E-Commerce An overview Patricia Kwan, Lecturer MIS Department College of Business San Jose State University [email protected]

E-CommerceE-Commerce

An overviewAn overview

Patricia Kwan, LecturerMIS DepartmentCollege of BusinessSan Jose State [email protected]

AgendaAgenda

• What is E-Commerce?What is E-Commerce?– E-Business vs. E-CommerceE-Business vs. E-Commerce

• E-Commerce in the U.S. E-Commerce in the U.S.

• E-Commerce categoriesE-Commerce categories– Complementary and SupplementaryComplementary and Supplementary Businesses Businesses– Internet Business ModelsInternet Business Models

• Requisite conditions for E-CommerceRequisite conditions for E-Commerce

AgendaAgenda

• E-Commerce in Western EuropeE-Commerce in Western Europe

• E-Commerce in JapanE-Commerce in Japan

• Case studiesCase studies– Successful companiesSuccessful companies– Failed endeavorsFailed endeavors

• Observations, opportunities & Observations, opportunities & challengeschallenges

• References & ReadingsReferences & Readings

E-Business?E-Business?

E-Commerce?

E-tailing?

E-Government?

E-Marketplace?

E-Community?

Virtual Store-front?

Click-n-Mortar Store?

E-Meeting?

So Many Terms & Names!So Many Terms & Names!

What is E-Commerce?What is E-Commerce?

Electronic commerce (E-Commerce) Electronic commerce (E-Commerce) is any transaction completed over a computer-mediated network that involves the transfer of ownership or rights to use goods or services.

Examples of E-Commerce transactions includeExamples of E-Commerce transactions include::– An individual purchases a book on the Internet. – A government employee reserves a hotel room over the Internet. – A business calls a toll free number and orders a computer using the seller's interactive telephone system. – A business buys office supplies on-line.– A retailer orders merchandise using an Electronic Data Interchange (EDI) network or a supplier's extranet.– An individual withdraws funds from an automatic teller machine (ATM).

Source: U.S. Census Bureau report

Computer-mediated NetworksComputer-mediated Networks

Computer-mediated networksComputer-mediated networks are electronically linked are electronically linked devices that communicate interactively over network devices that communicate interactively over network channels.channels.

Examples are:Examples are:

– ComputersComputers– Personal Digital Assistants (PDA) Personal Digital Assistants (PDA) – Internet-enabled (cellular) telephonesInternet-enabled (cellular) telephones– Networks such as:Networks such as:

• Internet• Intranets• Extranets• Electronic Data Interchange (EDI) networks• Telecommunication networks

Source: http://exchange.e-steel.com/ http://www.newwave.com/

The introduction of the computer ~50 years ago,The introduction of the computer ~50 years ago, and rapid development and advancement in electronics, IT and and rapid development and advancement in electronics, IT and communication technology over the past half century, communication technology over the past half century, and the quest for cost reduction, improved efficiencies, and higher and the quest for cost reduction, improved efficiencies, and higher

profitability, profitability, resulted in significant changes in the U.S. society & economy:resulted in significant changes in the U.S. society & economy:

– Business & government organizations:• automation, towards paper-less offices

• process re-engineering

• “out-of-the-box” paradigm shift

– Individual consumers:• accept usage of new technology

• assume availability of technology and infrastructure

E-Commerce in the U.S.E-Commerce in the U.S.

There is a broader “environment” affecting business There is a broader “environment” affecting business activities:activities:

– global competition– interest rates– laws and regulations– social concerns– industry traditions– consumer preferences

This “environment” has been evolving.This “environment” has been evolving.


• Businesses use networks even more extensively to:Businesses use networks even more extensively to:– conduct and re-engineer production processes – streamline procurement processes– reach new customers– manage internal operations

• Consumers now routinely use computer networks to:Consumers now routinely use computer networks to:– identify sellers– evaluate products and services– compare prices– exert market leverage


Significant Events forSignificant Events forE-Commerce in the U.S.E-Commerce in the U.S.

