Page 62 - Introduction to Electronic Commerce and Social Commerce

40 2 E-Commerce: Mechanisms, Platforms, and Tools

CASE 2.1: EC APPLICATION
purchasing from suppliers, accounting and finance, HOW BLUE NILE INC. IS CHANGING
insurance, payment processing, packaging, and THE JEWELRY INDUSTRY
delivery are done in what is termed the back end of
the business. Blue Nile Inc. (bluenile.com), a pure-play online e-tailer
• Intermediaries. In marketing, an intermediary is that specializes in diamonds and jewelry, capitalized on
typically a third party that operates between sellers online diamond sales as a dot-com start-up in 1999. The
and buyers. The role of electronic intermediaries is company is a textbook case of how EC fundamentally
frequently different from that of regular intermedi- changes the way that an industry conducts its business. For
aries (such as wholesalers or retailers), as will be information about the company, see quotes.wsj.com/NILE/
seen throughout the text. For example, online inter- company-people.
mediaries create and manage the online markets.
They help match buyers and sellers, provide escrow
services, and help customers and/or sellers com- The Opportunity
plete transactions. Physical intermediaries may be
eliminated and their jobs be computerized (fully or Using the B2C EC model—eliminating the need for physical
partially) as described next. stores—Blue Nile was able to offer discounts of 35%, yet it
became profitable in a short time. (The cost of operating
online stores is relatively very low.)
What are the critical success factors of the company?
Disintermediation and Reintermediation First, they offer large discounts. For example, you can pur-
chase a $6000 diamond for $4000, which attracts more cus-
Intermediaries usually provide three types of services: (1) tomers. Second, Blue Nile offers a huge selection of
they provide relevant information about demand: supply, diamonds online and provides more information about dia-
prices, and trading requirements, (2) they help match sellers monds than many physical jewelry stores can offer. In
and buyers, and/or (3) they offer value-added services such February 2016, Blue Nile offered about 60,000 loose dia-
as transfer of products, escrow, payment arrangements, con- monds that could be used to build customized engagement
sulting, or assistance in finding a business partner. In gen- rings. No physical store can offer so many diamonds. Third,
eral, the first and second types of services can be fully the company provides educational guides as well as indepen-
automated, and thus it is likely to be assumed by e-market- dent (and trusted) quality ratings for every stone. A customer
places, infomediaries, and portals that provide free or low- can look over a rating scale for cut, clarity, color, and so on,
fee services. The third type requires expertise, such as and then compare prices using Bizrate (bizrate.com) and
knowledge of the industry, the market, the products, and the other online price comparison sites. Note that there usually is
technological trends, and therefore can only be partially a 30-day 100% money-back guarantee (now an online indus-
automated. try standard). This provides customers with a comfort level
Intermediaries that provide only (or mainly) the first two of trust against fraud and gives Blue Nile a competitive edge
types of services may be eliminated; this phenomenon is against stores that take the stones back but charge a fee. The
called disintermediation. An example is the airline industry site provides live chat, payment options, build-your-own
and its push for selling electronic tickets directly by the air- engagement ring, gift ideas, and much more. The company
lines. Most airlines require customers to pay $25 or more per has a mobile app for iPhone available on iTunes (m.bluenile.
ticket processed by an employee via telephone. This results com).
in the disintermediation of many travel agents from the pur-
chasing process. In another example, discount stockbrokers
that only execute trades manually are disappearing. However, The Results
brokers who manage electronic intermediation are not only
surviving but may also be prospering (e.g., priceline.com Blue Nile’s sales reached $129 million in 2003 (a 79%
and expedia.com in the travel industry and tdameritrade. increase over 2002). In 2015, revenue reached $480 million.
com in stock trading). This phenomenon, in which disinter- The company became the eighth-largest specialty jewelry
mediated entities or newcomers take on new intermediary company in the United States and went public in 2004 (one
roles, is called reintermediation (see Chapter 3). of the most successful IPOs of that year). While sales fell
Disintermediation is more likely to occur in supply chains during the economic downturn in 2008, in 2009 and 2010 the
involving several intermediaries, as illustrated by Case 2.1. company rallied again with a 2.3% growth.