E-Commerce 01

Chapter 1Chapter 1

Foundation of Foundation of

Electronic CommerceElectronic Commerce

Learning ObjectivesLearning Objectives

Define electronic commerce (EC) Define electronic commerce (EC) and describe its various categoriesand describe its various categories

Distinguish between electronic Distinguish between electronic markets and interorganizational markets and interorganizational systemssystems

Describe and discuss the content Describe and discuss the content and framework of ECand framework of EC

Learning Objectives Learning Objectives (cont.)(cont.)

Understand the forces that drive Understand the forces that drive the widespread use of ECthe widespread use of EC

Describe the benefits of EC to Describe the benefits of EC to organizations, consumers, and organizations, consumers, and societysociety

Describe the limitations of ECDescribe the limitations of EC Discuss some major managerial Discuss some major managerial

issues regarding ECissues regarding EC

Electronic Commerce: Definitions and Concepts

The Internet has emerged as a major, perhaps eventually the major, worldwide distribution channel for goods, services, managerial and professional jobs

This is profoundly changing economics, markets and industry structure, products and services and their flow, consumer segmentation, consumer values, consumer behavior, jobs, and labor markets

The impact may be even greater on societies and politics, and on the way we see the world and ourselves in it

Electronic Commerce: Definitions and Concepts (cont.)

e-business:e-business: a broader definition of a broader definition of EC, which includes:EC, which includes:• buying and selling of goods and buying and selling of goods and

servicesservices• servicing customersservicing customers• collaborating with business partnerscollaborating with business partners• conducting electronic transactions conducting electronic transactions

within an organizationwithin an organization

Electronic Commerce TermsElectronic Commerce Terms

E-businessE-business EC defined from these perspectivesEC defined from these perspectives

• CommunicationsCommunications• Business processBusiness process• ServiceService• OnlineOnline• CollaborationsCollaborations• CommunityCommunity


E-commerce E-commerce defined from the following perspectives:• Communications: delivery of goods,

services, information, or payments over computer networks or any other electronic means

• Commercial (trading): provides capability of buying and selling products, services, and information on the Internet and via other online services


Business process: doing business electronically by completing business processes over electronic networks, thereby substituting information for physical business processes

Service: a tool that addresses the desire of governments, firms, consumers, and management to cut service costs while improving the quality of customer service and increasing the speed of service delivery


Learning: an enabler of online training and education in schools, universities, and other organizations, including businesses

Collaborative: the framework for inter- and intraorganizational collaboration

Community: provides a gathering place for community members to learn, transact, and collaborate

Electronic Commerce Terms Electronic Commerce Terms (cont.)(cont.)

Internet vs. Non-Internet ECInternet vs. Non-Internet EC• VANsVANs• LANsLANs• Click and MortarClick and Mortar

Electronic Commerce Terms Electronic Commerce Terms (cont.)(cont.)

Pure vs. Partial EC: based on the degree of Pure vs. Partial EC: based on the degree of digitization ofdigitization of• ProductProduct• ProcessProcess• Delivery agentDelivery agent

Traditional commerce: all dimensions are Traditional commerce: all dimensions are physicalphysical

Pure EC: all dimensions are digitalPure EC: all dimensions are digital Partial EC: all other possibilities include a Partial EC: all other possibilities include a

mix of digital and physical dimensionsmix of digital and physical dimensions

Exhibit 1.1: The Dimensions of Exhibit 1.1: The Dimensions of Electronic CommerceElectronic Commerce

The EC Framework, Classification, and Content

Two major types of e-commerce:• business-to-consumer (B2C) : : online online

transactions are made between transactions are made between businesses and individual consumers businesses and individual consumers

• business-to-business (B2B):business-to-business (B2B): businesses make online transactions businesses make online transactions with other businesseswith other businesses intrabusiness intrabusiness EC: EC conducted inside an EC: EC conducted inside an

organization (e.g., organization (e.g., business-to-employeesbusiness-to-employees B2E)B2E)

The EC Framework, Classification, and Content (cont.)

