Module: E-Commerce Systems

Lesson: Introduction to e-commerce

© 2020 Arden University Ltd. All rights reserved.

Arden University Limited reserves all rights of copyright and all other intellectual property rights in these learning materials. No part of
any learning materials may be reproduced, stored in a retrieval system or transmitted in any form or by any means, including
without limitation electronic, mechanical, photocopying, recording or otherwise, without the prior written consent of Arden
University Limited.
Introduction to e-commerce

What is e-commerce?

Before we delve deeper into this module, please watch the short video below (2.00 minutes),
which is about a young entrepreneur who set up her own e-commerce business.

Having watched the video, what are some of the observations you would make about the
business and its products? Record your thoughts in the My Notebook space.

rId10
A young entrepreneur describes their e-commerce site

By the end of this lesson you will be able to:

understand what e-commerce is

discuss e-commerce in relation to traditional commerce

describe different forms of e-commerce

understand the importance of revenue models in relation to business models for e-

commerce.

Defining e-commerce

In April 2000, the Organisation for Economic Co-operation and Development (OECD), ratified
two definitions of electronic and Internet transactions.

Broad definition: “An electronic transaction is the sale or purchase of goods or services,
whether between businesses, households, individuals, governments, and other public or
private organisations, conducted over computer mediated networks. The goods and services
are ordered over those networks, but the payment and the ultimate delivery of the good or
service may be conducted on or off-line.”

Narrow definition: “An Internet transaction is the sale or purchase of goods or services,
whether between businesses, households, individuals, governments, and other public or
private organisations, conducted over the Internet. The goods and services are ordered over
those networks, but the payment and the ultimate delivery of the good or service may be
conducted on or off-line.”

Source: OECD (2002)

Both of these definitions use the word transaction, in relation to goods or services. So, you
don’t have to purchase something physical, it could be a music download, or a movie
streamed to your PC. These transactions are described as happening between individuals,
businesses and government, so aren’t limited to a particular type of customer. Also, these

© 2020 Arden University Ltd. All rights reserved

transactions are conducted over networks i.e. the Internet.

Transactions, however, aren’t just about buying and selling. Kalakota and Whinston (1997,
cited in Chaffey et al. 2019) highlight that all activities around the sale could be considered
transactions, for example email communications before the sale and after. They suggest that
the definition of e-commerce could also cover aspects such as business processes, where
technology is used to automate transactions and workflows. Amazon is a good example of this.

Watch this short video (4.00 minutes) which shows how Amazon is using robots as part of its
automation processes:

https://www.youtube.com/watch?v=g6DIFpaoI6A&feature=emb_logo

Chaffey et al. (2019) make a distinction between buy-side and sell-side e-commerce. Buy side
is related to the transactions between an organisation and its suppliers. Sell side is concerned
with the transactions between an organisation and its customers. On the buy side, an
organisation will need to set up relationships with suppliers, which may involve the use of
technology and the sharing of information and resources so that the supplier can work with the
organisation to supply goods when needed. On the sell side, the organisation will need to use
technology to not only sell goods and services, but to develop relationships with customers so
that they keep coming back.

E-commerce can be classified as buy side or sell side and involves transactions, which aren’t
just about selling things.

Watch the following short video (1:47) which gives examples of buy-side and sell-side e-
commerce:

https://www.youtube.com/watch?v=1_dsXBIOyVU

Amazon is a global company that has revolutionised the online retail sector. What does
Amazon do that could be considered buy side or sell side? Find examples of each type and
post in the Lesson 1 discussion forum.

E-commerce versus traditional commerce

If we think of shopping before the Internet, the model was based on what is called the ‘brick
and mortar’ model. In other words, you would visit a store, perhaps on the high street, where
you would look at goods before you bought them.

What are the key differences between e-commerce and brick-and-mortar stores?

The first difference is location, or rather the lack of location as far as e-commerce is
concerned. E-commerce sales are online, through a website typically. A brick-and-mortar store
will have single or multiple locations, which means that these locations need to be staffed, rent

© 2020 Arden University Ltd. All rights reserved

has to be paid, heating and lighting is required etc.

In terms of payment, physical stores may accept credit cards, cash and some may accept
mobile payments. E-commerce stores can accept a variety of payments, including PayPal,
credit card, electronic wallets and cryptocurrencies.

Physical stores can offer more immediate customer service; online stores can use a variety of
tools to interact with customers, such as live chat, messaging, virtual assistants but perhaps
can’t offer the same sense of interaction that you get in a high street store.

