Dell Computer Corporation is one ofthe world’s leading computer systemscompanies and a supplier of technologyfor the Internet. Michael Dell foundedthe company in 1984. His plan was tosell computers directly to customers.Dell is headquartered near Austin,Texas, but it has manufacturing plantsin Ireland, Malaysia, China, and Brazil.

Dell seeks employees on its website. Web Technologist I is an entry-level position at Dell. This person isresponsible for building and testing websites and web applications for businesscustomers. The web technician must beable to understand customer require-ments and to develop online tools to ful-fill the customer’s requirements.

Dell looks for someone who hasexcellent verbal and written communi-cation skills. Job candidates mustknow HTML coding and have experi-ence with databases. A bachelor’s ofscience or associate’s degree in com-puter science, MIS, or engineering ispreferred or one to three years ofexperience in this area.

THINK CRITICALLY1. Why should a candidate have excel-

lent communication skills?2. How is the position of Web Technolo-

gist related to e-commerce?

Discusses business-to-business e-commerce and the stagesof the business cycle.

2.1 A NEW REVOLUTION

2.2 B2B E-COMMERCE

2.3 FUTURE OF E-COMMERCE

E-COMMERCEDELL COMPUTERCORPORATION

Describes the parts of a business transaction and models ofe-commerce.

Explains how large corporations are using e-commerce forbusiness-to-business transactions.

CAREERS IN E-COMMERCEThink Critically Answers1. The candidate must communicate with the business

customer and develop a web site with written text that willbe read by web site visitors.

2. The Web Technologist creates a virtual store for an e-commerce business.

Compare RevolutionsPROJECT OBJECTIVES

■ Compare the e-commerce revolution and the Industrial Revolution■ Examine the direction of business-to-business e-commerce

GETTING STARTED

Read through the Project Process below. Make a list of any materials you willneed. Decide how you will get the needed materials or information.■ In small groups, have some members complete an Internet search for dates of

the major events and turning points of the Industrial Revolution. ■ Have other members complete an Internet search for the dates of some of the

major events and turning points in the history of e-commerce.

PROJECT PROCESS

Part 1 LESSON 2.1 Choose five major events that occurred during theIndustrial Revolution. Using spreadsheet software, make a timelinegraph showing the dates of these major events.

Part 2 LESSON 2.2 Choose five major events that have occurred during theevolution of e-commerce. Make a timeline graph of the major events todate.

Part 3 LESSON 2.3 List the similarities and differences between the IndustrialRevolution and the changes brought about by e-commerce. Predict thefuture direction of e-commerce based on what happened in the IndustrialRevolution.

CHAPTER REVIEW

Project Wrap-up Create a three-minute presentation that compares and con-trasts the Industrial Revolution and the evolution of e-commerce. Make and sup-port a prediction of the future of e-commerce.

TEACHING RESOURCESInstructor’s Resource CDLesson Plans, Ch. 2PowerPoint Slides, Ch. 2Video Discussion Guide, Ch. 2Data Activities, Ch. 2

ExamView® Pro CDCh. 2

Videocassette Video Segment, Ch. 2

b2000.swep.comInternet Activities, Ch. 2

PROJECTGetting Started Discuss whyknowing history can help predictthe future. Point out similaritiesbetween past and currentevents.

Part 1 Review the use ofspreadsheet software with students.

Part 2 Discuss what mightconstitute a major event in e-commerce, such as openingthe Internet to commerce.

Part 3 Review the comparisonof the past and present tomake future predictions aboute-commerce.

Project Wrap-up Discuss thefollowing:• The five stages of revolution-

ary/evolutionary develop-ment—experimenting,financing, organizing, com-peting, and consolidating

• Wireless use and changes indistribution channels in thefuture

• Innovative uses of wirelessdevices in business

• Continued growth of interme-diaries and consortia for purchasing

25

The Chapter 2 video forthis module introduces theconcepts in this chapter.

26

CHAPTER 2 BUSINESS-TO-BUSINESS E-COMMERCE

LESSON 2.1

A NEW REVOLUTION

DESCRIBE business-to-business e-commerce

EXPLAIN the stages of the e-commerce revolution

E lectronic business transactions are replacing traditional methods of com-merce at a rapid rate. New companies are being created to handle changes

in the marketplace, and existing companies are forming partnerships thatwould have been considered unthinkable ten years ago. From huge corpora-tions to very small businesses, electronic commerce is changing the way busi-ness is conducted. Some businesses have been slower than others to adoptthis new method of commerce. However, e-commerce is eliminating time,distance, and location as factors in business transactions.

WHAT IS B2B?◆

Most Internet users are familiar with business-to-consumer transactions. Abusiness-to-consumer transaction occurs when you visit a web site and pur-chase an item, such as a book, that is being offered for sale. However, otherbusiness transactions must take place before you make that purchase. A pub-lisher and an author reach an agreement and sign a contract. These negotiations

Emilia Cruz enjoys listening to music from her favorite recording artists, butshe does not have time to go to the mall to visit music stores. She has

located a web site where she can shop for CDs online. Can you think of anybusiness transactions that would need to occur before the CDs are sold fromthat web site?

ScheduleBlock 45 minutesRegular 1 class period

FOCUSOn the SceneLead students in a discussionthat reflects back on the channels of distribution learnedin Chapter 1. Some musicianssell their music directly to consumers over the Internet,but most music sites are retailers or distributors forrecording companies.

TEACHManaging the velocity of the changes occurring in e-commerce is a challenge toe-commerce entrepreneurs.

Business-to-consumer trans-actions are familiar to students,as they resemble regular retailpurchases. Business-to-business (B2B) transactionsmay not be something studentshave thought much about.

BUSINESS-TO-BUSINESS

27

COMMUNICATEAsk students about the employ-ment rate in their area. Are people without jobs becausetheir skills do not match currentjob openings? Can students prepare for jobs that will existwhen they enter the workforce?

TEACHTraditional businesses wereslow to embrace B2B transac-tions, but they became moreinterested when the advan-tages of an online presencebecame apparent.

Electronic Data Interchange(EDI) was an early version of e-commerce. The drawbacks toEDI may have hindered viewson the potential of the Internet.

TECH TALKAsk how many students haveused or know of someone whohas used a travel web site.

Think Critically AnswerThey could attract additionalbusiness. This type of aggrega-tor of data from multiple compa-nies would help consumers getlower prices.

