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Prof. Anatoly Sachenko

Electronic Commerce Systems
I. LECTURE OVERVIEW

Foundation Concepts: Electronic Commerce systems introduce the basic process components of e-commerce systems, and discuss important trends, applications, and issue in e-commerce. Electronic Commerce: Electronic commerce encompasses the entire online process of developing, marketing, selling, delivering, servicing, and paying for products and services. The Internet and related technologies and ecommerce websites on the World Wide Web and corporate intranets and extranets serve as the business and technology platform for e-commerce marketplaces for consumers and businesses in the basic categories of business-to-consumer (B2C), (C2C) e-commerce. The essential processes that should be implemented in all ecommerce applications – across control and security, personalizing and profiling, search management, content management, catalog management, payment systems, workflow management, event notification, and collaboration and trading – are summarized in Figure 7.5 e-Commerce Issues: Many e-business enterprises are moving toward offering full-service B2C and B2B ecommerce portals supported by integrated customer-focused processes and internetworked supply chains as illustrated in Figure 7.11. IN addition, companies must evaluate a variety of e-commerce sector choices as outlined in Figure 7.12, and integration or separation alternatives and benefit trades-offs when choosing a clicks and bricks strategy and e-commerce channel, as summarized in Figure 7.21, 7.22, and 7.23. B2C e-Commerce: Businesses typically sell products and services to consumers at e-commerce websites that provide attractive Web pages, multimedia catalogs, interactive order processing, secure electronic payment systems, and online customer support. However, successful e-tailers build customer satisfaction and loyalty by optimising factors outlined in Figure 7.14, such as selection and value, performance and service efficiency, the look and feel of the site, advertising and incentives to purchase, personal attention, community relationships, and security and reliability. In addition, a Web store has several key business requirements, including building and marketing a Web business, serving and support customers, and managing a Web store, as summarized in Figure 7.16. B2B e-Commerce: Business-to-business applications of e-commerce involve electronic catalog, exchange, and auction marketplaces that use Internet, intranet, and extranet websites and portals to unite buyers and sellers, as summarized in Figure 7.18 and illustrated in Figure 7.19. Many B2B e-commerce portals are developed and operated for a variety of industries by third party market-maker companies called infomediaries, which may represent consortiums of major corporations.

II. LEARNING OBJECTIVES
• • • • • Identify the major categories and trends of e-commerce applications. Identify the essential processes of an e-commerce system, and give examples of how they are implemented in e-commerce applications. Identify and give examples of key factors and Web store requirements needed to succeed in e-commerce. Identify and explain the business value of several types of e-commerce marketplaces. Discuss the benefits and trade-offs of several e-commerce clicks and bricks alternatives.

III: LECTURE NOTES Section I: Electronic Commerce Fundamentals

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INTRODUCTION TO e-COMMERCE

Prof. Anatoly Sachenko

Electronic commerce is more than just buying and selling products online. Instead, it encompasses the entire online process of developing, marketing, selling, delivering, servicing, and paying for products and services purchased by internetworked, global global marketplaces of customers, with the support of a worldwide network of business partners. Electronic commerce systems rely on the resources of the Internet, intranets, extranets, and other computer networks. Electronic commerce can include: • Interactive marketing, ordering, payment, and customer support processes at e-commerce sites on the World Wide Web • Extranet access of inventory databases by customers and suppliers • Intranet access of customer relationship management systems by sales and customer service reps • Customer collaboration in product development via Internet newsgroups and e-mail exchanges. Analyzing Yahoo! Inc. We can learn a lot about the challenges and opportunities of retail electronic commerce from this case. Take a few minutes to read it, and we will discuss it (See Yahoo! Inc. in Section IX). THE SCOPE OF e-COMMERCE  Companies involved in e-commerce as either buyers or sellers rely on Internet-based technologies and e-commerce applications and services to accomplish marketing, discovery, transaction processing, and product and customer service processes. The Internet, Intranets, and extranets provide vital electronic commerce links between the components of a business and its customers, suppliers, and other business partners. This allows companies to engage in three basic categories of electronic commerce applications: • Business-to-Consumer (B2C) e-Commerce In this form of electronic commerce, businesses must develop attractive electronic marketplaces to entice and sell products and services to customers. Companies may offer: 1. e-commerce websites that provide virtual storefronts and multimedia catalogs. 2. Interactive order processing 3. Secure electronic payment systems 4. Online customer support • Business-to-Business (B2B) e-Commerce: This category of electronic commerce involves both electronic business marketplaces and direct market links between businesses. Companies may offer: 1. Secure Internet or extranet e-commerce websites for their business customers and suppliers. 2. Electronic data interchange (EDI) via the Internet or extranets for computer-to-computer exchange of ecommerce documents with their larger business customers and suppliers. 3. B2B e-commerce portals that provide auction and exchange markets for businesses. • Consumer-to-Consumer (C2C) e-Commerce: Successes of online auctions like e-Bay, allow consumers (and businesses) to buy and sell with each other in an auction process at an auction website. • Online consumer or business auctions are an important e-commerce alternative for B2C or B2B ecommerce. • Electronic personal advertising of products or services to buy or sell by consumers at electronic newspaper sites, consumer e-commerce portals, or personal websites is an important form of C2C e-commerce.

