Chapter 5: Chapter 5 Electronic Commerce


Learning Objectives: Learning Objectives Describe electronic commerce, its dimensions, benefits, limitations, and process. Describe the major applications of e-commerce in the business-to-customer area, including advertisement. Discuss the importance and activities of market research and customer service. Describe B2B models and relate them to supply chain management. Describe e-commerce in service industries.


Learning Objectives (cont.): Learning Objectives (cont.) Describe other e-commerce applications (auctions, C2C, m-commerce, and e-government). Describe the e-commerce infrastructure, extranets, and EDI. Compare the various electronic payment systems, describe the role of smart cards, and discuss e-payment security. Discuss legal and ethical issues related to e-commerce. Describe failure factors of e-commerce.


Case: Intel Embraces the Web: Case: Intel Embraces the Web Problem: Intel, the world’s largest producer of micro-processor chips, was experiencing problems with their ordering and distribution systems. Solution: In 1998, they launched a Web-based e-business program that focuses on online ordering for a range of products. In 1999, extensive e-procurement was introduced. Results: Intel has enhanced its competitive advantage by giving its customers better tools for managing transactions. Intel also experienced substantial tangible savings.


Electronic Commerce (EC): Electronic Commerce (EC) Electronic Commerce involves making business transactions via telecommunications networks, primarily the Internet. It is also sometimes referred to as e-business (or e-biz) Evolution of EC: Electronic commerce applications began in the early 1970s. Electronic data interchange (EDI) extended the types of participating companies. EC applications expanded rapidly with the commercialization of the Internet in the early 1990s.


Electronic Framework: Electronic Framework


The Field of EC: The Field of EC The field of EC can be divided into two segments: Electronic markets, or e-marketplaces - networks of interactions and relationships where information, products, services, and payments are exchanged. B2C, company-centric, and B2B transactions. Interorganizational information systems (IOS) - information flow among two or more organizations. Applies to B2B applications only


Benefits of EC: Benefits of EC Some benefits of EC to organizations are: EC allows vendors to reach a large number of customers, anywhere around the globe, at a very low operating cost. Companies can procure materials and services from other companies rapidly and less expensively. Marketing distribution channels can be drastically cut or eliminated. EC decreases the cost of based information by as much as 90%. Customer services and relationships are facilitated by interactive, one-to-one communication, at a low cost.


Benefits of EC (cont.): Benefits of EC (cont.) Some benefits of EC to consumers are: EC often provides customers with less expensive products and services by allowing them to shop in many places. EC provides customers with more choices. EC enables customers to shop 24 hours a day, year round, from almost any location. Customers can receive relevant and detailed information and other services in seconds. EC enables consumers to get customized products and services.


Benefits of EC (cont.): Benefits of EC (cont.) Some benefits of EC to society are: EC is a major facilitator of the digital economy. EC enables more individuals to work at home, resulting in less traffic and lower air pollution. EC allows some goods to be sold at lower prices, so less affluent people can buy them, increasing their standard of living. EC enables people in developing countries and rural areas to enjoy products and services previously unavailable. EC facilitates a superior delivery of public services.


Limitations of EC: Limitations of EC Technical Limitations Lack of universally accepted standards Insufficient bandwidth Still-evolving software development tools Difficulties in integrating the Internet and EC software Non-Technical Limitations Legal issues National and international government regulations Difficulty of measuring EC benefits Customer resistance Lack of a critical mass


Models of EC: Models of EC Business-to-Business (B2B) Business-to-Consumers (B2C) Consumer-to-Organizations (C2O) Consumer-to-Consumer (C2C) Intrabusiness (Intraorganizational) Commerce Government-to-Citizens (G2C) Collaborative commerce (c-commerce) Mobile Commerce (m-commerce)


Electronic Retailing: Electronic Retailing Electronic retailing is the direct sale (B2C) through electronic storefronts or in electronic malls, usually designed around an electronic catalog format. In electronic retailing, there are several selling channels: Solo electronic storefronts Electronic malls (or cybermalls) Shopping portals Metamalls


B2C e-Commerce: B2C e-Commerce Business-to-consumer EC can be done in two major ways: Companies sell direct to the customer. Such direct marketing has the advantage of personalization and customization. Companies use an intermediary. There are two types of online infomediaries: Pure online e-tailers ”Click-and-mortar” retailers


Why Internet Advertisement?: Why Internet Advertisement? Ads can be updated any time with a minimal cost. Ads can reach large numbers of buyers all over the world. Online ads are frequently cheaper in comparison with television, radio, newspaper, or billboard ads. Web ads can efficiently use text, audio, graphics, and animation. The audience for Internet advertising is growing rapidly. Web ads can be catered to a specific target.


