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					Chapter 11 Test Bank 1. T/F The service sector employs more people than any other sector in the U.S. economy. Answer: True (see page 586) 2. T/F The service sector accounts for more than half of the United States’ GDP. Answer: False (see page 586) 3. T/F Online investing and banking are expected to more than double by 2005. Answer: True (see page 591) 4. T/F Online stock trade execution is the most rapidly expanding online financial activity. Answer: True (see page 590) 5. T/F Currently, the largest segment of the job recruitment market is the executive search segment. Answer: False (see page 632) 6. T/F NetBank is one of the few Internet banks to operate profitably over several years. Answer: True (see page 583) 7. T/F The financial services industry is the largest investor in information technology. Answer: True (see page 588) 8. T/F There are more individuals banking online in United States than in Western Europe. Answer: False (see page 591) 9. T/F In the United States, banks, insurance firms and brokerage firms are prohibited from having significant financial interests in one another. Answer: False (see pages 593-4) 10. T/F Webvan is an example of a successful Internet-based delivery service. Answer: False (see page 638) 11. The largest service industry within the service sector is: (a) Fire, Insurance, Real Estate services (b) Health services (c) Business services (d) Travel services Answer: (a) (see page 587) 12. Which type of financial service provider traditionally has provided protection of assets?

(a) banks (b) investment firms (c) credit card firms (d) insurance companies Answer: (d) (see page 592) 13. E-loan.com is an example of: (a) an established lending firm moving into the online environment (b) a pure online mortgage banker (c) a mortgage service company (d) a mortgage broker Answer: (b) (see page 607) 14. The Internet has resulted in lower search costs, increased price comparison and lower prices to consumers for which insurance product line? (a) automobile insurance (b) term life insurance (c) health insurance (d) property and casualty insurance Answer: (b) (see page 609) 15. Which services segment has attracted the largest e-commerce audience? (a) online brokerage services (b) online banking services (c) online travel services (d) online career services Answer: (c) (see page 613) 16. The largest component of the online travel services market is in terms of revenue is: (a) hotel reservations (b) car reservations (c) cruise/tour reservations (d) airline reservations Answer: (d) (see page 618) 17. Which of the following is the world’s largest pure online bank? (a) NetBank.com (b) E*TradeBank.com (c) Egg.com (d) Juniper.com Answer: (c) (see page 584) 18. All of the following are examples of transaction brokers except: (a) a stockbroker (b) a real estate agent (c) an accountant

(d) an employment agency Answer: (c) (see page 588) 19. All of the following services require extensive personalization except: (a) legal services (b) financial services (c) medical services (d) accounting services Answer: (b) (see page 588) 20. The most popular online recruitment site in the United States is: (a) HotJobs.com (b) Monster.com (c) Jobline.com (d) CareerBuilder.com Answer: (b) (see page 629) 21. All of the following are executive search sites except: (a) Futurestep.com (b) Leadersonline.com (c) CareerWeb.com (d) Execunet.com Answer: (c) (see page 629) 22. In 2001, the largest online travel provider is: (a) Orbitz.com (b) Travelocity.com (c) Expedia.com (d) Hotwire.com Answer: (b) (see page 620) 23. In 2001, the dominant real estate listing service on the Web is: (a) Homeadvisor.com (b) Homes.com (c) Homestore.com (d) Homegain.com Answer: (c) (see page 613) 24. Yodlee is an example of: (a) a financial portal (b) an account aggregator (c) an online mortgage broker (d) an online brokerage firm Answer: (b) (see page 605)

25. Based on its results for the first six months of 2001, E*Trade’s 2001 results are likely to be: (a) marginally better than its results in 2000 (b) significantly better than its results in 2000 (c) worse than its result in 2000 (d) about the same as its results in 2000 Answer: (c) (see pages 601-602) 26. GDSs play what role in the travel services value chain: (a) they are suppliers (b) they are intermediaries (c) they are customers (d) none of the above Answer: (b) (see page 620) 27. All of the following statements about WebVan are true except: (a) WebVan underestimated the size of its market. (b) WebVan overestimated the customer’s dissatisfaction with grocery shopping (c) WebVan misunderstood the grocery industry (d) WebVan misunderstood its average customer. Answer: (a) (see page 639) 28. Which of the following financial services firms can be considered a “fast follower”: (a) E*Trade (b) Wingspan (c) Ameritrade (d) Merrill Lynch Answer: (d) (see page 595) 29. Which country has the most banks per citizen? (a) the United States (b) Canada (c) the United Kingdom (d) Japan Answer: (a) (see page 593) 30. Who was the original first mover in the electronic brokerage industry? (a) E*Trade (b) PC Financial Network (c) CDFBdirect (d) Charles Schwab Answer: (b) (see page 597) 31. All of the following statements about the online real estate services market are true except: (a) About 50% of home buyers consult real estate sites on the Web

