e Business Lecture1

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Chapter 1

Overview of Electronic Commerce/Business

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E-commerce

E-commerce involves§ The use of the Internet and the web to

transact business.§ Digitally enabled commercial transactions

between organizations and individuals.§ Digitally enabled transactions include all

transactions mediated by digital technology§

Commercial transactions involve the exchangeof value across organizational or individualboundaries in return for products or services



E-business

E-business involves§ Digital enablement of transactions

and processes within a firm,

involving information systems under the control of the firm

§ E-business does not involve

commercial transactions acrossorganizational boundaries wherevalue is exchanged



Learning Objectives

• Define electronic commerce (EC) anddescribe its various categories.

• Describe and discuss the content and

framework of EC.• Describe the major types of EC

transactions.•

Describe some EC business models.

© Prentice Hall2004

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Learning Objectives (cont.)

5. Describe the benefits of EC to organizations,consumers, and society.

6. Describe the limitations of EC.

7. Describe the role of the digital revolution in EC.8. Describe the contribution of EC to

organizations responding to environmentalpressures.


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Marks & Spencer—A NewWay to Compete

• The Problem – UK-based, upscale, global retailer of high-quality, high-

priced merchandise, operating in more than 30 countries,faces stiff competition since economic slowdown in 1999.

–

Critical success factors• Customer service• Appropriate store inventory system• Efficient supply chain activities

To attract shoppers, the company had to reduce prices at itsstores, which drastically reduced profit.

Will M&S, a world class retailer, be able to survive?

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Marks & Spencer (cont.)

• The Solution – M&S realized that digital era survival depends

on the use of information technology ingeneral and electronic commerce in particular.

– Electronic commerce (EC, e-commerce)—a

process of buying, selling, transferring, or exchanging products, services, and/or information via electronic networks andcomputers

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– M & S initiated several EC initiatives, including:• Selling online

– Shoppers can collect their merchandise the next day (in UK) ina shopping basket after online payment.

–

Online shoppers are encouraged to provide a UPC code inorder to get the same product they see at a physical store,frequently at a lower price.

• Security – Tracks transaction data in real time, looking for fraudulent

events. – If any such event is discovered, the system alerts the security

staff in the affected store by sending them a short text messagevia cell phone.

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• Warehouse management – Installed mainframe based Multi User Warehouse

System(MUWS) – Using .NET, store sales are reported to a data warehouse in

real time – The data is available for decision making on inventory

replenishment (when & how much to ship to each store) – The data is also available to third party logistics service

provider, who run the warehouse operation and deliveries.

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• Merchandise receiving – The process of matching orders and invoices is automated,

making it faster and free of errors. – Information about arriving goods is passed automatically to

both the warehouse and the stores. – MUWS can do a real time check of arriving and available stock. – The system enable M&S to pay suppliers more quickly, which

makes them happier and more co-operative.

• Inventory control – Improved customer relationships. –

Customers can find what they want quickly.

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• Speeding up the supply of fashion garments – Using special software, merchandisers can access and

change allocation plans from any computing device .

• Collaborative commerce –

M&S now can pass more accurate forecast demands to itssupplies for fast delivery of goods.

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• The Results –

A turnaround is underway – M & S has become a leader and example

setter in retailing, resulting in increasedprofitability and growth

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•

It was a good year online in fiscal 2011 for Marks & Spencer.

• For the fiscal 2011 year ended April 2,

Marks & Spencer, No. 12 in UK, No. 22 inEurope Internet Retailer.• Total sales grew year over year 2.1%.• 9.70 billion pounds ($15.90 billion) from

9.50 billion pounds

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• What can we learn… – Traditional brick-and-mortar companies face

increasing pressures in a competitive marketingenvironment

– A possible response is to introduce a variety of e-commerce initiatives that can improve:

• supply chain operation•

information• money from raw materials through factories• increase customer service• open up markets to more customers

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Electronic Commerce:Definitions and Concepts

• The Internet has emerged as a major, worldwide distributionchannel for goods, services, managerial and professional jobs.

