Chapter 1 Introduction to E-Business

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Course Overview
E-Commerce Basics Business Models and Strategies Architecture Security and Controls Billing and Payment Systems
Supply Chain Management, E-Procurement, Trading Exchanges and Auctions Customer Relationship Management and Business Intelligence Marketing Performance Measurement Regulatory Issues

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Agenda
Definition of e-commerce Distinction between e-commerce and e-business Quick History E-Commerce Models The e-conomy Benefits of e-commerce The internet as an enabler of e-commerce Effect on business Effect on the profession

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Definition of E-Commerce
“Exchange of economic value facilitated by electronic media” Carrying out business transactions in electronic form using computer and telecommunication networks Buying and selling over digital media

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Is it E-Commerce?
Customer shopping at an online store, payment online
YES! Trading Partner Interaction: Shopping Payment Medium: Internet Value Exchange: Information Money/Goods
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Is it E-Commerce?
Customer shopping at an online store, payment online
Transactions and Values Exchanges

Browsing Habits

Catalogue Info

Money

Goods/Services

Personal Info

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Is it E-Commerce?
Customer shopping at an online store, payment over the phone
YES! Trading Partner Interaction:  Catalogue Browsing Medium: Internet Value Exchange: Information

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Is it E-Commerce?
Customer shopping at an online store, payment over the phone
Transactions and Values Exchanges
Browsing Habits Catalogue Info

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How E-Commerce Differs from Traditional Commerce
Core strategic decisions are commingled with technology decisions Network economics – bigger network is better Speed-based competition – first mover advantage? The store is always open Screen-to-customer interface – mass customization Customer controls interaction Online behaviour can be tracked/measured – new metrics
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E-Commerce Drivers
Expand universe of potential buyers Increase sales Meet customer expectations Increase brand/product recognition Ease of doing business Competitive pressure Cost effectiveness Provide more information to customers Improve customer service New sales channel

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Agenda
Definition of e-commerce Distinction between e-commerce and e-business Quick History E-Commerce Models The e-conomy Benefits of e-commerce The internet as an enabler of e-commerce Effect on business Effect on the profession

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Essential Structure of E-Business

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E-Business
In addition to encompassing e-commerce, e-business includes many activities that do not involve direct exchange of economic value such as front and back office applications that form the engine for modern business; customer service and support, employee services, investor relations and shareholder services, etc. E-Business strategy provides the framework for carrying out ecommerce.

BackOffice

E-Business ECommer ce

Frontoffice

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Basic Tools of E-Business
Intranet Extranet Internet
Extranet Intranet Company A Halifax

Internet

Company B Toronto

Customers

Suppliers

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“Front-office” Customer-facing Activities
Attracting…and keeping User authentication Catalog display Availability Price comparison Order taking Credit check

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“Back-office” Activities
Sourcing (finding, pricing, ordering, inbound logistics/receiving, paying) Outbound logistics/delivery Billing Collection Post-delivery service

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Agenda
Definition of e-commerce Distinction between e-commerce and e-business Quick History E-Commerce Models The e-conomy Tech Bust Forces of change Effect on business Effect on the profession

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Quick History
E-commerce is older than the internet First e-commerce examples go back to the 60’s Examples of early e-commerce:
 

FACSIMILE (FAX) EDI (Electronic Data Interchange) moving to the internet

Today, primarily B2B B2C is growing

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Facsimile (FAX)
Fax is one of the first example of e-commerce, when used for electronic exchange of Line of Business documents The first Fax experiments are as early as 1851! Commercial success of Fax came over a century later Today, most Line of Business documents are exchanged via Fax

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Electronic Data Interchange (EDI)
A standard way of electronically encoding and exchanging Line of Business documents (such as POs and invoices) between organizations. Facilitated by private networks called VANs (Value Added Networks) or through the internet EDI is widely used by large corporations and government agencies to communicate with their suppliers; e.g., WalMart.

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EDI Standards
There is no single “universal” standard for EDI. Two major standards:
 

ANSI X 12 UN/EDIFACT

Various EDI “dialects” created by various large buyers

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EDI Documents
Pre-Order, RFQ* Purchase Order Advance Shipping Notice Invoice X12 840 X12 850 X12 856 X12 810

* RFQ = Request for Quote

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EDI Process

Propriet ary Format Docume nt

EDI Encode / Decode

EDI Docume nt

Send/Rc v.

Buyer

VAN

Vendor

Propriet ary Format Docume nt

EDI Encode / Decode

EDI Docume nt

Send/Rc v.

