Chapter 1

Overview of Electronic Commerce

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 the digital revolution as a driver for EC. Describe some EC business models. Describe the benefits of EC to organizations, consumers, and society. Describe the limitations of EC.
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Dell using e-commerce for success

Problem/opportunity
Dell1st company to offer PCs via mail order. Design own PCs and allow customers to configure their own customised system using the build-to-order concept. Taking order using fax and mail and losing money over $100m.

Solutions
In 1993, introduce direct marketing online on its Web site Sells to Individual (Business-to-Consumer) Sells to business, government, education, healthcare (Business-toBusiness)

Results
Exemplifies the major EC business models
Online direct marketing Online Build-to-order model (eliminates intermediation) e-procurement, collaborative commerce, intrabusiness EC e-CRM (e-customer services)

Today, has over 100 country-oriented Web sites Profits of $50 billion a year.
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Past Commerce
BUYER LOOK FOR SELLER
CHOOSE PRODUCT BARGAINING SELL PAY DELIVERY
INFORMATION

AFTER SALE ACTIVITIES

PHYSICAL AND INFORMATION

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E-Commerce
SEARCH ENGINE
ONLINE CATALOG
BUYER LOOK FOR SELLER

SEARCH PATTERN

INFORMATION PHYSICAL AND INFORMATION

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INFORMATION TEKNOLOGY

RECOMMENDATION AGENT SHOPPING BOT

CHOOSE PRODUCT

GATHERED INFORMATION

USERS CHOICE
PROMOTION EFFECTIVENESS

BARGANING STRATEGY
BARGAINING

PRICE SENSITIVITY PERSONAL DATA SALES PATTERN

SHOPPING CART

SELL
PAY DELIVERY

ENCRYPTION
E-PAYMENT

PAYMENT PATTERN
DELIVERY NEEDS PROBLEM REPORTING

TRACKING AGENT
E-HELP TELEPHONY

AFTER SALE ACTIVITIES

USER SATISFACTION SALES OPPORTUNITIES

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Electronic Commerce: Definitions and Concepts

electronic commerce (EC)
The process of buying, selling, or exchanging products, services, or information via computer networks or any electronic means
Involves transactions that cross firm boundaries E.g. Dell, Amazon.com, e-Bay CH01 Examples of EC.ppt
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Electronic Commerce: Definitions and Concepts

EC is defined through these perspectives
Communications delivery goods, services, information, payment Commercial (trading) buying and selling products, services and information Business process completing business process Service cut services cost, improving quality of service and increase the speed of delivery Learning online training and education Collaborative inter and intra organizational Community members to learn, transact and collaborate
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Electronic Commerce: Definitions and Concepts

e-business
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, and conducting electronic transactions within an organization E-business is everything to do with back-end systems in an organisation.

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Electronic Commerce: Definitions and Concepts

SUPPLIERS

CONSUMERS

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e-commerce and e-business are often used interchangeably.

Electronic Commerce: Definitions and Concepts

Pure Versus Partial EC EC takes several forms depending on the degree of digitization (the transformation from physical to digital) (1) the product (service) sold, (2) the process of

transaction (3) the delivery agent

Give Examples
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Electronic Commerce: Definitions and Concepts

EC organizations
brick-and-mortar organizations Old-economy organizations (corporations) that perform most of their business off-line, selling physical products by means of physical agents virtual (pure-play) organizations Organizations that conduct their business activities solely online click-and-mortar (click-and-brick) organizations Organizations that conduct some e-commerce activities, but do their primary business in the physical world
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Electronic Commerce: Definitions and Concepts

Where EC is conducted
At electronic market (e-marketplace) An online marketplace where buyers and sellers meet to exchange goods, services, money, or information Uses Internet interorganizational information systems (IOSs) Communications system that allows routine transaction processing and information flow between two or more organizations Uses extranet intraorganizational information systems (intrabusiness EC) Communication system that enable e-commerce activities to go on within individual organizations Uses intranet
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Internet
A global networked environment is known as the Internet

Computer
Server Internet backbone

Organization
Legend
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Intranet
A counterpart within organizations, is called an intranet

Firewall

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Extranet
An extranet extends intranets so that they can be accessed by business partners.

