What Is Electronic Commerce

1
Chapter 1

• What Is Electronic Commerce?

2
Learning Objectives

• In this chapter, you will learn about
• the basic elements of electronic commerce.
• differences between electronic commerce and
  traditional commerce.
• advantages and disadvantages of using electronic
  commerce.
• the international nature of electronic commerce.

3
Learning Objectives (Cont.)

• how the Internet and the World Wide Web have
  stimulated the emergence of electronic commerce.
• economic forces that have created a business
  environment to foster electronic commerce.
• the ways by which businesses use value chains to
  identify electronic commerce opportunities.

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Defining Electronic Commerce

• Electronic commerce refers to business activities
  conducted using electronic data transmission via
  the Internet and the World Wide Web.
• Three main elements of e-commerce
• Business-to-consumer
• Business-to-business
• The transactions and business processes that
  support selling and purchasing activities on the
  Web

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Forms of Electronic Commerce

• Web-based e-commerce
• Electronic Funds Transfers (EFTs)
• Electronic Data Interchange (EDI)
• Examples
• General Electric
• Wall-Mart

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Value Added Network (VAN)

• A value added network is an independent firm that
  offers connection and EDI transaction forwarding
  services to buyers and sellers engaged in EDI.
• VANs are responsible for ensuring the security of
  data transmitted.
• VANs charged a fixed monthly fee plus a
  per-transaction charge to subscribers.

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Elements of Traditional Commerce the Buyers Side

• Identify specific need
• Search for products or services that will satisfy
  the specific need
• Select a vendor
• Negotiate a purchase transaction
• Make payment
• Perform regular maintenance and make warranty
  claims

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Elements of Traditional Commerce the Sellers
Side

• Conduct market research to identify customer
  needs
• Create product or service that will meet
  customers needs
• Advertise and promote product or service
• Negotiate a sale transaction

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Elements of Traditional Commerce the Sellers
Side

• Ship goods and invoice to customer
• Receive and process customer payments
• Provide after-sale support, maintenance, and
  warranty services

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Activities as Business Processes

• Business Processes refer to activities in which
  businesses engage, as they accomplish a specific
  element of commerce, including
• Transferring funds
• Placing orders
• Sending invoices
• Shipping goods to customers

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Electronic Commerce Processes

• Electronic fund transfer (EFT)
• Electronic data interchange (EDI)
• Internet commerce
• Electronic business (IBM style)

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Electronic Commerce Processes

• Examples of business processes
• Well suited to electronic commerce
• Well suited to traditional commerce
• A combination of both strategies

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Well-suited E-commerce Business Processes

• Sale/purchase of books and CDs and other
  commodities
• Online delivery of software
• Promotion and delivery of travel services
• Online shipment tracking

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Well-suited Traditional Business Processes

• Sales/purchase of high-fashion clothing
• Sale/purchase of perishable food products
• Processing of small-denomination transactions
• Sale of high-value jewelry and antiques

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Business Processes Suited to Both Commerce
Strategies

• Sale/purchase of automobiles
• Online banking
• Roommate-matching services
• Sale/purchase of investment and insurance products

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Advantages of Electronic Commerce

• Electronic commerce can increase sales and
  decrease costs.
• Web advertising reaches to a large amount of
  potential customers throughout the world.
• Web creates virtual communities for specific
  products or services.

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Advantages of Electronic Commerce

• A business can reduce the costs by using
  electronic commerce in its sales support and
  order-taking processes.
• Electronic commerce increases sale opportunities
  for the seller.
• Electronic commerce increases purchasing
  opportunities for the buyer.

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General Welfare of Society

• Electronic commerce benefits the general welfare
  of society because
• electronic payments of tax refunds and welfare
  cost less to issue and arrive securely.
• electronic payments can be audited easily.
• electronic commerce enables people to work from
  home.
• electronic commerce makes products and services
  available in remote areas.

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Disadvantages of Electronic Commerce

• Some business processes are difficult to be
  implemented through electronic commerce.
• Return-on-investment is difficult to apply to
  electronic commerce.
• Businesses face cultural and legal obstacles to
  conducting electronic commerce.

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International Electronic Commerce

• About 60 percent of all electronic commerce sites
  are in English, therefore many language barriers
  need to be overcome.
• The political structures of the world presents
  some challenges.
• Legal, tax, and privacy are concerns of
  international electronic commerce.

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The Internet and World Wide Web

• The Internet is a large system of interconnected
  computer networks that spans the globe.
• The Internet supports e-mail, online newspapers
  and publications, discussion groups, games, and
  free software.
• The World Wide Web includes an easy-to-use
  standard interface for Internet resources
  accesses.