2.1 A NEW REVOLUTION

may take place over the Internet. The author writes the book and sends it to thepublisher. The book is edited and sent to a printer. The printer might purchaseits paper and ink over the Internet. Finally, a bookstore orders the book from thepublisher and pays for the book, possibly completing both of these processeselectronically. Many business-to-business e-commerce transactions take placebefore a consumer can buy a product. Business-to-business (B2B) transactionsare transactions made by one business with another over the Internet.

The number of people making purchases over the Internet continues togrow at a tremendous rate. Most people are familiar with purchasing itemselectronically. Although business-to-business transactions are less familiarthan business-to-consumer transactions, the number of B2B transactions maysoon be greater than the number of business-to-consumer transactions on theInternet. In 1999, approximately $127 billion worth of business was con-ducted over the Internet. By 2003, it is estimated that $1.4 trillion worth ofcommerce will be conducted over the Internet and that 85 percent of thosetransactions will be B2B. Business-to-business transactions may reach $7.29trillion by 2004. In early 2000, PricewaterhouseCoopers, a consulting firm,conducted a survey of large companies. Most of the 83 companies surveyedhad more than $1 billion in annual revenue. However, only 28 percent of thecompanies in the survey could conduct business online. The survey con-firmed that businesses were slowly discovering the benefits of e-commerce.

AT THE START◆

Some of the earliest users of e-commerce were travel agents, who discoveredthat they could book airline reservations electronically. Special hardware andsoftware allowed the travel agents to exchange information electronically.This process was referred to as electronic data interchange (EDI). However,EDI was expensive and difficult to use. Only 2 percent of the businesses inthe United States attempted to use EDI. The amount of time and moneyinvolved prevented any real savings from taking place.

Because EDI was so expensive, some companies were not eager to exploretaking their businesses online. Currently, companies are interested in usingthe Internet for business-to-business transactions because they can increase

In early 2000, the U.S.economy was starting

to show signs ofstalling due to the lack

of technically skilledworkers needed to fillexisting jobs. Write a

few paragraphsexplaining how e-

commerce affected thenumber of skilledworkers available.

AIRLINES OF THE WEB Airlines of the Web (AOW!) offers one-stop shop-ping for people who travel for business or for pleasure. The AOW! web sitecontains interactive tools that allow people to answer questions about theirtravel needs. The AOW! site contains information such as flight times anddestinations, ticket prices, and hotel accommodations. Approximately 500airlines advertise on the AOW! web site. Other businesses such as restau-rants, hotels, and shopping malls advertise there, too. AOW! searches itsdatabase to find the best deals for each traveler. Airline tickets can then bepurchased online.

THINK CRITICALLY Why do you think airlines and restaurants would wantto advertise on a web site such as Airlines of the Web? How could thisadvertising benefit you?

28

profit by saving time and cutting the cost of materials. Businesses are taking ahard look at practices that require large amounts of time and personnel tocomplete. The Industrial Revolution brought about mass production of theautomobile by using standardized auto parts. E-commerce is providing infor-mation about and access to products in a fast and efficient manner. Businessowners who once spent hours selecting needed materials, typing bids, mailingthe bids, waiting for responses to the bids, typing purchase orders for theselected products, and then waiting a week or more for delivery can speed upthe process dramatically by ordering online. When a seller makes it knownthat products are available on its web site, an order can be placed electroni-cally and received by the seller in minutes. Products can be shipped the sameday for overnight delivery.

T he process of innovation usually goes through five stages of development.

1. Experimentation

2. Finance

3. Organization

4. Competition

5. Consolidation

Experimentation During theexperimentation stage of an innovation,people are just beginning to recognizethe possibilities for the new technology.People are experimenting with newideas.

Finance During the finance stage,the innovators are trying to findinvestors to fund the idea and to pay thebills until profits start. People whofinance new companies may win or losehuge fortunes.

Organization The organizationstage begins with new management and

WORKSHOPPrepare a list of web sites fromwhich the students may choose,such as amazon.com, yahoo.com, or ebay.com. During thepresentations, look for signsthat students understand thechannels of distribution.

ONGOING ASSESSMENT Ask students to select one ofthe goals listed at the begin-ning of the lesson and write aparagraph that shows theirunderstanding of the topic.

TEACHSee if students can recognizewhat stage e-commerce is currently in. In the early 1990s,e-commerce was in the experi-mentation stage. People weretrying to figure out what to dowith it. In the mid to late 1990s,venture capital was readily avail-able, and people were makingand losing millions. By 2000, dotcoms were hiring managers toturn the companies into profit-making businesses.

CHAPTER 2 BUSINESS-TO-BUSINESS E-COMMERCE

Work in pairs. Select ane-commerce web site

with which you are bothfamiliar. Discuss thekinds of transactions

that might need to takeplace before this website offers products tocustomers. Make a listof the transactions, andshare the list with the

class.

Give an example of business-to-business e-commerce.

PROCESS OF INNOVATION

29

TEACHING STRATEGIESAuditory LearnersAsk the auditory learner tostate the stages of innovation.After each statement, askanother student to define thestage out loud.

TEACHDiscuss with students why theperson who manages the company might be someonedifferent from the person whothought of the ideas andstarted the company. Askwhich they would rather do, ifboth paid the same.

When someone finds a newway to make money, manypeople rush to do the samething. Eventually the market isoverloaded, but the competitionforces businesses to continueto improve their products andkeep the prices as low as possible.

Consolidation is taking placeas large companies buysmaller ones.

In May 2000, Chris Thomas,Director of Strategic Marketingfor Intel Corporation, made apresentation at a CompaqComputer conference inHouston, Texas, titled “The 3rdGeneration of InternetBusiness.”

ONGOING ASSESSMENT Assign students to groups, andask them to develop ideas foronline businesses, focusing onthe five stages of innovation.Have each group present itsplan to the class.

2.1 A NEW REVOLUTION

organization of the company. Theindividual who has the new ideais frequently not the person whohas the ability to run the businesswhen the company is started.Organizing and managing a com-pany require special skills. Themanager must establish the brand,develop the customer base, andoversee people and finances.

