CHAPTER ONE

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CHAPTER ONE

• Introduction to
• Electronic Commerce

2
Case Study

• Autobytel
• http//www.autobytel.com
• Buyer
• Register and specify desired details
• Dealer
• Pay subscription fee to receive exclusive rights
  to referrals from a particular geographical area
  of particular brands

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Case Study (Cont.)

• Benefits for buyers
• A speedy, straightforward, and predictable buying
  process
• Benefits for dealers
• Selling more automobiles and not paying a
  commission to salesperson
• Benefits for Autobytel
• Receives the monthly subscription fee from each
  dealer and sells advertising to insurance and
  fiance comapnies

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Electronic Commerce--- The Second Wave

• Did electronic commerce die or not

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Electronic CommerceElectronic Business

• Electronic Commerce
• For many people, it means shopping on the part of
  the internet called WWW
• It also include businesses trading with other
  businesses and internal processes that companies
  use to support their buying, selling, hiring
  planning, etc
• Electronic Business
• IBM the transformation of key business
  processes through the use of Internet
  technologies
• In this course, they are interchangeably

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Categories of Electronic Commerce

• By types of entities participating in the
  transactions or business processes

Business-to-business Electronic Commerce
Business processes that support selling and
purchasing activities
Business-to-Consumer Electronic Commerce
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Categories of Electronic Commerce (Cont.)
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The Development and Growth of Electronic Commerce

• Technology innovation changes the way of doing
  business
• Sailing ships
• Printing press
• Steam engine
• Telephone
• Internet
• 30 years ago
• EFTs (electronic funds transfers)
• In the 1960s
• EDI (electronic data interchange)
• Standard paper invoices, purchase orders, and
  shipping documents
• Serious problem of EDI
• High cost of implementation
• Buying expensive hardware and software
• Establishing direct network connections
• Value-added network

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The Dot-Com Boom, Bust and Rebirth

• 1997-2000
• 12,000 internet related businesses were started
• Fixed number of good ideas
• Lots of investors
• 2000-2003
• More than 5000 went out of business
• 200billion was invested in purchasing
• DEATH OF E-COMMERCE?
• 2000-2002 SALES CONTINUE TO GROW
• See reports by CyberAtlas
• http//cyberatlas.internet.com

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The Second Wave of Electronic Commerce
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Business models, Revenue models, and Business
Processes

• Business Model
• Set of processes that combine to yield a profit
• Copy business model lead the way to many business
  failures
• Michael Portel
• The business models not only did not matter, they
  probably did not exist
• Companies should examine elements of their
  business, they should identify business processes
  that they can streamline, enhance, or replace
  with processes driven by Internet Technology
• Revenue Model
• A specific collection of business processes used
  to identify customers, market to those customers,
  and generate sales to those customers

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Focus on Specific Business Processes

• Business processes except revenue model
• Purchasing raw materials
• Converting materials and labor into finished
  goods
• Managing transportation and logistics
• Hiring and training employees
• Managing finance of the business
• Why we should know this
• Identify those business processes that firms can
  accomplish more effectively by using electronic
  commerce technologies, and also identify new
  business opportunities

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Role of Merchandising

• Merchandising (????)
• Store design, layout and product display
  knowledge is called Merchandising
• Must transfer companies merchandising skills to
  the Web
• But some products are easier to sell while others
  are not

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Product/Process Suitability to Electronic Commerce
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Product/Process Suitability to Electronic
Commerce (Cont)

• Commodity item
• Products shipping profile
• High value-to-weight ratio
• A strong brand identity
• A mixture is a good choice
• Depend on the current state of available
  technologies

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Advantage of Electronic Commerce

• Help increase profit
• Electronic commerce can increase sales and
  decrease costs
• Increase purchasing opportunities for the buyer
• Increase the speed and accuracy with which
  business can exchange information
• Provide buyers with a wider range of choices with
  an easy way to customize the level of detail in
  the information the obtain
• The ability to deliver digital products online
• Extend to the general welfare of society
• Electronic payments of tax refunds, public
  retirement, and welfare support cost less
• Easier to audit and monitor than payments made by
  check
• Make products and services available in remote
  areas

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Disadvantage of Electronic Commerce

• Many products and services require that a
  critical mass of potential buyers be equipped and
  willing to buy through the internet
• Difficult to calculate the benefit of the
  investment on e-Commerce
• Many firms have trouble recruiting and retaining
  employees with the technological, design, and
  business process skills needed to create an
  effective electronic Commerce
• Difficult to integrate existing databases and
  transaction-processing software
• Cultural and legal obstacles

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Case Study

• Pets.com

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Economic Forces and Electronic Commerce

• 1937 Coarse transaction costs were the main
  motivation for moving economic activity from
  markets to hierarchically structured firms

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Transaction Cost

• Composition
• Brokerage fee and sales commission
• Information search and acquisition
• Investment a seller makes in equipment
• Or in hiring of skilled employees
• Example
• Market form of economic organization

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Markets and Hierarchies

• Coarse
• Organization to replace market-negotiated
  transaction
• Need strong supervision and worker-monitoring
  elements
• This is also called vertical integration
• Problem of vertical integration
• Monitoring systems have not kept pace with the
  organizations increase in size
• Solution strategic business unit

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Using Electronic Commerce to Reduce Transaction
Costs

• Improve the flow of information
• Increase the coordination of actions
• Chang the attractiveness of vertical integration
• Example
• Employment transaction
• Searching cost
• Opportunity cost
• Learning and adapting cost
• Move cost
• If a sufficient number of employees throught the
  world can telecommute, then many costs could be
  reduced or eliminated