• This is profoundly changing economics, markets and industrystructure, products & services and their flow, consumer segmentation, consumer values, consumer behaviour, jobsand labor markets.

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

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Electronic Commerce:Definitions and Concepts (cont.)

• E-commerce defined from the followingperspectives:

– 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 theInternet and via other online services

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• Business process: doing business electronically bycompleting business processes over electronic networks,thereby substituting information for physical businessprocesses

•

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

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• Learning: an enabler of online training and education inschools, universities, and other organizations, includingbusinesses

• Collaborative: the framework for inter- andintraorganizational collaboration

• Community: provides a gathering place for communitymembers to learn, transact, and collaborate

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• e-business: a broader definition of EC,which includes:

– buying and selling of goods and services – servicing customers – collaborating with business partners –

conducting electronic transactions withinan organization

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• Pure vs. Partial EC depends upon thedegree of digitization

(the transformationfrom physical todigital) of:Ø the product (service)

sold;Ø the process; and Ø For the delivery agent

(or digital intermediary)

• Brick-and-Mortar organizations are old-economy

organizations(corporations) thatperform most of their business off-

line, selling physicalproducts by meansof physical agents

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• Virtual (pure-play) organizations conduct their business activities solelyonline

• Click-and-mortar organizations conductsome EC activities, but do their primarybusiness in the physical world

• Electronic market (e-marketplace)online marketplace where buyers andsellers meet to exchange goods, services,

money, or information

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• Interorganizational information

systems (IOSs)allow routinetransactionprocessing and

information flowbetween two or moreorganizations

• Intraorganizational information

systems enableEC activities togo on withinindividual

organizations

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The Dimensions of ElectronicCommerce

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The EC Framework,Classification, and Content

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

transactions are made between businessesand individual consumers

– business-to-business (B2B): businessesmake online transactions with other businesses

intrabusiness EC: EC conducted inside an organization

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

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

• Computer environments – Internet: global networked environment – Intranet: a corporate or government network

that uses Internet tools, such as Webbrowsers, and Internet protocols

– Extranet: a network that uses the Internet tolink multiple intranets

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EC Framework

• EC applications are supported byinfrastructure and by five support areas:

– People –

Public policy – Marketing and advertising – Support services – Business partnerships

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Classification of EC byTransactions or Interactions

• business-to-business (B2B): businessesmake online transactions with other businesses;

• business-to-consumer (B2C) : onlinetransactions are made betweenbusinesses and individual consumers;

Amazon.com.• e-tailing: online retailing, usually B2C

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Classification of EC byTransactions or Interactions (cont.)

• business-to-business-to-consumer (B2B2C): e-commerce model in which a business providessome product or service to a client business thatmaintains its own customers.

• consumer-to-business (C2B):

e-commerce model in which individuals use theInternet to sell products or services to

organizations or individuals seek sellers to bid onproducts or services they need; Priceline.com

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• consumer-to-consumer (C2C):

e-commerce model in which consumers selldirectly to other consumers; online classified ads.•

peer-to-peer (P2P): technology that enablesnetworked peer computers to share data andprocessing with each other directly; can be usedin C2C, B2B, and B2C e-commerce

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• mobile commerce ((m-commerce):

e-commerce transactions and activities

conducted in a wireless environment• location-based commerce (l-commerce):

m-commerce transactions targeted to

individuals in specific locations, at specifictimes

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• intrabusiness EC: e-commerce category thatincludes all internal organizational activities thatinvolve the exchange of goods, services, or

information among various units and individualsin an organization

• business-to-employees (B2E): e-commercemodel in which an organization delivers services,

information, or products to its individualemployees

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• collaborative commerce (c-commerce):

e-commerce model in which individuals or groups communicate or collaborate online• e-learning: the online delivery of information for

purposes of training or education• exchange (electronic): a public electronic

market with many buyers and sellers

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• exchange-to-exchange (E2E): e-commercemodel in which electronic exchanges formallyconnect to one another the purpose of exchanging information

