Chapter 1

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Chapter 1

Overview of Electronic Commerce

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A New Way to Compete

• Dell Company– Critical success factors

• Customer service• Appropriate store inventory system• Efficient supply chain activities

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A New Way to Compete

– The digital era survival depends on the use of information technology in general and electronic commerce in particular

– Electronic commerce (EC, e-commerce)— a process of buying, selling, transferring, or exchanging products, services, and/or information via electronic networks and computers

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Electronic Commerce: Definitions and Concepts

• The Internet has emerged as a major worldwide distribution channel for goods, services, managerial and professional jobs

• This is profoundly changing economics, markets and industry structure, products and services and their flow, consumer segmentation, consumer values, consumer behavior, jobs, and labor markets

• The impact may be even greater on societies and politics, and on the way we see the world and ourselves in it

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Electronic Commerce: Definitions and Concepts (cont.)

• E-commerce defined from the following perspectives:– Communications: delivery of goods, services,

information, or payments over computer networks or any other electronic means

– Commercial (trading): provides capability of buying and selling products, services, and information over the Internet and via other online services

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• Business process: doing business electronically by completing business processes over electronic networks, thereby substituting information for physical business processes

• Service: a tool that addresses the desire of governments, firms, consumers, and management to cut service costs while improving the quality of customer service and increasing the speed of service delivery

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• Learning: an enabler of online training and education in schools, universities, and other organizations, including businesses

• Collaborative: the framework for inter- and intraorganizational collaboration

• Community: provides a gathering place for community members to learn, transact, and collaborate

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• e-business: a broader definition of EC, which includes:– buying and selling of goods and services– servicing customers– collaborating with business partners– conducting electronic transactions within

an organization

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• Pure vs. Partial EC depends upon the degree of digitization (the transformation from physical to digital) of:

1. the product (service) sold;

2. the process; and for

3. the delivery agent (or digital intermediary)

• Brick-and-Mortar organizations are old-economy organizations (corporations) that perform most of their business off-line, selling physical products by means of physical agents

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• Virtual (pure-play) organizations conduct their business activities solely online

• Click-and-mortar organizations conduct some EC activities, but do their primary business in the physical world

• Electronic market (e-marketplace) online marketplace where buyers and sellers meet to exchange goods, services, money, or information

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• Interorganizational information systems (IOSs) allow routine transaction processing and information flow between two or more organizations

• Intraorganizational information systems enable EC activities to go on within individual organizations

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Exhibit 1.1: The Dimensions of Electronic Commerce

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The EC Framework, Classification, and Content

• Two major types of e-commerce:– business-to-consumer (B2C) : online

transactions are made between businesses and individual consumers

– business-to-business (B2B): businesses make online transactions with other businesses

intrabusiness EC: EC conducted inside an organization (e.g., business-to-employees B2E)

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The EC Framework, Classification, and Content (cont.)

• Computer environments– Internet: global networked environment – Intranet: a corporate or government network

that uses Internet tools, such as Web browsers, and Internet protocols

– Extranet: a network that uses the Internet to link multiple intranets

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EC Framework

• EC applications are supported by infrastructure and by five support areas:– People– Public policy– Marketing and advertising– Support services– Business partnerships

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Exhibit 1.2: A Framework for Electronic Commerce

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Classification of EC by Transactions or Interactions

• business-to-consumer (B2C) : online transactions are made between businesses and individual consumers

• business-to-business (B2B): businesses make online transactions with other businesses

• e-tailing: online retailing, usually B2C

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Classification of EC by Transactions or Interactions (cont.)

• business-to-business-to-consumer (B2B2C): e-commerce model in which a business provides some product or service to a client business that maintains its own customers

• consumer-to-business (C2B):

e-commerce model in which individuals use the Internet to sell products or services to organizations or individuals seek sellers to bid on products or services they need

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• consumer-to-consumer (C2C):

e-commerce model in which consumers sell directly to other consumers

• peer-to-peer (P2P): technology that enables networked peer computers to share data and processing with each other directly; can be used in C2C, B2B, and B2C e-commerce

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• mobile commerce ((m-commerce):

e-commerce transactions and activities conducted in a wireless environment

• location-based commerce (l-commerce): m-commerce transactions targeted to individuals in specific locations, at specific times

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• intrabusiness EC: e-commerce category that includes all internal organizational activities that involve the exchange of goods, services, or information among various units and individuals in an organization

• business-to-employees (B2E): e-commerce model in which an organization delivers services, information, or products to its individual employees

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• collaborative commerce (c-commerce):

e-commerce model in which individuals or groups communicate or collaborate online

• e-learning: the online delivery of information for purposes of training or education

• exchange (electronic): a public electronic market with many buyers and sellers

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• exchange-to-exchange (E2E): e-commerce model in which electronic exchanges formally connect to one another the purpose of exchanging information

• e-government: e-commerce model in which a government entity buys or provides goods, services, or information to businesses or individual citizens

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The Interdisciplinary Nature of EC

• Major EC disciplines – Computer science– Marketing– Consumer behavior– Finance– Economics– Management information systems

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A Brief History of EC

• 1970s: innovations like electronic funds transfer (EFT)—funds routed electronically from one organization to another (limited to large corporations)

• electronic data interchange (EDI)— electronically transfer routine documents (application enlarged pool of participating companies to include manufacturers, retailers, services)

• interorganizational system (IOS)—travel reservation systems and stock trading

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A Brief History of EC (cont.)

