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

to a person’s clickstream behavior, name, interests, and past purchases. The
technology 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 gathered in the marketplace at the moment of purchase. With the increase
in information density, a great deal of information about the consumer’s past
purchases 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, the Wall Street Journal
Online allows you to select the type of news stories you want to see first and
gives 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 personal friends (and a larger worldwide community) content in the form
of text, videos, music, or photos. Using these forms of communication, users
are able to create new social networks and strengthen existing ones.
All previous mass media in modern history, including the printing press,
use a broadcast model (one-to-many) where content is created in a central
location by experts (professional writers, editors, directors, and producers)
and audiences are concentrated 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 provides 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 are able to exchange
massive amounts of information directly, instantly, and for 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 auto retailing sites appeared on the Web, there was a
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
depended on this asymmetry of information. Today’s consumers have access
to a legion of Web sites providing competitive pricing information, and
three-fourths of U.S. auto buyers use the Internet to shop around for the best

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