CHAPTER 14 OUTLINE

 An Introduction To E-Commerce And E-Business. E-business is the use of electronic means to enhance business
processes. E-business encompasses all forms of on-line electronic trading, consumer-based e-commerce, plus
business-to-business electronic trading and process integration, as well as the internal use of IP and related
technologies for process integration inside organizations. E-commerce is electronically enabled transactions
between a business and its customers. E-business is a broader concept that includes not only electronic trade with
customers, but also servicing customers and vendors, trading information with customers and vendors, and
electronic recording and control of internal processes. The most common method of conducting e-commerce and e-
business uses the Internet to electronically exchange data. However, there are other forms of conducting business
electronically. These other methods, such as EDI and EFT, use private lines or value-added networks (VAN) to
connect companies together electronically.
 The History Of The Internet. In 1965, a researcher at MIT connected a computer in Massachusetts to a computer in
California using dial-up telephone lines. In 1969, the large computers at four major universities were connected via
leased telephone lines. This network grew into a network used by the United States Defense Advanced Research
Project Agency and was called ARPANET. Packet switching and routers are necessary to send data over the network.
Packet switching is the method used to send data over a computer network. A router is an electronic hardware
device that is located at the gateway between two or more networks. The router forwards these packets of data
along the best route so that the data reaches its destination. E-mail, which is simply another form of data that can
be transmitted over a network, was adapted to ARPANET in 1972. Ray Tomlinson, of BBN Technologies, developed
the idea of using the @ symbol to separate the username from the address. To share data over various computers on
a network, a common communication method, or protocol is needed. A protocol is a standard data communication
format that allows computers to exchange data. In the 1970’s, BBN technologies helped develop the TCP/IP protocol
that continues in use in the Internet today. In 1986, the National Science Foundation funded and began to develop a
backbone set of servers, gateways, and networks that eventually became what we now call the Internet. In 1993,
Marc Andreessen developed the first graphical user interface (GUI) browser that he named Mosaic. In 1995, the NSF
relinquished control of the Internet backbone to commercial enterprises and the NSF funded backbone was
separated from the Internet and returned to a research network. Since that time, all Internet traffic has been routed
through commercial networks. There was exponential growth of the Internet during the late 1990’s.
 The Physical Structure And Standards Of The Internet.
o The Network. The Internet is comprised of backbone providers, network access points, regional Internet Service
Providers (ISPs), local ISPs, and Internet subscribers. A backbone provider is an organization that supplies access
to high-speed transmission lines that make up the main network lines of the Internet. Regional ISPs connect to
the backbone through lines with less speed and capacity than the backbone. Local ISPs connect individual users
to the Internet. These Internet subscribers are connected to local ISPs using either dial-up modems, digital
subscriber lines (DSL), or cable TV lines. A Web server is a computer and hard drive space that stores Web pages
and data. These Web servers respond to requests for Web pages or data, and transmit the Web pages or data
over the network.
o The Common Standards Of The Internet. Since any computer can theoretically link to any other computer on
the Internet, there must be common and standard methods to display and communicate the data transmitted
via the Internet. The standard protocol is TCP/IP. HTML is hypertext markup language. Nearly all Web sites use
HTML to format the words, data, and pictures that you see on a Web page. In addition to a standard
communication protocol and a standard formatting language for Web pages, there must also be a common
addressing method to store and locate Web pages. The addresses of Web sites and Web pages use a Uniform
Resource Locater (URL) address. Domains have a suffix that indicates the type of organization owning the rights
to that domain name. These include .com for companies, .edu for educational institutions, and .org for non profit
organizations. There are specialized servers on the Internet called Domain Name Servers (DNS), the function of
which is to store, index, and provide the IP address for each domain name. Secure Sockets Layering is an
encryption system in which the Web server and the user’s browser exchange data in encrypted form.
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  E-Commerce and Its Benefits. In our context, e-commerce will refer to web-based e-commerce. Also, e-commerce
will refer to business to consumer (B2C) sales. Conversely, e-business will include business to business (B2B)
electronic transactions. B2C sales are usually conducted between a retail or service company and a consumer,
wherein the consumer interacts with the business via the website. Both parties benefit from the increased access to
the market, the speed and convenience of e-commerce, and ability to share information.
o Benefits Of E-Commerce For The Customer. .
1. Access to broad market for goods and services. By using e-commerce, the customer is not constrained by
geography or geographic boundaries.
2. E-commerce provides more convenient shopping for customers.
3. The wider access to the marketplace provides more choices to the customer.
4. E-commerce is likely to provide lower prices.
5. The information sharing aspect of the Internet and World Wide Web allows the customer to exchange
information with businesses before, during, or after the purchase.
6. E-commerce can allow quicker delivery of the product.
7. Customers can receive targeted marketing from businesses that they frequently purchase from.
o Benefits Of E-Commerce For The Business.
1. A broader market, including the potential of a global market for even small businesses
2. Dramatically reduced marketing costs.
3. The potential for much richer marketing concepts that include video, audio, product comparisons, and
product testimonials or product tests.
4. The company can quickly react to changes in market conditions.
5. The business using e-commerce is likely to experience reduced order processing and distribution costs.
6. The convenience aspect of e-commerce for the customer means that the business is likely to experience
higher sales.
7. Higher sales coupled with reduced marketing, order processing, and distribution costs can lead to much
higher profits
o The Combination Of E-Commerce And Traditional Commerce. Traditional forms of commerce are catalog and
store commerce. However, in the retail environment of today, most retailers or service businesses use a
combination of traditional commerce and e-commerce. Traditional forms of commerce have changed to
incorporate e-commerce. However, the reverse is true also. Many e-commerce retailers that began purely as e-
commerce forms of business have found that they must add the traditional customer interaction in the form of
stores or offices. A company that is purely traditional stores in e-commerce is called a brick and mortar retailer.
At one point in the evolution of e-commerce, businesses that were purely web-based were called e-tailers. As
businesses merged the two, the combined form of business is referred to as a clicks and mortar business.
Alternatively, some call this form of business bricks and clicks.
 Privacy Expectations in E-Commerce. The fourth risk area of IT systems described in the AICPA Trust Services
Principles is “Online Privacy”. The Trust Services Principles say that the “online privacy principle focuses on
protecting the personal information an organization may collect from its customers through its e-commerce
systems.” The Trust Services Principles explain ten privacy practices that an organization should follow to insure
adequate customer confidence regarding privacy of information, as follows:
 Management
 Notice
 Choice and Consent
 Collection
 Use and retention
 Access
 Disclosure to third parties
 Security for privacy
 Quality

