C H A P T E R 1
Introduction to digital business and e-commerce
Table of contents
Exercises 15
Activity answers 21
Learning outcomes
After completing this chapter the reader should be able to:
Define the meaning and scope of digital business and e-commerce and their different
elements
Summarise the main reasons for adoption of digital business and barriers that
may
restrict adoption
Outline the ongoing business challenges of managing digital business in an
organisation, particularly online start-up businesses
Management issues
The issues for managers raised in this chapter include:
How do we explain the scope and implications of digital business to staff?
What is the full range of benefits of introducing digital business and what are the risks?
How do we evaluate our current digital business capabilities?
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Chapter at a glance
Main
topics
The impact of electronic communications on traditional businesses
What is the difference between digital business and e-commerce?
Case
studies
1.2 eBay the worlds largest online business
Suggested teaching and learning approaches
Notes on use of Figures in slides:
Please refer to the slides
prepared
for each chapter when reading this section. The headings
below are intended to mirror those in the text to assist cross referencing.
Slides within the deck focus on line and block diagrams to help lecturers explain and discuss
issues.
We have not included the screen capture slides since it is clearer for lecturers to visit the
example sites or others during lecturers.
The opportunities of digital business?
Start by generating interest in the innovation made possible by the web through familiar
The challenges of digital business management
These can be discussed by asking students to read the Facebook Case study 1.1 and asking
Chaffey, Digital Business and E-Commerce Management, 6th edition,
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Typical issues to discuss with students include:
The rate of innovation techniques like social media and search engine marketing
evolve
each month so companies can lose market share
Reviewing new business and revenue models
The impact of electronic communications on traditional business
Lecturers can introduce with the Andy Grove quote to show how impact varies by business type
or review changes in communications and behaviour based on the definitions about:
ZMOT
Inbound marketing
Content marketing
Also review operational risks using a blank slide encouraging students to fill in the gaps:
Poor site availability or performance
Products unavailable although advertised
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What is the difference between digital business and e-commerce?
Use Figures 1.4 and 1.5 to agree differences between e-commerce and digital business
It is also useful to ask different groups to identify the different types of sites defined in Activity
1.3.
1. Transactional e-commerce site
3. Brand building site
5. Social network.
Of course, these arent mutually exclusive most sites will have elements of all of these.
Digital marketing
Introduce
the different type of Paid-Owned and Earned media (Figure 1.7) and the six key
types of digital marketing communications (Figure 1.8) which need prioritisation of
investment and management to achieve online visibility for a brand.
Digital business opportunities
Box 1.1 introduces the ReachRichnessAffiliation model for success.
Drivers of digital technology adoption
Consumer adoption (listing drivers and barriers to adoption) can be discussed using the
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Risks and barriers to digital business adoption
Consumer adoption (listing drivers and barriers to adoption) should also be discussed,
perhaps through taking an example such as grocery e-retail and relating this to students
Case studies
Case study 1.1 The
Facebook
business model
Note Updates to this case study are provided at:
http://www.smartinsights.com/social-
media-marketing/facebook-marketing/facebook-case-study/
.
Questions
1. As an investor in a social network such as Facebook, which financial and customer-
related metrics would you use to assess and benchmark the current business
success and future growth potential of the company?
From comments in the case study, the main revenue model is ad-based advertising (CPC and
CPM). Facebook has said it will not sell customer data and there is no indication of affiliate-
related models.
Customer-related metrics are related to engagement which indicates capability to sell ad space
not simply users, but active returning users and the number of pages viewed per day. The
proportion of ad inventory sold is also important.
A basic answer will provide:
Understanding of financial metrics. Revenue, costs, growth.
2. Complete a situation analysis for Facebook focusing on an assessment of the main
business risks which could damage the future growth potential of the social network.
Typical risks are:
Ad
revenue limited because of difficulty of engaging audience in ads.
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Technical
problems with scalability leading to performance problems and increased
technical costs.
3. For the main business risks to Facebook identified in Question 2, suggest
approaches the company could use to minimise these risks.
Ad Revenue review different forms of advertising. Test with users and advertisers.
Privacy. Explain clearly at signup. Test changes to use of data with user-group of trusted
Case study 1.2 eBay the worlds largest online business?
Updates to the eBay case study are available at: http://www.davechaffey.com/E-
commerce-Internet-marketing-case-studies/eBay-case-study-e-commerce.