Computer environmentsComputer environments• Internet:Internet: global networked global networked

environment environment • Intranet:Intranet: a corporate or government a corporate or government

network that uses Internet tools, such as network that uses Internet tools, such as Web browsers, and Internet protocols Web browsers, and Internet protocols

• Extranet:Extranet: a network that uses the a network that uses the Internet to link multiple intranetsInternet to link multiple intranets

EC Framework

EC applications are supported by infrastructure and by five support areas:• People• Public policy• Marketing and advertising• Support services• Business partnerships

Exhibit 1.2: A Framework for Exhibit 1.2: A Framework for Electronic CommerceElectronic Commerce

• Interorganizational information system Interorganizational information system (IOS) involves information flow among (IOS) involves information flow among two or more organizationstwo or more organizations

• Major objective is efficient routine Major objective is efficient routine transaction processing, such as transaction processing, such as transmitting orders, bills, and payments transmitting orders, bills, and payments using EDI or extranetsusing EDI or extranets

• Scope: Unified system encompassing Scope: Unified system encompassing two or several business partnerstwo or several business partners

• Typical IOS includes a company, its Typical IOS includes a company, its suppliers, and and/or customerssuppliers, and and/or customers

Interorganization Information Systems

Classification of EC by Classification of EC by Transactions or InteractionsTransactions or Interactions

business-to-consumer (B2C) : online : online transactions are made between transactions are made between businesses and individual consumers businesses and individual consumers

business-to-business (B2B): business-to-business (B2B): businesses make online transactions businesses make online transactions with other businesseswith other businesses

e-tailing:e-tailing: online retailing, usually B2Conline retailing, usually B2C

Classification of EC by Classification of EC by Transactions or Interactions Transactions or Interactions (cont.)(cont.) business-to-business-to-consumer (B2B2C):business-to-business-to-consumer (B2B2C):

e-commerce model in which a business e-commerce model in which a business provides some product or service to a client provides some product or service to a client business that maintains its own customersbusiness that maintains its own customers

consumer-to-business (C2B):consumer-to-business (C2B):

e-commerce model in which individuals use e-commerce model in which individuals use the Internet to sell products or services to the Internet to sell products or services to organizations or individuals seek sellers to organizations or individuals seek sellers to bid on products or services they needbid on products or services they need

Classification of EC by Classification of EC by Transactions or Interactions Transactions or Interactions (cont.)(cont.) consumer-to-consumer (C2C):consumer-to-consumer (C2C):

e-commerce model in which consumers e-commerce model in which consumers sell directly to other consumerssell directly to other consumers

peer-to-peer (P2P):peer-to-peer (P2P): technology that technology that enables networked peer computers to enables networked peer computers to share data and processing with each other share data and processing with each other directly; can be used in C2C, B2B, and B2C directly; can be used in C2C, B2B, and B2C e-commercee-commerce

Classification of EC by Classification of EC by Transactions or Interactions Transactions or Interactions (cont.)(cont.)

mobile commerce ((m-commerce):mobile commerce ((m-commerce):

e-commerce transactions and e-commerce transactions and activities conducted in a wireless activities conducted in a wireless environmentenvironment

location-based commerce (l-location-based commerce (l-commerce):commerce): m-commerce m-commerce transactions targeted to individuals transactions targeted to individuals in specific locations, at specific in specific locations, at specific timestimes

Classification of EC by Classification of EC by Transactions or Interactions Transactions or Interactions (cont.)(cont.) intrabusiness EC:intrabusiness EC: e-commerce category e-commerce category

that includes all internal organizational that includes all internal organizational activities that involve the exchange of activities that involve the exchange of goods, services, or information among goods, services, or information among various units and individuals in an various units and individuals in an organizationorganization

business-to-employees (B2E):business-to-employees (B2E): e-commerce e-commerce model in which an organization delivers model in which an organization delivers services, information, or products to its services, information, or products to its individual employeesindividual employees

Classification of EC by Classification of EC by Transactions or Interactions Transactions or Interactions (cont.)(cont.) collaborative commerce (c-commerce):collaborative commerce (c-commerce):

e-commerce model in which individuals or e-commerce model in which individuals or groups communicate or collaborate onlinegroups communicate or collaborate online

e-learning:e-learning: t the online delivery of he online delivery of information for purposes of training or information for purposes of training or educationeducation

exchange (electronic):exchange (electronic): a a public electronic public electronic market with many buyers and sellersmarket with many buyers and sellers

