Topic ObjectivesAt the end of this topic, you should be able to do the following:
Define e-commerce and describe how it defers from e-business
Describe the unique features of e-commerce technology and how they are relevant to business
Describe the major types of e-commerce and explain how they differ from each other
Describe the factors that were thought to be critical success factors in E-Commerce I, and explain why these factors did not contribute to the success of e-commerce
Describe the characteristics of E-Commerce II Describe the three major themes used to help
understand e-commerce
What is E-Commerce Definition of E-Commerce
The use of the Internet and the Web to carry out digitally enabled commercial transactions
Key words“digitally enabled transactions”
• Business transactions carried out digitally• For the most part, transactions occur over the Internet
using World Wide Web“commercial transactions”
• Involve the exchange of value (such as money) across organizational boundaries in return for products and/or services
• Note: without exchange of value, commerce do not occur
Other Definitions of E-Commerce
Kalakota and Whinston say we should look at e-commerce from 4 perspectives: Communications perspective Business process perspective Service perspective Online perspective
Each of these perspectives can provide value (benefits) to business organizations adopting e-commerce as a means of doing business
Definition of E-Commerce
Perspective Definition
Communications Delivery of information, production/services, or payments over electronic meansInternet facilitate exchange between buyers and sellers
Business process Use of ICT to automation of business transactions and work flowHelps reduce transaction cost
Service Use of ICT to cut service cost BUT improving quality of goods and increasing the speed of service delivery
Online Capability of buying and selling products and services on the Internet
Pure verses Partial E-Commerce
E-commerce businesses range from using web sites to display electronic product catalogs to having almost 100% of business operations digitised.
Business profit is NOT related to the degree of “digitalness” The pure-ness or digital-ness of an e-commerce
business is not a measure of how successful a business is or will be
The level of digital-ness is a choice of business strategy (a choice management makes)
Pure plays (fully digital companies) have their own unique sets of problems compared to brick and mortar (traditional, physical stores) companies
Pure verses Partial E-Commerce
Level of digital-ness can be measured by the following business dimensions: ProductProduct / service (is the product sold
digitized?) AgentAgent (does the business have any physical
stores its customers can shop at?) Delivery processDelivery process (is the product sold or
service provided delivered through the Internet?)
Pure verses Partial E-Commerce
Degree of digitizationDimension Digital Physical
Product sold Software, music, electronic Magazine
Books, flowers, toys, cars, clothes
Delivery Process
Product or service can be downloaded from the internetBusiness processes are highly automated
Courier, postal, truckBusiness processes are manually done
Agent Physical presence is not important; Customers do not need to know where the shop is
Brick and mortar, physical retail outlet
Choi, et al., 1997
Dimensions of Electronic Commerce
DigitalProduct
PhysicalProduct
PhysicalAgent
DigitalAgent
PhysicalProcess
DigitalProcess
PureEC
Brick andMortar
Business and Commerce Commerce refers to the exchange of goods and
services (by sellers) and money (by buyers) Commerce activities are a subset of business
activities; Business organizations have to carry out other
activities not directly related to commerce (such as HRM and building maintenance)
Business
Brick and Mortar Business Approach Traditional brick and mortar companies implement the
following business strategies: Mass-marketing strategy
• use of newspapers, TV and radio to advertise to the general public (not to a narrow, targeted market segment)
Sales force driven process• Sales persons have to physically go out and sell
Customers seen as passive targets of advertisement campaigns and branding blitz
• One way communication (businesses send information and customers read information)
Customers are trapped by social and geographical (physical) boundaries
• Businesses have a limited market area to sell their products and services
• Customers have a limited market area to look for products and services they want to purchase
Brick and Mortar Business ApproachInformation Asymmetry
Traditional brick and mortar companies make use of information asymmetry to create profits information asymmetry occurs when the
seller has more relevant market information than the buyer in a transaction
The seller can take advantage of the buyer because she knows more than the buyer about actual costs, actual quality of the product, different categories of a product, profit margins, price offered by other retailers
Brick and Mortar Business ApproachInformation Asymmetry
With the use of Internet, (theoretically) buyers can surf the Internet, do comparison
