Strategic Management of e-Business Second edition Stephen Chen Australian National University Strategic Management of e-Business Second edition Reviews of the first edition ‘‘Stephen Chen’s book provides great in depth and up-to-date analysis of the strategic management issues that face business organizations as they embrace the Internet revolution. Sucinctly describing the main shifts in business economics and the opportu- nities and threats the digital world presents, Strategic Management of e-Business is the most comprehensive strategic guide to success in the online world this side of the millennium. Business leaders, economists, MBA students and e-commerce consultants alike should all read this book.’’ Peter Spark, CEO, Ecsponent ‘‘As an e-business strategist in an interactive consultancy I am very aware that most books on the subject of e-business either make the error of being too simplistic or get buried in a narrow topic or specific technology. Steve Chen’s book is the first I’ve seen that succeeds in providing a comprehensive coverage of the whole field whilst introducing enough of the technologies and challenges so that readers who get involved in e-business initiatives appreciate what is really involved. Additionally, Dr Chen has selected for us the most insightful pieces of current research and theory to achieve a balance of the pragmatic and the intellectually rigorous, making this a unique asset in understanding this fast-changing and critically important field of contemporary business.’’ Alan Warr, e-Business Strategy Consultant, Rubus ‘‘As well as giving a valuable overview for newcomers to e-business strategy, Stephen Chen’s book combines a powerful synthesis of academic thinking over many years with contemporary illustrations of strategic management issues in e-business. It is both thought- provoking and comprehensive, highlighting the importance of understanding the economic levers and collaboration in developing strategies for the digital economy.’’ Dr Katrina Delargy, E. Consulting, EDS Strategic Management of e-Business Second edition Stephen Chen Australian National University Copyright # 2005 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (þ44) 1243 779777 Email (for orders and customer service enquiries): [email protected] Visit our Home Page on www.wileyeurope.com or www.wiley.com All Rights Reserved. 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If professional advice or other expert assistance is required, the services of a competent professional should be sought. Other Wiley Editorial Offices John Wiley & Sons Inc., 111 River Street, Hoboken, NJ 07030, USA Jossey-Bass, 989 Market Street, San Francisco, CA 94103-1741, USA Wiley-VCH Verlag GmbH, Boschstr. 12, D-69469 Weinheim, Germany John Wiley & Sons Australia Ltd, 33 Park Road, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop #02-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons Canada Ltd, 22 Worcester Road, Etobicoke, Ontario, Canada M9W 1L1 Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Cataloging-in-Publication Data Chen, Stephen. Strategic management of e-business / Stephen Chen. – 2nd ed. p. cm Includes bibliographical references and indexes. ISBN 0-470-87073-7 (pbk. : alk. paper) 1. Electronic commerce – Management. I. Title: Strategic management of ebusiness. II. Title. HF5548.32.C473 2004 658.8072 – dc22 2004007924 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 0-470-87073-7 Project management by Originator, Gt Yarmouth, Norfolk (typeset in 10/12pt Goudy) Printed and bound in Great Britain by Biddles Ltd, King’s Lynn, Norfolk This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production. C ONTENTS PREFACE TO THE SECOND EDITION xi PREFACE TO THE FIRST EDITION xiii ABOUT THE AUTHOR xvii CHAPTER 1 Introduction to e-business 1 Introduction ........................................... 1 Defining and classifying e-businesses ............................ 2 Scope of book.......................................... 3 Political initiatives ....................................... 7 Economic benefits ....................................... 10 The new economy ....................................... 13 Impact on businesses and competitive strategy ..................... 14 Estimated impact of e-commerce on industries ..................... 27 Structure of book........................................ 27 Summary ............................................. 30 References ............................................ 30 Websites ............................................. 31 Self-assessment questions ................................... 31 Discussion questions ...................................... 32 CHAPTER 2 The basics of e-business technology 33 Introduction ........................................... 33 The pre-Internet era...................................... 33 Origins of the Internet .................................... 39 Components of websites ................................... 44 [vi] C ONTENTS Domain names ......................................... 47 Interactive website technologies............................... 49 Website architectures ..................................... 53 Intranets and extranets .................................... 53 Security of transactions .................................... 57 Communication technologies ................................ 58 Multimedia data ........................................ 70 Summary ............................................. 74 References ............................................ 75 Further reading ......................................... 75 Websites ............................................. 76 Key concepts .......................................... 76 Self-assessment questions ................................... 76 Discussion questions ...................................... 77 CHAPTER 3 The markets for electronic commerce 79 Introduction ........................................... 79 Consumer market segmentation ............................... 80 Demographic segmentation.................................. 81 Geographic segmentation................................... 85 Psychographic segmentation ................................. 89 Behavioural segmentation .................................. 91 B2B ................................................ 94 International dominance of the Internet ......................... 96 Summary ............................................. 96 References ............................................ 99 Useful market research websites............................... 99 Key concepts .......................................... 100 Self-assessment questions ................................... 100 Discussion questions ...................................... 100 CHAPTER 4 e-Marketing 101 Introduction ........................................... 101 Accelerated marketing .................................... 101 Virtual marketspace ...................................... 107 Personalized marketing .................................... 113 Interactive marketing ..................................... 125 Community marketing .................................... 132 Combining techniques .................................... 138 Summary ............................................. 143 References ............................................ 143 [ vii ] C ONTENTS Useful websites ......................................... 144 Key concepts .......................................... 144 Self-assessment questions ................................... 145 Discussion questions ...................................... 145 CHAPTER 5 The economics of e-business ................................ 147 Introduction ........................................... 147 More perfect information................................... 147 Productions and distribution costs ............................. 149 Transaction cost reductions ................................. 152 Targeting customers and market segmentation...................... 160 Network externality effects.................................. 163 Digital products and services ................................ 169 Congestion pricing ....................................... 176 Summary ............................................. 179 References ............................................ 180 Further reading ........................................