• 1984: 1984: ANSI X12 standard for Electronic Data Interchange (EDI) established itself as a reliable means to handle a large number of transactions.

• 13 October 1994: 13 October 1994: Adaptation of Marc Andreessen’s Mosaic into the Netscape browser, enabling the masses to easily get online.

• 27 May 1998: 27 May 1998: SBC Communications offered high- speed Asymmetrical Digital Subscriber Line (ADSL) service to > 200 communities throughout California.

Source: E-commerce Times; 22 August 2002


• December 1998:December 1998: Amazon.com surpassed the $1 billion mark in annual sales. AOL generated $1.2 billion in sales in 10 weeks of holiday shopping.

• 10 August 1999:10 August 1999: The Red Hat IPO cemented Linux’ status. (Linux was created by Finnish graduate student, Linus Torvalds, in 1991)

• 13 August 1999: 13 August 1999: Napster founder Shawn Fanning indicated the number of users of the online music swap site quintupled (5X) in a week.


• 10 January 2000: 10 January 2000: Time Warner merged with AOL, leading to concerns over DRM (digital rights management) and the potential monopolistic power over content and its distribution.

• 7-8 February 2000: 7-8 February 2000: A series of coordinated assaults by computer hackers on Yahoo! Amazon, Buy.com, and eBay. Although there were concerns over shopping online, the incident was accepted as merely a bump-in-the-road.

• 10 May 2000:10 May 2000: The U.S. House of Representatives voted to extend the moratorium on Internet-specific taxes for an additional five years.



• 18 May 2000:18 May 2000: The UK-based online fashion retailer, boo,com,

folded. Many more dot-com companies to follow in 2001, 2002, ending the high-technology stock market’s period of “irrational exuberance”.

• Google Inc. filed on IPO on April 30, 2004:Google Inc. filed on IPO on April 30, 2004: IPO took place in August 2004, shedding some excitement in the hi-tech market since the dot-com bust.



E-Commerce CategoriesE-Commerce Categories

E-Commerce CategoriesE-Commerce Categories

• Business-to-Consumer (B2C): Business-to-Consumer (B2C): involves retailing products and services to individualinvolves retailing products and services to individual consumers. (e.g. Amazon.com) consumers. (e.g. Amazon.com)

• Business-to-Business (B2B): Business-to-Business (B2B): involves sales of goods and services among involves sales of goods and services among businesses. (e.g. www.quill.com for office supplies) businesses. (e.g. www.quill.com for office supplies)

• Consumer-to-Consumer (C2C): Consumer-to-Consumer (C2C): involves consumers selling directly to consumers. involves consumers selling directly to consumers. (e.g. eBay.com) (e.g. eBay.com)

Complementary & Complementary & Supplementary BusinessesSupplementary Businesses



Internet BusinessInternet Business ModelsModels

• Virtual Storefront: Virtual Storefront: Sells goods, services on-line (e.g. Amazon.com) [B2C]

• Content Provider: Content Provider: Provide digital content such as digital news, music, photographs, or video over the Internet (e.g. WSJ.com) [B2C]

• Information broker: Information broker: Provide info on products, pricing, etc. (e.g. ehealthinsurance.com) [B2B, B2C]

• Transaction Broker: Transaction Broker: buyers view rates, terms from various sources (e.g. E*Trade.com) [B2C]


• Online Marketplace: Online Marketplace: Buyers and sellers meet, search for products, display products, and establish prices for products.

– Exchange: Exchange: Industry-specific marketplace (e.g. e-Steel.com) [B2B]

– Auction: Auction: Electronic clearinghouse where products, prices, change in response to demand (e.g. eBay.com) [B2B, B2C, C2C]

– Reverse Auction: Reverse Auction: Buyer sets price, submits to multiple sellers (e.g. Priceline.com) [B2C]

Example: AuctionExample: Auction

Example: Reverse AuctionExample: Reverse Auction


• Online Service Provider: Online Service Provider: Provides online service to individuals and businesses (e.g. @Backup.com) [B2B, B2C]