• e-government: e-commerce model in which agovernment entity buys or provides goods,services, or information to businesses or

individual citizens

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The Interdisciplinary



The InterdisciplinaryNature of EC

• Major EC disciplines – Computer science – Marketing –

Consumer behavior – Finance – Economics –

Management information systems

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E-Commerce I and II

§ E-Commerce I§ Explosive growth starting in 1995§ Widespread of Web to advertise products§

Ended in 2000 when dot.com began tocollapse§ E-Commerce II

§ Began in January 2001§ Reassessment of e-commerce companies



A Brief History of EC

• 1970s: innovations like electronic funds transfer (EFT)—funds routed electronically from oneorganization to another (limited to large corporations)

• electronic data interchange (EDI)— electronicallytransfer routine documents (application enlarged poolof participating companies to include manufacturers,retailers, services)

• interorganizational system (IOS)—travel reservationsystems and stock trading

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A Brief History of EC (cont.)

• 1969 U.S. government experiment—the Internetcame into being initially used by technicalaudience of government agencies, academicresearchers, and scientists

• 1990s the Internet commercialized and usersflocked to participate in the form of dot-coms, or Internet start-ups

•

Innovative applications ranging from online directsales to e-learning experiences

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• Most medium- and large-sized organizations have aWeb site

• Most large U.S. corporations have comprehensive

portals• 1999 the emphasis of EC shifted from B2C to B2B• 2001 the emphasis shifted from B2B to B2E,c-commerce, e-government, e-learning, and

m-commerce• EC will undoubtedly continue to shift and change

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•

EC successes – Virtual EC

companies• eBay• VeriSign• AOL• Checkpoint

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

•

EC failures – 1999, a large number of

EC-dedicatedcompanies began to fail

– EC’s days are not numbered!

• dot-com failure rate isdeclining sharply

• EC field is experiencingconsolidation

• most pure EC companies,are expanding operationsand generating increasingsales (Amazon.com)

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Th S S f



The Success Story of campusfood.com

• Provide interactive menus to college students,using the power of the Internet to replace and/or facilitate the traditional telephone ordering of meals

• Built the company’s customer base – expanding to other universities – attracting students –

generating a list of restaurants from which studentscould order food for delivery

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The Success Story of



The Success Story of Campusfood.Com (cont.)

• At campusfood.com you can: – Navigate through a list of local restaurants, their

hours of operation, addresses, phone numbers,

etc. – Browse an interactive menu – Bypass “busy” telephone signals to place an

order online –

Access special foods, promotions, andrestaurant giveaways – Arrange electronic payment of your order

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The Success Story of



The Success Story of Campusfood.Com (cont.)

• Now some of these activities are outsourced to amarketing firm, enabling the addition of dozens of schools nationwide.

• Financed through private investors, friends, andfamily members, the site was built on aninvestment of less than $1 million.

• Campusfood.com’s revenue is generated throughtransaction fees—the site takes a 5% commissionon each order from the sellers

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The Future of EC

• 2004—total online shopping and B2B transactions in theUS between $3 to $7 trillion by 2008:

– number of Internet users worldwide have reached2,095,006,005 till March, 2011.

– 50 percent of Internet users will shop – EC growth will come from:

• B2C• B2B• e-government• e-learning• B2E• c-commerce

the future isbright



E-Commerce Business Models

• Business model – a set of planned activities designed to result in

a profit in a marketplace•

Business plan – a document that describes a firm’s business

model• E-commerce business model

–

a business model that aims to use and leveragethe unique qualities of the Internet and theWorld Wide Web.

E



E-commerceBusiness Models

• Business models—a method of doingbusiness by which a company cangenerate revenue to sustain itself

•

Examples: – Name your price – Find the best price – Dynamic brokering –

Affiliate marketing

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E



E-commerceBusiness Plans and Cases

• Business plan: a written document thatidentifies the business goals and outlines the

plan of how to achieve them.

