Management Information Systems - Managing the Digital Firm 16th Edition 2020

368 Part Three  Key System Applications for the Digital Age

Clemens Food Group Delivers with
New Enterprise Applications

CASE STUDY platform for systems to optimize its supply network
and improve scheduling, optimization, and margin vis-
Clemens Food Group is known for helping ibility in its multi-business operations. The plan gained
its customers bring home the bacon, and steam in 2014 when Clemens Food announced it would
other products as well. Based in Hatfield, develop a third pork processing plant comprising
Pennsylvania, Clemons Food is a vertically coor- 550,000 square feet in Coldwater Township, Michigan.
dinated company that includes antibiotic-free hog The addition of this facility could significantly increase
farming, food production, logistical services, and volume and double revenue if it was backed by a more
transportation. Using a responsive pork produc- modern IT platform. Clemens Food’s existing ERP sys-
tion system, the company focuses on supplying the tem needed to be replaced by one that could handle
highest-quality products to its partners as well as ad- increased volume and multi-plant complexities.
vanced solutions that simplify partners’ operations.
Joshua Rennells, Senior Vice President at Clemens
The Clemens Food Group family of services and Food Group, and his team extensively researched new
brands include pork product producers Hatfield technologies. A key requirement was to use proven
Quality Meats and Nick’s Sausage Company, as well best technology for what works in the perishable food
as logistics and transportation firms (PV Transport), industry. Where there is market volatility and inher-
and CFC Logistics Country View Family Farms, a hog ent risks in selling a perishable product, precise in-
procurement and production company managing formation on yields and costs is especially important.
over 100 family farms raising hogs under contract. Clemens Food believed SAP software was the best so-
Clemons Food Group products are sold by grocers lution for helping the company achieve growth targets
and food service operators in the northeastern and share data across organizational boundaries with
and mid-Atlantic regions of the United States. The a fully integrated state-of-the-art system, and Rennells
Clemens Food Group raises and processes about five believed that the SAP S/4HANA platform would not
million hogs per year, managing procurement, pro- require another significant upgrade for 15 years.
duction, and logistics services from birth to finished
food products. Clemens has 3,350 employees. SAP S/4HANA is a business suite that is based
on the SAP HANA in-memory computing platform.
For a company in the perishable goods industry It features enterprise resource planning software
such as Clemens Food to be profitable, it must have a meant to cover all day-to-day processes of an enter-
firm grasp on the timeliness and accuracy of orders prise and also integrates portions of SAP Business
and very precise information about the status of its Suite products for customer relationship manage-
products and warehouse activities throughout its ment, supplier relationship management, and supply
network of farms and production facilities. Accuracy chain management. SAP S/4HANA is available in on-
in determining yields, costs, and prices in a wildly premises, cloud, and hybrid computing platforms.
fluctuating market can make a difference of millions
of dollars. Unfortunately, Clemens Food’s legacy sys- Rather than implement the new system incre-
tems were no longer able to keep up with production mentally, Clemens Food chose to implement SAP
and support future growth. Management realized the S/4HANA Finance, along with functionality for ma-
company needed a new platform to provide better terials management and production planning in a
visibility into production, more efficient planning, sweeping “big-bang” approach across the enterprise.
and tighter control of available-to-promise processes. The new system needed to be operational in time
(Available-to-promise [ATP] provides a response for the opening of the Coldwater plant. According to
to customer order inquiries, generating available Rennells, Clemens Food had used a phased approach
quantities of the requested product and delivery due for its previous ERP implementation 15 years ear-
dates.) Clemens Food also wanted real-time informa- lier. That prior rollout ended up taking several years
tion about plant profitability, including daily profit- and resulted in heavy customization. By the time
ability margins on an order-by-order basis. Clemens Food migrated to SAP S/4HANA, its legacy
ERP system was linked to more than 70 applications.
In 2010, Clemens Food created a five-year plan to
modernize its IT infrastructure with an integrated

Chapter 9  Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 369

Taking a big-bang approach was the only way to be Coldwater facility began operations. There were no
up and running before the Coldwater plant went live. business disruptions. To avoid disruption of produc-
tion or shipping capabilities, the company had built in
Being in the perishables industry made it impera- some planned downtime for production to address any
tive for Clemens Food to have master data in place issues with shipping or procurement, which are tied
when the new system went live to avoid disruptions to the Coldwater plant’s main distribution system. The
to production or shipping capabilities. (Master data planned downtime also ensured that any master data
play a key role in the core operation of a business, flaws potentially discovered through testing would be
such as data about customers, employees, inventory, cleaned up and master data would be in place before
or suppliers, and are typically shared by multiple the system actually went live. Management had antici-
users and groups across an organization.) The master pated it would take about six months to stabilize the
data in Clemens Food’s legacy system had quite a new system, and that turned out to be accurate.
few flaws that showed up in testing. Clemens Food
needed a rigorous master data cleansing effort. Sales forecasting in the meat-processing industry
has unique challenges because of the many variables
Clemens Food selected itelligence Group imple- from dealing with perishable products, raw material
mentation consultants to help with its master data and by-p­ roducts, and seasonality considerations. Every
other migration issues. itelligence Group is a global Thursday, Clemens Food had run a sales report on its
SAP Platinum Partner with over 25 years of experience. old legacy system that showed the previous week’s
It offers a full range of services from implementation sales. Information about actual profitability was delayed.
consulting to managed services for its clients. Clemens Now, the company can measure profitability on an
Food Group identified itelligence as a partner with deep invoice-by-invoice basis, and it knows the profitability
SAP food-specific knowledge and experience, includ- of each order right away. Prices change daily in the per-
ing fresh and processed meat. itelligence Group had ishable food business, so the importance of having real-
a proprietary Hog Procurement solution available for time information about profitability can’t be overstated.
Clemens that helped deliver an on-time and on-­budget
project with minimal disruption to the business. Deeper insights and visibility from the new sys-
tem have improved customer service. With available-
itelligence Group had experience guiding other to-promise processes running on SAP S/4HANA and
meat-processing companies through similar large- with SAP S/4HANA integrated with the company’s
scale implementations. Rennells wanted itelligence warehouse management system, Clemens Food can
to act as business process experts to help Clemens assure customers placing a phone order whether
Food re-examine the way it did things. Clemens Food there is inventory available. In the pork industry,
followed itelligence’s suggestions about modifica- this can be an extremely complicated task, since
tions, budget management, the overall testing cycle, a single hog can be broken down into hundreds of
and the philosophy of implementation. by-products. Before implementing SAP S/4HANA,
Clemens Food was able to provide the same assur-
One especially valuable piece of project guidance ance only when an order was ready for shipment.
from itelligence was to encourage project members
to see the implementation as being led by the busi- Once the new system is fully stabilized, Clemens
ness rather than just an IT project. Clemens Foods Food plans a reporting upgrade, using SAP HANA Live
started out with the project being IT-led, but after views with its existing SAP BusinessObjects Business
five months assigned internal leaders of the business Intelligence suite. The company now has a single
to be the project leads. That switch forced the proj- “source of truth,” and data are integrated, whereas in
ect team to be more objective through all the differ- the past it had to deal with similar data spread over
ent testing phases. After each testing cycle, they had multiple systems. With a single source of truth and
objective scoring from the dedicated team leads who the ability to put information at people’s fingertips,
viewed the project as a business process improve- Clemens Foods can create dashboards and focus on
ment. That helped the project team move closer to a making reporting far simpler than it’s ever been.
finished product, rather than waiting until going live
to find out it missed the mark. Including the busi- Sources: Ken Murphy, “Clemens Food Group Corrals the Power
ness as equal partners when updates were instituted of the Digital Core,” SAP Insider, January 24, 2018; www.­
helped ensure that customizations were avoided. itelligencegroup.com, accessed March 27, 2018; “Clemens Food
Group LLC,” www.vault.com, accessed March 27, 2018; and www.
Two Clemens Food production plants went live on clemensfoodgroup.com, accessed March 27, 2018.
SAP S/4HANA in May 2017, three months before the

370 Part Three  Key System Applications for the Digital Age

CASE STUDY QUESTIONS 9-15 Was SAP S/4HANA a good solution for
Clemens Food Group? Explain your answer.
9-13 Why would supply chain management be so
important for Clemens Food Group? 9-16 What management, organization, and technol-
ogy issues had to be addressed to implement
9-14 What problem was the company facing? What SAP S/4HANA at Clemens Food Group?
management, organization, and technology
factors contributed to the problem?

MyLab MIS

Go to the Assignments section of MyLab MIS to complete these writing exercises.

9-17 What are three reasons a company would want to implement an enterprise resource planning (ERP)
s­ ystem and two reasons it might not want to do so?

9-18 What are the sources of data for analytical CRM systems? Provide three examples of outputs from ana-
lytical CRM systems.

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Chapter 9  Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 371

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CHAPTER 10 E-commerce: Digital Markets,
Digital Goods

LEARNING OBJECTIVES CHAPTER CASES

After reading this chapter, you will be able to YouTube Transforms the Media Landscape
answer the following questions: Uber: Digital Disruptor
“Socializing” with Customers
10-1 What are the unique features of A Nasty Ending for Nasty Gal
e-commerce, digital markets, and
digital goods? VIDEO CASES

10-2 What are the principal e-commerce Walmart Takes On Amazon: A Battle of IT
business and revenue models? and Management Systems

10-3 How has e-commerce transformed Groupon: Deals Galore
marketing? Etsy: A Marketplace and Community

10-4 How has e-commerce affected Instructional Videos:
business-to-business transactions? Walmart’s E-commerce Fulfillment Center

10-5 What is the role of m-commerce Network
in business, and what are the most Behind the Scenes of an Amazon Warehouse
important m-commerce applications?

10-6 What issues must be addressed when
building an e-commerce presence?

10-7 How will MIS help my career?

MyLab MIS

Discussion Questions: 10-7, 10-8, 10-9; Hands-on MIS Projects: 10-10, 10-11, 10-12, 10-13;
Writing Assignments: 10-18, 10-19; eText with Conceptual Animations

372

Youtube Transforms the Media Landscape

The first video posted on YouTube was a 19-second clip from 2005 of one © Bloomicon/Shutterstock
of the company’s founders standing in front of the San Diego Zoo ele-
phant cage. Who would have thought that the online video-sharing ser-
vice would mushroom into the world’s second most popular website, with more
than 1.8 billion monthly users? YouTube viewers worldwide now watch more
than 5 ­billion YouTube videos per day. Three hundred hours of video are up-
loaded to YouTube every minute.

YouTube allows users to view, rate, share, add to favorites, report, and com-
ment on videos and subscribe to other users’ video channels. Although hundreds
of millions of people love to post YouTube videos of their growing children,
dogs, and cats, YouTube offers much more: clips from major motion pictures
and TV shows, music videos, sports videos, videos from companies promot-
ing their brands, and numerous “how-to”
videos about home repair, gardening, and
computer troubleshooting. Most YouTube
content has been uploaded by individuals,
but media corporations such as CBS, the
BBC, Vevo, and Hulu offer some of their
material via YouTube as part of a partner-
ship program.

YouTube maintains very large databases
for video content and tracking the behav-
ior of its users. It carefully mines data to
give each user personalized video recom-
mendations that will entice that person
to watch longer. There are so many eye-
balls affixed to YouTube—it’s a gold mine
for marketers, and YouTube content gets
richer by the minute. More than half of
YouTube views come from mobile devices.

YouTube was purchased by Google in
2006 and benefits from Google’s enormous reach, since Google handles about
80 percent of global Internet searches. YouTube revenue comes from ads ac-
companying videos that are targeted to site content and audiences. YouTube
also offers subscription-based premium channels, film rentals, and a subscrip-
tion service called YouTube Red that provides ad-free access to the website and
some exclusive content. It is unclear if YouTube is actually profitable at this
point. Experts believe that annual costs for running and maintaining YouTube
exceed $6 billion.

Once known as a magnet for pirated video, YouTube has been embraced by
Hollywood and the entertainment world. Almost every movie trailer or music

373

374 Part Three  Key System Applications for the Digital Age

video is released onto YouTube; all major sports leagues upload highlights
there; and networks supplement traditional programming with videos that can
be shared, like the talk show host James Corden’s “Carpool Karaoke” series.
YouTube has become a major destination entertainment site, and it is about to
alter the media landscape even further.

YouTube has joined services targeting consumers who want to give up cable
or satellite TV without losing access to live television. In early 2017, YouTube
announced a subscription service called YouTube TV. For $40 per month, the
service offers more than 60 channels, including the major networks, FX, ESPN,
and the Disney Channel, as well as the ability to store an unlimited number of
programs on a cloud-based digital video recorder for up to six accounts. YouTube
TV subscribers will be able to watch content on any platform, including PCs,
tablets, smartphones, and big-screen TVs.

After the cost of acquiring all this television content is considered, Google
may not make much on YouTube TV subscription revenue. That’s fine right
now, because Google is using YouTube TV to break into the television advertis-
ing market, selling targeted advertising in ad slots that typically went to cable
operators. In the long term, that could be significant: Roughly $70 billion is
spent annually in the United States on TV ads.

Sources: David Pierce, “Why You Should Cut Cable—and What You’ll Miss,” Wall Street
Journal, February 14, 2018; Douglas MacMillan, “Investors Want More Transparency about
YouTube’s Sales, Profit,” Wall Street Journal, April 10, 2018; “37 Mind Blowing YouTube Facts,
Figures and Statistics—2018,” MerchDope, August 4, 2018; www.tv.youtube.com, accessed
July 30, 2018; Jack Nicas, “YouTube Tops 1 Billion Hours of Video a Day, on Pace to Eclipse
TV,” Wall Street Journal, February 27, 2017; Jack Nicas and Shalini Ramachandran, “Google’s
YouTube to Launch $35-a-Month Web-TV Service,” Wall Street Journal, February 28, 2017; and
Peter Kafka and Rani Molla, “2017 Was the Year Digital Ad Spending Finally Beat TV,” Recode,
December 4, 2017.

YouTube exemplifies some of the major trends in e-commerce today. It
does not sell a product, it sells an innovative service, as e-commerce busi-
nesses are increasingly trying to do. YouTube’s service delivers streaming video
content either for free (supported by advertising) or by subscription, and also
enables users to upload and store their own videos. YouTube makes use of
advanced data mining and search technology to generate revenue from adver-
tising. YouTube is “social,” linking people to each other through their shared
interests and fascination with video. And it is mobile: YouTube can be viewed
on smartphones and tablets as well as conventional computers and TV screens,
and more than half of YouTube views are on mobile devices.

The chapter-opening diagram calls attention to important points raised by
this case and this chapter. YouTube’s primary business challenge is how to take
advantage of opportunities presented by the Internet and new developments in
search and data mining technology to wring profits from the billions of videos it
streams to viewers. Obviously YouTube had to make major investments in tech-
nology to support video uploads and downloads, gigantic databases of videos
and users, tagging images, and social networking tools. YouTube generates rev-
enue from ads targeted to video viewers and from subscriptions to its streaming
content services, including its new lineup of major TV channels. It is unclear

Chapter 10  E-commerce: Digital Markets, Digital Goods 375

• Design business Management Business
and revenue model Challenges
• Opportunities presented
by new technology

• Maintain social Organization Information Business
networks Technology System Solutions

• Partner with Video Content Serving • Increase revenue
content providers Platform
• Personalize streaming video
• Databases • Piggyback advertising
• Social networking • Provide content subscription

tools service
• Data mining
• Video streaming

whether YouTube has achieved long-term profitability, but it is very valuable to
Google as another outlet for its advertising.

Here are some questions to think about: How does YouTube provide value?
Why is YouTube an expensive business to operate? Is it a viable business model?
Why or why not?

10-1 What are the unique features of e-commerce,

digital markets, and digital goods?