Electronic Commerce Technologies: [Figure 7.3]

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Technologies that are necessary for electronic commerce include: • Information technologies • Telecommunications technologies • Internet technologies

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ESSENTIAL e-COMMERCE PROCESSES: [Figure 7.5]

Prof. Anatoly Sachenko

The nine essential e-commerce processes required for the successful operation of management of e-commerce activities consist of: • Access control and security • Profiling and personalizing • Search management • Content management • Catalog management • Payment • Workflow management • Event notification • Collaboration and trading Access Control and Security: e-commerce processes must establish mutual trust and secure access between the parties in an e-commerce transaction by authenticating users, authorizing access, and enforcing security features. Profiling and Personalization: Profiling processes gather data on an individual and their website behavior and choices, and build electronic profiles of your characteristics and preferences. User profiles are developed using profiling tools such as user registration, cookie files, website behavior tracking software, and user feedback. Search Management: Efficient and effective search processes provide a top e-commerce website capability that helps customers find the specific product or service they want to evaluate or buy. Content and Catalog Management: Content management software helps e-commerce companies develop, generate, deliver, update, and archive text data, and multimedia information at e-commerce websites. e-commerce content frequently takes the form of multimedia catalogs of product information. Generating and managing catalog content is a major subset of content

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management.

Prof. Anatoly Sachenko

Content and catalog management may be expanded to include product configuration processes that support Webbased customer self—service and the mass customization of a company’s products. Configuration software helps online customers select the optimum feasible set of product features that can be included in a finished product. Workflow Management: e-business workflow systems help employees electronically collaborate to accomplish structured work tasks within knowledge-based business processes. Workflow management in both e-business and e-commerce depends on a workflow software engine containing software models of the business processes to be accomplished. The workflow model expresses the predefined sets of business rules, roles of stakeholders, authorization requirements, routing alternatives, databases used, and sequence of tasks required for each e-commerce process. Event Notification: Most e-commerce applications are event-driven systems that respond to a multitude of events. Event notification processes play an important role in e-commerce systems, since customers, suppliers, employees, and other stakeholders must be notified of all events that might affect their status in a transaction. Collaboration and Trading: This category of e-commerce processes are those that support the vital collaboration arrangements and trading services needed by customers, suppliers, and other stakeholders to accomplish e-commerce transactions. ELECTRONIC PAYMENTS PROCESSES Payments for the products and services purchased are an obvious and vital step in the electronic commerce transaction process. Concerns of electronic payments and security include: • The near-anonymous electronic nature of transactions taking place between the networked computer systems of buyers and sellers, and the security issues involved. • Electronic payment process is complex because of the wide variety of debit and credit alternatives and financial institutions and intermediaries that may be part of the process. • Varieties of electronic payment systems have evolved. New payment systems are being developed and tested to meet the security and technical challenges of electronic commerce over the Internet. Web Payment Processes: [Figure 7.8]

