Course: MBAV 5531-09F-7B09, E-Commerce

Professor Richard Yellen.

Class: HOM#14B
Student Name: Thanh Khanh Nguyen.
Student ID: 179080.

Section Exam I
Submission Date: June 22 ~ June 28, 2009.

Question I: Describe the visions and forces during the early days of e-commerce in
terms of what the various interest groups hoped for: the computer scientist and
information technology people; the economists; and the entrepreneurs, venture
capitalists and marketers. Explain whether what each group envisioned came to fruition
and why or why not. Give examples.

In the early days of e-commerce, various interest groups had their own visions which
became true or not.

- Computer scientists and information technologists envisioned that everyone could

have the opportunity to take full advantage of the Internet which would be available for
all. This imagination may be considered a success as the number of people online has
increased, around 112 million people are online everyday, and customers have been
accustomed to the use of Internet to find information before buying products.

- Economists had a vision that friction-free commerce, a near-perfect market in which

price, cost and products information were open to everyone, would be established.
Customers would be offered nearly all kinds of products with best prices and services
thanks to the disintermediation, the end of monopoly profits and the diversity of
producers; vice versa, sellers would be introduced to a larger number of customers.
However, this optimistic vision did not completely go off. Brands which created monopoly
still existed. Disintermediation did not occur and new kinds of middlemen such as
Google, Amazon appeared.

- The vision of entrepreneurs and venture capitalists was to achieve significant profits
after first several years of maintaining low prices and suffering losses to gain popularity
in customers. Besides, as first movers, they could prevent competition once the
customers were accustomed to their online service. The result was not as good as they
had expected. Surprisingly, customers paid less attention to prices or had doubts and
quit buying online. Meanwhile, the total costs for running business on the Web are not
lower than those for offline business. Many first-movers like Eve.com ran out of business
but some like Priceline.com, Onvia.com, after their recovery, regained profits. While
entrepreneurs and venture had many difficulties, marketers found new technologies
such as search engine, web transaction logs, etc. which supported their job in a more
precise way.

Everything has its beginning. The initial failures are the valuable lessons for the sellers
to find better ways to approach the customers and succeed in the area of e-commerce.

Question II: Define the term industry structure and discuss the ways the Internet and e-
commerce have changed the five forces that characterize industry structure.
 Industry structure refers to the features of enterprises taking part in an industry and
their position or profit in that industry. For example, in Vietnam, the Electricity of Vietnam
(EVN) is a monopoly in power; hence, they have the highest position and obtain the best
profits. Meanwhile, there is competition in the area of Telecom with the participation of
Mobifone, Vinafone, S-fone, EVNtelecom, etc. and their profits are shared based on the
market they have conquered.

Five forces characterizing an industry structure have been changed by the Internet and
e-commerce as follows:

- Rivalry among existing competitors: Internet has lowered the degrees of product
differentiation. A new design which is offered in one website for the first time today may
appear in all of the competitors’ websites the following day. Hence, price becomes the
main factor to attract customers. But new strategies for branding and differentiation still
help maintain high prices.

- The threat of substitute products: Products, especially entertainment ones, are more
easily substituted by Internet approaches. In stead of going to stores, a customer can
stay at home, surf the Internet, read reviews, view trailers, etc. and buy DVDs via online
stores or pay and download their favorite songs.

- Barriers to entry into the industry: E-commerce introduces a new market which
scores of new comers have been entering. However, it is rougher and tougher for them
to create their own specialty and compete with those who have been establishing brands
in the market.

- The bargaining power of suppliers and the bargaining power of buyers: The direct
commerce between suppliers and buyers reduces the participation of middlemen and
therefore, reduces the cost. Also, the information of products is easy to find; hence, the
qualities of theirs are standardized.

In brief, the changes that e-commerce and Internet have made are different from one
industry to another. It is difficult to judge whether these changes are positive or negative
and compare their success among industries.

Question III: Explain the main functionalities included in e-commerce server software
and the decision-making process for a manager choosing from among the various e-
commerce merchant server software suites.

In the decision-making process to choose the suitable e-commerce server software

suites, the functionalities including online catalog, shopping cart and online credit card
processing are one of the key factors. Online Catalog is the list of products provided by
an e-commerce merchant and is typically included in the server software. The catalog
may have simple layout with thumbnails, description and prices of products or more
complicated one with sound, animation, video, which is decided by the size of the
company. Shopping carts allow customers to set aside, review, edit their selection of
products and arrange payment via credit card processing in which the customers’ credit
cards are verified and the amount to pay was put through to the company’s account. An
e-commerce should be able to provide the above-mentioned application to create the
confidence and attract customers.
 Besides functionalities, some other factors also need taking into consideration before
an e-commerce suite is chosen:

- Support for different business models: A business may take part in some different
models. For example, one can start as a B2C community provider but later or at the
same time, it can develop a C2C business model in which members in that “virtual
community” can sell to and buy from one another. So, a suite should be flexible for the
switch of those business models.