It can potentially be cheaper and more flexible to set up an online store than a physical one,
partly because there are fewer barriers to setting up. There are many options to setting up an e-
commerce presence that don’t necessarily require expertise in the technical aspects of online
transactions, with many ready-made solutions available.

Some products lend themselves well to being sold online, others don’t. This article
discusses rId13
luxury shopping in the digital age
, highlighting that perhaps there is a consumer preference for buying expensive items in a
physical store rather than online.

So what are the benefits of e-commerce? From the customer perspective the research
literature points to aspects such as increased convenience, cost savings, time savings,
varieties of product to choose from. From a business perspective, the ability to reach a wider
audience is a key factor.

Some key benefits:

reduced costs, in terms of taking orders, providing product information, checking stock

can reach a wider market leading to increased sales

niche markets can be targeted more effectively.

Some key disadvantages:

not all products lend themselves to e-commerce

technical capability can be a limiting factor in terms of staff readiness to undertake e-

commerce

may be difficult to integrate e-commerce with existing systems.

Here are two academic articles discussing e-commerce from the perspective of customers
and businesses. Make notes about some of the key benefits identified in the research and
note them in your MyNotebook space.

© 2020 Arden University Ltd. All rights reserved

Article 1:

Article 2:

Categories of e-commerce

We talked about definitions of e-commerce and the fact that e-commerce isn’t just about
selling but the various processes involved in selling, which are either behind the scenes or are
about engaging with the customer.

We can break e-commerce down into categories, depending on who the customer is and the
type of transactions being conducted. Some of the primary categories are:

B2B - Business to Business

These are transactions between businesses. This might be a supermarket chain working with a
wholesaler. It may occur when a manufacturer needs materials to create their products.

Here’s an example: Watsco is an American company that sells HVAC - air-conditioning

equipment. They have seen continued growth in their e-commerce sales, where contractors
are installing HVAC in buildings. They discuss the importance of e-commerce rId16
on their website
.

Businesses might use e-commerce to lower their transaction costs, or to improve how they
receive goods needed to manufacture their products. They might also form alliances in order to
collectively bargain for better prices from suppliers.

B2C - Business to Consumer

These are transactions between business and consumers, where the Internet is used to
connect with these consumers. A lot of the sites you may already be using, such as Amazon,
or Next, would be classed as B2C. Here’s an article about a couple who set up rId19
an online business selling socks
that has seen massive growth in sales. Note that they are an example of B2C AND B2B, in that
they sell to consumers but also engage with other businesses to manufacture their product.

C2C - Consumer to Consumer.

These are transactions between individuals. Auction sites such as eBay are an example of a
site that allows individuals to sell products to other individuals. Apps such as Shpock are also
used by individuals to sell items they may no longer need.

There are other categories, such as B2G Business to Government, C2B Consumer to
Business. More detail can be found in the Chaffey core text on page 22.

© 2020 Arden University Ltd. All rights reserved

Here are two case studies on e-commerce. One is about B2B, the other is B2C. Read through
the case studies and identify some of the key issues in either context. Record these in your
MyNotebook.

rId20
A case study about a pet food company using B2B

rId21
A case study about online clothing retail B2C.

Business and revenue models

We’ve looked at the different categories of e-commerce, but how do you actually earn money
when running an e-commerce operation? This section will look at business models and
revenue models in the context of e-commerce.

A business model encompasses a set of activities which are designed to result in a profit from
the marketplace. These activities can include:

Value proposition - why should the customer buy from you?

Revenue model - how will you earn money?

Market opportunity - who do you serve and how big is the market?

Competitive environment - who else occupies your marketplace?

Competitive advantage - what insight or expertise do you have?

Market strategy - 4 p’s, how you intend to raise awareness amongst the audience.

A business model can be quite broad in its scope but it can be thought of as the plan for the
operation of a business, identifying sources of revenue, the intended customer base and
products.

You can see that the revenue model is listed as part of the activities of the business model.
The revenue model is how you bring money into the business.

Here are some common revenue models in e-commerce:

Catalogue model

Sell goods and services on the web. Based on a mail order catalogue.

Examples:

Computers - Dell

© 2020 Arden University Ltd. All rights reserved

Books, music and videos - Amazon, HMV

Digital content

Firms that own intellectual property that is not in a physical form. They use the web as a
distribution mechanism.

Examples:

Lexis Nexis, iTunes, Netflix

Advertising supported

Provide free content which is supported by advertising messages. There are many examples
of this in print and broadcast media.