In 2019, purchasing goods and services online by using smartphones, tablets, and
desktop computers is ubiquitous. In 2019, an estimated 224 million Americans
(about 92 percent of the Internet population) will shop online, and 195 million
will purchase something online, as did millions of others worldwide. Although
most purchases still take place through traditional channels, e-commerce con-
tinues to grow rapidly and to transform the way many companies do business
(eMarketer, 2018h). E-commerce is composed of three major segments: retail
goods, travel and services, and online content. In 2019, e-commerce consumer
sales of goods ($598 billion), travel and services ($213 billion), and online con-
tent ($23 billion) will total about $830 billion. Sales of retail goods alone will
be about 11 percent of total U.S. retail sales of $5.9 trillion, and are growing at
12 percent annually (compared with 3.3 percent for traditional retailers) (eMar-
keter, 2018e; 2018c). E-commerce is still a small part of the much larger retail
goods market that takes place in physical stores. E-commerce has expanded
from the desktop and home computer to mobile devices, from an isolated ac-
tivity to a new social commerce, and from a Fortune 1000 commerce with a na-
tional audience to local merchants and consumers whose location is known to
mobile devices. At the top 100 e-commerce retail sites, more than half of online
shoppers arrive from their smartphones, and 48 percent of e-commerce sales
are now mobile, while 52 percent of purchases occur on the desktop. The key
words for understanding this new e-commerce in 2019 are “social, mobile, local”
(eMarketer, 2018d).

376 Part Three  Key System Applications for the Digital Age

E-commerce Today

E-commerce refers to the use of the Internet and the web to transact business.
More formally, e-commerce is about digitally enabled commercial transactions
between and among organizations and individuals. For the most part, this re-
fers to transactions that occur over the Internet and the web. Commercial trans-
actions involve the exchange of value (e.g., money) across organizational or
individual boundaries in return for products and services.

E-commerce began in 1995 when one of the first Internet portals,
Netscape.com, accepted the first ads from major corporations and popular-
ized the idea that the web could be used as a new medium for advertising
and sales. No one envisioned at the time what would turn out to be an expo-
nential growth curve for e-commerce retail sales, which doubled and tripled
in the early years. E-commerce grew at double-digit rates until the r­ ecession
of 2008–2009, when growth slowed to a crawl and revenues flattened (see
Figure  10.1), which is not bad considering that traditional retail sales were
shrinking by 5 percent annually. Since then, offline retail sales have in-
creased only a few percentage points a year, whereas online e-commerce has
been a stellar success.

The very rapid growth in e-commerce in the early years created a market
bubble in e-commerce stocks, which burst in March 2001. A large number of
e-commerce companies failed during this process. Yet for many others, such
as Amazon, eBay, Expedia, and Google, the results have been more positive:
soaring revenues, fine-tuned business models that produce profits, and rising
stock prices. By 2006, e-commerce revenues returned to solid growth and have
continued to be the fastest-growing form of retail trade in the United States,
Europe, and Asia.

• Online consumer sales (including travel and digital content) will grow to
an estimated $830 billion in 2019, an increase of more than 12 percent over
2018 with 195 million people purchasing online and an additional 224 million
shopping and gathering information but not purchasing (eMarketer, 2017b).

FIGURE 10.1 THE GROWTH OF E-COMMERCE

Retail e-commerce revenues grew 15–25 percent per year until the recession of 2008–2009,
when they slowed measurably. In 2018, e-commerce revenues grew at an estimated 12 percent
annually. 

Sources: Based on data from eMarketer, “US Retail Ecommerce Sales, 2018–2022,” 2018c; eMarketer, “US Digital Travel Sales, 2018–2022,” 2018a; and
eMarketer chart, “US Mobile Downloads and In-App Revenues, 2013–2017,” 2017a.

Growth in E-Commerce B2C Revenue (billions)

B2C Revenues (Billions USD)1200.0
19951000.0
1996
1997800.0
1998600.0
1999400.0
2000200.0
2001
20020.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

Year

Chapter 10  E-commerce: Digital Markets, Digital Goods 377

The Internet influences more than $2 trillion in retail commerce that takes
place in physical stores, about 40 percent of all retail sales.

• The number of individuals of all ages online in the United States is expected
to grow to 279 million in 2018, up from 147 million in 2004. In the world,
more than 3.7 billion people are now connected to the Internet. Growth in
the overall Internet population has spurred growth in e-commerce (Internet
World Stats, 2018).

• Approximately 106 million U.S. households will have broadband access to the
Internet in 2018, representing about 82 percent of all households.

• About 232 million Americans will access the Internet by using a smart-
phone in 2019. Mobile e-commerce has begun a rapid growth based on apps,
ringtones, downloaded entertainment, and location-based services. Mobile
e-commerce will account for about $267 billion in 2019, 44 percent of all
e-commerce. Mobile phones and tablets are becoming the most common
Internet access device. Currently, more than 80 percent of all mobile phone
users access the Internet using their phones, although they also use their
desktops (eMarketer, 2018b).

• B2B e-commerce (use of the Internet for business-to-business commerce and
collaboration among business partners) expanded to more than $7.7 trillion.
Table 10.1 highlights these new e-commerce developments.

The New E-commerce: Social, Mobile, Local

One of the biggest changes is the extent to which e-commerce has become more
social, mobile, and local. Online marketing once consisted largely of creating
a corporate website, buying display ads on Yahoo, purchasing search-related
ads on Google, and sending email messages. The workhorse of online market-
ing was the display ad. It still is, but it’s increasingly being replaced by video
ads, which are far more effective. Display ads from the very beginning of the
Internet were based on television ads, where brand messages were flashed be-
fore millions of users who were not expected to respond immediately, ask ques-
tions, or make observations. If the ads did not work, the solution was often to
repeat the ad. The primary measure of success was how many eyeballs (unique
visitors) a website produced and how many impressions a marketing campaign
generated. (An impression was one ad shown to one person.) Both of these
measures were carryovers from the world of television, which measures mar-
keting in terms of audience size and ad views.

From Eyeballs to Conversations: Conversational Commerce

After 2007, all this changed with the rapid growth of Facebook and other social
sites, the explosive growth of smartphones beginning with the Apple iPhone,
and the growing interest in local marketing. What’s different about the new
world of social-mobile-local e-commerce is the dual and related concepts of
conversations and engagement. In the popular literature, this is often referred
to as conversational commerce. Marketing in this new period is based on firms
engaging in multiple online conversations with their customers, potential cus-
tomers, and even critics. Your brand is being talked about on the web and social
media (that’s the conversation part), and marketing your firm, building, and
restoring your brands require you to locate, identify, and participate in these
conversations. Social marketing means all things social: listening, discussing,
interacting, empathizing, and engaging. The emphasis in online marketing has
shifted from a focus on eyeballs to a focus on participating in customer-oriented
conversations. In this sense, social marketing is not simply a new ad channel

378 Part Three  Key System Applications for the Digital Age

TABLE 10.1 THE GROWTH OF E-COMMERCE

BUSINESS TRANSFORMATION

E-commerce remains the fastest-growing form of commerce when compared to physical retail stores, services, and
entertainment. Social, mobile, and local commerce have become the fastest-growing forms of e-commerce.
The breadth of e-commerce offerings grows, especially in the services economy of social networking, travel, entertainment,
retail apparel, jewelry, appliances, and home furnishings.
The online demographics of shoppers broaden to match that of ordinary shoppers.
Pure e-commerce business models are refined further to achieve higher levels of profitability, and traditional retail firms, such as
Walmart, JCPenney, L.L.Bean, and Macy’s, are developing omnichannel business models to strengthen their dominant physical
retail assets. Walmart, the world’s largest retailer, has decided to take on Amazon with a more than $1 billion investment in its
e-commerce efforts.
Small businesses and entrepreneurs continue to flood the e-commerce marketplace, often riding on the infrastructures
created by industry giants, such as Amazon, Apple, and Google, and increasingly taking advantage of cloud-based computing
resources.
Mobile e-commerce has taken off in the United States with location-based services and entertainment downloads, including
e-books, movies, music, and television shows. Mobile e-commerce will generate more than $267 billion in 2019.

TECHNOLOGY FOUNDATIONS

Wireless Internet connections (Wi-Fi, WiMax, and 4G smartphones) continue to expand.
Powerful smartphones and tablet computers provide access to music, web surfing, and entertainment as well as voice
communication. Podcasting and streaming take off as platforms for distribution of video, radio, and user-generated content.
Mobile devices expand to include wearable computers such as Apple Watch and Fitbit trackers.
The Internet broadband foundation becomes stronger in households and businesses as communication prices fall.
Social networking apps and sites such as Facebook, Twitter, LinkedIn, Instagram, and others seek to become a major new
platform for e-commerce, marketing, and advertising. Facebook has 2.2 billion users worldwide and 214 million in the United
States (Facebook, 2018).
Internet-based models of computing, such as smartphone apps, cloud computing, software as a service (SaaS), and database
software greatly reduce the cost of e-commerce websites.

NEW BUSINESS MODELS EMERGE

More than 70 percent of the Internet population has joined an online social network, created blogs, and shared photos and
music. Together, these sites create an online audience as large as that of television that is attractive to marketers. In 2018,
social networking will account for an estimated 15 percent of online time. Social sites have become the primary gateway to the
Internet in news, music, and, increasingly, products and services. (eMarketer, 2018f)
The traditional advertising industry is disrupted as online advertising grows twice as fast as TV and print advertising; Google,
Yahoo, and Facebook display more than 1 trillion ads a year.
On-demand service e-commerce sites such as Uber, Lyft, and Airbnb extend the market creator business model (on-demand
model) to new areas of the economy.
Newspapers and other traditional media adopt online, interactive models but are losing advertising revenues to the online
players despite gaining online readers. The New York Times succeeds in capturing more than 2.8 million subscribers, growing at
25 percent annually and adding 400,000 new digital subscribers in 2018. Book publishing continues to grow slowly at 5 percent
because of the growth in e-books and the continuing appeal of traditional books.
Online entertainment business models offering television, movies, music, and games grow with cooperation among the major
copyright owners in Hollywood and New York and with Internet distributors such as Apple, Amazon, Google, YouTube, and
Facebook. Increasingly, the online distributors are moving into movie and TV production. Cable television is in modest decline,
as some viewers cut or reduce their cable subscriptions and rely on Internet-based alternatives such as Roku or YouTube TV.

but a collection of technology-based tools for communicating with shoppers.
The leading social commerce platforms are Facebook, Instagram, Twitter, and
Pinterest.

In the past, firms could tightly control their brand messaging and lead con-
sumers down a funnel of cues that ended in a purchase. That is not true of
social marketing. Consumer purchase decisions are increasingly driven by the

Chapter 10  E-commerce: Digital Markets, Digital Goods 379

conversations, choices, tastes, and opinions of their social network. Social mar-
keting is all about firms participating in and shaping this social process.

From the Desktop to the Smartphone

Traditional online marketing (browser-based, search, display ads, video ads,
email, and games) still constitutes the majority (58 percent) of all online mar-
keting ($107 billion), but it’s growing much more slowly than social-mobile-­local
marketing. Mobile marketing now constitutes 70 percent of all online market-
ing. The marketing dollars are following customers and shoppers from the PC
to mobile devices (eMarketer, 2018g)

Social, mobile, and local e-commerce are connected. As mobile devices be-
come more powerful, they are more useful for accessing Facebook and other
social sites. As mobile devices become more widely adopted, customers can use
them to find local merchants, and merchants can use them to alert customers
in their neighborhood of special offers.

Why E-commerce Is Different

Why has e-commerce grown so rapidly? The answer lies in the unique nature
of the Internet and the web. Simply put, the Internet and e-commerce technol-
ogies are much richer and more powerful than previous technology revolutions
such as radio, television, and the telephone. Table 10.2 describes the unique
features of the Internet and web as a commercial medium. Let’s explore each of
these unique features in more detail.

Ubiquity

In traditional commerce, a marketplace is a physical place, such as a retail
store, that you visit to transact business. E-commerce is ubiquitous, meaning

TABLE 10.2 EIGHT UNIQUE FEATURES OF E-COMMERCE TECHNOLOGY

E-COMMERCE TECHNOLOGY DIMENSION BUSINESS SIGNIFICANCE

Ubiquity. Internet/web technology is available The marketplace is extended beyond traditional boundaries and is
everywhere: at work, at home, and elsewhere by removed from a temporal and geographic location. Marketspace
desktop and mobile devices. Mobile devices extend is created; shopping can take place anytime, anywhere. Customer
service to local areas and merchants. convenience is enhanced, and shopping costs are reduced.
Global Reach. The technology reaches across national
boundaries, around the earth. Commerce is enabled across cultural and national boundaries
seamlessly and without modification. The marketspace includes,
Universal Standards. There is one set of technology potentially, billions of consumers and millions of businesses worldwide.
standards, namely Internet standards.
Richness. Video, audio, and text messages are With one set of technical standards across the globe, disparate
possible. computer systems can easily communicate with each other.
Interactivity. The technology works through interaction
with the user. Video, audio, and text marketing messages are integrated into a single
marketing message and consumer experience.
Information Density. The technology reduces
information costs and raises quality. Consumers are engaged in a dialogue that dynamically adjusts the
experience to the individual and makes the consumer a participant in
Personalization/Customization. The technology the process of delivering goods to the market.
allows personalized messages to be delivered to
individuals as well as to groups. Information processing, storage, and communication costs drop
Social Technology. The technology supports dramatically, whereas currency, accuracy, and timeliness improve
content generation and social networking. greatly. Information becomes plentiful, cheap, and more accurate.

Personalization of marketing messages and customization of products
and services are based on individual characteristics.

New Internet social and business models enable user content creation
and distribution and support social networks.

380 Part Three  Key System Applications for the Digital Age

that it is available just about everywhere all the time. It makes it possible to
shop from your desktop, at home, at work, or even from your car, using smart-
phones. The result is called a marketspace—a marketplace extended beyond
traditional boundaries and removed from a temporal and geographic location.

From a consumer point of view, ubiquity reduces transaction costs—the
costs of participating in a market. To transact business, it is no longer necessary
to spend time or money traveling to a market, and much less mental effort is
required to make a purchase.

Global Reach

E-commerce technology permits commercial transactions to cross cultural and
national boundaries far more conveniently and cost effectively than is true in
traditional commerce. As a result, the potential market size for e-commerce
merchants is roughly equal to the size of the world’s online population (esti-
mated to be more than 3 billion).

In contrast, most traditional commerce is local or regional—it involves local
merchants or national merchants with local outlets. Television, radio stations,
and newspapers, for instance, are primarily local and regional institutions with
limited, but powerful, national networks that can attract a national audience
but not easily cross national boundaries to a global audience.

Universal Standards

One strikingly unusual feature of e-commerce technologies is that the technical
standards of the Internet and, therefore, the technical standards for conducting
e-commerce are universal standards. All nations around the world share them
and enable any computer to link with any other computer regardless of the
technology platform each is using. In contrast, most traditional commerce tech-
nologies differ from one nation to the next. For instance, television and radio
standards differ around the world, as does cellular telephone technology.

The universal technical standards of the Internet and e-commerce greatly
lower market entry costs—the cost merchants must pay simply to bring their
goods to market. At the same time, for consumers, universal standards reduce
search costs—the effort required to find suitable products.

Richness

Information richness refers to the complexity and content of a message.
Traditional markets, national sales forces, and small retail stores have great
richness; they can provide personal, face-to-face service, using aural and vi-
sual cues when making a sale. The richness of traditional markets makes them
powerful selling or commercial environments. Prior to the development of
the web, there was a trade-off between richness and reach; the larger the audi-
ence reached, the less rich the message. The web makes it possible to deliver
rich messages with text, audio, and video simultaneously to large numbers of
people.

