E-commerce University of Wollongong

1. IACT303 – INTI 2005 World Wide Networking E-commerce University of Wollongong

2. What is E-Commerce About? • Changing transaction costs • Changing market structures • Changing boundaries of firms • New products, processes and services • Greater speed

3. How? • Through the application of Internet Technologies

4. The Structure of E-Commerce • Technology • Law • Economics • Social Relations • Write down one example of each of these

5. Extract the key terms from these definitions • “E-Commerce is the exchange of information across electronic networks at any stage in the supply chain whether within an organisation , between businesses, between business & consumers, or between public and private sectors whether paid or unpaid” UK Government • “ E-Commerce is the sharing of business information , maintaining business relationships & conducting business transactions by means of telecommunications networks” Zwass (1998)

6. Extract the key terms from these definitions • “The transformation of key business processes through the use of internet technologies” IBM’s Definition of E-Business • “E-Commerce is buying & selling activities over digital media” • E-Business – encompasses e-commerce & “includes the front & back-office applications that form the engine for modern business. Its not just about e-commerce transactions, it’s about redefining old business models with the aid of technology to maximise customer value” R. Kalakota (1999) p4

7. Cost savings in e-commerce come from “disintermediation” • Source: Benjamin & Wigand (1995)

8. Fundamental Shift in the Economics is Under way • The explosion in connectivity is causing new patterns of behaviour and business strategy • In the past, the focus has been on adapting operating processes to IT. • Now a change in strategic business fundamentals is underway

9. Case Study – The Demise of Encyclopaedia Britannica • Cost structure designed to support an army of salesman • Competition form Microsoft EnCarta turned the business on its head

10. Information and Organisations • Information is the glue that holds organisations together • Information is intrinsic to Physical Value Chain activities • Information asymmetries characterise many buy-seller relationships • Information forms the basis for competitive advantage

11. Information and Organisations • Information and the means of delivery determine corporate structures • When information is carried by “things” it is generally constrained by the physical chain

12. Reach and Richness • Reach - the number of people exchanging information • Richness – • combination of bandwidth, • the degree to which the network can be customised and • it’s interactivity • In general, richness has demanded proximity

13. Richness v Reach before WWW Reach Richness Evans and Wurster, 1997

14. Reach and Richness • There has traditionally been a trade off between richness and reach because information activities have been intrinsically tied to physical value chains. • With the arrival of greater connectivity and the adoption of non-proprietary protocols increasing richness and reach is possible simultaneously.

15. Implications for Company Structures • The trade-off between reach and richness has determined organisational hierarchies • The elimination of the trade-off means that traditional channels of information and control are no longer necessary

16. Deconstruction of the Value Chain • Newspaper case study. • No longer tied to the print medium. • Possible to deconstruct newspaper business and selectively offer parts of the business online

17. Deconstruction of the Value Chain • High cost of distribution channels has driven the economics of banking • Increasing richness has allowed greater richness of information over a distance through telebanking • Hence, a cheaper distribution channel has appeared.

18. Types of E-Commerce • Business to Consumer (B2C) • Business to Business (B2B) • Business to Government (B2G) • Consumer to Consumer (C2C) • Consumer to Business (C2B)

19. The B2B Transformation • Electronic commerce emerged in the1980s with the use of electronic messaging technologies and EDI • EDI was effective in • reducing costs incurred in processing, • handling and storage of product • improving profitability of business

20. The B2B Transformation • EDI was not effective in • leveling the playing field for small business operators. • The proprietary nature of EDI systems meant that suppliers had to invest in several (expensive) pieces of software when doing business with different companies. • ensuring flexibility • “Pair-wise” tyranny rules under EDI • incremental adoption path was not possible • Integration costs of EDI were high

21. The Internet’s Role • The internet has emerged as a low cost, non-proprietary, easy to use medium to conduct business • XML plays a vital role in B2B infrastructure today • Effort is being given to standardising business processes so that they can be captured in “web services” software. • Microsoft .Net is an example of this

22. Defining a message schema for information exchange between partners • SOAP- Simple Object Access Protocol • SOAP is a communication protocol for accessing Web Services. • SOAP is written in XML and enables applications to exchange information over HTTP. • SOAP overcomes the problem of firewalls blocking messages by using HTTP.