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Origins of the Internet

• In the early 1960s, the U.S. Department of
  Defense started research on networking computers.
• Its researchers developed a multiple channels
  network.
• In 1969, the Defense Department used this network
  model to connect four mainframe computers at
  different locations.

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New Uses for the Internet

• In 1972, a researcher wrote a program that could
  send and receive messages over the network.
• E-mail was born and became widely used.
• The network software include
• File Transfer Protocol (FTP)
• Users News Network (Usenet)

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Commercial Use of the Internet

• Companies used the PC to construct their networks
  in 1980s.
• National Science Foundation (NSF) funded the
  network services in 1980s.
• In 1989, NSF permitted two commercial e-mail
  services.
• As the 1990s began, the Internet started to serve
  the global resource accesses.

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Growth of the Internet

• In 1991, the NSF further eased its restriction on
  Internet commercial activity.
• The privatization of the Internet was
  substantially completed in 1995.
• The new structure of the Internet was based on
  four network access points (NAPs).
• Internet service providers (ISPs) sell Internet
  access rights directly to customers.

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Development of Hypertext

• In the 1960s, Ted Nelson described his
  page-linking system hypertext.
• In 1987, Nelson published a book about a global
  system for online hypertext publishing and
  commerce.
• In 1991, Berners-Lee of CERN developed the code
  for a hypertext server program and made it
  available on the Internet.

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HTML

• A hypertext server is a computer that stores
  files written in the hypertext markup language
  (HTML).
• HTML is a language that includes a set of codes
  (or tags) attached to text.
• A hypertext link points to another location in
  the same or another HTML document.

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Web Browser and Markup Languages

• A web browser is a software interface that lets
  users browse HTML documents.
• HTML is based on the Standard Generalized Markup
  Language (SGML).
• eXtensible Markup Language (XML) allows users to
  define new meanings for its commands in web page.

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Graphical User Interface

• A graphical user interface (GUI) is a way of
  presenting program control functions and program
  output to users.
• Web browsers include
• Mosaic
• Netscape Navigator
• Microsoft Internet Explorer

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Economic Forces of Electronic Commerce

• Transaction costs were the main motivation for
  moving economic activity from markets to
  hierarchically structured firms.
• Transaction costs are the total of all costs that
  a buyer and a seller incur for business.
• Types of economic organization
• Market form
• Hierarchically-structured form

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The Role of Electronic Commerce

• Businesses and individuals can use electronic
  commerce to reduce transaction cost.
• Electronic commerce can make network economic
  structures, which rely on information sharing,
  and are much easier to construct and maintain.

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Value Chains

• A strategic business unit is one particular
  combination of product, distribution channel, and
  customer type.
• A value chain is a way of organizing the
  activities that each strategic business unit
  undertakes to design, produce, promote, market,
  deliver, and support the products or services it
  sells.

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Strategic Business Unit Value Chains

• For each business unit, the primary activities
  are
• Identify customers
• Design
• Purchase materials and supplies
• Manufacture
• Market and sell
• Deliver
• Provide after-sale service and support

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Strategic Business Unit Value Chains

• The support activities of value chain for a
  strategic business unit include
• Finance and administration
• Human resources
• Technology development

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Industry Value Chains

• Value system describes the larger stream of
  activities into which a particular business
  units value chain is embedded.
• Industry value chain refers to value systems.
• Using the value chain reinforces the idea that
  electronic commerce should be a business
  solution.

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Web Portals

• A Web portal is a cyber door on the Web.
• A portal serves as a customizable home base from
  which users do their searching, navigating, and
  other activity.
• The portal loads automatically when it launches
  the Web browser.

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Customer Portals

• Examples of successful portals include
  About.com, Amazon.com, Excite, Netscape
  Netcenter, and Yahoo!
• Most portals include e-mail, links to search
  engines, links to membership services news,
  sports, and business headlines and articles
  personalized space, links to chat rooms, links to
  virtual shopping malls, and Web directories.

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Business Portals

• Most business portals can be accessed only by
  member enterprises.
• Business portals specialize in business
  commodities and materials such as steel,
  gasoline, or chemicals.
• Example of business portals are Work.com,
  e-STEEL, FoodUSA, TurboStaff.com, etc.

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Auction Basics

• Online auctions provide a business opportunity
  that is perfect for the Web.
• An auction site can charge both buyers and
  sellers to participate, and it can sell
  advertising on its page.
• Web auctions can provide a general auction site
  that has sections devoted to specific interests.

