Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١

QM 351-Chapter 1The Digital Firm: Electronic Commerce

and Electronic Business

Prepared byDr Kamel ROUIBAH / Dept. QM & IS

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢

Objectives

• Explain how the basic concepts o ecommerce• History of ecommerce• Introduce students to different internet business models• Describes different categories of e-commerce• Describe benefits and limitations of ecommerce

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣

What is information system?

An information System (IS) is

• An organizational solution, and

• Management solution

• Based upon technology

ORGANIZATIONS TECHNOLOGY

MANAGEMENTMANAGEMENT

INFORMATIONSYSTEMS

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٤

Components of information system

INPUT OUTPUTPROCESS

FEEDBACK

INFORMATION SYSTEM

ENVIRONMENT

ORGANIZATION

Competitors

Suppliers

StockholdersRegulatoryAgencies

Customers

(e.g. ministries) مساهمين

Different IS may be used: SCM, CRM, ERP, e-commerce

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٥

Data and information

• What id data?

• What is information?

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٦

1.1. EC Definitions and concepts

• E-commerce refers to buying and selling goods, services, and information via computer networks (Internet)

• EC defined from these perspectives– Communications– Business process (e.g. fulfillment, payment, security)– Service (e.g. e-banking, online job)– Collaborations (company, suppliers, banks, certificate

authorities “e.g. VerySign”, logistic partners)– Community (people involved in achieving the transactions)

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٧

EC Definitions (cont.)

E-business is a broader definition of EC that includes not just the buying and selling of goods and services,

• But also includes– Servicing customers– Collaborating with business partners– Conducting electronic transactions within an organization

• Ecommerce and e-business definitions are not the same

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The Dimensions of Electronic Commerce

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٩

Types of internet business models

Brick-and-mortar organizations• Traditional commerce: all dimensions are physical

Click-and-mortar• Business model where the web site is an extension of a

traditional bricks-and-mortar business• A mix of digital and physical dimensions

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Types of internet business models (cont’)

Pure-play• Are models that are based purely on the Internet• All dimensions are digital

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١١

EC Definitions & Concepts (cont.)

Ecommerce could be done over Internet or via other means

Non-Internet EC• VANs—value-added networks, networks that add communication

services (security, storage, backup) “e.g. transfer of salaries from KOC to banks”

• LANs—local area networks

• Using a smart card to buy a drink in a vending machine

• Using a cell phone to make an online purchase “m-commerce”

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١٢

Electronic Markets vs. Inter-organizational Systems

• E-markets– Buyers and sellers meet to

exchange• Goods• Services• Money• Information

• Interorganizational Information Systems (IOS)– Between two or more

organizations• Routine transaction processing• Information flow (e.g. تحصيل

( )مخالفات المرور

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١٣

1.2 Framework for E-commerce

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١٤

Framework for E-commerce

Support areas

Applications

Infrastructure

• EC applications are supported by infrastructure and 5 support areas

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١٥

Classification of EC by the Nature of the Transaction

• Business-to-Business (B2B)– Electronic sales of goods and services among businesses– EC model in which all of the participants are businesses or other

organizations

• Business-to-consumer (B2C) – Electronic retailing of product and services directly to

individual consumers

• Business-to-business-to-consumer (B2B2C) – EC model in which a business provides some product or service to a

client business

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١٦

Classification of EC by the Nature of the Transaction (cont’)

• Consumer-to-business(C2B)– Individuals who use the Internet to sell products or services to

organizations and /or seek sellers to bid on products or services they need

• Consumer–to-Consumer (C2C)– Consumer selling goods and services electronically to other

consumers– Individuals use Web for private sales or Exchange or Auctions

• M-Commerce (see more in More in Chapter 8) – EC transactions and activities conducted in a wireless

environment (e.g. handheld devices, Camera Mobile Phone, cell phones)

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١٧

Classification of EC by the Nature of the Transaction (cont’)

• Location-commerce—(l-commerce) – M-commerce transactions targeted to individuals in specific

locations, at specific times

• Intra-business (organizational) EC– EC category that includes all internal organizational activities

that involve the exchange of goods, services, or information among various units and individuals in an organization

• Business-to-employee (B2E)– EC model in which an organization delivers services, information,

or products to its individual employees

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١٨

Classification of EC by the Nature of the Transaction (cont’)

• Collaborative commerce (c-commerce):– EC model in which individual or groups (even companies) communicate or

collaborate online (e.g. to design a new product)

• E-government, Government-to-citizens (G2C) or to others– EC model in which a government entity buys or provides good, services, or

information to businesses or individual citizen

• Exchange (electronic)– A public e-market with many buyers and sellers, connect those in the steel

market– Exchange-to-exchange (E2E): EC model in which electronic exchanges

formally connect to one another for the purpose of exchanging information

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ١٩

Brief History of EC

• EC applications “Electronic funds transfer (EFT)” was first developed in the early 1970s

• But it was limited to:– Few large corporations– Financial institutions

“banks”

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢٠

Brief History of EC (cont.)

• Electronic data interchange (EDI)—electronic transfer of documents:– Purchase orders– Invoices– E-payments between firms

doing business

• Enlarged pool of participants to include:– Manufacturers

“automotive sector”– Retailers– Service providers

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢١

Brief History of EC (cont.)