Interactivity

Unlike any of the commercial technologies of the twentieth century, with the
possible exception of the telephone, e-commerce technologies are interactive,
meaning they allow for two-way communication between merchant and con-
sumer and peer-to-peer communication among friends. Television, for instance,
cannot ask viewers any questions or enter conversations with them, and it can-
not request customer information to be entered on a form. In contrast, all these
activities are possible on an e-commerce website or mobile app. Interactivity

Chapter 10  E-commerce: Digital Markets, Digital Goods 381

allows an online merchant to engage a consumer in ways similar to a face-
to-face experience but on a massive, global scale.

Information Density

The Internet and the web vastly increase information density—the total
amount and quality of information available to all market participants, consum-
ers, and merchants alike. E-commerce technologies reduce information collec-
tion, storage, processing, and communication costs while greatly increasing the
currency, accuracy, and timeliness of information.

Information density in e-commerce markets make prices and costs more
transparent. Price transparency refers to the ease with which consumers can
find out the variety of prices in a market; cost transparency refers to the abil-
ity of consumers to discover the actual costs merchants pay for products.

There are advantages for merchants as well. Online merchants can discover
much more about consumers than in the past. This allows merchants to seg-
ment the market into groups that are willing to pay different prices and permits
the merchants to engage in price discrimination—selling the same goods,
or nearly the same goods, to different targeted groups at different prices. For
instance, an online merchant can discover a consumer’s avid interest in expen-
sive, exotic vacations and then pitch high-end vacation plans to that consumer
at a premium price, knowing this person is willing to pay extra for such a va-
cation. At the same time, the online merchant can pitch the same vacation
plan at a lower price to a more price-sensitive consumer. Information density
also helps merchants differentiate their products in terms of cost, brand, and
quality.

Personalization/Customization

E-commerce technologies permit personalization. Merchants can target their
marketing messages to specific individuals by adjusting the message to a per-
son’s clickstream behavior, name, interests, and past purchases. The technol-
ogy also permits customization—changing the delivered product or service
based on a user’s preferences or prior behavior. Given the interactive nature of
e-­commerce technology, much information about the consumer can be gath-
ered in the marketplace at the moment of purchase. With the increase in in-
formation density, a great deal of information about the consumer’s past pur-
chases and behavior can be stored and used by online merchants.

The result is a level of personalization and customization unthinkable with
traditional commerce technologies. For instance, you may be able to shape
what you see on television by selecting a channel, but you cannot change the
content of the channel you have chosen. In contrast, online news outlets such
as the Wall Street Journal Online allow you to select the type of news stories you
want to see first and give you the opportunity to be alerted when certain events
happen.

Social Technology: User Content Generation and
Social Networking

In contrast to previous technologies, the Internet and e-commerce technologies
have evolved to be much more social by allowing users to create and share with
their friends (and a larger worldwide community) content in the form of text,
videos, music, or photos. By using these forms of communication, users can
create new social networks and strengthen existing ones.

All previous mass media, including the printing press, use a broadcast model
(one-to-many) in which content is created in a central location by experts

382 Part Three  Key System Applications for the Digital Age

(professional writers, editors, directors, and producers), with audiences concen-
trated in huge numbers to consume a standardized product. The new Internet
and e-commerce empower users to create and distribute content on a large scale
and permit users to program their own content consumption. The Internet pro-
vides a unique many-to-many model of mass communications.

Key Concepts in E-commerce: Digital Markets
and Digital Goods in a Global Marketplace

The location, timing, and revenue models of business are based in some part
on the cost and distribution of information. The Internet has created a digital
marketplace where millions of people all over the world can exchange massive
amounts of information directly, instantly, and free. As a result, the Internet
has changed the way companies conduct business and increased their global
reach.

The Internet reduces information asymmetry. An information asymmetry
exists when one party in a transaction has more information that is impor-
tant for the transaction than the other party. That information helps determine
their relative bargaining power. In digital markets, consumers and suppliers
can see the prices being charged for goods, and in that sense, digital markets
are said to be more transparent than traditional markets.

For example, before automobile retailing sites appeared on the web, there
was significant information asymmetry between auto dealers and customers.
Only the auto dealers knew the manufacturers’ prices, and it was difficult for
consumers to shop around for the best price. Auto dealers’ profit margins de-
pended on this asymmetry of information. Today’s consumers have access to a
legion of websites providing competitive pricing information, and three-fourths
of U.S. auto buyers use the Internet to shop around for the best deal. Thus, the
web has reduced the information asymmetry surrounding an auto purchase.
The Internet has also helped businesses seeking to purchase from other busi-
nesses reduce information asymmetries and locate better prices and terms.

Digital markets are very flexible and efficient because they operate with
reduced search and transaction costs, lower menu costs (merchants’ costs
of changing prices), greater price discrimination, and the ability to change
prices dynamically based on market conditions. In dynamic pricing, the
price of a product varies depending on the demand characteristics of the cus-
tomer or the supply situation of the seller. For instance, online retailers from
Amazon to Walmart change prices on thousands of products based on time
of day, demand for the product, and users’ prior visits to their sites. Using
big data analytics, some online firms can adjust prices at the individual level
based on behavioral targeting parameters such as whether the consumer is
a price haggler (who will receive a lower price offer) versus a person who
accepts offered prices and does not search for lower prices. Prices can also
vary by zip code. Uber, along with other ride services, uses surge pricing to
adjust prices of a ride based on demand (which always rises during storms
and major conventions).

These new digital markets can either reduce or increase switching costs, de-
pending on the nature of the product or service being sold, and they might
cause some extra delay in gratification due to shipping times. Unlike a physical
market, you can’t immediately consume a product such as clothing purchased
over the web (although immediate consumption is possible with digital music
downloads and other digital products).

Chapter 10  E-commerce: Digital Markets, Digital Goods 383

FIGURE 10.2 THE BENEFITS OF DISINTERMEDIATION TO THE CONSUMER
The typical distribution channel has several intermediary layers, each of which adds to
the final cost of a product, such as a sweater. Removing layers lowers the final cost to the
customer.

Price per
Sweater

Manufacturer Distributor Retailer Customer $48.50

Manufacturer Retailer Customer $40.34

Manufacturer Customer $20.45

Digital markets provide many opportunities to sell directly to the consumer,
bypassing intermediaries such as distributors or retail outlets. Eliminating inter-
mediaries in the distribution channel can significantly lower purchase transac-
tion costs. To pay for all the steps in a traditional distribution channel, a product
may have to be priced as high as 135 percent of its original cost to manufacture.

Figure 10.2 illustrates how much savings result from eliminating each of these
layers in the distribution process. By selling directly to consumers or reducing
the number of intermediaries, companies can raise profits while charging lower
prices. The removal of organizations or business process layers ­responsible for
intermediary steps in a value chain is called d­ isintermediation. E-commerce
has also given rise to a completely new set of new intermediaries such as
Amazon, eBay, PayPal, and Blue Nile. Therefore, disintermediation differs from
one industry to another.

Disintermediation is affecting the market for services. Airlines and hotels
operating their own reservation sites online earn more per ticket because they
have eliminated travel agents as intermediaries. Table 10.3 summarizes the dif-
ferences between digital markets and traditional markets.

Digital Goods

The Internet digital marketplace has greatly expanded sales of digital goods—
goods that can be delivered over a digital network. Music tracks, video, Hollywood
movies, software, newspapers, magazines, and books can all be expressed, stored,
delivered, and sold as purely digital products. For the most part, digital goods are
intellectual property, which is defined as “works of the mind.” Intellectual prop-
erty is protected from misappropriation by copyright, patent, trademark, and
trade secret laws (see Chapter 4). Today, all these products are delivered as digital
streams or downloads while their physical counterparts decline in sales.

In general, for digital goods, the marginal cost of producing another unit is
about zero (it costs nothing to make a copy of a music file). However, the cost of
producing the original first unit is relatively high—in fact, it is nearly the total
cost of the product because there are few other costs of inventory and distribu-
tion. Costs of delivery over the Internet are very low, marketing costs often

384 Part Three  Key System Applications for the Digital Age

TABLE 10.3 DIGITAL MARKETS COMPARED WITH TRADITIONAL MARKETS

DIGITAL MARKETS TRADITIONAL MARKETS

Information asymmetry Asymmetry reduced Asymmetry high
Search costs Low High
Transaction costs Low (sometimes virtually nothing) High (time, travel)
Delayed gratification High (or lower in the case Lower: purchase now
of a digital good)
Menu costs Low High
Dynamic pricing Low cost, instant High cost, delayed
Price discrimination Low cost, instant High cost, delayed
Market segmentation Low cost, moderate precision High cost, less precision
Switching costs Higher/lower (depending on High
product characteristics)
Network effects Strong Weaker
Disintermediation More possible/likely Less possible/unlikely

remain the same, and pricing can be highly variable. On the Internet, the mer-
chant can change prices as often as desired because of low menu costs.

The impact of the Internet on the market for these kinds of digital goods is
nothing short of revolutionary, and we see the results around us every day.
Businesses dependent on physical products for sales—such as bookstores,
music stores, book publishers, music labels, and film studios—face the possibil-
ity of declining sales and even destruction of their businesses. Newspaper and
magazine subscriptions to hard copies are declining, while online readership
and subscriptions are expanding.

Total record label industry revenues fell nearly 50 percent from $14 billion
in 1999 to about $7.7 billion in 2016, due almost entirely to the rapid decline in
CD album sales and the growth of digital music services (both legal and illegal
music piracy). But revenues increased in 2017 by 16 percent to $8.7 billion pri-
marily through the growth of paid subscriptions (RIAA.com, 2018). The Apple
iTunes Store has sold more than 50 billion songs for 99 cents each since opening
in 2003, providing a digital distribution model that has restored some of the rev-
enues lost to digital music channels. Yet the download business is rapidly fading
at Apple, down more than 25 percent in recent years, as streaming becomes the
dominant consumer path to music. Since iTunes, illegal downloading has been
cut in half, and legitimate online music sales (both downloads and streaming)
amounted to $5.7 billion in 2017. As cloud streaming services expand, illegal
downloading will decline further. Digital music sales, both digital download and
streaming, account for more than 80 percent of all music revenues. The music
labels make only about 32 cents from a single track download and only 0.5 cents
for a streamed track. Although the record labels make revenue from ownership
of the song (both words and music), the artists who perform the music make
virtually nothing from streamed music. Artists’ earnings on a streamed song on
an ad-supported platform like Spotify are pennies per million streams.

Hollywood has been less severely disrupted than the music industry by il-
legal digital distribution platforms, because it is more difficult to download
high-quality, pirated copies of full-length movies and because of the avail-
ability of low-cost, high-quality legal movies. Hollywood has struck lucrative
distribution deals with Netflix, Google, Hulu, Amazon, and Apple, making it
convenient to download and pay for high-quality movies and television series.

Chapter 10  E-commerce: Digital Markets, Digital Goods 385

TABLE 10.4 H OW THE INTERNET CHANGES THE MARKETS FOR DIGITAL
GOODS

DIGITAL GOODS TRADITIONAL GOODS

Marginal cost/unit Zero Greater than zero, high
Cost of production High (most of the cost) Variable
Copying cost Approximately zero Greater than zero, high
Distributed delivery cost Low High
Inventory cost Low High
Marketing cost Variable Variable
Pricing More variable (bundling, Fixed, based on unit costs
random pricing games)

These arrangements are not enough to compensate entirely for the loss in DVD
sales, which fell 60 percent from 2006 to 2017. Digital format streaming and
downloads grew by 20 percent in 2017 and, for the first time, consumers viewed
more downloaded movies than DVDs or related physical products. As with tele-
vision series, the demand for feature-length Hollywood movies appears to be
expanding, in part because of the growth of smartphones, tablets, and smart
TVs, making it easier to watch movies in more locations.

In 2019, about 258 million Internet users are expected to view movies,
about 82 percent of the adult Internet population. There is little doubt that the
Internet is becoming a major movie distribution and television channel that
rivals cable television, and someday may replace cable television entirely (see
the chapter-opening case).

Table 10.4 describes digital goods and how they differ from traditional physi-
cal goods (eMarketer, 2018i)

10-2 What are the principal e-commerce

business and revenue models?

E-commerce is a fascinating combination of business models and new infor-
mation technologies. Let’s start with a basic understanding of the types of
e-c­ ommerce and then describe e-commerce business and revenue models.

Types of E-commerce

There are many ways to classify electronic commerce transactions—one is by
looking at the nature of the participants. The three major electronic commerce
categories are business-to-consumer (B2C) e-commerce, business-to-business
(B2B) e-commerce, and consumer-to-consumer (C2C) e-commerce.

• Business-to-consumer (B2C) electronic commerce involves retailing prod-
ucts and services to individual shoppers. Amazon, Walmart, and iTunes are
examples of B2C commerce. BarnesandNoble.com, which sells books, soft-
ware, and music to individual consumers, is an example of B2C e-commerce.

• Business-to-business (B2B) electronic commerce involves sales of goods
and services among businesses. Elemica’s website for buying and selling
chemicals and energy is an example of B2B e-commerce.

• Consumer-to-consumer (C2C) electronic commerce involves consumers
selling directly to consumers. For example, eBay, the giant web auction site,

386 Part Three  Key System Applications for the Digital Age

enables people to sell their goods to other consumers by auctioning their mer-
chandise off to the highest bidder or for a fixed price. eBay acts as a middleman
by creating a digital platform for peer-to-peer commerce. Craigslist is the plat-
form most consumers use to buy from and sell directly to others.

Another way of classifying electronic commerce transactions is in terms of
the platforms participants use in a transaction. Until recently, most e-c­ ommerce
transactions took place using a desktop PC connected to the Internet over a
wired network. Several wireless mobile alternatives have emerged, such as
smartphones and tablet computers. The use of handheld wireless devices for
purchasing goods and services from any location is termed mobile commerce
or m-commerce. All three types of e-commerce transactions can take place
using m-commerce technology, which we discuss in detail in Section 10.3.

E-commerce Business Models

Changes in the economics of information described earlier have created the
conditions for entirely new business models to appear while destroying older
business models. Table 10.5 describes some of the most important Internet busi-
ness models that have emerged. All, in one way or another, use the Internet
(including apps on mobile devices) to add extra value to existing products and
services or to provide the foundation for new products and services.

Portal

Portals are gateways to the web and are often defined as those sites that users set
as their home page. Some definitions of a portal include search engines such as

TABLE 10.5 INTERNET BUSINESS MODELS

CATEGORY DESCRIPTION EXAMPLES

E-tailer Sells physical products directly to consumers or to individual businesses. Amazon
Blue Nile
Transaction broker Saves users money and time by processing online sales transactions and ETrade.com
Market creator generating a fee each time a transaction occurs. Expedia
eBay
Content provider Provides a digital environment where buyers and sellers can meet, search Priceline.com
for products, display products, and establish prices for those products; Exostar
can serve consumers or B2B e-commerce, generating revenue from Elemica
transaction fees. WSJ.com
GettyImages.com
Creates revenue by providing digital content, such as news, music, photos, iTunes.com
or video, over the web. The customer may pay to access the content, or MSN Games
revenue may be generated by selling advertising space. Facebook
Twitter
Community provider Provides an online meeting place where people with similar interests can Yahoo
Portal communicate and find useful information. MSN
AOL
Provides initial point of entry to the web along with specialized content Google Docs
and other services. Photobucket.com
Dropbox
Service provider Provides applications such as photo sharing, video sharing, and
user-generated content as services; provides other services such as online
data storage and backup.