Competition As the com-pany grows older, it enters thecompetition stage, where it eithersucceeds or fails. If the companybegins to fail, investors will usu-ally stop providing funding. Ifthe company is successful, it willattract the attention of peoplewho may try to establish compet-itive businesses. Larger companiesmay try to purchase a small successful company, especially if that company isa competitor. Most investors see this as the time to sell and take their profits.

Consolidation At this point, the consolidation stage begins. The indus-try merges into a few large companies. Then the cycle starts again when anew technology takes shape as an idea in someone’s mind and experimenta-tion begins.

STAGE OF THE E-COMMERCE REVOLUTION◆

At the turn of the century, the United States was about halfway through thefinance stage of the e-commerce revolution. There were thousands of success-ful Internet-based businesses, and ideas and financing were plentiful. Manyof the larger corporations were taking advantage of this new technology, too,as they went online to conduct business. The largest e-commerce companieswere raising money to buy the best of the small e-commerce companies.Other companies were left to fail.

As the world emerged from the earliest stages of the e-commerce revolu-tion, ideas on how to use the Internet continued to develop. E-commerce willrestructure the supply and distribution systems, reduce the cost of doingbusiness, and help develop the global e-commerce marketplace.

Describe the e-commerce revolution in your own words.

30

RETEACHHand out pages numbered 1 to5 to students, and ask them tolist the five stages of innovation.

ENRICHAsk students to visit a companyweb site and open the link thatprovides background informationon the company. After readingabout the company, studentsshould write a summary of whathappened during the company’sstages of innovation.

ASSESSAsk students to describe thedevelopment stages of innova-tion. You should look for thefive stages: experimentation,finance, organization, competi-tion, and consolidation.

CLOSEHave students visit the amazon.com web site, andchoose one type of productthat is sold at the site. Studentscan make a list of the kinds ofB2B transactions that mighttake place before a consumerbuys a product.

CHAPTER 2 BUSINESS-TO-BUSINESS E-COMMERCE

THINK CRITICALLY1. Why did so few businesses use EDI for business transactions?

EDI was too expensive and complicated and had limited use.

2. Give an example of how a company might save time and money byusing the Internet.

Answers will vary. A correct example might include a traditional process that takes

time and requires a lot of paperwork, such as ordering supplies, compared to doing

it online.

3. Describe an early use of e-commerce.

Idea people were rapidly thinking of new ways to save time and money using the

Internet for transactions.

4. What will happen to the number of Internet companies in the laterstages of the revolutionary change?

The weakest companies either will be bought by large companies or cease to exist.

MAKE CONNECTIONS5. COMMUNICATION Visit a web site that is involved in e-commerce.

Explore the site, and write a paragraph describing the business.

Answers will vary. Provide a suggested list of e-commerce web sites for students to

visit, such as e-steel.com.

6. RESEARCH Revisit the web site from question 5. What stage of e-commerce best describes that business? Make a list of reasons you chose that stage.

Answers will vary based on the web site used.

7. PROBLEM SOLVING Create a spreadsheet. Use the five stages ofinnovation as column headings. Under each column head, indicate bywriting “yes” or “no” whether the web site you visited in question 5 hasany of the characteristics of that stage.

2.2 B2B E-COMMERCE

LESSON 2.2

B2B E-COMMERCE

DESCRIBE the threeparts of a businesstransaction and howthey are evolving online

CONTRAST the models of business-to-business e-commerce

B usiness-to-business transactions on the Internet are constantly changing.Ideas are free-flowing, and funding is usually available for experimenting

with these new ideas. Existing companies are finding ways to provide theirgoods and services more efficiently. Using the Internet for all or part of business-to-business selling is becoming a standard. Other uses, such as bidding, are continuing to emerge.

PARTS OF A BUSINESS TRANSACTION◆

There are generally three parts of a business transaction. One is the exchangeof goods, which includes the distribution and transportation of the product.The second part is the exchange of money between the buyer and the seller.The third part is the exchange of information between businesses.

Thanh Nguyen wants to buy his mother’s birthday gift online. His mother lovesfreshly cut flowers. Thanh has visited the web sites of several florists, and he

has found the bouquet he wants to purchase for his mother. Thanh must fill outan online form so that the florist can process Thanh’s order and deliver the flow-ers. How can fresh flowers be delivered from where they are grown, arranged bya floral designer, and arrive at Thanh’s mother’s in good condition? What busi-nesses might be involved in this transaction?

SCHEDULEBlock 45 minutesRegular 1 class period

FOCUSOn the SceneA simple online transactioninvolves many businesses. The floral order can be handledthrough many different chan-nels of distribution. It is notlikely the flower distributor andfloral designer live nearThanh’s mother. They couldcontract with a local florist tomake the delivery or ship theproducts in a refrigerated truck.Ask students to think of differ-ent ways the flowers could beshipped and what businesseswould be involved.

TEACHBusiness-to-business transac-tions were slower to evolve onthe Internet, and new uses arestill being created.

The parts of a B2B transactionare generally more complexthan those of transactions withconsumers. The quantity ofgoods is larger, the amount ofmoney is usually greater, andthe kind of informationexchanged is detailed.

ONLINE TRANSACTIONS

31

The electronic completion of parts of a business transaction is becomingstandard for many companies. Distribution systems for business-to-businesssales are improving quickly. Deliveries are monitored over the Internet asgoods are transported by airfreight in the United States and around the worldby companies such as UPS and FedEx. However, the ability to exchangemoney electronically has not developed as quickly. Making payments electron-ically between businesses is still in its earliest stage. Banking and accountingpractices will need to become more standard in order for the infrastructure, orfoundation, to support the electronic exchange of money. Safeguards need tobe developed so that electronic connections are secure before amounts ofmoney are exchanged between businesses. The theft and illegal use of creditcard account numbers is still a problem for some e-commerce businesses,although technology is rapidly improving in this area.

EXCHANGE OF INFORMATION◆

The part of a business transaction with the most rapid growth and improve-ment is the exchange of information between businesses. One of the major differences between business-to-consumer and business-to-business e-commerce is the amount of information that must be exchanged. In a business-to-consumer transaction, the consumer selects the merchandise or service, enters his or her credit card information as well as name andaddress, and generally completes the transaction in minutes.

In a business-to-business transaction, a great deal of specific informationmust be exchanged between the buyer and the seller. The specifications forone product to be purchased can include pages and pages of information. For example, the specifications for soda ash, a major ingredient of laundrydetergents, could include weight, volume, and content of the soda ash or

WORLD VIEWThe Internet is often referred toas a great equalizer because itallows all users access to a distribution channel and to infor-mation not otherwise available.