• Virtual Community: Virtual Community: Provides online meeting place where people with similar interests can communicate and find useful information (e.g. iVillage.com) [B2C]

• Portal: Portal: Provides initial point of entry to the World Wide Web along with other specialized (sometimes personalized) content and other services (e.g. Yahoo.com, SoHu.com) [B2C]

Example: Virtual CommunityExample: Virtual Community

Example: PortalExample: Portal

Requisite Conditions forRequisite Conditions forE-CommerceE-Commerce

Requisite Conditions forRequisite Conditions forE-CommerceE-Commerce

• Information Technology (IT) andInformation Technology (IT) and Communication infrastructure Communication infrastructure

• Socio-economic environmentSocio-economic environment

• Financial and legal environmentFinancial and legal environment– Banking and Financial Support, electronic payment Banking and Financial Support, electronic payment systems systems

– Laws concerning consumer rights, privacy, taxation, etc.Laws concerning consumer rights, privacy, taxation, etc.

IT & Communication IT & Communication InfrastructureInfrastructure

• HardwareHardware

– Servers, Supercomputers, Personal Computers (PC), Servers, Supercomputers, Personal Computers (PC), Workstations, Personal Digital Assistants (PDA), Workstations, Personal Digital Assistants (PDA), Smart phones, etc. Smart phones, etc.

– Storage: ROM, RAM, Disc, tape, etc.Storage: ROM, RAM, Disc, tape, etc.

– Networks: Networks: • Twisted Wire, Coaxial Cable, Fiber Optics/Optical networks, Twisted Wire, Coaxial Cable, Fiber Optics/Optical networks, Wireless Transmission (e.g. microwave, satellite) Wireless Transmission (e.g. microwave, satellite)

• Private Branch Exchange (PBX), Wide Area Networks (WAN), Private Branch Exchange (PBX), Wide Area Networks (WAN), Local Area Network (LAN), etc. Local Area Network (LAN), etc.

IT & Communication IT & Communication InfrastructureInfrastructure

• SoftwareSoftware– Operating Systems (OS): e.g. Windows, Linux, Unix, etc.Operating Systems (OS): e.g. Windows, Linux, Unix, etc.

– Middleware: e.g. IBM WebSphere, BEA WebLogicMiddleware: e.g. IBM WebSphere, BEA WebLogic

– Application Software packages: e.g. Enterprise ResourceApplication Software packages: e.g. Enterprise Resource Planning (ERP), Supply Chain Management, Internet Planning (ERP), Supply Chain Management, Internet browsers, etc. browsers, etc.

– Databases: e.g. Oracle 9i, IBM DB2, etc.Databases: e.g. Oracle 9i, IBM DB2, etc.

Socio-economic EnvironmentSocio-economic Environment• Socio-economic environmentSocio-economic environment

– Technology infrastructure readinessTechnology infrastructure readiness• Research & development by government, academia, &Research & development by government, academia, & private businesses private businesses

• Cost, availability, and supportCost, availability, and support

– Lifestyle: Lifestyle: • Awareness, acceptance and usage of IT and Awareness, acceptance and usage of IT and communication technologies communication technologies

• Equity & AccessibilityEquity & Accessibility

• Motivation / Perceived benefits: Motivation / Perceived benefits: – social, quality of lifesocial, quality of life

– economicaleconomical

Financial & Legal EnvironmentFinancial & Legal Environment

• Banking & financial support systemsBanking & financial support systems– Credit card usageCredit card usage

– Large payments - Electronic Funds Transfer servicesLarge payments - Electronic Funds Transfer services

– Small payments (e.g. < US $1.00)Small payments (e.g. < US $1.00)

• Rules, Regulations & EthicsRules, Regulations & Ethics– Information Privacy & RightsInformation Privacy & Rights

– Intellectual Property RightsIntellectual Property Rights

– Accountability & LiabilityAccountability & Liability

E-Commerce in Western EuropeE-Commerce in Western Europe

• DenmarkDenmark

• GermanyGermany

• GreeceGreece

• SpainSpain

• IrelandIreland

• ItalyItaly

• LuxembourgLuxembourg

• The NetherlandsThe Netherlands

Source: http://europa.eu.int/comm/enterprise/ict/studies/lr-e-comm-in-eur-2001.pdf.

