CS5038 The Electronic Society

1. Overview of Electronic Commerce

Background
Definitions
Perspectives
Variations

Business Models
Pressures on businesses
Responses of businesses
The Networked Business

Benefits
Problems
Also look at 2. Retailing (next) and then 3. Customers

General Business Terminology

Transactions : Exchange of goods, services,
information, money.
Supply Chain: entire system (directly) concerned with getting
products and services from a supplier to a customer.
Business process: tasks undertaken by business in producing
goods and services
Broker: middleman who helps facilitate transaction
Tendering: process of bidding to provide a good or service.

Firms and Profits

Most firms basically try to maximize profits (in some
overall sense)
Revenue = inflow of money or other capital
Cost = outflow of money or capital
Profit = revenue cost
Two basic ways to increase profits.
Various strategies to achieve this.
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Specialization
``One man draws out the wire, another straights it, a third cuts
it, a fourth points it, a fifth grinds it at the top for receiving
the head: to make the head requires two or three distinct
operations: to put it on is a particular business, to whiten the
pins is another ... and the important business of making a
pin is, in this manner, divided into about eighteen distinct
operations, which in some manufactories are all performed
by distinct hands, though in others the same man will
sometime perform two or three of them.
Adam Smith An Inquiry into the Nature and Causes of the
Wealth of Nations, 1776.
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Transaction Costs
Firms have internal and external trans. costs

This picture is taken from http://en.wikipedia.org/wiki/File:Market-Hierarchy-Model.png , Creative Commons License, Source/Author: Achim Grochowski.

The Value of Information

Information can have a value
Know-how, intellectual property,
Customer data

Broker often makes money by using information that it
would be difficult or expensive for others to get.
Asymmetric information: Sometimes different
participants in a market have different amounts of
information about each other.
Car dealer vs. customer
Insurance company vs. customer (buyer has more)

E-Commerce Definitions
E-commerce : Any kind of transaction done, partly, or
completely, over a (computer and telecommunications) network

The term `E-commerce also refers to the processes used by

participants in such transactions.

Intrabusiness (organisational) e-Commerce

Internal to organisation, intranet: e.g.

Between business units
From businees to employees
Between employees

Interorganisational Information System (IOS)

Used to share information between organisations. Used
for collaborative commerce.
Often used to improve efficiency of supply-chain
E.g. when vendor of some product starts to run low
in stock IOS can share that information back to the
suppplier, who can then ship more stock.
Electronic Data Interchange (EDI) standards

E-commerce Types

Business-to-business (B2B): online transactions (e.g.

purchases) with other
businesses.
Business-to-consumer (B2C): online transactions
between businesses and
consumers.
Business-to-employee (B2E): information and services
made available to employees
online (subset of intrabusiness).
Consumer-to-consumer (C2C): online transactions
between consumers
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E-commerce Types
Consumer-to-Business (C2B): consumers seek sellers or
sell services to organisations.
Price comparison websites
Sites for freelancers: http://www.elance.com/ ,
http://www.guru.com/ , http://www.peopleperhour.com/
Affiliate schemes: say, a link from a consumers webpage to an online retailer, and the consumer gets
rewarded either per-click or per-sale.

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E-commerce Types
Peer-to-Peer (P2P) direct transactions without
middlemen. E.g. consumers
exchange games, DivX videos,
MP3 music
Government-to-Citizens (G2C) government provides
services and information to
citizens
Example: http://dvlaregistrations.direct.gov.uk/

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E-commerce Types
Exchange: a system to host buyers and sellers. Often
has: dynamic pricing, matching of services.
Examples:
http://www.adpdsi.co.uk/uk/
Exchange-to-Exchange (E2E) system to connect
exchanges
If complicated supply chain, probably need to interact,
build-systems to deal with multiple exchanges.

