Electronic Commerce

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Define electronic commerce (EC) and describe its various categoriesDescribe and discuss the content and framework of ECDescribe the major types of EC transactionsDescribe some EC business modelsDiscuss the benefits of EC to organizations, consumers, and society

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Prentice Hall, 2003
1
Chapter 1

Overview of
Electronic Commerce
Prentice Hall, 2003
2
Learning Objectives
Define electronic commerce (EC) and
describe its various categories
Describe and discuss the content and
framework of EC
Describe the major types of EC transactions
Describe some EC business models
Discuss the benefits of EC to organizations,
consumers, and society
Prentice Hall, 2003
3
Learning Objectives (cont.)
Describe the limitations of EC
Describe the role of the digital revolution
in EC and the economic impact of EC
Discuss the contribution of EC in helping
organizations respond to environmental
pressures
Discuss some major managerial issues
regarding EC
Prentice Hall, 2003
4
Qantas Airways
A New Way to Compete
The Problem
Increased fuel costs placed pressure on the airline
industry
Qantas faced two major competitors and higher
fees at Sydney Airport
Air traffic dwindled after September 11
th
Qantas needed to replace aircraft in order to stay
competitive
Australian economy slowed down

Prentice Hall, 2003
5
Qantas Airways (cont.)
The Solution
Bought fuel contracts for future dates
(traditional response)
Took major steps to implement e-commerce
(EC) involving buying, selling, and exchanging
goods, services, information, and payments
electronically
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6
Qantas Airways (cont.)
E-marketplace
member
Joined Airnew Co.—
links major airlines
with suppliers
Fuel
Fuel services
Light maintenance
services
Catering
Joined Corporcure.com.au
with 13 other large
Australian corporations
Electronically purchase
general goods and services
Office supplies
Light bulbs
Maintenance services
Business-to-business (B2B)
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7
Qantas Airways (cont.)
Formed Pan-Pacific exchange
E-marketplace
Business-to-business-to-consumer (B2B2C)
Provides
Full spectrum travel services
Products and services to business
partners
Travel agencies who can use this
marketplace to sell directly to consumers
Prentice Hall, 2003
8
Qantas Airways (cont.)
Business-to-customer
(B2C):
Online booking
E-mails to
frequent-flyer
members
Mileage bonuses
and opportunities
to win $10,000 AU
Wireless
communications
Business-to-employee
(B2E):
Online training
Online banking
Prentice Hall, 2003
9
Qantas Airways (cont.)
The Results
Qantas expects to see an estimated $85
million AU in cost reductions per year by 2003
Qantas expects to increase annual revenues
by $700 million AU from nontravel sales
Outlasted one competitor
Prentice Hall, 2003
10
EC Definitions & Concepts
Electronic Commerce (EC) is the process of buying,
selling, or exchanging products, services, and
information via computer networks
EC defined from these perspectives
Communications
Business process
Service
Online
Collaborations
Community
Prentice Hall, 2003
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EC Definitions & Concepts (cont.)
E-business is a broader definition of EC
that includes not just the buying and
selling of goods and services, but also
Servicing customers
Collaborating with business partners
Conducting electronic transactions within an
organization
Pure vs. Partial EC: based on the degree of
digitization of product, process, delivery agent
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12
Exhibit 1.1
The Dimensions of Electronic Commerce
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EC Definitions & Concepts (cont.)
