Chapter 1

Overview of Electronic Commerce/Business Click to edit Master subtitle style

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E-commerce
E-commerce involves

The use of the Internet and the web to transact business. Digitally enabled commercial transactions between organizations and individuals. Digitally enabled transactions include all transactions mediated by digital technology Commercial transactions involve the exchange of value across organizational or individual boundaries in return for products or services

E-business
E-business involves Digital enablement of transactions and processes within a firm, involving information systems under the control of the firm E-business does not involve commercial transactions across organizational boundaries where value is exchanged

Learning Objectives

Define electronic commerce (EC) and describe its various categories. Describe and discuss the content and framework of EC. Describe the major types of EC transactions. Describe some EC business models.

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Learning Objectives (cont.)

5.

6. 7. 8.

Describe the benefits of EC to organizations, consumers, and society. Describe the limitations of EC. Describe the role of the digital revolution in EC. Describe the contribution of EC to organizations responding to environmental pressures.

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Marks & SpencerA New Way to Compete

The Problem UK-based, upscale, global retailer of high-quality, highpriced merchandise, operating in more than 30 countries, faces stiff competition since economic slowdown in 1999. Critical success factors Customer service Appropriate store inventory system Efficient supply chain activities To attract shoppers, the company had to reduce prices at its stores, which drastically reduced profit. Will M&S, a world class retailer, be able to survive?
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Marks & Spencer (cont.)

The Solution

M&S realized that 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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Marks & Spencer (cont.)

M & S initiated several EC initiatives, including:

Selling online

Shoppers can collect their merchandise the next day (in UK) in a shopping basket after online payment. Online shoppers are encouraged to provide a UPC code in order to get the same product they see at a physical store, frequently at a lower price. Tracks transaction data in real time, looking for fraudulent events. If any such event is discovered, the system alerts the security staff in the affected store by sending them a short text message via cell phone.
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Security

Marks & Spencer (cont.)

Warehouse management

Installed mainframe based Multi User Warehouse System(MUWS) Using .NET, store sales are reported to a data warehouse in real time The data is available for decision making on inventory replenishment (when & how much to ship to each store) The data is also available to third party logistics service provider, who run the warehouse operation and deliveries.

Marks & Spencer (cont.)

Merchandise receiving

The process of matching orders and invoices is automated, making it faster and free of errors. Information about arriving goods is passed automatically to both the warehouse and the stores. MUWS can do a real time check of arriving and available stock. The system enable M&S to pay suppliers more quickly, which makes them happier and more co-operative. Improved customer relationships. Customers can find what they want quickly.

Inventory control

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Marks & Spencer (cont.)

Speeding up the supply of fashion garments

Using special software, merchandisers can access and change allocation plans from any computing device .

Collaborative commerce

M&S now can pass more accurate forecast demands to its supplies for fast delivery of goods.

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Marks & Spencer (cont.)

The Results

A turnaround is underway M & S has become a leader and example setter in retailing, resulting in increased profitability and growth

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Marks & Spencer (cont.)

It was a good year online in fiscal 2011 for Marks & Spencer. For the fiscal 2011 year ended April 2, Marks & Spencer, No. 12 in UK, No. 22 in Europe Internet Retailer. Total sales grew year over year 2.1%. 9.70 billion pounds ($15.90 billion) from 9.50 billion pounds

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Marks & Spencer (cont.)

What can we learn

Traditional brick-and-mortar companies face increasing pressures in a competitive marketing environment A possible response is to introduce a variety of e-commerce initiatives that can improve:

supply chain operation information money from raw materials through factories increase customer service open up markets to more customers
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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 & services and their flow, consumer segmentation, consumer values, consumer behaviour, 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 on the Internet and via other online services

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Electronic Commerce: Definitions and Concepts (cont.)

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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Electronic Commerce: Definitions and Concepts (cont.)

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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Electronic Commerce: Definitions and Concepts (cont.)

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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Electronic Commerce: Definitions and Concepts (cont.)

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

the product (service) sold; the process; and For the delivery agent (or digital intermediary)

Brick-and-Mortar organizations are old-economy organizations (corporations) that perform most of their business offline, selling physical products by means of physical agents
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Electronic Commerce: Definitions and Concepts (cont.)