Chapter 10  E-commerce: Digital Markets, Digital Goods 387

Google and Bing even if few make these sites their home page. Portals such as
Yahoo, Facebook, MSN, and AOL offer web search tools as well as an integrated
package of content and services such as news, email, instant messaging, maps, cal-
endars, shopping, music downloads, video streaming, and more all in one place.
The portal business model now provides a destination site where users start their
web searching and linger to read news, find entertainment, meet other people,
and, of course, be exposed to advertising. Facebook is a very different kind of por-
tal based on social networking, and in 2018 Americans will spend more than half
their online time at Facebook, about two hours per day! Portals generate revenue
primarily by attracting very large audiences, charging advertisers for display ad
placement (similar to traditional newspapers), collecting referral fees for steering
customers to other sites, and charging for premium services. In 2019, portals (not
including Google, Facebook, or Bing) will generate an estimated $10 billion in dis-
play ad revenues. Although there are hundreds of portal/search engine sites, the
top portals (Yahoo, MSN, and AOL) gather more than 80 percent of the Internet
portal traffic because of their superior brand recognition.

E-tailer

Online retail stores, often called e-tailers, come in all sizes, from giant Amazon
with 2017 retail sales revenues of more than $178 billion to tiny local stores that
have websites. An e-tailer is similar to the typical brick-and-mortar storefront, ex-
cept that customers only need to connect to the Internet to check their inventory
and place an order. Altogether, online retail (the sale of physical goods ­online) will
generate about $598 billion in revenues in 2019. The value proposition of e-tailers
is to provide convenient, low-cost shopping 24/7; large selections; and  con-
sumer choice. Some e-tailers, such as Walmart.com or Staples.com, referred to as
­bricks-and-clicks, are subsidiaries or divisions of existing physical stores and carry
the same products. Others, however, operate only in the virtual world, without
any ties to physical locations. Ashford.com and eVitamins.com are examples of
this type of e-tailer. Several other variations of e-tailers—such as online versions of
­direct-mail catalogs, online malls, and manufacturer-direct online sales—also exist.

Content Provider

E-commerce has increasingly become a global content channel. Content is de-
fined broadly to include all forms of intellectual property. Intellectual p­ roperty
refers to tangible and intangible products of the mind for which the creator
claims a property right. Content providers distribute information ­content—
such as digital video, music, photos, text, and artwork—over the web. The value
proposition of online content providers is that consumers can conveniently find
a wide range of content online and purchase this content inexpensively to be
played or viewed on multiple computer devices or smartphones.

Providers do not have to be the creators of the content (although sometimes
they are, like Disney.com) and are more likely to be Internet-based distribu-
tors of content produced and created by others. For example, Apple sells music
tracks at its iTunes Store, but it does not create or commission new music.

The phenomenal popularity of Internet-connected mobile devices such as
the iPhone, iPod, and iPad has enabled new forms of digital content delivery
from podcasting to mobile streaming. Podcasting is a method of publishing
audio or video broadcasts through the Internet, allowing subscribing users to
download audio or video files onto their personal computers, smartphones, tab-
lets, or portable music players. Streaming is a publishing method for music
and video files that flows a continuous stream of content to a user’s device with-
out being stored locally on the device.

388 Part Three  Key System Applications for the Digital Age

Estimates vary, but total online content will generate about $23 billion in
2019, one of the fastest-growing e-commerce segments, growing at an estimated
18 percent annual rate.

Transaction Broker

Sites that process transactions for consumers normally handled in person, by
phone, or by mail are transaction brokers. The largest industries using this
model are financial services and travel services. The online transaction bro-
ker’s primary value propositions are savings of money and time and providing
an extraordinary inventory of financial products or travel packages in a single
location. Online stockbrokers and travel booking services charge fees that are
considerably less than traditional versions of these services. Fidelity Financial
Services and Expedia are the largest online financial and travel service firms
based on a transaction broker model.

Market Creator

Market creators build a digital environment in which buyers and sellers can
meet, display products, search for products, and establish prices. The value
proposition of online market creators is that they provide a platform where
sellers can easily display their wares and purchasers can buy directly from sell-
ers. Online auction markets such as eBay and Priceline are good examples of
the market creator business model. Another example is Amazon’s Merchants
platform (and similar programs at eBay), where merchants are allowed to
set up stores on Amazon’s website and sell goods at fixed prices to consum-
ers. The so-called on-demand economy (mistakenly often referred to as the
sharing economy), exemplified by Uber (described in the Interactive Session
on Organizations) and Airbnb, is based on the idea of a market creator build-
ing a digital platform where supply meets demand; for instance, spare auto
or room rental capacity finds individuals who want transportation or lodging.
Crowdsource funding markets such as Kickstarter.com bring together private
equity investors and entrepreneurs in a funding marketplace.

Service Provider

Whereas e-tailers sell products online, service providers offer services online.
Photo sharing and online sites for data backup and storage all use a service
provider business model. Software is no longer a physical product with a CD
in a box but, increasingly, software as a service (SaaS) that you subscribe
to online rather than purchase from a retailer, such as Office 365. Google
has led the way in developing online software service applications such as
G Suite, Google Sites, Gmail, and online data storage services. Salesforce.com
is a major provider of cloud-based software for customer management (see
Chapter 5).

Community Provider (Social Networks)

Community providers are sites that create a digital online environment
where people with similar interests can transact (buy and sell goods); share
interests, photos, and videos; communicate with like-minded people; receive
i­nterest-related information; and even play out fantasies by adopting online per-
sonalities called avatars. Social networking sites Facebook, Tumblr, Instagram,
LinkedIn, and Twitter and hundreds of other smaller, niche sites all offer users
community-building tools and services. Social networking sites have been the
fastest-growing websites in recent years, often doubling their audience size in
a year.

Chapter 10  E-commerce: Digital Markets, Digital Goods 389

INTERACTIVE SESSION  ORGANIZATIONS

Uber: Digital Disruptor

You’re in New York, Paris, Chicago, or another major monitors sensors in drivers’ smartphones to monitor
city and need a ride. Instead of trying to hail a cab, their driving behavior.
you pull out your smartphone and tap the Uber app.
A Google map pops up displaying your nearby sur- Uber is headquartered in San Francisco and was
roundings. You select a spot on the screen designat- founded in 2009 by Travis Kalanick and Garrett
ing an available driver, and the app secures the ride, Camp. In 2018, it had more than 3 million drivers
showing how long it will take for the ride to arrive working in 600 cities worldwide, generating revenue
and how much it will cost. Once you reach your of 2.6 billion in the first quarter of 2018. After paying
destination, the fare is automatically charged to your for drivers, marketing, and other operating expenses,
credit card. No fumbling for money. Uber still operated at a loss. More than 75 million
people use Uber. However, Uber’s over-the-top suc-
Rates take into account the typical factors of time cess has created its own set of challenges.
and distance but also demand. Uber’s software pre-
dicts areas where rides are likely to be in high de- By digitally disrupting a traditional and highly
mand at different times of the day. This information regulated industry, Uber has ignited a firestorm of
appears on a driver’s smartphone so that the driver opposition from existing taxi services in the United
knows where to linger and, ideally, pick up custom- States and around the world. Who can compete with
ers within minutes of a request for a ride. Uber also an upstart firm offering a 40 percent price reduction
offers a higher-priced town car service for business when demand for taxis is low? (When demand is
executives and a ride-sharing service. Under certain high, Uber prices surge.) What city or state wants to
conditions, if demand is high, Uber can be more give up regulatory control over passenger safety, pro-
expensive than taxis, but it still appeals to riders by tection from criminals, driver training, and a healthy
offering a reliable, fast, convenient alternative to tra- revenue stream generated by charging taxi firms for
ditional taxi services. a taxi license?

Uber runs much leaner than a traditional taxi If Uber is the poster child for the new
company does. Uber does not own taxis and has no ­on-­demand economy, it’s also an iconic example
maintenance and financing costs. It does not have of the social costs and conflict associated with
employees, so it claims, but instead calls the drivers this new kind of business model. Uber has been
independent contractors, who receive a cut of each accused of denying its drivers the benefits of em-
fare. Uber is not encumbered with employee costs ployee status by classifying them as contractors,
such as workers’ compensation, minimum wage re- violating public transportation laws and ­regulations
quirements, background checks on drivers, driver throughout the United States and the world, abus-
training, health insurance, or commercial licensing ing the personal information it has collected on
costs. Uber has shifted the costs of running a taxi ordinary people, increasing traffic congestion,
service entirely to the drivers and to the customers u­ ndermining public transportation, and failing to
using their cell phones. Drivers pay for their own protect public safety by refusing to perform suffi-
cars, fuel, and insurance. What Uber does is provide cient criminal, medical, and financial background
a smartphone-based platform that enables people checks on its drivers. Uber’s brand image has been
who want a service—like a taxi—to find a provider further tarnished by negative publicity about its ag-
who can meet that need. gressive, unrestrained workplace culture and the
behavior of CEO Kalanick.
Uber relies on user reviews of drivers and the ride
experience to identify problematic drivers and driver Uber has taken some remediating steps. It en-
reviews of customers to identify problematic passen- hanced its app to make it easier for drivers to take
gers. It also sets standards for cleanliness. It uses the breaks while they are on the job. Drivers can now
reviews to discipline drivers. Uber does not publicly also be paid instantly for each ride they complete
report how many poorly rated drivers or passengers rather than weekly and see on the app’s dashboard
there are in its system. Uber also uses software that how much they have earned. Uber added an option
to its app for passengers to tip its U.S. drivers, and

390 Part Three  Key System Applications for the Digital Age

Kalanick resigned as head of Uber in June 2017. (He and heavy investments in self-driving cars, which
was replaced by Dara Khosrowshahi.) m­ anagement believes will be key to lowering labor
costs and ensuring long-term profitability. After a
Critics fear that Uber and other on-demand firms self-driving Uber car struck and killed a woman in
have the potential for creating a society of part-time, Tempe, Arizona in March 2018, Arizona suspended
low-paid, temp work, displacing traditionally full- autonomous vehicle testing in the state, and Uber
time, secure jobs—the so-called Uberization of work. stopped testing autonomous cars in California,
According to one study, half of Uber d­ rivers earn Pittsburgh, and Toronto. Even before the accident,
less than the minimum wage in their state. Uber re- Uber’s self-driving cars were having trouble driving
sponds by saying it is lowering the cost of transpor- through construction zones and next to tall vehicles
tation, expanding the demand for ride services, and like big truck rigs. Test drivers had to take over the
expanding opportunities for car drivers, whose pay car almost every mile. It is still too early to tell
is about the same as other taxi drivers. whether Uber and other on-demand businesses will
succeed.
Does Uber have a sustainable business model?
The company is still not profitable, and continues Sources: Steven Hill, “New Leadership Has Not Changed Uber,” New
to subsidize the cost of many of its rides. Uber has York Times, March 26, 2018; Bloomberg, “Uber Revenue Spiked
competitors, including Lyft in the United States and 70% Last Quarter, But It Still Lost Tons of Money,” May 24,2018;
local firms in Asia and Europe. New, smaller, com- Daisuke Wakabashai, “Uber’s Self-Driving Cars Were Struggling Be-
peting firms offering app-based cab-hailing services fore Arizona Crash,” New York Times, March 23, 2018; Craig Smith,
are cropping up, such as Sidecar and Via. Established “100 Amazing Uber Statistics, Demographics and Facts (July 2018),”
taxi firms in New York and other cities are launch- DMR, July 29, 2018; “Rob Berger, “Uber Settlement Takes Custom-
ing their own hailing apps and trumpeting their ers for a Ride,” Forbes, April 22, 2016; and Mike Isaac and Noam
f­ ixed-rate prices. Scheiber, “Uber Settles Cases with Concessions, But Drivers Stay
Freelancers,” New York Times, April 21, 2016.
Uber is pressing on, with new services for
same-day deliveries, business travel accounts,

CASE STUDY QUESTIONS 3. How disruptive is Uber?
4. Is Uber a viable business? Explain your answer.
1. Analyze Uber using the competitive forces and
value chain models. What is its competitive
advantage?

2. What is the relationship between information
technology and Uber’s business model? Explain
your answer.

E-commerce Revenue Models

A firm’s revenue model describes how the firm will earn revenue, gener-
ate profits, and produce a superior return on investment. Although many
e-­commerce revenue models have been developed, most companies rely on
one, or some combination, of the following six revenue models: advertising,
sales, subscription, free/freemium, transaction fee, and affiliate.

Advertising Revenue Model

In the advertising revenue model, a website generates revenue by attract-
ing a large audience of visitors who can then be exposed to advertisements.
The advertising model is the most widely used revenue model in e-commerce,
and a­ rguably, without advertising revenues, the web would be a vastly differ-
ent e­ xperience from what it is now because people would be asked to pay for

Chapter 10  E-commerce: Digital Markets, Digital Goods 391

access to content. Content on the web—everything from news to videos and
opinions—is free to visitors because advertisers pay the production and dis-
tribution costs in return for the right to expose visitors to ads. Companies will
spend an estimated $125 billion on online advertising in 2019 (in the form of a
paid message on a website, paid search listing, video, app, game, or other on-
line medium, such as instant messaging). About $90 billion of this will be for
mobile ads. Mobile ads will account for 72 percent of all digital advertising. In
the past five years, advertisers have increased online spending and cut outlays
on traditional channels such as radio and newspapers. In 2019, online advertis-
ing will grow at 18 percent and constitute about 53 percent of all advertising in
the United States (eMarketer, 2018g).

Websites with the largest viewership or that attract a highly specialized, dif-
ferentiated viewership and are able to retain user attention (stickiness) can
charge higher advertising rates. Yahoo, for instance, derives nearly all its rev-
enue from display ads (banner ads), video ads, and, to a lesser extent, search
engine text ads. Google and Facebook derive well over 90 percent of their rev-
enue from advertising, including selling keywords (AdWords), selling ad spaces
(AdSense), and selling display ad spaces to advertisers. Facebook alone displays
one-third of the trillion display ads shown on all sites in 2019.

Sales Revenue Model

In the sales revenue model, companies derive revenue by selling goods, in-
formation, or services to customers. Companies such as Amazon (which sells
books, music, and other products), LLBean.com, and Gap.com all have sales
revenue models. Content providers make money by charging for downloads
of entire files such as music tracks (iTunes Store) or books or for download-
ing music and/or video streams (Hulu.com TV shows). Apple has pioneered
and strengthened the acceptance of micropayments. Micropayment systems
provide content providers with a cost-effective method for processing high vol-
umes of very small monetary transactions (anywhere from 25 cents to $5.00 per
transaction). The largest micropayment system on the web is Apple’s iTunes
Store, which has more than 1 billion customers worldwide who purchase indi-
vidual music tracks for 99 cents and feature-length movies for various prices.

Subscription Revenue Model

In the subscription revenue model, a website offering content or services
charges a subscription fee for access to some or all of its offerings on an on-
going basis. Content providers often use this revenue model. For instance, the
online version of Consumer Reports provides access to premium content, such
as detailed ratings, reviews, and recommendations, only to subscribers for a
$35.00 annual fee. Netflix is one of the most successful subscriber sites with
over 100 million customers worldwide in 2018. To be successful, the subscription
model requires the content to be perceived as differentiated, having high added
value, and not readily available elsewhere or easily replicated. Other companies
offering content or services online on a subscription basis include Match.com
(dating services), Ancestry.com (genealogy research), and Microsoft Xbox Live.

Free/Freemium Revenue Model

In the free/freemium revenue model, firms offer basic services or content
for free and charge a premium for advanced or special features. For example,
Google offers free applications but charges for premium services. Pandora, the
subscription radio service, offers a free service with limited play time and ad-
vertising and a premium service with unlimited play. The idea is to attract

392 Part Three  Key System Applications for the Digital Age

very large audiences with free services and then convert some of this audience
to pay a subscription for premium services. One problem with this model is
converting people from being freeloaders into paying customers. “Free” can be
a powerful model for losing money. None of the freemium music streaming
sites have earned a profit to date. Nevertheless, they are finding that free ser-
vice with ad revenue is more profitable than the paid subscriber part of their
business.

