Electronic Commerce

An Introduction to Electronic Commerce

Ondago
Session Objectives
 To provide an introduction to electronic
commerce (e-commerce) by answering the
following questions:
 What is e-commerce?
 What are the advantages and disadvantages of
e-commerce
 What were the 1st and 2nd waves of e-
commerce characterised by?
 What are the categories of e-commerce?
What is Commerce?
 Traditional commerce may be defined as:
 From Webster's Revised Unabridged
Dictionary
 Commerce : \Com"merce\, noun.

The exchange or buying and selling of commodities;

esp. the exchange of merchandise, on a large scale,
between different places or communities; extended
trade or traffic.
What is E-Commerce?
Electronic commerce (e-commerce) is a general
term for any type of business, or commercial
transaction that involves the transfer of
information across the Internet. This covers a
range of different types of businesses from
consumer-based retail sites, like Amazon.com,
through auction and music sites like eBay or
MP3.com, to business exchanges trading goods
or services between corporations.
What is E-Commerce Cont’d?
Electronic commerce is the use of
electronic communication to do business.
E-commerce is not about technology. It is
not a new business. E-commerce is a
method for companies to create and
operate their business in new and efficient
ways. [1]
What is E-Commerce Cont’d?
Most fundamentally, e-commerce
represents the realization of digital, as
opposed to paper-based, commercial
transactions between businesses, between a
business and its consumers, or between a
government and its citizens or constituent
business. [2]
What is E-Commerce Cont’d?
 In summary, e-commerce is the
 use of electronic communication to do business
 Specifically, the transfer of information (transactions), over
the Internet
 Some people use the term e-business to refer to
all the categories of e-commerce
 E.g. IBM defines e-business as:
 The transformation of key business processes through the
use of Internet technologies
From Traditional Commerce to
E-commerce
Opened avenues for
Sailing ships trade between buyers
and sellers. Ancient
times (thousands of
Printing press years ago)

Steam engine

Telephone
 From Traditional Commerce to
E-commerce Cont’d
Electronic Funds Transfer (EFTs)
Electronic Data Interchange (EDI)
Internet
Wire transfers - used
by banks
Businesses transfer
electronic data
- data not re-keyed
- high implementation
cost, thus excluded
small businesses
On-line shopping
Business Processes Suited to
Certain Type of Commerce
 E-commerce
 Sale/purchase of books & CDs, travel
services, investments and insurance services
 Online delivery of software
 Online shipment tracking
Business Processes Suited to
Certain Type of Commerce Cont’d
 E-commerce & Traditional
 Sale/purchase of automobiles and residential
real estate (e.g. do research online then buy
from a dealer or real estate agent)
 Online banking
 Roommate matching service
Business Processes Suited to
Certain Type of Commerce Cont’d
 Traditional
 Sale/purchase of impulse items for immediate
use, high fashion jewelry and antiques
(personal inspection required; prefer to touch,
smell or examine closely)
 Small denomination purchases and sales
(since there is not yet a standard for
transferring small amounts of money)
What Are the Advantages of E-
commerce?
 Increases sales, decreases cost
 Allows small businesses to have global customer
base
 Reduced cost through electronic sales enquires, price
quotes and order taking
 Provides purchasing opportunities for buyers
(businesses can identify new suppliers and
partners)
 Increase speed and accuracy for exchanged
information, thus reducing cost
What Are the Advantages of E-
commerce Cont’d?
 Business can be transacted 24hrs a day
 The level of detail of purchase information is
selected by user
 Digital products can be delivered instantly
 Tax refunds, public retirement and welfare
support costs less when distributed over the
Internet
 Allows products and services to be available in
remote areas, e.g. remote learning
What Are the Disadvantages of
E-commerce?
 Inability to sell some products (e.g. high cost
jewelry and perishable foods, although
supermarkets like www.Tesco.com delivers to
your home)
 The newness and evolution of the current
technology
 Many products require a large number of people
to purchase to be viable
 High capital investment
What Are the Disadvantages of
E-commerce Cont’d?
 Difficulty in integrating current databases and
transaction processing systems into e-commerce
solutions
 Cultural and legal obstacles
 Transmission of credit card details
 Some consumers resistant to change
 Laws are unclear
 Shipping profile: Products with a low value-to-
weight ratio that can not be efficiently packed and
shipped are unsuitable (use traditional commerce)
The 1st Wave of E-commerce
 The 1st wave was from
the mid 1990s to 2003
 Dot-com boom (over
$100 billion in
investment): Rapid
growth from mid-1990s
to 2000
 Dot-com bust: in 2000
 Gloom years: 2000 –
2003 (over $200 billion
in investment)
Characteristics of the 1st Wave3