Based on Based on E-Commerce in Europe: Results of the pilot E-Commerce in Europe: Results of the pilot surveys carried out in 2001 surveys carried out in 2001 in the following countries:in the following countries:

• Austria• Portugal• Finland• Sweden• United Kingdom• Norway• Belgium• France


Business Enterprises:Business Enterprises:• 92% have computers92% have computers

• 36% have intranets (internal networks based on Internet standards)36% have intranets (internal networks based on Internet standards)

• 19 % use EDI19 % use EDI

• 68% have access to the World Wide Web68% have access to the World Wide Web

• 46% use ISDN (narrowband) connections; 14% uses broadband (e.g. xDSL)46% use ISDN (narrowband) connections; 14% uses broadband (e.g. xDSL)

• Perceived barrier to using the Internet:Perceived barrier to using the Internet:

– lack of security (66%)lack of security (66%)

– lack of perceived benefits (40%)lack of perceived benefits (40%)

• 18% using E-Commerce to make sales18% using E-Commerce to make sales

• 5% use B2B marketplace to make purchases5% use B2B marketplace to make purchases



Consumers:Consumers:• 38% of households have access to the Internet38% of households have access to the Internet

– Netherlands (64%)Netherlands (64%)

– Sweden (61%)Sweden (61%)

– Denmark (59%)Denmark (59%)

– Finland (50%)Finland (50%)

• 72% of Internet households use normal telephone line; 16% use ISDN line72% of Internet households use normal telephone line; 16% use ISDN line

• Barrier to Internet use:Barrier to Internet use:

– technical reasons technical reasons

– lack of interestlack of interest

• 33+% of Internet users buy products or services online33+% of Internet users buy products or services online

– variations based on social and demographic characteristicsvariations based on social and demographic characteristics

– Men, age 25 to 39, are most activeMen, age 25 to 39, are most active


E-Commerce in JapanE-Commerce in Japan

• Although the dot-com bubble has burst just as it did in theAlthough the dot-com bubble has burst just as it did in the U.S., Japan is leading the world in adopting wireless Internet. U.S., Japan is leading the world in adopting wireless Internet.

– 20 million users in Japan20 million users in Japan

– NTT DoCoMo’s i-mode (based on HTML) service has ~14 millionNTT DoCoMo’s i-mode (based on HTML) service has ~14 million subscribers subscribers

• B2C E-CommerceB2C E-Commerce– ~$1.6 billion, or 0.1% of total household consumption, in 1999~$1.6 billion, or 0.1% of total household consumption, in 1999

– hindered by:hindered by:

• low penetration of PCs in householdslow penetration of PCs in households

• high cost of Internet accesshigh cost of Internet access

• low penetration of credit cardslow penetration of credit cards

• concerns about sending credit card numbers over the Internetconcerns about sending credit card numbers over the Internet

Source: http://www.crito.uci.edu/git/publications/pdf/japan-ecom-rpt-12-00.pdf.

E-Commerce in JapanE-Commerce in Japan

• B2B E-CommerceB2B E-Commerce– ~$110 billion in 1999 (projected to be $180 billion in 2000, compared ~$110 billion in 1999 (projected to be $180 billion in 2000, compared to to $450 billion for the U.S.) $450 billion for the U.S.)– Large companies use EDI heavilyLarge companies use EDI heavily– Large trading companies are developing e-marketplacesLarge trading companies are developing e-marketplaces– SMEs (Small and Medium-sized Enterprises), which account for 99% SMEs (Small and Medium-sized Enterprises), which account for 99% of of Japanese firms, in 1998: Japanese firms, in 1998:

• 35% have LAN35% have LAN• 4% had Enterprise Resource Planning (ERP) systems4% had Enterprise Resource Planning (ERP) systems

• Government policiesGovernment policies– Promoting E-Commerce since 1995Promoting E-Commerce since 1995– addressing regulatory issues such as privacy, security and consumer addressing regulatory issues such as privacy, security and consumer protection protection– agreement to lower NTT access charges should help lower barrier to agreement to lower NTT access charges should help lower barrier to Internet adoption Internet adoptionSource: http://www.crito.uci.edu/git/publications/pdf/japan-ecom-rpt-12-00.pdf.