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Most e-commerce systems on the Web involving businesses and consumers (B2C) depend on credit card payment processes. Buy many B2B e-commerce systems rely on more complex payment processes based on the use of purchase orders. Both types of e-commerce typically use an electronic shopping cart process, which enables customers to select products from web-site catalog displays and put them temporarily in a virtual shopping basket for later checkout and processing. Electronic Funds Transfer: Electronic Funds Transfer ( EFT) systems are a major form of electronic commerce systems in banking and retailing industries. • EFT systems use a variety of information technologies to capture and process money and credit transfers between banks and businesses and their customers. Secure Electronic Payments: When you make an online purchase on the Internet, your credit card information is vulnerable to interception by network sniffers, software that easily recognizes credit card number formats. Several basic security measures are being used to solve this security problem. They include: • Encrypt (code and scramble) the data passing between the customer and merchant • Encrypt the data passing between the customer and the company authorizing the credit card transaction • Take sensitive information offline Security methods developed include: • Secure Socket Layer (SSL) - automatically encrypts data passing between your web browser and a merchant’s server. • Digital Wallet - you add security software add-on modules to your web browser. This enables your browser to encrypt your credit card data in such a way that only the bank that authorizes credit card transactions for the merchant can see it. • Secure Electronic Transaction (SET) - software encrypts a digital envelope of digital certificates specifying the payment details for each transaction. SET is expected to become the dominant standard for secure electronic payments on the Internet. 134

Prof. Anatoly Sachenko Section II: Electronic Applications and Issues
e-COMMERCE APPLICATION TRENDS e-commerce is changing how changing how companies do business both internally and externally with their customers, suppliers, and other business partners. How companies apply e-commerce to their business is also subject to change as their managers confront a variety of e-commerce alternatives. Analyzing ChemConnect and Heritage Services We can learn a lot about the challenges that companies face as they develop major e-commerce marketplaces from this case. (See ChemConnect and Heritage Services in Section IX). e-Commerce Trends: • B2C e-commerce has moved from merely offering multimedia company information (brochureware), to offering e-commerce services at web storefront sites with electronic catalogs and online sales. • Interactive marketing capabilities have been added to support a personalized e-commerce experience, and a totally integrated web store that completely supports a variety of customer shopping experiences. • B2C e-commerce is moving toward a self-service model where customers configure and customize the products and services they wish to buy. • B2B e-commerce started with website support of business customer self-service, and is moving toward automated intranet and extranet procurement systems. • B2B e-commerce participants were early users of extranets connecting trading partners, and are now moving strongly toward the use of e-commerce portals that provide auctions, exchange, and barter markets for business customers within or across industries. e-Commerce Sectors: [Figure 7.12]

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Another way to look at how companies have moved into e-commerce is to organize present and potential online services and products into a variety of e-commerce sectors that go beyond simple classifications. Figure 7.12 defines and describes six major e-commerce sectors that companies have chosen or can choose to operate in as they formulate their e-commerce strategies. These sectors include: • Infrastructure • Applications • Portals • Content • Services • Exchanges Stress from this Figure: How each sector differs in the online services and products they offer and the key customer values that drive their e-commerce activities. BUSINESS-TO-CONSUMER e-COMMERCE Electronic commerce on the Internet between businesses and consumers is accelerating the impact of information technology on consumer behavior and business processes and markets. e-Commerce Success Factors [Figure 7.14]

Prof. Anatoly Sachenko

A basic fact of Internet retailing (e-tailing) is that all web sites are created equal as far as the “location, location, location” imperative of success in retailing is concerned. No site is any closer to its customers, and competitors offering similar goods and services may be only a mouse click away. This makes it vital that businesses find ways to build customer satisfaction, loyalty, and relationships, so keep customers coming back to their Web stores. The key to e-tailing success is to optimize factors such as: • Selection and value • Performance and service efficiency • Look and feel of the site • Advertising and incentives to purchase • Personal attention • Community relationships • Security and Reliability WEB STORE REQUIREMENTS