Think Critically AnswerAnswers will vary. You shouldlook for ideas such as peoplewith disabilities or people inremote areas connecting withand learning from successfulpeople around the world.

TEACHThe information in business-to-business transactions mustinclude detailed specificationssuch as product information,credit reference, and deliveryinformation. Delivering a train-load of soda ash to a chemicalplant is more complex thandelivering a pizza to your door.The specific use of the soda ashwill determine the specifications.The business must have anestablished credit history beforethe product is shipped. TheInternet makes it easier toexchange this information.

Traditionally, consumer transac-tions require that less informa-tion be exchanged, since thebusiness has the product readyfor the consumer to select.

TEACHING STRATEGIESStudents with DyslexiaPair a dyslexic student with astudent who does not have thedyslexia. Ask the students toread the chapter in pairs. Haveone student read and the otherverbally summarize the chapter.

CHAPTER 2 BUSINESS-TO-BUSINESS E-COMMERCE

32

BUSINESSWOMEN IN SAUDI ARABIA

The Internet has opened the business world to women in Saudi Arabia.Only about 3,000 women in Saudi Arabia were employed in 1999.

However, the Internet is expected to help that number grow by at least 200percent over the next five years. Women, who are not allowed to drive inSaudi Arabia, have had a difficult time starting businesses of their own.

Many of the women operate small shops and elegant boutiques. Thanksto the Internet, shop owners can now visit fashion shows around the world.Saudi women, such as Samira al-Hamad, have access to information, goods,and services from around the world. Samira has used the Internet to learnhow to manage her small business, which organizes parties and meetings.She earned $65,000 in the first seven months of business.

THINK CRITICALLY How might other groups whose businesses are hin-dered by governmental, religious, geographic, or physical limitations use theInternet to improve their economic situations?

when, where, and how the delivery is to be made. The specifications for aproduct give the supplier the exact information needed to produce anddeliver the type of product the buyer wants. Using the Internet has helpedspeed the movement of specifications and other data between the buyer andseller. This increased speed decreases the costs for both parties. One of theearliest benefits of e-commerce was the reduction of the time needed forordering, invoicing, and delivering goods by speeding the delivery of infor-mation concerning each product.

QUALITY CONTROL◆

Cisco Systems, a leader in the field of computer hardware and software, usesthe Internet in a unique way. Cisco produces most of its hardware and soft-ware by outsourcing. Outsourcing is hiring an external supplier to produce aproduct for a company. So Cisco Systems hires other companies to make theproducts that Cisco sells. Then Cisco has these companies ship the finishedproducts directly to the buyers. When a company outsources production,problems can sometimes occur with the quality of the finished products.However, Cisco requires each of its suppliers to connect to Cisco’s web site.Cisco can then test the hardware or software to determine if the productmeets Cisco’s standards. If Cisco’s standards are not met, no shipping labelwill be produced, and the hardware or software will not be shipped. If theproduct does not ship, payment is not made to the supplier. Cisco and itssuppliers are able to communicate large quantities of data quickly and easily.

TEACHSpeed of service has becomea standard of measurementand is just as important as thequality of service.

Ask students why a companywould want to maintain controlover the suppliers to which itoutsources (for example, tocontrol the quality and speed atwhich the products are madeand delivered). Ask studentswhy Cisco doesn’t produceeverything itself (for example,too many complex items makeit cost effective to outsource).

ONGOING ASSESSMENTOn the board, list the threeparts of a business transaction:exchange of goods, money,and information. Ask studentsto come to the board and writean example of one part.

TEACHBusinesses use the Internet toboth buy and sell goods andservices to each other.

Online product specificationscan help speed up the timeinvolved in making purchasesfrom suppliers.

TEACHING STRATEGIESGifted StudentsAllow gifted students theopportunity to move at theirown pace. Provide them withadditional activities that focuson their interests related to thesubject. Discover why studentsare interested in e-commerce.Allow them to begin designinge-commerce businesses whenthey finish assigned work.

2.2 B2B E-COMMERCE

33

What are the three parts of a business transaction?

and information.

E-COMMERCE MODELS

C ompanies are finding creative ways to use business-to-business e-commerce,resulting in many new business models. A business model is a defined

plan for doing business. A company that has created a web site in order topurchase a product has created a buy-side market. A company that has createda web site in order to sell a product has created a sell-side market. Buy-side andsell-side markets were created as some of the earliest uses of e-commerce.Other markets have been created to join groups of buyers or sellers.

BUY-SIDE, SELL-SIDE◆

General Electric and Wal-Mart were two of the first large companies to buyand sell online. Their purpose for going online was to cut costs and paper-work. By placing their specifications for products online to suppliers, these

34

WORKSHOPReview the definition of meta-mediaries with students beforeassigning the Workshop.Answers will vary but shouldinclude business-to-businesstransactions.

TEACHExtranets are electronic net-works that are internal to acompany but accessible to outside suppliers or buyers.

Metamediaries are intermedi-aries at a higher stage ofdevelopment. There is a closeaffiliation between the busi-nesses that are involved.

A metamediary that directs traffic to a business is a lead-generating site. The earliestsites were lead-generating andmore informational. Later sitesbecame transaction-based withactual purchases taking placeover the web sites.

One of the benefits of theInternet is providing a lot of com-plex information about productsin a format that is easily accessi-ble for customers.

Metamediaries are beneficialwhen many potential suppliersand complex specifications areinvolved.

CHAPTER 2 BUSINESS-TO-BUSINESS E-COMMERCE

companies could command even lower prices with faster delivery and lesspaperwork. Both companies were initially online on the buy-side of the market.

Many companies have established an extranet to use in communicatingwith suppliers. An extranet is a network of computers that uses the Internetto distribute information about a company outside the company’s ownoffices. Information that the company wants to keep private is protected byspecial computer codes. If an extranet user does not have the code, the userwill not be able to view computer files that are protected.

The first companies to go online on the sell-side of the market were mostlyretailers who were selling goods to final consumers. Companies that wereearly leaders in e-commerce saved money by selling their products online.Usually these savings occurred because the business transactions took lesstime to complete. Recently, though, companies have begun to save moneybecause of the lower costs of goods and materials.

