Chapter 8

Principles of Information Systems

Eighth Edition

Chapter 8

Electronic and Mobile Commerce

2Principles of Information Systems, Eighth Edition

Why Learn About Electronic and Mobile Commerce?

• Most organizations have an Internet presence– Sales/marketing manager involved with e-commerce– Customer service employees help develop the Web

site– Human resource or public relations manger may

provide Web content for employees and investors

• Must learn about e-commerce and m-commerce


An Introduction to Electronic Commerce

• Electronic commerce: conducting business activities electronically over computer networks

• Types of business activities that are strong candidates for conversion to e-commerce– Paper based– Time-consuming– Inconvenient for customers


Business-to-Business (B2B) E-Commerce

• Subset of e-commerce

• All the participants are organizations

• Useful tool for connecting business partners in a virtual supply chain to cut re-supply times and reduce costs


Business-to-Consumer (B2C) E-Commerce

• Form of e-commerce in which customers deal directly with an organization and avoid intermediaries– Squeezes costs and inefficiencies out of supply

chain– Can lead to higher profits– Can lead to lower prices for consumers

• E-commerce via the Internet– Many goods and services are cheaper online– The Internet allows consumers to easily compare

prices, features, and value


Consumer-to-Consumer (C2C) E-Commerce

• Subset of e-commerce that involves consumers selling directly to other consumers

• Example: eBay– Customers buy and sell items directly to each other

through the site– 181 million users buy and sell items valued at more

than $44 billion

• Other popular online auction Web sites: Craigslist, uBid, Yahoo! Auctions, Onsale, and WeBidz


eGovernment

• Use of information and communications technology to simplify the sharing of information, speed formerly paper-based processes, and improve the relationship between citizen and government

• Forms of eGovernment– Government-to-consumer (G2C)– Government-to-business (G2B)– Government-to-government (G2G)


Multistage Model for E-commerce

Figure 8.1: Multistage Model for E-Commerce (B2B and B2C)


Multistage Model for E-commerce (continued)

Figure 8.2: Product and Information Flow for HP Printers Ordered over the Web


E-Commerce Challenges

• Defining an effective e-commerce model and strategy– Community, content, and commerce

• Changing distribution systems and work processes to manage shipments of individual units directly to consumers– B2C systems must be able to handle split-case

distribution

• Integrating Web-based order processing with traditional systems


E-Commerce Challenges (continued)

Figure 8.3: Three Basic Components of a Successful E-Commerce Model

Providing useful, accurate, and timely

Content

Buying & selling physical goods, information, and

Services

Features that build a loyal Community


E-Commerce Challenges (continued)

Figure 8.4: Web-Based Order Processing Must Be Linked to Traditional Back-End Systems


An Introduction to Mobile Commerce

• Mobile commerce (m-commerce) relies on the use of wireless devices, such as personal digital assistants, cell phones, and smart phones, to place orders and conduct business

• Handset manufacturers are working with communications carriers to develop appropriate wireless devices, related technology, and services

• Content providers and mobile service providers are working together more closely than ever


Mobile Commerce in Perspective

• Only 12 to 14 percent of the world’s 1.8 billion mobile phone users have ever used the Web from their phones

• Internet Corporation for Assigned Names and Numbers (ICANN) created a .mobi domain to help attract mobile users to the Web

• Market for m-commerce in North America is maturing much later than in Western Europe and Japan


Technology Needed for Mobile Commerce

• Improved interface between the wireless device and its user

• Improved network speed

• Security– Encryption, digital certificates

• Web applications that are accessible for handheld users


Technology Needed for Mobile Commerce (continued)

• Wireless application protocol (WAP): standard set of specifications for Internet applications that run on handheld, wireless devices– Effectively serves as a Web browser for such

devices– Uses the Wireless Markup Language (WML), which

is designed for effectively displaying information on small devices


Electronic and Mobile Commerce Applications

• Many B2B, B2C, C2C, and m-commerce applications are being used in:– Retail and wholesale– Manufacturing– Marketing– Investment and finance– Auction arenas


