007), in the United States approximately 1.3 million people are making their living on ebay. In 2006, ebay launched ebay Express, which enables instant-purchasing using a shopping cart to buy multiple items at the prices set by the sellers. EBay also allows website affiliates to run contextual ads for ebay auctions in exchange for a cut of resulting ad sales. (The program is called ebay AdContext.) As of June 2006, ebay offers ebay Community Wiki, where buyers and sellers can exchange best practices and tips. EBay owned Skype, a VoIP provider of Internet communication, until mid-2009. The application was used to streamline complex auctions (e.g., if you wanted to buy a car on ebay you could ask the seller a number of questions). Also, some sellers need information from buyers so they can customize their products. The Results The impact of ebay on e-business has been profound. Its founders took a limited-access offline business model and, by using the Internet, were able to bring it to the desktops of consumers worldwide. This business model consistently generates a profit and promotes a sense of community a near addiction that keeps traders coming back. EBay is the world s largest auction site, with a community of over 94 million active users as of spring 2011, about half of them outside the United States (see Komiak et al. 2008). According to company financial statements, in 2004 ebay transacted over $62 billion in sales in 2010 (more than $2,000 every second). As a matter of fact, the only place where people are doing more business online than offline (and considerably more, at that) is auctions. By comparison, e-tailing is less than 5 percent of total retail sales. 1. What is ebay s business model? 2. Why is the business successful? 3. To what extent can ebay be responsible for the nature of the items offered for sale on its site? 4. What is the purpose of the local sites? REFERENCES FOR ONLINE FILE W2.3 Coffin, A. M. ebay for Dummies, 4th ed. Hoboken, NJ: John Wiley & Sons, 2004. Holden, G. Fast Forward. Entrepreneur, May 2006. Jayner, A. The ebay Billionaires Club. Hoboken, NJ: Wiley Publishing Inc., 2008. Kelsey, F. M. 1.3 Million People Make Their Living on ebay. Maui News (paid advertisement), November 29, 2007. Komiak, P., S. Y. X. Komiak, and M. Imhof. Conducting International Business at ebay: The Determinants of Success of E-Stores. Electronic Markets 18, no. 2 (2008). ONLINE FILE W2.4 REVERSE MORTGAGE AUCTIONS IN SINGAPORE Home buyers like to get the lowest possible mortgage rates. In the United States, Priceline.com (priceline.com) will try to find you a mortgage if you name your own price. However, a better deal may be available to home buyers in Singapore, where reverse auctions are combined with group purchasing, saving about $20,000 over the life of a mortgage for each home owner, plus $1,200 in waived legal fees. DollarDEX (DollarDEX 2004) offers the service in Singapore, Hong Kong, and other countries.

Chapter Two: E-Commerce: Mechanisms, Infrastructure, and Tools 2-5 ONLINE FILE W2.4 Here is how dollardex arranged its first project: The site invited potential buyers for three residential properties in Singapore to join the service. Applications, including financial credentials, were made on a secure website. Then, seven lending banks were invited to bid on the loans. In a secure electronic room, borrowers and lenders negotiated. After two days of negotiations of interest rates and special conditions, the borrowers voted on one bank. In the first project, 18 borrowers agreed to give the job to United Overseas Bank (UOB), paying about 0.5 percent less than the regular mortgage interest rate. The borrowers negotiated the waiver of the legal fee as well. From this first project, UOB generated $10 million of business. Today, dollardex allows customers to participate in an individual reverse auction if they do not want to join a group. The banks involved in the auctions can see the offers made by competitors. Flexibility is high; in addition to interest rates, banks are willing to negotiate down payment size and the option of switching from a fixed-rate to a variable-rate loan. On average, there are 2.6 bank bids per customer. By summer 2003, in addition to mortgages, dollardex offered car loans, insurance policies, and travel services. It also allows comparisons of mutual funds that have agreed to give lower front-end fees. It also offers insurance (including health, motor, home, home content, and SARS insurance). Customers also can choose one or more unit trusts in which to invest and set up online gift registries for weddings or specials events and invite friends to place funds in them. Reports and advice are available online as well as face-to-face. By 2009, dollardex had become one of Singapore s top wealth management companies with a wide variety of financial products partnered with over 80 brand-name local and global banks, fund managers, and insurers. The company advises and analyzes investments, offers numerous types of insurance, and is still in the business of intermediating home loans. 1. How is group purchasing organized at dollardex? What services are offered? 2. Why does a reverse auction take place? 3. Can this model exist without an intermediary? REFERENCES FOR ONLINE FILE W2.4 dollardex.com (accessed November 2009). DollarDEX Initiates Mortgage Auctions. August 16, 2000. Internetnews.com. internetnews.com/bus-news/ article.php/669721 (accessed 2011).