Electronic Commerce

Eighth Edition Eighth Edition

Chapter 1 p
Introduction to Electronic Commerce
Learning Objectives Learning Objectives
In this chapter, you will learn about:
What electronic commerce is and how it is
experiencing a second wave of growth with a new
focus on profitability focus on profitability
Why companies concentrate on revenue models
and the analysis of business processes instead of and the analysis of business processes instead of
business models when they undertake electronic
commerce initiatives
How economic forces have created a business
environment that is fostering the second wave of
electronic commerce
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electronic commerce
Learning Objectives (contd.) Learning Objectives (contd.)
How businesses use value chains and SWOT
analysis to identify electronic commerce
opportunities
The international nature of electronic commerce and The international nature of electronic commerce and
the challenges that arise in engaging in electronic
commerce on a global scale g
Electronic Commerce, Eighth Edition 3 Electronic Commerce, Eighth Edition 3
Electronic Commerce: The Second
WWave
Electronic commerce history
First wave
Mid-1990s to 2000: rapid growth
Dot comboomfollowed by dot combust Dot-com boom followed by dot-com bust
2000 to 2003: overly gloomy news reports
Second wave
2003: signs of new life
Sales growth
Profits
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Electronic Commerce and Electronic
B i Business
Electronic commerce
Shopping on the Web
Businesses trading with other businesses
Internal company processes Internal company processes
Broader term: electronic business (e-business)
Electronic commerce includes:
All business activities using Internet technologies
Internet and World Wide Web (Web)
Wireless transmissions and personal digital assistants Wireless transmissions and personal digital assistants
Dot-com (pure dot-com)
Businesses operate only online
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Categories of Electronic Commerce Categories of Electronic Commerce
Business-to-consumer (B2C)
Consumer shopping on the Web
Business-to-business (B2B): e-procurement
Transactions conducted between Web businesses Transactions conducted between Web businesses
Business processes
Using Internet technologies to support organization g g pp g
selling and purchasing activities
Consumer-to-consumer
Business to government Business-to-government
Supply management (procurement) departments
Negotiate purchase transactions with suppliers
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Negotiate purchase transactions with suppliers
Electronic Commerce, Eighth Edition 7
Categories of Electronic Commerce
( td )
Elements of electronic commerce
(contd.)
Relative sizes of elements
Rough approximation
Dollar volume and number of transactions Dollar volume and number of transactions
B2B much greater than B2C
Number of transactions
Supporting business processes greater than B2C and Supporting business processes greater than B2C and
B2B combined
Electronic Commerce, Eighth Edition 8
Categories of Electronic Commerce
( td ) (contd.)
Activity
Task performed by worker in the course of doing job
Transaction: exchange of value
Purchase, sale, conversion of raw materials into
finished product
Involves at least one activity Involves at least one activity
(An activity might not be related to transaction)
Business processes p
Group of logical, related, sequential activities and
transactions
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Categories of Electronic Commerce
( td ) (contd.)
Web helping people work more effectively
Telecommuting (telework)
Consumer-to-consumer (C2C)
Individuals buying and selling among themselves Individuals buying and selling among themselves
Web auction site
C2C sales included in B2C category
Seller acts as a business (for transaction purposes)
Business-to-government (B2G)
Business transactions with government agencies Business transactions with government agencies
Paying taxes, filing required reports
B2G transactions included in B2B discussions
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Electronic Commerce, Eighth Edition 11
The Development and Growth of
El t i C Electronic Commerce
People engaging in commerce:
Adopt available tools and technologies
Internet
Changed way people buy sell hire organize Changed way people buy, sell, hire, organize
business activities
More rapidly than any other technology
El i F d T f (EFT ) Electronic Funds Transfers (EFTs)
Wire transfers
Electronic transmissions of account exchange Electronic transmissions of account exchange
information
Uses private communications networks
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The Development and Growth of
El t i C ( td ) Electronic Commerce (contd.)
Electronic Data Interchange (EDI)
Business-to-business transmission
Computer-readable data in standard format
Standard transmitting formats benefits Standard transmitting formats benefits
Reduces errors
Avoids printing and mailing costs
Eli i t d t d t Eliminates need to data
Trading partners
Businesses engaging in EDI with each other Businesses engaging in EDI with each other
EDI pioneers (General Electric, Sears, Wal-Mart)
Improved purchasing processes and supplier
relationships
Electronic Commerce, Eighth Edition 13 Electronic Commerce, Eighth Edition 13
relationships
The Development and Growth of
El t i C ( td ) Electronic Commerce (contd.)