Firewall

Firewall

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Summary : Internet, Intranet, and Extranet

Network Type Internet Typical Users Any individual with dial-up access or LAN Authorized employees ONLY Type of Access Unlimited, public; no restrictions Private and restricted Information General, public and advertisement

Intranet

Specific, corporate and proprietary

Extranet

Authorized groups from collaborating companies

Private and outside authorized partners

Shared in authorized collaborating group

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The EC Framework, Classification, and Content

An EC Frameworksupports five policymaking support areas
People Public policy Marketing and advertisement Support services Business partnerships

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Exhibit 1.2 A Framework for Electronic Commerce

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EC Classification by nature of the transactions or interactions

Main types business-to-business (B2B)
E-commerce model in which all of the participants are businesses or other organizations E.g. Dell, Wal-Mart

business-to-consumer (B2C)
E-commerce model in which businesses sell to individual shoppers Also known as e-tailing (online retailing) E.g. Amazon.com, shopsmart.com

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EC Classification by nature of the transactions or interactions (contd)

consumer-to-business (C2B)
E-commerce model in which individuals use the Internet to sell products or services to organizations or individuals seek sellers to bid on products or services they need Consumers use an online agent to look for a product or service that suits their needs. E.g: Priceline

consumer-to-consumer (C2C)
E-commerce model in which consumers sell directly to other consumers Uses agents between consumers with goods and services to sell. E.g. eBay, Bizrate.com
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EC Classification by nature of the transactions or interactions (contd)

peer-to-peer (P2P)
Technology that enables networked peer computers to share data and processing with each other directly; can be used in C2C, B2B, and B2C e-commerce Online agents assist in P2P transactions. P2P businesses transact exchanges of information (such as files or dollar amounts) between PCs or hand-held computing devices. E.g. BitTorrent, PayPal

mobile commerce (m-commerce)

E-commerce transactions and activities conducted in a wireless environment E.g. Use mobile phone to do their banking or order books from Amazon.com or social networking through Mobile facebook.
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EC Classification by nature of the transactions or interactions (contd)

Other types intrabusiness EC
E-commerce category that includes all internal organizational activities that involve the exchange of goods, services, or information among various units and individuals in an organization Also business-to-employee E.g. University portals

e-government
E-commerce model in which a government entity buys or provides goods, services, or information to businesses or individual citizens

e-learning
The online delivery of information for purposes of training or education
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EC Classification by nature of the transactions or interactions (contd)

collaborative commerce (c-commerce)
E-commerce model in which individuals or groups in different locations communicate or collaborate online
Using hub

exchange (electronic)
A public electronic market with many buyers and sellers Used in B2B

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 social computing An approach aimed at making the human-computer interface more natural
To make socially produced information available to all Supported by Web 2.0 tools

Web 2.0 The second-generation of Internet-based services that let people collaborate and share information online in new ways, such as social networking sites, wikis, communication tools, and folksonomies (tagging) social network A category of Internet applications that help connect friends, business partners, or individuals with specific interests by providing free services such as photo presentations, e-mail, blogging, and so on using a variety of tools Virtual world
A user-defined world, 3D computer-based simulated environment, in which people can interact, play and do business.
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EC Business Models
business model
A method of doing business by which a company can generate revenue (income) to sustain itself. Where the company is positioned in the value chain, i.e. by what activities the company adds value to the product or service it supplies

E.g. Wal-Mart buys products, sells it, and generate a profit. A TV station provides free broadcasting to its viewer. The station survival depends on a complex model involving advertiser and content providers. There are several different EC business model depending on the company, industry and so on.
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EC Business Models The Structure of Business Models

A description of the customers to be served and the companys relationships with these customers (customers value proposition) A description of all products and services the business will offer and the market in which they will be sold A description of the business process required to make and deliver the products and services A list of the resources required and the identification of which ones are available, which will be developed inhouse, and which will need to be acquired A description of the organization supply chain, including suppliers and other business partners A list of competitors A description of the revenues expected (revenue model), anticipated costs, sources of financing, and estimated 26 profitability (financial viability) SA/EC 2010

EC Business Models Value proposition

value proposition
The benefits including the intangible and non-quantitative ones, that a company can derive from using EC. Defines how a companys product or service fulfills the needs of customers Why should the customer buy from you?

How do e-business create value? Some of the examples:

Search and transaction cost efficiency
Faster and more informed decision making, wider product and service selection, greater economies of scale, For example, demand and supply for buyer and seller

Complementarities Bundling goods and services compare offer separately. For example
with product delivery

Lock-in High switching cost that ties customer to particular suppliers Novelty
Innovative ways for structuring transactions, connecting partners and fostering new market. For example, personalization and customization
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EC Business Models Revenue Models

Revenue model Description of how the company or an EC project will earn revenue, generate profit.
How will you earn money?

