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CHAPTER 12
ELECTRONIC COMEMRCE
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Learning Objectives
Describe electronic commerce, its dimensions,
benefits, limitations, and process
Describe the major applications of electronic
commerce, both business-to-customer and business-
to-business
Discuss the importance and activities of market
research and customer service
Describe the electronic commerce infrastructure and
support services
Compare the various payment systems and describe
the role of smart cards
Discuss legal and other implementation issues
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Case (continued…)
The Results
Enhances competitive advantage by giving
customers better tools for managing transactions
The system brings substantial saving to Intel
What have we learned from this case??
Illustrates a new and effective way for
conducting business
Demonstrates that electronic commerce involves
not just selling electronically, but also providing
customer service and improving organization’s
internal business processes
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Definitions
Business-to-business EC
two (or more) businesses make transactions electronically
major benefits include: reduced cost, reduced cycle time,
increased customer base and sales, and improved customer
service
Business-to-consumer EC
companies sell directly to consumers over the Internet
major benefits include increased revenues, the creation of
new sources of revenues, and the elimination of costly
intermediaries
Intrabusiness
transactions take place within an organization
major benefits include increased productivity, speed, and
quality and reduced cost
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Definitions (continued…)
Electronic Business (E-business)
a broad definition of EC, not just buying and selling, but
also servicing customers, collaborating with business
partners, and conducting electronic transactions within an
organization
all about time cycle, speed, globalization, enhanced
productivity, reaching new customers, and sharing
knowledge across institutions for competitive advantage
a very diverse and interdisciplinary topic, with issues
ranging form technology, addressed by computer experts,
to consumer behavior, addressed by behavioral scientists
and marketing research experts
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
A Framework for EC
Electronic Commerce Applications
• Direct Marketing • Stocks, Jobs • On-line banking
• Procurement and purchasing • Malls • Procurement • Auctions • Travel
• On-line publishing • Customer Services • Intrabusiness Transactions
Infrastructure
(1) (2) (3) (4) (5)
Common business Messaging and Multimedia content Network infrastructure Interfacing
services infrastructure information distribution and network (Telecom, cable TV infrastructure
(security, smart infrastructure publishing infrastructure wireless, Internet) (The databases,
cards/authentication (EDI, e-mail, Hyper Text (HTML, JAVA, World (VAN, WAN, LAN, logistics,
electronic payments, Transfer Protocol, Chat Wide Web, VRML) Intranet, Extranet) customers, and
directories/catalogs Rooms) Access (cell phones) applications)
Management
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Benefits of EC to Organizations
Expands a company’s marketplace to national and international markets
Allows a vendor to reach a large number of customers, anywhere around
the globe, at a very low cost
Enable companies to procure material and services from other companies,
rapidly and at less cost
Shortens or even eliminates marketing distribution channels; marketing
products cheaper and vendors’ profits are higher
Decrease the cost of creating, processing, distributing ,storing, and
retrieving paper-based information
Allows lower inventories by facilitating “pull”-type supply chain
management, which starts from customer orders and uses just-in-time
production and delivery processing
Reduces the time between the outlay of capital and the receipt of products
and services
Lowers telecommunications costs because the Internet is much chapter
than value-added networks (VANs)
Helps small businesses compete against large companies
Enables very specialized markets (e.g. www.dogtoys.com)
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Benefits of EC to Consumers
Frequently provides less expensive products and services by allowing
consumers to shop in many places and conduct online quick
comparisons
Gives consumers more choices - they can select from many vendors
and many more products than they could locate otherwise
Enables customers to shop or make other transactions 24 hours a
day, year round, from almost any location
Delivers relevant and detailed information in seconds, rather than in
days or weeks
Enables consumers to get customized products, from PCs to cars, at
competitive or bargain prices
Makes possible virtual auctions, in which consumers can find unique
products and collectors’ items that might otherwise require them to
travel long distances to a particular auction place at a specific time
Allows consumers to interact with other consumers in electronic
communities and to exchange ideas as well as compare experiences
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Benefits of EC to Society
Enables more individuals to work at home and to do
less traveling, resulting in less traffic on the roads and
lower air pollution
Allows some merchandise to be sold at lower prices, so
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
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Technical Limitations of 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
There is a need for special Web servers in
addition to the network servers (added cost)
Internet accessibility is still expensive and/or
inconvenient for many people
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Non-Technical Limitations of EC
Many legal issues are yet unresolved
Lack of national and international regulations and standards
for many circumstances
Difficulty in measuring benefits of EC, such as Web
advertising. Lack of mature methodologies for justifying EC
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
Insufficient number (critical mass) of sellers and buyers
which needed for profitable EC operations
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Electronic Retailing
Direct sale (business to consumers) through
electronic storefronts or malls, usually
designed around an electronic catalog format
Solo storefronts
maintain their own Internet name and Web site
may or may not be affiliated with electronic malls
may be extensions of a physical store, or it is a
new businesses started by entrepreneurs who saw
a niche on the Web
can be found easily on the Internet - directories
and hyperlinks from other Web sites and
intelligent agents
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
⑤ The item is typically stored in a shopping ⑥ At any time, the user can review the items in
cart. This allows the user to continue looking the shopping cart and change quantities or delete
through this store, or even to visit other items, This review continues until a final
merchants, before paying for the items. selection is made.