Classification of EC by Classification of EC by Transactions or Interactions Transactions or Interactions (cont.)(cont.) exchange-to-exchange (E2E):exchange-to-exchange (E2E): e-commerce e-commerce

model in which electronic exchanges model in which electronic exchanges formally connect to one another the formally connect to one another the purpose of exchanging informationpurpose of exchanging information

e-government:e-government: e-commerce model in e-commerce model in which a government entity buys or which a government entity buys or provides goods, services, or information to provides goods, services, or information to businesses or individual citizensbusinesses or individual citizens

Figure 1-1Figure 1-1 Transactions in Electronic Markets Transactions in Electronic Markets

A Brief History of ECA Brief History of EC 1970s: innovations like 1970s: innovations like electronic funds electronic funds

transfer transfer (EFT)—funds routed electronically (EFT)—funds routed electronically from one organization to another (limited to from one organization to another (limited to large corporations)large corporations)

electronic data interchange electronic data interchange (EDI)— (EDI)— electronically transfer routine documents electronically transfer routine documents (application enlarged pool of participating (application enlarged pool of participating companies to include manufacturers, companies to include manufacturers, retailers, services)retailers, services)

interorganizational system interorganizational system (IOS)—travel (IOS)—travel reservation systems and stock tradingreservation systems and stock trading

A Brief History of EC A Brief History of EC (cont.)(cont.)

1969 U.S. government experiment—the 1969 U.S. government experiment—the Internet came into being initially used by Internet came into being initially used by technical audience of government agencies, technical audience of government agencies, academic researchers, and scientistsacademic researchers, and scientists

1990s the Internet commercialized and 1990s the Internet commercialized and users flocked to participate in the form of users flocked to participate in the form of dot-comsdot-coms, or , or Internet start-upsInternet start-ups

Innovative applications ranging from online Innovative applications ranging from online direct sales to e-learning experiencesdirect sales to e-learning experiences


Most medium- and large-sized organizations Most medium- and large-sized organizations have a Web sitehave a Web site

Most large U.S. corporations have Most large U.S. corporations have comprehensive portals comprehensive portals

1999 the emphasis of EC shifted from B2C to 1999 the emphasis of EC shifted from B2C to B2BB2B

2001 the emphasis shifted from B2B to B2E,2001 the emphasis shifted from B2B to B2E,c-commerce, e-government, e-learning, and c-commerce, e-government, e-learning, and m-commercem-commerce

EC will undoubtedly continue to shift and EC will undoubtedly continue to shift and changechange


EC successesEC successes• Virtual EC

companies eBay VeriSign AOL Checkpoint

• Click-and-mortar Cisco General Electric IBM Intel Schwab

EC failuresEC failures• 1999, a large number of

EC-dedicated companies began to fail

• EC’s days are not numbered!

dot-com failure rate is declining sharply

EC field is experiencing consolidation

most pure EC companies, are expanding operations and generating increasing sales (Amazon.com)

The Interdisciplinary Nature of EC

Major EC disciplines Major EC disciplines • Computer scienceComputer science• MarketingMarketing• Consumer behaviorConsumer behavior• FinanceFinance• EconomicsEconomics• Management information systems Management information systems

MarketingMarketing Computer sciencesComputer sciences Consumer behavior Consumer behavior

and psychologyand psychology FinanceFinance EconomicsEconomics

Management Management information information systemssystems

Accounting and Accounting and auditingauditing

ManagementManagement Business law and Business law and

ethicsethics Others Others

Electronic Commerce is Electronic Commerce is InterdisciplinaryInterdisciplinary

The Driving Forces ofThe Driving Forces ofElectronic CommerceElectronic Commerce

The New World of BusinessThe New World of Business• Business pressuresBusiness pressures• Organizational responsesOrganizational responses• The role of Information Technology The role of Information Technology

(including electronic commerce)(including electronic commerce)

Exhibit 1.3: Major Business Exhibit 1.3: Major Business Pressures and the Role of ECPressures and the Role of EC

Major Business PressuresMajor Business Pressures

Market andMarket and

economic economic pressurespressures

Strong competitionStrong competitionGlobal economyGlobal economyRegional trade Regional trade agreements (e.g. agreements (e.g. NAFTA)NAFTA)Extremely low labor Extremely low labor cost in some countriescost in some countriesFrequent and Frequent and significant changes in significant changes in marketsmarketsIncreased power of Increased power of consumersconsumers

Major Business Pressures Major Business Pressures (cont.)(cont.)