Case StudiesCase Studies

• AmazonAmazon

• eBayeBay

• e-Steel Exchangee-Steel Exchange

• WebVanWebVan

• MercataMercata

B2C: Amazon.comB2C: Amazon.com

• Virtual online retailer selling items including books, music, Virtual online retailer selling items including books, music, DVDs, videos, electronics, software, video games and home DVDs, videos, electronics, software, video games and home improvement products. improvement products.

• Founded in June 1995; originally as an on-line bookstoreFounded in June 1995; originally as an on-line bookstore

• Headquartered in Seattle, Washington Headquartered in Seattle, Washington

• ~7,800 employees~7,800 employees

• No. 1 retailer on the Internet withNo. 1 retailer on the Internet with– over 47 million purchasing customersover 47 million purchasing customers– annual sales of $3,122.4 Mannual sales of $3,122.4 M

Source: SALOMON SMITH BARNEY Date: Oct 2, 2002

• Founder andFounder and CEO: Jeffrey P. BezosCEO: Jeffrey P. Bezos

• International site: Canada, United Kingdom, Japan,International site: Canada, United Kingdom, Japan, Germany, France Germany, France

• Despite Amazon.com’s success in generating a visible Despite Amazon.com’s success in generating a visible brand and substantial sales, it has yet to generate a profit. brand and substantial sales, it has yet to generate a profit.

B2C: Amazon.com

C2C: eBay.comC2C: eBay.com

• Provider of Internet marketplace for the sale/auction of goods Provider of Internet marketplace for the sale/auction of goods and services by individuals and businesses and services by individuals and businesses

• Founded in 1995 by Pierre OmidyarFounded in 1995 by Pierre Omidyar

• Headquartered in San Jose, CaliforniaHeadquartered in San Jose, California

• 2,560 employees2,560 employees

• World’s largest and most popular person-to-person trading World’s largest and most popular person-to-person trading community on the Internet community on the Internet::

• 49.7 million registered users49.7 million registered users• Annual sales of $748.8 MAnnual sales of $748.8 M• owns an 80%+ market share of consumer and small business listingsowns an 80%+ market share of consumer and small business listings and total consumer-to-consumer transactions and total consumer-to-consumer transactions

Source: SALOMON SMITH BARNEY Date: Oct 2, 2002

• CEO: Meg WhitmanCEO: Meg Whitman

• Operating in 10 countries (except Japan)Operating in 10 countries (except Japan)

• Completed acquisition of PayPal (provider of electronic Completed acquisition of PayPal (provider of electronic payment services) on 3 October 2002 payment services) on 3 October 2002

• Recently added fixed-price transactions option Recently added fixed-price transactions option

• Five-pronged growth plan: users, categories, geographies, Five-pronged growth plan: users, categories, geographies, pricing formats and end-to-end transaction services pricing formats and end-to-end transaction services

C2C: eBay.com

• An advanced, online global marketplace for steel; a An advanced, online global marketplace for steel; a neutralneutral, , negotiation-based e-Commerce exchange for both buyers and negotiation-based e-Commerce exchange for both buyers and sellers throughout the $700 billion world-wide steel industry sellers throughout the $700 billion world-wide steel industry

• Founded in September 1998; e-steel.com began operation inFounded in September 1998; e-steel.com began operation in September 1999 September 1999

• Headquartered in New York City, New York Headquartered in New York City, New York

• Privately held companyPrivately held company

• ~160 employees~160 employees


B2B: e-STEEL Exchange

• CEO: Scott PrinceCEO: Scott Prince

• Founder: Michael Levin Founder: Michael Levin

• Membership is FREE, and is open to all qualified steel Membership is FREE, and is open to all qualified steel buyers and sellers. There are >1,300 members. buyers and sellers. There are >1,300 members.