METAMEDIARIES◆

Metamediaries are Internet-based businesses that create online marketplacesfor companies to come together to conduct business or find new business.Metamediaries help businesses reduce costs by providing fast access to infor-mation and by shortening the time needed to make business transactions.

Metamediaries generally offer services that are either lead generating ortransaction based. A lead-generating web business is similar to a trade show. Itprovides online advertising or shows certain products that a business has forsale. For the customer, this provides a one-stop location to look at productsfrom many vendors. Most lead-generating metamediaries change into transaction-based businesses over time. A transaction-based web business is a site that allows buyers and sellers to find out about each other and to complete sales online.

Who Needs Them Large companies that do more than $10 billion ofbusiness per year are the type of businesses that need metamediaries. When alarge number of buyers and sellers have trouble connecting with each other orwhen product information changes rapidly, metamediaries can help in business-to-business transactions. Metamediaries can bring all the productinformation together in one online site.

The computing and electronics industry is a good example of an industrythat can benefit from metamediaries. Electronic component manufacturers

have many complex specificationsfor their products. It is expensiveto try to compare prices and gatherthe information needed to make apurchase. Metamediaries havebeen created to improve the flowof information and goods betweenmanufacturers and distributors.

Online Auctions One of themost dynamic and earliest of themetamediaries is FreeMarkets, Inc.Glen Meakem, who foundedFreeMarkets, is credited with

Work in pairs. Plan ametamediary online

business. What compa-nies would you bringtogether on your website? Why would you

choose those particularcompanies?

originating the B2B online auction metamediary model. FreeMarkets is both alead-generating and transaction-based web business. Buyers range from manu-facturers looking for parts to utility companies making equipment purchases.

The traditional process of purchasing parts and materials involved thebuyer writing specifications for what was needed. Months ahead of time, thebuyer would send out a request for quotes to suppliers who were competingfor the buyer’s business. The request for quotes (RFQ) asked for specific infor-mation concerning products and prices from each supplier. Often the RFQdid not spell out delivery terms or schedules or give the size of the supplier’sinventory. This information could have a major effect on the final cost of thegoods, making it very difficult to decide on the best bid. Competing suppli-ers also had to guess at how low the price should be to win the business. Thisprocess was not very efficient, and it took a lot of time to complete.

Clear Specifications FreeMarkets helps find new suppliers and helpsbuyers write very clear specifications for the RFQ. A benefit for the suppliersusing FreeMarkets is that all of the information in the buyer’s RFQ must bemade standard. The delivery schedule for the material, the amount of inven-tory, and the payment terms are all spelled out to the bidders. Only the pricesthe supplier bids to get the business will vary.

Generally the bidding auction lasts about 30 minutes. Competing suppli-ers watch electronically as the live bidding progresses. Each bid includes thetime it was submitted. When a bid is received during the last minute of bid-ding, the time for bidding is extended by one minute. The auction becomesfrenzied as the deadline approaches. Each supplier must know in advance thelowest price it can offer to provide the goods or materials. Companies savebillions of dollars by purchasing through sites such as FreeMarkets.

CONSORTIUMS◆

Before e-commerce, the buying of parts and materials was a low-tech process.B2B is dramatically changing this process. Some industry leaders have formedonline consortiums. A consortium, or exchange, is a group of companies thatcome together to do business. General Motors, Ford, and DaimlerChryslerhave formed the world’s largest consortium. The three auto companies ownthe consortium, but it operates as a single company. The consortium isexpected to buy $240 billion in steel, glass, plastic, auto parts, and chemicalsfrom suppliers. More than ten thousand suppliers go online to take part inauctions. Many companies hope to become suppliers for this auto consortium.

TEACHB2B auctions are increasing onthe Internet, which will ultimatelybenefit the buyers. B2B auctionsare conducted online at suchsites as freemarkets.com.

A normal commercial biddingprocess takes weeks or longerto complete and is difficult toevaluate accurately. Obtainingall the information needed fromall the best possible vendorspresents a difficult and time-consuming task.

Writing the specifications for a product and asking all thenecessary questions are key to choosing the right supplier.The buyer can compare theinformation prior to the actualprice bidding and eliminateunqualified vendors before thebidding even starts.

The buyer in an auction mustknow the maximum price he orshe can bid. The supplier in aB2B auction must know thelowest price acceptable beforethe bidding starts. You cannotmake up in volume a deficitcaused by a product price thatis too low to cover expenses.

A consortium is also called anonline exchange. TheSecurities and ExchangeCommission looks carefully forantitrust violations anytimeexchanges are proposed bymajor corporations.

TEACHING STRATEGIESTactile LearnersSuggest the tactile learner usea printing calculator to try outthe problem in the BusinessMath Connection on p. 36.

2.2 B2B E-COMMERCE

35

Benefits of a Consortium Some of the benefits of a consortium helpthe buyer. The buyer pays lower prices, has less paperwork, and gets analmost instant response from suppliers. Sellers also benefit from having moreaccurate information about products. Buyers and sellers need less inventorybecause information concerning the number of items required by the consor-tium will be available online. By knowing exactly what the consortium needs,the suppliers can be more efficient in the amount of goods they produce.This means they can also compete effectively for the business of smaller companies. For example, another consortium formed by Sears and France’sCarrefour purchases athletic shoes from suppliers. Suppliers will not have toguess how low the price needs to be to get business, so they can set betterprices for their athletic shoes. The suppliers will see the prices bid by competitors during the online auctions and know what they can charge forathletic shoes. In the future, this will benefit small businesses, too.

TEACHConsortiums, or exchanges,are very beneficial to the buyer.They help assure the buyergets the lowest price possible.Suppliers also benefit by com-paring prices with those ofcompetitors. In traditional bid-ding, suppliers have only onechance to bid in writing, andthey have to guess how low thecompetitors might price. Eachsupplier has a bottom-line pricethat they must adhere to.Online bidding ensures that thecompanies produce the prod-ucts efficiently so they cankeep prices low. New compa-nies may be prevented fromentering the business becausethe profit margin will be so low.

ONGOING ASSESSMENTAsk students to visit an onlineauction web site, such asebay.com and list some of theitem categories. Discuss thetypes of businesses participat-ing and the advantages tothem of participating.