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Web Auction Strategies

• Web auctions are one of the fastest-growing
  segments of online business today.
• Business analysts predict that Web auctions will
  account for 30 of all electronic commerce by
  2002.
• Three broad categories of auction Web sites are
  emerging general consumer auctions, specialty
  consumer auctions, and business-to-business
  auctions.

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General Consumer Auctions

• One of the most successful consumer auction Web
  sites is eBay.
• The eBay home page includes links to categories
  of items.
• Sellers pay eBay a listing fee and a sliding
  percentage of the final selling price.
• Buyers pay nothing to eBay.

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General Consumer Auctions

• The most common format used on eBay is a
  computerized version of the English auction.
• Another auction type offered by eBay is an
  increasing-price format for multiple item
  auctions that eBay calls a Dutch auction.
• In either type of eBay auction, bidders must
  constantly monitor the bidding activity.

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General Consumer Auctions

• Times Mirror started Auction Universe in 1997 and
  sold in 1998 to the Classified Ventures, and
  closed in August 2000.
• Portal sites such as Yahoo! And Excite have
  created auctions.

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General Consumer Auctions

• Amazon.com has also recently expanded its
  business to include auction.
• Amazons Auction Guarantee agreed to reimburse
  any buyer for not satisfying to the listed
  merchandise that costing 250 or less.
• A third party escrow service holds the buyers
  payment until he or she receives and is satisfied
  with the purchased item.

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Specialty Consumer Auctions

• Some specialized Web auction sites exist to meet
  the needs of those market segments.
• The CNET.com technology portal site devoted to
  computers.
• Golf Club Exchange Web auction site is for
  golfers.
• Coin collectors are attracted to sites such as
  Coin Universe.

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Business-to-Business Auctions

• Business-to-business auctions evolved to meet
  specific need such as handling excess inventory.
• The large companies may create their own auction
  sites that sell excess inventory.
• A third-party Web auction site takes the place of
  the liquidation broker and auctions excess
  inventory.

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Business-to-Business Auctions

• Ingram Micro now auctions those items to its
  established customers through the Auction Block
  site.
• CompUSA builds its own auction site to dispose
  obsolete inventory.
• Examples of third-party Web auction sites are
  Auction IT for computer equipment, Going,
  GoingSold! for lab equipment, FastParts.com
  for electronic components.

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Business-to-Business Auctions

• OpenClose Connection allows brokers to put
  mortgage loan packages up for bids from lenders.
• In May 2000, a new venture called the
  International Securities Exchange began trading
  82 of the most actively traded stock options
  contracts.

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Auction-Related Services

• A common concern among people bidding in Web
  auctions is the reliability of the sellers.
• When purchasing high-value items, buyers can use
  an escrow service to protect their interests.
• Escrow services such as I-Escrow, SecureTrades,
  and TradeSafe Online are examples.
• Another service offered by some firms on the Web
  is a directory of auctions, such as Auction
  Guide and AuctionInsider sites.

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Seller-Bid Auctions and Group Purchasing Sites

• Another auction model, in which sellers bid the
  prices at which they are willing to sell, also
  called reverse auction.
• On a group purchasing site, the seller posts an
  item with a price. As individual buyers enter
  bids on an item, the site can negotiate a better
  price with the items provider.
• Mercata and Demandline.com are examples.

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Virtual Community Strategies

• Three key elements are required to make a virtual
  community
• Cellular-satellite communications technology
• Electronic marketplaces
• Software agents

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Virtual Community Strategies

• In 1999, eBay and cellular-satellite
  communications company SkyTel Communications
  announced a wireless person-to-person online
  trading service.
• Electronic marketplaces are growing out of
  virtual online communities such as GeoCities and
  Tripod.
• Software agents are programs that traverse the
  Web and find items for sale that meet a buyers
  specification.

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Virtual Communities

• A virtual community is a gathering place for
  people and businesses that does not have a
  physical existence.
• Virtual communities exist on the Internet in
  various forms, including Usenet newsgroups, chat
  rooms, and Web sites.
• Virtual communities help companies, customers,
  and suppliers plan, collaborate, transact
  business, and interact in ways that benefit all
  of them.

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Virtual Communities

• Most Web communities are business-to-consumer
  strategy implementation.
• Some successful B2B virtual communities have
  emerged.
• Milacrons Milpro site is a good example of a B2B
  virtual communities.
• In addition to providing services, Milpro site
  also provides links for customers interactions.