Societal and Societal and environmental environmental pressurespressures

Changing nature of Changing nature of workforceworkforce

Government Government deregulation of banking deregulation of banking and other servicesand other services

Shrinking government Shrinking government subsidiessubsidies

Increased importance of Increased importance of ethical and legal issuesethical and legal issues

Increased social Increased social responsibility of responsibility of organizationsorganizations

Rapid political changesRapid political changes

Major Business Pressures Major Business Pressures (cont.)(cont.)

Technological Technological pressurespressures

Rapid Rapid technological technological obsolescenceobsolescenceIncrease Increase innovations and innovations and new technologiesnew technologiesInformation Information overloadoverloadRapid decline in Rapid decline in technology cost technology cost vs. performance vs. performance ratioratio

Organizational ResponsesOrganizational Responses Strategic systemsStrategic systems Continuous improvement effortsContinuous improvement efforts Business process reengineering Business process reengineering

(BPR)(BPR) Business AlliancesBusiness Alliances Electronic commerceElectronic commerce

Organizational Responses

Framework for Organizational and Societal Impacts of Information Technology

Management

and

Business Process

Organization

Structure and the

Corporate Culture

Individual

and Roles

Information

Technology

The Organization’s

Strategy

External Environment, Social, Economic, Political, etc

Reducing cycle time and time to market

Empowerment of employees and collaborative work

Supply chain improvements Mass customization Change management

IT Support and EC

The Benefits of ECThe Benefits of EC

Benefits to OrganizationsBenefits to Organizations• Expands the marketplace to national Expands the marketplace to national

and international marketsand international markets• Decreases the cost of creating, Decreases the cost of creating,

processing, distributing, storing and processing, distributing, storing and retrieving paper-based informationretrieving paper-based information

Benefits of ECBenefits of EC (cont.) (cont.)

Benefits to Organizations Benefits to Organizations (cont.)(cont.)• Allows reduced inventories and Allows reduced inventories and

overhead by facilitating pull-type overhead by facilitating pull-type supply chain managementsupply chain management

• The pull-type processing allows for The pull-type processing allows for customization of products and customization of products and services which provides competitive services which provides competitive advantage to its implementersadvantage to its implementers


Benefits to Organizations Benefits to Organizations (cont.)(cont.)• Reduces the time between the outlay Reduces the time between the outlay

of capital and the receipt of products of capital and the receipt of products and servicesand services

• Supports business processes Supports business processes reengineering (BPR) effortsreengineering (BPR) efforts

• Lowers telecommunications cost - the Lowers telecommunications cost - the Internet is much cheaper than value Internet is much cheaper than value added networks (VANs) added networks (VANs)

Benefits of EC Benefits of EC (cont.)(cont.)

Benefits to consumersBenefits to consumers• Enables consumers to shop or do other Enables consumers to shop or do other

transactions 24 hours a day, all year transactions 24 hours a day, all year round from almost any locationround from almost any location

• Provides consumers with more choicesProvides consumers with more choices• Provides consumers with less Provides consumers with less

expensive products and services by expensive products and services by allowing them to shop in many places allowing them to shop in many places and conduct quick comparisonsand conduct quick comparisons

Benefits of ECBenefits of EC (cont.) (cont.) Benefits to consumers Benefits to consumers (cont.)(cont.)

• Allows quick delivery of products and Allows quick delivery of products and services (in some cases) especially with services (in some cases) especially with digitized productsdigitized products

• Consumers can receive relevant and Consumers can receive relevant and detailed information in seconds, rather than detailed information in seconds, rather than in days or weeksin days or weeks

• Makes it possible to participate in virtual Makes it possible to participate in virtual auctionsauctions


Benefits to consumers Benefits to consumers (cont.)(cont.)• Allows consumers to interact with other Allows consumers to interact with other

consumers n electronic communities consumers n electronic communities and exchange ideas as well as compare and exchange ideas as well as compare experiencesexperiences

• Facilitates competition, which results in Facilitates competition, which results in substantial discountssubstantial discounts

Benefits of EC (cont.)Benefits of EC (cont.)