Transaction Fee Revenue Model

In the transaction fee revenue model, a company receives a fee for enabling
or executing a transaction. For example, eBay provides an online auction mar-
ketplace and receives a small transaction fee from a seller if the seller is suc-
cessful in selling an item. E*Trade, an online stockbroker, receives transaction
fees each time it executes a stock transaction on behalf of a customer. The
transaction revenue model enjoys wide acceptance in part because the true
cost of using the platform is not immediately apparent to the user.

Online financial services, from banking to payment systems, rely on a
transaction fee model. While online banking and services are dominated by
large banks with millions of customers, start-up financial technology firms,
also known as FinTech firms, have grown rapidly to compete with banks for
p­ eer-to-peer (P2P), bill payment, money transfer, lending, crowdsourcing, fi-
nancial advice, and account aggregation services. The largest growth in FinTech
has involved P2P payment services, such as Venmo and Square, two among
hundreds of FinTech firms competing in this space with banks and online pay-
ment giants such as PayPal (PayPal purchased Venmo in 2013). FinTech firms
are typically not profitable and are often bought out by larger financial service
firms for their technology and customer base.

Affiliate Revenue Model

In the affiliate revenue model, websites (called affiliate websites) send visi-
tors to other websites in return for a referral fee or percentage of the revenue
from any resulting sales. Referral fees are also referred to as lead generation
fees. For example, MyPoints makes money by connecting companies to po-
tential customers by offering special deals to its members. When members
take advantage of an offer and make a purchase, they earn points they can
redeem for free products and services, and MyPoints receives a referral fee.
Community feedback sites such as Epinions and Yelp receive much of their
revenue from steering potential customers to websites where they make a pur-
chase. Amazon uses affiliates that steer business to the Amazon website by
placing the Amazon logo on their blogs. Personal blogs often contain display
ads as part of affiliate programs. Some bloggers are paid directly by manufac-
turers, or receive free products, for speaking highly of products and providing
links to sales channels.

10-3 How has e-commerce transformed marketing?

Although e-commerce and the Internet have changed entire industries and en-
abled new business models, no industry has been more affected than market-
ing and marketing communications.

The Internet provides marketers with new ways of identifying and commu-
nicating with millions of potential customers at costs far lower than traditional

Chapter 10  E-commerce: Digital Markets, Digital Goods 393

TABLE 10.6 ONLINE AD SPENDING BY FORMATS (BILLIONS)

MARKETING FORMAT 2018 REVENUE DESCRIPTION

Search engine $53.3 Text ads targeted at precisely what the customer is looking for at the moment of
shopping and purchasing. Sales oriented.

Display ads $67.1 Banner ads (pop-ups and leave-behinds) with interactive features; increasingly
behaviorally targeted to individual web activity. Brand development and sales.
Includes social media and blog display ads.

Video $21.2 Fastest-growing format, engaging and entertaining; behaviorally targeted,
interactive. Branding and sales.

Classified $2.1 Job, real estate, and services ads; interactive, rich media, and personalized to
user searches. Sales and branding.

Rich media $18.3 Animations, games, and puzzles. Interactive, targeted, and entertaining. Branding
orientation.

Lead generation $2.3 Marketing firms that gather sales and marketing leads online and then sell them
to online marketers for a variety of campaign types. Sales or branding orientation.

Sponsorships $2.1 Online games, puzzles, contests, and coupon sites sponsored by firms to
promote products. Sales orientation.

Email $0.47 Effective, targeted marketing tool with interactive and rich media potential. Sales
oriented.

Source: Based on eMarketer, “Digital Ad Spending by Format,, 2018” eMarketer, March 2018.

media, including search engine marketing, data mining, recommender sys-
tems, and targeted email. The Internet enables long tail marketing. Before
the Internet, reaching a large audience was very expensive, and marketers
had to focus on attracting the largest number of consumers with popular hit
products, whether music, Hollywood movies, books, or cars. In contrast, the
Internet allows marketers to find potential customers inexpensively for prod-
ucts where demand is very low. For instance, the Internet makes it possible to
sell independent music profitably to very small audiences. There’s always some
demand for almost any product. Put a string of such long tail sales together and
you have a profitable business.

The Internet also provides new ways—often instantaneous and s­ pontaneous—
to gather information from customers, adjust product offerings, and increase
customer value. Table 10.6 describes the leading marketing and advertising for-
mats used in e-commerce.

Behavioral Targeting

Many e-commerce marketing firms use behavioral targeting techniques to
increase the effectiveness of banners, rich media, and video ads. Behavioral
targeting refers to tracking the clickstreams (history of clicking behavior) of in-
dividuals on thousands of websites to understand their interests and intentions
and expose them to advertisements that are uniquely suited to their online be-
havior. Marketers and most researchers believe this more precise understand-
ing of the customer leads to more efficient marketing (the firm pays for ads
only to those shoppers who are most interested in their products) and larger
sales and revenues. Unfortunately, behavioral targeting of millions of web users
also leads to the invasion of personal privacy without user consent. When con-
sumers lose trust in their web experience, they tend not to purchase anything.
Backlash is growing against the aggressive uses of personal information as con-
sumers seek out safer havens for purchasing and messaging. Snapchat offers

394 Part Three  Key System Applications for the Digital Age

FIGURE 10.3 WEBSITE VISITOR TRACKING

E-commerce websites and advertising platforms like Google’s DoubleClick have tools to
track a shopper’s every step through an online store and then across the web as shoppers
move from site to site. Close examination of customer behavior at a website selling women’s
clothing shows what the store might learn at each step and what actions it could take to
­increase sales.

Courtesy of Google Inc.

Click 1 The shopper clicks on the home page. The store can tell that the
shopper arrived from the Yahoo portal at 2:30 PM (which might
help determine sta ng for customer service centers) and how
long she lingered on the home page (which might indicate trouble
navigating the site). Tracking beacons load cookies on the shopper’s
browser to follow her across the Web.

Click 2 The shopper clicks on blouses, then clicks to view a woman’s pink
Click 3 blouse. The shopper clicks to select this item in a size 10 in pink and
Click 4 clicks to place it in her shopping cart. This information can help the
Click 5 store determine which sizes and colors are most popular. If the visitor
moves to a di erent site, ads for pink blouses will appear from the
Click 6 same or a di erent vendor.
From the shopping cart page, the shopper clicks to close the
browser to leave the website without purchasing the blouse.
This action could indicate the shopper changed her mind or that
she had a problem with the website’s checkout and payment
process. Such behavior might signal that the website was not
well designed.

disappearing messages, and even Facebook has retreated by making its default
for new posts “for friends only.”

Behavioral targeting takes place at two levels: at individual websites or from
within apps and on various advertising networks that track users across thou-
sands of websites. All websites collect data on visitor browser activity and store
it in a database. They have tools to record the site that users visited prior to
coming to the website, where these users go when they leave that site, the type
of operating system they use, browser information, and even some location
data. They also record the specific pages visited on the particular site, the time
spent on each page of the site, the types of pages visited, and what the visitors
purchased (see Figure 10.3). Firms analyze this information about customer
interests and behavior to develop precise profiles of existing and potential cus-
tomers. In addition, most major websites have hundreds of tracking programs
on their home pages, which track your clickstream behavior across the web
by following you from site to site and re-target ads to you by showing you the
same ads on different sites. The leading online advertising network is Google’s
DoubleClick.

This information enables firms to understand how well their website is
working, create unique personalized web pages that display content or ads for
products or services of special interest to each user, improve the customer’s
­experience, and create additional value through a better understanding of the
shopper (see Figure 10.4). By using personalization technology to modify the
web pages presented to each customer, marketers achieve some of the ben-
efits of using individual salespeople at dramatically lower costs. For instance,
General Motors will show a Chevrolet banner ad to women emphasizing safety
and utility, whereas men will receive ads emphasizing power and ruggedness.

Chapter 10  E-commerce: Digital Markets, Digital Goods 395

FIGURE 10.4 WEBSITE PERSONALIZATION
Firms can create unique personalized web pages that display content or ads for
­products or services of special interest to individual users, improving the customer
­experience and creating additional value.

User Website

Based on your portfolio
and recent market trends, here are

some recommendations.
Welcome back, Steve P. Munson.
Check out these recommended
titles: One Minute Manager

Leading Change
Results-Based Leadership

Sarah,
Here are the items you want
to bid on: Halogen reading lamp

Portable reading lamp
LED book reading lamp

It’s a short step from ad networks to programmatic ad buying. Ad net-
works create real-time bidding platforms (RTB) where marketers bid in an
automated environment for highly targeted slots available from web pub-
lishers. Here, ad platforms can predict how many targeted individuals will
view the ads, and ad buyers can estimate how much this exposure is worth
to them.

What if you are a large national advertising company or global manufac-
turer trying to reach millions of consumers? With millions of websites, work-
ing with each one would be impractical. Advertising networks solve this
­problem by creating a network of several thousand of the most popular web-
sites millions of people visit, tracking the behavior of these users across the
entire network, building profiles of each user, and then selling these profiles
to advertisers in a real-time bidding environment. Popular websites download
dozens of web-tracking cookies, bugs, and beacons, which report user online
behavior to remote servers without the users’ knowledge. Looking for young,
single consumers with college degrees, living in the Northeast, in the 18–34
age range who are interested in purchasing a European car? Advertising net-
works can identify and deliver thousands of people who fit this profile and
expose them to ads for European cars as they move from one website to an-
other. Estimates vary, but behaviorally targeted ads are generally 10 times
more likely to produce a consumer response than a randomly chosen banner
or video ad (see Figure 10.5). So-called advertising exchanges use this same
technology to auction access to people with very specific profiles to advertis-
ers in a few milliseconds. In 2016, about 50 percent of online display ads were

396 Part Three  Key System Applications for the Digital Age

FIGURE 10.5 HOW AN ADVERTISING NETWORK SUCH AS DOUBLECLICK
WORKS

Advertising networks and their use of tracking programs have become controversial among
privacy advocates because of their ability to track individual consumers across the Internet.

MERCHANT SITE ADVERTISING NETWORK

DoubleClick.Net User

Merchant server connects profile
Ad server reads cookie; Database
to DoubleClick ad server checks database for profile

Ad server selects Network
and serves an Member
appropriate
banner ad Firms
based on
profile

Consumer DoubleClick follows consumer from
requests Web site to site through use of tracking
page from ad programs
network
member site

CONSUMER

targeted ads developed by programmatic ad buys, and the rest depended on
the context of the pages shoppers visited—the estimated demographics of visi-
tors, or so-called blast-and-scatter advertising—which is placed randomly on
any available page with minimal targeting, such as time of day or season.

It’s another short step to native advertising. Native advertising involves
placing ads in social network newsfeeds or within traditional editorial content,
such as a newspaper article. This is also referred to as organic advertising, where
content and advertising are in very close proximity or integrated together.

Two-thirds (68 percent) of Internet users disapprove of search engines
and websites tracking their online behavior to aim targeted ads at them.
­Twenty-eight percent of those surveyed approve of behavioral targeting be-
cause they believe it produces more relevant ads and information. A majority
of Americans want a Do Not Track option in browsers that will stop websites
from collecting information about their online behavior. More than 50 percent
are very concerned about the wealth of personal data online; 86 percent have
taken steps to mask their online behavior; 25 percent of web users use ad-
blocking software (Rainie, 2016).

Social E-commerce and Social Network Marketing

In 2019, one of the fastest-growing media for branding and marketing is social
media. Companies will spend an estimated $30 billion in 2019 using social
networks such as Facebook, Instagram, Twitter, and LinkedIn to reach mil-
lions of consumers who spend hours a day on social sites. Expenditures for
social media marketing are much smaller than for television, magazines, and

Chapter 10  E-commerce: Digital Markets, Digital Goods 397

even newspapers, but this will change in the future. Social networks in the
offline world are collections of people who voluntarily communicate with
one another over an extended period of time. Online social networks, such
as Facebook, Instagram, Pinterest, LinkedIn, Twitter, and Tumblr, along with
other sites with social components, are websites that enable users to commu-
nicate with one another, form group and individual relationships, and share
interests, values, and ideas.

Social e-commerce is commerce based on the idea of the digital social
graph, a mapping of all significant online social relationships. The social graph
is synonymous with the idea of a social network used to describe offline rela-
tionships. You can map your own social graph (network) by drawing lines from
yourself to the 10 closest people you know. If they know one another, draw
lines between these people. If you are ambitious, ask these 10 friends to list and
draw in the names of the 10 people closest to them. What emerges from this ex-
ercise is a preliminary map of your social network. Now imagine if everyone on
the Internet did the same and posted the results to a very large database with a
website. Ultimately, you would end up with Facebook or a site like it.

According to small world theory, you are only six links away from any other
person on earth. If you entered your personal address book, which has, say, 100
names in it, in a list and sent it to your friends, and they in turn entered 50 new
names of their friends, and so on, five times, the social network created would
encompass 31 billion people! The social graph is therefore a collection of mil-
lions of personal social graphs (and all the people in them).

If you understand the interconnectedness of people, you will see just how
important this concept is to e-commerce: The products and services you buy
will influence the decisions of your friends, and their decisions will in turn in-
fluence you. If you are a marketer trying to build and strengthen a brand, you
can take advantage of the fact that people are enmeshed in social networks,
share interests and values, and communicate and influence one another. As
a marketer, your target audience is not a million isolated people watching a
TV show but the social network of people who watch the show and the view-
ers’ personal networks. Moreover, online social networks are where the largest
Internet audiences are located. Table 10.7 describes the features of social com-
merce that are driving its growth.

Facebook, with 74 percent of all social marketing in the United States and
208 million U.S. monthly visitors in 2018, receives most of the public attention
given to social networking. The other top four social sites are also growing,
though at far slower rates than in the past. LinkedIn had 93 million visitors
a month in 2018. Twitter grew to reach 146 million active users in 2018, with
stronger offshore growth than in the United States. Pinterest hit the top 50
websites with 110 million users, a 25 percent increase from 2017. According
to analysts, 25 percent of the total time spent online in the United States was
spent on social network sites (about 56 minutes a day), and social networking
is the most common online activity. The fastest-growing smartphone appli-
cations are social network apps; nearly half of smartphone users visit social
sites daily. More than 70 percent of all visits to Facebook in 2018 came from
smartphones.

At social shopping sites such as Pinterest you can swap shopping ideas with
friends. Facebook offers the “like” button to let your friends know you admire
a product, service, or content and, in some cases, purchase something online.
Facebook processes around 5 billion likes a day worldwide. Online communi-
ties are also ideal venues to employ viral marketing techniques. Online viral
marketing is like traditional word-of-mouth marketing except that the word can

398 Part Three  Key System Applications for the Digital Age

TABLE 10.7 FEATURES OF SOCIAL COMMERCE

SOCIAL COMMERCE FEATURE DESCRIPTION

Newsfeed A stream of notifications from friends and advertisers that social users find on their home pages.
Timelines
Social sign-on A stream of photos and events in the past that create a personal history for users, one that
can be shared with friends.
Collaborative shopping
Websites allow users to sign into their sites through their social network pages on
Network notification Facebook or another social site. This allows websites to receive valuable social profile
information from Facebook and use it in their own marketing efforts.
Social search (recommendations)
An environment where consumers can share their shopping experiences with one another
by viewing products, chatting, or texting. Friends can chat online about brands, products,
and services.

An environment where consumers can share their approval (or disapproval) of products,
services, or content or share their geolocation, perhaps a restaurant or club, with friends.
Facebook’s ubiquitous “like” button is an example, as are Twitter’s tweets and followers.

An environment where consumers can ask their friends for advice on purchases of
products, services, and content. Although Google can help you find things, social search
can help you evaluate the quality of things by listening to the evaluations of your friends or
their friends. For instance, Amazon’s social recommender system can use your Facebook
social profile to recommend products.

spread across an online community at the speed of light and go much further
geographically than a small network of friends.

The Wisdom of Crowds

Creating sites where thousands, even millions, of people can interact offers
business firms new ways to market and advertise and to discover who likes
(or hates) their products. In a phenomenon called the wisdom of crowds,
some argue that large numbers of people can make better decisions about a
wide range of topics or products than a single person or even a small commit-
tee of experts.

