Principles of Information Systems, Eighth Edition

8-1

Chapter 8 Electronic and Mobile Commerce

At a Glance

Instructors Manual Table of Contents

Overview Principles and Objectives Teaching Tips Quick Quizzes Class Discussion Topics Additional Projects Additional Resources Key Terms

Principles of Information Systems, Eighth Edition

8-2

Overview
Chapter 8 provides an overview of electronic commerce (e-commerce) and mobile commerce (m-commerce). It identifies the different types of e-commerce and describes several e-commerce and m-commerce applications. This chapter also discusses some of the major issues that represent significant threats to the continued growth of e-commerce and mcommerce. It outlines the key components of a successful e-commerce strategy and describes the technology infrastructure that must be in place for e-commerce and mcommerce applications to function successfully.

Principles and Objectives

Principles Electronic commerce and mobile commerce are evolving, providing new ways of conducting business that present both opportunities for improvement and potential problems. Learning Objectives Describe the current status of various forms of e-commerce, including B2B, B2C, and C2C. Outline a multistage purchasing model that describes how e-commerce works. Define m-commerce and identify some of its unique challenges.

E-commerce and m-commerce can be used in many innovative ways to improve the operations of an organization.

Identify several e-commerce and mcommerce applications. Identify several advantages associated with the use of e-commerce and mcommerce.

Although e-commerce and m-commerce offer many advantages, users must be aware of and protect themselves from many threats associated with this technology.

Identify the major issues that represent significant threats to the continued growth of e-commerce and mcommerce.

Organizations must define and execute a strategy to be successful in e-commerce.

Outline the key components of a successful e-commerce strategy.

E-commerce and m-commerce require the careful planning and integration of a number of technology infrastructure components.

Identify the key components of technology infrastructure that must be in place for e-commerce and mcommerce to work. Discuss the key features of the

Principles of Information Systems, Eighth Edition

8-3

electronic payment systems needed to support e-commerce.

Teaching Tips
Why Learn About Electronic and Mobile Commerce?
Most organizations today have or are considering setting up business on the Internet. To be successful, all members of the organization need to participate in this effort. For example, a sales or marketing manager is expected to help define the firms e-commerce business model. Customer service employees are expected to participate in the development and operation of their firms Web site. A human resource or public relations manager will likely be asked to provide content for a Web site directed to potential employees and investors. In order to excel in their future careers, students must understand what the potential role of ecommerce is, how to capitalize on its many opportunities, and how to avoid its pitfalls. They must also understand how m-commerce works and the tremendous opportunities that it potentially offers.

An Introduction to Electronic Commerce

E-commerce is a general concept that covers any business transaction executed electronically. It involves conducting primary business activities using electronic data transmission, telecommunications networks, and streamlined work processes. Business-to-Business (B2B) E-Commerce Business-to-business (B2B) e-commerce is a subset of e-commerce where all the participants are organizations. B2B e-commerce is a useful tool for connecting business partners in a virtual supply chain to cut resupply times and reduce costs. The B2B market is considerably larger and is growing more rapidly than the business-to-consumer market. Business-to-Consumer (B2C) E-Commerce Business-to-consumer (B2C) e-commerce is a form of e-commerce in which customers deal directly with an organization and avoid intermediaries. Consumers find that many goods and services are sometimes cheaper when purchased via the Webfor example, stocks, books, newspapers, airline tickets, and hotel rooms.

