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Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-1
Introduction to Information Technology
2nd EditionTurban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
Chapter 9:Electronic Commerce
Prepared by:Roberta M. Roth, Ph.D.
University of Northern Iowa
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-2
Chapter Preview
In this chapter, we will study:Forms and uses of business-to-
consumer electronic commerceForms and uses of business-to-business
electronic commerceNew forms of EC Technical and non-technical
requirements needed to make EC workLegal and ethical issues associated
with EC
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-3
E-Commerce / E-Business Electronic Commerce: buying and
selling of products, services and information via computer networks, primarily the Internet
Electronic Business: a broader definition that includes buying and selling, plus servicing customers collaborating with business partners conducting electronic transactions within an
organization
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-4
Types of E-Commerce Business-to-business EC (B2B) Collaborative commerce (c-commerce) Business-to-consumer EC (B2C) Consumer-to-businesses (C2B) Consumer-to-consumer (C2C) Intrabusiness (intraorganizational)
commerce Government-to-citizens (G2C) and
others Mobile commerce (m-commerce)
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-5
E-Commerce History and Scope History
Began in the early 1970s (long before the Internet was open to commercial use)
Limited to large businesses initially Electronic Fund Transfer (EFT) and Electronic Data
Interchange (EDI) Scope Today Includes
advertising home banking shopping in electronic stores and malls buying stocks finding a job conducting an auction collaborating electronically with business partners
around the globe providing customer service
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-6
EC Benefits to Organizations Increased customer base:
Broaden markets Find niche markets (e.g. www.dogtoys.com)
Reduced cost: Reach a large number of customers at little cost Procure material and services from other companies at less cost Allow lower inventories by facilitating “pull”-type supply chain
management Shorten marketing distribution channels and reduce marketing
costs Decrease the cost of creating, processing, distributing, storing,
and retrieving paper-based information Lower telecommunications costs because the Internet is much
cheaper than value-added networks (VANs) Reduced cycle time:
Procure material and services from other companies rapidly Reduce the time between the outlay of capital and the receipt of
products and services Helps small businesses compete against large companies
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-7
EC Benefits to Customers Choice
Consumers can select from many vendors and many more products than they could locate otherwise
Consumers can get customized products, from PCs to cars, at competitive or bargain prices
Consumers can find unique products and collectors’ items through virtual auctions that might otherwise require them to travel long distances to a particular auction place at a specific time
Convenience Consumers can conduct online quick comparisons to find less
expensive products and services Customers can shop or make other transactions 24 hours a day,
year round, from almost any location Product information immediately available 24 hours a day,
year round, from almost any location Consumers can interact with other consumers in electronic
communities and can exchange ideas as well as compare experiences
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-8
EC Benefits to Society Convenience
Enables more individuals to work at home and to do less traveling
Access Allows some merchandise to be sold at lower
prices - less affluent people can buy more and increase their standard of living
Enables people in less developed countries and rural areas to enjoy products and services that otherwise are not available to them
Facilitates delivery of public services, such as government entitlements, reducing the cost of distribution and fraud, and increasing the quality of the social services, police work, health care and education
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-9
Technical Limitations of EC A few technical challenges remain for
organizations wishing to conduct EC: Lack of universally accepted standards for quality,
security, and reliability Insufficient telecommunications bandwidth Still-evolving software development tools Difficulties in integrating the Internet and EC software
with some existing (especially legacy) applications and databases
Need for special Web servers in addition to the network servers (added cost)
Expensive and/or inconvenient Internet accessibility for many people
All of these will diminish over time
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-10
Non-Technical Limitations of EC Legal and economic concerns:
Many legal issues are yet unresolved Lack of national and international regulations and
standards Difficulty in measuring benefits of EC and justifying EC Insufficient number (critical mass) of sellers and
buyers exists for profitable EC operations Cultural resistance:
Distrust of the new: Many sellers and buyers are waiting for EC to stabilize before they take part
Customer resistance to the change from a physical to virtual stores
Perception that electronic commerce is expensive and unsecured, so many do not want even to try it
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Business-to-Consumer EC
Electronic Storefronts and Malls Electronic retailing can be conducted
via solo storefront or as a part of cybermall
Issues of e-tailing May cause channel conflict and conflict
with existing stores Difficult to fulfill large quantity of very
small orders Incorrect business model (advertising
revenue versus profitable sales)
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-12
Business-to-Consumer EC (continued)
Services Online Banking (www.sfnb.com) Securities trading (Schwab Online) Job markets (Monster Board) Travel (Expedia.com) Real estate (Realtor.com)
Auctions (eBay.com)
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-13
Business-to-Consumer EC (continued)
Personalization – ability to customize product, service, advertisement, or customer service
B2C EC enables personalization at low cost
Internet enables marketing research Questionnaires
• Usually involve some inducement Direct behavior observation
• Cookies or site tracking services
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-14
Business-to-Consumer EC (continued)
Use of intelligent agents Help customers determine what to buy Search for and compare vendor prices Collect information and develop customer
profiles Online advertising
Banners• Keyword banners• Random banners
Direct email Pop-up windows
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-15
Business-to-Consumer EC (continued)
Advertising Approaches and Issues Permission marketing – offer incentives to
consumers to receive advertising Viral (advocacy) marketing – online word of mouth
advertising (send this ad to a friend and get…) Customizing ads – base ads on consumers’ profile Interactive marketing – tailor ads based on stored
customer data Attracting visitors to a site
• Making the top list of a search engine• Online events, promotions, and attractions
Electronic catalogs / customized catalogs
