Chapter 5
Electronic Commerce
Electronic Commerce & Electronic Business
Electronic Commerce (EC): Commercial transactions between buyers and sellers carried out using Internet
E-Business: Buying, selling, servicing, collaborating with business partners, conducting electronic transactions within an organization, business communication
Benefits of EC
Reach: EC allows vendors to reach a large number of customers, anywhere around the globe, at a very low operating cost
Cost effective procurement: Companies can procure materials and services from other companies rapidly and less expensively
Disintermediation: Marketing distribution channels can be drastically cut or eliminated
Personalized marketing: Customer services and relationships are facilitated by interactive, one-to-one communication, at a low cost
Benefits of EC, cont’d.
Economic value for customers: EC often provides customers with less expensive products and services by allowing them to shop in many places
Expanding choice set: EC provides customers with more choices
24/7 Availability: EC enables customers to shop 24 hours a day, year round, from almost any location
Easy information access: Customers can receive relevant and detailed information and other services in seconds
Customized products: EC enables consumers to get customized products and services
Benefits of EC to Society
Facilitator: EC is a major facilitator of the digital economy
Telecommuting: EC enables more individuals to work at home, resulting in less traffic and lower air pollution
Effective price discrimination: EC allows some goods to be sold at lower prices, so less affluent people can buy them, increasing their standard of living
World wide reach: EC enables people in developing countries and rural areas to enjoy products and services previously unavailable
Public services: EC facilitates a superior delivery of public services
Limitations of EC
Technical Limitations Lack of universally
accepted standards Insufficient
bandwidth Still-evolving
software development tools
Difficulties in integrating the Internet and EC software
Non-Technical Limitations Legal issues National and
international government regulations
Difficulty of measuring EC benefits
Lack of a critical mass
Models of EC
BusinessBusiness
ConsumerConsumer
BusinessBusiness ConsumerConsumer
B2BCommerceone.com
B2CAmazon.com
C2BPriceline.com
C2CeBay.com
Models of EC
Business-to-Business (B2B) Business-to-Consumers (B2C) Consumer-to-Organizations (C2O) Consumer-to-Consumer (C2C) Government-to-Citizens (G2C) Mobile Commerce (m-commerce)
B2C e-Commerce
Business-to-consumer EC can be done in two major ways:
Companies sell direct to the customer. Such direct marketing has the advantage of
personalization and customization. Companies use an intermediary.
There are two types of online infomediaries: Pure online e-tailers “Click-and-mortar" retailers
Internet Advertising
Ads can be updated any time with a minimal cost Ads can reach large numbers of buyers all over
the world Online ads are frequently cheaper in comparison
with television, radio, newspaper, or billboard ads Web ads can efficiently use text, audio, graphics,
and animation The audience for Internet advertising is growing
rapidly Web ads can be catered to a specific target
Internet Advertising, cont’d.
Banner advertisement is the most commonly used form of advertising on the Internet
Two types of banners: Keyword banners & Random banners
A major advantage of using banners is the ability to customize, but banner advertising can be costly
URL Advertising: Any company can submit its URL to a search engine and be listed
Internet Advertising, cont’d.
Email Advertising: Email is a cost-effective marketing channel with a better and quicker response rate than other channels Problem of Spamming
Online Events and Promotions Other Forms of Internet Advertisement:
Internet communities, chat rooms, newsgroups, and kiosks
Internet Advertisement Issues
Customizing Ads Segmentation Webcasting Permission Marketing Viral Marketing Spam
Measuring the Effectiveness of e-Advertising
Ad view: the number of times users see a banner ad during a specific time period
If a customer clicks on a banner and moves to the advertiser’s Web home page
If a customer clicks on a banner, moves to the advertiser’s site, and while there seeks product leads or fills out questionnaires
The actual purchases made on the Web Affiliate Programs
Disintermediation
Disintermediation: refers to the elimination of intermediary organizations. Sales takes place directly with customers, rather than via intermediaries.
Disintermediation & Reintermediation
Disintermediation Using the Internet
manufacturers can sell directly to customers and provide customer support online
In this sense, the traditional intermediaries may be eliminated
Reintermediation The emergence of a
new breed of electronic intermediaries
These include: emails directory and
search-engine services
market makers comparison-
shopping agents
Internet Consumers
There are two types of Internet consumers: Individuals Organizations
Initially the vast majority of Internet users were 15-35 year-olds Now female/male ratio is about equal Younger and older surfers are now
abundant
Organizational Buyers
The number of organizational buyers on the Internet is much smaller than individual buyers
However, their transaction volumes are far larger and the terms of negotiations/purchase are more complex
Facilitating Customer Service
Several tools are available for facilitating online customer service.
The major tools, with their functionalities, are: Personalized Web pages Chat rooms FAQs Tracking capabilities Web-based call centers
Cyberbanking
Cyberbanking (electronic banking): The Security First Network Bank (SFNB) was
the first virtual bank International and Multiple-Currency
Banking Bill-Paying Online
Automatic payment of mortgages Paying bills from online banking account, etc.
Personal Finance Bill paying and electronic check writing Tracking bank accounts, expenditures, and
credit cards Budget management and organization, etc.