- Performance and scalability: There should be a check whether the suite can work
properly during peak periods when thousands of customers visit the page. Customers
buying products via a website want to save time and will never return to that site if they
have difficulties accessing it.

- Connectivity to existing business systems: An e-commerce suite which can operate

in the same or nearly the same condition with the current one will help a company save
some costs in training its staff or re-structuring its system.

- Global and multicultural capability: E-commerce offers chances for a business to

enlarge its market globally. Therefore, an e-commerce should support the addition of
multi-language in the site.

Still, there are other factors such as local sales tax and shipping rules, compliance with
standards, etc. that a manager has to consider when employing an e-commerce
merchant server software suites so that his company can achieve the best results.

Question IV: Explain both the demand side and the supply side considerations when
choosing the hardware platform for an e-commerce site. Include a discussion of I/O-
intensive vs. CPU-intensive operations and scalability.

The demand side: Demand on a Web site is dependent on the type of site, whether it
is for shopping, trading, journal, etc., and sophisticated with many factors including
customer requests, the required security, etc.

- I/O intensive operations, related to the number of simultaneous users visiting a site,
“requires the output/input operations rather than heavy-duty processing power” because
the interaction with the user is not compulsory to maintain and individual user creates
only small load on a server. However, if too many users request service at the same
time, the performance will degrade.

- CPU-intensive operations, related to the nature of content that a site offers, require
heavy work on the processing power because the interaction with the user requires
access to a database. For example, in a search page, when a user enters a keyword,
there is a search within the database so that the appropriate results can appear. This
puts a load on the processor. If there are more activities, it will increase that load and
degrade the performance.

- Besides, the factors of user profile and telecommunications link should be taken into
consideration in the demand side.
 The supply side: After the demand on the site is estimated, scalability, the ability of the
site to increase in size and to become appropriate to that demand, needs considering.
Three steps that can be taken to achieve that purpose include:

- To scale hardware vertically is “to increase the processing power of individual

component” and is often done by adding many processors and memory into one server
and upgrading speeds of the microchip. This scalability is expensive but is not constant.
If the computer fails, the entire site may fail.

- To scale hardware horizontally is to make different computers work together. It is

done by adding processors into many servers and sharing the workload among them. It
is not expensive and can be possibly constant. If one computer fails, another computer
may take the place of its work and the site may function as usual. However, when there
are more computers connected, the management becomes complicated.

- To improve the processing architecture of the site is to combine the horizontal and
vertical scaling. Combining the step of adding RAM to servers (in vertical scaling) with
that of using multiple processor servers (in horizontal scaling) will help save the costs
because RAM is not expensive and the number of servers reduces.

Question V: Discuss the revolution in Internet marketing technologies. What are the
three main broad impacts the Internet has had on marketing?

Thanks to its technologies such as web transaction logs, cookies, web bugs, data
warehouse, data mining, profiling and CRM, which help marketers collect customers’
information and define their needs, Internet marketing has succeeded in enhancing the
positive and long-term relationship between firms and customers.

Three main broad impacts the Internet has had on marketing include:

- Broadening scope of communications: People from the four corners of the world can
connect to the Internet easily, which establishes worldwide marketing communications
and erases any possible borders. Marketers find new ways to promote their products.
For example, Tell-a-friend is a tool which enables customers to recommend a product to
their friends and incidentally, they help “market” that product to a large number of
people.

- Increasing the richness of marketing communication: Messages from marketers

become more eye-catching and persuasive when added with audio and video. By the
live chat room, the customers have the feelings that they are in a real shop where they
can chat with the salesperson and other customers. In addition, thanks to the information
that marketers gather by using cookies or web bugs, they can adjust messages to
individual customers.

- Expanding the information intensity of the marketplace: Based on the analysis of the
recorded information of an individual customer when they are transacting online, the
marketer can identify their behavior and needs so that they can market the exact
products that the customer wants with a specially competitive and satisfactory price.

Question VI: What are the values or benefits of search engine marketing? Describe the
types of search engine marketing that exist.
 Three types of search engine marketing:

- Paid inclusion is the type in which a search engine includes a Web site in their search
index for a fee. By being paid for, the site of a firm is sure to appear on the very first
pages of the result and has more opportunity to be clicked on, thanks to which the site is
ranked higher in results of organic search engines. Search engines like Google, Yahoo,
and Bing often place “Sponsored Links” in the highlighted areas and unpaid ones below
them.