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Advertising Online
Advertisement
an attempt to disseminate information in order to
attract buyers
Internet Advertisement
can be updated any time at a minimal cost and
therefore can always be timely
can reach very large numbers of potential buyers, all
over the world
can be cheaper
can efficiently use the convergence of text, audio,
graphics, and animation
can be interactive and targeted to specific interest
groups and/or individuals
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Advertising Methods
Banners - Electronic Billboards
the most commonly used form of advertising on
the Internet, links to advertiser's site
contains a short text or graphical message to
promote a product or a vendor
Keyword banners
appear when a predetermined word is queried from the
search engine
effective for companies who want to narrow their target
to consumers interested in particular topics
Random banners
appear randomly
might be used to introduce new products to the widest
possible audience, or to keep a well-known brand in the
public memory
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Advertising Issues
Customizing Ads - Filtering the Irrelevant
Information
BroadVision : One-to-One system/ads
allows the rapid creation of secure Web sites that are visitor-
friendly, using a customer database, with registration data
and information gleaned from site visits
Webcast : push technology
delivers only the information users want or need
users get the information they want; at the same time they
also get the banner ads related to that information
marketers will get a more customized audience if they place
banners on a system that delivers via push technology
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Electronic Catalogs
On CD-ROM and On the Web
can be searched quickly with the help of special search
engines
effective comparisons involving catalog products
customized catalogs
a catalog assembled specifically for a company, usually
for a regular customer of the catalog owner
can be tailored to individual consumers
let the system automatically identify customer
characteristics based on their transaction records
involve cookie technology and data mining technology
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Advertising Online
Interactive Advertising and Marketing
advertisers present customized, one-on-one
advertising, which is followed by sales
interactive : the ability to address an individual, to
gather and remember that person’s response, and to
serve that customer based on his or her previous,
unique responses
Coupons Online
consumers can gather any discount coupons they want
by accessing sites like www.hotcoupons.com or
www.supermarkets.com, selecting the store where
they plan to redeem the coupons
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Services Online
Cyberbanking
names : electronic banking, virtual banking,
home banking, and banking online
capabilities ranging form paying bills to
securing a loan
for customers : saving time and convenience
for banks : offering an inexpensive alternative
to branch banking and a chance to enlist
remote customers
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Business-to-Business Applications
Product - specifications, prices, sales history
Customer - sales history and forecasts
Supplier - product line and lead times, sales terms and conditions
Product process - capacities, commitments, product plans
Transportation - carriers, lead times, costs
Inventory - inventory levels, carrying costs, locations
Supply chain alliance - key contracts, partners’ roles and
responsibilities, schedules
Competitor - benchmarking, competitive product offerings,
market share
Sales and marketing - point-of-sale (POS), promotions
Supply chain process and performance - process descriptions,
performance measures, quality, delivery time, customer satisfaction
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Seller-Oriented Marketspace
Organizations attempt to sell their products (services) to
other organizations electronically (e-selling)
The buyer is expected to visit the seller’s site or a mall,
view catalogs, and place orders
The buyer is an organization that may be a regular
customer of the sellers
Key Mechanisms : electronic catalog that can be
customized for each large buyer, the ordering system, the
payment system, and the integration of the incoming
orders with the vendor’s logistics system
EC is used to increase sales, reduce selling expenditures,
increase delivery speed, and reduce administrative costs
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Buyer-Oriented Marketspace
EC technology is used to reduce both the cost of items
purchased and the administrative cost of procurement
Request For Quotation (RFQ) on Buyer’s Web Site
businesses submit bids electronically, and the bids are
routed via the buyer’s intranet to the engineering and
finance departments for an evaluation
clarifications are made via e-mail
the winner is notified electronically
saves 10-15 percent on the cost of the items placed for bid
saves up to 85 percent on the administrative cost
saves about 50 percent on cycle time
known as e-purchasing or e-procurement
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Intermediary-Managed Marketspace
Electronic Intermediaries
A link between buyers and sellers
Main function : market making
PART - about 300 parts suppliers and dozens of
airlines participate (by Boeing Aircraft Corp.)