Principles of Information Systems, Eighth Edition

8-4

They also enjoy the convenience of shopping from their homes, and can easily find detailed information about products and services before buying them. They can also compare prices, features, and value. Consumer-to-Consumer (C2C) E-Commerce Consumer-to-consumer (C2C) e-commerce is a subset of e-commerce that involves consumers selling directly to other consumers. eBay is an example of a C2C e-commerce site, where customers buy and sell items directly to each other through the site. Other popular online auction Web sites include Craigslist, uBid, Yahoo! Auctions, Onsale, and WeBidz. eGovernment eGovernment is the use of information and communications technology to simplify the sharing of information, speed formerly paper-based processes, and improve the relationship between citizen and government. Government-to-consumer (G2C), government-to-business (G2B), and government-to-government (G2G) are all forms of eGovernment. Multistage Model for E-Commerce A successful e-commerce system must address the many stages that consumers experience in the sales life cycle. As a result, a multistage model for purchasing over the Internet includes the following components: Search and identification Selection and negotiation Purchasing products and services electronically Product and service delivery After-sales service

E-Commerce Challenges A number of challenges must be overcome in order for a company to convert its business processes from the traditional form to e-commerce processes. The first challenge involves defining an effective e-commerce model and strategy. Although a number of different approaches can be used, the most successful models include the following components: Community Content Commerce

Another major challenge is that companies often need to change their distribution systems and work processes in order to manage shipments directly to individuals. A third challenge is for IT personnel to integrate Web-based order processing systems with traditional, mainframe, computer-based inventory control and production planning systems.

Principles of Information Systems, Eighth Edition

8-5

Quick Quiz 1
1. What are the three general classes of e-commerce? ANSWER: business-to-business (B2B), consumer-to-consumer (C2C), and businessto-consumer (B2C) What are the three components of a successful e-commerce model? ANSWER: content, commerce, and community ____________________ applications are designed to improve communications among the various levels of government. ANSWER: Government-to-government (G2G)

2.

3.

An Introduction to Mobile Commerce

Mobile commerce, or m-commerce, relies on the use of wireless devices, such as personal digital assistants, cell phones, and smart phones, to place orders and conduct business. Mobile Commerce in Perspective M-commerce purchases have not yet taken off in all parts of the world. One important issue affecting the acceptance of m-commerce is user-friendliness. The interface between the wireless device and its user must improve to the point that it is nearly as easy to purchase an item on a wireless device as it is to purchase it on a PC. In addition, network speed must improve so that users do not become frustrated while making a purchase. Security is also a major concern for users. The acceptance of m-commerce is currently geographically dependent. In geographic areas with good network coverage, adoption of m-commerce is much more likely than in areas with spotty service. Similarly, regions with newer, high-speed wireless networks have a faster response time, making mobile transactions faster and more convenient. Technology Needed for Mobile Commerce The wireless application protocol (WAP) is a standard set of specifications for Internet applications that run on handheld, wireless devices. WAP is currently supported by over 200 vendors of wireless devices, services, and tools. In the future, devices and service systems based on WAP will be able to interoperate.

Electronic and Mobile Commerce Applications

E-commerce and m-commerce are being used in innovative and exciting ways. Some industries that use these applications include the retail and wholesale, manufacturing, marketing, investment and finance, and auction arenas.

Principles of Information Systems, Eighth Edition

8-6

Retail and Wholesale There are numerous examples of e-commerce in retail and wholesale. Electronic retailing, sometimes called e-tailing, is the direct sale from business to consumer through electronic storefronts, which are typically designed around the familiar electronic catalog and shopping cart model. Cybermalls support e-tailing by providing many products and services at one Internet location. Manufacturing Many manufacturers are moving their supply chain operations onto the Internet. Here they can form an electronic exchange to join with competitors and suppliers using computers and Web sites to buy and sell goods, trade market information, and run back-office operations. This approach has greatly speeded the movement of raw materials and finished products among all members of the business community, thus reducing the amount of inventory that must be maintained. It has also led to a much more competitive marketplace. Marketing In the area of marketing, e-commerce has enabled firms to gather much more information about customer behavior and preferences. Internet advertisers use the data they gather to identify specific portions of their markets and target them with tailored advertising messages. This practice is known as market segmentation. In addition, technology-enabled relationship management allows a business to obtain detailed information about a customer and then customize its entire relationship with that customer. Investment and Finance The world of finance and investment has been revolutionized by the Internet through online stock trading and online banking. The brokerage business adapted to the Internet faster than any other arm of finance. The allure of online trading that enables investors to do quick, thorough research and then buy shares in any company in a few seconds and at a fraction of the cost of a full-commission firm has brought many investors to the Web. Online banking is increasingly becoming more and more popular. It allows customers to check balances of their savings, checking, and loan accounts; transfer money among accounts; and pay their bills from the comfort of their homes. These customers enjoy the convenience of not writing checks by hand, and save money on envelopes and stamps. Vendors can eliminate paper altogether by using electronic bill presentment to post statements online and alert customers through e-mail. Auctions The biggest Web site in online auctions is, of course, eBay. eBay is hugely successful, yet there have been complaints from some eBay customers. The most frequent of these are regarding increases in fees and problems with unscrupulous buyers. As a result, eBay is constantly trying to expand and improve its services. Hundreds of other online auction sites also exist.

