An Introduction to Electronic Commerce

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An Introduction to Electronic Commerce
http//www.srdc.metu.edu.tr/ibrahim/courses/cse53
7/
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What is Commerce?

• Middle French, from Latin commercium, from com-
  (together) merc-(merchandise) (1537)The
  exchange or buying and selling of commodities on
  a large scale involving transportation from place
  to place.

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eCommerce

• Electronic Commerce (EC) is ... the sharing of
  business information, maintaining business
  relationships, and conducting business
  transactions by means of telecommunications
  networks
• The infrastructure for eCommerce is a networked
  computing environment in business, home, and
  government.
  
• eBusiness describes the broadest definition of
  eCommerce. It includes customer service and
  intrabusiness tasks, and it is frequently used
  interchangeably with eCommerce.

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Consumer Buying Model

• Identification of a Need This stage
  characterizes the buyer becoming aware of some
  unmet need.
  
• Product Brokering determining what to buy.
  Search of products or services that satisfy the
  specific need, comparison of alternatives and
  product evaluation.
• Merchant Brokering Determining who to buy from.
  This includes the evaluation of merchant
  alternatives based on buyer-provided criteria
  (e.g., price, warranty, availability, delivery
  time, reputation, etc.).

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Consumer Buying Model Contd

• Negotiation Determining the terms of the
  transaction. May include inspection, testing, and
  acceptance.
  
• Payment and Delivery In some cases, the
  available payment (e.g., cash only) or delivery
  options can influence product and merchant
  brokering.
• Product Service and Evaluation After sale
  services include product service, customer
  service, regular maintenance, warranty claims,
  and evaluation of the satisfaction of the overall
  buying experience.

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Selling Model

• Market research identify customer needs.
• Product design and production create products
  and services that will satisfy the customer
  needs.
  
• Marketing advertising and promoting products and
  services, identifying market segments.
  
• Negotiation.
• Delivery, logistics.
• Payment processing and billing.
• After-sale support maintenance, warranty, claims
  processing.

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Types of eCommerce

• B2B Business to Business
• B2C Business to Consumer
• B2G Business to Government
• C2B Consumer to Business (priceline,letsbuyit)
• C2C Consumer to Consumer (eBay,napster)
• C2G Consumer to Government (citizens to
  government,
  
• such as income tax filling)

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Benefits of EC to Organizations

• Expands the marketplace to national and
  international markets
  
• Allows for customization and personalization of
  products and services to provide competitive
  advantage
  
• Reduced inventory by delivery on demand (or
  pull type) supply chain management
  
• Ubiquitous information density, richness and
  interactivity
  
• Lowers telecommunications cost the internet is
  much cheaper than value added networks (VANs)
  
• Improved customer service

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Benefits to Customers

• Enables shopping on 24x7x365 basis
• Reduced search cost for customers with more
  choices, information is retrieved in seconds, not
  in days or weeks
  
• Cost and price transparency, because eCommerce
  facilitates competition that results in
  substantial discounts
  
• Provides customers with less expensive products
  and services by allowing comparison shopping
  
• Allows quick delivery of products and services
  (especially for digitized products)
  
• Allows customers to interact with other
  communities, to exchange ideas and experiences

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Technical Limitations of eCommerce

• Problems with systems security, scalability, and
  reliability.
  
• Interoperability. The software development tools
  are evolving and changing very rapidly.
  
• Difficulties in integrating legacy and back-end
  systems with electronic commerce software.

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Non-Technical Limitations

• Lack of trust.
• Lack of touch and feel.
• Lack of support services.
• Many unresolved legal issues.
• Insufficiently large enough number of sellers and
  buyers.

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Development of eCommerce
Static Brochure (1994-1996)
Transactions (1996-1999)
Automated Business Processes (1999-)

• Product catalogs
• Online ordering
• Online payments
• Order tracking

• Personalized content
• Interactivity
• Real-time integrated
• data (warehouses)
• Business intelligence
• (OLAP)

• Product information
• Financial statements
• Contact information

Goal Integrate EB with existing business.
Focus Efficiency, optimization
Metric Economic value

• Goal attract VC money
• Focus Speed, IPO
• Metric Revenue growth, not profit

SOURCE A. BHATTACHERJEE
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Top 10 Countries in eCommerce (2000)
Source Forester Research and INFOWORLD, May
15,2000 p.20.
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The TIME Magazine presents Person of the Year
2000
1999
1998
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History of Amazon.com

• Conceived by Jeff Bezos in 1994
• Established in July 1995
• Several reasons to shop
• Selection
• Convenience
• Price
• Service
• Easy transportation
• Favorable market structure

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Success of Amazon.com

• Amazon.com still operative, and is the most
  famous book seller on the net.
  