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Electronic Commerce Process Terms

EC defined from these perspectives:
Communications
E-delivery: Goods, services, information, payments

Business process
Automate business transactions and workflow

Service
Cut service costs, improve quality and speed

Online
Buying, selling and other services on internet

Collaborations
Inter- and intraorganisational

Community
Gather to learn, transact, communicate

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Variations
Pure vs. Partial EC: based on the degree of digitisation of
Product
Process
Delivery agent
Traditional commerce: all dimensions are physical
Pure EC: all dimensions are digital
Partial EC: all other possibilities include a mix of digital
and physical dimensions
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Dimensions of
E-Commerce

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Prentice Hall, 2002

Variations (2)
Internet vs. Non-Internet EC:
VANs value added network (hosted service that
acts as intermediary between business partners)
LANs local area network
Vending Machine
Click and Mortar

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Business Models
A method of doing business by which a company
can generate revenue to sustain itself.
Name your price priceline.com
Find the best price hotwire.com
Dynamic brokering getthere.com
Affiliate marketing amazon.com
Electronic tendering systems gxs.com
Online auctions ebay.com
Customization and personalization dell.com
Electronic marketplaces and exchanges e-steel.com
Supply chain improvers
Collaborative commerce
Where is the company positioned in the value chain?

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Rappas Business Models

http://www.digitalenterprise.org/models/models.html

Brokerage exchange, trading community, aggregator

Advertising portals, sponsorship banners
Infomediary
Recommender - users provide recommendations on products, e.g.
http://www.epinions.com

Registration - session tracking of users, allows greater targeting of

advertising, e.g. http://www.nytimes.com

Merchant - retail
Manufacturer eliminate middleman
Affiliate online referrals for commission
Community voluntary contributors, regular visitors
Subscription high value content
Many companies changed to subscription models in last two years

Utility pay by byte

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Example: ORBIS Corp.

TRANSFORM

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Prentice Hall, 2002

Major Business Pressures

Market / Economy

Strong competition
Global economy
Regional trade agreements (NAFTA)
Low labor cost in some countries
Frequent changes in markets
Increased power of consumers

Society / Environment

Changing nature of workforce

(De)regulation of services
Shrinking subsidies
Ethical and legal issues
Social responsibility of E-bus.
Rapid political changes

Technology

Rapid technological obsolescence

Increase innovations and new technologies
Information overload
Rapid decline in technology cost vs. performance ratio

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Organizational Responses
Strategic systems (e.g. FedEx tracking system) strategic advantage
Continuous improvement efforts
Customer Relationship Management (CRM) maximum value proposition to customer online help, product
information, tools
Total Quality Management (TQM) - ongoing refinements in response to continuous feedback
Business process reengineering (BPR) - major innovations
Business Alliances
Virtual Corporation: legal and taxation status allows multiple businesses to work together under one umbrella.
Often temporary.
Keiretsu - Long term alliance of manufacturers, suppliers and finance corporations
Cooperation in E-markets purchasing consortia

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IT Support
Various possible benefits:
Reducing cycle time (=business process time) and time
to market
Improved opportunities for collaborative work
Improvements to supply-chain: speed and efficiency
Mass customization

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Technology: Intranet
Intranet
(Internal) corporate network
LAN (Local Area Network)

WAN (Wide )
Uses Internet technology
Open, flexible connectivity

Limited to authorised employees

Secure behind firewall

Much on the following slides on Portals and Intranet Architecture come from a lecture by Paul Chan: http://www.icua.us/student/aec/3aec71.ppt

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Architecture of an Intranet

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Technology: Extranet
Extranet:
Links intranets in different locations, from approved
partners, vendors, suppliers, etc.
Uses Internet technology
Security required Virtual Private Network (VPN)
Information travels through encrypted tunnels
between Intranets

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The
Networked
Business:
Internet,
Intranet,
Extranet

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Enterprise (Corporate) Portals

Corporate (enterprise) portala gateway for
entering a corporate Web site, enabling
communication, collaboration, and access to
company information
Provide single-point access to specific enterprise
information and applications available on:
Internet
Intranets
Extranets

Companies may have separate portals for outsiders

and for insiders
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Corporate Portal as a Gateway

to Information

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Corporate Portal Framework

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Interoperability & Protocols

Need technological protocols to facilitate e-commerce.
Currently include:
TCP/IP: The Internet Protocol Suite. The standard computer
networking protocol stack for exchanging packets of data across
an unreliable network.
HTTP: web-browser makes requests, possibly for resources
(web-pages etc.), and web-server responds.
SSL (and TLS): cryptographic protocols for sending encrypted
messages over internet.
HTTPS: a secure version of HTTP. Basically, HTTP combined
with SSL.