(b) Real estate differs from other types of online financial services because it is impossible to complete a property transaction online. (c) The primary service offered by real estate sites is a listing of house available. (d) The Internet and e-commerce had created significant disintermediation in the real estate marketplace. Answer: (d) (see page 612) 32. A ____________ provides integrated airline, hotel, conference center and auto rental services at a single site. (a) COBS (b) GDS (c) financial portal (d) account aggregator Answer: (a) (see page 618) 33. Which of the following statements about Expedia.com is not true: (a) Expedia had a positive net margin for its fiscal year ending June 30, 2001. (b) Expedia’s gross margin for the fiscal year ending June 30, 2001 was over 50% (c) Expedia’s main rival is Travelocity.com (d) Expedia was founded by Microsoft. Answer: (a) (see page 624) 34. Which of the following parts of E*Trade’s business performed the best during the first six months of 2001: (a) banking (b) domestic brokerage (c) global and institutional (d) asset gathering Answer: (a) (see pages 601-602) 35. Which of the following firms experienced the smallest decline in market share from March 2000 to August 2000? (a) E*Trade (b) Fidelity (c) Ameritrade (d) Datek Answer: (b) (see page 596) 36. All of the following are trends in the financial service industry except: (a) industry consolidation (b) integrated financial services (c) pure online firms are growing more rapidly than multichannel established firms (d) a global movement toward online asset management Answer: (c) (see pages 589-595)

37. All of the following are examples of independent financial portals except: (a) Yahoo! Finance (b) Quicken.com (c) Moneycentral.com (d) Myciti.com Answer: (d) (see page 604) 38. Which online mortgage firm failed in October 2000, following a year-long loss of over $100 million and leaving over $33 million in debts? (a) Loancity.com (b) Lendingtree.com (c) Mortgage.com (d) Mortgageramp.com Answer: (c) (see page 605) 39. All of the following statements about the online insurance industry are true except: (a) Web sites must obtain a license to enter the insurance business in all states in which it provides quotation services or sells insurance (b) The Internet has dramatically changed the insurance industry’s value chain (c) Internet usage has lead to a decline in term-life insurance prices industry-wide. (d) Term-life insurance has become a commodity product. Answer: (b) (see page 610) 40. Fusuru.com is: (a) a real estate services portal (b) a travel services portal (c) a financial services portal (d) an insurance supermarket Answer: (d) (see page 610) 41. Which of the following statements about the online travel services industry is not true: (a) Online travel services accounted for about $25 billion in revenue in 2001 (b) Online travel services are one of the few sectors in which pure online firms have generally been profitable (c) Online managed travel services are expected to grow faster than online leisure travel services (d) The online travel services industry is going through a period of consolidation. Answer: (b) (see pages 615-619) 42. After checking stock quotations, the next most popular online financial activity is: (a) paying bills (b) conducting online banking (c) applying for a car loan or credit card (d) requesting an insurance quote Answer: (b) (see page 592)