Traditional commerce: all dimensions are
physical
Brick-and-mortar organizations
Old-economy organizations (corporations)
Perform all business off-line
Sell physical products by means of
physical agents
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EC Definitions & Concepts (cont.)
Pure EC: all dimensions are digital
Pure online (virtual) organizations
New-economy organization
Sell products or services only online
Partial EC: a mix of digital and physical
dimensions
Click-and-mortar organizations
Conduct EC activities
Do their primary business in the physical
world
Prentice Hall, 2003
15
EC Definitions & Concepts (cont.)
Internet vs. Non-Internet EC
VANs—value-added networks
LANs—local area networks
Single computerized machines
Using a smart card in a vending machine
Using a cell phone to make an online
purchase
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Electronic Markets vs.
Interorganizational Systems
E-markets
Buyers and sellers
meet to exchange
Goods
Services
Money
Information
Interorganizational
Information Systems
(IOS)
Between two or
more organizations
Routine
transaction
processing
Information flow
Prentice Hall, 2003
17
The EC Framework and Field
An EC Framework
EC applications supported by infrastructure
and 5 support areas
People
Public policy
Technical standards and protocols
Business partners
Support services
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18
Exhibit 1.2
A Framework for EC
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19
Classification of EC by the
Nature of the Transaction
Business-to-business (B2B) : EC model in which
all of the participants are businesses or other
organizations
Business-to-consumer (B2C): EC model in which
businesses sell to individual shoppers
Business-to-business-to-consumer (B2B2C): EC
model in which a business provides some product
or service to a client business; the client business
maintains its own customers, to whom the
product or service is provided
Prentice Hall, 2003
20
Classification of EC by the
Nature of the Transaction (cont.)
Consumer-to-business(C2B): individuals
who use the Internet to sell products or
services to organizations and /or seek
sellers to bid on products or services they
need
Consumer-to-consumer (C2C) : consumers
sell directly to other consumers
Prentice Hall, 2003
21
Classification of EC by the
Nature of the Transaction (cont.)
Mobile commerce (m-commerce)—EC
transactions and activities conducted in a
wireless environment
Location-commerce—(l-commerce)
m-commerce transactions targeted to
individuals in specific locations, at specific
times
Prentice Hall, 2003
22
Classification of EC by the
Nature of the Transaction (cont.)
Intrabusiness (organizational) EC: EC
category that includes all internal
organizational activities that involve the
exchange of goods, services, or
information among various units and
individuals in an organization
Prentice Hall, 2003
23
Classification of EC by the
Nature of the Transaction (cont.)
Business-to-employee (B2E): EC model in which
an organization delivers services, information, or
products to its individual employees
Collaborative commerce (c-commerce): EC model
in which individual or groups communicate or
collaborate online
E-government: Government-to-citizens (G2C):
EC model in which a government entity buys or
provides good, services, or information to
businesses or individual citizens
Prentice Hall, 2003
24
Classification of EC by the
Nature of the Transaction (cont.)
Exchange (electronic): a public e-market
with many buyers and sellers
Exchange-to-exchange (E2E): EC model in
which electronic exchanges formally
connect to one another for the purpose of
exchanging information
Prentice Hall, 2003
25
Marketing
Computer sciences
Consumer behavior and
psychology
Finance
Economics

