CHAPTER 6 1 E-Business and E-Commerce. Opening Case Can Facebook generate revenue with advertising?...
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CHAPTER 6 1 E-Business and E-Commerce
CHAPTER 6 1 E-Business and E-Commerce. Opening Case Can Facebook generate revenue with advertising? Facebook’s ultimate goal is to build a global website
Opening Case Can Facebook generate revenue with advertising?
Facebooks ultimate goal is to build a global website where you can
just type in anyones name, find that person, and communicate with
him or her. Currently, Facebook has more than 500 million active
users and growing at the amazing rate; In 2009 it registered
growths of almost 5 million new users per week. The average
Facebook user spends 169 minutes per month on the website. The
Business Problem However, brand advertising on Facebook has been
less than successful. This lack of advertising success is a real
concern for Facebook executives. In fact, despite the sites
exploding popularity, as of mid-2009, Facebook was not yet
profitable. Accordingly, Facebook wants to develop a revenue stream
from advertising on its website. 2
Slide 3
Opening Case Discussion What type of e-commerce business model
would Facebook, and social network websites in general, fit into?
What challenges do social network websites face as a profitable
business model? Could electronic payment methods add value to
social network websites? What are the potential ethical concerns of
using social networks to conduct e-commerce? 3
Slide 4
Opening Case What we learned from this case? Electronic
commerce offers two very important advantages to companies. First,
it increases an organizations reach, defined as the number of
potential customers to whom the company can market its products.
Facebook is an excellent example of increased reach, as we saw in
the opening case. Second, electronic commerce removes many of the
barriers that previously impeded entrepreneurs who start
businesses. Facebook provides a cautionary story here. Even though
the company effectively used electronic commerce to grow rapidly,
its future is unclear because its revenue model has, so far, not
been as effective. The important point here is that a company using
electronic commerce, despite all its advantages, still must have a
viable method for generating revenue, or the company will fail.
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Slide 5
Agenda 6.1 Overview of E-Business & E-Commerce 6.1.1
Definitions and concepts 6.1.2 Types of E-Commerce 6.1.3 E-Commerce
business models 6.1.4 Major E-Commerce mechanisms 6.1.5 Benefits
and limitations of E-Commerce 6.2 Business-to-Consumer (B2C)
E-Commerce 6.2.1 Definition and characteristics 6.2.2 Electronic
storefronts and malls 6.2.3 On-Line service industries 6.2.4 Issues
in E-Tailing 6.2.5 Online advertising 5
Slide 6
6.3 Business-to-Business (B2B) E-Commerce 6.3.1 Definition
6.3.2 Types of B2B electronic commerce 6.4 Electronic Payments 6.5
Ethical and Legal Issues in E-Business 6 Agenda
Slide 7
CHAPTER OVERVIEW 7
Slide 8
LEARNING OBJECTIVES 1. Describe the different types of
electronic commerce, its mechanisms, and its limitations. (6.1) 2.
Describe B2C electronic commerce, e-tailing, and on-line
advertising. (6.2) 3. Describe the main types of B2B electronic
commerce. (6.3) 4. Explain the main types of on-line electronic
payment methods.(6.4) 5. Explain the main ethical and legal issues
relating to e- commerce.(6.5) 8
Slide 9
6.1 Overview of E-Business & E-Commerce 6.1.1 Definitions
and concepts 6.1.2 Types of E-Commerce 6.1.3 E-Commerce business
models 6.1.4 Major E-Commerce mechanisms 6.1.5 Benefits and
limitations of E-Commerce 9
Slide 10
6.1.1 Definitions and concepts Definitions Electronic commerce
(e-commerce, EC) describes the process of buying, selling,
transferring, or exchanging of products, services or information
via computer networks, including the Internet. E-business is a
broader definition of EC, including buying and selling of goods and
services, and also servicing customers, collaborating with
partners, conducting e-learning and conducting electronic
transactions within an organization. 10
Slide 11
Concepts Pure versus Partial Electronic Commerce The degree of
digitization refers to the extent to which the commerce has been
transformed from physical to digital. It can relate to: 1)the
product or service being sold, 2)the process by which the product
or service is produced, or 3)the delivery agent or intermediary. In
other words, the product can be physical or digital, the process
can be physical or digital, and the delivery agent can be physical
or digital. 11
Slide 12
Depends on the degree of digitization involved.