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Most business-to-consumer e-commerce ventures take the form of retail business sites on the World Wide Web. The primary focus of such e-tailers is to develop, operate, and manage their websites to they become high-priority destinations for consumers who will repeatedly choose to go there to buy products and services. Developing a Web Store In order to launch your own retail store on the Internet, you must: • Build an e-commerce website. Many companies use simple website design software tools and predesigned templates provided by their website hosting service to construct their Web retail store. Larger companies can use their own software developers or hire an outside website development contractor to build a customdesigned e-commerce site. • Develop your website as a retail Web business by marketing it in a variety of ways that attract visitors to your site and transform them into loyal Web customers. Serving Your Customers Once your retail store is on the Web and receiving visitors, the website must help you welcome and serve them personally and efficiently so that they become loyal customers. Most e-tailers use several website tools to create user profiles, customer files, and personal Web pages and promotions that help them develop a one-to-one relationship with their customers. This can be done by: • Creating incentives to encourage visitors to register • Develop Web cookie files to automatically identify returning visitors • Contracting with website tracking companies for software to automatically record and analyze the details of the website behavior and preferences of Web shoppers. • Ensure that your website has the look and feel of an attractive, friendly, and efficient Web store.

Prof. Anatoly Sachenko

Managing a Web Store A Web store must be managed as both a business and a website, and most e-commerce hosting companies offer software and services to help you do just that. For example – service providers can offer their clients: • A variety of management reports that record and analyze Web store traffic, inventory, and sales results. • Build customer lists for e-mail and Web page promotions, or provide customer relationship management features to help retain Web customers. E-commerce software includes links to download inventory and sales data into accounting packages. • Twenty-four hours a day and seven day a week operation all year long. • Password and encryption protection of Web store transactions and customer records, and employ firewalls and security monitors to repel hacker attacks and other security threats. • Provide clients twenty four hour tech support to help them with technical problems BUSINESS-TO-BUSINESS e-COMMERCE Business-to-business electronic commerce is the wholesale and supply side of the commercial process, where businesses buy, sell, or trade with other businesses. B2B electronic commerce relies on many different technologies, most of which are implemented at e-commerce websites on the World Wide Web and corporate intranets and extranets. B2B applications include: • Electronic catalog systems • Electronic trading systems such as exchange and auction portals • Electronic data interchange • Electronic funds transfers • Etc. Many businesses are integrating their Web-based e-commerce systems with their e-business systems for supply chain management, customer relationship management, and online transaction processing, as well as to their traditional, or legacy, computer-based accounting and business information systems. This ensures that all electronic commerce activities are integrated with e-business processes and supported by up-to-date corporate inventory and other databases, which in turn are automatically updated by Web sales activities.

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E-COMMERCE MARKETPLACES: [Figure 5.18]

Prof. Anatoly Sachenko

Businesses of any size can now buy at business-to-business e-commerce marketplaces. A number of e-commerce marketplaces are used by businesses today. Many B2B e-commerce portals provide several types of marketplaces. For example: • An electronic catalog shopping and ordering site for products from many suppliers in an industry. • An exchange for buying and selling at negotiated prices. • An auction website for business-to-business auctions or products and services. These B2B e-commerce portals are developed and hosted by third-party market maker companies who serve as infomediaries that bring buyers and sellers together in catalog, exchange, and auction markets. Infomediaries are companies that serve as intermediaries in e-business and e-commerce transactions. Business value of using B2B ecommerce infomediary companies include: • Ability to makes business purchasing decisions faster, simpler, and more cost effective • Business buyers get one-stop shopping, accurate purchasing information, and impartial advice from infomediaries that they can’t get from the sites hosted by suppliers and distributors. • Businesses can negotiate or bid for better prices from a larger pool of vendors • Suppliers’ benefit from easy access to customers from all over the globe. CLICKS AND BRICKS IN e-COMMERCE E-business managers must understand the alternatives and benefit trade-offs that e-business enterprises face when choosing an e-commerce “clicks and bricks” strategy. They must be able to answer this important question – “Should we integrate our e-commerce virtual business operations with our traditional physical business operations, or keep them separate”? e-Commerce Integration: Many companies have chosen integrated clicks and bricks strategies, where their e-business is integrated in some major ways into the traditional business operations of a company. The business case for such strategies rests on: • Capitalizing on any unique strategic capabilities that may exist in a company’s traditional business operations that could be used to support an e-commerce business. • Gaining several strategic benefits of integrating e-commerce into a company’s traditional business; such as the sharing of established brands and key business information, and joint buying power and distribution efficiencies. Other Clicks and Bricks Strategies: Other clicks and bricks strategies range from: • Partial e-commerce integration using joint ventures and strategic partnerships