Coupons online
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-16
Business-to-Consumer EC (continued)
Providing Customer Service Help customer determine needs Help customer acquire product or
service Support customer during ownership
of product or service Help customer dispose of product or
service
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Business-to-Business EC Composes the majority of EC volume Enables organizations to form electronic
relationships Covers all activities along the supply chain Business Models:
Sell-Side Marketplace• Organizations sell products to other organizations
electronically. Buy-Side Marketplace
• Buyers post needs; sellers submit bids Electronic Exchanges
• Electronic marketplaces link many buyers and many sellers
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Innovations E-Government – deliver information
and public services to citizens and members of the public sector
M-Commerce – use of wireless devices to deliver mobile e-commerce
Consumer-to-consumer EC – direct interaction facilitated by auctions, classifieds, and bartering
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
Infrastructure – hardware, software, and networks needed to conduct transactions, communicate, and collaborate
Electronic Payment Mechanisms Electronic checks
• Customer opens account with a bank• the customer e-mails an encrypted electronic
check signed with a digital signature• the merchant deposits the check in his or her
account; money is debited in the buyer’s account and credited to the seller’s account
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
Electronic Payment Mechanisms (continued) Electronic credit cards
• Unencrypted payments - the buyer e-mails her or his credit card number to the seller on the Internet
• Encrypted payments - credit card details encrypted for security
Electronic cash in PC• bank provides special software to consumer• customer buys “electronic money” from the bank
through software• the bank sends electronic money note to this customer,
endorsing it with a digital signature• the money is stored on the buyer’s PC and can be spent
in any electronic store that accepts e-cash• the software is also used to transfer the e-cash from
the buyer’s computer to the seller’s computer• the seller either deposits the e-cash in a bank or uses
the e-cash to make purchases elsewhere
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-21
Electronic Commerce Requirements
Electronic Payment Mechanisms (continued) Electronic payment cards with e-cash
• Credit cards using magnetic strips• Card holds information about prepaid cash which
can be used to make payments Smart cards
• Cards with microprocessors can hold much more information
Person-to-person payment systems• Transfer of funds between individuals (PayPal)
EFT Electronic wallets Purchasing cards
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
Security Authentication - assurance regarding the identity of
the parties who are involved in the deal Integrity - assurance that data and information
(orders, reply to queries, and payment authorization) are not accidentally or maliciously altered or destroyed during transmission
Non-repudiation - Protection against the customer’s unjustifiable denial of placing an order; buyer needs protection against the vendor denial of shipment, or sending wrong order
Privacy - many customers want their identity to be undisclosed
Safety - assurance that it is safe to provide a credit card number on the Internet
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
Security (continued) Encryption - a process of making messages
indecipherable except by those who have an authorized decryption key
• Single-key encryption• Public/private key encryption• Public key infrastructure
Electronic Certificates Secure Socket Layer (SSL) Secure Electronic Transaction
Protocol (SET)
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
Order Fulfillment Find, assemble, and pack product Ship product to customer Collect customer payment Arrange for returns if needed Provide on-going support (e.g.,
animated assembly instructions) EC is a ‘pull’ operation – hard to
forecast demand and prepare to fulfill orders
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-25
Electronic Commerce Issues Buyer Protection
look for reliable brand names at sites like Wal-Mart Online, Disney Online, and Amazon.com
search any unfamiliar selling site for company’s address and phone and fax number
check out the seller with the local Chamber of Commerce and/or Better Business Bureau
investigate how secure the seller’s site is by reading the posted privacy notice, and evaluate how well the site is organized
examine the money-back guarantees, warranties, and service agreements
compare prices to those in regular stores (suspect the too cheap sites)
ask friends what they know about the vendor find out what your rights are in case of a dispute consult the National Fraud Information Center check www.consumerworld.org for a listing of useful resources
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Issues Seller Protection
Need protection against consumers who refuse to pay or pay with bad checks and buyers’ claims that the merchandise did not arrive
Need protection against the use of their name by others as well as use of their unique words and phrases, slogans and Web address
Need legal recourse against customers who download copyrighted software and/or knowledge and sell it to others
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-27
Electronic Commerce Issues Ethics
Privacy• most electronic payment systems know
who the buyers are; therefore, it may be necessary to protect the buyers’ identity
Web Tracking• by using sophisticated software it is
possible to track individual movements on the internet
Disintermediation• the use of EC may result in the
elimination of some of a company’s employees as well as brokers and agents
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-28
Electronic Commerce Issues Legal Concerns
Domain Names• several companies that have similar or same
names (in different countries) compete over a domain name that is not a registered trademark
Taxes and Other Fees• Federal, state, and local taxing authorities
are trying to figure out how to impose taxes on Internet sales
Copyright• intellectual property is protected by
copyright laws and cannot be used freely
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
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Chapter Summary
B2C EC encompasses e-tailing, auctions, and online services
B2C EC provides numerous marketing and advertising opportunities and challenges
B2B EC has the highest volume, and provides several business models
Payment mechanisms and security are critical EC issues
EC introduces many legal and ethical concerns
Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.
9-30
Copyright © 2003 John Wiley & Sons, Inc. All rights reserved. Reproductionor translation of this work beyond that permitted in Section 117 of the 1976United Stated Copyright Act without the express written permission of thecopyright owner is unlawful. Request for further information should beaddressed to the Permissions Department, John Wiley & Sons, Inc. Thepurchaser may make back-up copies for his/her own use only and not fordistribution or resale. The Publisher assumes no responsibility for errors,omissions, or damages, caused by the use of these programs or from the use of the information herein.