Principles of Information Systems, Eighth Edition

8-7

Anywhere, Anytime Applications of Mobile Commerce Because m-commerce devices usually have a single user, they are ideal for accessing personal information and sending targeted messages for a particular consumer. Through mcommerce, companies can reach individual consumers to establish one-to-one marketing relationships and communicate whenever it is convenientin short, anytime and anywhere. Advantages of Electronic and Mobile Commerce Conversion to an e-commerce driven supply chain benefits businesses by: Enabling consumers and companies to gain a global reach to worldwide markets Reducing the cost of doing business Speeding the flow of goods and information Increasing the accuracy of order processing and order fulfillment Improving the level of customer service

Teaching Tip

Invite a local businessperson to your class to speak about his or her organization's e-commerce efforts.

Quick Quiz 2
1.

What is another name for electronic retailing? ANSWER: e-tailing What is a single Web site that offers many products and services at one Internet location called? ANSWER: cybermall What is an electronic forum where manufacturers, suppliers, and competitors can buy and sell goods, trade market information, and run back-office applications called? ANSWER: electronic exchange Market ____________________ is the identification of specific markets to target them with advertising messages. ANSWER: segmentation

2.

3.

4.

Threats to Electronic and Mobile Commerce

The following sections summarize a number of threats to the continued growth and success of e-commerce and m-commerce.

Principles of Information Systems, Eighth Edition

8-8

Security One of these issues is security, or ensuring that the identity of interacting parties can be confirmed. Just as shoppers are concerned with the legitimacy of sites, e-businesses are concerned about the legitimacy of their customers. To protect themselves, organizations use identification technologies to confirm the identity of a user requesting access to information or assets. Theft of Intellectual Property Intellectual property issues need to be addressed for the continued growth of e-commerce and m-commerce. Intellectual property refers to music, books, inventions, paintings, and other special items protected by patents, copyrights, or trademarks. Every year, American businesses lose billions of dollars from the importation and sale of counterfeit goods and the infringement of copyrights, trademarks, and patents. Digital rights management (DRM) uses several technologies to control access to digital media.

Teaching Tip

Discuss the history surrounding Napster and the rise of intellectual property issues on the Internet. Ask students to discuss their views of file-sharing Web sites.

Fraud There are many types of online fraud schemes out there. Customers must be aware of these schemes and know how to protect themselves against them. One type of online fraud is called phishing. This is the practice of sending bogus messages purportedly from a legitimate institution to pry personal information from customers by convincing them to go to a spoofed Web site. Another problem is click fraud, which occurs when additional clicks are generated beyond those that come from legitimate users. Invasion of Consumer Privacy Privacy issues are also important to online enterprises. Many Web sites conduct online profiling where clickstream data is collected and matched with other existing databases. From the marketers perspective, the use of online profiling allows businesses to market to customers on an individual basis. The benefit to customers is better, personalized, moreeffective service; the benefit to providers is the increased business that comes from building relationships and encouraging customers to return for subsequent purchases. However, online profiling threatens the customers anonymity on the Internet.

Teaching Tip

Obtain sample clickstream data and show it in class. How do your students feel about this type of data collection?