43. In 2000, HotJobs’: (a) gross margin was lower than 1999, but its net margin was higher than 1999 (b) gross margin and net margin were both higher than 1999 (c) gross margin and net margin were both lower than 1999 (d) gross margin was higher than 1999, but its net margin was lower than 1999 Answer: (a) (see page 635) 44. All of the following are, as of the end of 2001, still survivors in the grocery home delivery services industry except: (a) Peapod (b) HomeGrocer (c) Tesco (d) Safeway Stores/GroceryWorks Answer: (b) (see pages 638-640) 45. Online recruitment revenues are expected to grow to _____ by 2005 (a) $15 billion (b) $10 billion (c) $7 billion (d) $5 billion Answer: (c) (see pages 627-628) 46. What are the four generic types of services provided by the financial services industry and how are the trends taking place in the online financial services industry affecting the delivery of these services? What changes are expected in the future? The four generic types of services provided by the financial services industry are storage and access to funds, protection of assets, means to grow assets, and movement of funds. In the U.S. these functions have been largely delivered by separate institutions due to legislation following the stock market crash of 1929 and the Great Depression. The Glass-Steagall Act of 1934 prohibited banks, insurance firms, and brokerages from having significant financial interests in one another and prevented large banks from owning banks in other states. Although these protections were thought necessary at the time to protect against a repeat of the extensive collapse of connected financial institutions, the result was a proliferation of small, inefficient, local banks, which could not offer any integration of service. As one-stop shopping became a necessary ingredient of corporate survival throughout the economy with companies expanding their reach into different industries and adding new products and services, the financial services industry was left behind. Banks, stockbrokers, and insurance companies were blocked from entering each other’s line of business. The idea of a financial supermarket that offered everything from checking accounts to auto insurance was the driving force behind all three industries lobbying Congress for many years to amend Glass-Steagall and streamline the regulations so that industry consolidation could occur. The Financial Reform Act of 1998 finally did this, permitting banks, brokerage firms, and insurance firms to merge and develop nationwide banks. Once this occurred, the movement towards

integrated financial services could begin. The goal is to offer consumers banking, investments, insurance, loans, and financial planning in one convenient place. While so far there have been a number of mega-mergers that have created large financial institutions, for example, CitiBank purchased Travelers Insurance and E*Trade.com purchased Telebank, the reality of a full suite of financial products and services at each institution has not yet occurred. The effect on the average consumer has yet to be revealed as well. Consumers who buy into the idea will likely experience an increase in convenience, but whether there will be an increase or a reduction in competition, innovation, or costs to the consumer is yet to be seen. Many consumers are not concerned about consolidating all of their accounts, while others are worried about the risk of a large institution, which holds all of their accounts, collapsing. Some worry that they will be excessively marketed to or that one institution will know too much about them, and others express an unwillingness to move all of their accounts because it is too much trouble. For the industry players who can leverage a strong brand name with a high quality, any time, anywhere full suite of services that many believe today's technology driven clients demand, there will be many benefits. The value of each customer will be significantly increased, as customers conduct more transactions and are less likely to move to another institution. Increased customer retention and increased opportunities to cross-sell services will also occur. Thus while the Internet has created the technical foundations, and legislation has provided the ability for industry consolidation to occur, the true financial supermarket is still a thing of the future. Beyond that, the long term promise of the Internet is that the financial supermarket model can be taken one step further by providing integrated offerings that are customized and personalized to the individual consumer based upon his or her financial behavior, life cycle status, and unique needs. 47. What is account aggregation and how is screen scraping technology used to make it work? What are the pros and cons for the consumer of account aggregation? Account aggregation, which is one of the most rapidly growing online financial services, is the process of pulling together all of a customer’s financial data at a single personalized Web site. Accounts can include banking, brokerage, insurance, loans, 401K, mutual finds, frequent flyer miles, and even some non-financial data, such as personalized news. The numbers of consumers using aggregation services has increased dramatically (in one survey, sevenfold) in the past several years. For consumers the convenience value proposition of being able to get a complete picture of their holdings is apparently alluring. Screen scraping technology is used to pull all of the information together from up to a thousand different online financial sites. Screen scrapers in conjunction with smart mapping technology use HTML to collect information from many different Web sites and display it on another Web site. The account aggregator firm collects passwords, logins, and other data from their clients for all of the Web sites they want to aggregate. This data is then passed on to the aggregator service such a Yodlee, Vertical One, or Byallaccounts.com, who will perform the actual data mining. Screen scraping and the associated technologies raise a number of issues for the protection of consumers who use them. Consumers may have to disclose their PIN or password to the aggregator in order to use their service. However, most financial institutions tell