Brick-and-mortar organizations Click-and-mortar organizations (e.g.
BestBuy.ca, Futureshop.com) Virtual organizations, Pure play (e.g.
eBay.com, NetFlix.com) 12
Slide 13
Pure vs. Partial EC --The product can be physical or digital.
--The process can be physical or digital. --The delivery agent can
be physical or digital. Brick-and-mortar organizations are purely
physical organizations. Virtual organizations are companies that
are engaged only in EC. (Also called pure play) Click-and-mortar
organizations are those that conduct some e- commerce activities,
yet their business is primarily done in the physical world. i.e.
partial EC. 13
Slide 14
6.1.2 Types of E-Commerce Business-to-Consumer (B2C)
Business-to-Business (B2B) Consumer-to-Consumer (C2C)
Business-to-Employee (B2E) E-Government Mobile Commerce
(m-commerce) 14
Slide 15
Business-to-consumer (B2C): the sellers are organizations and
the buyers are individuals. Business-to-business (B2B): both the
sellers and buyers are business organizations. B2B represents the
vast majority of e- commerce. Consumer-to-consumer (C2C): an
individual sells products or services to other individuals.
Business-to-employee (B2E): An organization uses e-commerce
internally to provide information and services to its employees.
Companies allow employees to manage their benefits, take training
classes electronically; buy discounted insurance, travel packages,
and event tickets. 15
Slide 16
E-Government: the use of Internet Technology in general and e-
commerce in particular to deliver information about public services
to citizens (called Government-to-citizen [G2C EC]), business
partners and suppliers (called government-to-business [G2B EC])
Mobile Commerce (m-commerce) refers to e-commerce that is conducted
in a wireless environment. For example, using a cell phone to shop
over the Internet. 16
Slide 17
6.1.3 E-Commerce business models Online direct marketing
Name-your-own-price Find-the-best-price Viral marketing Group
purchasing Online auctions 17
Slide 18
Affiliate marketing Product customization Deep discounters
Membership Electronic tendering system 18
Slide 19
Online direct marketing: manufacturers or retailers sell
directly to customers. Name-your-own-price: customers decide how
much they want to pay. Find-the-best-price: customers specify a
need and an intermediary compares providers and shows the lowest
price. Viral marketing: receivers send information about your
product to their friends. Bartering on-line: Intermediary
administers on-line exchange of surplus products and/or company
receives points for its contribution, and the points can be used to
purchase other needed items (www.bbu.com) 19
Slide 20
Online auctions: companies run auctions of various types on the
Internet. Affiliate marketing: Vendors ask partners to place logos
or banners on partners site. If customers click on logo, go to
vendors site, and buy, then vendor pays commission to partners.
Product customization: customers use the Internet to self-
configure products or services. Sellers then price them and fulfill
them quickly. Deep discounters: company offers deep price
discounts. 20
Slide 21
Group purchasing: small buyers aggregate demand to get a large
volume; then the group conducts tendering or negotiates a lower
price. Membership: only members can use the services provided.
Electronic tendering system: businesses (or governments) request
quotes from suppliers; uses B2B (or G2B) with reverse auctions.
Image above is the Hong Kong Governments electronic tending system
homepage. Electric marketplaces and exchanges: transactions are
conducted efficiently (more information to buyers and sellers,
lower transaction costs) in electronic marketplaces (private or
public) 21
Slide 22
6.1.4 Major E-Commerce mechanisms Auction Forward auctions
Reverse auctions Electronic marketplace ( e-marketplace is
discussed in section 6.3) 22
Slide 23
An auction is a competitive process in which either a seller
solicits consecutive bids from buyers or a buyer solicits
consecutive bids from sellers. Sellers use a forward auction as a
channel to many potential buyers. Note that Sothebys uses forward
auctions. In reverse auctions, one buyer, usually an organization,
wants to buy a product or a service. The buyer posts a request for
quotation (RFQ) on its Web site or on a third-party Web site. The
RFQ contains detailed information on the desired purchase.