shopping (compare prices between different sellers)
Buyers can make use of informediaries and transaction brokers to help find the sellers offering the product at the “best” price
Therefore, with the use of the Internet, information asymmetry (theoretically) can be minimized
Unique Features of E-Commerce Businesses can make use of the unique
features (capabilities) of the Internet and the World Wide Web when conducting e-commerce
There are seven unique features of e-commerce technology Ubiquity Global reach Universal standards Richness Interactivity Information density Personalization / customization
Unique Features of E-CommerceUbiquityUbiquity
The Internet makes it possible for commerce to be carried out from anywhere, and at any time Transactions can take place any place where Internet
access is available Buyers and sellers do NOT have to meet at a common
physical place to interact, exchange goods and services and make payments
Wireless devices will allow buyers and sellers to interact “on the move” and not fixed to specific locations (e.g. on the bus, in the car, at a restaurant, sitting in an airplane)
Unique Features of E-CommerceUbiquityUbiquity
Traditionally, a market is associated with a physical place (e.g. supermarket, wholesale market, pasar malam, pasar tani)
With e-commerce, markets have evolved to marketspace (instead of marketplace) since buyers and sellers transact in cyberspace (Internet) Internet reduces the limitations of temporal (time)
• Commercial transactions can take place 24 hours a day and 7 days a week
Internet reduces the limitations of geographical locations (place)
Unique Features of E-CommerceUbiquityUbiquity
E-commerce reduces transaction costs (administrative cost) of doing business Automation through e-commerce will help
reduce transaction costs of making phone calls, faxing business documents, confirming orders, filing sales records and sending bills and sales receipts
Reduction of transaction costs may lead to the following: Increase profit margin (benefit to sellers) Reduced retail price (benefit to buyers)
Unique Features of E-CommerceUbiquityUbiquity
E-commerce also reduces cognitive energy (mental effort) to carry out business transaction Making purchasing decisions are easier
because information is readily available in the Internet
• Comparison shopping (comparing prices, comparing product characteristics of different brand names) can be done by surfing the Net
Buying a product or service is also easier done online (by a click of a button)
Unique Features of E-CommerceGlobal ReachGlobal Reach
The Internet permits commercial transactions to cross cultural and national boundaries far more conveniently and cost effectively than in the past
E-commerce can help increase the reach of a business Reach can be defined as a measure of the
number of users or potential customers an e-business can get
E-commerce can help businesses reach potential customers living anywhere in the world as long as there is Internet access
Unique Features of E-CommerceGlobal ReachGlobal Reach
Brick and mortar companies rely on customers that live or work within a limited physical area surrounding the physical shop
Advertisements Internet offer business the ability to
advertise online to customers around the world
Television, radio and newspapers can reach a specific region, and at best the entire (one) country
Unique Features of E-CommerceUniversal StandardsUniversal Standards
The strength of e-commerce technologies is that it employ technical universal standards (TCP/IP) that are readily and widely adopted by all countries in the world Not true with telephones, radio and television Television signals, for example, are different between
some countries Many electronic products manufactured for Japanese
consumers cannot be used outside Japan Having universally accepted standards helps
businesses to reduce market entry costs because buyers and business partners do not need to buy special equipment or software to use the Internet to carry out business transactions
Unique Features of E-CommerceUniversal StandardsUniversal Standards
By getting access to sellers throughout the world, buyers can enjoy two benefits: Reduced search cost because buyers can search
easily products they want to buy from sellers located all over the world
Simpler and faster price discovery because buyers can search easily products they want to buy at the price they are willing to pay, and terms and conditions they like
Definition Search cost is the costs of searching for suitable
product Price discovery is the price agreed between the
buyer and seller
Unique Features of E-CommerceRichness of InformationRichness of Information
richness of information can be defined as a measure of the information that is transmitted based on multiple information cues (words, posture, facial expressions, gestures, intonations), immediate feedback, and the personal touch
Daft and Lengel (1986) defined information richness as the ability of information to change understanding within a time interval…”can overcome different frames of reference or clarify ambiguous issues to change understanding in a timely manner are considered rich.”
