Chapter 5 EC in Service Industries Prentice

Chapter 5 EC in Service Industries © Prentice Hall, 2000 1

Learning Objectives z. Understand how broker-based services are performed online z. Describe online travel tourism services and their benefits z. Discuss the impact of EC on the travel industry z. Describe the online job market, its drivers and benefits z. Describe the electronic real estate market z. Understand how stock trading is done online and its benefits © Prentice Hall, 2000 2

Learning Objectives (cont. ) z. Discuss cyberbanking, its drivers and capabilities z. Discuss implementation issues of online financial services and its future z. Describe electronic auctions, their benefits, implementation, and impacts z. Describe some innovative applications in the service industries z. Discuss the future of intermediaries and their role in cyberspace © Prentice Hall, 2000 3

Opening Vignette: Ordering Journals Electronically z. How a large university automated the purchasing of magazines and journals, saving $365, 000/year z. Direct Marketing: Buyer-to-seller; orders and payments z. Market maker charges $5/transaction Vs. about $40 (conventional agents) z. Ordering time reduced by up to 80% 4

Opening Vignette: Ordering Journals Electronically (cont. ) University of California EDI Order + Payment Browsing EDI Publisher Fee Payments Automated Clearing House (ACH) Buyer’s Bank Buyer BANC ONE EDI, Internet Order OM Transact Electronic Catalogs BANC ONE Rowe. Com System Publisher’s Bank $5 Fee Rowe. Com’s Account Intermediary Seller Electronic Commerce in Magazine Ordering 5

Broker-Based Services z Brokers work as intermediaries between buyers and sellers z Agents basically make the markets z Agents provide many services z Most of the value-added tasks of brokers can be automated z Major electronic agent-based services ytravel yemployment yreal estate ystocks yelectronic auctions yat-home banking yinsurance © Prentice Hall, 2000 6

Broker-Based Services (cont. ) z. Service Industries Vs. Manufacturing and Product’s Retailing y. Service Industries xpure EC substantially reduced cost xbank and brokerage houses • possible digitization of the entire process xtravel and real estate agents • viewing an online video clip or seeing photos of a hotel or a house for sale y. Manufacturing and Product’s Retailing xphysical delivery cost may be high © Prentice Hall, 2000 7

Travel and Tourism Services z. By the year 2000, close to 25 percent of all business-to customer Internet commerce will be related to tourism z. The Internet is an ideal place to plan, explore, and arrange almost any trip z. IBM’s vision of seamless electronic travel using smart cards © Prentice Hall, 2000 8

Travel and Tourism Services (cont. ) z. Services Provided Providing maps Information and booking of airlines, hotels, cars, and even golf courses Pictures of major attractions Information about entertainment and ticket Fare comparisons purchasing (such as 360 degree www. ticketmaster. com) video tours of Tips provided by people top destinations that experienced certain situations (like a visa Electronic Travel Converting 200 problem) magazine currencies © Prentice Hall, 2000 9

Travel and Tourism Services (cont. ) Frequent Fare tracker (free flier deals Special discount e-mail alerts on Restaurant reviews information low fares) Current status Major international news of flights Chat rooms (real time) and bulletin Worldwide boards Special business and Travel news interest places locator Shopping for travel vacations Bed and breakfast accessories and E-mail to recommendations books intermediary Driving directions in Experts’ options the US Weather watch © Prentice Hall, 2000 10

Travel and Tourism Services (cont. ) z. Benefits and Limitations z. Benefits z. Limitations y. Free information is tremendous y. Free information is accessible anytime y. Substantial discounts y. Not all people use the Internet y. It may take a long time to find what you want y. People are still reluctant to provide credit card numbers © Prentice Hall, 2000 11

Travel and Tourism Services (cont. ) z. Corporate Travel: New Business Model z. The Impact of EC on the Travel Industry y. Porter’s framework of competitive advantage (the five forces) y. Focus: xenvironment xcompetitive responses xfirm’s strategy y. The industry is clearly transformed y. Taking away some functions traditionally performed by travel agents © Prentice Hall, 2000 12

Travel and Tourism Services (cont. ) z. Impacts on the industry y. Multimedia helps customers understand the products y. Offering of lower-cost trips y. Providing a more personalized service y. Saving money in a paperless environment y. Increasing the convenience of getting information at home y. Supporting a customer-focused strategy (such as targeted advertisement and integration of products); push information to customers © Prentice Hall, 2000 13

