Chapter 1

Overview of
Electronic Commerce

Prentice Hall, 2003

EC Definitions & Concepts

 Electronic Commerce (EC) is the process of

buying, selling, or exchanging products,
services, and information via computer
networks

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EC Definitions & Concepts (cont.)

 E-business is a broader definition of EC

that includes not just the buying and
selling of goods and services, but also
 Servicing customers
 Collaborating with business partners
 Conducting electronic transactions within an
organization
 Pure vs. Partial EC: based on the degree of digitization
of product, process, delivery agent

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EC Definitions & Concepts (cont.)

 Traditional commerce: all dimensions are

physical
 Brick-and-mortar organizations
 Old-economy organizations (corporations)
 Perform all business off-line
 Sell physical products by means of physical agents

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EC Definitions & Concepts (cont.)

 Pure EC: all dimensions are digital

 Pure online (virtual) organizations
 New-economy organization
 Sell products or services only online
 Partial EC: a mix of digital and physical
dimensions
 Click-and-mortar organizations
 Conduct EC activities
 Do their primary business in the physical world

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EC Definitions & Concepts (cont.)

 Internet vs. Non-Internet EC

 VANs—value-added networks
 LANs—local area networks
 Single computerized machines
 Using a smart card in a vending machine
 Using a cell phone to make an online purchase

6
Electronic Markets vs.
Interorganizational Systems
 E-markets  Interorganizational
Buyers and sellers meet Information Systems
to exchange (IOS)
 Goods
Between two or more
 Services organizations
 Money  Routine transaction
 Information processing
 Information flow

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The EC Framework and Field
 An EC Framework
 EC applications supported by infrastructure
and 5 support areas
 People
 Public policy
 Technical standards and protocols
 Business partners
 Support services

8
A Framework for EC

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Classification of EC by the
Nature of the Transaction

 Business-to-business (B2B) : EC model in which

all of the participants are businesses or other
organizations
 Business-to-consumer (B2C): EC model in which
businesses sell to individual shoppers
 Business-to-business-to-consumer (B2B2C): EC
model in which a business provides some
product or service to a client business; the client
business maintains its own customers, to whom
the product or service is provided
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Classification of EC by the
Nature of the Transaction (cont.)

 Consumer-to-business(C2B): individuals who

use the Internet to sell products or services to
organizations and /or seek sellers to bid on
products or services they need
 Consumer-to-consumer (C2C) : consumers
sell directly to other consumers

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Classification of EC by the
Nature of the Transaction (cont.)

 Mobile commerce (m-commerce)—EC

transactions and activities conducted in a
wireless environment
 Location-commerce—(l-commerce)

m-commerce transactions targeted to

individuals in specific locations, at specific
times
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Classification of EC by the
Nature of the Transaction (cont.)

 Intrabusiness (organizational) EC: EC

category that includes all internal
organizational activities that involve the
exchange of goods, services, or
information among various units and
individuals in an organization

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 Classification of EC by the
Nature of the Transaction (cont.)

 Business-to-employee (B2E): EC model in which

an organization delivers services, information, or
products to its individual employees
 Collaborative commerce (c-commerce): EC model
in which individual or groups communicate or
collaborate online
 E-government: Government-to-citizens (G2C): EC
model in which a government entity buys or provides
good, services, or information to businesses or
individual citizens 14
Classification of EC by the
Nature of the Transaction (cont.)

 Exchange (electronic): a public e-market with many

buyers and sellers
 Exchange-to-exchange (E2E): EC model in which
electronic exchanges formally connect to one
another for the purpose of exchanging information

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 Interdisciplinary Nature of EC

 Marketing  Management
 Computer sciences information systems
 Consumer behavior and
 Accounting and
psychology auditing
 Finance
 Management
 Economics
 Business law and
ethics
 Others

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Brief History of EC

 EC applications first  Limited to:

developed in the early  Large corporations
1970s  Financial institutions
Electronic funds transfer  A few other daring
(EFT) businesses

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Brief History of EC (cont.)
 Electronic data  Enlarged pool of
interchange (EDI)— participants to include:
electronic transfer of  Manufacturers
documents:  Retailers
 Purchase orders  Service providers
 Invoices
 E-payments between
firms doing business

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Electronic Data Interchange (EDI)

 the standards based (ASC X12 and

UN/EDIFACT) application to
application transfer of business
documents between computers and
business partners.

 Site of Interest
 http://www.disa.org

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Electronic Commerce

 Businesses who engage in EDI with each other are

called trading partners.

 The standard formats used in EDI contain the same

information that businesses have always included in their
standard paper invoices, purchase orders, and shipping
documents.