• Can you guess
• How much revenue it generates?
• How much profit it makes?

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Fiscal history of Amazon.com
Year Revenues Net Earnings
1996 15.6 Million (6.24 Million)
1997 148 Million (31 Million)
1998 610 Million (125 Million)
1999 1.6 Billion (720 Million)
2000 2.7 Billion (1.4 Billion)
2001/Q4 3.1 Billion
(412Million)/5M 2002 3.9 Billion (149 Milli
on) 2003 5.2 Billion 35 Million 200
4 6.9 Billion 588 Million
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The Internet Bubble
NASDAQ 19-YR CHART
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eCommerce-I period 1995-2000

• Vindication of a set of information technologies
  developed over 40 years
  
• The vision of universal communications
• Almost infinite set of suppliers compete against
  each other
  
• Customers have access to all relevant market
  information worldwide
  
• Disintermediation
• Merchants have equal direct access to hundreds of
  millions of customers
  
• First mover
• Network effect

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DotComs Failure

• Some reasons by PriceWaterhouseCoopers
• Run-up in technology stocks due to enormous IT
  capital expenditure to withstand Y2K problem
  
• Telecommunications industry had built excess
  capacity in high-speed fiber optic networks
  
• DotComs ignored customers, did not pay attention
  to customer orders, customer service, and web
  site design
  
• On the other hand, they over-emphasized the role
  of marketing.

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DotComs Failure Contd

• They sacrificed long-term success at the expense
  of short-term gain, they were too opportunistic.
  
• Focused on leadership and strategic partnership.
• Lacked traditional business skills.
• Traditional companies indeed are best positioned
  to succeed in the new economy, since they have
  all the necessary financial and market power, as
  well as the required expertise.

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Break Time?
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eCommerce-II period 2000-?

• Some corrections over period-1
• Price discrimination
• New market intermediaries
• First movers turned out to be long-run losers

New Vision Every business process in the world
is being considered for re-engineering
Can it be made electronic?
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The Growth of B2C eCommerce
Source E-Commerce, by K. Lauden and C. Traver
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The Growth of B2B eCommerce
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B2B Growth Estimation
15.6
5.4
SOURCE PWC
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Historic eCommerce Examples
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A Success Story eBay

• In 1995 Pierre Omidyar decided to use Web pages
  that came as a part of his 30-a-month Internet
  service
  
• The idea was to improve upon the online
  classifieds for selling personal items
  
• With a little coding, he developed a simple
  auction mechanism that would spare the seller
  from having to choose among multiple interested
  buyers
• The code did the work, the space on the Web
  server came with his account so the whole thing
  cost him nothing and the service is offered for
  free
• In 1995, he sent an announcement of his free
  service to the then-center of the Webdom, the
  National Center for Supercomputing Applications
  What's New Web page

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A Success Story eBay

• At the end of 1995, his Web page was getting a
  couple of thousand hits a day
  
• His Internet Service Provider was not happy about
  this (his page was using a lot of CPU cycles)
  and raised Omidyar's monthly fee from USD30 to
  USD250
• Omidyar in return asked sellers to pay a small
  fee for items sold relying upon the honesty of
  the seller
  
• The checks came in volume !
• In the first month he covered the 250 bill for
  his ISP
  
• Afterwards the increase in revenues were
  exponential
  
• In month two USD1000,
• In month three USD2000,
• in month four USD5000, and so on...

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A Success Story eBay

• When his ISP told him that the traffic his page
  was attracting was too much for its servers, he
  installed his own server on ISP's premises
  
• In mid 1996, Omidyar left his day time job and
  founded the eBay company
  
• In the fall of 1996, eBay's revenues were USD
  400,000 per month where its expenses were USD
  200,000
  
• In 1997, the venture capital firm Benchmark
  invested 6.7Millon in eBay when its valuation
  was put at 20M
  
• In September 1998, after the first day of public
  trading (IPO), eBay's capitalization was 2
  Billion dollars

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A Success Story eBay

• Three months later the stock has gained more than
  1300 percent value
  
• In June 1999, the company has valued at more than
  USD 21 Billion
  
• eBay, one of the most successful examples of
  e-commerce, has been flourishing ever since
  