Electronic market organizations Virtual (pure-play) (e-marketplace) online marketplace where buyers and conduct their business activities solely sellers online meet to exchange goods, services, money, or information Click-and-mortar organizations conduct some EC activities, but do their primary business in the physical world

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Electronic Commerce: Definitions and Concepts (cont.)

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

Intraorganizatio nal information systems enable EC activities to go on within individual organizations

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The Dimensions of Electronic Commerce

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The EC Framework, Classification, and Content

Two major types of e-commerce:

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

business-to-consumer (B2C) : online transactions are made between businesses and individual consumers business-to-business (B2B): businesses make online transactions with other businesses

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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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A Framework for Electronic Commerce

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Classification of EC by Transactions or Interactions

business-to-business (B2B): businesses make online transactions with other businesses; business-to-consumer (B2C) : online transactions are made between businesses and individual consumers; Amazon.com. 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; Priceline.com

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Classification of EC by Transactions or Interactions (cont.)

consumer-to-consumer (C2C): e-commerce model in which consumers sell directly to other consumers; online classified ads. 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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Classification of EC by Transactions or Interactions (cont.)

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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Classification of EC by Transactions or Interactions (cont.)

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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Classification of EC by Transactions or Interactions (cont.)

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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Classification of EC by Transactions or Interactions (cont.)

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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E-Commerce I and II

E-Commerce I

Explosive growth starting in 1995 Widespread of Web to advertise products Ended in 2000 when dot.com began to collapse Began in January 2001 Reassessment of e-commerce companies

E-Commerce II

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 experimentthe 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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A Brief History of EC (cont.)

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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A Brief History of EC (cont.)

EC successes

Virtual EC companies

EC failures

eBay VeriSign AOL Checkpoint Cisco General Electric IBM Intel

1999, a large number of EC-dedicated companies began to fail ECs days are not numbered!

Click-and-mortar

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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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 companys 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.)

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 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.coms revenue is generated through transaction feesthe site takes a 5% commission on each order from the sellers
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The Future of EC

2004total online shopping and B2B transactions in the US between $3 to $7 trillion by 2008: number of Internet users worldwide have reached 2,095,006,005 till March, 2011. 50 percent of Internet users will shop EC growth will come from: B2C B2B e-government e-learning the future is B2E c-commerce

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E-Commerce Business Models

Business model

a set of planned activities designed to result in a profit in a marketplace a document that describes a firms business model a business model that aims to use and leverage the unique qualities of the Internet and the World Wide Web.

Business plan

E-commerce business model

E-commerce Business Models

Business modelsa method of doing business by which a company can generate revenue to sustain itself

Examples: Name your price 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 companies receive commissions for
referring customers to other other websites. Other revenue sources real time online games/sports competitions

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Common Revenue Models

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Structure of Business Models (cont.)

Value proposition: The benefits a company can grow from using EC

search and transaction cost efficiency cost

savings per unit as greater quantities are produced. Complementarities bundling some goods and services together to provide more value than offering them separately. lock-in is attributable to the high switching cost that ties customers to particular suppliers.

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Structure of Business Models (cont.)

Novelty creates value through innovative ways for

structuring transactions, connecting partners and nurturing new markets.

aggregation and interfirm collaboration

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Typical Business Models in EC

1. 2.

3.

Online direct marketing Electronic tendering systems tendering (reverse auction): model in which a buyer requests would-be sellers to submit bids, and the lowest bidder wins. (GE Corp.) Name your own price: (Demand Collection Model) 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. (Priceline.com)
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Typical Business Models in EC (cont.)

4.

5.

Affiliate marketing: an arrangement whereby a marketing partner (a business, an organization, or even an individual) refers consumers to the selling companys Web site. (affiliateworld.com) Viral marketing: word-of-mouth marketing in which customers promote a product or service to friends or other people.

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Typical Business Models in EC (cont.)

6.

7.

Group purchasing: quantity purchasing that enables groups of purchasers to obtain a discount price on the products purchased. (Shop2gether.com) SMEs: small to medium enterprises Online auctions (ebay.com)

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Typical Business Models in EC (cont.)

8.

9.

10.