EDI pioneers problem
High implementation cost
Expensive computer hardware and software
Establishing direct network connections to trading g g
partners or subscribing to value-added network
Value-added network (VAN)
Independent firmoffering EDI connection and Independent firm offering EDI connection and
transaction-forwarding services
Ensure transmitted data security
G d ll d EDI t ffi t th I t t Gradually moved EDI traffic to the Internet
Reduced EDI costs
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The Dot-ComBoom, Bust, and Rebirth The Dot Com Boom, Bust, and Rebirth
1997 to 2000 irrational exuberance
12,000 Internet-related businesses started
$100 billion of investors money
5 000 i t t f b i i d 5,000+ companies went out of business or acquired
2000 to 2003
$200 billion invested $200 billion invested
Fueled online business activity growth rebirth
Online B2C sales growth continued due to: Online B2C sales growth continued due to:
Increasing number of people with Internet access
B2B sales online increasing steadily
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saes o e c eas g stead y
Electronic Commerce, Eighth Edition 16
The Second Wave of Electronic
CCommerce
Four waves based on Industrial Revolution
First and second wave characteristics
Regional scope
First wave: United States phenomenon First wave: United States phenomenon
Second wave: international
Start-up capital
First wave: easy to obtain
Second wave: companies using internal funds
Internet technologies used Internet technologies used
First wave: slow and inexpensive (especially B2C)
Second wave: broadband connections
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The Second Wave of Electronic
C ( td ) Commerce (contd.)
First and second wave characteristics (contd.)
Internet technology integration
First wave: bar codes, scanners
Second wave: Radio Frequency Identification (RFID) Second wave: Radio Frequency Identification (RFID)
devices, smart cards, biometric technologies
Electronic mail (or e-mail) use
First wave: unstructured communication
Second wave: integral part of marketing, customer
contact strategies contact strategies
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The Second Wave of Electronic
C ( td ) Commerce (contd.)
First and second wave characteristics (contd.)
Revenue source
First wave: online advertising (failed)
Second wave: Internet advertising (more successful) Second wave: Internet advertising (more successful)
Digital product sales
First wave: fraught with difficulties (music industry) g ( y)
Second wave: fulfilling available technology promise
Business online strategy
First wave: first-mover advantage
Second wave: fewer businesses rely on first-mover
advantage
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advantage
Electronic Commerce, Eighth Edition 20
Business Models, Revenue Models,
d B i P and Business Processes
Business model
Set of processes combined to achieve company goal
Yield profit
El t i fi t Electronic commerce first wave
Investors sought out appealing business models
Expectations of rapid sales growth market dominance Expectations of rapid sales growth, market dominance
Michael Porter argued business models did not exist
Key to success: copy successful model
Neither easy nor wise
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Business Models, Revenue Models,
d B i P ( td ) and Business Processes (contd.)
Instead of copying model, examine business
elements
Streamline, enhance, replace with Internet technology
driven processes driven processes
Revenue model
Specific collection of business processes Specific collection of business processes
Identify customers
Market to those customers
Generate sales
Helpful for classifying revenue-generating activities
Communication and analysis purposes
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Communication and analysis purposes
Focus on Specific Business Processes Focus on Specific Business Processes
Companies think in business process terms
Purchasing raw materials or goods for resale
Converting materials and labor into finished goods
Managing transportation and logistics Managing transportation and logistics
Hiring and training employees
Managing business finances
Identify processes benefiting from e-commerce
technology
Uses of Internet technologies Uses of Internet technologies
Improve existing business processes, identify new
business opportunities, adapt to change
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Product/Process Suitability to
El t i C Electronic Commerce
Electronic commerce good candidates
No physical characteristics experience required
Selling commodity item
Hard to distinguish product or service fromsame Hard to distinguish product or service from same
products or services provided by other sellers
Features: standardized and well known
Products shipping profile Products shipping profile
Note value-to-weight ratio
Strong brand reputation (Kodak camera)
Electronic commerce site advantage
One site offers wider selection than physical store
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Product/Process Suitability to
El t i C ( td ) Electronic Commerce (contd.)
Electronic Commerce, Eighth Edition 25
Product/Process Suitability to
El t i C ( td ) Electronic Commerce (contd.)
Electronic commerce site not advantageous
Personal product inspection required
Solution
C bi ti f t diti l d l t i Combination of traditional commerce and electronic
commerce
Works best when process includes commodity and
personal inspection elements
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Advantages of Electronic Commerce Advantages of Electronic Commerce
Virtual community: gathering of people online
Seller
Increases profits and sales; decreases costs
Buyer Buyer
Increases purchasing opportunities
Identifies new suppliers and business partners pp p
Easier negotiating price and delivery terms
Efficiently obtain competitive bid information
Increases speed information exchange accuracy Increases speed, information exchange accuracy
Wider range of choices
Customizes prospective purchase information detail
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p p p
Advantages of Electronic Commerce
( td ) (contd.)