 Firms, such as General Electric and Wal-Mart, have

been pioneers in using EDI to improve their purchasing
process.
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EDI Delivery Systems
 VAN - Value Added Network
 a third-party entity facilitates the electronic exchange of information and
payments between subscribers and their trading partners.
 Over 90% of Fortune 1,000 firms use EDI
 But only 5% of smaller firms do
 very secure - very mature
 ..often criticized as costly and technical

 the Internet - Web Based Communications System

 standards still being defined – XML (eXtensible Markup Language)/EDI
merged technologies hold promise in facilitating the movement of business
documents
 has the potential to dramatically reduced costs
 offers the opportunity to eliminate the third party intermediary.
 …will not replace the VAN…..
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 Basic EDI Transaction Flow

Request for Quote  (840)
You
Your  Technical Specifications (841)
Customer
Response to RFQ (843) Sales
Purchasing
Purchase Order (850) Order 
Entry
P.O. Acknowledgment (855)

Purchase Order Change 
(860)
P.O. Change Acknowledgment (865)
Invoice (810)/Advance Ship Notice (856)
Receiving
FRT Bill (210) Shipping

Receiving Advice (861)

Payment Order/Remittance Advice (820)
Financial
Financial
Electronic Funds Transfer

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Electronic Commerce Resource Center – “EDI
“EDI and EFT Course”
Course” - http://www.ecrc.org
http://www.ecrc.org
Changes at Leading EDI-VAN
Companies

 Sterling Commerce now SBC Communications – http://

www.sterlingcommerce.com
 Offer a host of services from the traditional VAN, Internet EDI/XML, Internet Web
Commerce, to eMarketplaces
 Harbinger now Inovis, Inc. – http://www.harbinger.net
 Significantly expanded Internet based EDI at http://www.get2connect.net.
Express allows non-EDI enabled companies to trade with EDI partners. Will host
high availability catalogs. Storefront building/hosting system. Dealership/Supply
Chain Extranets. eMarketplaces
 GEIS – General Electric Information Systems now General Electric Global
eXchange Services- http://www.gegxs.com operating as a joint venture with
Commerce One.
 Comprehensive services including systems integration, marketplace exchanges,
Application Hosting, security certificates, VPN Security, Desktop EDI, plus a host
of consulting services.

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Brief History of EC (cont.)

 Interorganizational systems (IOS)

 Stock trading
 Travel reservation systems
 Internet became commercialized in the mid -
1990s
 Almost all medium-and large-sized organization in
the world now has a Web site
 Most large corporations have comprehensive
portals

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Brief History of EC (cont.)
 EC Successes  EC Failures
 Pure online  E-tailors began to fail in
 eBay
1999
 VeriSign
 This does not mean that
 AOL
EC’s days are numbered
 Checkpoint
 Large EC companies like
 Click-and-mortar Amazon.com are
 GE
expanding but success
 IBM
or failure is not certain
 Intel
 Schwab

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 The Benefits of EC

 Benefits to Organizations
 Expands the marketplace to national and international
markets
 Decreases the cost of creating, processing, distributing,
storing and retrieving paper-based information
 Allows reduced inventories and overhead by facilitating
pull-type supply chain management

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Benefits of EC (cont.)

 The pull-type processing allows for customization of

products and services which provides competitive
advantage to its implementers
 Reduces the time between the outlay of capital and the
receipt of products and services
 Supports business processes reengineering (BPR)
efforts
 Lowers telecommunications cost - the Internet is
much cheaper than value added networks (VANs)

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Benefits of EC (cont.)

 Benefits to consumers
 Enables consumers to shop or do other
transactions 24 hours a day, all year round from
almost any location
 Provides consumers with more choices
 Provides consumers with less expensive products
and services by allowing them to shop in many
places and conduct quick comparisons

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Benefits of EC (cont.)

 Allows quick delivery of products and services (in some

cases) especially with digitized products
 Consumers can receive relevant and detailed information
in seconds, rather than in days or weeks
 Makes it possible to participate in virtual auctions
 Allows consumers to interact with other consumers in
electronic communities and exchange ideas as well as
compare experiences
 Facilitates competition, which results in substantial
discounts
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 Benefits of EC (cont.)

 Benefits to society
 Enables more individuals to work at home, and to do less
traveling for shopping, resulting in less traffic on the
roads, and lower air pollution
 Allows some merchandise to be sold at lower prices,
benefiting less affluent people
 Enables people in Third World countries and rural areas to
enjoy products and services which otherwise are not
available to them
 Facilitates delivery of public services at a reduced cost,
increases effectiveness, and/or improves quality 30
 The Limitations of EC
 Technical limitations
 There is a lack of universally accepted standards for
quality, security, and reliability
 The telecommunications bandwidth is insufficient
 Software development tools are still evolving
 There are difficulties in integrating the Internet and EC
software with some existing (especially legacy)
applications and databases.
 Special Web servers in addition to the network servers are
needed (added cost).
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 Internet accessibility is still expensive and/or inconvenient