Obviously, this is not always the case, but it can happen in interesting ways.
In marketing, the wisdom of crowds concept suggests that firms should consult
with thousands of their customers first as a way of establishing a relationship
with them and, second, to understand better how their products and services
are used and appreciated (or rejected). Actively soliciting the comments of your
customers builds trust and sends the message to your c­ ustomers that you care
what they are thinking and that you need their advice.

Beyond merely soliciting advice, firms can be actively helped in solving some
business problems by using crowdsourcing. For instance, BMW launched a
crowdsourcing project to enlist the aid of customers in designing an urban ve-
hicle for 2025. Kickstarter.com is arguably one of the most famous e-commerce
crowdfunding sites where visitors invest in start-up companies. Other examples
include Caterpillar working with customers to design better machinery, IKEA
for designing furniture, and Pepsico using Super Bowl viewers to build an on-
line video.

Marketing through social media is still in its early stages, and companies
are experimenting in hopes of finding a winning formula. Social interactions
and customer sentiment are not always easy to manage, presenting new chal-
lenges for companies eager to protect their brands. The Interactive Session on
Management provides specific examples of companies’ social marketing efforts
using Facebook and Twitter.

Chapter 10  E-commerce: Digital Markets, Digital Goods 399

INTERACTIVE SESSION  MANAGEMENT

“Socializing” with Customers

More than 3 billion people worldwide use social followers, 24,000 Twitter followers, 15,000 LinkedIn
media, making it an obvious platform for companies followers, 15,000 YouTube subscribers, and other so-
seeking to engage consumers, amplify product mes- cial communities to photos, videos, text summaries,
sages, discover trends and influencers, build brand and other content describing every aspect of the new
awareness, and take action on customer requests Anthem line. These activities were credited with at-
and recommendations. More than 80 million busi- tracting more than 40,000 new social followers to the
nesses have Facebook brand pages, enabling users Mack brand.
to interact with the brand through blogs, comment
pages, contests, and offerings on the brand page. Mack uses Oracle Eloqua Marketing Cloud Service
The “like” button gives users a chance to share with and Oracle Social Cloud to link social activity to
their social network their feelings about content they 175,000 profiles in its Oracle Eloqua database of cus-
are viewing and websites they are visiting. With like tomers and prospects. The digital marketing team
buttons on many millions of websites, Facebook can thus knows if a person in the database clicked on a
track user behavior on other sites and then sell this Facebook post to view an Anthem-related video or
information to marketers. Facebook also sells display looked for other information on the company’s web-
ads to firms that appear on users’ home pages and site. Compelling personalized content helps engage
most other pages in the Facebook interface such as prospects and move them further along the sales pro-
photos and apps. Twitter features such as “promoted cess until they ask to talk to a Mack dealer. At that
tweets” and “promoted trends” enable advertisers to point, the prospect is considered a qualified lead.
have their tweets displayed more prominently when Oracle Social Cloud alerts team members when the
Twitter users search for certain keywords. Mack Anthem is mentioned on various social sites,
and they can respond where appropriate.
Mack Trucks, a leading U.S. truck manufacturer,
used a social marketing campaign to attract custom- Mack also enlisted celebrity influencers for the
ers, drivers, and dealers when it launched its new Anthem campaign. Country music artist Steve
Anthem model. Mack had traditionally used print Moakler recorded a road song called Born Ready for
ads in trucking publications, brochures, and industry the Anthem launch and dedicated it to drivers. More
trade shows as its primary marketing channels when than 55,000 people viewed Moakler’s performance
rolling out a new product. However, these channels on YouTube. The marketing team also produced
did not enable Mack to tailor and deliver different a YouTube video with the Oakland Raiders’ Khalil
messages for different customers. For example, a Mack called What Makes a Mack, and it attracted over
manager of a large fleet might be most interested 75,000 viewers. Mack is developing a broad-based
in fuel efficiency, while an owner-operator might influence program identifying customers and driv-
be more attracted to design style. Mack’s marketing ers who will be among the first to view new products
team continued to use traditional channels for broad and serve as active advocates on social media.
awareness and relied on social marketing to focus on
segmentation and metrics. More than 9,300 people opted into some aspect
of the Mack Anthem campaign, generating about
Starting in July 2017 Mack launched a series of 1,700 qualified leads. The Anthem landing page
biweekly YouTube videos to build excitement for has attracted over 146,000 visitors, who can watch
the Anthem model, followed by a live stream of the Moakler video and obtain information on every
the Anthem unveiling on YouTube and Facebook in aspect of the new truck line. Mack’s senior manage-
September of that year. Mack netted 7,000 email ad- ment is very pleased with the results and the detail
dresses from the teaser campaign, with 3,700 people and precision of digital marketing information. Vice
viewing the live stream of the launch event. These President of Marketing John Walsh can see what hap-
are considered significant numbers for a product pens with every dollar Mack spends.
costing over U.S. $100,000. Mack’s marketing team
also launched a comprehensive social media cam- An estimated 90 percent of customers are influ-
paign directing the company’s 174,000 Facebook enced by online reviews, and nearly half of U.S.
social media users actively seek customer service
through social media. As a result, marketing is now

400 Part Three  Key System Applications for the Digital Age

placing much more emphasis on customer satisfac- retail industry rivals in the months that followed.
tion and service. Social media monitoring helps mar- Nordstrom customers remained loyal to the brand.
keters and business owners understand more about Previous Trump tweets calling out other brands such
buyers’ likes, dislikes, and complaints concerning as Lockheed Martin had hurt stock share prices. In
products, additional products or product modifica- September 2016, San Antonio–based Miracle Mattress
tions customers want, and how people are talking provoked angry social media backlash when it posted
about a brand (positive or negative sentiment). a Facebook video advertising a “Twin Towers Sale.”
The video encouraged customers to “remember 9/11”
Prompted by customer social media comments and “get any size mattress for a twin price.” Miracle
about meats other than roast beef, fast-food sandwich Mattress removed the video from its Facebook time-
restaurant chain Arby’s launched a “Meat Mountain” line, and owner Mike Bonanno posted an apology
campaign poster showing various meats other than letter.
roast beef. Arby’s customers mistakenly thought the
poster displayed a new sandwich and, through social Sources: Rob Preston, “Open Road,” Profit Magazine, Spring 2018;
media, indicated they were anxious to try it. Arby’s Melody Hahm, “26-Year-Old Launches Instagram-Fueled Fast
then responded with a new $10 Meat Mountain Fashion Brand,” Yahoo Finance, July 25, 2018; Craig Smith, “844
sandwich. Amazing Facebook Statistics (July 2018) by the Numbers,” Dmr,
July 30, 2018; www.Macktrucks.com, accessed July 29, 2018; Janet
Social media campaigns can be tricky to orches- Morrissey, “Brands Heed Social Media. They’re Advised Not to
trate, and the results are not always predictable. Forget Word of Mouth,” New York Times, November 26, 2017; Farhad
When social followers of Donald Trump called for Manjoo “How Battling Brands Online Has Gained Urgency, and
boycotting Nordstrom for dropping Ivanka Trump’s Impact,” New York Times, June 21, 2017; and Lindsay Friedman,
clothing line from its stores, Nordstrom’s stock price “The 12 Worst Social-Media Fails of 2016,” www.entrepreneur.com,
rose, and the company outperformed many of its September 22, 2016.

CASE STUDY QUESTIONS

1. Assess the management, organization, and tech- 3. Give an example of a business decision in this
nology issues for using social media technology to case study that was facilitated by using social
engage with customers. media to interact with customers.

2. What are the advantages and disadvantages 4. Should all companies use social media technology
of using social media for advertising, brand for customer service and marketing? Why or why
­building, market research, and customer not? What kinds of companies are best suited to
service? use these platforms?

10-4 How has e-commerce affected

business-to-business transactions?

Trade between business firms (business-to-business commerce, or B2B) repre-
sents a huge marketplace. The total amount of B2B trade in the United States in
2019 is estimated to be about $13.5 trillion, with B2B e-commerce (online B2B)
contributing about $6.2 trillion of that amount (U.S. Bureau of the Census, 2018;
authors’ estimates). By 2020, B2B e-commerce is expected to grow to about
$6.9 trillion in the United States.

The process of conducting trade among business firms is complex and re-
quires considerable human intervention; therefore, it consumes significant re-
sources. Some firms estimate that each corporate purchase order for support
products costs them, on average, at least $100 in administrative overhead, in-
cluding processing paper, approving purchase decisions, using the telephone
and fax machines to search for products and arrange for purchases, arranging

Chapter 10  E-commerce: Digital Markets, Digital Goods 401

for shipping, and receiving the goods. Across the economy, this adds up to
trillions of dollars annually spent for procurement processes that could be
automated. If even just a portion of inter-firm trade were automated and parts
of the entire procurement process were assisted by the Internet, literally tril-
lions of dollars might be released for more productive uses, consumer prices
potentially would fall, productivity would increase, and the economic wealth
of the nation would expand. This is the promise of B2B e-commerce. The
challenge of B2B e-commerce is changing existing patterns and systems of
procurement and designing and implementing new Internet and cloud-based
B2B solutions.

Electronic Data Interchange (EDI)

B2B e-commerce refers to the commercial transactions that occur among busi-
ness firms. Increasingly, these transactions are flowing through a variety of
Internet-enabled mechanisms. About 80 percent of online B2B e-commerce is
still based on proprietary systems for Electronic Data Interchange (EDI).
EDI enables the computer-to-computer exchange between two organizations
of standard transactions such as invoices, bills of lading, shipment schedules,
or purchase orders. Transactions are automatically transmitted from one in-
formation system to another through a network, eliminating the printing and
handling of paper at one end and the inputting of data at the other. Each major
industry in the United States and much of the rest of the world has EDI stan-
dards that define the structure and information fields of electronic transactions
for that industry.

EDI originally automated the exchange of documents such as purchase or-
ders, invoices, and shipping notices. Although many companies still use EDI
for document automation, firms engaged in just-in-time inventory replenish-
ment and continuous production use EDI as a system for continuous replenish-
ment. Suppliers have online access to selected parts of the purchasing firm’s
production and delivery schedules and automatically ship materials and goods
to meet prespecified targets without intervention by firm purchasing agents
(see Figure 10.6).

Although many organizations still use private networks for EDI, they are
increasingly web-enabled because Internet technology provides a much more
flexible and low-cost platform for linking to other firms. Businesses can extend
digital technology to a wider range of activities and broaden their circle of trad-
ing partners.

FIGURE 10.6 ELECTRONIC DATA INTERCHANGE (EDI)

Companies use EDI to automate transactions for B2B e-commerce and continuous
inventory replenishment. Suppliers can automatically send data about shipments to
purchasing firms. The purchasing firms can use EDI to provide production and inventory
requirements and payment data to suppliers.

Shipping data

Supplier Payment data Firm
Systems Production/inventory Systems

requirements

Continuous replenishment

402 Part Three  Key System Applications for the Digital Age

Procurement, for example, involves not only purchasing goods and materi-
als but also sourcing, negotiating with suppliers, paying for goods, and mak-
ing delivery arrangements. Businesses can now use the Internet to locate the
lowest-cost supplier, search online catalogs of supplier products, negotiate with
suppliers, place orders, make payments, and arrange transportation. They are
not limited to partners linked by traditional EDI networks.

New Ways of B2B Buying and Selling

The Internet and web technology enable businesses to create electronic store-
fronts for selling to other businesses using the same techniques as used for B2C
commerce. Alternatively, businesses can use Internet technology to create ex-
tranets or electronic marketplaces for linking to other businesses for purchase
and sale transactions.

Private industrial networks typically consist of a large firm using a secure
website to link to its suppliers and other key business partners (see Figure 10.7).
The buyer owns the network, and it permits the firm and designated suppliers,
distributors, and other business partners to share product design and develop-
ment, marketing, production scheduling, inventory management, and unstruc-
tured communication, including graphics and email. Another term for a private
industrial network is a private exchange.

An example is VW Group Supply, which links the Volkswagen Group and
its suppliers. VW Group Supply handles 90 percent of all global purchasing for
Volkswagen, including all automotive and parts components.

Net marketplaces, which are sometimes called e-hubs, provide a single,
digital marketplace based on Internet technology for many buyers and sell-
ers (see Figure 10.8). They are industry-owned or operate as independent in-
termediaries between buyers and sellers. Net marketplaces generate revenue

FIGURE 10.7 A PRIVATE INDUSTRIAL NETWORK
A private industrial network, also known as a private exchange, links a firm to its suppliers,
distributors, and other key business partners for efficient supply chain management and
other collaborative commerce activities.

Firm

Suppliers Distributors

Chapter 10  E-commerce: Digital Markets, Digital Goods 403

FIGURE 10.8 A NET MARKETPLACE
Net marketplaces are online marketplaces where multiple buyers can purchase from
multiple sellers.

Net
Marketplace

• Catalogs
• Sourcing
• Automated

purchasing

• Processing
and fulfillment

Suppliers Buyers

from purchase and sale transactions and other services provided to clients.
Participants in Net marketplaces can establish prices through online negotia-
tions, auctions, or requests for quotations, or they can use fixed prices.

There are many types of Net marketplaces and ways of classifying them.
Some sell direct goods and some sell indirect goods. Direct goods are goods
used in a production process, such as sheet steel for auto body production.
Indirect goods are all other goods not directly involved in the production
process, such as office supplies or products for maintenance and repair. Some
Net marketplaces support contractual purchasing based on long-term relation-
ships with designated suppliers, and others support short-term spot purchas-
ing, where goods are purchased based on immediate needs, often from many
suppliers.

Some Net marketplaces serve vertical markets for specific industries, such
as automobiles, telecommunications, or machine tools, whereas others serve
horizontal markets for goods and services that can be found in many industries,
such as office equipment or transportation.

Exostar is an example of an industry-owned Net marketplace, focusing on
long-term contract purchasing relationships and on providing common net-
works and computing platforms for reducing supply chain inefficiencies.
This aerospace and defense industry-sponsored Net marketplace was founded
jointly by BAE Systems, Boeing, Lockheed Martin, Raytheon, and Rolls-Royce
plc to connect these companies to their suppliers and facilitate collaboration.
More than 125,000 trading partners in the commercial, military, and govern-
ment sectors use Exostar’s sourcing, e-procurement, and collaboration tools for
both direct and indirect goods.

Exchanges are independently owned third-party Net marketplaces that con-
nect thousands of suppliers and buyers for spot purchasing. Many exchanges
provide vertical markets for a single industry, such as food, electronics, or in-
dustrial equipment, and they primarily deal with direct inputs. For example,
Go2Paper enables a spot market for paper, board, and craft among buyers and
sellers in the paper industries from more than 75 countries.

404 Part Three  Key System Applications for the Digital Age

Exchanges proliferated during the early years of e-commerce, but many have
failed. Suppliers were reluctant to participate because the exchanges ­encouraged
competitive bidding that drove prices down and did not offer any long-term re-
lationships with buyers or services to make lowering prices worthwhile. Many
essential direct purchases are not conducted on a spot basis because they re-
quire contracts and consideration of issues such as delivery timing, customiza-
tion, and quality of products.

10-5 What is the role of m-commerce in

business, and what are the most
important m-commerce applications?

Walk down the street in any major metropolitan area and count how many
people are pecking away at their iPhones, Samsungs, or BlackBerrys. Ride the
trains or fly the planes, and you’ll see fellow travelers reading an online news-
paper, watching a video on their phone, or reading a novel on their Kindle. As
the mobile audience has expanded in leaps and bounds, mobile advertising and
m-commerce have taken off.