• 1969 U.S. government experiment—the Internet came into being initially used by technical audience of government agencies, academic researchers, and scientists

• 1990s the Internet commercialized and users flocked to participate in the form of dot-coms, or Internet start-ups

• Innovative applications ranging from online direct sales to e-learning experiences

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• Most medium- and large-sized organizations have a Web site

• Most large U.S. corporations have comprehensive portals

• 1999 the emphasis of EC shifted from B2C to B2B• 2001 the emphasis shifted from B2B to B2E,

c-commerce, e-government, e-learning, and m-commerce

• EC will undoubtedly continue to shift and change

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• EC successes– Virtual EC companies

• eBay• VeriSign• AOL• Checkpoint

– Click-and-mortar• Cisco• General Electric• IBM• Intel• Schwab

• EC failures– 1999, a large number of EC-

dedicated companies began to fail

– EC’s days are not numbered! • dot-com failure rate is

declining sharply• EC field is experiencing

consolidation • most pure EC companies,

are expanding operations and generating increasing sales (Amazon.com)

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H.W

• Page 6. Section 1.1 Review Questions

• Page 12. Case 1.3 Questions

• Page 12. Section 1.2 Review Questions

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The Success Story of Campusfood.Com

• Provide interactive menus to college students, using the power of the Internet to replace and/or facilitate the traditional telephone ordering of meals

• Built the company’s customer base– expanding to other universities– attracting students– generating a list of restaurants from which students

could order food for delivery

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The Success Story of Campusfood.Com (cont.)

• Now some of these activities are outsourced to a marketing firm, enabling the addition of dozens of schools nationwide

• Financed through private investors, friends, and family members, the site was built on an investment of less than $1 million

• Campusfood.com’s revenue is generated through transaction fees—the site takes a 5 % commission on each order from the sellers

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The Success Story of Campusfood.Com (cont.)

• At campusfood.com you can:– Navigate through a list of local restaurants,

their hours of operation, addresses, phone numbers, etc.

– Browse an interactive menu– Bypass “busy” telephone signals to place an

order online– Access special foods, promotions, and

restaurant giveaways – Arrange electronic payment of your order

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The Future of EC

• 2004—total online shopping and B2B transactions in the US between $3 to $7 trillion by 2008:– number of Internet users worldwide should reach 750

million – 50 percent of Internet users will shop – EC growth will come from:

• B2C• B2B • e-government• e-learning• B2E• c-commerce

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E-commerce Business Models

• Business models—a method of doing business by which a company can generate revenue to sustain itself

• Examples:– Name your pricebuyer sets the price he or she is willing to pay

– Find the best price– Dynamic brokering– Affiliate marketing

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E-commerce Business Plans and Cases

• Business plan: a written document that identifies the business goals and outlines the plan of how to achieve them

• Business case: a written document that is used by managers to garner funding for specific applications or projects; its major emphasis is the justification for a specific investment

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Structure of Business Models

• Business model: A method of doing business by which a company can generate revenue to sustain itself

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Structure of Business Models (cont.)

• Revenue model: description of how the company or an EC project will earn revenue– Sales– Transaction fees – Subscription fees– Advertising – Affiliate fees– Other revenue sources

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Structure of Business Models (cont.)

• Value proposition: The benefits a company can derive from using EC

Four sets values that are created by e-business:1. search and transaction cost efficiency:

enabled faster and more informed decision making

2. Complementarities: Involve bundling some goods and service together.

3. lock-in: is attributable to high switching cost that ties customers to particular suppliers.

4. Novelty: creates value through innovative ways for structuring transactions, connecting partners, and fostering new markets.

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Exhibit 1.4: Common Revenue Models

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Typical Business Modelsin EC

1. Online direct marketing: selling products and services online.

2. Electronic tendering systemstendering (reverse auction): model in which a buyer requests would-be sellers to submit bids, and the lowest bidder wins

3. Name your own price: a model in which a buyer sets the price he or she is willing to pay and invites sellers to supply the good or service at that price

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Typical Business Models in EC (cont.)

4. Affiliate marketing: an arrangement whereby a marketing partner (a business, an organization, or even an individual) refers consumers to the selling company’s Web site

5. Viral marketing: word-of-mouth marketing in which customers promote a product or service to friends or other people

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6. Group purchasing: quantity purchasing that enables groups of purchasers to obtain a discount price on the products purchased

7. Online auctions: eBay

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8. Product and service customization: creation of a product or service according to the buyer’s specifications

9. Electronic marketplaces and exchanges

10.Value-chain integrators: Ex, Car-buying-related services

11. Value-chain service providers

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12. Information brokers

13.Bartering: Exchange goods

14.Deep discounting

15.Membership: Members get discount

16.Supply chain improvers

Business models can be independent or they can be combined amongst themselves or with traditional business models

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Benefits of EC

• Global reach• Cost reduction• Supply chain

improvements• Extended hours: 24/7/365• Customization• New business models• Vendors’ specialization

• Rapid time-to-market• Lower communication

costs• Efficient procurement• Improved customer

relations• Up-to-date company

material• No city business permits

and fees• Other benefits

Benefits to organizationsBenefits to organizations

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Benefits of EC (cont.)

• Ubiquity• More products and

services• Cheaper products

and services• Instant delivery• Information

availability

• Participation in auctions

• Electronic communities

• “Get it your way” • No sales tax

Benefits to consumers

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Benefits of EC (cont.)

• Benefits to society– Telecommuting– Higher standard of living– Hope for the poor– Availability of public

services

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Limitations of EC

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Barriers of EC

• Security • Trust and risk• Lack of qualified

personnel• Lack of business

models• Culture

• User authentication and lack of public key infrastructure

• Organization • Fraud • Slow navigation on

the Internet• Legal issues

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Exhibit 1.8: The Networked Organization

Chapter 1

Documents

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