Internet Advertisement: Internet Advertisement Banner advertisement is the most commonly used form of advertising on the Internet. Two types of banners: Keyword banners & Random banners A major advantage of using banners is the ability to customize, but banner advertising can be costly. URL Advertising: Any company can submit its URL to a search engine and be listed.


Internet Advertising (cont.): Internet Advertising (cont.) E-mail Advertising. Email is a cost-effective marketing channel with a better and quicker response rate than other channels. Problem of Spamming Online Events and Promotions (Sponsorship) Other Forms of Internet Advertisement.  Internet communities, chat rooms, newsgroups, and kiosks


Advertisement Issues: Advertisement Issues Customizing Ads Segmentation Webcasting Permission Marketing Viral Marketing


Measuring the Effectiveness of E-Advertising: Measuring the Effectiveness of E-Advertising Ad view, or the number of times users see a banner ad during a specific time period. If a customer clicks on a banner and moves to the advertiser’s Web home page. If a customer clicks on a banner, moves to the advertiser’s site, and while there seeks product leads or fills out questionnaires. The actual purchases made on the Web. Affiliate Programs


Disintermediation & Reintermediation: Disintermediation & Reintermediation Disintermediation Using the Internet, manufacturers can sell directly to customers and provide customer support online. In this sense, the traditional intermediaries may be eliminated. Reintermediation The emergence of a new breed of electronic intermediaries. These include; e-malls directory and search-engine services market makers comparison-shopping agents


Impact of EC on Distribution Strategy: Impact of EC on Distribution Strategy Avoiding channel conflicts Coexistence with the dealers Regionally mixed strategy Restraint of competition by powerful distributors In-company channel conflicts


Internet Consumers : Internet Consumers There are two types of Internet consumers: individuals and organizations. Initially the vast majority of Internet users were mostly 15- to 35-year-old males. Now the female / male ration is equal. Younger and older surfers have joined the party. The largest group of Internet users are married and highly educated. Almost 90% are white. Most users have a high household income and are working in; educational institutions the computer industry, or professional jobs.


Models of Market Research: Models of Market Research


Organizational Buyers: Organizational Buyers The number of organizational buyers on the Internet is much smaller than individual buyers. However, their transaction volumes are far larger and the terms of negotiations/ purchase are more complex. Variables that are specific to organization buyers include; an organization’s purchasing guidelines and constraints the relationship among various buyers the possibility of group decision making the organizational structure interpersonal variables of the organizational buyer / seller


Facilitating Customer Service: Facilitating Customer Service Several tools are available for facilitating online customer service. The major tools, with their functionalities, are: Personalized Web pages A chat room FAQs Tracking capabilities Web-based call centers


B2B Models: B2B Models Sell-side model One company sells to many electronically. (one-to-many) Buy-side model An organization (usually large) buys from many vendors. (many-to-one) Exchanges Marketplaces in which many buyers and sellers meet. (many-to-many)


B2B Model Types: B2B Model Types Sell-side model Sell-side marketplace Forward auctions Buy-side model Reverse auctions Buyer’s Internal Marketplace Group Purchasing Exchanges Vertical Distributors Vertical Exchanges Horizontal Distributors Functional Exchanges


Cyberbanking : Cyberbanking Cyberbanking (electronic banking) The Security First Network Bank (SFNB) was the first virtual bank International and Multiple-Currency Banking Bill-Paying Online Automatic payment of mortgages Paying bills from online banking account, etc. Personal Finance Bill paying and electronic check writing Tracking bank accounts, expenditures, and credit cards Budget management and organization, etc.


Online Stock Trading: Online Stock Trading In 2001, about 30 million people in the US alone were using computers to trade stocks, bonds, and other financial instruments. Investment information available online includes; Stock screening/ evaluation Financial news Free advice from investment gurus


Other EC Services : Other EC Services Job Market Online Participants include: (1) Job seekers (2) Job offerers (3) Recruitment firms (4) Newsgroups. Travel and Tourism Real Estate Non-Internet Applications e.g. Smart cards


M-Commerce: M-Commerce M-commerce (mobile commerce) refers to the conduct of e-commerce via wireless devices. Advantages of M-Commerce Mobility Reachability Ubiquity Convenience Location of products and services L-commerce


B2B Auctions: B2B Auctions Corporations use auctions mainly as a B2B tool, but an increasing number use them also as a direct marketing channel. The Major Benefits of such auctions are; Generating revenue. As a new sales channel, auctions support existing online sales. Increasing page views. Auctions give sites “stickiness.” Acquiring and retaining members. All bidding transactions result in additional registered members, which increases the value of companies.