Online Stock Trading
In 2001, about 30 million people in the US alone were using computers to trade stocks, bonds, and other financial instruments
Investment information available online includes: Stock screening/evaluation Financial news Free advice from investment gurus
Other EC Services
Job Market Online Participants include:
Job seekers Employers Recruitment firms Newsgroups
Travel and Tourism Real Estate Non-Internet Applications
Smart cards
B2B Models
Sell-side model
One company sells to many electronically
(one-to-many)
Buy-side model
An organization (usually large) buys from many vendors
(many-to-one)
Exchanges
Marketplaces in which many buyers and sellers meet.
(many-to-many)
B2B Model Types
Sell-Side Model
Sell-side marketplace
Forward auctions
Buy-side modelReverse auctions
Buyer’s Internal Marketplace
Group Purchasing
Exchanges
Vertical Distributors Vertical Exchanges
Horizontal DistributorsFunctional Exchanges
Forward and Reverse Auctions
Forward Auction: items are placed for sale and the bidders increase their bids sequentially until no one else raises the bid. Traditional auction.
Reverse Auction: bidders decrease their bids sequentially until no one else lowers the bid. Used by the government (T-bills) and companies to acquire suppliers.
B2B Auctions
Corporations use auctions mainly as a B2B tool, but an increasing number use them also as a direct marketing channel
The Major Benefits of such auctions are: Generating revenue: As a new sales channel,
auctions support existing online sales Increasing page views: Auctions give sites
“stickiness” Acquiring and retaining members: All bidding
transactions result in additional registered members, which increases the value of companies
Types of B2B Auctions
Independent Auctions Companies use a 3rd-party auctioneer to create the
site and to sell the goods Commodity Auctions
Many buyers and sellers come together to a third-party Web site to buy and sell commodities
Private Auctions Several companies bypass the intermediaries and
auction their products by themselves directly to buyers
Auctions at the Company Web Site Companies build an auction capability on their own
Web site
B2C and C2C Auctions
Specialized auction sites eBay
Auctioning cars Art auctions Airlines
C2C EC Activities
Classifieds classifieds2000.com
Personal services These range from tutoring and
astrology to the “oldest profession on earth”
Peer-to-peer (P2P) and bartering Electronic bartering = the exchange of
goods and/or services without a monetary transaction
C2C Models
Commercial Transaction Posted price commercial transaction (Ebay) Auction price commercial transaction
(Half.com) Transaction Facilitators
C2C Payment Gateways (Paypal), Escrow services
P2P Exchanges: Information products- Kaaza
Information exchanges: Virtual communities (DVDTALK), Reputation
feedback mechanisms(epinions, reseller rating)
Other EC Activities
Intrabusiness and Business to Employees (B2E) Buying, selling and collaborative EC can be
conducted within the company, usually using the Intranet and corporate portal
E-government (FedForms) Government-to-citizens (G2C)
Electronic benefits transfer (EBT) - governments transfer Social Security, pensions, and other benefits directly to recipients’ bank accounts or smart cards.
Government-to-business (G2B) Government-to-government (G2G)
EC Failures
The major wave of EC failures started in 2000, as secondary funding that was needed by Internet-based EC began to dry up
Here are some examples: PointCast, a pioneer in the personalized Web-
casting, folded in 1998 due to an incorrect business model
An Internet mall, operated by Open Market, was closed in 1996 due to an insufficient number of buyers
E-toys, a virtual toy retailer that impacted the entire toy industry folded in 2001 due to inability to generate profit
U.K. Advertising company Advertexpress.com failed due to lack of second-round funding
Electronic Payment Systems
Security Requirements Authentication, Privacy, Integrity, Non-
repudiation, Safety Single-Key (Symmetric) Encryption Public-Key Infrastructure
Public and Private Keys Digital Signatures Electronic Certificates
Protocols Secure Socket Layer (SSL) Secure Electronic Transaction Protocol (SET)
Electronic Payment Systems, cont’d.
Electronic Credit Cards Electronic Checks (e-Checks) Purchasing Cards Electronic Payment From Cellular Phones Electronic funds transfer (EFT) Electronic cash (e-cash) E-Cash for Micropayments
Stored-Value Cards Enhanced Smart Cards Person-to-Person (P2P) Payment Electronic Wallets
Fraud on the Internet
Internet Stock Fraud Fraud in Electronic Auctions Other Financial Fraud
Selling bogus investments Federal Trade Commission
Provides a list of 12 scams most likely to arrive on the net
Bulk mail solicitors, chain letters, Work-at-home schemes
Buyer Protection is critical to the success of any commerce, and especially EC, where buyers do not see the sellers
Seller Protection safeguards vendors against consumers who refuse to pay or who pay with bad checks
EC-related Legal Issues
Domain Name Problems arise when several companies compete
over a domain name. (Cyber squatting) Cyber Squatting: The term derives from
'squatting' and refers to the act of reserving a particular Internet domain name for the purpose of selling it at a higher price later or taking advantage by misdirecting visitors
Taxes and Other Fees Federal, state, and local authorities are scrambling
to figure out how to get a piece of the revenue created electronically
Copyright Protecting software and other intangible creations is
difficult over the Web
Ethical Issues
Customer: Privacy and Web tracking Privacy issues are related to both
customers and employees Employees: The human element.
The implementation of EC may lead to personnel dissatisfaction and loss of salespeople’s income
Organizations: Disintermediation. Industry: Piracy
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