consumers that they should never tell anyone their PIN or password. It also poses risks due to poor data integrity, and it will be consumer demand for data integrity that will ultimately determine the fate of screen scraping. Consumer advocate groups such as the National Consumers League have already been voicing their concerns. Many online consumers are operating under the mistaken assumption that account aggregators are required to comply with some form of U.S. federal banking regulation. This is not the case. There are presently no federal regulations overseeing the practice of account aggregation. The National Consumers League is concerned about this lack of oversight and the FTC has recently labeled account aggregator firms as “financial institutions” for purposes of protecting the privacy of consumer’s information. Banks have also expressed concerns about the safety of consumer’s money and personal information. They fear that if a hacker accesses information stored with an account aggregator and misuses it, the customer would blame the bank for any unauthorized transactions. Pressure from the banks themselves is most likely the driving force behind some extraordinary safety precautions that are being taken by industry leader Yodlee. All data is encrypted and stored on computers in a building at an undisclosed address. To get into the data center, employees have to go through several identity checks, including a hand scan. Yodlee also promises that it won't share personally identifiable information with third parties. However, it cannot guarantee that a consumer’s bank will not do so if the aggregating site is the bank Web site. Consumers who have privacy concerns must check each bank’s privacy policy. If the banks, financial institutions and the aggregators can adequately address consumers concerns with security and privacy, the value proposition is quite compelling. Consumers will be able to conveniently manage different financial relationships from a single Web page through PCs, mobile phones and wireless devices. They will be able to perform transactions online between several accounts, regardless of how many banks these are spread over, make online bill payments and check the performance of their investment portfolios. Some services are now offering additional value added services such as payment due reminders and the ability to query the data to find, for example, how much a consumer spent on business expenses in the last year. Consumers can also access up-to-date credit card bills to find out how much they have charged since their previous statement. If consumer trust is engendered, estimates currently predict that account aggregation customers will range from 7 million by 2003, to over 90 million by 2005. 48. Explain why online travel services can be considered the most successful B2C segment. What are the fastest growing segments of the online travel services industry? Online travel services can be considered the most successful B2C segment because it attracts the largest single E-commerce audience and the largest slice of B2C revenues, surpassing PC hardware/software and peripherals. Furthermore, the Internet is becoming the most common channel used by consumers to research travel options. It is also the most common way for people to search for the best possible prices and book reservations for airline tickets, rental cars, hotel rooms, cruises and tours. The market share for online travel is expected to increase from 10% to 21% of all travel service expenditures by 2006 and online sites claim to offer much more information and many more travel options than traditional travel agents with such services as descriptions of vacations and facilities, chat

groups and bulletin boards. In addition to the convenience of purchasing all travel elements at one stop, online travel sites bring consumers and suppliers together in a low transaction cost environment. Moreover, since travel does not require any inventory, suppliers are always looking for customers to fill the excess capacity. This information intensive product, which can be easily purchased in a digital environment, seems to be particularly well suited for the online marketplace. Two segments of the travel industry, hotels and cruises, do not precisely fill this description. These two products are more differentiated with differing quality and a more complex level of information required for the decision making process. Therefore cruises, tours and hotels to some extent will probably not grow as quickly in the online environment. However, online airline reservations and auto rentals, which are largely commodities, are expected to continue to experience vigorous growth, tripling in size by 2006. The fastest growing segment of the online travel service industry is business travel because large and mid-sized firms are trying to control mushrooming corporate travel costs by actively managing their employees’ travel arrangements. Increasingly, corporations are outsourcing their travel offices to vendors who can provide Web-based solutions, high-quality service, and lower costs. Online firms are now offering corporate online booking solutions (COBS) to provide integrated airline, hotel, conference center, and auto rental services on a single Web site to their corporate clients. Although pure online travel sites are in general not yet profitable, they have been extremely successful in attracting large audience shares and in influencing significant offline travel purchases. Surprisingly, the recent economic downturn and the staggering effects on the travel industry of the September 11th attacks have illuminated the success of the online travel services industry. As the rest of the travel business was still struggling. Internet sites rebounded faster than the industry as a whole. For example, Priceline.com, the name-your-own-price site that lets consumers bid on airline tickets, hotel rooms and auto rentals, experienced business levels of about half normal levels, one week after the attacks, but less than two months later its business levels were essentially back to normal. During the same time period, the airline industry was still operating at around 28 percent below normal volumes, and a hotel industry group reported room revenues down 19 percent, but most online travel sites reported volume decreases of 10 percent or less. While the overall size of the travel marketplace had shrunk, the remaining business had apparently moved disproportionately to the Internet. While this may be a short-lived phenomenon, as consumers reacted to the economic downturn by searching for the best prices on the Web, the success of the global travel marketplace is undeniable. 49. Explain why online career services are so well suited to the Web and identify current trends in the online career services industry. Next to travel services, job-hunting services have been one of the Internet’s most successful online services because they save money for both job hunters and employers. Job resumes can be posted for free, many other career-related services can be easily accessed, and for a fee, job hunters can access lists of job openings that have been posted by companies. By comparison to online recruiting, traditional recruitment tools have severe limitations. Print advertising usually includes a per-word charge that limits the amount of information provided about a job opening and a charge for a specific time