• Seller is charged a fixed transaction fee of 0.875% of the Seller is charged a fixed transaction fee of 0.875% of the value of the transaction. No charge to buyer. value of the transaction. No charge to buyer.



• On 13 November 2001, e-STEEL Corporation changed itsOn 13 November 2001, e-STEEL Corporation changed its name to NewWave Technologies Inc. name to NewWave Technologies Inc.

– To provide innovative Business Interactions Management To provide innovative Business Interactions Management solutions that bring organizations, people, and business solutions that bring organizations, people, and business activities online in real-time. activities online in real-time.

– To focus on licensed To focus on licensed business-process softwarebusiness-process software for a variety for a variety of inter-enterprise functions that support the supply chain. of inter-enterprise functions that support the supply chain.

• Will continue to operate the e-STEEL exchange marketplace Will continue to operate the e-STEEL exchange marketplace for the global steel industry for the global steel industry



WebVanWebVan• On-line grocery store

• Founded by Louis Borders (co-founder of the very successful Borders bookstore chain)

• Took first grocery order on 2 June 1999 in the San Francisco Bay Area

• By June 2000, expanded into Atlanta, Sacramento Dallas, Los Angeles, San Diego, Seattle, Portland and Orange County

• Ceased all operations on 9 July 2001

Failed E-Commerce EndeavorsFailed E-Commerce Endeavors

MercataMercata• Buy-by-group e-tail site

• Founded by Tom Van Horn in May 1999

• Backed by Microsoft co-founder Paul Allen

• Granted first patent covering group buying business methods in August 2000

• Closed it doors on 31 January 2001

Failed E-Commerce EndeavorsFailed E-Commerce Endeavors

Observations, Opportunities & Challenges

• IT and communication technologies as tools for business

• IT and communication technologies giving rise to• New business forms (models), new businesses• New lifestyles

• Channel conflicts in conducting business• Disintermediation (e.g. travel agencies)• Re-intermediation (e.g. insurance information broker)

Observations, Opportunities & Challenges

• Technology hurdles• Equity and accessibility of the Internet• 24 X 7 availability, reliability• High performance servers and networks

• Legal issues• Domestic & international laws governing E-Commerce• Tax & tariffs• Consumer Rights• Liability & Responsibility

• Security & Privacy• Personal information• Financial information

• Hands-out (case studies, articles)Hands-out (case studies, articles)

• E-Commerce Times E-Commerce Times ((http://www.ecommercetimes.comhttp://www.ecommercetimes.com))

• Line 56, The E-Business Executive Daily Line 56, The E-Business Executive Daily (http://www.line56.com(http://www.line56.com))

• E-Commerce (2002)E-Commerce (2002) by by Kenneth C. Laudon and Carol Guercio TraverKenneth C. Laudon and Carol Guercio Traver

• E-Business Advisor E-Business Advisor ((http://e-businessadvisor.comhttp://e-businessadvisor.com))

• U.S. Department of Commerce/E-Commerce Statistics U.S. Department of Commerce/E-Commerce Statistics ( (http://www.census.gov/eos/www/ebusiness614.htmhttp://www.census.gov/eos/www/ebusiness614.htm))

• E-Commerce in Europe: Results of the pilot surveysE-Commerce in Europe: Results of the pilot surveys carried out in 2001 carried out in 2001 ((http://europa.eu.int/comm/enterprise/ict/studies/lr-e-comm-in-eur-2001.pdfhttp://europa.eu.int/comm/enterprise/ict/studies/lr-e-comm-in-eur-2001.pdf)

• Japan E-Commerce ReportJapan E-Commerce Report ((http://www.crito.uci.edu/git/publications/pdf/japan-ecom-rpt-12-00.pdf http://www.crito.uci.edu/git/publications/pdf/japan-ecom-rpt-12-00.pdf )

References & ReadingsReferences & Readings

Documents

E-Commerce An overview Patricia Kwan, Lecturer MIS Department College of Business San Jose State University [email protected]