Web pages were in English

Internet technologies were slow and inexpensive
(e.g. dial-up lines)
Bar codes and scanners used to track parts (B2B
and Business processes)
Email, tool for unstructured communication
On-line advertising main revenue source
The 2nd Wave of E-commerce
 Beginning in 2003 e-commerce has shown signs
of new life
 Companies like Amazon.com (books), and
eBay.com (auctions) who survived the downturn
were beginning to show profits
 Continuous growth of B2C sales: 20-30% each
year since 2000
Characteristics of the 2nd Wave
 International scope where sellers do business in
many countries and languages
 Faster, cheaper connections (x20 faster),
broadband at home (although more expensive)
 Radio frequency ID devices and smart cards
 Fingerprint readers and retina scanners (biometric
technologies) used for tracking
 Email, integral part of marketing
Characteristics of the 2nd Wave
Cont’d
 E-commerce integral part of marketing and
customer contact strategy
 Some categories of on-line advertising, e.g.
employment services (job want ads) have
replaced traditional advertising outlets
 Problems
 Language conversions
 Currency conversions
E-commerce Categories3
 There are five general e-commerce categories:
 Business to Consumer (or B2C) e-commerce
 Business to Business (or B2B) e-commerce
 Consumer-to-consumer (or C2C) e-commerce
 Business-to-government (or B2G) e-commerce
B2C e-commerce
 Description
 Businesses sell products or services to
individual customers (consumers)
 Give Kenyan Examples of B2C that
 sells merchandise to consumers through its
Web site
B2B E-commerce
 Description
 Businesses sell products or services to other
businesses
 Give Kenyan Examples of B2B that
 Sells to other businesses/companies
C2C e-commerce
 Description
 Participants in an online marketplace can buy and
sell goods with each other
 Give Kenyan Examples of C2C that
 Consumers and businesses trade with each other on
eBay.com
B2G e-commerce
 Description
 Business sell goods or services to
governments and government agencies
 Give Kenyan Examples of B2G that have
 portal for businesses that want to sell online
to Governments or counties
Transaction Costs
 Transaction costs are the total costs that a buyer
and seller incur as they gather information and
negotiate a purchase/sale transaction
 Transaction costs are the main reason for vertical
integration
 Businesses can use e-commerce to reduce
transaction costs (e.g. telecommuting rather than
physical commuting to allow global employment
opportunities)
Transaction Costs Example
 Transaction costs incurred by a sweater
dealer when purchasing from independent
sweater knitters:
 Cost of identifying independent knitters
 Cost of site visit to negotiate purchase price,
arrange delivery and inspection of sweaters
 Costs incurred by knitters:
 Knitting tools and yarn purchase
Network Economic Structures
 Many businesses operate in an economic
structure that is neither market or hierarchical
 These businesses form, long-term, strategic
alliances with other companies who share
common goals and strategies
 These alliances may occur over the Internet –
which are called virtual companies
 Teams complete a project or activity then dissolve
 New teams are creating as required
Value Chains
 A value chain is a way to organise the
activities that a business undertakes to
design, produce, promote, market, deliver
and support the products or services it sells
 There are several types of value chains
including:
 Business unit value chains
 Industry value chains
 Strategic Business Unit Value
Chains
 A strategic business unit is a particular
combination of product, distribution channel and
customer type (large firms often break down their
business into these units)
 The value chain for a strategic business unit
include:
 Primary activities (the activities that the strategic
business unit undertakes
 Support activities (such as human resource
management and purchasing)
 Manufacturer Value Chain
Primary activities
Manufacture After sales
Design deliver
product or create service & support
service

