Introduction to Electronic Commerce

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Chapter 3

• Introduction to Electronic Commerce

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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

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Learning Objectives

• 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
• Click to see Figure 1-1

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Forms of Electronic Commerce

• Web-based e-commerce
• Electronic funds transfers (EFTs)
• Electronic data interchange (EDI)
• General Electric
• Wal-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
• Click to see Figure 1-2

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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 customer
• Receive and process customer payments
• Provide after-sale support, maintenance, and
  warranty services
• Click to see Figure 1-3

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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
• Transfer 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
• Click to see figure 1-4
• Click to see figure 1-5

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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 potential customers in
  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, languages barrier needs to be
  overcome.
• The political structures of the world presents
  some challenges.
• Legal, tax, and privacy are concerns of the
  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 group, game, 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 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.
• Click to see Figure 1-6

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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 Standard Generalized Markup
  Language (SGML).
• eXtensible Markup Language (XML) allows users to
  define new meanings for its commands in web page.
• Click to see Figure 1-7

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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
• Click to see Figure 1-8

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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
• Click to see Figure 1-9
• Click to see Figure 1-10

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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
  structure, which rely on information sharing,
  much easier to construct and maintain.
• Click to see Figure 1-11

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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
• Click to see Figure 1-12

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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.
• Click to see Figure 1-13

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