Questions
1. How the characteristics of digital media have supported eBays growth.
The particular characteristics of digital media compared to traditional media that are important
to eBay are straightforward:
Change from a one-to-many communication model to one-to-one or many-to-many
communication model.
The ability to create user-generated content listing products is also related to the one-to-one
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2. How strategic decisions have supported growth.
As with other cases based on SEC filings that is, United States Securities and
Exchange
Commission submission, this case is useful for showing how growth is
dependent not only on
exploiting the right opportunities but also is about managing risks
successfully.
Students may structure strategic decisions in different ways according to the level of course they
are following, but since the case is early on in the book, they could be advised to simply look
for success factors. Alternatively, if they have completed Chapter 5 on Strategy and Chapter 8
on the Marketing mix (p. 382), then these provide alternative frameworks.
Strategic success factors that students may mention include the following:
Branding a distinctive brand the earlier brand name was perhaps less appropriate
although more direct.
First mover advantage gaining a critical mass through the foresight of the owner.
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Introduction to how to use Questions for Debate in classes
The text
below
shows how the debate can be introduced for students. This example is
taken
from an approach we developed at the University of Derby. Students were assessed
on their presentations and contribution.
Two debates each week will take place during normal tutorial sessions. Each debate will be
argued between two groups of two or three students.
For each debate, the format will be as follows:
An initial vote will be taken amongst the non-presenting members of the tutorial group
for an initial benchmark.
Assessment
Assessment
will be made by the tutor of each presenters performance. Criteria will include
the
following:
Str
eng
th of argument
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Response to questions and counter arguments
Questions for debate
Debate 1.1 How new is the digital business concept?
Digital business is just a new label there is no distinction between the role of digital
business and traditional information systems management.
Summary of arguments for are as follows:
The tools are the same hardware, software and communications technology are not new
witness use of EDI (Chapter 3)
IS strategies have always looked at portfolio of applications across the business and links
with third parties and how they can be utilised for competitive advantage (Chapter 4)
Debate 1.2 Limited SME adoption of digital business
Adoption of digital business by established SMEs is generally less than that in larger
businesses. This is principally a consequence of the negative attitude of managing
directors and CEOs to the business benefits of information and communication
technology (ICT).
Summary of arguments for are as follows:
Refer to the International Benchmarking study data in Chapters 4 and 6 which show that
SME adoption is lower than larger businesses.
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Look at the arguments presented in benchmarking data in Chapter 1 many of these
arguments show that the benefits on investment are not clear.
Summary of arguments against are as follows:
More a matter of resources would like to invest, but there are other priorities; not enough
Exercises
Self-
assessment questions
1. Distinguish between e-commerce and digital business.
This can best be explained by referring to different elements shown in Figure 1.2 that:
sell-side e-commerce;
buy-side e-commerce;
2. Explain what is meant by buy-side and sell-side e-commerce.
3. Explain the scope and benefits of social media and social commerce to an
organisation of your choice.
The scope of social media can be explored using this classification described in the chapter
when social media is first introduced:
1. Social networking
3. Social sharing
4. Social news
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6. Company user-generated content and community.
The benefits can be explained with regard to the customer life cycle and RACE mnemonic
described later in the book, i.e.
4. Summarise the consumer and business adoption levels in your country. What seem
to be the main barriers to adoption?
This page has 10 key sources for the latest digital marketing adoption levels:
5. Outline the reasons why a business may wish to adopt e-commerce.
The 6Cs are a good framework here:
Cost reduction less use of physical resources and staff.
New capability for example, to sell into an overseas market.
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6. What are the main differences between business-to-business and business-to–
consumer e-commerce?
Please refer to the table below for a summary of the differences. Note that this table was
originally included in earlier editions of the book.
Table:
Differences
in characteristics of B2C and B2B trading
Characteristic B2C B2B
Proportion of adopters
with access
Low to medium High to very high
Complexity of buying
decisions
Relatively simple individual and
influencers
More complex buying
process involves users,
specifiers, buyers, etc.
7. Summarise the impact of the introduction of digital business on different aspects of
an organisation.
The McKinsey 7S model is a useful framework for looking at the different aspects of a business
that may be affected by the move to digital business.
Strategy new strategic responses are required.
Structure new structures and responsibilities may be required.
Systems new information systems and new processes will be required.
8. What is the relevance of intermediary or influencer sites to a B2C company?
Companies must think about whether they are represented on such intermediaries. If they are
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Essay and discussion
questions
1. Suggest how an organisation can evaluate the impact of digital technology on its
business. Is it a passing fad or does it have a significant impact?