period, while online advertising is free and can be posted until the position is filled. Career expos do not allow for pre-screening of attendees and allow only a limited amount of time for each candidate. Staffing firms charge high fees and provide only a limited, local pool of applicants. On-campus recruiting is limited by the number of applicants who can be interviewed and the time that can be spent with each candidate and numerous campus visits all over the country are required. Internal referral programs may encourage employees to recommend unqualified candidates in order to qualify for incentives or rewards. Online recruiting provides a more efficient and cost effective means of linking employers and job hunters and reduces the total time-to-hire. Job hunters can easily build, update, and distribute their resumes, conduct job searches, and gather information on employers at their convenience and leisure. They can also take skills assessment tests, fill out personality assessment questionnaires, and access such services as personalized account management for job hunters, job search tools, employer blocking tools, organizational culture assessments and e-mail notifications when an appropriate job is newly listed on the site. Career recruitment is an information-intense business process which the Internet can automate, thus reducing search time and costs for all parties. In addition to matching job applicants with available positions, online sites also serve the larger function of automating this information intense business process. Online recruiting can also serve to establish market prices and terms thereby identifying both the salary levels for specific jobs and the skill sets required to achieve those salary levels. This should lead to a rationalization of wages, greater labor mobility, and higher efficiency in recruitment and operations as employers are able to more quickly fill positions. Online career services sites serve as national marketplaces that establish the terms of trade in the labor market. Altogether, job recruitment sites in the U.S. garner about 12 million unique visitors per month, placing them among the most popular Web destinations. Some companies, notably Dow Chemical, have recently converted all of their recruitment efforts to the Web. Dow uses its career site on the Web and various job boards to hire all new employees. This has enabled them to cut their time-to-hire by two thirds and their cost-per-hire by 26%. They have also been able to decrease their internal recruitment department from 100 employees to 60 worldwide. Up until now online recruiting has focused primarily on the general job recruitment segment of the market. This is the largest market segment, concentrating on placing a wide range of people at all skill and salary levels. Currently recruitment sites are beginning to venture into the executive segment, listing lower and middle level management jobs. This trend reflects an awareness that this market segment presents the largest opportunities for revenue as the fees for executive recruiting are currently very high. The online recruiting industry is currently in the process of consolidation. TMP Worldwide has recently purchased over 70 general and executive online career sites worldwide including the well-known Monster.com and Jobline.com. This makes TMP the world leader in online executive recruiting, executive moving and relocations, e-sourcing, which is the temporary placement of managers and executives, temporary contracting, and recruitment advertising. 50. Identify and discuss the key features of the online banking and brokerage, insurance, and real estate industries.