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Network Economic Structures

• Strategic partners/Strategic alliances
• Virtual company --- network economic structure
• What will happen in a hierarchically structured
  business environment?
• NS is particularly well suited to technology
  industries that are information intensive
• Sweater example again
• Thomas Petzinger the economic networks will
  become the organizing structure for all social
  interactions among people

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Network Effects

• Law of diminishing returns
• Exception ? network effect
• As more people or organizations participate in a
  network, the value of the network to each
  participant increases
• Network effect example
• Mobile phone/telephone/fax machine/e-mail account

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Using Electronic Commerce to Create Network
Effects

• Email
• Messenger services
• Bittorrent
• QQ
• Forum
• Online library
• WWW sites

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Identifying electronic commerce opportunities

• How the managers decide where and how to use
  electronic commerce?

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Strategic Business Unit Value Chain

• Competitive Advantage, Michael Porter, 1985
• Value chain
• is a way to organizing the activities that each
  strategic business unit undertakes
• Primary activities
• design, produce, promote, market, deliver, and
  support the products or services it sells
• Supporting activities
• Human resource management, purchasing etc.

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Value chain for a business unit
Provide after-sale service and support
Manufacture product or create service
Design
Deliver
Purchase materials and supplies
Market and sell
Identify customers
Primary
Support
HR
Technology development
Finance and administration
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Industry Value Chain

• Value system / industry value chain
• Example
• Logger cuts down tree
• Sawmill converts logs to lumber
• Lumberyard provides selection of lumber
• Chair factory assemble chair
• Furniture retailer markets and sells chair
• Consumer purchases and uses chair
• Landfill or recycler disposes of chair
• By examine elements of the value chain outside
  the individual business unit, managers can
  identify many business opportunities, including
  those that can be exploited using electronic
  commerce

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Purpose of Using Value Chain

• Using the value chain reinforces the idea that
  electronic commerce should be a business
  solution, not a technology implementation for its
  own sake

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Exercise 1

• Create a diagram that describes the value chain
  for
• The Stone Forest National Geologic Park(??)
• Check where you can apply your e-Commerce
  technology to Stone Forest to increase its profit

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SWOT AnalysisEvaluating Business Unit
Opportunities

• Strengths
• What does the company do well?
• Is the company strong in its market?
• Does the company have a strong sense of purpose
  and the culture to support that purpose?

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SWOT AnalysisEvaluating Business Unit
Opportunities (2)

• Weakness
• What does the company do poorly?
• What problems could be avoided?
• Does the company have serious financial
  liabilities?

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SWOT AnalysisEvaluating Business Unit
Opportunities (3)

• Opportunities
• Are industry trends moving upward?
• Do new markets exist for the companys
  products/services?
• Are there new technologies that the company can
  exploit?

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SWOT AnalysisEvaluating Business Unit
Opportunities (4)

• Threats
• What are competitors doing well?
• What obstacles does the company face?
• Are there troubling changes in the companys
  business environment (technologies, laws, and
  regulations)?

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Exercise 2

• Please use SWOT analysis to evaluate the
  competitive advantages and disadvantages for the
  following companies
• Lenovos (http//www.lenovo.com)
• Dells (http//www.dell.com)
• IBM (http//www.ibm.com)
• Also you need to figure out
• Can Lenovo use e-Commerce technology to improve
  its competitive advantage in the market ?

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International Nature of Electronic Commerce

• Internet makes you business automatically operate
  in a global environment, but we face three
  problems trust, culture, language and
  infrastructure

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Trust issue on the Web

• On the internet, nobody knows youre a dog
• Companies with established reputations in the
  physical world often create trust by ensuring
  that customers know who they are
• New company faces a more difficult challenge
• A plan for establishing credibility is essential
• You must find ways to generate quickly the trust
  that traditional business took years to develop

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Language Issues

• Think globally, act locally
• Provide local language versions of its Web site
• Customers are far more likely to buy products and
  services from web sites in their own language
• 60 of the content of is in English
• Some languages require multiple translations
• Spain, Chinese, English etc
• The decision whether to translate particular web
  page should be made by the corporate department
  responsible for the page content
• The home page should have versions in all
  supported languages
• Marketing, product information, local interests
  etc
• You may call for translation services from some
  companies
• Different approaches
• Marketing message --- human translation
• Routine transaction --- machine translation
• Often, the translation is called localization
• Which means the translation that considers
  multiple elements of the local environment

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Culture Issue

• The combination of language and customs is often
  called culture
• Example
• General Motor --- Chevrolet Nova
• In Spanish means it will not go
• ??? in China
• ??????????????????????????,??????????????????,???
  ???
• ???????????????,????????????????????????
• Jar with picture of cute baby in Africa
• India Cow
• Naked arms or legs in Muslim country
• Softbank in Japan create a joint venture called
  eS-Books with Seven-eleven
• Reason Japanese are prefer to pay in cash
  instead of credit card

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Culture and Government

• North African and Middle eastern countries
• China
• ISP retains copies of e-mail messages and chat
  room conversation for 60 days
• France
• Advertisement for a product or service must be in
  French

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Infrastructure Issue

• Infrastructure of e-Commerce
• Computer
• Software
• Communication Network
• Local connection costs through the existing
  telephone networks in many countries are very
  high
• The complexity of international transaction
• UN estimation cost of paperwork 600
  billion/year, 6 of total 10 trillion