In 2019, retail m-commerce will account for about 48 percent of all
e-c­ommerce, with about $270 billion in annual revenues generated by retail
goods and services, apps, advertising, music, videos, ring tones, movies, televi-
sion, and location-based services such as local restaurant locators and traffic
updates. M-commerce is the fastest-growing form of e-commerce, expanding at
a rate of 30 percent or more per year, and is estimated to grow to $500 billion by
2022 (see Figure 10.9) (eMarketer, 2018d).

FIGURE 10.9 MOBILE RETAIL COMMERCE REVENUES
Mobile e-commerce is the fastest-growing type of B2C e-commerce and represented
about 34 percent of all e-commerce in 2018. 

Sources: Data from eMarketer chart “Retail Mcommerce Sales, US, (billions) 2018–2022,” eMarketer, 2018d

600

500

Revenue (billions $) 400

300

200

100

0 2017 2018 2019 2020 2021 2022
2016 Year

Chapter 10  E-commerce: Digital Markets, Digital Goods 405

The main areas of growth in mobile e-commerce are mass market retailing
such as Amazon; sales of digital content such as music, TV shows, movies,
and e-books; and in-app sales to mobile devices. On-demand firms such as
Uber (described earlier in this chapter) and Airbnb are location-based ser-
vices, and examples of mobile commerce as well. Larger mobile screens and
more-convenient payment procedures also play a role in the expansion of
m-commerce.

Location-Based Services and Applications

Location-based services include geosocial, geoadvertising, and geoinforma-
tion services. Seventy-four percent of smartphone owners use location-based
services. What ties these activities together and is the foundation for mobile
commerce is the global positioning system (GPS)–enabled map services avail-
able on smartphones. A geosocial service can tell you where your friends
are meeting. Geoadvertising services can tell you where to find the nearest
Italian restaurant, and geoinformation services can tell you the price of a
house you are looking at or about special exhibits at a museum you are pass-
ing. In 2019, the fastest-growing and most popular location-based services are
on-demand economy firms such as Uber, Lyft, Airbnb, and hundreds more that
provide services to users in local areas and are based on the user’s location (or,
in the case of Airbnb, the user’s intended travel location).

Waze is an example of a popular, social geoinformation service. Waze is a
GPS-based map and navigational app for smartphones, now owned by Google.
Waze locates the user’s car on a digital map using GPS and, like other navigation
programs, collects information on the user’s speed and direction continuously.
What makes Waze different is that it collects traffic information from users
who submit accident reports, speed traps, landmarks, street fairs, protests, and
even addresses. Waze uses this information to come up with suggested alterna-
tive routes, travel times, and warnings and can even make recommendations
for gas stations along the way. The Waze app is used extensively by Uber and
Lyft drivers and more than 50 million other drivers in the United States.

Foursquare and new offerings by Facebook and Google are examples of geo-
social services. Geosocial services help you find friends, or your friends to find
you, by checking in to the service, announcing your presence in a restaurant or
other place. Your friends are instantly notified. About 20 percent of smartphone
owners use geosocial services.

Foursquare provides a location-based social networking service to over
60  million registered individual users, who can connect with friends, update
their location, and provide reviews and tips for enjoying a location. Points are
awarded for checking in at designated venues. Users choose to post their check-
ins on their accounts on Twitter, Facebook, or both. Users also earn badges by
checking in at locations with certain tags, for check-in frequency, or for the
time of check-in.

Connecting people to local merchants in the form of geoadvertising is the
economic foundation for mobile commerce. Geoadvertising sends ads to users
based on their GPS locations. Smartphones report their locations back to Google
and Apple. Merchants buy access to these consumers when they come within
range of a merchant. For instance, Kiehl Stores, a cosmetics retailer, sent spe-
cial offers and announcements to customers who came within 100 yards of
their store.

406 Part Three  Key System Applications for the Digital Age

Other Mobile Commerce Services

Banks and credit card companies have developed services that let customers
manage their accounts from their mobile devices. JPMorgan Chase and Bank of
America customers can use their cell phones to check account balances, trans-
fer funds, and pay bills. Apple Pay for the iPhone and Apple Watch, along with
other Android and Windows smartphone models, allow users to charge items to
their credit card accounts with a swipe of their phone. (See our Learning Track
on mobile payment systems.)

The mobile advertising market is the fastest-growing online ad platform,
racking up a forecast $90 billion in ad revenue in 2019 and growing at 20 p­ ercent
annually. Ads eventually move to where the eyeballs are, and increasingly that
means mobile phones and, to a lesser extent, tablets. Google is the largest mo-
bile advertising market, posting about $23 billion in mobile ads or 60 percent of
its total ad revenue, with Facebook number two with $19.4 billion (90 percent
of its total digital ad business). Google is displaying ads linked to cell phone
searches by users of the mobile version of its search engine; ads are embedded
in games, videos, and other mobile applications.

Shopkick is a mobile application that enables retailers such as Best Buy,
Sports Authority, and Macy’s to offer coupons to people when they walk into
their stores. The Shopkick app automatically recognizes when the user has en-
tered a partner retail store and offers a new virtual currency called kickbucks,
which can be redeemed for store gift cards.

Fifty-five percent of online retailers now have m-commerce websites—­
simplified versions of their websites that enable shoppers to use cell phones to
shop and place orders. Virtually all large traditional and online retailers such as
Sephora, Home Depot, Amazon, and Walmart have apps for m-commerce sales.
In 2019, more than 66 percent of m-commerce sales will occur within apps
rather than mobile web browsers. Browser commerce has, at least for mobile
users, become app commerce.

10-6 What issues must be addressed when

building an e-commerce presence?

Building a successful e-commerce presence requires a keen understanding of
business, technology, and social issues as well as a systematic approach. Today,
an e-commerce presence is not just a corporate website but also includes a
social network site on Facebook, a Twitter feed, and smartphone apps where
customers can access your services. Developing and coordinating all these cus-
tomer venues can be difficult. A complete treatment of the topic is beyond the
scope of this text, and students should consult books devoted to just this topic
(Laudon and Traver, 2019). The two most important management challenges in
building a successful e-commerce presence are (1) developing a clear under-
standing of your business objectives and (2) knowing how to choose the right
technology to achieve those objectives.

Develop an E-commerce Presence Map

E-commerce has moved from being a PC-centric activity on the web to a mo-
bile and tablet-based activity. Currently, a majority of Internet users in the
United States use smartphones and tablets to shop for goods and services,

Chapter 10  E-commerce: Digital Markets, Digital Goods 407

FIGURE 10.10 E-COMMERCE PRESENCE MAP

An e-commerce presence requires firms to consider the four types of presence, with
specific platforms and activities associated with each.

Type of Presence Platform Activity

Websites Traditional Search
Mobile Display Apps
Tablet
A liates
Sponsorships

Email Internal lists Newsletters
Social media Purchased lists Updates
Sales
Facebook
Twitter Conversation
Blogs Engagement

Sharing
Advice

O ine media Print Education
TV & radio Exposure
Branding

look up prices, enjoy entertainment, and access social sites, less so to make
purchases. Your potential customers use these various devices at different
times during the day and involve themselves in different conversations, de-
pending what they are doing—touching base with friends, tweeting, or read-
ing a blog. Each of these is a touch point where you can meet the customer,
and you have to think about how you develop a presence in these different
virtual places. Figure 10.10 provides a roadmap to the platforms and related
activities you will need to think about when developing your e-commerce
presence.

Figure 10.10 illustrates four kinds of e-commerce presence: websites,
email, social media, and offline media. You must address different platforms
for each of these types. For instance, in the case of website presence, there
are three platforms: traditional desktop, tablets, and smartphones, each
with different capabilities. Moreover, for each type of e-commerce pres-
ence, there are related activities you will need to consider. For instance,
in the case of websites, you will want to engage in search engine market-
ing, display ads, affiliate programs, and sponsorships. Offline media, the
fourth type of e-commerce presence, is included here because many firms
use multiplatform or integrated marketing by which print ads refer custom-
ers to websites.

Develop a Timeline: Milestones

Where would you like to be a year from now? It’s very helpful for you to have a
rough idea of the time frame for developing your e-commerce presence when
you begin. You should break your project down into a small number of phases
that could be completed within a specified time. Table 10.8 illustrates a one-year

408 Part Three  Key System Applications for the Digital Age

TABLE 10.8 E-COMMERCE PRESENCE TIMELINE

PHASE ACTIVITY MILESTONE
Web mission statement
Phase 1: Planning Envision web presence; determine personnel. Website plan
Phase 2: Website development Acquire content; develop a site design; arrange for
hosting the site. A functional website
Phase 3: Web implementation Develop keywords and metatags; focus on search
engine optimization; identify potential sponsors. A social media plan
Phase 4: Social media plan Identify appropriate social platforms and content for
your products and services. Functioning social media
Phase 5: Social media Develop Facebook, Twitter, and Pinterest presence. presence
implementation A mobile media plan
Phase 6: Mobile plan Develop a mobile plan; consider options for porting
your website to smartphones.

timeline for the development of an e-commerce presence for a start-up com-
pany devoted to fashions for teenagers. You can also find more detail about
developing an e-commerce website in the Learning Tracks for this chapter.

10.7 How will MIS help my career?

Here is how Chapter 10 and this text can help you find a job as a junior
e-c­ ommerce data analyst.

The Company

SportsFantasy Empire, a technology company that creates digital sports compe-
titions, is looking for a recent college graduate to fill a junior e-commerce data
analyst position. SportsFantasy Empire offers players the opportunity to com-
pete through web and mobile devices in fantasy sports contests for cash prizes.
The company was founded in 2012 and is headquartered in Los Angeles, with
additional offices in San Francisco and New York.

Job Description

The junior e-commerce data analyst will work with SportsFantasy Empire’s an-
alytics team to analyze large volumes of data to derive business insights about
the company’s games and customers that will increase revenue. Job responsi-
bilities include:

• Setting up contest sizing that defines the user experience and business
efficiency.

• Optimizing acquisition spending and marketing strategies to drive growth.
• Identifying ways to improve customer gameplay through on-site changes.
• Measuring how new features or site changes are driving changes in customer

behavior.
• Developing standard reporting for key business results, including reports on

contest performance, player activity, segment performance, and key player
performance.

Chapter 10  E-commerce: Digital Markets, Digital Goods 409

Job Requirements

• Bachelor’s degree in engineering, mathematics, business, or a related field
• E-commerce data analytics experience desirable
• Knowledge of statistics
• Demonstrated history of independently developing new insights from data
• Experience with model building, SQL, SAS, or other programming language

desirable
• Strong communication and organizational skills
• Avid fantasy sports player a plus

Interview Questions

1. Do you play fantasy sports? How often? Have you ever worked with
data about fantasy sports? Why do you think you would be a good fit for
this job?

2. What is your background in statistics? What courses did you take? Have you
any job experience where you had to use statistics?

3. Have you ever analyzed data about website performance or online customer
behavior?

4. What do you know about the cost of acquiring a customer through social me-
dia channels (i.e., measuring the average customer acquisition cost on social
networks; acquisition vs. retention costs)?

5. How would you propose working with our non-technical teams in telling a
story about customer data insights so that they are able to drive customer
engagement and loyalty and execute more effectively?

6. What is your proficiency level with SQL or SAS and site analytics
tools? Have you ever used these tools on the job? What did you do with
them?

7. Can you give an example of a problem you solved using data analytics? Did
you do any writing and analysis? Can you provide examples?

Author Tips

1. Review this chapter and also the discussion of search and search engine mar-
keting in Chapter 7. To qualify for this job, you should also have taken course
work in statistics. Course work or on-the-job training in SQL and SAS would
also be helpful.

2. Use the web to do more research on the company. Try to find out more about
its strategy, competitors, and business challenges. Additionally, review the
company’s social media channels from the past 12 months. Are there any
trends you can identify or certain themes the social media channels seem to
focus on?

3. Be prepared to talk about SportsFantasy Empire’s games as well as the games
offered by competitors to show you are familiar with the industry. Inquire
about some of the ways the company fine-tunes its online presence. Be pre-
pared to give an example of how you think a fantasy game could improve its
online presence.

4. Use the web to find examples of data analytics used by fantasy sports
­companies.

410 Part Three  Key System Applications for the Digital Age

REVIEW SUMMARY

10-1 What are the unique features of e-commerce, digital markets, and digital goods?

E-commerce involves digitally enabled commercial transactions between and among organiza-
tions and individuals. Unique features of e-commerce technology include ubiquity, global reach,
universal technology standards, richness, interactivity, information density, capabilities for person-
alization and customization, and social technology. E-commerce is becoming increasingly social,
mobile, and local.

Digital markets are said to be more transparent than traditional markets, with reduced informa-
tion asymmetry, search costs, transaction costs, and menu costs along with the ability to change
prices dynamically based on market conditions. Digital goods, such as music, video, software, and
books, can be delivered over a digital network. Once a digital product has been produced, the cost of
delivering that product digitally is extremely low.

10-2 What are the principal e-commerce business and revenue models?

E-commerce business models are e-tailers, transaction brokers, market creators, content provid-
ers, community providers, service providers, and portals. The principal e-commerce revenue models
are advertising, sales, subscription, free/freemium, transaction fee, and affiliate.

10-3 How has e-commerce transformed marketing?

The Internet provides marketers with new ways of identifying and communicating with millions
of potential customers at costs far lower than traditional media. Crowdsourcing using the wisdom of
crowds helps companies learn from customers to improve product offerings and increase customer
value. Behavioral targeting techniques increase the effectiveness of banner, rich media, and video
ads. Social commerce uses social networks and social network sites to improve targeting of products
and services.

10-4 How has e-commerce affected business-to-business transactions?

B2B e-commerce generates efficiencies by enabling companies to locate suppliers, solicit bids,
place orders, and track shipments in transit electronically. Net marketplaces provide a single, digital
marketplace for many buyers and sellers. Private industrial networks link a firm with its suppliers
and other strategic business partners to develop highly efficient and responsive supply chains.

10-5 What is the role of m-commerce in business, and what are the most important m-commerce
applications?

M-commerce is especially well suited for location-based applications such as finding local ho-
tels and restaurants, monitoring local traffic and weather, and providing personalized location-based
marketing. Mobile phones and handhelds are being used for mobile bill payment, banking, securities
trading, transportation schedule updates, and downloads of digital content such as music, games,
and video clips. M-commerce requires wireless portals and special digital payment systems that can
handle micropayments. The GPS capabilities of smartphones make geoadvertising, geosocial, and
geoinformation services possible.

10-6 What issues must be addressed when building an e-commerce presence?

Building a successful e-commerce presence requires a clear understanding of the business objec-
tives to be achieved and selection of the right platforms, activities, and timeline to achieve those
objectives. An e-commerce presence includes not only a corporate website but also a presence on
Facebook, Twitter, and other social networking sites and smartphone apps.

Key Terms Business-to-consumer (B2C), 385
Community providers, 388
Advertising revenue model, 390 Consumer-to-consumer (C2C), 385
Affiliate revenue model, 392 Cost transparency, 381
Behavioral targeting, 393
Business-to-business (B2B), 385

Chapter 10  E-commerce: Digital Markets, Digital Goods 411

Crowdsourcing, 398 Menu costs, 382
Customization, 381 Micropayment systems, 391
Digital goods, 383 Mobile commerce (m-commerce), 386
Direct goods, 403 Native advertising, 396
Disintermediation, 383 Net marketplaces, 402
Dynamic pricing, 382 Personalization, 381
Electronic Data Interchange (EDI), 401 Podcasting, 387
E-tailer, 387 Price discrimination, 381
Exchanges, 403 Price transparency, 381
FinTech, 392 Private exchange, 402
Free/freemium revenue model, 391 Private industrial networks, 402
Geoadvertising services, 405 Revenue model, 390
Geoinformation services, 405 Richness, 380
Geosocial services, 405 Sales revenue model, 391
Indirect goods, 403 Search costs, 380
Information asymmetry, 382 Social graph, 397
Information density, 381 Social shopping, 397
Intellectual property, 387 Streaming, 387
Location-based services, 405 Subscription revenue model, 391
Long tail marketing, 393 Transaction costs, 380
Market creator, 388 Transaction fee revenue model, 392
Market entry costs, 380 Wisdom of crowds, 398
Marketspace, 380

MyLab MIS

To complete the problems with MyLab MIS, go to the EOC Discussion Questions in MyLab MIS.