Suppliers study the RFQ and submit bids, and the lowest bid wins
the auction. In general, forward auctions result in higher prices
over time, where reverse auctions result in lower prices over time.
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Bid price Time Forward AuctionReverse Auction 24
Slide 25
6.1.5 Benefits and limitations of E- Commerce Benefits Benefits
to organizations Makes national and international markets more
accessible Lowering costs of processing, distributing, and
retrieving information Benefits to customers Access a vast number
of products and services around the clock (24/7/365) Benefits to
society Ability to easily and conveniently deliver information,
services and products to people in cities, rural areas and
developing countries 25
Slide 26
Limitations Technological limitations Lack of universally
accepted security standards Insufficient telecommunications
bandwidth Expensive accessibility Non-technological limitations
Perception that EC is unsecure Unresolved legal issues Lacks a
critical mass of sellers and buyers 26
Slide 27
6.2 Business-to-Consumer (B2C) E- Commerce 6.2.1 Definition and
characteristics 6.2.2 Electronic storefronts and malls 6.2.3
On-Line service industries 6.2.4 Issues in E-Tailing 6.2.5 Online
advertising 27
Slide 28
6.2.1 Definition and characteristics Business-to-consumer
(B2C): the sellers are organizations and the buyers are
individuals. B2C electronic commerce is also known as e-tailing.
B2B is much larger than B2C by volume. B2C is more complex. B2C
involves a large number of buyers making millions of diverse
transaction per day with a relatively small number of sellers.
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Slide 29
6.2.2 Electronic storefronts and malls Electronic retailing
(e-tailing) is the direct sale of products and services through
electronic storefronts or electronic malls, usually designed around
an electronic catalogue format and/or auctions. An electronic
storefront is a Web site that represents a single store. Electronic
malls are collections of individual shops under a single Internet
address. 29
Slide 30
6.2.3 On-Line service industries In addition to purchasing
products, customers can also access needed services via the Web. A
key issue is disintermediation in online service industries.
Intermediaries or middlemen provide information and/or provide
value-added services. When the function(s) of these intermediaries
can be automated or eliminated, this process is called
disintermediation. 30
Slide 31
Cyberbanking involves conducting banking activities from home,
a place of business, or on the road instead of at a physical bank
location. Virtual banks are dedicated only to Internet
transactions. On-Line Securities Trading use computers to trade
stocks, bonds, and other financial instruments. The On-Line Job
Market: the Internet offers a promising new environment for job
seekers and for companies searching for hard- to-find employees.
Travel Services: the Internet is an ideal place to plan, explore,
and arrange almost any trip economically. 31
Slide 32
6.2.4 Issues in E-Tailing Channel conflict Order fulfillment 32
???
Slide 33
Channel conflict occurs when manufacturers disintermediate
their channel partners,such as distributors, retailers, dealers,
and sales representatives, by selling their products directly to
consumers, usually over the Internet through electronic commerce.
Multichanneling is a process in which a company integrates its
offline and online channels. Order fulfillment involves finding the
product to be shipped; packaging the product; arrange for speedy
delivery to the customer; and handle the return of unwanted or
defective products. 33
Slide 34
6.2.5 Online advertising Advertising is an attempt to
disseminate information in order to influence a buyer-seller
transaction. The most common on-line advertising methods are:
Banners Pop-up ad Pop-under ad Permission marketing (e.g.
