Chapter 5

Electronic Commerce, Intranets, and Extranets

Chapter 5 Objectives

• Understand e-commerce and how it evolved

• Understand e-commerce strategies

• Understand the difference between intranets and extranets

• Understand consumer-focused and business-focused e-commerce

• Understand key e-commerce applications

Electronic Commerce Defined

• E-Commerce – online exchange of goods, services, and money between firms, and between firms and their customers– More than just buying and selling:

• Pre-sale events and marketing

• After-sale customer service

Electronic Commerce Defined

• E-Commerce– Business-to-Consumer (B2C)– Business-to-Business (B2B)– Business-to-Employee (B2E)– Consumer-to-Consumer (C2C)

Electronic Commerce Defined

• Internet and World Wide Web Capabilities– Expanding market– Wider customer base– More products– Closer relationships with customers

Electronic Commerce Defined• Internet and World Wide Web Capabilities

– Real-time access to information• Web site linked to corporate database • Customers can check the balances of their frequent flier accounts• Customers do not have to wait for monthly statement• Example: Alaska Airlines

– Mass customization• Tailoring products to a customers needs• Example: Lands’ End (Clothing retailer) developed a virtual model

so that customers can dress the model to select clothing– Interactive communication

• Improving firm’s image through responsiveness• Firms are augmenting telephone-based ordering, Web-based

customer support (Web chat)• Example: E*Trade

Electronic Commerce Defined

• Internet and World Wide Web Capabilities– Collaboration– Reduced transaction costs– Enhanced operational efficiency– Disintermediation

• Cutting out the “middleman”• Reaching customers directly

Electronic Commerce Defined

• Electronic Commerce Business Strategies– Brick-and-mortar

• Traditional, physical companies

– Click-only (“virtual”) companies

• Online only

• Example: eBay

– Click-and-mortar (or “Brick & Click”)• Both physical and virtual

– Challenge: increased IS complexity

Business-to-Business Electronic Commerce

• Electronic Data Interchange– Definition – EDI refers to the electronic transmission of business

documents between organizations via networks

– “EDI is the forefather of B2B”

– Estimated that U.S. companies buy about $500 billion worth of goods and services electronically per year via EDI networks

– EDI: usually over value-added networks (VANs)

EDI System Architecture

Business-to-Business Electronic Commerce

• Electronic Data Interchange– Advantages

• Wide variety of business documents

• Streamlines business processes

• Reduced document handling, reduces paperwork

• Shortens time of business transaction (from day to second)

• Reduces errors

Business-to-Business Electronic Commerce

• Electronic Data Interchange– Disadvantages

• Costly to implement

• Costly to maintain

• Requires skilled technicians

• EDI can cost up to $100,000 and monthly telecommunications charges associated with VANs can be several thousand dollars per month

• Often too costly for small or medium-sized companies

Business-to-Business Electronic Commerce

• The Internet Changed Everything– B2B now available to companies of all sizes

– Intranet – internal, private network using Web technologies to facilitate transmission of proprietary information within the organization

– Extranet – two or more firms using the Internet to do business together

Business-to-Business Electronic Commerce

• Intranet System Architecture– Firewalls – hardware devices with special software that

prevent unauthorized access

– An intranet server is placed behind the firewall

– Packets are never routed outside the firewall, but remain within the organizations network

Internet Architecture

Business-to-Business Electronic Commerce

• Intranet Applications– Training: Employee can access video lectures,

presentation slides from their desktop – Application Integration: Intranet integrates all

disparate applications installed in different environments to consolidate information• Enterprise Resource Planning (ERP)• Customer Relationship Management (CRM)• Sales Force Automation (SFA)

– Online Entry of Information– Real-Time Access to Information– Collaboration

Business-to-Business Electronic Commerce

• Extranet System Architecture– Extranet

• Connects two or more business partners

• Like an intranet

• Same software, hardware, and networking

• Additional component:– Virtual Private Network (VPN)

– Secure transmission of proprietary info

Business-to-Business Electronic Commerce

• Extranet System Architecture– Virtual Private Network (VPN)

• Tunneling– A technology that encapsulates, encrypts, and transmits

data over the Internet– A secure “tunnel” is created over the VPN connecting the

two intranets

• Authentication– Confirms the identity of the remote user who is attempting

to access information from the Web server

Business-to-Business Electronic Commerce

• Extranet Applications– Supply Chain Management

• Example: Dell Computers

– Real-Time Access to Information • Example: CSX railroad

– Collaboration• Example: Caterpillar

Business-to-Business Electronic Commerce

• Enterprise Portals– Enterprise portals

• Extranets for business partners

• Access points (or front doors) by which a business partner accesses secured, proprietary information from an organization

Business-to-Business Electronic Commerce

• Enterprise Portals– Distribution portals

• Automate the business processes in selling products to multiple buyers

– Procurement portals• Automate the business processes that occur before,

during, and after sales have been transacted

– Trading Exchanges• Electronic marketplaces run by 3rd-party vendors

• Revenues are from commissions on transactions

Business-to-Consumer Electronic Commerce

• B2C– Internet – fastest acceptance of any

communications technology– Retail transactions between a company and end

consumers– Electronic retailing (e-tailing)

Business-to-Consumer Electronic Commerce

• Stages of B2C E-Commerce– E-Information

• Disseminate information globally

• Example: Ferrari

– E-Integration• Consumer-driven access to information

• Example: Allstate and Burlington Northern Santa Fe

– E-Transaction• Interactive communication and transaction support

• Example: eBay and Priceline.com

Formula for Electronic Commerce Success

• The Rules for Web Site Success– 1. Offer something unique

– 2. Web site must be aesthetically pleasing

– 3. Easy to use and fast

– 4. Motivate people to visit, stay, and return

– 5. Advertise your Web presence

– 6. Learn from your Web site