• During December 2001 quarter, revenue jumped 64
  to USD 219.4 million and net income to 8
  
• Furthermore, eBay appears to be in a better shape
  operationally and it is expected to grow by 52 a
  year over the next five years

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Ecommerce Hype

• Electronic commerce has been the subject of a lot
  of hype and attention in the second half of the
  90s
  
• Although the most important part of electronic
  commerce is the trading among companies termed as
  Business-to-Business (B2B) e-commerce
  Business-to-Consumer (B2C) e-Commerce received
  the most public attention
• First with its success stories then with failures
  of online companies, B2C can simply be defined as
  online shopping on the Web
  
• Some of the B2C companies went bankrupt after the
  fall in the stock market prices in April 2000
  
• However the so called dot.com collapse should
  not be interpreted as the collapse of B2C (nor
  B2B) eCommerce

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Dot.coms

• B2C e-commerce companies with strong technology
  are still alive such as eBay, amazon.com and
  expedia.com
  
• These are the rather well-known ones but there
  are many other companies doing well in this
  business
  
• Examples include a fish market place, FishRound
  which generates transactions of millions of
  Dollars per month
  
• Still others are reinventing themselves to
  survive
  
• For example, Germany's No.1 comparison shopping
  site Guenstiger.de had 30,000 daily hits but was
  doing badly
  
• They began tracking what people buy, later
  selling this information to retailers,
  wholesalers and manufacturers
  
• Those offline companies use this information to
  help fine tune their inventories

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Expedia.com

• Expedia.com is an online travel marketplace that
  helps travelers search, plan and purchase travel
  services
  
• Expedia site provides multiple tools for finding
  the lowest airfares.
  
• For example
• Fare Calendar matches the airlines' lowest
  published fares with dates and availability, and
  shows users the going rates
  
• Flight Price Matcher lets customers name their
  own fare and see if an airline will accept it
  
• Expedia appears to be the top player in the
  online travel industry

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Some Innovative Ecommerce Examples (that can only
exist on the internet)
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Priceline

• Priceline is one of the most inventive business
  model for e-commerce
  
• It has pioneered a unique new type of e-commerce
  known as a demand collection system that
  enables consumers to use the Internet to save
  money on a wide range of products and services
  such as airline tickets and hotel reservations
  while enabling sellers to generate incremental
  revenue
• Using a simple consumer proposition Name Your
  Own Price, it collects consumer demand (in the
  form of individual customer offers guaranteed by
  a credit card) for a particular product or
  service at a price set by the consumer, and

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Priceline

• communicate that demand directly to participating
  sellers or to their private databases
  
• Consumers agree to hold their offers open for a
  specified period of time to enable priceline.com
  to fulfill their offers from inventory provided
  by participating sellers
• Once fulfilled, offers cannot be canceled
• By requiring consumers to be flexible with
  respect to brands, sellers and/or product
  features, it enables sellers to generate
  incremental revenue without disrupting their
  existing distribution channels or retail pricing
  structures
• Unfortunately, Priceline is struggling to survive
  the dot.com market collapse !!!

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Akamai

• Akamai's sofware constantly monitors the entire
  Internet, locating potential congestions and
  devising faster routes for information to travel
  
• Frequently used portions of a client's Web site,
  or large files that would be difficult to send to
  users quickly, are stored on Akamai's 8000
  servers in over 50 countries around the globe
• In 2000, its revenue was nearly 90 million
• In 2002 during the second quarter revenue has
  risen to 36.3 million however Akamai is not
  making profits yet (2002)
  
• Who could have thought there is business in
  watching the Internet traffic !

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Google

• Google is the most successful search engine of
  the Web
  
• Some search engines simply count how many times a
  search term appears on a given Web page to
  determine where to rank a particular page
  
• Google's engine on the other hand, uses outside
  criteria to validate that a search result is
  likely to be relevant
  
• As a relevancy criterion, outside links to the
  page as well as other factors like link
  structure, heading and text of nearby pages are
  considered
• Although Google's revenues are only from
  advertisement and licensing, its growth rate is
  faster than that of Microsoft.