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Complete separation via the spin-off of an independent e-commerce company.

Benefits and challenges of a completely separate clicks and bricks strategy: • Access to venture capital funding, create an entrepreneurial culture, attract quality management, maintain a high degree of business flexibility, and accelerate decision-making. Stress to students: • That there is no universal clicks and bricks e-commerce strategy for every company, industry, or type of business. • Both e-commerce integration and separation have major business benefits and shortcomings. • Deciding on a clicks and bricks strategy depends heavily on whether or not a company’s unique business operations provide strategic capabilities and resources to successfully support integration with an e-commerce venture. e-Commerce Channel Choices: [Figure 7.22]

Some of the key questions that the management of companies must answer in making the clicks and bricks decision and developing the resulting e-commerce channel include: • What audiences are we attempting to reach? • What action do we want those audiences to take? – learn about us, to give us information about themselves, to make an enquiry, to buy something from our site, to buy something through another channel? • Who owns the e-commerce channel within the organization? • Is the e-commerce channel planned alongside other channels? • Do we have a process for generating, approving, releasing, and withdrawing content? • Will our brands translate to the new channel or will they require inflection? • How will we market the channel itself? An e-commerce channel is the marketing or sales channel created by a company to conduct and manage its chosen e-commerce activities. How this e-commerce channel is integrated with a company’s traditional sales channels (retail/wholesale outlets, catalog sales, direct sales, etc.) is a major consideration in developing its e-commerce strategy.

IV. KEY TERMS AND CONCEPTS - DEFINED
Clicks and Bricks Alternatives: Companies have a number of alternatives such as spin off, strategic partnership, joint venture, and in-house division. E-Commerce Channel An e-commerce channel is the marketing or sales channel created by a company to conduct and manage its chosen e-commerce activities.

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E-Commerce Marketplaces Internet, intranet, and extranet websites and portals hosted by individual companies, consortiums of organizations, or third-party intermediaries providing electronic catalog, exchange, and auction markets to unite buyers and sellers to accomplish e-commerce transactions.

Prof. Anatoly Sachenko

E-Commerce Auction e-commerce auction is an auction website which allows consumers (and businesses) to buy and sell with each other in an auction process. E-Commerce Catalog E-commerce catalog is a high-speed web-trading site, which offers electronic catalog shopping and ordering for products, which are offered by many suppliers in an industry. E-Commerce Exchange E-commerce exchange is a high-speed platform where buyers and sellers can interact to negotiate prices for products and services. E-Commerce Portal E-commerce portals are developed and hosted by third-party market maker companies who serve as infomediaries that bring buyers and sellers together in catalog, exchange, and auction markets. E-Commerce Success Factors: Some of the key factors for success in e-commerce include: selection and value, performance and service, look and feel, advertising and incentives, personal attention, community relationships, and security and reliability. E-Commerce Technologies: Electronic commerce can be viewed as depending on six layers of technology: application services, brokerage and data management, interface services, secure messaging, middleware services, and network infrastructure. Electronic Commerce Companies today are participating in or sponsoring three basic categories of electronic commerce applications: business-to-consumer, business-to-business, and consumer-to-consumer e-commerce. Electronic Commerce - Business-to-Business: In this form of electronic commerce, businesses must develop attractive electronic marketplaces to entice and sell products and services to customers. Electronic Commerce - Business-to-Consumer: This category of electronic commerce involves both electronic business marketplaces and directs market links between businesses. Electronic Commerce - Consumer-to-Consumer: The buying and selling, marketing and servicing, and delivery and payment of products, services, and information over the Internet, intranets, extranets, and other networks, between an internetworked enterprise and its prospects, customers, suppliers, and other business partners. Includes C2C e-commerce websites and portals for catalog, exchange, and auction markets. E-Commerce Sectors The organizing of present and potential online services and products into six  major e­commerce sectors that companies have chosen or can choose to operate  in as they formulate their e­commerce strategies.  Electronic Funds Transfer: The development of banking and payment systems that transfer funds electronically instead of using cash or paper documents such as checks. Essential e-Commerce Processes: The essential e-commerce processes required for the successful operation and management of e-commerce activities include: Access control and security, profiling and personalizing, search management, content management, catalog management, payment, workflow management, event notification, and collaboration and