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  Monitoring and enforcement
 E-Business and IT Enablement. The business processes enabled by IT systems can be internal processes and external
processes. Examples of internal processes are the movement of raw materials within a company, the timekeeping
and labor management of workers, the dissemination of employee information such as health and retirement
benefits, and the sharing of data files among workers. Examples of external processes are those that involve
suppliers and distributors. The supply chain is the set of linked processes that take place from the acquisition and
delivery of raw materials, through the manufacturing, distribution, wholesale, and delivery of the product to the
customer. The inter-dependency of entities in the supply chain implies that companies should be interested in
enhancing and streamlining the processes and exchanges that occur throughout the supply chain. Any of these
processes or linkages between entities can be enabled or enhanced by the use of IT systems. These interactions
between the entities within the supply chain can be a point at which e-business can be applied. E-business can
streamline or reduce costs along any of these interactions within the supply chain.
o B2B – A Part Of E-Business. B2B is the sale of products or services between a business buyer and a business
seller that is electronically enabled by the Internet. In B2B sales, neither buyer nor seller is an end-user
customer. B2B transactions between supplier and buyer conducted via the Internet offer many advantages to
both parties. Internet based transactions offer a wider potential market, reduced transaction cost, and higher
profits. B2B will also result in faster cycle times for the purchases from suppliers. This results from the increased
efficiency of processing transactions via the Internet. B2B transactions involve two IT systems exchanging data
through the Internet network. The Internet allows companies to reduce or eliminate manual activities such as
keying the order into the computer system, mailing documents to initiate the order, entering receipt of goods,
and the keying of documents to initiate payment. This eliminates data errors since data may longer be
manually keyed into the system. When comparing B2C and B2B, the following is true of B2B:
 The order would have many line items and the dollar amount of each sale is usually large.

15. (SO 1) How do e-commerce and e-business differ?

E-business is a very broad concept that includes any electronically enabled business process. E-business can include
electronic enhancements of processes with trading partners, as well as internal processes. E-commerce is a subset of e-
business and it includes electronic sales between a retail business and an end consumer. E-commerce is conducted via
the Internet, while e-business could use the Internet as well as other electronic means.

41. (SO 1) Much of the e-business and e-commerce conducted by companies uses the Internet as the form of
electronic communication. Describe other electronic means to conduct e-business or e-commerce.
Electronic Data interchange (EDI) and Electronic Funds Transfer (EFT) are other communication means.

42. (SO 3) How does the use of HTML, URLs, domain names, and SSL contribute to an Internet that can be
used world-wide? There are many different types or brands of computers throughout the world and these computers
use different operating systems. There must be some common standards within the Internet to allow these various types
of computers to read and interact with the Internet. HTML, URLs, domain names, and SSL are all standards in use world-
wide that facilitate a user-friendly Internet. Without such common standards, it would not be as easy to connect to and
use the Internet.

43. SO 4) Describe the benefits to the consumer of B2C sales. Customers benefit in through increased access,
speed, convenience, and information sharing inherent in B2C sales. They have access to a broader market, 24 hours a

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 day, every day, and therefore more product choices. B2C also often results in lower prices, q2uicker deliver, and
marketing targeted specifically to the customers needs. Customers also sometimes have the opportunity to conduct live
chats with company representatives, or can view FAQs about the products.

60. Trudy’s Trendy Threads. (TTT) and delivery problems. Required:

a. Speculate as to potential causes of this problem. It appears that Alex and possibly other sales representatives are
making date entry errors as they enter the delivery information. Aaron’s original sales order files specify delivery to the
retail stores and this would indicate that customers are not making the error as they e-mail sales orders, but that Aaron
is making data errors as he enters delivery information.
b. What additional information would be needed to determine the actual cause of this problem? A computer log of the
transactions may help determine the errors.
c. What controls could be implemented to avoid repeated instances of this problem? It is probably not possible to
avoid some errors, but not all. BBI could possibly reduce these errors by instituting a few policies or practices. One
practice might be to sales reps to choose delivery ocati0n via a drop-down box rather than keying in delivery data.
Another useful practice would be to require sales reps to print the order data as entered, and compare it to the original
sales order before confirming the order in the online system. Another option may be to eliminate one step in the sales
order process. Rather than having sales reps enter order information in a web browser, the customer could enter the
data. This would eliminate the steps of the customer e-mailing the order and the sales rep entering the order. The
customer could also make data entry errors, but typically, removing extra human steps reduces the total number of
errors.

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