Retail and Wholesale

• Electronic retailing (e-tailing): direct sale from business to consumer through electronic storefronts– Electronic storefronts are typically designed around

an electronic catalog and shopping cart model

• Cybermall: single Web site that offers many products and services at one Internet location

• Manufacturing, repair, and operations (MRO) goods and services


Manufacturing

• To raise profitability and improve customer service, many manufacturers move their supply chain operations onto the Internet

• Electronic exchange: electronic forum where manufacturers, suppliers, and competitors buy and sell goods, trade market information, and run back-office operations


Manufacturing (continued)

Figure 8.5: Model of an Electronic Exchange


Marketing

• Market segmentation: identification of specific markets to target them with advertising messages

• Technology-enabled relationship management: use of detailed information about a customer’s behavior, preferences, needs, and buying patterns to customize the entire relationship with that customer


Investment and Finance

• Online stock trading– Online tools for doing research and analysis

• Online banking– Customers can check account balances, transfer

money among accounts, pay bills, etc.– Electronic bill presentment


Auctions

• eBay– Has become synonymous with online auctions– Customer complaints: increased fees and problems

with dishonest buyers– Constantly trying to expand and improve its services:

Skype, Verisign

• Hundreds of other online auction sites– Example: Priceline.com


Anywhere, Anytime Applications of Mobile Commerce

• M-commerce devices are ideal for accessing personal information and receiving targeted messages for a particular consumer

• Through m-commerce, companies can establish one-to-one marketing relationships with individual consumers anytime and anywhere

• The most successful m-commerce applications suit local conditions and people’s habits and preferences

• Examples: banking, stock trading, information services, retail, advertisements


Advantages of Electronic and Mobile Commerce

• Global reach: helps reduce gap between rich and poor countries

• Reduces costs: increases speed and accuracy

• Speeds the flow of goods and information

• Increases accuracy: eliminates human data-entry error

• Improves customer service: information about delivery status and ability to meet customer demand


Threats to Electronic and Mobile Commerce

• Businesses must ensure that e-commerce and m-commerce transactions are safe and consumers are protected

• Number of threats to the continued growth of e-commerce and m-commerce– Security, theft of intellectual property, fraud, invasion

of privacy, lack of Internet access, return on investment, legal jurisdiction, taxation


Security

• Methods to increase security– Payment Card Industry security standard– Address Verification System– Card Verification Number technique– Visa’s Advanced Authorization process– Federal Financial Institutions Examination Council’s

“Authentication in an Internet Banking Environment” guidelines

– Biometric technology


Theft of Intellectual Property

• Intellectual property: works of the mind that are distinct somehow and are owned or created by a single entity– For example: books, films, music, processes, and

software

• Copyright law protects authored works such as books, film, images, music, and software from unauthorized copying

• Patents can protect software, business processes, formulae, compounds, and inventions


Theft of Intellectual Property (continued)

• Trade secrets

• Digital Rights Management (DRM): use of any of several technologies to enforce policies for controlling access to digital media


Fraud

• Phishing: sending bogus messages purportedly from a legitimate institution to pry personal information from customers by convincing them to go to a “spoof” Web site

• Click fraud: arises in a pay-per-click online advertising environment when additional clicks are generated beyond those that come from actual, legitimate users

• Online auction fraud


Invasion of Consumer Privacy

• Online profiling: practice of Web advertisers’ recording online behavior to produce targeted advertising

• Clickstream data: data gathered based on the Web sites you visit and the items you click on


Lack of Internet Access

• Digital divide: difference between people who do and people who don’t have access or capability to use high-quality, modern information and communications technology to improve their standard of living– Exists between:

• More and less developed countries

• Economic classes

• The educated and uneducated

• Those who live in cities and those who live in rural areas


Return on Investment

• The investment required for a large firm to establish and operate a B2B or B2C Web site can be in the millions of dollars