• Business case: a written document that is usedby managers to garner funding for specific

applications or projects; its major emphasis isthe justification for a specific investment

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Str ct re of B siness



Structure of BusinessModels

• Business model: A method of doingbusiness by which a company cangenerate revenue to sustain itself

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St t f B i M d l



Structure of Business Models (cont.)

• Revenue model : description of how thecompany or an EC project will earn revenue

– Sales –

Transaction fees – Subscription fees – Advertising – Affiliate fees – companies receive commissions for

referring customers to other other websites. – Other revenue sources – real time online

games/sports competitions

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C R M d l



Common Revenue Models

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St t f




• Value proposition: The benefits a companycan grow from using EC

– search and transaction cost efficiency – cost

savings per unit as greater quantities are produced. – Complementarities – bundling some goods and

services together to provide more value than offering themseparately.

–

lock-in – is attributable to the high switching cost that tiescustomers to particular suppliers.

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St t f




– Novelty – creates value through innovative ways for structuring transactions, connecting partners andnurturing new markets.

– aggregation and interfirm collaboration

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Typical Business Models



Typical Business Modelsin EC

1. Online direct marketing2. Electronic tendering systems

tendering (reverse auction): model in which a

buyer requests would-be sellers to submit bids,and the lowest bidder wins. (GE Corp.)

3. Name your own price: (Demand CollectionModel) a model in which a buyer sets the price

he or she is willing to pay and invites sellers tosupply the good or service at that price.(Priceline.com)

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Typical Business



Typical BusinessModels in EC (cont.)

4. Affiliate marketing: an arrangement whereby amarketing partner (a business, an organization,or even an individual) refers consumers to theselling company’s Web site. (affiliateworld.com)

5. Viral marketing : word-of-mouth marketing inwhich customers promote a product or service tofriends or other people.

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Typical Business




6. Group purchasing: quantity purchasingthat enables groups of purchasers toobtain a discount price on the products

purchased. (Shop2gether.com)SMEs: small to medium enterprises

7. Online auctions (ebay.com)

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Typical Business




8. Product and service customizationcreation of a product or service accordingto the buyer’s specifications (Dell)

9. Electronic marketplaces & exchanges:(NewView.com) stock and commoditiesexchanges.

10. Value-chain integrators: similar to

previous one with some value addedservices. (Carpoint.com)

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Typical Business




11. Value-chain service providers: these providersspecialise in a supply chain function such aslogistics(UPS.com) or payment (paypal.com)

11. Information brokers: provide privacy, trust,

matching, search content and other services.(google.com)

12. Bartering: companies exchange surpluses they donot need for things and they do need.

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Typical Business




14. Deep discounting: companies such as Half.comoffer products and services at deep discounts.

14. Membership: only members will get discount(Netmarket.com)

15. Supply chain improvers: creation of new modelsthat change or improve SCM.

Business models can be independent or they canbe combined amongst themselves or with

traditional business models

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Example of Supply Chain Improver

• Orbis Group changes a linear physicalsupply chain to an electronic hub

– Traditional process in the B2B advertising

field

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Example of




Example of Supply Chain Improver (cont.)

ProductBanksimplifies thislengthyprocesschanging thelinear flow of products andinformation toa digitizedhub

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Benefits of EC

• Global reach• Cost reduction•

Supply chainimprovements• Extended hours: 24/7/365• Customization• New business models• Vendors’ specialization

• Rapid time-to-market• Lower communication

costs• Efficient procurement• Improved customer

relations• Up-to-date company

material• No city business

permits and fees

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Benefits to organizations



Benefits of EC (cont.)

• Ubiquity•

More productsand services• Cheaper

products and

services• Instant delivery• Information

availability

• Participation in

auctions• Electronic

communities• “Get it your

way”• No sales tax

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Benefits to consumers




Benefits of EC (cont.)