In the online banking and brokerage industry, in general, multi-channel service firms that have both physical branches and solid online offerings are growing faster and assuming market leadership over the pure online firms that cannot provide customers with the many services that still require hands-on interaction. Customer acquisition costs are significantly higher for Internet-only banks and brokerages who must invest heavily in marketing versus their established brand name clicks and mortar competitors who can simply convert existing branch customers to online customers at a much lower cost. Multi-channel institutions draw nearly four times the number of site visitors and significantly more of those visitors open a secure channel indicating that they are interested in transacting. However, visitors to pure online firms use the sites more intensively and for a wider variety of services, while multi-channel site users visit less frequently and perform fewer transactions online. Unfortunately for the pure online firms, their more active consumers are also more apt to comparison shop, are more cost driven, and are therefore less loyal than established multi-channel users. The projected boom in online investment and banking has also attracted non-financial institutions to the online financial services industry. Financial portal sites provide comparison shopping services and steer consumers to online providers for independent financial advice and financial planning. These firms generate revenue from advertising, referral fees and subscription fees. Financial portals are a major source of visitors to the established financial service sites, but they add to the online price competition in the industry. They also thwart the ambitions of the large banking institutions that would like to ensnare consumers in a single branded financial supermarket in which the switching costs from a single allpurpose account would be considerable. Account aggregation is another rapidly growing online financial service, which pulls together all of a customer’s financial data including their banking, brokerage, insurance, loans, and frequent flyer miles accounts on a single personalized Web site. Established financial institutions were originally opposed to these independent sites as a threat to their already established customer base, but consumer demand for this convenience has forced them to sign deals with the major account aggregation software providers in order to offer the service on their own sites. In the Ecommerce I period, a radically altered online mortgage and lending services market was envisioned in which the mortgage value chain would be simplified and the loan closing process sped up with the resulting cost savings passed on to consumers. Affordably building a brand name, the resulting high customer acquisition costs, and instituting these value chain changes proved to be too difficult. In E-commerce II it is again the established banks and lenders who are reaping the benefits of a relatively small but rapidly growing market. There are four basic types of online mortgage lenders, established online banks, brokerages, and lending organizations, pure online bankers/brokers, mortgage brokers which offer customers access to hundreds of vendors who bid for their business, and standard mortgage service companies. In the online insurance industry, term life insurance stands out as one product group supporting the Ecommerce I vision of lower search costs, increased price transparency, and the resulting consumer savings. Policy prices for term life insurance have fallen as much as 54% in the last six years. However, in other insurance product lines, the Web offers insurance companies new opportunities for product and service differentiation and price discrimination. There are four major segments of the insurance industry, automobile, property and casualty, health, and life. Within each of these main groups however, there

are many different types of policies. For example, included in the broad property and casualty category are fire, homeowner’s, commercial, workers compensation, marine, accident, and vacation insurance policies. The insurance industry has several other distinguishing characteristics that make it difficult for it to be completely transferred to the new online channel. There are many policies that defy easy comparison, and which can only be explained by an experienced sales agent. There has also been a traditional reliance on thousands of local insurance offices and agents to sell complex products uniquely suited to the circumstances of the insured person and/or property. The insurance industry is also hampered by a marketplace that is coordinated by state insurance commissions in each state with differing regulations. Therefore, online vendors must obtain a license in every state where they want to provide quotation services or sell products. Moreover, channel conflict has occurred because the major national insurance underwriting companies did not want to offer competitive products on the Web which might harm the operations of their local agents. The result is that consumers for the most part will check the Web for prices and terms but will not buy policies online. Although search costs have been dramatically reduced and price comparison shopping is done in an entirely new way, the industry value chain has so far not been significantly impacted. A number of new industry-wide consortia may change this picture by 2005 as the nations largest underwriting firms respond to the pressure from online banking and brokerage firms that are now offering insurance products. Insurance industry experts expect that the products offered by these consortia will be appreciably less expensive than those offered by local agents but that they will also be more basic policies and that personalization and customization will remain in the hands of the local agents. In the online real estate services industry, although once again the potential of E-commerce I, where the historically local, complex and agent-driven real estate industry would be transformed into a disintermediated marketplace where buyers and sellers could transact directly, has not been realized, what did happen has been beneficial to buyers, sellers, and real estate agents alike. About 50% of home buyers now consult real estate sites on the Web and this percentage is expected to grow to 80% by 2005. Since it is not possible to complete a property transaction online, the major impact of the online real estate industry is in influencing offline purchases. The primary service is a listing of available houses, with secondary links to mortgage lenders, credit reporting agencies, neighborhood information, loan calculators, appraisal reports, sales price histories by neighborhood, school district data, and crime reports. The industry value chain however, has remained unchanged. Home addresses are not available online and users are directed back to the local listing agent for the house. Buyers benefit because they can quickly and easily access a wealth of valuable information, sellers benefit because they receive free online advertising for their property, and real estate agents have reported that Internet informed customers ask to see fewer properties.


				
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