• Common problem with determining return on investment: difficult to forecast project costs and benefits


Legal Jurisdiction

• When conducting e-commerce, sales must not violate county, state, or country legal jurisdictions

• Examples– Selling stun guns and similar devices– Selling cigarettes or alcohol to underage customers


Taxation

• U.S. Supreme Court ruling: Internet-based merchants must apply sales tax only when buyers live in a state where the company has physical facilities, or “nexus” (connection or link)

• Most businesses set up separate companies to avoid dealing with nonstandard rules of the more than 7,500 taxing districts nationwide– Consumers are responsible for voluntarily remitting

sales taxes

• Difficult for states to collect sales taxes on Internet purchases


Strategies for Successful E-Commerce

• Companies must develop effective Web sites that include the following characteristics:– Easy to use– Accomplish the goals of the company– Safe and secure– Affordable to set up and maintain


Defining the Web Site Functions

• Decide which tasks the site must accomplish

• Create an attractive presence for the company

• Meet the needs of its visitors– Examples: obtaining information about the

organization and its products, buying products or services, getting advice, registering complaints

• Redefining your site’s basic business model to capture new business opportunities


Establishing a Web Site

• Web site hosting companies– Allow you to set up a Web page and conduct e-

commerce within a matter of days– Little up-front cost

• Storefront broker: companies that act as middlemen between your Web site and online merchants that have the products and retail expertise


Building Traffic to Your Web Site

• Obtain and register a domain name

• Make your site search-engine-friendly– Meta tag: special HTML tag that contains keywords

representing your site’s content• Keywords are used by search engines to build

indexes pointing to your Web site

• Web site traffic data analysis software

• Adapting Web site design for global consumers


Maintaining and Improving Your Web Site

• Be alert to new trends and developments in e-commerce

• Be prepared to take advantage of new opportunities

• Personalization: tailoring Web pages to specifically target individual consumers– Explicit: captures user-provided information– Implicit: captures data from customer Web sessions


Technology Infrastructure Required To Support E-commerce and

M-commerce

• Successful implementation of e-business requires significant changes to existing business processes and substantial investment in IS technology

• Poor Web site performance drives consumers to abandon some e-commerce sites in favor of those with better, more reliable performance


Technology Infrastructure Required To Support E-commerce and M-commerce (continued)

Figure 8.6: Key Technology Infrastructure Components


Hardware

• Storage capacity and computing power required of the Web server depends on:– Software that will run on the server– Volume of e-commerce transactions

• E-commerce solutions should be designed to be highly scalable

• Web site hosting: third-party Web service provider


Web Server Software

• Security and identification

– Access controls

– Encryption

• Retrieving and sending Web pages

• Web site tracking– Web log file

• Web site development– HTML/visual Web page editor, software

development kits


Web Server Software (continued)

• Web page construction– Web editors and extensions– Static Web page: contains same information– Dynamic Web page: responds to a specific Web

user’s request

• Examples of Web server software packages: Apache HTTP Server, Microsoft Internet Information Server


E-Commerce Software

• E-commerce software tools– Catalog management: provides standard format– Product configuration: build product online to meet

user needs– Shopping cart facilities– Transaction processing– Web traffic data analysis– Web services: software modules supporting specific

business processes that users can interact with over a network as needed


E-Commerce Software (continued)

Figure 8.7: Electronic Shopping Cart


Electronic Payment Systems

• Digital certificate: attachment to an e-mail message or data embedded in a Web page that verifies the identity of a sender or a Web site

• Certificate authority (CA): trusted third party that issues digital certificates

• Secure Sockets Layer (SSL): communications protocol used to secure sensitive data

• Electronic cash: amount of money that is computerized, stored, and used as cash for e-commerce transactions


Electronic Payment Systems (continued)

• Credit card

• Charge card

• Debit card

• Smart card: a credit card–sized device with an embedded microchip to provide electronic memory and processing capability

Documents

Chapter 8