ProcureNet - more than 150,000 products, known
as MROs (maintenance, repairs, and operations)
Some of the online services make money, some of
them only improve service for customers
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
EC Agents (continued …)
Intelligent agents for information search and
filtering
help to determine what to buy to satisfy a specific need
Personalogic uses filtering process - consumers specify
requirements and constraints, and the system returns a
list of products that best meet the desired product
Firefly used (until recently) a collaborative filtering
process that can be described as “word of mouth” to
build the profile (not available any more)
its Passport generates a customer’s personal profile
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
EC Agents (continued …)
Intelligent agents for Product and Vendor Finding
help consumers decide where to buy by comparing
merchants’ offers
Bargainfinder from Andersen Consulting queried the price
of a specific CD from a number of online vendors and
returned the list of vendors and prices (Not in use any
longer)
Jango form NetBot/Excite originates the requests form the
user’s site instead of Jango’s, so vendors can not block it
Kasbah from MIT Laboratories allows users who want to
sell or buy a product, assign the task to an agent that is sent
out to actively seek buyers or sellers
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
EC Agents (continued …)
Negotiation Agents
help to take away some of the frustration some
customers experience in the negotiating process and
the technical limitations of being in different locations
AuctionBot allows users create auction agents by
specifying a number of parameters that vary depending
on the type of auction selected
Kasbah allows users create agents for the purpose of
selling or buying process
Tele-@-tete uses a number of different parameters:
price, warranty, delivery time, service contracts, return
policy, loan option, and other value-added services
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Organizational Buyers
Customer Service
Phases in the Customer Service Life Cycle
Phase 1 : Requirements
assisting the customer to determine needs
Phase 2 : Acquisition
helping the customer to acquire a product or service
Phase 3 : Ownership
supporting the customer on an ongoing basis
Phase 4 : Retirement
helping the client to dispose of a service or product
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
EC Infrastructure
COMPONENT DESCRIPTION AND ISSUES
Networks A shift from VANs to the Internet. Increased use of VPNs (virtual
private networks) to enhance security and capabilities over the Internet.
Web severs Special Web servers are usually superior to dual-purpose servers.
Available for rent. The interface to legacy systems may be a problem
Web server support 1. Web site activity tracking. 2. Database connectivity. 3. Software for
and software creating electronic forms. 4. Software for creating chat rooms and
discussion groups.
Electronic catalogs Product description, multimedia use, customized catalogs, inclusion in
Web site design and construction, templates for construction.
Web page design and Web programming languages (HTML, JAVA, VRML, XML)
construction software
Transactional 1. Search engines for finding and comparing, products. 2. Negotiating
software software. 3. Encryption and payment. 4. Ordering (front office)
inventory and back office software.
Internet access TCP/IP package, Web browsers, remote access server, client dial-in
components software, Internet connection device, leased line connection, connection
to leased line, Internet kiosks
Others Firewalls, e-mail, HTTP (transfer protocols), smart cards
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Security
Security Requirements
Authentication - the buyer, the seller, and the paying institutions
must be assured of the identity of the party with whom they are
dealing
Integrity - it is necessary to assure that data and information
transmitted in EC, such as orders, reply to queries, and payment
authorization, are not accidentally or maliciously altered or
destroyed during transmission
Non-repudiation - merchants need 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 - customers want to be sure that it is safe to provide a
credit card number on the Internet
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Security (continued …)
Security Protection
Encryption - a process of making messages indecipherable
except by those who have an authorized decryption key
Single-key encryption
» the sender of the electronic message (or payment)
encrypted the information with a key
» the receiver used an identical key to decrypt the
information to a readable form
» the same code had to be in the possession of both the
sender and the receiver
» problems : if a key were transmitted and intercepted
illegally, it could be used to read all encrypted messages
or to steal money
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Security (continued …)
Security Protection : Encryption (continued …)
Public/private key encryption
uses two different keys - public key and private key
several authorized people may know the public key, but
only its owner knows the private key
every person has one private key and one public key
encryption and decryption can be done with either key
if encryption is done with the public key, the
decryption can be done only with the private key and
vice versa
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Security (continued …)
Security Protection :Encryption (continued …)
Public/private key encryption
Public Key of Private Key of
Recipient Recipient
Message Message
Text Ciphered Text
Text
Signature Encryption Decryption Signature
Security (continued …)
Security Protection : Protocols
Secure Socket Layer (SSL)
the most common protocol used in EC
main capability is to encrypt messages
Secure Electronic Transaction Protocol (SET)
the major proposed standard for credit card processing
allows consumers to shop anywhere as conveniently and
securely as possible by incorporating digital signatures,
certification, encryption, and an agreed-upon payment
gateway
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Market Practices
Fraud on the Internet
internet fraud and its sophistication have grown as
much and even faster than the Internet itself
stocks manipulations, selling bogus investments
and phantom business opportunities
examples:
stock promoters falsely spread positive rumors about
the prospects of the companies they touted
the information provided might have been true, but the
promoters did not disclose that they were paid to
promote the companies
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Buyer Protection
Tips for safe electronic shopping include:
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 (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
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Seller Protection
Be protected against consumers who refuse
to pay or pay with bad checks and buyers’
claims that the merchandise did not arrive
Be protected against the use of their name by
others as well as use of their unique words
and phrases, slogans and Web address
Have legal recourse against customer who
download copyrighted software and/or
knowledge and sell it to others
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Ethical Issues
Privacy
most electronic payment systems know who the buyers
are; therefore, it may be necessary to protect the buyers’
identity
The Human Element
the technology is new to many IS directors and
employees and so many require new sets of skills
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
Turban, Rainer and Potter
Chapter 12 Electronic Commerce
Legal Issues
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
particularly complex for interstate and international
commerce (A tax moratorium until October 2001)
Copyright
intellectual property is protected by copyright laws
and cannot be used freely
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 12 Electronic Commerce