Travel and Tourism Services (cont. ) z. Travel agencies, as we know them today, will disappear z. Only their complex value-added activities will not be automated z. These complex activities will be performed by a new breed of intermediates © Prentice Hall, 2000 14

Travel and Tourism Services (cont. ) z. The Future y. Collaborative organizational process performed by multiple organizational intelligent agents y. Acting autonomously y. Work cooperatively y. Work collectively to achieve the collective goal y. Example — How will your next vacation be planned, booked and paid for? © Prentice Hall, 2000 15

The Employment Placement Market z. Job markets y. Employers are looking for employees with specific skills, and individuals are looking for a job y. Very volatile market y. Moved to the Internet y. Millions of job seekers, hundred of thousands of jobs © Prentice Hall, 2000 16

The Employment Placement Market (cont. ) z. Shortcomings of the Non-Internet Job Market y. Cost—Classified ads are expensive. y. Life cycle— Unless renewed, at an additional cost, the life of the ads is only days or weeks. y. Place— Most ads are local. Nationwide ads are very expensive. International ads are even more expensive. y. Minimum information— Because of the high cost, the information provided is minimal and may not appeal to some job seekers. y. Search— It is very time consuming for individuals to find all relevant newspapers. A trip to a library results in finding only major out of town newspapers. © Prentice Hall, 2000 17

The Employment Placement Market (cont. ) y. Finding applicants— Most job seekers, in the pre Internet era, did not place ads about their availability. Some sent unsolicited letters with resumes. This situation made it difficult for companies to find employees with special skills. They had to use employment agencies and pay them high commissions. y. Matching— It was difficult to match candidates to open jobs as well as to match supply and demand. y. Lost and dated material— Some applications or letters of response tended to get lost, or arrive late. A letter in a big city may travel two weeks to arrive at a distance of a few blocks. y. Speed— Communication by mail is slow and so is the processing of a large number of applications. Frequently, employers lose good employees, since by the time the application is processed, the applicant had taken another job. Similarly, applicants accept less desirable jobs because they are afraid to wait too long. © Prentice Hall, 2000 18

The Employment Placement Market (cont. ) z. The Internet Job Market y. The Internet offers a perfect environment; it is especially effective for technologyoriented jobs. x. Job seekers x. Job offerers x. Recruiting firms x. Government agencies and institutions © Prentice Hall, 2000 19

The Employment Placement Market (cont. ) z. The Advantage of the Electronic Job Market y. For job seekers x. Ability to find very detailed and timely information on a large number of jobs world-wide x. Ability to quickly communicate with potential employers x. Ability to post resumes for large-volume distribution x. Ability to search for jobs quickly from any place at any time x. Obtain several support services at no cost • writing resume career development how to interview x. Find employer profile & industry guides • www. valuereports. com © Prentice Hall, 2000 20

The Employment Placement Market (cont. ) y. For employers x. Ability to advertise to a large number of job seekers x. Ability to save on advertisement costs x. Lower the cost of processing (using electronic application forms) x. Ability to provide greater ‘equal opportunity’ for job seekers x. Ability to find highly skilled employees x. Ability to conduct tests quickly, online x. Ability to change and update ads quickly x. Ability to fill up positions rapidly x. Interviewing from distance © Prentice Hall, 2000 21

The Employment Placement Market (cont. ) z. The Limitations of the Electronic Job Markets y. Many people do not use the Internet y. Security y. Privacy y. Lack of face-to-face contact © Prentice Hall, 2000 22

The Employment Placement Market (cont. ) z. Major Services Available on the Net y. Finding a job y. Writing and posting resumes y. Career planning y. Newsgroups z. The Intranet Job Market y. Most companies organize an internal electronic job market y. Openings are posted for employees to look at, and search engines enable managers to identify talents even if the people were not actively looking for a job change © Prentice Hall, 2000 23

Real Estate: From Virtual Realtors to Virtual Reality z. You can view many properties on the screen z. You can sort and organize properties z. You can find detailed information about the properties z. You can search, compare and apply for loans © Prentice Hall, 2000 24

Real Estate: From Virtual Realtors to Virtual Reality (cont. ) z. Real Estate Applications y. International Real Estate Directory and News is the most comprehensive Web site www. ired. com y. National listing of real estate properties www. cyberhomes. com y. Commercial real estate directory www. comspace. com y. The complete real estate software catalog www. mnink. com/re/cover. html © Prentice Hall, 2000 25