AirCanada, WestJet) Viral marketing 34
Slide 35
Banners are simply electronic billboards. Pop-up ad appears in
front of the current browser window. Pop-under ad appears
underneath the active window. Permission marketing asks consumers
to give their permission to voluntarily accept online advertising
and e-mail. Viral marketing refers to online word-of-mouth
marketing. 35
6.3.1 Definition In B2B e-commerce, the buyers and sellers are
organizations. B2B makes up about 85 percent of EC volume. It
covers a broad spectrum of applications that enable an enterprise
to form electronic relationships with its distributors, resellers,
suppliers, customers, and other partners. 37
In the sell-side marketplace, organizations sell their products
or services to other organizations Electronically from their own
Web site and/or from a third-party Web site. This model is similar
to the B2C model in which the buyer comes to the sellers site,
views catalogs, and places an order. In the B2B sell-side
marketplace, the buyers are organizations. The buy-side marketplace
is a model in which organizations buy needed products and services
from other organizations electronically. Public exchanges have many
buyers and many sellers. Private exchanges have one buyer and many
sellers. There are three basic types of public exchanges: vertical,
horizontal, and functional. 39
6.4 Electronic Payments Electronic payment systems enable you
to pay for goods and services electronically. Electronic checks
(e-checks) Electronic credit cards Purchasing cards Electronic cash
Stored-value money cards Smart cards Person-to-person payments
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Electronic checks (e-checks) are similar to paper checks and
are used mostly in B2B. Electronic credit cards (Debt Cards,
e-Credit, or e-Debt) allow customers to charge online payments to
their credit card account. Purchasing cards are the B2B equivalent
of electronic credit cards and are typically used for unplanned B2B
purchases. 45
Slide 46
Electronic cash Stored-value money cards allow you to store a
fixed amount of prepaid money and then spend it as necessary. Smart
cards contain a chip called a microprocessor that can store a
considerable amount of information and are multipurpose can be used
as a debit card, credit card or a stored-value money card.
Person-to-person payments are a form of e-cash that enables two
individuals or an individual and a business to transfer funds
without using a credit card. Digital Wallets are software
mechanisms that provide security measures, combined with
convenience, to EC purchasing. The wallet stores secured personal,
shipping and credit card information for use on line. 46
Slide 47
6.5 Ethical and Legal Issues in E-Business Ethical Issues
Privacy Disintermediation 47
Slide 48
Privacy: e-commerce provides opportunities for businesses and
employers to track individual activities on the WWW using cookies
or special spyware. This allows private/personal information to be
tracked, compiled, and stored as an individual profile. This
profile can be used or sold to other businesses for target
marketing or by employees to aide in personnel management decisions
(i.e., promotions, raises, layoffs). Disintermediation: middlemen
or intermediaries (1) provide information, and (2) perform
value-added services such as consulting. The first function can be
fully automated, and the second can be partially automated through
e-marketplaces and portals for free thereby causing job loss among
intermediaries. 48
Slide 49
Legal Issues Specific to E-Commerce Fraud on the Internet
Domain Names Cybersquatting Taxes and Other Fees Copyright 49
Slide 50
Fraud on the Internet has grown faster than the internet
itself. Stock promoters falsely spread positive rumours about the
prospects of stocks that boost the stock price for a quick profit.
Domain Names are assigned by a central non-profit organization that
checks for conflicts and possible infringement of trademarks
Cybersquatting refers to the practice of registering or using
domain names for the purpose of profiting from the goodwill or
trademark belonging to someone else. Copyright is a grant that
provides the creator of intellectual property with the ownership of
it for the life of the creator plus 50 years in Canada. 50
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Closing Case Sales growth at the heart of Sears Canadas new
e-commerce website The Business Problem Sears Canada, one of the
largest retail store chains in the country, has been trying to get
customers back into shopping. Without closing any of its stores,
sales decreased by 6.3 percent in a recent year, totalling $5.7
billion in annual revenue. On-line sales have also slowed down to
single-digit growth and now represent 10 percent of total sales.
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Slide 52
Closing Case Discussion Why was Sears Canada so focused on
improving the customer experience in its new e-commerce website?
What role do new social media tools play in on-line stores such as
Sears.ca? What are the benefits? What are the disadvantages? How
could Sears Canada make its website more appealing to the market
segment for younger shoppers? Identify any other on-line business
models that Sears Canada could benefit from. 52
Slide 53
Closing Case The Results The new e-commerce website has
provided Sears with the flexibility to respond to customers
questions in an interactive way. When a customer asked how a
treadmill for sale could be folded, an e-commerce team member
videotaped himself doing it and posted the video on YouTube and on
the Sears.ca website. Sears also saves on inventory costs since
suppliers carry the merchandise and ship it directly to customers.
But one of the greatest benefits of the new website is the almost
endless range of products that it carries: about 350,000 items are
available on the Sears.ca website, more than twice the number in
one of its typical department stores, and the number is planned to
increase. 53
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