Types of B2B Auctions: Types of B2B Auctions Independent Auctions. Companies use a 3rd-party auctioneer to create the site and to sell the goods. Commodity Auctions. Many buyers and sellers come together to a third-party Web site to buy and sell commodities. Private Auctions. Several companies bypass the intermediaries and auction their products by themselves directly to buyers. Auctions at the Company Web Site. Companies build an auction capability on their own Web site.


B2C & C2C Auctions: B2C & C2C Auctions Specialized auction sites e.g., ebay.com Auctioning cars Art auctions Airlines


C2C EC Activities : C2C EC Activities Classifieds classifieds2000.com Personal services These range from tutoring and astrology to the “oldest profession on earth.” Peer-to-peer (P2P) and bartering Electronic bartering = the exchange of goods and/or services without a monetary transaction.


Other EC Activities: Other EC Activities Intrabusiness and Business to Employees (B2E) Buying, selling and collaborative EC can be conducted within the company, usually using the Intranet and corporate portal. E-government Government-to-citizens (G2C) Electronic benefits transfer (EBT) - governments transfer Social Security, pensions, and other benefits directly to recipients’ bank accounts or smart cards. Government-to-business (G2B) Government-to-government (G2G)


EC Failures: EC Failures The major wave of EC failures started in 2000, as secondary funding that was needed by Internet-based EC began to dry up. Here are some examples; PointCast, a pioneer in the personalized Web-casting, folded in 1998 due to an incorrect business model. An Internet mall, operated by Open Market, was closed in 1996 due to an insufficient number of buyers. E-toys, a virtual toy retailer that impacted the entire toy industry folded in 2001 due to inability to generate profit. Advertising company Advertexpress.com, in the U.K., failed due to lack of second-round funding.


EDI Characteristics: EDI Characteristics EDI has the following special characteristics: Business transactions messages Data formatting standards EDI translators Private lines versus the Internet


Electronic Payment Systems: Electronic Payment Systems Security Requirements e.g. Authentification, Privacy, Integrity, Non-repudiation, Safety Single-Key (Symmetric) Encryption Public-Key Infrastructure Public and Private Keys Digital Signatures Electronic Certificates Protocols Secure Socket Layer (SSL). Secure Electronic Transaction Protocol (SET)


Electronic Payment Systems (cont.): Electronic Payment Systems (cont.) Electronic Credit Cards Electronic Checks (e-Checks) Purchasing Cards Electronic Payment From Cellular Phones Electronic funds transfer (EFT) Electronic cash (e-cash) E Cash for Micropayments Stored-Value Cards Enhanced Smart Cards Person-to-Person (P2P) Payment. Electronic Wallets


Fraud on the Internet: Fraud on the Internet Internet Stock Fraud Fraud in Electronic Auctions Other Financial Fraud e.g. Selling bogus investments Federal Trade Commission provides a list of 12 scams most likely to arrive on the net e.g. Bulk mail solicitors, Chain letters, Work-at-home schemes Buyer Protection is critical to the success of any commerce, and especially EC, where buyers do not see the sellers. Seller Protection safeguards vendors against consumers who refuse to pay or who pay with bad checks.


EC-related Legal Issues: EC-related Legal Issues Domain Name Problems arise when several companies compete over a domain name. Taxes and Other Fees Federal, state, and local authorities are scrambling to figure out how to get a piece of the revenue created electronically. Copyright Protecting software and other intangible creations is difficult over the Web.


Ethical Issues: Ethical Issues Privacy and Web tracking. Privacy issues are related to both customers and employees. The human element. The implementation of EC may lead to personnel dissatisfaction and loss of salespeople’s income Disintermediation. The use of EC may result in the elimination of a company’s employees as well as brokers and agents.


Managerial Issues: Managerial Issues Alliances. It is not a bad idea to join an alliance of companies to explore e-Commerce. Managing resistance to change. Integration of e-Commerce into the business environment. Lack of qualified personnel and outsourcing. Choosing the company’s strategy toward e-Commerce


Managerial Issues (cont.): Managerial Issues (cont.) Implementation plan. Because of the complexity and multifaceted nature of EC, it makes sense to prepare an implementation plan. Responding to e-mail. Some companies are flooded by e-mail queries, requests, or complaints. Justifying EC by conducting a cost-benefit analysis. Privacy. In electronic payment systems, it may be necessary to protect the identity of buyers. Order fulfillment. Taking orders in EC may be easier than fulfilling them. The impacts. The impacts of EC may be dramatic.