Real Estate: From Virtual Realtors to Virtual Reality (cont. ) z. Real Estate Applications y. Mortgage comparisons and calculations and other financing information; mortgage application www. eloan. com ; www. homeshark. com y. Searching residential real estate in multiple databases www. homescout. com y. Real estate related maps are available on: www. mapquest. com y. Automating the closing of real estate transactions, which is overwhelmed by paperwork © Prentice Hall, 2000 26

Real Estate: From Virtual Realtors to Virtual Reality (cont. ) z. Real Estate Applications y. The National Association of Realtors, www. realtor. com has links to property listings in all major US cities y. To find how much house you can afford, consult: www. replace. com/links. html y. Mortgage brokers can pass on loan applications over the Net and receive bids from lenders that want to issue the mortgages © Prentice Hall, 2000 27

Real Estate: From Virtual Realtors to Virtual Reality (cont. ) z. Real Estate Applications y. To find mortgage interest rates online use: l l l www. bankrate. com www. eloan. com www. quickenmortgage. com y. To rent an apartment or a house try www. rent. net Several additional services are available including a virtual walk through of some listings © Prentice Hall, 2000 28

Trading Stocks Online z. Costs between $7 and $20 per transaction (Vs. $30 - $100 in traditional brokerage) z. No waiting on busy telephone lines z. No oral communication, less chance for errors z. Place orders from anywhere, any time, day or night z. No biased broker to push you z. Considerable amount of free information © Prentice Hall, 2000 29

Trading Stocks Online (cont. ) z. E*Trade, Schwab Online Order is placed, as described earlier, on an electronic form from any computer with access to the Web, anywhere in the world. Order is transferred to Schwab’s floor brokers at the NYSE, who take it to the specialist, who finds the best price and, if satisfactory, the order is fulfilled. The order is routed to Schwab’s host computer in San Francisco and, within a split second, forwarded to the trading floor of the New York Sock Exchange (NTSE). Yes Is the order larger than 30, 000 shares? No Order is automatically transferred to a specialist and fulfilled based on the bid and ask prices. In a few seconds, (most cases), Schwab confirms that trade and the price, relaying the information to the investor’s PC. © Prentice Hall, 2000 30

Trading Stocks Online (cont. ) z. Investment Information y. For municipal bond pricing see : www. bondmarkets. org and www. investinbonds. com y. For overall market information and many links see: www. cyberinvest. com y. For free Gurus’ advice see: www. upside. com y. For stock screening and evaluation try: www. marketguide. com ywww. aaii. com provides articles from the Journal of the American Association of Individual Investors © Prentice Hall, 2000 31

Trading Stocks Online (cont. ) ypomaven. com reports the latest findings and pricing of IPOs y. For chart lovers try www. bigcharts. com y. For mutual funds evaluation and other interesting investment information see www. morningstar. net y. Almost anything that you need will be provided to you by www. yahoo. com ywww. firstcall. com provides earning estimates and much more z. Initial public Offerings (IPOs) y. Spring Street Brewing © Prentice Hall, 2000 32

Cyberbanking and Personal Finance z. Electronic banking y. Saves time and money for users y. Offers an inexpensive alternative to branch banking y. Application Case: Cyberbanking at Wells Fargo © Prentice Hall, 2000 33

Cyberbanking and Personal Finance (cont. ) z. Implementation Issues in Banking and Online Trading y. Securing Financial Transactions x. Application Case: Security at Nations. Bank B of A Web Site Customer’s Computer Encrypted SSL Session & Digital Certificate Verification Initiated External Firewall Logon Screen • User ID • User Password B of A Web Server Internal B of A Firewall Application Server Bank of America Security System © Prentice Hall, 2000 34

Cyberbanking and Personal Finance (cont. ) y. Using the Extranet y. Imaging Systems y. Pricing Online Vs. Offline Services y. The Future of Banking xbuilding alliances quickly with banks, and software vendors, and information providers xeffective outsourcing without neglecting to build in -house skills, particularly with respect to customer information systems xfocusing on the profitable customers to provide broad channels for services and products xkeeping a central role in the payment environment © Prentice Hall, 2000 35