Identify Purchase materials

Market & sell and supplies
customers

Finance Technology Support activities

& admin HR
development
Primary Activities
 Identify new customers, and sell new services to
existing customers (research & surveys)
 Design – from concept to manufacturing
 Purchase materials and supplies – includes
contracts, vendor selection, monitoring quality
and delivery timeliness
 Manufacture product or create service –transform
materials and labour into finished products
Primary Activities Cont’d
 Market and sell – advertising, promoting,
managing sales staff, pricing and monitoring sales
 Deliver – store, deliver distribute and ship final
product – warehousing, consolidating freight,
selecting shippers and monitoring delivery
timeliness
 Provide after-sale service and support – promote
relationship with customer, e.g. installing,
maintaining, testing, repairing, and warranties
Primary Activities Cont’d
 If a strategic business unit provides a
service then the value chain will include a
“Provide service” activity instead of
“Manufacture activity”
Support Activities
 Each business unit must also undertake support
activities that provide the infrastructure for the
primary activities:
 Finance and administration – accounting, paying bills,
borrowing, compliance with laws
 Human resources – recruiting, hiring, training,
compensation and benefits
 Technology development – improves the product or
service, including basic and applied research and
development, process improvement and field tests of
maintenance procedures
Industry Value Chains
 Industry value chains describes the larger stream
of activities into which a particular business unit’s
value chain is embedded
 When a business unit delivers a product to a
customer the customer might use the product as
purchased materials in its value chain
 By examining how other business units in the
industry value chain conduct their business cost
reduction and product improvement may result
Industry Value Chain Example
 A value chain for a wooden chair
 Logger cuts down tree
 Sawmill converts logs to lumber
 Lumberyard provides selection of lumber
 Chair manufacture assembles chair
 Furniture retailer markets and sells chair
 Consumer purchases and uses chair
 Landfill or recycler disposes of chair
International Issues
 Trust issues
 Language issues
 Culture issues
 Infrastructure issues
Trust Issues
 Anyone can create a site on the Web
 These individuals or businesses can easily remain
anonymous
 Without an established brand consumers find it
difficult to trusts on-line businesses:
 especially with personal information and credit card
numbers
 The key is developing methods which allow
legitimate businesses to establish trusts
relationships quickly with consumers
Language Issues (localisation)
 Global impact requires local language Web sites
 customers prefer to buy from sites in native language
 60% of web content today is in English; but more than
50% of the current users do not read English
 Multiple translations may be required for different
dialects, e.g. Spanish- Mexico and Spain
 Translating entire Web sites is expensive
 25-90 cents per word for human translators (400-600 words
per hour)
 Automated software translation (machine translation) is
cheaper (400,000 word per hour) - less accurate
Culture Issues
 Culture is the combination of language and
customs
 Culture varies across national boundaries
and in many cases regions within nations
 Example:
 General Motors Chevrolet Nova automobile
amused people in Latin America since no va
means “it will not go”
Culture Issues Cont’d
 Choice of icons on Web pages becomes
problematic on international Web sites:
 In the US a shopping cart is useful, in the UK
a shopping basket is more appropriate,
Australians call shopping carts, shopping
trolleys
 In many places other than Brazil the thumbs
up gesture means okay, in Brazil it is an
obscene gesture
Infrastructure Issues
 Limited telecommunication infra-structure
may lead to unreliable Internet access
 Internet connection cost might be high
 Reduces time businesses might spend surfing
for new suppliers or products
 Flat-rate access to the Internet required
Definitions
 A commodity item is a product or service that is hard to
distinguish from the same products or services provided
by other sellers (e.g. gasoline, office suppliers, soap and
computers)
 A transaction is an exchange of value, such as a purchase
or sale, or the conversion of raw materials into finished
products (a transaction has one or more associated
activity)
 A business process is the set of logically related and
sequential activities and transactions in which businesses
engage
Definitions Cont’d
 Merchandising is a combination of store
design, layout and product display
knowledge
 A shipping profile is the collection of
attributes that affect how easily that product
can be packaged and delivered (e.g. airline
tickets have a high value-to-weight ratio)
Definitions Cont’d
 The definition of a market satisfies two
conditions:
 Potential seller of a good (product) comes
into contact with buyers
 A medium of exchange is available (e.g.
currency or barter (to exchange goods or
services directly without the use
of money))
Definitions Cont’d
 Transaction costs are the total costs that a
buyer and seller incur as they gather
information and negotiate a purchase/sale
transaction. This includes:
 Brokerage fees and sales commissions
 Cost of information search and acquisition
 Seller’s investment in equipment or hire of
skilled employees