1

Chapter 1

Overview of

Electronic Commerce

2

Learning Objectives

Define electronic commerce (EC) and describe its various categoriesDescribe and discuss the content and framework of ECUnderstand the forces that drive the widespread use of ECDescribe the benefits of EC to organizations, consumers, and societyDescribe the limitations of EC

3

Opening Vignette:Qantas Airways

Business-to-business (B2B) E-marketplace memberBusiness-to-customer (B2C): Online booking & wireless communicationsBusiness-to-employee (B2E): Online training & banking

4

Qantas Airways (cont.)

Business-to-business (B2B)

E-marketplace memberJoined Airnew Co.—links major airlines with suppliers

FuelFuel servicesLight maintenance servicesCatering

5

Qantas Airways (cont.)

Business-to-customer (B2C):

Online bookingWireless communications

6

Qantas Airways (cont.)

Business-to-employee (B2E):

Online trainingOnline banking

7

Definitions

Business-to-business (B2B)Businesses make online transactions purchases with other business

Business-to-consumer (B2C)Online transactions between businesses and consumers

Business-to-employee (B2E)Information and services made available to employees online

8

The Dimensions of Electronic CommerceWho

Where

Why

What

Value Network

Customer

Firm

Hosted in-House

Hosted Remotely

Hosted Anywhere

Tran

sfor

mat

iona

l Out

com

es

Rela

tions

hip

Out

com

es

Cost

Out

com

es Collaboration

Transaction

Information

9

A method of doing business by which a company can generate revenue to sustain itself.

Examples:Name your priceFind the best priceDynamic brokeringAffiliate marketing

Business Models

Prentice Hall, 2002

Business Models (cont.)

• Brokerage• Advertising• Infomediary• Merchant

• Manufacturer• Affiliate• Community• Subscription• Utility

10

11

Figure 1-3 A Framework for Electronic Commerce

12

MarketingComputer sciencesConsumer behavior and psychologyFinanceEconomics

Management information systemsAccounting and auditingManagementBusiness law and ethicsOthers

Electronic Commerce is Interdisciplinary

13

The Driving Forces ofElectronic Commerce

The New World of BusinessBusiness pressuresOrganizational responsesThe role of Information Technology (including electronic commerce)

14

Major Business Pressures

Market andeconomic

pressures

Strong competitionGlobal economyRegional trade agreements (e.g. NAFTA)Extremely low labor cost in some countriesFrequent and significant changes in marketsIncreased power of consumers

15

Major Business Pressures (cont.)

Societal and environmental pressures

Changing nature of workforceGovernment deregulation of banking and other servicesShrinking government subsidiesIncreased importance of ethical and legal issuesIncreased social responsibility of organizationsRapid political changes

16

Major Business Pressures (cont.)

Technological pressures

Rapid technological obsolescenceIncrease innovations and new technologiesInformation overloadRapid decline in technology cost vs. performance ratio

17

The Benefits of EC

Benefits to OrganizationsExpands the marketplace to national and international marketsDecreases the cost of creating, processing, distributing, storing and retrieving paper-based information

18

Benefits of EC (cont.)

Benefits to Organizations (cont.)Allows reduced inventories and overhead by facilitating pull-type supply chain managementThe pull-type processing allows for customization of products and services which provides competitive advantage to its implementers

19

Benefits of EC (cont.)

Benefits to Organizations (cont.)Reduces the time between the outlay of capital and the receipt of products and servicesSupports business processes reengineering (BPR) effortsLowers telecommunications cost - the Internet is much cheaper than value added networks (VANs)

20

Benefits of EC (cont.)

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

21

Benefits of EC (cont.)

Benefits to consumers (cont.)Allows quick delivery of products and services (in some cases) especially with digitized productsConsumers can receive relevant and detailed information in seconds, rather than in days or weeksMakes it possible to participate in virtual auctions

22

Benefits of EC (cont.)

Benefits to consumers (cont.)Allows consumers to interact with other consumers n electronic communities and exchange ideas as well as compare experiencesFacilitates competition, which results in substantial discounts

23

Benefits of EC (cont.)

Benefits to societyEnables more individuals to work at home, and to do less traveling for shopping, resulting in less traffic on the roads, and lower air pollutionAllows some merchandise to be sold at lower prices benefiting less affluent people

24

Benefits of EC (cont.)

Benefits to society (cont.)Enables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to themFacilitates delivery of public services at a reduced cost, increases effectiveness, and/or improves quality

25

The Limitations of EC

Technical limitations of electronic commerceLack of sufficient system’s security, reliability, standards, and communication protocolsInsufficient telecommunication bandwidthThe software development tools are still evolving and changing rapidly

26

The Limitations of EC (cont.)

Technical Limitations of EC (cont.)Difficulties in integrating the Internet and electronic commerce software with some existing applications and databasesThe need for special Web servers and other infrastructures, in addition to the network servers (additional cost)

27

The Limitations of EC (cont.)

Technical Limitations of EC (cont.)Possible problems of interoperability, meaning that some EC software does not fit with some hardware, or is incompatible with some operating systems or other components

28

Non-Technical Limitations

Cost and justification The cost of developing an EC in house can be very high, and mistakes due to lack of experience may result in delays. There are many opportunities for outsourcing, but where and how to do it is not a simple issueIn order to justify the system, one needs to deal with some intangible benefits which are difficult to quantify.

29

Security and Privacy These issues are especially important in the B2C area, but security concerns are not so serious from a technical standpoint Privacy measures are constantly improving too The EC industry has a very long and difficult task of convincing customers that online transactions and privacy are, in fact, very secure

Non-Technical Limitations (cont.)

30

Non-Technical Limitations (cont.)

Lack of trust and user resistance Customers do not trust:

Unknown faceless sellersPaperless transactionsElectronic money

Switching from a physical to a virtual store may be difficult

31

Other limiting factors are:Lack of touch and feel onlineMany unresolved legal issuesRapidly evolving and changing ECLack of support servicesInsufficiently large enough number of sellers and buyersBreakdown of human relationshipsExpensive and/or inconvenient accessibility to the Internet

Non-Technical Limitations (cont.)

32

Putting It All Together

Major concern of today’s companies—how to transform themselves to take part in digital economyExample:Toys, Inc.

Uses intranet for internal communications, collaboration, dissemination of informationNetworked to e-marketspaces and large corporationsCorporate portal for communication and collaboration with business partners

Figure 1-7

Putting It All Together

Prentice Hall, 2002 33

Prentice Hall, 200234

35

Is it real?How to evaluate the magnitude of the business pressures.What should be my company’s strategy towards EC?

Managerial Issues

36

Managerial Issues (cont.)

Why is the B2B area so attractive?What is the best way to learn about EC?What ethical issues exist?How can failures be avoided?