Major revenue models

Sales: amazon, gap, jcpenny sales of goods, information, services Transaction: e-Bay, e-trade - fees (commission) for enabling /executing transaction Subscription: WSJ.com fees from subscriber to access content or services Advertising: Yahoo fees from advertiser for their advertisement Affiliate: MyPoint business referrals Fee based on the value of a service provided
Allow people to play games for a fee or watch a sport competition or concert in real time for a fee (e.g. espn.go.com) SA/EC 2010 Licencing fee (can be annual fee or per usage fee, eg. Datadirecttechnologies.com)
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Revenue Models

or per transaction

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EC Business Models Typical EC Models

Online direct marketing
Sales may be from manufacturer to customer (e.g. Godiva) or from retailer to consumer (e.g. Wal-Mart) Also called e-tailing, Eliminate intermediaries

Electronic tendering systems

Tendering/bidding (reverse auction) Model in which a buyer requests would-be sellers to submit bids (offers); the lowest bidder wins (e.g. General Electric Corp)

name-your-own-price model
Model in which a buyer sets the price he or she is willing to pay and invites sellers to supply the good or service at that price (e.g. Priceline.com)
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EC Business Models Typical Models

Find the best price
Customer specifies her need and then an intermediate company matches the customers need against a database, locates the lowest price and submit to customer (e.g. eloan.com, find best interest rates for loans) Also known as Search engine model

Affiliate marketing
An arrangement whereby a marketing partner (a business, an organization, or even an individual) refers consumers to the selling companys Web site. Place a banner or logo. If customer make purchase, then the affiliated partner receive a commission. Of the purchase price E.g. Amazon.com

viral marketing
Word-of-mouth marketing in which customers promote a product or service to friends or other people
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EC Business Models Typical Models

Group purchasing
Quantity purchasing that enables groups of purchasers to obtain a discount price on the products purchased. Online purchasing is also called e-co-ops.

Online auctions
Online shopper makes bids for products and services and the highest bidder get the item (e.g. eBay, Amazon.com, Yahoo!).

Product and service customization

Creation of a product or service according to the buyers specifications (e.g. jaguar, dell.com, nike.com). Also known a s built-to-order

Electronic marketplaces and exchanges E.g. GNX for retail industry, Chemconnect for chemical industry) Information brokers Provide privacy, trust, matching, content (e.g. Google.com )
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EC Business Models Typical Models

Bartering Deep discounting
Exchange surpluses (products) that they do not need for those they need (e.g. Web-barter.com) Very high discount of retail price up to 50% of retail price (e.g. Half.com)
Only member get discount More complete package for customer (e.g. Carpoint.com car buying, financing, insurance) Provide a supply chain function such as logistic (e.g. UPS.com) or payment (e.g. PayPal)
MySpace, Facebook

Membership

Value-chain integrators

Value-chain service providers

Social networks and communities

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Drivers of EC
The growth of EC is driven by many technological, economic and social factors.

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Benefits of EC
Benefits to Organizations Global Reach. Expands the marketplace to national and international markets. Cost reduction. Decreases the cost of creating, processing, distributing, storing and retrieving paper-based information. Supply chain improvement. Reduced inventories and overhead, and delivery delays. Extended Hours (24/7).

Customization. Inexpensive build-to-order products and services.

Vendors specialisation. Sell products that are not feasible in physical world

Lower Communication Costs. Internet line cheaper than phone lines. Improved Customer Relations. Through Customer Relationship Management. Up-to-Date Company Material. Correct up to the minute.
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Benefits of EC
Benefits to Customers
Ubiquity (found everywhere). Transactions 24/7 and transactions from almost any location. Provides customers with more choices of products and services. From different vendors. Customized products and services. Cheaper products and services for customers. Allows quick delivery of products and services in some cases, especially with digitized products. Information availability. Locate relevant and detail product information in seconds (from e-catalog). Allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiences.

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Benefits of EC
Benefits to Society
Telecommuting. 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 products to be sold at lower prices benefiting the less affluent (rich) ones and increase their standard of living Enables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to them. Include education. Delivery of public services. E.g. access to education and health care.

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Limitations of EC
Technical Limitations

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Limitations of EC
Non-Technical Limitations

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