Chapter 1

1. Chapter 1 Overview of Electronic Commerce

2. 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.

3. Learning Objectives (cont.) • 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.

4. Marks & Spencer—A New Way to Compete • The Problem • UK-based, upscale, global retailer of high-quality, high-priced merchandise faces stiff competition, since economic slowdown that started in 1999 • Critical success factors • Customer service • Appropriate store inventory system • Efficient supply chain activities

5. 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

6. Marks & Spencer (cont.) • M & S initiated several EC initiatives, including: • Security • Warehouse management • Merchandise receiving • Inventory control • Speeding up the supply of fashion garments • Collaborative commerce

7. Marks & Spencer (cont.) • The Results • As of summer 2002, a turnaround is underway • M & S has become a leader and example setter in retailing, resulting in increased profitability and growth

8. 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

9. Electronic Commerce: Definitions and Concepts • The Internet has emerged as a major, perhaps eventually the major, worldwide distribution channel for goods, services, managerial and professional jobs • This is profoundly changing economics, markets and industry structure, products and services and their flow, consumer segmentation, consumer values, consumer behavior, 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

10. 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

11. 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

12. 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

13. 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

14. Pure vs. Partial ECdepends 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 areold-economy organizations (corporations) that perform most of their business off-line, selling physical products by means of physical agents Electronic Commerce: Definitions and Concepts (cont.)

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

16. Interorganizational information systems (IOSs) allow routine transaction processing and information flow between two or more organizations Intraorganizational information systems enable EC activities to go on within individual organizations Electronic Commerce: Definitions and Concepts (cont.)

17. Exhibit 1.1: The Dimensions of Electronic Commerce

18. The EC Framework, Classification, and Content • Two major types of e-commerce: • business-to-consumer (B2C) : online transactions are made between businesses and individual consumers • business-to-business (B2B): businesses make online transactions with other businesses intrabusiness EC: EC conducted inside an organization (e.g., business-to-employeesB2E)

19. 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

20. EC Framework • EC applications are supported by infrastructure and by five support areas: • People • Public policy • Marketing and advertising • Support services • Business partnerships

21. Exhibit 1.2: A Framework for Electronic Commerce

22. Classification of EC by Transactions or Interactions • business-to-consumer (B2C) : online transactions are made between businesses and individual consumers • business-to-business (B2B): businesses make online transactions with other businesses • e-tailing:online retailing, usually B2C

23. 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

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

25. 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

26. 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

27. 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

28. The Interdisciplinary Nature of EC • Major EC disciplines • Computer science • Marketing • Consumer behavior • Finance • Economics • Management information systems

29. A Brief History of EC (cont.) • 1969 U.S. government experiment—the 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

30. 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

31. EC successes Virtual EC companies eBay VeriSign AOL Checkpoint Click-and-mortar Cisco General Electric IBM Intel Schwab EC failures 1999, a large number of EC-dedicated companies began to fail EC’s days are not numbered! 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) A Brief History of EC (cont.)

32. 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 company’s customer base • expanding to other universities • attracting students • generating a list of restaurants from which students could order food for delivery

33. 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.com’s revenue is generated through transaction fees—the site takes a 5 % commission on each order from the sellers

34. 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

35. The Future of EC • 2004—total online shopping and B2B transactions in the US between $3 to $7 trillion by 2008: • number of Internet users worldwide should reach 750 million • 50 percent of Internet users will shop • EC growth will come from: • B2C • B2B • e-government • e-learning • B2E • c-commerce the future is bright

36. E-commerce Business Models • Business models—a 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

37. Typical Business Modelsin EC • 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 • Name your own price: 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

38. Typical Business Models in EC (cont.) • Affiliate marketing: an arrangement whereby a marketing partner (a business, an organization, or even an individual) refers consumers to the selling company’s Web site • Viral marketing: word-of-mouth marketing in which customers promote a product or service to friends or other people

39. Typical Business Models in EC (cont.) • Group purchasing: quantity purchasing that enables groups of purchasers to obtain a discount price on the products purchased • SMEs: small to medium enterprises • Online auctions

40. Typical Business Models in EC (cont.) • Product and service customization customization: creation of a product or service according to the buyer’s specifications • Electronic marketplaces and exchanges • Value-chain integrators • Value-chain service providers

41. Typical Business Models in EC (cont.) • Information brokers • Bartering • Deep discounting • Membership • Supply chain improvers Business models can be independent or they can be combined amongst themselves or with traditional business models

42. 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 Other benefits Benefits of EC Benefits to organizations

43. 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 Benefits of EC (cont.) Benefits to consumers

44. Benefits of EC (cont.) • Benefits to society • Telecommuting • Higher standard of living • Hope for the poor • Availability of public services

45. Limitations of EC

46. Security Trust and risk Lack of qualified personnel Lack of business models Culture User authentication and lack of public key infrastructure Organization Fraud Slow navigation on the Internet Legal issues Barriers of EC

47. 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

48. 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

49. 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

50. 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