Review Questions

10-1 What are the unique features of e-commerce, 10-4 • Define the social graph and explain how it
digital markets, and digital goods?  is used in e-commerce marketing.
10-2 10-5
10-3 • Name and describe four business trends 10-6 How has e-commerce affected business-to-
and three technology trends shaping business transactions? 
e-c­ ommerce today.
• Explain how Internet technology sup-
• List and describe the eight unique features ports business-to-business electronic
of e-commerce. commerce.

• Define a digital market and digital goods • Define and describe Net marketplaces
and describe their distinguishing features. and explain how they differ from
private i­ndustrial networks (private
What are the principal e-commerce business exchanges).
and revenue models? 
What is the role of m-commerce in business,
• Name and describe the principal and what are the most important m-commerce
e-c­ ommerce business models. applications? 

• Name and describe the e-commerce rev- • List and describe important types of
enue models. m-commerce services and applications.

How has e-commerce transformed marketing?  What issues must be addressed when building
an e-commerce presence? 
• Explain how social networking and the
wisdom of crowds help companies im- • List and describe the four types of
prove their marketing. e-­commerce presence.

• Define behavioral targeting and explain
how it works at individual websites and on
advertising networks.

412 Part Three  Key System Applications for the Digital Age

Discussion Questions to change their business models. Do you
agree? Why or why not?
10-7 How does the Internet change consumer
MyLab MIS and supplier relationships? 10-9 How have social technologies changed
MyLab MIS e-commerce?
10-8 The Internet may not make corporations
MyLab MIS obsolete, but the corporations will have

Hands-On MIS Projects

The projects in this section give you hands-on experience developing e-commerce strategies for businesses, using
spreadsheet software to research the profitability of an e-commerce company, and using web tools to research and
evaluate e-commerce hosting services. Visit MyLab MIS to access this chapter’s Hands-On MIS Projects.

Management Decision Problems

10-10 Columbiana is a small, independent island in the Caribbean that has many historical buildings, forts,
and other sites along with rain forests and striking mountains. A few first-class hotels and several
dozen less-expensive accommodations lie along its beautiful white-sand beaches. The major airlines
have regular flights to Columbiana, as do several small airlines. Columbiana’s government wants to
increase tourism and develop new markets for the country’s tropical agricultural products. How can
an e-commerce presence help? What Internet business model would be appropriate? What functions
should the e-commerce presence perform?

10-11 Explore the websites of the following companies: Swatch, Lowe’s, and Priceline. Determine which
of these websites would benefit most from adding a company-sponsored blog to the website. List the
business benefits of the blog. Specify the intended audience for the blog. Decide who in the company
should author the blog and select some topics for the blog.

Improving Decision Making: Using Spreadsheet Software to Analyze a Dot-com Business

Software skills: Spreadsheet downloading, formatting, and formulas
Business skills: Financial statement analysis

10-12 Pick one e-commerce company on the Internet—for example, Ashford, Yahoo, or Priceline.
Study the web pages that describe the company and explain its purpose and structure. Use the
web to find articles that comment on the company. Then visit the Securities and Exchange
Commission’s website at www.sec.gov to access the company’s 10-K (annual report) form showing
income statements and balance sheets. Select only the sections of the 10-K form containing the
desired portions of financial statements that you need to examine and download them into your
spreadsheet. (MyLab MIS provides more detailed instructions on how to download this 10-K data
into a spreadsheet.) Create simplified spreadsheets of the company’s balance sheets and income
statements for the past three years. 

• Is the company a dot-com success, borderline business, or failure? What information provides
the basis of your decision? Why? When answering these questions, pay special attention to the
c­ ompany’s three-year trends in revenues, costs of sales, gross margins, operating expenses, and net
margins.

• Prepare an overhead presentation (with a minimum of five slides), including appropriate spreadsheets
or charts, and present your work to your professor and classmates.

Achieving Operational Excellence: Evaluating E-commerce Hosting Services

Software skills: Web browser software
Business skills: Evaluating e-commerce hosting services

10-13 This project will help develop your Internet skills in evaluating commercial services for hosting an
e-commerce site for a small start-up company.
You would like to set up a website to sell towels, linens, pottery, and tableware from Portugal and are

examining services for hosting small business Internet storefronts. Your website should be able to take secure

Chapter 10  E-commerce: Digital Markets, Digital Goods 413

credit card payments and calculate shipping costs and taxes. Initially, you would like to display photos and de-
scriptions of 40 products. Visit Wix, GoDaddy, and iPage and compare the range of e-commerce hosting services
they offer to small businesses, their capabilities, and their costs. Examine the tools they provide for creating
an e-commerce site. Compare these services and decide which you would use if you were actually establishing
a web store. Write a brief report indicating your choice and explaining the strengths and weaknesses of each
service.

Collaboration and Teamwork Project

Performing a Competitive Analysis of E-commerce Sites

10-14 Form a group with three or four of your classmates. Select two businesses that are competitors in the
same industry and that use their websites for electronic commerce. Visit these websites. You might com-
pare, for example, the websites for Pandora and Spotify, Amazon and BarnesandNoble.com, or E*Trade
and TD Ameritrade. Prepare an evaluation of each business’s website in terms of its functions, user
friendliness, and ability to support the company’s business strategy. Which website does a better job?
Why? Can you make some recommendations to improve these websites? If possible, use Google Docs
and Google Drive or Google Sites to brainstorm, organize, and develop a presentation of your findings for
the class.

414 Part Three  Key System Applications for the Digital Age

A Nasty Ending for Nasty Gal

CASE STUDY

In 2006, Sophia Amoruso was a 22-year-old hitch- Amoruso has been a heavy user of social tools to
hiking, dumpster-diving community college drop- promote her business. When she first started out, she
out with a lot of time on her hands. After reading used MySpace, where she attracted a cult following
a book called Starting an eBay Business for Dummies, of more than 60,000 fans. The company gained trac-
she launched an eBay store called Nasty Gal Vintage, tion on social media with Nasty Gal’s aesthetic that
named after a song and 1975 album by the jazz could be both high and low, edgy and glossy.
singer Betty Davis, second wife of the legendary
Miles Davis. Amoruso took customer feedback very seriously
and believed customers were at the center of ev-
Nasty Gal’s styling was edgy and fresh—a little erything Nasty Gal did. When she sold on eBay, she
bit rock and roll, a little bit disco, modern, but never learned to respond to every customer comment to
h­ yper-trendy. Eight years after its founding, Nasty Gal help her understand precisely who was buying her
had sold more than $100 million in new and vintage goods and what they wanted. Amoruso said that the
clothing and accessories, employed more than 350 content Nasty Gal customers created has always
people, had more than a million fans on Facebook and been a huge part of the Nasty Gal brand. It was very
Instagram, and was a global brand. It looked like a important to see how customers wore Nasty Gal’s
genuine e-commerce success story. Or was it? pieces and the types of photographs they took. They
were inspiring.
When Amoruso began her business, she did
everything herself out of her tiny San Francisco Social media is built on sharing, and Nasty Gal
a­ partment—merchandising, photographing, copywrit- gave its followers compelling images, words, and con-
ing, and shipping. She got up at the crack of dawn to tent to share and talk about each day. They could be
make 6 a.m. estate sales, haggled with thrift stores, a crazy vintage piece, a quote, or a ­behind-the-scenes
spent hours photoshopping the images she styled and photo. At most companies the person manning the
shot photos herself using models she recruited her- Twitter and Facebook accounts is far removed from
self, and ensured that packaging was high quality. senior management. Amoruso did not always au-
thor every Nasty Gal tweet, but she still read every
She would inspect items to make sure they were c­ omment. If the customers were unhappy about
in good enough shape to sell. She zipped zippers, something, she wanted to hear about it right away.
buttoned buttons, connected hooks, folded each gar- At other businesses, it might take months for cus-
ment, and slid it into a clear plastic bag that was tomer feedback to filter up to the CEO. When Nasty
sealed with a sticker. Then she boxed the item and Gal first joined Snapchat, Amoruso tested the water
affixed a shipping label on it. She had to assume that with a few Snaps, and Nasty Gal followers responded
her customers were as particular and as concerned in force.
with aesthetics as she was.
In June 2008, Amoruso moved Nasty Gal Vintage
Amoruso had taken photography classes at a com- off eBay and onto its own destination website,
munity college, where she learned to understand www.nastygal.com. In 2012, Nasty Gal began selling
the importance of silhouette and composition. She clothes under its own brand label and also invested
bought vintage pieces with dramatic silhouettes— $18 million in a 527,000-square-foot national distribu-
a coat with a big funnel collar, a ’50s dress with a tion center in Shepherdsville, Kentucky, to handle its
flared skirt, or a Victorian jacket with puffy sleeves. own shipping and logistics. Venture capitalists Index
Exaggerating everything about the silhouette through Ventures provided at least $40 million in funding.
the angle from which it was photographed helped Nasty Gal opened a brick-and-mortar store in Los
Amoruso produce tiny thumbnails for eBay that Angeles in 2014 and another in Santa Monica in 2015.
attracted serious bidders. She was able to take an
object, distill what was best about it, and then exag- With growing direct-to-consumer demand and
gerate those qualities so they were visible even in its higher inventory replenishment requirements driven
tiniest representation. When the thumbnail was en- by new store openings, Nasty Gal invested in a new
larged, it looked amazing. warehouse management system. The warehouse

Chapter 10  E-commerce: Digital Markets, Digital Goods 415

management system investment was designed to Gal brand was quickly saturated. There was a limit to
increase warehouse productivity and shorten order the number of women Nasty Gal appealed to: Nasty
cycle times so that Nasty Gal’s supply chain could Gal had a California cool, young girl look, and it was
better service its mushrooming sales. (Order cycle unclear how attractive it was in other parts of the
time refers to the time period between placing of United States and around the world.
one order and the next order.) The company selected
HighJump’s Warehouse Management System (WMS) Nasty Gal also wasted money on things that didn’t
with the goal of increasing visibility and overall pro- warrant large expenditures. The company quin-
ductivity while keeping fill rates above 99 percent. tupled the size of its headquarters by moving into a
(The fill rate is the percentage of orders satisfied 50,300-square-foot location in downtown Los Angeles
from stock at hand.) in 2013—far more space than the company needed,
according to industry experts. The company had also
Key considerations were scalability and capabili- opened a 500,000-square-foot fulfillment center in
ties for handling retail replenishment in addition Kentucky to handle its own distribution and logis-
to direct-to-consumer orders. HighJump’s imple- tics as well as two bricks-and-mortar stores in Los
mentation team customized the WMS software to Angeles and Santa Monica. Even in the hyper-trendy
optimize the business processes that worked best for fashion business, companies have to closely monitor
an e-commerce retailer that ships most of its items production, distribution, and expenses for opera-
straight to the customer, with a small subset going to tions to move products at a scale big enough to make
retail stores. The WMS software was also configured a profit. Nasty Gal’s mostly young staff focused too
to support processes that would scale with future much on the creative side of the business.
growth. Picking efficiency and fill rates shot up, with
fill rates above 99 percent, even though order vol- While it was growing, Nasty Gal built its manage-
ume climbed. ment team, hiring sizzling junior talent from retail
outlets such as Urban Outfitters. But their traditional
Nasty Gal experienced tremendous growth retail backgrounds clashed with the start-up mental-
in its early years, being named INC Magazine’s ity. As Nasty Gal expanded, Amoruso’s own fame
­fastest-growing retailer in 2012 and earning a num- also grew, and she was sidetracked by other projects.
ber one ranking in Internet Retailer’s Top 500 Guide in She wrote two books. The first, titled #Girlboss, de-
2016. By 2011, annual sales hit $24 million and then scribed the founding of Nasty Gal and Amoruso’s
nearly $100 million in 2012. However, sales started business philosophy and was adapted by Netflix into
dropping to $85 million in 2014 and then $77 million a show with Amoruso as executive producer. (The
in 2015. Nasty Gal’s rapid expansion had been fueled series was cancelled in June 2017 after just one sea-
by heavy spending in advertising and marketing. son.) Employees complained about Amoruso’s man-
This is a strategy used by many start-ups, but it only agement style and lack of focus.
pays off in the long run if one-time buyers become
loyal shoppers. Otherwise, too much money is spent Amoruso resigned as chief executive in 2015 but
on online marketing like banner ads and paying for remained on Nasty Gal’s board of directors until
influencers. If a company pays $70 on marketing the company filed for Chapter 11 bankruptcy on
to acquire a customer and that customer only buys November 9, 2016. Between 2015 and 2016, Nasty Gal
once from it, the company won’t make money. A had raised an additional $24 million in equity and
company that spends $200 million to make $100 mil- debt financing from venture-focused Stamos Capital
lion in revenue is not a sustainable business. Nasty Partners LP and Hercules Technology Growth Capital
Gal had a “leaky bucket” situation: Once it burned Inc. Even though the funding helped Nasty Gal stay
through its fundraising capital and cut down on mar- afloat, the company still had trouble paying for new
keting, sales continued to drop. inventory, rent, and other operating expenses.

Nasty Gal couldn’t hold onto customers. Some Within weeks of filing for Chapter 11 protection,
were dissatisfied with product quality, but many Nasty Gal sold its brand name and other intellec-
were more attracted to fast-fashion retailers such as tual property on February 28, 2017, for $20 million
Zara and H&M, which both deliver a wider array of to a rival online fashion site, the United Kingdom’s
trendy clothes through online and bricks-and-mortar Boohoo.com. Boohoo is operating Nasty Gal as a
stores at lower prices and are constantly changing standalone website, but Nasty Gal’s stores are clos-
their merchandise. The actual market for the Nasty ing. Boohoo believes Nasty Gal’s arresting style and
loyal customer base will complement Boohoo and

416 Part Three  Key System Applications for the Digital Age

expand global opportunities for growth. Many cus- February 24, 2017; Shan Li, “Nasty Gal, Once a Fashion World
tomers have complained about the quality of fabric Darling, Went Bankrupt: What Went Wrong?,” Los Angeles Times,
and customer service. February 24, 2017; “Case Study Nasty Gal,” HighJump, 2016; and
Yelena Shuster, “NastyGal Founder Sophia Amoruso on How to
Amoruso subsequently turned to developing Become a #GirlBoss,” Elle, May 15, 2014.
Girlboss—a media company that hosts a website,
a podcast, and two annual conferences, called CASE STUDY QUESTIONS
the Girlboss Rally. She also launched the Girlboss
Foundation, which has given out $130,000 to 10-15 How was social media related to Nasty Gal’s
w­ omen-owned small businesses. business model? To what extent was Nasty
Gal a “social” business?
Sources: Cady Drell, “Sophia Amoruso on the Strange and
Difficult Upside of Making Big Mistakes.” Elle, July 24, 2018; 10-16 What management, organization, and tech-
Aundrea Cline-Thomas, “How Girlboss’s Sophia Amoruso nology problems were responsible for Nasty
Continues to Chart Her Career Course,” www.nbcnews.com, Gal’s failure as a business?
July 26, 2018; Sarah Chaney, “How Nasty Gal Went from an
$85 Million Company to Bankruptcy,” Wall Street Journal, 10-17 Could Nasty Gal have avoided bankruptcy?
Explain your answer.

MyLab MIS

Go to the Assignments section of MyLab MIS to complete these writing exercises.

10-18 Describe the six features of social commerce. Provide an example for each feature, describing how a
business could use that feature for selling to consumers online.

10-19 List and describe the main activities involved in building an e-commerce presence.

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