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trading.

Prof. Anatoly Sachenko

Essential e-commerce Processes – Access Control and Security E-commerce processes must establish mutual trust and secure access between the parties in an e-commerce transaction by authenticating users, authorizing access, and enforcing security features. Essential e-Commerce Processes – Catalog Management E-commerce content frequently takes the form of multimedia catalogs of product information. Generating and managing catalog content is a major subset of content management. Essential e-Commerce Processes – Collaboration and Trading The major category of e-commerce processes are those that support the vital collaboration arrangements and trading services needed by customers, suppliers, and other stakeholders to accomplish e-commerce transactions. Essential e-Commerce Processes – Content Management Content management software helps e-commerce companies develop, generate, deliver, and update. And achieve text data, and multimedia information at e-commerce websites. Essential e-Commerce Processes – Electronic Payment Systems: Alternative cash or credit payment methods using various electronic technologies to pay for products and services in electronic commerce. Essential e-Commerce Processes – Event Notification Most e-commerce applications are event-driven systems that respond to a multitude of events. Event notification software works with workflow management software to monitor all e-commerce processes and record all relevant events, including unexpected changes or problem situations. Essential e-Commerce Processes – Profiling and Personalizing Profiling is used to gather data on customers and their website behaviour and choices to build an electronic profile of their characteristics and preferences. These profiles are used to recognize the customer as an individual user in order to create a one-to-one marketing strategy. Essential e-Commerce Processes – Search Management Efficient and effective search processes provide a top e-commerce website capability that helps customers find the specific product or service they want to evaluate or buy. Essential e-Commerce Processes – Workflow Management Workflow systems ensure that the proper transactions, decisions, and work activities are performed, and the correct data and documents are routed to the right employees, customers, suppliers, and other business stakeholders. Infomediaries: Infomediaries are companies that serve as intermediaries in e-business and e-commerce transactions. Trends in e-Commerce Some of the trends in e-commerce applications include Business-to-Consumer (B2C), Business-to-Business (B2B), and Consumer-to-Consumer (C2C). Web Store Requirement Essential Web store requirements necessary to implement to support a successful retail business on the Web including building, serving, and managing the Web store in order for it to be a successful e-commerce business.

V. DISCUSSION QUESTIONS
 Do you agree that most businesses should engage in electronic commerce on the Internet?  Are you interested in investing in, owning, managing, or working for a business that is primarily engaged in electronic commerce on the Internet?  Why do you think there have been so many business failures among “dot-com” companies that were devoted only to retail e-commerce?
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 Do the e-commerce success factors discussed in the chapter guarantee success for an ecommerce business venture?  What else could go wrong & how would you confront those challenges?  If personalizing a customer’s website experience is a key success factor, then electronic profiling processes to track visitor website behavior are necessary. Do you agree? What are the ethical implications?  All corporate procurement should be accomplished in e-commerce auction marketplaces, instead of using B2B websites that feature fixed-price catalogs or negotiated prices. Do you agree?  If you were starting an e-commerce web store, which of the business requirements listed in this chapter would you primarily do yourself, and which would you outsource to a Web development or hosting company?  Which of the e-commerce clicks and bricks alternatives discussed in this chapter would you recommend to Barnes & Noble? Amazon.com? Wal-Mart? Any business?

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