Principles of Information Systems, Eighth Edition

8-9

Lack of Internet Access Many people in the world do not have access to the Internet and other modern communications devices. The digital divide is a term that describes the difference between people who do and people who dont have the access or the capability to use high-quality, modern information and communications technology such as computers, the Internet, telephone, and television to improve their standard of living. This lack of access is a hindrance in the expansion of e-commerce. Return on Investment Often the investment required for a large firm to establish and operate a B2B or B2C Web site can be in the millions of dollars. In addition, it is often difficult to determine the return on investment. Legal Jurisdiction Companies engaging in e-commerce must be careful that their sales do not violate the rules of various county, state, or country legal jurisdictions. For example, New York forbids the possession of stun guns and similar devices. As such, sellers arent allowed to sell such guns to New Yorkers. Other examples of illegal sales are sales to those who would not be able to obtain cigarettes or wine because of their age. Taxation United States businesses and consumers must be aware of taxation issues when conducting e-commerce. Based on U.S. Supreme Court rulings, Internet-based merchants must apply sales tax only when buyers live in a state where the company has physical facilities, or nexus. Most businesses want to avoid the complexity of paying sales taxes. As a result, many businesses set up their Internet sales operations as legally separate companies with no physical presence outside of where its computers and warehouses are located. This leaves it up to the consumers to voluntarily remit the sales taxes; but because it is almost impossible to enforce this practice, few people pay them. Thus, despite having a legal basis to do so, the states find it very difficult to collect sales taxes on Internet purchases.

Quick Quiz 3
1. True or False: Copyright law protects authored works such as books, film, images, music, and software from unauthorized copying. ANSWER: True ____________________ entails sending bogus messages purportedly from a legitimate institution to pry personal information from customers by convincing them to go to a spoofed Web site. ANSWER: Phishing

2.

Principles of Information Systems, Eighth Edition

8-10

3.

____________________ data is data gathered based on the Web sites you visit and the items you click. ANSWER: Clickstream What term is used to describe the difference between people who do and people who dont have the access or the capability to use high-quality, modern information and communications technology? ANSWER: digital divide

4.

Strategies for Successful E-Commerce

To be successful, a company needs to develop an effective Web siteone that is easy to use and accomplishes the goals of the company, yet is safe, secure, and affordable to set up and maintain. Defining the Web Site Functions Most people agree that an effective Web site is one that creates an attractive presence and meets the need of its visitors, including the following: Obtaining general information about the organization Obtaining financial information for making an investment decision Learning the organizations position on social issues Learning about the products or services that the organization sells Buying the products or services that the company offers Checking the status of an order Getting advice or help on effective use of the products Registering a complaint about the organizations products Registering a complaint concerning the organizations position on social issues Providing a product testimonial or idea for a product improvement or new product Obtaining information about warranties or service and repair policies for products Obtaining contact information for a person or department in the organization

Establishing a Web Site Previously, companies had to develop their sites in-house or find and hire contractors to do the job. This is no longer the case. Web site hosting services and the use of storefront brokers are two options for designing, building, operating, and maintaining a Web site. Both offer the advantage of getting the site running faster and cheaper than doing it yourself, especially for a firm with few or no experienced Web developers.

Principles of Information Systems, Eighth Edition

8-11

Building Traffic to Your Web Site The Internet includes hundreds of thousands of e-commerce Web sites. With all those potential competitors, a company must take strong measures to ensure that the customers it wants to attract can find its Web site. The first step is to obtain and register a domain name. The domain name should say something about your business. It is also important to make your site search-engine-friendly by including a meta tag in your stores home page. A meta tag is a special HTML tag, not visible on the displayed Web page, that contains keywords representing your sites content, which search engines use to build indexes pointing to your Web site. Maintaining and Improving Your Web Site Studies suggest that Internet shoppers expect service to be better than or equal to their instore experience. Web site operators must constantly monitor a number of issues related to the Web site to make sure that Internet shoppers get the service that they expect. For example, Web site operators must monitor the traffic to their site and the response times experienced by visitors. To keep pace with technology and increasing traffic, it might be necessary over time to modify the software, databases, or hardware on which the Web site runs to ensure good response times. In addition, operators must use implicit and/or explicit personalization in their sites to target specific customers and tailor their experience.