Examples:

YouTube, The Guardian

Advertising/subscription mixed

Subscribers pay a fee and accept some level of advertising or offers some free content at the
site but you subscribe to get more.

Examples:

New York Times, Twitch, Patreon

Fee for transaction

Offer a service and charge a fee based on number or size of transactions processed.

There are two types:

value chain disintermediation - buyers and sellers cutting out the middleman and trading
directly with one another

value chain reintermediation - introducing a new intermediary.

Examples: Expedia, Ticketmaster

Fee for service revenue model

The fee is based on the value of service provided.

Examples:

Online games, IP telephony, online concerts and films

More than one revenue model may be employed by a company in order to generate income.

© 2020 Arden University Ltd. All rights reserved

Here is an academic article rId22
discussing business models and revenue models
in a lot more detail. Read the article and make notes in your MyNotebook about the key
features of revenue models.

Think about the sites you use often. They may be sites where you buy things, or access
entertainment. In the discussion forum for this lesson highlight three of the sites you use
regularly and talk about their revenue model. Is it just one, or multiple? If it’s a free site would
you pay for it if it changed its model to paid? If not, why not?

Summary

This lesson explored definitions of e-commerce and its relationship with traditional commerce.
It also highlighted the different categories of e-commerce, such as B2B and B2C. We looked at
business models and revenue models and how companies generate income from e-
commerce.

There are advantages and disadvantages in adopting e-commerce as part of a business model
and these have to be taken into account when deciding to move into e-commerce.

Reflection

Congratulations you have come to the end of this lesson! You should now take this time to
reflect on the lesson and what you have learned.

As you reflect on this lesson, we would like you to think about some of the e-commerce sites
you have used in the past.

Are you comfortable with online buying? How much do you spend online?

Do you have any concerns about shopping online?

If you were going to create an e-commerce business, what would your product be? How
would you generate revenue?

Record your thoughts on your MyNotebook space.

© 2020 Arden University Ltd. All rights reserved

Further and wider reading

Key Text

Chaffey, D., Hemphill, T. and Edmundson-Bird, D., 2019. Digital Business and E-
Commerce Management, Chapter 1., Pearson. Available from:

Wider Reading

Organisation for Economic Co-operation and Development (OECD). 2019. Unpacking E-

commerce: Business Models, Trends and Policies [online]. Paris: OECD Publishing, Paris.
Available from: [Accessed 7 May 2020].

Office for National Statistics (ONS). 2020. E-Commerce and ICT Activity, UK: 2018
[online]. Office for National Statistics. Available from: [Accessed 7 May 2020].

The London schoolgirl running her own e-commerce business https://www.bbc.co.uk/news/av

/business-49582650/the-london-schoolgirl-running-her-own-e-commerce-business [Accessed
20 May 2020].

Meet Amazon’s new robot army shipping out your products

https://www.youtube.com/watch?v=g6DIFpaoI6A&feature=emb_logo [Accessed 20 May
2020].

Ecommerce sell-side buy-side https://www.youtube.com/watch?v=1_dsXBIOyVU [Accessed

20 May 2020].

Luxury shopping in the digital age http://www.sipepdesign.com/wp-

content/uploads/2015/10/McKinsey-Study-Luxury-shopping-in-the-digital-age.pdf [Accessed
20 May 2020].

The consumer benefits and problems in the electronic grocery store

https://www.sciencedirect.com/science/article/abs/pii/S0969698901000248 [Accessed 20
May 2020].

Adoption intentions and benefits realised: a study of e-commerce in UK SMEs

https://www.emerald.com/insight/content/doi/10.1108/14626000210450522/full/html
[Accessed 20 May 2020].

Winning with a smart mobile ordering strategy https://assets-global.website-files.com/5b4cba

745747fc75a4a46040/5d5ae413b1398c8d9d4457ce_CS-PetFoodExperts.pdf [Accessed 20
May 2020].

Case study on online retailing fast fashion industry http://ijeeee.org/Papers/031-Z0014.pdf

[Accessed 20 May 2020].

References

© 2020 Arden University Ltd. All rights reserved

Organisation for Economic Co-operation and Development (OECD). 2002. Measuring the
Information Economy 2002 [online]. OECD. Available from: [Accessed 20 May 2020].

© 2020 Arden University Ltd. All rights reserved

© 2020 Arden University Ltd. All rights reserved
 © 2020 Arden University Ltd. All rights reserved

Powered by TCPDF (www.tcpdf.org)