Management
information systems
Accounting and
auditing
Management
Business law and ethics
Others
Interdisciplinary Nature of EC
Prentice Hall, 2003
26
Brief History of EC
EC applications first
developed in the early
1970s
Electronic funds
transfer (EFT)
Limited to:
Large corporations
Financial
institutions
A few other daring
businesses

Prentice Hall, 2003
27
Brief History of EC (cont.)
Electronic data
interchange (EDI)—
electronic transfer of
documents:
Purchase orders
Invoices
E-payments
between firms
doing business

Enlarged pool of
participants to
include:
Manufacturers
Retailers
Service providers

Prentice Hall, 2003
28
Brief History of EC (cont.)
Interorganizational systems (IOS)
Stock trading
Travel reservation systems
Internet became more commercialized in
the early 1990s
Almost all medium-and large-sized
organization in the world now has a Web site
Most large corporations have comprehensive
portals
Prentice Hall, 2003
29
Brief History of EC (cont.)
EC Successes
Pure online
eBay
VeriSign
AOL
Checkpoint
Click-and-mortar
GE
IBM
Intel
Schwab
EC Failures
E-tailors began to
fail in 1999
This does not mean
that EC’s days are
numbered
Large EC companies
like Amazon.com
are expanding but
success or failure is
not certain
Prentice Hall, 2003
30
Success Story of Campusfood.com
Campusfood.com’s recipe for success was
to provide interactive menus to college
students
Using the power of the Internet to enhance
traditional telephone ordering of meals
Taking thousands of orders for local
restaurants, bringing pizzas, hoagies, and
wings to the Penn community
Prentice Hall, 2003
31
Campusfood.com (cont.)
Building the company’s customer base
involved
Registering other universities
Attracting students
Generating a list of restaurants from which
students could order food for delivery
Some activities are outsourced to a
marketing firm enabling the addition of
dozens of schools nationwide
Prentice Hall, 2003
32
Campusfood.com (cont.)
Built on an investment of less than $1
million
Private investors
Friends
Family members
Revenue is generated through transaction
fees—5 percent commission on each order
Prentice Hall, 2003
33
Campusfood.com (cont.)
At campusfood.com you can:
Navigate through a list of local restaurants,
Browse an interactive menu.
Bypass “busy” telephone signals to place an
order online
Get access to special foods, promotions, and
restaurant giveaways
Arrange electronic payment of your order
Prentice Hall, 2003
34
A method of doing business by which a
company can generate revenue to sustain
itself
Spells out where the company is
positioned in the value chain
Business models are a component of a
business plan or a business case
Business Models
Prentice Hall, 2003
35
Business Plans & Business Cases
Business plan
A written document
that identifies the
business goals and
outlines the plan of
how to achieve them
Business case
A written document
that is used by
managers to garner
funding for specific
applications or
projects; its major
emphasis is the
justification for a
specific investment

