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Chapter 5Chapter 5

Electronic

Commerce

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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.

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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.

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Case: Intel Embraces the WebProblem: 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.

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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.

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Electronic Framework

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The Field of EC

The field of EC can be divided into two segments:

1. Electronic markets, or e-marketplaces - networks of interactions and relationships where information, products, services, and payments are exchanged. B2C, company-centric, and B2B transactions.

2. Interorganizational information systems (IOS) - information flow among two or more organizations. Applies to B2B applications only

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Benefits of ECSome 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.

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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.

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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.

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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

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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)

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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

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B2C e-Commerce

Business-to-consumer EC can be done in two major ways:

1. Companies sell direct to the customer. Such direct marketing has the advantage of personalization and

customization.

2. Companies use an intermediary. There are two types of online infomediaries:

1. Pure online e-tailers 2. ”Click-and-mortar” retailers

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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.

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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.

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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

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Advertisement Issues

Customizing Ads

Segmentation

Webcasting

Permission Marketing

Viral Marketing

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Measuring the Effectiveness of E-Advertising

1. Ad view, or the number of times users see a banner ad during a specific time period.

2. If a customer clicks on a banner and moves to the advertiser’s Web home page.

3. If a customer clicks on a banner, moves to the advertiser’s site, and while there seeks product leads or fills out questionnaires.

4. The actual purchases made on the Web. Affiliate Programs

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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

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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

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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.

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Models of Market Research

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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

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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

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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)

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B2B Model Types

Sell-side model

Sell-side marketplace

Forward auctions

Buy-side modelReverse auctions

Buyer’s Internal Marketplace

Group Purchasing

Exchanges

Vertical Distributors

Vertical Exchanges

Horizontal Distributors

Functional Exchanges

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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.

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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

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Other EC Services

Job Market OnlineParticipants include: (1) Job seekers (2) Job offerers (3)

Recruitment firms (4) Newsgroups.

Travel and Tourism

Real Estate

Non-Internet Applicationse.g. Smart cards

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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

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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.

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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.

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B2C & C2C Auctions

Specialized auction sites

e.g., ebay.com

Auctioning cars Art auctionsAirlines

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C2C EC Activities

Classifiedsclassifieds2000.com

Personal servicesThese range from tutoring and astrology to the “oldest

profession on earth.”

Peer-to-peer (P2P) and barteringElectronic bartering = the exchange of goods and/or services

without a monetary transaction.

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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)

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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.

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EDI Characteristics

EDI has the following special characteristics:

Business transactions messages

Data formatting standards

EDI translators

Private lines versus the Internet

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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)

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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

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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.

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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.

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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.

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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

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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.