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Interoperability & Protocols

XML: Extensible Markup Language. Standard, machine-readable data

format. Basis for other technologies including RSS, SOAP, and modern
versions of Office, OpenOffice, iWork.

SOAP: Simple Object Access Protocol. Standard for exchanging structured

information (e.g. XML) across network.

JavaScript: a programming language (not Java).

AJAX: Asynchronous JavaScript and XML. Group of technologies used for

interactive web applications. Execution on both the client and server sides.

HTML and CSS for presentation of static components. JavaScript executes on client for
dynamic components and interactivity. HTTP or HTTPS used to send to or request data
(possibly XML) from server, or for server to execute some program (possibly JavaScript).

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Benefits of E-Commerce
To Organizations

To Consumers

Expands the marketplace

Decreases the cost (less paper)
Pull-type supply chain management
Customisation = competitive advantage
Less time between outlay of capital and
receipt of products and services
Supports BPR efforts

Open 24 hours a day

More choices
Better prices
Quick delivery
Product information in seconds
Interact with other consumers
Facilitates competition

To Society
Work at home less traveling less traffic and pollution
Lower prices benefit less affluent people
Third world and rural areas access products otherwise unavailable
Public services at a reduced cost and improved quality

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Problems With E-Commerce (A)

Technical Problems
Insufficient telecommunication bandwidth
Difficult to integrate Internet EC software with some existing
applications and databases
Additional cost of infrastructure
Software development tools are still evolving
Standards (security, reliability, communication) are still evolving
Interoperability problems.

Cost Problems
Developing EC in house can be expensive and may result in delays.
Difficult to justify - intangible benefits are difficult to quantify.
E.g. customer relationship management (CRM).

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Problems With E-Commerce (B)

Other limiting factors
Switch from physical to virtual store may be difficult, expensive
Lack of touch and feel online
Channel conflict
Unresolved legal issues
Rapidly evolving and changing EC
Lack of support services
Insufficiently large number of sellers and buyers
Expensive and/or inconvenient accessibility to the Internet.

Security, Privacy and Trust

B2C - Hard to convince customers that online transactions are
secure
Customers do not trust:
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Unknown sellers, Paperless transactions, Electronic money

Legal Issues: Tax

In USA, one driving force behind early e-store success
was lower tax
Because of a tax loophole, sales tax (VAT) was
not charged on e-commerce sales
Automatically gave price advantage to ecommerce sites!

Legal Issues: Intl E-Commerce

In theory, e-commerce means sites can sell globally
In practice, difficult because of different tax rules,
regulations, customs, etc
More common to set up subsidiaries in different
countries, as Amazon has done
Lack of global legal/regulatory framework hinders
ecommerce

Social Problems With E-Commerce

What if,
Information aggregated by companies about consumers is
used to the advantage of companies, but not the consumers
There is not fair competition
It enables cartels to form
Prices for consumers go up
The company claims to be operating in a different jurisdiction,
and does not submit to regulation or law
Avoids tax (even whilst professing not to be `doing evil)
http://en.wikipedia.org/wiki/Double_Irish_Arrangement

Does not re-invest in country in which revenue is generated

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Summary
Definitions B2C, B2B, B2E
Perspectives communications, business process,
services
Variations Pure v. partial
Business Models and Rappas models
Pressures on businesses market, technology, society
Responses of businesses BPR, alliances, IT support
The Networked Business - Internet, Intranet, Extranet
Benefits organisations, consumers, society
Problems technical and non-technical

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