Prentice Hall, 2003
36
The Content of a Business Plan
Mission statement and
company description
The management team
The market and the
customers
The industry and
competition
The specifics of the
products and/or
services
Marketing and sales
plan
Operations plan
Financial projections
and plans
Risk analysis
Technology analysis
Prentice Hall, 2003
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Structure of Business Models
Transaction fees
Subscription fees
Advertisement fees
Affiliate fees
Sales
Other models

All business models must specify their revenue
model (the description of how the company or an
EC project will earn revenue)
Revenue sources are
Value proposition is the description of the benefits a
company can derive from using EC
Prentice Hall, 2003
38
Typical Business Models in EC
Online, direct marketing
Electronic tendering systems
Reverse auction is a tendering system sellers are
invited to bid on the fulfillment of an order to
produce a product or provide a service; the
lowest bid wins
Name your own price
Find the best price
Prentice Hall, 2003
39
Typical Business Models in EC (cont.)
Affiliate marketing is an arrangement
whereby a marketing partner (business,
organization or individual) refers
consumers to the selling company’s Web
site
Viral marketing is word-or-mouth
marketing in which customers promote a
product or service to friends or other
people by using the Internet
Prentice Hall, 2003
40
Typical Business Models in EC (cont.)
Group purchasing is getting many small buyers
together to by in large quantities
Online auctions
Product and service customization
Customization is the creation of a product or service
according to the buyer’s specifications
Electronic marketplaces and exchanges
Vertical marketplace is a marketplace that
concentrates on one industry; also called vertical
portals or vortals
Supply chain improvers
Prentice Hall, 2003
41
Exhibit 1.3
The Business Model of 7dream.com
Prentice Hall, 2003
42
The Benefits of EC
Benefits to Organizations
Expands the marketplace to national and
international markets
Decreases the cost of creating, processing,
distributing, storing and retrieving paper-based
information
Allows reduced inventories and overhead by
facilitating pull-type supply chain management
Prentice Hall, 2003
43
Benefits of EC (cont.)
The pull-type processing allows for customization
of products and services which provides
competitive advantage to its implementers
Reduces the time between the outlay of capital
and the receipt of products and services
Supports business processes reengineering (BPR)
efforts
Lowers telecommunications cost - the Internet is
much cheaper than value added networks (VANs)
Prentice Hall, 2003
44
Benefits of EC (cont.)
Benefits to consumers
Enables consumers to shop or do other
transactions 24 hours a day, all year round
from almost any location
Provides consumers with more choices
Provides consumers with less expensive
products and services by allowing them to
shop in many places and conduct quick
comparisons
Prentice Hall, 2003
45
Benefits of EC (cont.)
Allows quick delivery of products and services (in
some cases) especially with digitized products
Consumers can receive relevant and detailed
information in seconds, rather than in days or weeks
Makes it possible to participate in virtual auctions
Allows consumers to interact with other consumers
in electronic communities and exchange ideas as
well as compare experiences
Facilitates competition, which results in substantial
discounts
Prentice Hall, 2003
46
Benefits of EC (cont.)
Benefits to society
Enables more individuals to work at home, and to do
less traveling for shopping, resulting in less traffic on
the roads, and lower air pollution
Allows some merchandise to be sold at lower prices,
benefiting less affluent people
Enables people in Third World countries and rural
areas to enjoy products and services which
otherwise are not available to them
Facilitates delivery of public services at a reduced
cost, increases effectiveness, and/or improves
quality
Prentice Hall, 2003
47
Interorganization and Collaboration
Orbis Corporation changes linear physical
supply chain to an electronic hub
Prentice Hall, 2003
48
Orbis Corporation (cont.)
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49
The Limitations of EC
Technical limitations
There is a lack of universally accepted standards for
quality, security, and reliability
The telecommunications bandwidth is insufficient
Software development tools are still evolving
There are difficulties in integrating the Internet and
EC software with some existing (especially legacy)
applications and databases.
Special Web servers in addition to the network
servers are needed (added cost).
Internet accessibility is still expensive and/or
inconvenient
Prentice Hall, 2003
50
The Digital Revolution and
the Economic Impact of EC
In the Digital Revolution the economy is
based on digital technologies including:
Digital communication networks
Computers
Software
Other related information technologies
Also called:
Internet economy
New economy
Web economy
Prentice Hall, 2003
51
The Digital Revolution and
the Economic Impact of EC (cont.)
Digital networking and communication
infrastructures provide a global platform
where people and organizations:
Interact
Communicate
Collaborate
Search for information
Prentice Hall, 2003
52
The Digital Revolution and
the Economic Impact of EC (cont.)
The global platform includes these
characteristics
A vast array of digitizable products
Consumers and firms conduct financial
transactions digitally
Microprocessors and networking capabilities
embedded in physical goods
Prentice Hall, 2003
53
The Digital Revolution and
the Economic Impact of EC (cont.)
The term digital economy also refers to
the convergence of computing and
communication technologies on the
Internet and other networks and the
resulting flow of information and
technology that is stimulating e-
commerce and vast organizational
changes
Prentice Hall, 2003
54
The Digital Revolution and
the Economic Impact of EC (cont.)
This convergence enables all types of
information (data, audio, video, etc.) to
be stored, processed, and transmitted
over networks to many destinations
worldwide
Web-based EC systems are accelerating
the digital revolution by providing
competitive advantage to organizations
Prentice Hall, 2003
55
Exhibit 1.5
Cost Curve of Regular & Digital Products
Prentice Hall, 2003
56
Exhibit 1.6
The Economic Effects of EC
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57
Economics of Digital Systems (cont.)
Reach vs. richness
Another economic impact of EC is the trade-
off between the number of customers a
company can reach (called “reach”) and the
amount of interactions and information
services they can provide to customers
(called “richness”)