CHAPTER 2 BUSINESS-TO-BUSINESS E-COMMERCE

36

Tex Chem wants to reduce the cost of purchasing by using e-commerce.SuperBuy can develop a B2B system that will reduce transaction costs from

$87 to $21 per transaction. The new system will cost $1,500,000 plus annualupdates of $50,000 beginning the second year. Compare the costs over a two-year period for processing 12,960 orders per year.

SOLUTIONCurrent costs to process 12,960 transactions per year at $87 each.

Cost for 1 year: 12,960 � $87 � $1,127,520

Cost for 2 years: $1,127,520 � 2 years � $2,255,040

SuperBuy system costs to process 12,960 transactions per year at $21 each.

Cost for 1st year: 12,960 � $21 � $1,500,000 � $1,772,160

Cost for 2nd year: 12,960 � $21 � $50,000 = $322,160

Cost for 2 years: $1,772,160 � $322,160 = $2,094,320

By using SuperBuy for 2 years, Tex Chem can save $160,720. In the future TexChem can save $805,360 per year.

Name three e-commerce business models, and give an advantage of each.

RETEACHRelate the three types of B2Be-commerce models to some-thing the students are morefamiliar with, such as traditionalconsumer transactions or catalog sales.

ENRICHHave students visit thefreemarkets.com and chem-connect.com web sites. Askthem to write two paragraphsthat compare and contrast thebusiness conducted on the twosites.

(Students may include thesepoints: Chemconnect is ametamediary for the chemicalindustry. Freemarkets is ametamediary working with abroader range of companiesdealing in industrial parts, rawmaterial, and commodities.)

ASSESSList the three models of e-commerce on the board: buy-side/sell-side, metamedi-aries, consortium/exchanges.Ask students to list the types of

businesses that mightoperate under eachmodel.

CLOSEAsk students to thinkof industry areas thatwould benefit from aconsortium, orexchange.

2.2 B2B E-COMMERCE

37

THINK CRITICALLY1. What kinds of information do businesses transmit over the Internet in a

B2B transaction?

2. Why would a company choose to outsource the production of its products?

3. What is the difference between a metamediary and a consortium?

4. Why would it improve the efficiency of suppliers for giant companies tojoin together online and post their needs for a product?

MAKE CONNECTIONS5. COMMUNICATION Write a two-page report describing the business

model used by the Internet site techsmart.com.

6. RESEARCH Using the Internet, find a web site for one of the realestate agencies in your town or a neighboring town. Find three homesfor sale that are within $5,000 of each other in price. Compare the fea-tures of the three houses. Which one is the best deal for the money?

7. BUSINESS MATH SageBuild wants to reduce the cost of purchasingby using e-commerce. SuperBuy can develop a B2B system that willreduce transaction costs from $68 to $16 per transaction. The new sys-tem will cost $1,000,000 plus annual updates of $40,000 beginning thesecond year. Compare the costs over a two-year period for processing15,000 orders per year.

CHAPTER 2 BUSINESS-TO-BUSINESS E-COMMERCE

LESSON 2.3

FUTURE OF E-COMMERCE

DISCUSS how largecorporations are using the Internet for e-commerce

ASSESS the directionof business-to-businesse-commerce

S ome of the largest corporations in the United States first began using theInternet in late 1998. Many of the chief executive officers (CEOs) were slow

to understand how the Internet would benefit their bottom line. Some compa-nies may have moved parts of their business online later than others, but this wasstill one of the smartest moves they could have made. The shift to B2B on theInternet is expected to lead to lower prices, higher worker productivity, andreduced labor costs. Some estimates state that up to 91 percent of all U.S. com-panies will make purchases over the Internet in 2001. This figure was zero fiveyears ago. Companies are using the Internet to redesign the way they do business.

E-COMMERCE IN CHEMICALS◆

In 1992, chemical manufacturers did approximately $4.7 billion in e-commerce. In 2003, that figure is expected to be $178.3 billion. By using e-commerce, chemical companies will be able to ship chemicals faster and

Samantha Harvey has a part-time job at a telephone company. As part ofher job, she answers routine questions from business customers concern-

ing their accounts and their bill payments. Sometimes she takes calls frombusinesspeople who have questions about telephone installation and service.The telephone company has just created a web site that contains interactivetools. Would you expect Samantha’s telephone calls to increase or decreaseas more people visit the phone company’s web site? Why?

SCHEDULEBlock 45 minutesRegular 1 class period

FOCUSOn the SceneAsk students what features they think a telephone com-pany might put on a web site forbusiness customers. A well-developed web site should provide answers to customer’squestions and decrease thenumber of calls to Samantha.

TEACHBusinesses such as CompaqComputer Corp. provide webpages that answer customers’questions.

The velocity of the move to B2Be-commerce is much greaterthan that of consumer-orientedbusiness. Companies will con-tinue to create the infrastructureto handle the increasing volumeof business.

MAJOR CORPORATIONS

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cheaper, spend less money on paperwork, and expand their marketing effortsinto new areas. Early in 2000, chemical manufacturers knew they could notcontinue business as usual and expect to keep customers like Dow Chemical. InMarch 2000, Dow Chemical announced that in November 2000, it would holdonline bidding for soda ash, a product Dow Chemical needs. The bids would beconducted through ChemConnect, one of the world’s largest global Internetexchanges for chemicals. Bids would be accepted online from preapproved sup-pliers for only one hour. At that time, the lowest bid would receive the business.

The Internet does not eliminate the need for a sales force. However, onlinebidding changes the way a company’s sales force works. Salespeople are nowable to concentrate on getting new business and managing business theyalready have instead of selling the product.

INTERACTIVE E-COMMERCE◆

Most businesses began their web experience by providing online informationabout themselves and their products. However, web sites have become moreinteractive, and they now focus on business-to-business transactions. BetweenJanuary 1999 and January 2000, General Electric’s plastics distribution business, Polymerland, established its business online. It is expected to do $4 million in business per day. Because of the online information pro-vided to customers, Polymerland receives 200,000 fewer phone calls a year.Polymerland is also placing sensors in their silos, where customers store theirproducts. These sensors will automatically reorder products when the volumereaches a certain level.