Product and service customization creation of a product or service according to the buyers specifications (Dell) Electronic marketplaces & exchanges: (NewView.com) stock and commodities exchanges. Value-chain integrators: similar to previous one with some value added services. (Carpoint.com)
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Typical Business Models in EC (cont.)

11.

11.

12.

Value-chain service providers: these providers specialise in a supply chain function such as logistics(UPS.com) or payment (paypal.com) Information brokers: provide privacy, trust, matching, search content and other services. (google.com) Bartering: companies exchange surpluses they do not need for things and they do need.

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Typical Business Models in EC (cont.)

14. 14.

15.

Deep discounting: companies such as Half.com offer products and services at deep discounts. Membership: only members will get discount (Netmarket.com) Supply chain improvers: creation of new models that change or improve SCM. Business models can be independent or they can be combined amongst themselves or with traditional business models

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Example of Supply Chain Improver

Orbis Group changes a linear physical supply chain to an electronic hub

Traditional process in the B2B advertising field

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Example of Supply Chain Improver (cont.)

ProductBank simplifies this lengthy process changing the linear flow of products and information to a digitized hub
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Benefits of EC
Benefits to organizations

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
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Benefits of EC (cont.)
Benefits to consumers

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

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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

User authentication and lack of public key Security infrastructure Trust and risk Fraud qualified personnel Lack of Slow of businesson the Internet Lack navigation models Legal issues Culture

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The Digital Revolution

Digital economy: An economy that is based on digital technologies, including digital communication networks, computers, software, and other related information technologies; also called the Internet economy, the new economy or the Web economy.

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The Digital Revolution (cont.)

A global platform over which people and organizations interact, communicate, collaborate, and search for information Includes the following characteristics:

A vast array of digitizable products Consumers and firms conducting financial transactions digitally Microprocessors and networking capabilities embedded in physical goods

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New Business Environment

Customers are becoming more powerful Created due to advances in science occurring at an accelerated rate Results in more and more technology Rapid growth in technology results in a large variety of more complex systems

New Business Environment (cont.)

Characteristics in the business environment

A more turbulent environment with more business problems and opportunities Stronger competition Need for organizations to make decisions more frequently A larger scope for decisions because more factors More information and/or knowledge needed for making decisions

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Environment-Response-Support Model

Critical response activities

traditional actions such as lowering cost and closing unprofitable facilities introduce innovative actions such as customizing or creating new products or providing superb customer service

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Major Business Pressures and the Role of EC

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Major Business Pressures

Strong competition Global economy Regional trade agreements Extremely low labor cost in some countries Frequent and significant changes in markets Increased power of consumers
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Market and economic pressures

Major Business Pressures (cont.)

Societal and environmental pressures

Changing nature of workforce Government deregulation of banking and other services Shrinking government subsidies Increased importance of ethical and legal issues Increased social responsibility of organizations Rapid political changes
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Major Business Pressures (cont.)

1.

Technological pressures

2.

3. 4.

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 Continuous improvement efforts and business process reengineeringincluding business process reengineering (BPR) Customer relationship management (CRM) divided into the following areas

Operational CRM Analytical CRM Collaborative CRM

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Organizational Responses (cont.)

Business alliances Electronic markets Reductions in cycle time and time-tomarket

Cycle time reduction: Shortening the time it takes for a business to complete a productive activity from its beginning to end

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Organizational Responses (cont.)

Empowerment of employees Supply chain improvements Mass customization: make-to-order in large quantities in an efficient manner

Mass customization: Production of large quantities of customized items

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Organizational Responses (cont.)

Intrabusiness: from sales force automation to inventory Knowledge management

Knowledge management (KM): The process of creating or capturing knowledge, storing and protecting it, updating and maintaining it, and using it

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Putting It All Together

A major gateway through which employees, business partners, and the public can enter a corporate Web site

Task facing each organization is how to put together the components that will enable the organization to transform itself to the digital economy and gain competitive advantage by using EC Many employ corporate portals

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The Networked Organization

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Managerial Issues
1. 2.

3. 4.

Is it real? How should we evaluate the magnitude of the business pressures? Why is B2B e-commerce so attractive? There are so many EC failureshow can one avoid them?

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Managerial Issues (cont.)

5.

6.

7.

What should be my companys strategy toward EC? How do we transform our organization into a digital one? What are the top challenges of EC?

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