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Example EDI Sequence

Acknowle dge

ASN (EDI 856)

Invoice (EDI 810)

Buyer

Purchas e Order (EDI 850)

Acknowle dge

Acknowle dge

Vendor
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Beyond EDI
EDI is mostly used by large corporations High entry cost High operating costs due to expensive transmission through VANs Not a universally accepted “standard” Most EDI vendors now offer internet-based EDI solutions : reduce costs, do not solve interoperability issues

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The World Internet Population, 1995-2002

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The World Internet Population, 1995–2002
Internet Population Growth
Internet Users (Millions) 800 600 400 200 0 Year

1995 1996 1997 1998 1999 2000 2001 2002
SOURCE: Nua Internet (www.nua.ie/surveys/how_many_online/world.html)
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The World Internet Population, 2003
Country % Internet Penetration Sweden Hong Kong Australia Netherlands United States Denmark Iceland Switzerland United Kingdom South Korea Singapore New Zealand Germany Canada Finland 75.8% 67.0% 64.2% 63.7% 63.2% 62.7% 59.5% 58.6% 58.2% 56.1% 54.6% 54.5% 53.9% 53.1% 50.8% # Internet Users 6,726,808 4,571,936 12,823,869 10,351,064 184,447,987 3,375,850 175,000 4,319,289 34,387,246 26,270,000 2,308,296 2,063,831 44,139,071 16,841,811 2,650,000

SOURCE: Internet World Usage Stats (internetworldstats.com)
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Agenda
Definition of e-commerce Distinction between e-commerce and e-business Quick History E-Commerce Models The e-conomy Tech Bust Forces of change Effect on business Effect on the profession

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Business to Consumer E-Commerce
One of the trading partners is an end user of a product/service Authentication is optional Base catalogues and prices are identical for all users Payment is largely through credit card

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Examples of B2C E-Commerce
Retail:

Online store Online travel reservations ATM, Online Banking, Telephone Banking Online trading Online credit approval

Services:

Financial Services
  

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Business to Business E-Commerce
Both trading partners are businesses Authentication is required Catalogues and prices are account-specific Multiple payment methods/payment terms

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Examples of B2B E-Commerce
Manufacturing
 

Line of business document exchange Supply chain management Online procurement Online catalogue from distributor/manufacturer Airline reservation system Wire transfers Brokerage services
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Retail:
 

Services:

Financial Services:
 

Other “X” 2 “Y” Concepts
G 2 C - Utility payments B 2 E - Benefits, etc. C 2 C - Kazaa

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The Amazon Phenomenon
"Online, you can build a store that can't exist in real life--if we printed a catalog of what we offer, it would be the size of seven New York City phone books." Jeff Bezos

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The Beginning
Seattle-Based initiative, started in 1994 Site launched in July, 1995 Internally developed, started with 2 programmers Extensive testing, “soft launch” mode for a few months Unique Value Proposition: the most convenient way of buying books.

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Amazon.com’s Value Proposition
Traditional Bookstore
   

Amazon.com
 

 

<100,000 titles Focus on best-sellers Very long reorder times Little information about books Marginal discounts One-to-Many marketing

 

>2,000,000 titles Broad offering on hard to find titles Max ships in 6 weeks Plenty of information, reviews, etc. Heavily discounted prices (up to 40% off) One-to-One marketing

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Amazon.com today
Market capitalization: $11.5B
 

Barnes&Nobles market cap: $1.28B Barnes&Nobles.com market cap: $0.24B Barnes&Nobles.com Sales (as of Mar 31 2003): $422.3M

Sales as of Jan 31-2003: $4.17B

Not only a bookstore anymore, but a “shopping portal”: sells Music, Videos, Toys & Games, Electronics, Auctions Merchants @ program allows other vendors such as Toys’R’Us to sell products

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Dell.com
Dell’s business model has been to sell direct to the consumer, with no intermediaries (initially by telephone) In 1996, www.dell.com goes live The store sells both to businesses and to end consumers

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Dell.com’s Value Proposition
Traditional Computer Manufacturer
   

Dell.com
  

Relies on distribution chain No direct feedback from the end consumer Inflexible configurations Scarce availability of nonstandard configurations

No middle man Deals directly with customer Computers are configured online, and built according to user specifications No necessity of stocking preconfigured PCs

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Dell.com today
Market Cap $75.9B

Hewlett-Packard market cap: $50.8B

$50M+/day sales via the internet Sales through dell.com represent approx 50% of total sales for 2001 36 country-specific sites, 18 languages