Air Products and Chemicals, Inc., uses online interactive tools to keep cur-rent and potential customers coming back. Interactive tools are features onthe web site that allow users to ask questions about the web site and answerquestions about themselves. Potential buyers are offered free use of onlinetools to help them evaluate a product similar to one being sold on the website. For example, a food processing company can use online interactivechecklists to compare certain types of plastic containers used for food freezingto whatever method that company is currently using. Costs, ease of use, andother factors are rated. A recommendation is then made to switch to the newproduct or stay with the old product. If this helps solve a customer problem,it can trigger an immediate online purchase. This process is referred to asguided selling because the customer is guided toward purchasing a product.The businesses that will survive and profit from e-commerce are those thatcontinue to look for ways to use the Internet to help customers solve prob-lems and to make their own operations more efficient.

WORKSHOPDistribute business-orientedmagazines or newspapers tostudents. Look for indicationsthat students understand thedifference between consumer-oriented business and B2Btransactions.

TEACHFor a B2B auction to be effec-tive, the suppliers must be pre-approved. They must guarantee they can meet thedetailed specifications of thebuyer, and they must haveestablished service records.

Air Products and Chemicals,Inc. uses a customer evaluationsurvey to help customers learnwhether the company’s productswill improve the customers’processes.

ONGOING ASSESSMENTAsk students to visit variousweb sites to see how busi-nesses are using interactivetools on their web pages.Discuss students’ findings.

2.3 FUTURE OF E-COMMERCE

39

What are some ways that major corporations are using e-commerce?

Look through news-papers, books, andmagazines that are

available in your class-room. List five web sitesmentioned in the printedmaterials and the pur-pose of each site. Listany information given

about how the sites areused for business-to-business transactions.

I n addition to becoming involved in e-commerce, smart businesses will stayon top of trends. As customers go online through wireless access and begin

using faster connection speeds, video will become increasingly important.Simple photographs of a product on a web page will become ineffectivebecause they will seem boring. Additionally, businesses will not be able toassume that customers are using their web services while sitting at a com-puter. Customers will be doing business anywhere and at anytime.

STANDARDIZATION◆

Suppliers will have to examine all aspects of their businesses closely to makesure they are meeting quality standards at the lowest possible costs. Supplierswill be pressured by online auctions to produce more for less money.Businesses will be looking globally for growth potential and will be compet-ing online with companies worldwide.

SERVICE TO GO◆

Small and large businesses will need to be aware of changes taking place in e-commerce. Worldwide, more people can afford cellular phone service than canbuy a personal computer. In 2000, the average cell phone user upgraded to anew cell phone about every nine months. In early 2000, a Hong Kong-basedcellular phone company introduced a hands-free headset with a large screen. By2010, cell phones may be lightweight and worn on your ear. Cell phones of thefuture may have small screens connected to the Internet through wireless access.The screens will be rolled up and stored in a tube when the phone is not in use.These screens will be used for reading or processing data. You will not need akeyboard to connect to the Internet because your phone will recognize yourvoice and connect you automatically.

You can also forget about keys, locks, and passwords. Personal digital assistants(PDAs) will identify you through your thumbprint, allowing you to do businesson the Internet and to access doors, cars, and offices. Your thumbprint will allowyou to access your computer and will guarantee the privacy of your personalrecords. The office of the future may be a completely open space that is alive withinformation technology. Your desk may become somewhat like a movie screen,programmed to complete tasks such as writing letters. Video conferencing willallow you to interact with customers from around the world without leaving yourspace. Technology does not stand still. It will continue to change for many yearsto come and will become more efficient as more uses are found.

TEACHWireless mobile services forcustomers will be an importantpart of the third generation ofe-commerce. As an example,customers want to be able to check inventory levels on their way to the airport.

To compete globally, businesseswill need to have standards ofquality, service, low prices, andspeed.

Voice-controlled software, roll-up screens, wireless headsets,and our imagination will definethe future impact of informationtechnology on e-commerce.

ONGOING ASSESSMENTDiscuss with students howtechnology has impacted theirlives. Topics of discussionmight include online purchas-ing of products such as CDs,and use of cell phones.Discuss what changes futuretechnology may bring.

CHAPTER 2 BUSINESS-TO-BUSINESS E-COMMERCE

40

FUTURE MARKETS

Within the next twoyears, analysts predictthere will be more thanone billion cellular tele-

phone subscribersworldwide.

Which technological changes will likely affect e-commerce?

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RETEACHRelate three ways businessesuse e-commerce, includingbuying at online auctions, pro-viding interactive web sites,and helping control inventory.

ENRICHA number of web sites, such asdriveway.com and xdrive.com,allow free storage of data. Theyare also good places to clip andsave newspaper stories. Thestorage sites can be set up socustomers can access but notchange the data. Ask studentshow a business could attractcustomers to view informationstored at a site like this.

ASSESSList three ways a business mightuse the Internet. Ask students tolist the types of businesses thatmight operate under eachmodel.

CLOSEDiscuss with students whetherthe improved efficiency that e-commerce brings to business

will ultimately benefitthe average consumer.(Yes, the cost savingsshould trickle down.)

Make ConnectionsAnswers5. Be sure the product

and customers aredefined. The modelof e-commerceshould be a meta-mediary, a consor-tium, or a singleweb site.

6. Students should use currentsources of information to reference newly designedproducts that move fasterand are easier to use.

2.3 FUTURE OF E-COMMERCE

THINK CRITICALLY1. What are some ways that retail companies can or are using the

Internet?

Answers will vary. Possible uses include providing information about products and

services, conducting transactions, and managing inventory.

2. How is e-commerce changing the role of a salesperson?

The sales force will be more involved in attracting new customers and keeping old

ones.

3. How will e-commerce auctions affect suppliers?

Suppliers will need to meet pre-approved specifications. They will have to look for

ways to cut costs while keeping quality high and customers happy.

4. What changes are happening to the business place itself that willimpact e-commerce?

People will start using wireless devices to connect to the Web. Personal computers

will be replaced by cell phones with roll-up monitor screens.

MAKE CONNECTIONS5. RESEARCH Decide on a product that you want to supply to other

companies. Determine how you will use e-commerce to sell the productand to what kind of companies you will sell it. Use presentation soft-ware to share your ideas with the class.

6. TECHNOLOGY Using the Internet or recent magazines in your schoolor public library, prepare a one-page report discussing cutting-edgetechnology in the field of electronics.

7. SOCIAL STUDIES Using the Internet, access the Statistical Abstract ofthe United States. Find information about the projected population ofthe United States through the year 2010. What do you think this projec-tion might mean for e-commerce?