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Break Time?
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B2B eCommerce
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B2B Ecommerce

• Despite the economic slowdown and the market
  shakeout, B2B e-commerce still continues to
  thrive
  
• According to a report from eMarketer, worldwide
  B2B revenues will reach 820 billion in 2002, a
  74 increase over the previous year's total
  revenues
• Other analysts seem to be even more optimistic
• Research firm IDC for example, projects B2B
  revenues of USD 917 billion in 2002
  
• The Gartner Group predicts B2B potential of the
  year 2002 at USD 1.929 trillion, whereas
  Forrester predicts that B2B will reach 2.061
  trillion by the end of 2002
• HW1 Gather the ecommerce figures realized in
  2000-2004 and estimations made for the coming
  5-10 years.

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Covisint

• Covisint is an industry sponsored e-marketplace
  with members such as DaimlerChrysler, Ford,
  General Motors, Nissan, Renault, Peugeot and
  Siemens Automotive
• It started in 2000, and by the end of July 2001
  
  
• it had managed more than 129 billion in
  transactions
  
• It had qualified 1700 supplier companies at the
  site, and generated more than 37.6 billion in
  auction revenues
  
• In the November 26, 2001 issue of InfoWorld,
  Covisint is ranked number 5 in the list of top
  100 companies that are recognized for their
  creative use of enterprise technologies to make
  their businesses more efficient and develop new
  streams of revenue
• Covisint was a success story in B2B commerce,
  however, it is sold out in 2004, after Ford and
  GM have dropped out.

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GE Global eXchange Services

• GE Global eXchange Services is the world's
  largest internet supply chain network that links
  more than 100,000 trading partners in 58
  countries around the world
• In 2002, the network's 1 billion annual
  transactions accounted for 1 trillion in goods
  and services
  
• GXS customers include Eastman Kodak,
  DaimlerChrysler, Target, J. C. Penney, Inc., Sara
  Lee and 3M
  
• GXS provides three portfolios of e-commerce
  products and services
  
• GE Integration Solutions (EAI) - provides
  software that permits any business application to
  send and receive business information to other
  business applications in a secure and reliable
  manner
• GE Interchange Solutions (EDI and XML) -
  automates paper, fax, telephone and email
  transactions to improve quality and efficiency in
  a supply chain
• GE Marketplace Solutions (exchanges) - provides
  the business applications and technology
  infrastructure to enable the development,
  integration and service of B2B electronic
  marketplaces

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World Wide Retail Exchange

• In March 2000, seventeen international retailers
  founded the World Wide Retail Exchange to enable
  participating retailers and suppliers to
  simplify, rationalize, and automate supply chain
  processes
• WWRE runs auctions for individual members as well
  as indirect-collaborative auctions in which
  members combine their orders for economies of
  scale
• The exchange is expected to link members with
  more than 100,000 consumer-goods suppliers,
  partners and distributors making it one of the
  largest e-marketplaces on the Web
• In 2002, with a membership consisting of 62
  retail industry leaders from around the world,
  WWRE has a revenue of over 845 billion

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RubberNetwork.com

• The leading tire manufacturers launched their own
  exchange in April 2000, called RubberNetwork.com
  
  
• The initiative was participated by many tire
  manufacturers including Goodyear, Sumitomo,
  Bridgestone, Firestone, Pirelli, Michelin, Cooper
  and Continental, which together account for
  approximately 80 of the worlds tire output
• RubberNetwork.com provides procurement and supply
  chain services as well as trading services
  including auctions and reverse auctions where
  suppliers bid prices lower
• In 2002, the RubberNetwork included nine of the
  largest companies in the tire and rubber industry
  
  
• These companies represent more than 63 of total
  sales within the tire and rubber industry, which,
  including raw materials, equipment, machinery,
  goods and services, are estimated to be in excess
  of 50 billion a year

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CPGmarket.com

• CPGmarket.com is the leading marketplace for the
  European consumer packaged goods industry
  
• Created by Nestle, Danone, Henkel and SAPmarkets
  in March 2000, CPGmarket.com delivers value-added
  services to both buyers and suppliers
  
• by facilitating and accelerating the purchasing
  transactions between the manufacturers and
  suppliers of the CPG industry,
  
• reducing the procurement and administrative
  costs,
  
• optimizing production and inventory cycles
  through state-of-the-art supply chain processes

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Tradezone

• A version of e-market model is Third-party
  marketplaces where founding member, usually a
  financial institution, acts as an aggregator by
  offering supply-chain and procurement services to
  smaller enterprises that can not afford to start
  their own e-marketplaces
• Example Tradezone

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Questions