• EC Successes– Pure online

• eBay• VeriSign• AOL

– Click-and-mortar• General Electric• IBM• Intel

• EC Failures– Mnet in Kuwait (2005 to 2007)– E-tailors began to fail in 1999– Boo.com Sweden (see you

assignment)– Large EC companies like

Amazon.com are expanding but success or failure is not certain

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢٢

1.3. Ecommerce Business Plans, Cases, and Models

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Business Plans & Business Cases

• Business plan– A written document that identifies the business goals and

outlines the plan of how to achieve them

• Business case– A written document that is used by managers to gather funding

for specific applications or projects.– Its major emphasis is the justification for a specific investment

“how the ecommerce project will add value to the company and how it contributes to achieve its objectives”

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢٤

New Business Model

• The new ecommerce project should target one type of new business models

• The new business model can substitute or complement a traditional business model (click & mortar or pure play)

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢٥

Definition of Business Model

• Is a method of doing business by which a company can generate revenue to sustain itself, how it delivers products or services (e.g. in stores)? And how the enterprise creates wealth (benefits) or generates revenue?

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢٦

Structure of Business Models

• Revenue model is a description of how a company or EC project will earn revenue

• Revenue sources are:– Sales – Transaction fees– Subscription fees– Advertisement fees– Other models (affiliate fees), receive commission for referring

customers to other web sites

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢٧

Examples of Internet Business Models

• Virtual Storefronts– Sell physical product on-line

• Information Brokers– Provide product pricing and availability information to

individuals and business

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢٨

Examples of Internet Business Models/ Transaction Broker & Content Provider

Transaction Broker• Saves users money and time by processing online sales

transactions, and provide information about rates and terms

Content Provider• Creates revenue by providing digital content such as

digital news, music, photos, video, storage over the web

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٢٩

Examples of Internet Business Models/ Online Marketplace

• Provide a digital environment where buyers and sellers can meet • Search for products and display products• Establish an environment where multiple buyers can purchase

from multiple sellers, e.g. eBay• There are two types: auctions and reverse auctions• Online auction: buyers submit the highest bid• Reverse auction: is the case when a consumers submit a bid (sets

price) to multiple sellers to buy goods or services at a buyer-specific price

•

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣٠

Examples of Internet Business Models

• On-line Service Provider– Provide online services for individuals and business

• Virtual Community– Provide online meeting place where people with similar

interests can communicate and find useful information

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣١

Affiliate marketing

• Is an arrangement whereby a marketing partner (business, organization or individual) refers consumers to the selling company’s Web site

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣٢

Viral marketing

• Is word-or-mouth marketing in which customers promote a product or service to friends or other people by using the Internet

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣٣

More Internet business models (cont’)

• Group purchasing– Is getting many small buyers together to buy in large

quantities

• Electronic tendering systems– Is a tendering system where sellers are invited to bid on the

fulfillment of an order to produce a product or provide a service; the lowest bid wins

• Electronic marketplaces and exchanges– Vertical marketplace is a marketplace that concentrates on one

industry; also called vertical portals or vortals

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣٤

1.4. Benefits & limitation of ecommerce

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣٥

Benefits of EC for organizations

Decrease search cost, offers significant cost savings• Time and money spent to locate suitable product • Decreases the cost of creating, processing, distributing,

storing and retrieving paper-based information

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣٦

) دك ١لماذا تدفع (تكاليف بعض العمليات البنكية

0.1استخدام االنترنت

24.استخدام الهاتف النقال

ATM (0.4( آلة السحب اآللي

1استخدام التليفون

2.5عملية في احدى الفروع البنكية

) $(تكلفة نوع العملية

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣٧

Benefits of EC for organizations (cont’)

• Reach high audience, and expand the marketplace– Expands the marketplace to national and international markets

• Increase information richness, and promote interactivity – Information that a business supplies to a customer and

information the business collects about the customer

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣٨

The Economic Effects of EC

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٣٩

Reach vs. Richness

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٤٠

Benefits to society

• Increase telecommuting • Allows some merchandise to be sold at lower prices• Benefits for people in less developed countries and rural

areas• Facilitates delivery of public services at a reduced cost,

increases effectiveness, and/or improves quality

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٤١

Benefits of EC to consumers

• Enables consumers to shop or do other transactions 24 hours a day, all year round from almost any location

• Provides consumers with more choices and with less expensive products and services by allowing them to shop in many places and conduct quick comparisons (what software?) Etc.

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٤٢

The Limitations of EC: Class discussion

What are these limitation?

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٤٣

The Digital Revolution and the Economic Impact of EC

In the Digital Revolution the economy is based on digital technologies including:

• Digital communication networks• Computers• Software• Other related information technologiesAlso called:• Internet economy• New economy• Web economy

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٤٤

The Digital Revolution and the Economic Impact of EC (cont’)

Digital networking and communication infrastructures provide a global platform where people and organizations:

• Interact• Communicate• Collaborate• Search for informationThe global platform includes these characteristics• A vast array of “digitizable” products• Consumers and firms conduct financial transactions digitally• Microprocessors and networking capabilities embedded in

physical goods

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٤٥

The Digital Revolution and the Economic Impact of EC (cont’)

• The term digital economy also refers to the convergence of computing and communication technologies on the Internet and other networks and the resulting flow of information and technology that is stimulate e-commerce

• This convergence enables all types of information (data, audio, video, etc.) to be stored, processed, and transmitted over networks to many destinations worldwide

• Web-based EC systems are accelerating the digital revolution by providing competitive advantage to organizations (see QM 240)

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٤٦

Class discussion: What is more efficient?

What is the best advertisement: e-advertisement over most well known web site “Google, Face book” or paper based

advertisement? Or Face-2-Face?

Dr K. ROUIBAH Chapter 1 (351) / dept QM & IS ٤٧

End chapter 1