Prentice Hall, 2003
58
Exhibit 1.7
Reach vs. Richness
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59
Contributions of EC to Organizations
The New World of Business
Business pressures
Organizational responses
The role of Information Technology (including
electronic commerce)
Prentice Hall, 2003
60
Business Pressures
The term business environment refers to the
social, economic, legal, technological, and
political actions that affect business activities
Business pressures are divided into the
following categories:
Market (economic)
Societal
Technological
Prentice Hall, 2003
61
Exhibit 1.8
Major Business Pressures & the Role of EC
Prentice Hall, 2003
62
Organizational Responses
Strategic systems
Provide organizations with strategic advantages,
enabling them to:
Increase their market share
Better negotiate with their suppliers
Prevent competitors from entering into their
territory
Prentice Hall, 2003
63
FedEx Solutions
FedEx provides a host of Web-based logistics
solutions to enterprise (business) customers
providing services
FedEx distribution centers
Worldwide network of warehouses to provide
ready-to-use warehousing services to
businesses
Allows for instant expansion of distribution
capabilities
Network is managed electronically
All communication with the shippers and
receivers is done online
Prentice Hall, 2003
64
FedEx Solutions (cont.)
FedEx express distribution depots
Provides a one-stop source of express
distribution capabilities.
Goods in these depots are available for
delivery 24 hours a day.
Service is targeted at time-critical
businesses
All communication is done online
Prentice Hall, 2003
65
FedEx Solutions (cont.)
FedEx returns management
FedEx NetReturn designed to streamline
the process of returns
Internet-based system to schedule
pickup of packages from consumers and
to obtain time-definite delivery
Online status tracking and customized
reporting
Prentice Hall, 2003
66
FedEx Solutions (cont.)
Other value-added services
Products can be shipped from a FedEx-
operated warehouse instead of the
business customer’s warehouse
FedEx can provide a “merge-in-transit”
service to customers that operate on
rapid turnaround and delivery
Prentice Hall, 2003
67
Organizational Responses (cont.)
Continuous improvement efforts
Many companies continuously conduct programs to
improve:
Productivity
Quality
Customer service
Business process reengineering (BPR)
Strong business pressures may require a radical
change
Such an effort is referred to as business process
reengineering (BPR)
Prentice Hall, 2003
68
Organizational Responses (cont.)
Business alliances
Alliances with other companies, even competitors,
can be beneficial
Virtual corporation—electronically supported
temporary joint venture
Special organization for a specific
Time-limited mission
Electronic markets
Optimize trading efficiency
Enable their members to compete globally
Require the collaboration of the different
companies and competitors
Prentice Hall, 2003
69
Organizational Responses (cont.)
Reduction in cycle time and time to market
Cycle time reduction—shortening the time it
takes for a business to complete a productive
activity from its beginning to end
Extremely important for increasing
productivity and competitiveness
Extranet-based applications expedite steps in
the process of product or service
development, testing, and implementation
Prentice Hall, 2003
70
Time-to-Market for New Drugs
FDA must be extremely careful in
approving new drugs; public pressure to
approve new drugs quickly
FDA requires:
Extensive research
Clinical testing
Very bulky documentation is necessary
Manual review process slows
Prentice Hall, 2003
71
Time-to-Market for New Drugs (cont.)
Computer-Aided Drug Application Systems
(software program) offers a computerized
solution
Network-distributed document processing system
Enables the pharmaceutical company to scan
documents into a database
Saves time
Information can be processed or printed at the
user’s desktop computer
Prentice Hall, 2003
72
Time-to-Market for New Drugs (cont.)
Remote corporate and business partners can
also access the system
The overall result: time-to-market of a new
drug is reduced by up to a year
ISIS Pharmaceuticals, Inc. (isip.com)
developed an extranet-based system
Uses CD-ROMs to submit reports to the FDA
Opens its intranet to FDA personnel
Save 6 to 12 months
Prentice Hall, 2003
73
Organizational Responses (cont.)
Empowerment of employees and collaborative
work
Employees given the authority to act and make
decisions on their own improves
Productivity
Customer relationship management (CRM)
Empowered sales people and customer service
employees:
Make customers happy quickly
Help increase customer loyalty
Prentice Hall, 2003
74
Organizational Responses (cont.)
Supply chain improvements
Help reduce supply chain delays, inventories
and eliminate other inefficiencies
Mass customization—production of large
quantities of customized items
Business problem is how to efficiently provide
customization
EC is an ideal facilitator of mass customization
by enabling electronic ordering to reach the
production facility in minutes
Prentice Hall, 2003
75
Putting It All Together
The task facing each organization is how to
put together the components that will
enable the organization to gain competitive
advantage by using EC
Prentice Hall, 2003
76
Putting It All Together (cont.)
The first step is to put in the right
connective networks
The vast majority of EC is done on
computers connected to:
Internet
Intranet--An internal corporate or government
network that uses Internet tools, such as Web
browsers, and Internet protocols
Extranet--A network that uses the Internet to
link multiple intranets
Prentice Hall, 2003
77
Putting It All Together (cont.)
Major concern of today’s companies—how to
transform themselves to take part in digital
economy
Example:Toys, Inc.
Uses intranet for internal communications,
collaboration, dissemination of information
Networked to e-marketspaces and large
corporations
Corporate portal for communication and
collaboration with business partners
Prentice Hall, 2003
78
Exhibit 1.10
Networked Organizations
Prentice Hall, 2003
79
Is it real?
How to evaluate the magnitude of the business
pressures.
Why is the B2B area so attractive?
There are so many EC failures—how can one avoid
them?
What should be my company’s strategy toward EC?
How do we transform our organization into a digital
one?
Managerial Issues
Prentice Hall, 2003
80
Summary
Definition of EC and description of its various
categories
The content and framework of EC
The major types of EC transactions
The major business models
Benefits of EC to organizations, consumers, and
society
Limitations of EC
The digital revolution and the economic impact of EC
The role of EC in combating pressures in the business
environment

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