Quick Quiz 4
1. What can you do to make it easier for search engines to find your Web site? ANSWER: include meta tags What is the process of tailoring Web pages to specifically target individual consumers called? ANSWER: personalization True or False: An organization must know all the intricacies of Java and HTML in order to build an e-commerce site. ANSWER: False

2.

3.

Technology Infrastructure Required to Support E-Commerce and MCommerce

For e-commerce to succeed, a complete technology infrastructure must be in place. These infrastructure components must be chosen carefully and integrated to be capable of supporting a large volume of transactions with customers, suppliers, and other business partners worldwide. Figure 8.6 on page 328 shows the key technology infrastructure components.

Principles of Information Systems, Eighth Edition

8-12

Figure 8.6: Key Technology Infrastructure Components

Hardware A Web server hardware platform, with the appropriate software, is a key e-commerce infrastructure ingredient. The amount of storage capacity and computing power required of the Web server depends primarily on the software that must run on the server and the volume of e-commerce transactions that must be processed. Web Server Software In addition to the Web server operating system, each e-commerce Web site must have Web server software to perform a number of fundamental services, including: Security and identification Retrieving and sending Web pages Web site tracking Web site development Web page construction

The two most popular Web-server software packages are Apache HTTP Server and Microsoft Internet Information Server. Web page construction software uses Web editors and extensions to produce Web pages. There are two types of Web pages static and dynamic. Static Web pages always contain the same information, while dynamic Web pages contain variable information and are built to respond to a specific Web site visitors request.

Principles of Information Systems, Eighth Edition

8-13

E-Commerce Software E-commerce software must support the following five core tasks: Catalog management Product configuration Shopping cart E-commerce transaction processing Web traffic data analysis

Electronic shopping carts are used by many e-commerce sites to track the items selected for purchase by the customer. Customers can add items to the cart that they would like to buy, view what is in their cart, and remove items from the cart that they no longer want to buy. Web services are software modules supporting specific business processes that users can interact with over a network (such as the Internet) as necessary. Web services can combine software and services from different companies to provide an integrated way to communicate. Electronic Payment Systems Electronic payment systems are a key component of the e-commerce infrastructure. A primary concern is the need to use identification and encryption techniques to safeguard business transactions. As a result, digital certificates are used to verify the identity of the sender or Web site. In order to prevent the theft of credit card numbers and banking information, the Secure Sockets Layer (SSL) communications protocol is used. The following table lists the various techniques available for making online payments: Electronic cash Smart cards Credit cards Debit cards Charge cards

Electronic cash is an amount of money that is computerized, stored, and used as cash for ecommerce transactions. A smart card is a credit cardsized device with an embedded microchip to provide electronic memory and processing capability.

Teaching Tip

Ask students what methods of payment they normally use for making online purchases.

Principles of Information Systems, Eighth Edition

8-14

Quick Quiz 5
1. What combines different product data formats into a standard format for uniform viewing, aggregating, and integrating catalog data? ANSWER: catalog management software What are Web pages that always contain the same information called? ANSWER: static Web pages What are Web pages that contain variable information with built-in response to a specific Web visitor's request called? ANSWER: dynamic Web pages What is computerized money called when it is used for e-commerce transactions? ANSWER: electronic cash What communications protocol technology is used to keep credit card numbers and banking information secure? ANSWER: Secure Sockets Layer (SSL) What is a trusted third party that issues digital certificates called? ANSWER: certificate authority

2.

3.

4.

5.

6.

Class Discussion Topics

1. What functionalities or services make an e-commerce Web site effective? 2. What enhancements might encourage more people to embrace e-commerce and/or mcommerce?