Unique Features of E-CommerceRichness of InformationRichness of Information
Traditional markets provide richness of information by offering physical, personalised, face-to-face services to attract customers
Before the development of e-commerce, there was a trade-off between market reach and richness of information
With e-commerce, the trade-off is significantly reduced because the Internet offer businesses increased market reach without losing richness of information Customers from far away countries can get rich
information (in multiple forms such as text, pictures, graphs, video, audio) from businesses employing e-commerce
Unique Features of E-CommerceRichness of InformationRichness of Information
Reach
Ric
hness
of
Info
rmati
on
Before e-commerce, we have tosacrifice reach to improve richnessof information
Unique Features of E-CommerceInteractivityInteractivity
Internet technology allows for two-way communication between seller and consumer Chatting, voice over IP, instant messaging, SMS
and e-mail can be used by buyers and sellers to communicate with each other
Television, radio and newspaper do not offer interactivity like the Internet and the Web Television, for example, is a one-way
communication system where viewers cannot “talk back”
Unique Features of E-CommerceInformation DensityInformation Density
Information density can be defined as the total amount and quantity of information available to all market participants
Information technology… reduces the cost of information collection,
storage, processing and communications Increases the currency, accuracy and
timeliness of information
Unique Features of E-CommerceInformation DensityInformation Density
Information density improves price and cost transparency Price transparency refers to the ability of customers to
find out the variety of prices in the market Cost transparency refers to the ability of customers to
find out the cost sellers pay for products Price and cost transparency can help buyers to
identify the best price for the product or service they want to purchase
Unique Features of E-CommerceInformation DensityInformation Density
Information density offers benefits to the sellers. The more sellers know about customers, the better able for them to implement price discrimination Price discrimination takes place when a seller sells
products or services at different prices to different buyers (depending on the buyers’ willingness to pay)
If a seller knows a particular buyer is willing to pay a higher price for her product, she will set the price higher for that one buyer; the same product may be sold at a lower price to another customer who is not willing to pay a higher price
Unique Features of E-CommercePersonalization and CustomizationPersonalization and Customization
Personalization refers to targeting marketing messages to specific individuals by adjusting the message to a person’s name, interests, and past purchases
Customization refers to designing and producing the delivered products or services based on the buyer’s preferences or prior purchase behaviour
To personalise marketing messages and customising products and services requires the business to collect and use information about their customers
Businesses can make use of many software applications that can collect and analyse detailed customer information to be used for personalisation and customisation
Types of E-Commerce
There are a variety of e-commerce and many ways to categorise e-commerce
Below are the major types of e-commerce differentiated by the nature of the market relationship – who is selling to whom B2C (business to consumer) B2B (business to business) C2C (consumer to consumer) P2P (peer to peer) M-commerce (mobile commerce)
Types of E-Commerce
Type Name Description
B-2-C Business to Consumers Online businesses selling to individual consumers
B-2-B Business to Business Online businesses selling to other businesses
C-2-C Consumer-to-consumer Consumers selling to other consumers
P-2-P Peer-to-peer Use of peer to peer technology, which enables Internet users to share files
M-Commerce Mobile commerce Use of wireless digital devices to enable transactions on the Web
Driving Forces of Electronic CommerceMarket and economic pressures
Societal and environmental pressures
Technological pressures
•Strong competition in the marketplace•Global economy•Regional trade agreements•Low labor cost in some countries
• Changing nature of workforce• Government deregulations• Increased importance of ethical and
legal issues
• Rapid technological obsolescence• Information overload• Rapid decline in technology cost
verses performance ration
Growth of the Internet and the Web
Growth of the Internet Measured by
• number of Internet host computers• (growth rate of 45% per year)
Radio took 38 years to achieve 30% share Television took 17 years to achieve 30% share Internet/Web took 7 years to achieve 30%
share World Wide Web made Internet
commercially popular
Growth of the Internet and the Web
World Wide Web allows us to create web pages using a language called HTML (hypertext Markup Language)
Web pages can display information in the form of text, graphics, animation, video, audio There has been an exponential growth of
web content since 1993• Approx 7 million new web pages a day
Origins and Growth of E-Commerce Examples of attempts to employ information systems to
conduct e-commerce before the adoption of the Internet and the Web Electronic data interchange (EDI)
• EDI is an inter-organizational system that allows for efficient transfers of business documents (such as invoice, sales orders, purchase requisition forms) between business organizations
Electronic fund transfer (EFT)• EFT is an inter-organizational system that allows for
efficient transfers of funds electronically between banks Videotext systems
• Videotext systems make use of television screens to display text messages
Limitations on the Growth of B-2-C E-commerce Below are examples of factors slowing down the
adoption of e-commerce There are still many people without computers (with
Internet access) in their homes Computers (with Internet access) are still considered
expensive to many people It takes skill and experience to efficiently surf and look
for information through the Internet There is still a persistent cultural attraction of physical
markets and traditional shopping experiences There is still a persistent global inequality limiting
access to telephones and PCs (especially in the rural areas)
E-Commerce I
E-Commerce I A period of explosive growth in e-commerce,
beginning in 1995 and ending in 2000 It was thought (at that time) commerce will
improve because of e-commerce; improvements will happen due to the following:
• Disintermediation of middlemen• Friction free markets will emerge• Commerce will be fueled by the network effect