Suggested approach:
This is covered by the situation analysis in Chapters 5 (p. 250) and 8 (p. 391).
Situation analysis should concentrate on the micro-environment (Figure 2.1) including demand
2. Explain the concepts of social media and social commerce and how they can assist
organisations in reaching their objectives.
The scope of social media can be explored using this classification described in the chapter
when social media is first introduced:
1. Social networking
3. Social sharing
5. Social streaming
6. Company user-generated content and community.
The benefits can be explained with regard to the customer life cycle objectives of business
using the RACE mnemonic described later in the book, i.e.
Reach audience social media sharing gives amplification of a message through
sharing.
Encourage interaction lead to lead or sale includes interactions with share buttons, or
completion of forms.
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3. Similar benefits and barriers exist for the adoption of sell-side e-commerce for both
B2B and B2C organisations. Discuss.
It is recommended that students review the common benefits initially from the point of view of
the business using e-commerce to sell services. Then look at exception by business type.
Common benefits?
Wider, potentially global reach
Opportunities to improve brand preference through content and services
Lower cost of reach (e.g. through search engine optimisation)
4. Evaluate how social media marketing techniques can be applied within an
organisation and with its stakeholders.
This question is similar to Question 2 in this section since it asks how social media can applied
5. The web presence of a company has similar aims regardless of the sector in which
the company operates.
This question can be tackled in different ways, e.g. functions by position in customer-life
cycle/conversion funnel, e.g. RACE.
Alternatively, but similarly, the answer can review the opportunities by methods of enhancing
the brand:
Brand awareness, e.g. better online visibility in search engines and social media
Chaffey, Digital Business and E-Commerce Management, 6th edition,
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Examination
questions
1. Explain the relationship between the concepts of e-commerce and digital business.
E-commerce is generally understood to be a sub-set of digital business. E-commerce
2. Distinguish between buy-side and sell-side e-commerce and give an example of the
application of each.
3. Summarise three reasons why a company may wish to introduce e-commerce.
Cost reduction in purchasing or selling through less human involvement and lower
4. Describe three of the main barriers to adoption of e-commerce by consumers and
suggest how a company could counter these.
Security fears fraudulent use of credit cards.
Privacy fears personal data held by companies or criminals.
5. Outline the internal changes a company may need to make when introducing digital
business.
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6. Name three risks to a company that introduces buy-side e-commerce.
Payback period may be long due to cost of implementation.
7. Name three risks to a company that introduces sell-side e-commerce.
Payback period may be long due to cost of implementation.
Activity answers
Activity 1.1 Innovative digital businesses
1. Think about the innovation that you have witnessed during the time you have used the
Internet and World Wide Web. What would you say are the main sites used in your
country which have changed the way we spend our time or buy online?
2. We talk about these businesses being successful, but what is success for a start-up
digital business?
For established businesses, success is stable or growing profitability, but start-ups will rarely be
able to achieve this. What becomes important are:
Unique visitors number of individuals per month.
3. What do these sites have in common that you think has made them successful?
All these sites are American, so the funding and publicity they can achieve is significant.
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You will notice that many of these sites (other than Joost, Last.fm and Skype which
were
founded in Europe) were originally developed in the United States, with the
majority now
used around the world. But in each country, similar types of businesses
have evolved, for
example, the search engines Baidu in China and Yandex in Russia.
Meet a fundamental consumer need.
Activity 1.2 The most popular apps today
1. Identify the most popular categories of apps from the top 10 or 20 most popular apps,
including browser apps such as Googles Chrome or Apples Safari.
No suggested answer.
2. Discuss the opportunities for companies to promote their brands or services using
apps in comparison with mobile sites delivered through web browsers.
No suggested answer.
Activity 1.3 Understanding different types of online presence
Review the popularity of the different site types in your country or globally.
Visit each of the sites below and then indicate which of the five categories of online
presence are their primary and secondary focus:
2. Services-oriented relationship-building website
4.
Portal or media site
5. Social network.
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1. Transactional e-commerce site
Bank, for example, HSBC (www.hsbc.com), secondary purpose is relationship-building or
brand-building.
2. Services-oriented relationship-building website
Management consultants such as PricewaterhouseCooper (www.pwcglobal.com) and Accenture
3. Brand-building site
Lingerie manufacturer, for example, Gossard (www.gossard.com). Secondary objectives are
4. Portal or media site