Alternative Strategies for Banking y. Customers’ Agents— banks unable to achieve economies of scale x. Offer customers the widest possible choices, including products from multiple sources, and provide the customers with integrated information services y. Product Manufacturers— banks able to achieve economies of scale x. It will strengthen a trend that can already be seen in a number of product segments and in core processing services for small and medium sized institutions y. Integrated Players— banks with a strong brand position from manufacturing to delivery x. Many banks will adopt a hybrid strategy, but every player needs to make crucial decisions about which areas are strategically too risky to outsource and which capabilities need to be built up inhouse © Prentice Hall, 2000 36

Billing Online z. Automatic transfer of mortgages y. This method has existed for several years. The payer authorizes its bank to pay the mortgage, including tax escrow payments. z. Automatic transfer of funds to pay monthly utility bills y. As of fall 1997, the city of Long Beach has allowed its customers to pay their gas and water bills automatically form their bank accounts. y. In 1999, many utility companies worldwide, including those in Hong Kong, allow customers to pay from bank accounts, or ATMs. © Prentice Hall, 2000 37

Billing Online (cont. ) z. Paying bills from online banking account y. Such payments can be made into any bank account. Many people pay their monthly rent and other bills directly into the payee’s bank accounts. Bill Consolidator Billers Phone Credit Card Utility Consumer © Prentice Hall, 2000 38

Billing Online (cont. ) z. A merchant-to-customer direct billing y. Under this model, a merchant like American Express posts bills on its Web site, where customers can view and pay them. This means that the customers have to go to many Web sites to pay all their bills. Several utilities in Los Angeles allow customers to pay bills on the utilities’ Web site, charging customers 20 cents per transaction, which is less than the price of a postage stamp. © Prentice Hall, 2000 39

Billing Online (cont. ) z. Using an intermediary y. According to this model, a third party like MSFDS (Microsoft and First Data Corporation) consolidates all bills related to each customer in one site, and in a standard format. Collecting a certain commission, this intermediary makes it convenient both for the payee and payer to complete transactions. This model is of interest to vendors such as E*Trade, and Intuit. z. Personal finance online y. Available from many banks and other financial institutions, frequently free of charge. © Prentice Hall, 2000 40

Auctions: From Theory to Practice z. Used when the conventional marketing channels are ineffective or inefficient z. Offer trading opportunities for both buyers and sellers which are not available in the conventional channels z. Internet provides much cheaper infrastructure with many more involved sellers and buyers z. Individual consumers and corporations alike can participate in this rapidly growing and very convenient form of electronic commerce © Prentice Hall, 2000 41

Auctions: From Theory to Practice (cont. ) z. Types of Auctions Auction Type Co-ordination Mechanism Price Discovery Buyer Role Short term acquisition of resources, e. g. for demand peaks, auction as a mechanism to achieve an equilibrium Supplier Role Short term allocation of Exposing items for resources, load balance sale to a sufficient breadth of demand, hope for a high price Auctioneer/ Often electronic auction Intermedi- without auctioneer ary Role Allocation Mechanism Distribution Mechanism Clearance of inventory Attention, direct sales channel, public relations; possible side motive: charity Achieve high breadth and depth of the auctions, high trading volume results in high returns, competitive advantage over other auctions Limited role because of 1: n supplier buyer relation; possible function as service provider for the supplier side Often experts/ Bargain hunting, professional collectors gambling motive trying to acquire rare items at a reasonable price Achieve high breadth and depth of the auctions, high trading volume results in high returns, competitive advantage over other auctions © Prentice Hall, 2000 Bargain hunting, gambling motive; possible side motive: charity 42

Auctions: From Theory to Practice (cont. ) z. Limitations of traditional auctions y. Last only a few minutes for each item sold y. Give buyers little time to make a decision y. The bidders do not have much time to examine the goods y. Exclude many potential bidders y. May be complicated for sellers to move goods to the auction site y. Commissions are fairly high (rent, advertising, auctioneer and other employees) © Prentice Hall, 2000 43

Auctions: From Theory to Practice (cont. ) z. Electronic Auctions y. Early auctioning done on local area networks xthe auctioning of pigs in Taiwan and Singapore xthe auctioning of flowers in Holland xthe auctioning of cars in Japan y Auctions on the Internet started in 1995 xsimilar to offline auctions, except for the fact that they are done on a computer xsome last days, others a short time xdetailed information is available xstart bidding by sending e-mail or filling out an electronic form xnames of bidders are kept coded to maintain privacy © Prentice Hall, 2000 44