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Agenda
Definition of e-commerce Distinction between e-commerce and e-business Quick History E-Commerce Models The e-conomy Tech Bust Forces of change Effect on business Effect on the profession

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The e-conomy
52% of US companies are selling online
Advertisers-2001) (Association of National

74% of US consumers have shopped online B2C Retail e-commerce 2002: $44 B
(shop.org)

(E&Y)

Worldwide B2C revenue 2003: $95 B

(Business Week 05/12/03)

Worldwide B2B revenue 2003: $2,400 B

(Business Week 05/12/03)

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Canadian Shopper Profile
3.6 million “holiday” shoppers in 2001 spent 1.16 billion 92% will repeat next year Average online purchase in 2001: $324
versus $228 in 2000 and $141 in 1999 (Ipsos-Reid, 2002)

25.6 % more unique visitors in 2001 11.2 % more time spent in 2001 Average Income: $61,540 Average Age: 42 Gender: Male (51%) Female (49%) Education: 40% college+
(Jupiter) (E&Y) (Jupiter)

(Jupiter Media Metrix)

(Jupiter Media Metrix)

(E&Y)

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Agenda
Definition of e-commerce Distinction between e-commerce and e-business Quick History E-Commerce Models The e-conomy Tech Bust Forces of change Effect on business Effect on the profession

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The Tech Bust
$ 100 B poured into 6,000 startups of which 2,000 have gone under 450 internet cos. that went public have lost 90%+ of stock values

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The Tech Bust
Ridiculous customer acquisition costs Excessive ‘burn rates’ Bad ideas - eg. Politics.com:
Revenue 3,604  Expenses 1,900,000

Losses due to expansion/acquisitions

i.e. Webvan

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A .com Failure

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But…the Tech Bust is not the end of the story…
E-Commerce is growing rapidly…$3.9 T worldwide in 2003* Of the 200+ public internet cos. that survived the Tech Bust, 40% earned a Q4 profit General spending on IT fell 6% between 2001-2003, but e-business spending rose 11% in 2002 e-Business spending comprises 27% of all tech spending Broadband use in U.S. has doubled since 2001 and is growing at a 50% rate Productivity increases are dramatic, but take several years 1/3 of economy still to be touched by it (agriculture, construction, health care)

* This slide is based on “The E-Biz Surprise” a cover story by Business Week 05/12/03

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Agenda
Definition of e-commerce Distinction between e-commerce and e-business Quick History E-Commerce Models The e-conomy Tech Bust Forces of change Effect on business Effect on the profession

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Forces of Change
Forces of change are:
 

Benefits of e-Commerce Removal of Barriers

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Benefits of E-Commerce
Cheaper Faster More convenient Better selection More customization/ personalization Richer package (e.g., additional information to customer – FedEx) Wider reach More controllable

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Cost of Banking Transactions (US Dollars)

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Removal of Barriers
Growing Access to Internet Security
 

Firewalls & Encryption PKI

Payment Systems PIPEDA Personal Information Protection and Electronic Documents Act

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Basic Firewall Architecture

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Forecasts
by 2003 50%-60% of US will be online # of online shoppers in 2003: 183 M % of international users by 2003: 65% B2B business by 2003: $ 2.3 T Yearly E-commerce growth: 250% Savings from E-commerce by 2002 - U.S. $600 B Savings from E-commerce by 2002 - World $1.3 T
(IDC) (IDC) (IDC)

(GIG) (GIG)

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Agenda
Definition of e-commerce Distinction between e-commerce and e-business Quick History E-Commerce Models The e-conomy Tech Bust Forces of change Effect on business Effect on the profession

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Effect on Business
Integration of strategies and processes

business and e-commerce goal congruence

Customer-centric value chain Pillars of e-commerce
information  relationships  transactions  security/control

All business will become e-business

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Strategic Business Trends
Supply Chain Management (SCM) ERP, ERP & SCM, CRM Integration Customization New Sales Channels Many small projects vs. risky megaprojects

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Flexible Business Design
Outsourcing Partnerships Joint ventures Mergers Takeovers

AOL - Time Warner $165,000,000,000 Verisign acquired Network Solutions for: $21,000,000,000
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Agenda
Definition of e-commerce Distinction between e-commerce and e-business Quick History E-Commerce Models The e-conomy Tech Bust Forces of change Effect on business Effect on the profession

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Effect on the Profession
New competencies for:
 

Advisory services Assurance services Trust Services – (i.e., WebTrust, SysTrust) other?

New standards:
 

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Thank you

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