Benefits extend to general society welfare
Lower costs to issue:
Electronic payments of tax refunds
Public retirement
Welfare support
Secure and quick Internet transmission
F d th ft l t ti Fraud, theft loss protection
Electronic payments easier to audit and monitor
Reduced commuter-caused traffic, pollution , p
Due to telecommuting
Products and services available in remote areas
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Disadvantages of Electronic Commerce Disadvantages of Electronic Commerce
Poor choices for electronic commerce
Perishable foods and high-cost, unique items
Disadvantages will disappear when:
E-commerce matures
Becomes more available to and accepted by general
population population
Critical masses of buyers become equipped, willing to
buy through Internet
Online grocery industry example
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Disadvantages of Electronic Commerce
( td ) (contd.)
Additional problems
Calculating return on investment
Recruiting and retaining employees
T h l d ft i Technology and software issues
Cultural differences
Consumers resistant to change Consumers resistant to change
Conflicting laws
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Economic Forces and Electronic
CCommerce
Economics
Study how people allocate scarce resources
Through commerce and government actions
C i ti ti i t i k t Commerce organizations participate in markets
Potential sellers come into contact with buyers
Mediumof exchange available (currency or barter) Medium of exchange available (currency or barter)
Organization hierarchy (flat or many levels)
Bottomlevel includes largest number of employees Bottom level includes largest number of employees
Transaction costs
Motivation for moving to hierarchically structured firms
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g y
Identifying Electronic Commerce
O t iti Opportunities
Focus on specific business processes
Break business down
Series of value-adding activities
Combine to generate profits meet firms goal Combine to generate profits, meet firms goal
Commerce: conducted by firms of all sizes
Firm
Multiple business units owned by a common set of
shareholders or company
Industry Industry
Multiple firms selling similar products to similar
customers
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Strategic Business Unit Value Chains Strategic Business Unit Value Chains
Value chain
Organizing strategic business unit activities to design,
produce, promote, market, deliver, and support the
products or services products or services
Porter includes supporting activities
Human resource management and purchasing
Strategic business unit primary activities
Identify customers, design, purchase materials and
li f d i supplies, manufacture product or create service,
market and sell, deliver, provide after-sale service
and support
Electronic Commerce, Eighth Edition 33
pp
Strategic Business Unit Value Chains
( td ) (contd.)
Strategic business unit primary activities (contd.)
Importance depends on:
Product or service business unit provides
Customers Customers
Central corporate organization support activities
Finance and administration activities Finance and administration activities
Human resource activities
Technology development activities
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Industry Value Chains Industry Value Chains
Examine where strategic business unit fits within
ind str industry
Porters value system
Describes larger activities streaminto which particular Describes larger activities stream into which particular
business units value chain is embedded
Industry value chain refers to value systems
D li f d t t t Delivery of product to customer
Use as purchased materials in its value chain
Awareness of businesses value chain activities Awareness of businesses value chain activities
Allows identification of new opportunities
Useful way to think about general business strategy
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Electronic Commerce, Eighth Edition 36
SWOT Analysis: Evaluating Business
U it O t iti Unit Opportunities
SWOT analysis
Strengths, weaknesses, opportunities, and threats
Consider all issues systematically
First: look into business unit First: look into business unit
Identify strengths and weaknesses
Then: review operating environment
Identify opportunities and threats presented
Take advantage of opportunities
Build on strengths Build on strengths
Avoid threats
Compensate for weaknesses
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Electronic Commerce, Eighth Edition 38
Electronic Commerce, Eighth Edition 39
International Nature of Electronic
CCommerce
Internet connects computers worldwide
When companies use Web to improve business
process:
Th t ti ll t i l b l i t They automatically operate in global environment
Key international commerce issues
Trust and culture Trust and culture
Language
Infrastructure Infrastructure
Electronic Commerce, Eighth Edition 40
Summary Summary
Electronic commerce
Application of new Internet and Web technologies
Help individuals, businesses, other organizations
conduct effective business
Adopted in waves of change
First wave ended in 2000
Second wave focuses on improving specific business Second wave focuses on improving specific business
processes
Technology improvements
Create new products and services
Improved promotion, marketing, delivery of existing
offerings
Electronic Commerce, Eighth Edition 41 Electronic Commerce, Eighth Edition 41
g
Summary (contd.) Summary (contd.)
Technology improvements (contd.)
Improve purchasing and supply activities
Identify new customers
O t fi d i i t ti h Operate finance, administration, human resource
management activities more efficiently
Reduce transaction costs Reduce transaction costs
Create network economic effects
Leads to greater revenue opportunities
Electronic commerce
Fits into markets, hierarchies, networks
Electronic Commerce, Eighth Edition 42 Electronic Commerce, Eighth Edition 42
Summary (contd.) Summary (contd.)
Value chains
Occur at business unit, industry levels
Value chains and SWOT analysis
Tools to understand business processes
Analyze suitability for electronic commerce
implementation implementation
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