Benefits to society – Telecommuting –

Higher standard of living – Hope for the poor – Availability of public services

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Limitations of EC



Limitations of EC

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Barriers of EC

• Security• Trust and risk• Lack of qualified personnel• Lack of business models• Culture

• User authentication and lack of public keyinfrastructure

• Fraud• Slow navigation on the Internet• Legal issues

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The Digital Revolution

• Digital economy : An economy that isbased on digital technologies, includingdigital communication networks,

computers, software, and other relatedinformation technologies; also called theInternet economy , the new economy or the Web economy.

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The Digital Revolution ( t )



The Digital Revolution (cont.)

•

A global platform over which people andorganizations interact, communicate,collaborate, and search for information

• Includes the following characteristics: – A vast array of digitizable products – Consumers and firms conducting financial transactions

digitally – Microprocessors and networking capabilities

embedded in physical goods

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New Business Environment

• Customers are becoming more powerful• Created due to advances in science

occurring at an accelerated rate•

Results in more and more technology• Rapid growth in technology results in a

large variety of more complex systems

New Business



New BusinessEnvironment (cont.)

• Characteristics in the business environment – A more turbulent environment with more business

problems and opportunities –

Stronger competition – Need for organizations to make decisions more

frequently – A larger scope for decisions because more factors – More information and/or knowledge needed for making

decisions

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Environment Response Support



Environment-Response-SupportModel

• Critical response activities – traditional actions such as lowering cost and

closing unprofitable facilities –

introduce innovative actions such ascustomizing or creating new products or providing superb customer service

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Major Business Pressures and the Role



jof EC

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Major Business Pressures



Major Business Pressures

Market andeconomic

pressures

• Strong competition

• Global economy

• Regional trade agreements

• Extremely low labor cost in

some countries

• Frequent and significant

changes in markets

• Increased power of consumers

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Major



jBusiness Pressures (cont.)

Societal and

environmentalpressures

• Changing nature of workforce• Government deregulation of

banking and other services•

Shrinking government subsidies• Increased importance of ethical and

legal issues• Increased social responsibility of

organizations• Rapid political changes

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Major



Major Business Pressures (cont.)

Technologicalpressures

1. Rapid technologicalobsolescence

2. Increase innovationsand new technologies

3. Information overload

4. Rapid decline intechnology cost vs.performance ratio

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Organizational Responses

• Strategic systems• Continuous improvement efforts and business

process reengineering—including business process reengineering (BPR)

• Customer relationship management (CRM)—divided into the following areas

– Operational CRM – Analytical CRM –

Collaborative CRM

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Organizational Responses (cont.)

• Business alliances• Electronic markets• Reductions in cycle time and time-to-

marketCycle time reduction: Shortening the time it

takes for a business to complete a productiveactivity from its beginning to end

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• Empowerment of employees• Supply chain improvements• Mass customization: make-to-order in

large quantities in an efficient manner Mass customization: Production of large

quantities of customized items

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• Intrabusiness: from sales force automationto inventory

• Knowledge management

Knowledge management (KM): The process of creating or capturing knowledge, storing andprotecting it, updating and maintaining it, and usingit

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P tti It All T th



Putting It All Together

• Task facing each organization is how to puttogether the components that will enable theorganization to transform itself to the digitaleconomy and gain competitive advantage by

using EC• Many employ corporate portals

A major gateway through which employees, businesspartners, and the public can enter a corporate Web site

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The Networked Organization



The Networked Organization

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M i l I



Managerial Issues

1. Is it real?2. How should we evaluate the magnitude of

the business pressures?

3. Why is B2B e-commerce so attractive?4. There are so many EC failures—how can

one avoid them?

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M i l I



Managerial Issues (cont.)

5. What should be my company’s strategytoward EC?

6. How do we transform our organization

into a digital one?7. What are the top challenges of EC?

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e Business Lecture1