Additional Projects
1. Explore two e-commerce Web sites that you consider to be effective. Which elements, if any, do the two sites have in common? For each site, which elements do you believe contribute to the success of the site? Summarize your findings in a one to two page report. 2. Visit two Web sites that create e-commerce infrastructure for their clients. What kinds of tools are available for building e-commerce applications? Summarize your findings in a one to two page report.

Principles of Information Systems, Eighth Edition

8-15

Additional Resources
1. TRUSTe: www.truste.org/ 2. BBBOnLine: www.bbbonline.org/ 3. MSN Money: http://moneycentral.msn.com/home.asp 4. Bocat's B2B Guide: www.bocat.com/

Key Terms
Business-to-business (B2B) e-commerce - a form of e-commerce in which the participants are organizations. Business-to-consumer (B2C) e-commerce - a form of e-commerce in which the participants deal directly with the organization, avoiding any intermediaries. Certificate authority (CA) - a trusted third organization or company that issues digital certificates. Click fraud - a problem arising in a pay-per-click online advertising environment where additional clicks are generated beyond those that come from actual, legitimate users. Clickstream data - data gathered based on the Web sites you visit and what items you click on. Consumer-to-consumer (C2C) e-commerce - a subset of e-commerce that involves consumers selling directly to other consumers. Cybermall - a single Web site that offers many products and services at one Internet location. Digital certificate an attachment to an e-mail message or data embedded in a Web site that verifies the identity of a sender or Web site. Digital Rights Management (DRM) - refers to the use of any of several technologies to enforce policies for controlling access to digital media such as movies, music, and software. Dynamic Web pages - Web pages containing variable information that are built to respond to a specific Web visitors request. eGovernment - the use of information and communications technology to simplify the sharing of information, speed formerly paper-based processes, and improve the relationship between citizen and government. Electronic bill presentment - a method of billing whereby a vendor posts an image of your statement on the Internet and alerts you by e-mail that your bill has arrived. Electronic cash - an amount of money that is computerized, stored, and used as cash for e-commerce transactions.

Principles of Information Systems, Eighth Edition

8-16

Electronic commerce - conducting business activities (e.g., distribution, buying, selling, marketing, and servicing of products or services) electronically over computer networks such as the Internet, extranets, and corporate networks. Electronic exchange - an electronic forum where manufacturers, suppliers, and competitors buy and sell goods, trade market information, and run back-office operations. Electronic retailing (e-tailing) - the direct sale from business to consumer through electronic storefronts, typically designed around an electronic catalog and shopping cart model. Intellectual property - includes works of the mind such as books, films, music, processes, and software, which are distinct somehow and are owned and/or created by a single entity. Market segmentation - the identification of specific markets to target them with advertising messages. Meta tag - a special HTML tag, not visible on the displayed Web page, that contains keywords representing your sites content, which search engines use to build indexes pointing to your Web site. Personalization - the process of tailoring Web pages to specifically target individual consumers. Phishing - a practice that entails sending bogus messages purportedly from a legitimate institution to pry personal information from customers by convincing them to go to a spoofed Web site. Secure Sockets Layer (SSL) - a communications protocol used to secure sensitive data during e-commerce. Smart card - a credit card-sized device with an embedded microchip to provide electronic memory and processing capability. Split-case distribution - a distribution system that requires cases of goods to be opened on the receiving dock and the individual items from the cases to be stored in the manufacturers warehouse. Static Web pages - Web pages that always contain the same information. Storefront broker - companies that act as intermediaries between your Web site and online merchants who have the products and retail expertise. Technology-enabled relationship management - occurs when a firm obtains detailed information about a customers behavior, preferences, needs, and buying patterns and uses that information to set prices, negotiate terms, tailor promotions, add product features, and otherwise customize its entire relationship with that customer. Web page construction software - software that uses Web editors and extensions to produce both static and dynamic Web pages. Web services - software modules supporting specific business processes that users can interact with over a network (such as the Internet) on an as-needed basis. Web site development tools - tools used to develop a Web site, including HTML or visual Web page editor, software development kits, and Web page upload support.