Auctions: From Theory to Practice (cont. ) z. Electronic Auctions y. Auctioning methods x. Yankee method x. Dutch (Reverse bidding) method x“Straight sale” method y Examples xwww. usaweb. com/auction. html ; a directory of sites, search x. Onsale, e. Bay, u. Bid © Prentice Hall, 2000 45

Auctions: From Theory to Practice (cont. ) z. Benefits and Limitations y. Benefits x. For seller y. Limitations x. Inability to • Sells goods efficiently physically see the • Sells goods with little action or items effort x. Possibility of • Creates a greater range of potential buyers fraud • Sells excess inventories x. Less competitive quickly via this process atmosphere may x. For buyers prevail on the Net • Gets a huge variety of goods • Finds quality goods for largely discounted prices © Prentice Hall, 2000 46

Impacts Parameter Impact of the Web Auctioneer Lower entry barriers, opportunity for direct sales Access rules Customizable, theoretically millions of potential customers can be reached Items auctioned Focused product segments can be auctioned off, the technology extends the complexity of the product description Trading rules Execution process The trading rules reflect the lack of a guaranteed service For digital products the entire trading cycle can be handled on the Web; for physical products the trading process and the physical logistics of the trade objects can be separated, leading to a reduction of costs © Prentice Hall, 2000 47

Online Publishing z. The electronic delivery of newspapers, magazines, news, and other information through the Internet z. Online Publishing Today and Tomorrow y. Today— mainly used for disseminating information and for conducting sales transactions interactively y. Tomorrow— include more customized material that the reader will receive free, or will pay for © Prentice Hall, 2000 48

Online Publishing (cont. ) z. Publishing Modes ynewspapers, magazines, news, textbooks, music, artwork, video clips, and movies z. Publishing Methods yonline archive approach— a digital archive such as library catalogs and bibliographic databases ynew medium approach— add extra comprehensiveness to any issue or topic ypublishing intermediation approach— an online directory for news services ydynamic or just-in-time approach— create content in real-time and transmitted on the fly © Prentice Hall, 2000 49

Knowledge Dissemination z. Virtual Teaching and Universities y. Many universities are offering limited courses and degrees but use innovative teaching methods and multimedia support y. MBA program in Hong Kong xlectures are delivered as an interactive TV (i. TV) xstudents can decide what and when they want to ‘attend’ the lecture xlecture, support material, exercises etc. are provided on the Web © Prentice Hall, 2000 50

Knowledge Dissemination (cont. ) z. Online Consulting y. Medical advice— provide consultation with top experts y. Management consulting— provide accumulated expertise from knowledge bases y. Legal advice— delivery of legal consultation services to business has considerable prospects y. Financial advice— offer extensive financial advice y. Other service online xinsurance, healthcare, future exchanges, matchmaking, venture capital, finding a college, digital delivery of documents, and electronic stamps © Prentice Hall, 2000 51

The Impact on Intermediaries and Their Changing Roles z. Change the role of agents to : y. Assist in comparison shopping from multiple sources y. Providing total solutions by combining services from several vendors y. Providing certifications and trusted third party control and evaluation systems © Prentice Hall, 2000 52

The Impact on Intermediaries and Their Changing Roles (cont. ) z. Issues that could impact the future of the intermediaries y. The success of intelligent agents— In addition to the travel intelligent agents, there agents to support job matching and to interpret resumes. The more intelligent the software agents will be, the less you will need human agents. y. Customer attitudes and behavior are important— If you have good experience with online insurance or stock purchasing, or with virtual travel agencies would you ever return to use a human agent? © Prentice Hall, 2000 53

The Impact on Intermediaries and Their Changing Roles (cont. ) z. New roles of electronic marketing intermediaries y. To extend what we are familiar with in physical markets to the virtual world (e. g. , search services and electronic malls) y. To extend payment clearing functions into the Internet (e. g. electronic cash and digital credit card services) © Prentice Hall, 2000 54

Managerial Issues z. Effectiveness of out-of-town recruitment z. Privacy may be in danger z. International legal issues may impact services more than products z. Ethical issues are prevalent in services z. The intermediaries and their roles are changing © Prentice Hall, 2000 55