Benefits to societyBenefits to society• Enables more individuals to work at home, Enables more individuals to work at home,

and to do less traveling for shopping, and to do less traveling for shopping, resulting in less traffic on the roads, and resulting in less traffic on the roads, and lower air pollutionlower air pollution

• Allows some merchandise to be sold at Allows some merchandise to be sold at lower prices benefiting less affluent peoplelower prices benefiting less affluent people


Benefits to society Benefits to society (cont.)(cont.)• Enables people in Third World countries Enables people in Third World countries

and rural areas to enjoy products and and rural areas to enjoy products and services which otherwise are not services which otherwise are not available to themavailable to them

• Facilitates delivery of public services at Facilitates delivery of public services at a reduced cost, increases effectiveness, a reduced cost, increases effectiveness, and/or improves qualityand/or improves quality

The Limitations of ECThe Limitations of EC

Technical limitations of electronic Technical limitations of electronic commercecommerce• Lack of sufficient system’s security, reliability, Lack of sufficient system’s security, reliability,

standards, and communication protocolsstandards, and communication protocols• Insufficient telecommunication bandwidthInsufficient telecommunication bandwidth• The software development tools are still The software development tools are still

evolving and changing rapidlyevolving and changing rapidly

The Limitations of EC The Limitations of EC (cont.)(cont.)

Technical Limitations of EC Technical Limitations of EC (cont.)(cont.)• Difficulties in integrating the Internet Difficulties in integrating the Internet

and electronic commerce software with and electronic commerce software with some existing applications and some existing applications and databasesdatabases

• The need for special Web servers and The need for special Web servers and other infrastructures, in addition to the other infrastructures, in addition to the network servers (additional cost)network servers (additional cost)

The Limitations of EC The Limitations of EC (cont.)(cont.)

Technical Limitations of EC Technical Limitations of EC (cont.)(cont.)• Possible problems of interoperability, Possible problems of interoperability,

meaning that some EC software does meaning that some EC software does not fit with some hardware, or is not fit with some hardware, or is incompatible with some operating incompatible with some operating systems or other componentssystems or other components

Non-Technical LimitationsNon-Technical Limitations Cost and justificationCost and justification

• The cost of developing an EC in house can The cost of developing an EC in house can be very high, and mistakes due to lack of be very high, and mistakes due to lack of experience may result in delays. experience may result in delays.

• There are many opportunities for There are many opportunities for outsourcing, but where and how to do it is outsourcing, but where and how to do it is not a simple issuenot a simple issue

• In order to justify the system, one needs to In order to justify the system, one needs to deal with some intangible benefits which deal with some intangible benefits which are difficult to quantify.are difficult to quantify.

Security and PrivacySecurity and Privacy • These issues are especially important in These issues are especially important in

the B2C area, but security concerns are the B2C area, but security concerns are not so serious from a technical not so serious from a technical standpoint standpoint

• Privacy measures are constantly Privacy measures are constantly improving too improving too

• The EC industry has a very long and The EC industry has a very long and difficult task of convincing customers difficult task of convincing customers that online transactions and privacy are, that online transactions and privacy are, in fact, very securein fact, very secure

Non-Technical Limitations (cont.)

Non-Technical Limitations Non-Technical Limitations (cont.)(cont.)

Lack of trust and user resistanceLack of trust and user resistance • Customers do not trust:Customers do not trust:

Unknown faceless sellersUnknown faceless sellers Paperless transactionsPaperless transactions Electronic moneyElectronic money

• Switching from a physical to a virtual Switching from a physical to a virtual store may be difficultstore may be difficult

• Other limiting factors are:Other limiting factors are: Lack of touch and feel onlineLack of touch and feel online Many unresolved legal issuesMany unresolved legal issues Rapidly evolving and changing ECRapidly evolving and changing EC Lack of support servicesLack of support services Insufficiently large enough number of sellers Insufficiently large enough number of sellers

and buyersand buyers Breakdown of human relationshipsBreakdown of human relationships Expensive and/or inconvenient accessibility Expensive and/or inconvenient accessibility

to the Internetto the Internet

Non-Technical Limitations (cont.)