Answers will vary. Look for information about the changing populations, such as

changing demographics and aging populations. The baby boomers will be retiring

in mass and will have more time to explore the Internet.

TEACHING RESOURCESInstructor’s Resource CDData Activities, Ch. 2

ExamView® Pro CDCh. 2

b2000.swep.comInternet Activities, Ch. 2

RETEACHReview the CheckPoint ques-tions throughout the chapter.Ask students to answer themorally or in writing.

ENRICHAsk students to design abrochure for a company thatbuys auto parts. The brochureis to invite auto parts suppliersto take part in an online auctionto become this company’s autoparts supplier.

ASSESSAsk students why companiesare moving parts of their busi-nesses online. Answers mayinclude higher efficiency andincreased productivity.

PORTFOLIO ASSESSMENTStudents will have a list of howweb sites are used for busi-ness-to-business transactionsthat they can save in their portfolios.

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CHAPTER SUMMARYLESSON 2.1 A New RevolutionA. Business-to-business transactions (B2B) are expected to surpass the

dollar volume of business-to-consumer transactions by 2003.B. The stages of e-commerce are experimentation, finance, organization,

competition, and consolidation.

LESSON 2.2 B2B E-CommerceA. B2B transactions require the exchange of large amounts of information.B. Metamediaries generate leads for sellers and provide a place for unre-

lated buyers to make purchases.

LESSON 2.3 Future of E-CommerceA. Large corporations have slowly begun to use e-commerce to maximize

efficiencies and reduce costs. B. Wireless devices and other new technology will impact the way e-

commerce transactions are conducted.

VOCABULARY BUILDERChoose the term that best fits the definition. Write the letter of the answerin the space provided. Some terms may not be used.

1. A network of computers thatuses the Internet to distributeinformation about a companyoutside the company’s ownoffices

2. Transactions made online by aconsumer with a business

3. Internet-based businesses thatcreate online marketplaces forcompanies to come together toconduct business or find newbusiness

4. Hiring an external supplier to produce a product for a company

5. Group of companies that come together to do business

6. Process where the customer is guided toward purchasing a product

7. Transactions made by one business to another

8. Features on a web site that allow users to ask and answer questions

9. Defined plan for doing businessf

f

f

f

f

f

f

f

fa. business model

b. business-to-business(B2B) transactions

c. business-to-consumertransactions

d. consortium

e. extranet

f. guided selling

g. interactive tools

h. metamediaries

i. outsourcing

REVIEW CONCEPTS10. Explain the five stages in the process of innovation.

First, experimenting with how to use it; second, seeking financing for its use;

third, organizing to make it productive; fourth, competing with other businesses;

fifth, consolidating small companies into large ones

11. What are some of the physical factors about B2B that e-commercehas changed?

Time, distance, and location are no longer factors in doing business-to-business

transactions.

12. What are the major effects of e-commerce on the economy?

Restructuring supply and distribution channels, reducing costs, developing global

e-commerce

13. What are the differences between lead-generating and transaction-based web businesses?

Lead-generating web sites bring potential customers to a company. Transaction-

based web sites are set up to conduct sales online.

14. How is business-to-business e-commerce different from business-to-consumer e-commerce?

The amount of information that must be transmitted between two parties is much

greater in B2B e-commerce.

15. Explain what a consortium is in terms of e-commerce.

A consortium is a group of similar competitive companies that join together to

develop an online marketplace to buy goods and materials.

16. How can a company use interactive tools on its web site to boostsales?

Interactive tools can be used to help a customer evaluate the potential benefits of

a product.

17. Currently, the United States is in what phase of the e-commerce revolution?

In 2000, the United States is in the early first and second phases – experimenting

and financing.

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18. Explain how a company keeps information private on its extranet.

The company uses software that prevents access except by those with the

authorized codes.

19. Why would a company such as Wal-Mart want to buy and sell online?

To save time and money

APPLY WHAT YOU LEARNED20. Give an example of how a business might improve productivity by

using the Internet to conduct transactions.

Answers will vary. Possible points include exchanging information over the

Internet to save time and paperwork, and having information available for

customers to save employee time on the phone.

21. What kinds of companies might benefit by joining with competitors todevelop a consortium?

Large companies, such as auto manufacturers, that have very complex supply

needs.

22. Why are business-to-business transactions complicated?

They are complicated because of the large amounts of information that must be

exchanged, such as specifications, delivery, and terms of payment.

23. Give an example of each of the following: the exchange of goods, theexchange of money between the buyer and the seller, and theexchange of information between businesses.

Answers will vary. Exchange of goods: purchase of machine parts online.

Exchange of money: electronic money transfer to pay bills. Exchange of

information: product specifications provided to supplier.

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24. Give three examples of sell-side markets you have visited on theInternet.

Answers will vary. Look for an understanding of sell-side.

25. Think of a local business you have visited recently. How might that business use outsourcing to cut its costs or improve worker productivity?

Answers will vary. Look for an understanding of outsourcing.

26. How might you experience guided selling as you shop online?

Answers will vary. Being helped online may trigger an online problem.

MAKE CONNECTIONS27. COMMUNICATION In pairs, take turns carrying out mock interviews

for the position with Dell Computer Corporation described in theCareers in E-Commerce feature at the beginning of the chapter. Writequestions for both the interviewer as well as the potential employee to ask.

You should look for information about the skills and knowledge needed for the

position.

28. HISTORY Develop a three-minute presentation about the history anddirection of e-commerce.

29. COMMUNICATION Interview a teacher or another adult at yourschool about his or her days as a student. What technology was avail-able at that time? What are some of the changes that have occurredsince then? Write a two-page report using word processing software.

30. RESEARCH Go to a B2B web site, such as metalsite.com, e-steel.com, or freemarkets.com. Using information from the web site,discuss the e-commerce model or models used in the company’s site.

Amazon.com is metamediary. It created an online marketplace for buyers and

sellers. It is a transaction-based web business.

Make Connections Answers28. Correct answers may

include:• E-commerce started with EDI

and the experimental stage ofthe revolution.

• Business-to-consumer trans-actions were big initially, then B2Bstarted to grow at arapid pace.

• Financing throughIPOs was takingplace in 2000.

• The competitionbecame very fierceand many companiesceased to exist.

• Large companies bought small companies.

29. Look for relevance to theapproximate age of the person interviewed.

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