23. In summary, • SOAP is platform independent enabling applications on different platforms to exchange information. • SOAP will become a W3C endorsed standard • SOAP is also at the heart of Microsoft’s .NET Web Services • For more information see: http://www.w3schools.com/soap/soap_intro.asp

24. Components of a well-functioning commercial web site • As far as the consumer is concerned the tech-talk is well and good but does the website achieve the following? • A well-organized collection of products and/or services • A convenient way for a customer to select products • Convenient order forms • Convenient and secure ways of payment • A way of keeping information about orders • Customer support and feedback

25. Implications for Competitive Advantage • Deconstruction of the Value Chain represents a threat for established businesses and an opportunity for others

26. Channel Extending Intermediaries supplier customer customer supplier CEI supplier customer customer supplier Search for opportunities to add value: e.g. high customer search costs, switching costs, low customer satisfaction Wield new power by consolidating traditional buyers & customers. Become the first-line interface with consumers.

27. Implications for Competitive Advantage • Existing value chains will fragment into multiple businesses each of which will have it’s own source of competitive advantage. • Why should this occur?

28. Implications for Competitive Advantage • Some new businesses will benefit from network economics of scale that can give rise to monopolies • How does this come about?

29. Implications for Competitive Advantage • As value chains fragment and reconfigure, new opportunities will arise for purely physical businesses • What examples can you think of that support this?

30. Implications for Competitive Advantage • When a company focuses on different activities the value proposition underlying its brand identity will change. • What does this mean?

31. Implications for Competitive Advantage • Customers switching costs will drop and companies will have to develop new ways of generating customer loyalty • Why have switching costs dropped?

32. Implications for Competitive Advantage • Incumbents could easily become victims of their obsolete physical infrastructure and their own psychology. • Can you think of any examples?

33. What Will Happen to Your Business • Newspapers • Banking • Football Club • Hospital • General Practitioner • Supermarket

34. “The music industry will be out in five years – kaboom, gone.” Tim White Editor, Billboard Magazine Wired, Feb. 2003 Will it?

35. Further readings • Kalakota R., Robinson M (2000), e-Business, Roadmap for Success, Addison-Wesley • Lawrence et al., 2002, Technology of Internet Business, John Wiley & Sons Australia • Laudon & Laudon (2002), Management Information Systems, Prentice Hall

36. Further readings • Evans, Philip B. and Wurster, Thomas S. 1997, ‘Strategy and the new economics of information’, Harvard Business Review, Sept-Oct 1997 75(5) p. 70-80 • Glushko, R. et al. (1999) ‘ An XML Framework for agent based E-commerce’ in Communication of the ACM, Vol. 42, Issue 3.

37. Go to…Barua, A. et al. (2001) ‘Measuring the Internet Economy’, Centre of Electronic Commerce Research, University of Texas. Available from http://crec.mccombs.utexas.edu/works/articles/internet_economy.pdf

38. Measuring the Internet Economy • Identify the four layers that the authors propose for the Internet economy. • If you are currently employed, what layer are you employed at? If you are not employed, what layer of the Internet layer would you like to work at and why? • Where in the Internet Economy “food chain” does Malaysia and Indonesia exist? • What are the key findings of the paper?

39. Answers • Identify the four layers that the authors propose for the Internet economy. • Internet Infrastructure Level; • The Internet applications layer; • the internet intermediary layer; • the internet commerce layer

40. Answers • If you are currently employed, what layer are you employed at? If you are not employed, what layer of the Internet layer would you like to work at and why?

41. Answers • Where in the Internet Economy “food chain” does Singapore exist?

42. Answers • What are the key findings of the paper? • Internet economy is much bigger than originally thought. (101 billion • IE is growing at an astounding rate • IE rivals century old industries such as (energy, cars and telecommunications) • IE has had a major impact on jobs and responsibilities • Infrastructure and applications players make up over half of the IE. • Internet intermediaries are critical to IE growth