Impact on EC: Everything will be Changed Impact on EC: Everything will be Changed The Analysis-of-Impacts FrameworkThe Analysis-of-Impacts Framework

Impacts on Trading ProcessesImpacts on Trading Processesand Intermediaries and Intermediaries (cont.)(cont.)

Winners in ECWinners in EC• Internet access Internet access

providersproviders• Diversified portal Diversified portal

service providersservice providers• EC software EC software

companiescompanies• Proprietary Proprietary

network ownersnetwork owners• Others Others

Losers in ECLosers in EC• Wholesalers Wholesalers

(particularly (particularly small ones)small ones)

• BrokersBrokers• SalespeopleSalespeople• Nondifferentiated Nondifferentiated

manufacturersmanufacturers

Impact on Business ProcessesImpact on Business Processesand Organizationsand Organizations

Improving direct marketingImproving direct marketing• Product promotionProduct promotion• New sales channelsNew sales channels• Direct savingsDirect savings• Reduced cycle timeReduced cycle time• Customer serviceCustomer service• Brand or corporate imageBrand or corporate image

Impact on Business ProcessesImpact on Business Processesand Organizations and Organizations (cont.)(cont.)

Other marketing-related impactsOther marketing-related impacts• Customization Customization • AdvertisingAdvertising• Ordering systemsOrdering systems• Markets Markets

Transforming organizationsTransforming organizations• Technology and organization learningTechnology and organization learning• Changing nature of workChanging nature of work

Impact on Business ProcessesImpact on Business Processesand Organizations and Organizations (cont.)(cont.)

Redefining organizationsRedefining organizations• New product capabilitiesNew product capabilities• New business modelsNew business models

Impacts on manufacturingImpacts on manufacturing• Build-to-orderBuild-to-order

Impact on finance and accountingImpact on finance and accounting Human resource management, Human resource management,

training, and educationtraining, and education

Putting It All TogetherPutting It All Together Major concern of today’s companies—Major concern of today’s companies—

how to transform themselves to take how to transform themselves to take part in digital economypart in digital economy

Example:Toys, Inc.Example:Toys, Inc.• Uses intranet for internal communications, Uses intranet for internal communications,

collaboration, dissemination of informationcollaboration, dissemination of information• Networked to e-marketspaces and large Networked to e-marketspaces and large

corporationscorporations• Corporate portal for communication and Corporate portal for communication and

collaboration with business partnerscollaboration with business partners

Figure 1-2

Putting It All Together

Prentice Hall, 2002 61

Is it real?Is it real? How to evaluate the magnitude of the How to evaluate the magnitude of the

business pressures.business pressures. What should be my company’s strategy What should be my company’s strategy

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

Managerial IssuesManagerial Issues


Pure vs. Partial ECPure vs. Partial EC depends upon the degree of digitization (the transformation from physical to digital) of:1. the product (service)

sold;2. the process; and for3. the delivery agent (or

digital intermediary)

Brick-and-Mortar Brick-and-Mortar organizations organizations areare old-economy old-economy organizations organizations (corporations) that (corporations) that perform most of their perform most of their business off-line, business off-line, selling physical selling physical products by means of products by means of physical agentsphysical agents


Virtual (pure-play) Virtual (pure-play) organizationsorganizations conduct their business conduct their business activities solely onlineactivities solely online

Click-and-mortar Click-and-mortar organizations organizations conduct some EC conduct some EC activities, but do their activities, but do their primary business in primary business in the physical worldthe physical world

Electronic market Electronic market (e-marketplace) (e-marketplace) online marketplace online marketplace where buyers and where buyers and sellers meet to sellers meet to exchange goods, exchange goods, services, money, or services, money, or informationinformation


Interorganizational Interorganizational information information systems (IOSs) systems (IOSs) allow routine allow routine transaction transaction processing and processing and information flow information flow between two or more between two or more organizationsorganizations

IntraorganizatioIntraorganizational information nal information systems systems enable enable EC activities to go EC activities to go on on within within individual individual organizationsorganizations

Education

E-Commerce 01