- Keyword advertising is the type in which marketers bid for keywords so that their
advertisement will appear on the page whenever those keywords are searched. Often,
the rank of ads relies on the payments but some search machines combine both factors
of the popularity of the ads and the money paid when ranking them. An example of this
type is the AdWords of Google, http://adwords.google.com.

- Context advertising (network keyword advertising) is the case in which a network of

site publishers accepts to have the search engine place ads on their sites and share the
fee, which is paid by the marketers who want their ads to appear across the web, with
the search engines whenever the links are clicked on. Neither publishers nor marketers
but search engines determine which ads should be placed in which sites via their filters.
AdSense of Google, http://google.com/adsense, with its well-known label “Ads by
Google”, is an example.

Benefits of search engine marketing:

- Search engines have a large number of users, which are equivalent to a large
number of potential customers for marketers, especially those who cannot launch big
marketing campaigns. Marketers can save costs because they only have to pay for ads
that connect to their sites, not for ineffective ones.

- Ads in search engines go with a customer’s needs and interest at the right time.
Whenever they look for a specific product, the list of ads for it appears in front of their
eyes. Because the keywords are used to search and only texts appear, the possible
distractors will be kept to a minimum. Thus, search engines save their time and energy.

Question VII: What are Web transaction logs, and how do they work in combination
with registration forms, shopping cart databases, cookies, and Web bugs to help firms
understand how customers behave online?

A web transaction log is a technology used to gather customers’ activities at a site. It

often works together with some other technologies listed below:

- When customers fill in registration forms to become members of a website, they

provide their personal information such as locations, e-mail address, hobbies, etc.

- When they purchase products, shopping cart databases collect the information of
their choice of products, the amount they have spent, etc.

- Cookies are placed on customers’ computers every time they visit the site and collect
data of the number of visitors, their frequency of visits, etc.
 - Web bugs are tiny graphic, often invisible, file placed in e-mail messages and on
Web sites in order to inform the marketers about the state of the page viewed.

When these technologies are combined, they help marketers identify customers’
detailed data and their online behavior and develop marketing strategy. For instance,
after analyzing the data gathered and knowing the interest of specific customers, the
amount that they are willing to pay, the position they usually pay attention to, marketers
can change the design of their website to give customers the most convenience when
choosing products and encourage them to buy those with high profit margins. Also,
marketers can send e-mails to recommend their products and soon receive feedback
whether the customers are keen on them or not. Knowing where customers come from
and cultural differences, marketers can avoid embarrassing or even offending their
customers and recommend the relevant products.

Question VIII: Discuss the various online marketing communications efforts that exist
through the use of sponsorship and affiliate deals.

The online marketing communications efforts to build customer relationship, create

brand and increase sales can be seen via the use of sponsorship and affiliate marketing.

Sponsorship, in general, is an act of supporting a particular event, program or

information as a way of advertising. Paying those costs, an advertiser’s intention is to
attach their brand with meaningful activities and strengthen it but at the same time, they
do not want the customers to have negative feelings that they are publicly making
commercials. Therefore, the ad message in sponsorship is combined with editorial
content so that it becomes meaningful and attracts customers. The customers, when
buying products, want to help the producers contribute to good activities. By that way, a
long-term relationship is built between the producers and the customers. That is the
reason why advertisers go on using sponsorships in their campaign although it does not
usually increase sales immediately. An example of sponsorships is the ad of Bank of
America in a box named “Support WWF” at http://www.worldwildlife.org/. In this case,
the bank has its brand known for protecting wildlife, builds the relationship with
customers who want to support the organization and gains profits from them months
later.

Affiliate relationship marketing is a practice in which a firm can place its link on another
firm’s website (the affiliate) from which users of the affiliate can click through to its site.
The affiliates receive fees or percentage of revenues from any successful sales. By this
marketing practice, the firm reinforces its brand as customers have the impression of
their popularity. Also, the chances of obtaining successful sales and enlarging the
market increase because customers have interest and want to buy when they click on
the link. In some cases, the affiliate belongs to a group which aims to make full use of its
Web sites and places links in its “children’s”. In other cases, the affiliate wants to make
their customers convenient and helps them easily find complementary products which
are not available on their site, so they place a link of another firm on it. Amazon, as the
originating site, is famous for its logos which appear on millions of sites. Mypoints.com,
as the affiliate, is known for its plentiful and effective connections between firms and
their potential customers.