E-Commerce I (1995-2000) Forces Shaping this Era
Disintermediation Disintermediation refers to the displacement of
market middlemen who traditionally are intermediaries between producers and consumers
E-commerce offers producers an efficient way to sell their products directly to consumers (through online stores)
By selling directly to consumers, consumers are able to buy products at lower prices while producers can sell at a higher price than what they normally charge wholesalers
E-Commerce I (1995-2000) Forces Shaping this Era
Friction-free commerce Friction-free markets are markets with high efficiencies in
facilitating buyers and sellers to transact Friction in markets are caused by significant cost in
transactions Friction-free markets can be achieved given the following
conditions:• Information on market condition is equally distributed among
sellers and buyers• transaction costs are low because of efficient use of
telecommunication technology and automation• prices can be dramatically adjusted to reflect actual demand
due to improved access to information• intermediaries are few as producers sell directly to buyers• unfair competitive advantages are eliminated due to improved
access to information (by both buyers and sellers)
E-Commerce I (1995-2000)Forces Shaping this Era
First movers A first mover is a firm that is first to market a product
or at a particular area; being the first allows the business to quickly gain market share
Once a business has acquired a sizable share of the market, it is difficult to penetrate the market (for example, it is difficult to sell a new cola soft drink because Coca Cola and Pepsi have a strong hold on the cola market)
During E-commerce Era I, it was believed that becoming a first mover is very important because once a first mover has captured a large portion of the market, it would be very difficult to compete against them
E-Commerce I (1995-2000)Forces Shaping this Era
Network Effect Network effect occurs when the value of a product or
service is dependent on the number of customers already owning and using that product or service
The purchase of a product by one customer will indirectly benefit all other customers who own similar products
For example• When more people buy mobile phones, the more useful
is our mobile phone because now we can phone more people
• The more people who have MMS function in their mobile phones, the more valuable is the MMS function
• The more people who have fax machines the more useful is a fax machine
E-Commerce II E-Commerce II started with the crash in stock
market values of E-Commerce I companies beginning in January 2001 Telecommunications industry
• had built excess capacity in high-speed fiber optic networks
• Price wars leading to inability to pay for debts incurred in building high speed networks
There were less sales growth than anticipated Early adopters of e-commerce began to realize e-
commerce was not easy to implement Dot.com companies were over valued and they could
not live up to the revenues expected
E-Commerce II During Era II, sales growth for B2C increased at 45% to 55% per
year There are significant revenue generated from consumers who
purchase from brick and mortar shops but received valuable product information through web sites (these kinds of sales is called “Internet influenced” commerce)
“Friction free” commerce not fully realized because… Prices are not necessarily less than found in the brick and mortar
stores Information asymmetries are still being created by sellers Information overload (too much information) has not helped to
reduce market friction Although search costs have fallen, logistic, settlement costs are still
high Consumers fail to purchase online due to uncertainties and lack of
trust of online facilities
E-Commerce II Intermediaries have not disappeared
the reverse has happed – introduction of new forms of intermediaries (called re-intermediation)
First movers advantage very small First movers are displaced by “fast followers” Many first movers have closed down because they could not
realise their predicted advantages The overall costs of doing business on the Internet is high
The cost of customer acquisition and retention is very high Acquiring and operating the technology for e-commerce is
expensive Site design and maintenance costs are high Warehouses for fulfillment (are just as high as brick and
mortar companies)
Comparing E-Commerce I and IIPredictions of what will happen
E-Commerce I E-Commerce IITechnology driven Business driven
Revenue growth emphasis Earnings and profits emphasis
Venture capital financing Traditional financing
Ungoverned Stronger regulation and governance
Entrepreneurial Large traditional firms
Disintermediation Strengthening intermediaries
Perfect markets Imperfect markets, brands, network effects
Pure online strategies Mixed “click and bricks” strategies
First movers strategies Strategic follower strength
Understanding E-Commerce Dimensions of e-commerce
Technology• Basic understanding of technologies that make e-
commerce possible• Computer technology• Telecommunications technology• Internet and WWW
Business• Understand new ways of implementing business
transactions• Redefining functions of markets• Nature of producing and selling digitized products
Understanding E-Commerce
Dimensions of e-commerce Society
• Difficulty of protecting digitized intellectual property• Exploiting individual rights to privacy to improve
customer service• E-commerce contributing to digital divide• Evaluate whether e-commerce can improve quality
of life• Government responsibility to regulate rights and
responsibilities of businesses, consumers and society
Approach to Learning E-CommerceTechnical approaches
Below are technical concerns in e-commerce Choosing the right hardware architecture Deciding on the type and combination of software
applications on the Internet to be used Identifying ways of using Internet services to carry out
tactical plans Need to manage network traffic to improve response
time Building secure web site to ensure business reputation
and trust of online customers Designing intranets and extranets to integrate internal
information systems with e-commerce systems
Approach to Learning E-CommerceBehavioral approaches
E-commerce has raised many behavioural concerns when businesses adopted this new channel of doing business The challenge of encouraging shoppers to shop online Businesses need to understand the behavior of online
shoppers and Internet users to identify ways of increasing online purchases
The social impact of the digital divide Businesses, government and society has to deal with
new ethical issues ranging from protecting individual privacy, intellectual property rights and ensuring quality of life of individuals in society
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