E-commerce

business. technology. society.

Chapter 1

The Revolution Is Just

Beginning
 What is E-commerce?

 Involves digitally enabled commercial transactions

between and among organizations and individuals
 Digitally enabled transactions include all transactions mediated by
digital technology

 Commercial transactions involve the exchange of value across

organizational or individual boundaries in return for products or
services
 E-commerce vs. E-business

 E-business:
 Digital enablement of transactions and processes within a firm,
involving information systems under firm’s control

 Does not include commercial transactions involving an exchange of

value across organizational boundaries
 Why Study E-commerce?

 Technology is different and more powerful than other

technologies
 Has challenged much traditional business thinking

 Has a number of unique features that help explain why

we have so much interest in e-commerce
 Unique Features of E-commerce Technology

 Ubiquity
 Global reach
 Universal standards
 Information richness
 Interactivity
 Information density
 Personalization/customization
 Social technology
Unique Features of E-commerce Technology

Ubiquity
Commerce is available just about everywhere, at all times
It liberates the market from being restricted to a physical space
(e.g. m-commerce)
Marketspace (instead of marketplace)
Reduces limitations of temporal (time) and geographical locations (place)
Reduces transaction costs
Examples of transaction costs are telephone calls, filling up forms, filing,
searching for information, recording relevant information of transactions
Reduces cognitive energy (mental effort) to transact
 Unique Features of E-commerce Technology

Global reach
Permits commercial transactions to cross cultural and
national boundaries far more convenient and cost effectively
than in the past
Increases the potential market size
Reach
A measure of the number of users or potential customers an
e-business can obtain
Television and newspapers can reach a specific region, and at
best one whole country
Unique Features of E-commerce Technology

Universal standards
Strength of e-commerce technologies is that it employ universal
standards
Easily and readily adopted by most countries in the world
Not true with telephones, radio and television
Television signals, for example, are different between some countries
Unique Features of E-commerce Technology

Richness
Richness refers to the complexity and content of a message
Traditional markets
Provide personal, face-to-face services using aural and visual cues
Challenge of e-commerce is to find ways to overcome lack of
richness when communicating with customers
The Web, multimedia technology and interactive nature of web sites have
improved the richness of communication in business transactions
What it lacks in richness is compensated with reach
Unique Features of E-commerce Technology

Interactivity
Technology allows for two-way communication between seller and
consumer
Television, radio and newspaper do not offer interactivity like the
Web
 Unique Features of E-commerce Technology

Information density
Reduce cost of
Information collection, storage, processing and communications
Increases the currency, accuracy and timeliness of information
Prices and costs become more transparent
Price transparency refers to the ability of customers to find out the
variety of prices in the market
Cost transparency refers to the ability of customers to find out the
cost sellers pay for products
 Unique Features of E-commerce Technology

Information density
The more sellers know about customers, the better able for them
to implement price discrimination
Price discrimination takes place when a seller sells products or
services at different prices to different buyers (depending on the
buyers’ willingness to pay)
 Unique Features of E-commerce Technology

Personalization
Target their marketing messages to specific individuals by adjusting
the message to a person’s name, interests, and past purchases
Customization
Design and produce the delivered products or services based on the
buyer’s preferences or prior behaviour
 Web 2.0
 The “new” Web
 Applications and technologies that allow users to:
 create, edit, and distribute content
 share preferences, bookmarks, and online personas
 participate in virtual lives
 Build online communities
 Examples
 YouTube, Photobucket, Flickr
 MySpace, Facebook, LinkedIn
 Second Life
 Wikipedia
 Types of E-commerce

 Classified by nature of market relationship

 Business-to-Consumer (B2C)
 Business-to-Business (B2B)
 Consumer-to-Consumer (C2C)

 Classified by type of technology used

 Peer-to-Peer (P2P)
 Mobile commerce (M-commerce)
 The Internet

 Worldwide network of computer networks built on

common standards
 Created in late 1960s

 Services include the Web, e-mail, file transfers, etc.

 Can measure growth by looking at number of Internet

hosts with domain names
 The Web

 Most popular service on the Internet

 Developed in early 1990s
 Provides access to Web pages (HTML documents)
 Can include text, graphics, animations, music, videos
 Web content has grown exponentially, from around 2
billion Web pages in 2000 to around 40 - 50 billion
today
 Potential Limitations on the Growth of B2C E-
commerce

 Expensive technology

 Sophisticated skill set

 Persistent cultural attraction of physical markets and

traditional shopping experiences
 Persistent global inequality limiting access to
telephones and computers
 Saturation and ceiling effects
 The Visions and Forces Behind E-commerce:
1995–2000

 Computer scientists: Envisioned an inexpensive,

universal communications and computing
environment accessible by all
 Economists: A nearly perfect competitive market and
friction-free commerce
 For entrepreneurs, financial backers and marketing
professionals: An extraordinary opportunity to earn
far above normal returns on investment
 Assessing E-commerce: Successes, Surprises
and Failures

 Stunning technological success

 A mixed success from business perspective
 Many early visions not fulfilled
 Friction-free commerce
 Consumers less price-sensitive than expected
 Considerable price dispersion remains
 Perfect competition
 Transaction costs still high
 Intermediaries remain
 Predictions for the Future

 E-commerce technology will continue to propagate through all

commercial activity
 E-commerce prices will rise to cover the real cost of doing
business on the Web and pay investors reasonable rate of return
 E-commerce margins and profits will rise to levels more typical
of all retailers
 Traditional Fortune 500 companies will play growing and
dominant role
 Number of successful pure online companies will decline; most
successful e-commerce firms will adopt mixed “clicks and
bricks” strategies
 Growth of regulatory activity worldwide
Cost Reduction Benefits
 Reduced travel costs
 Reduced cost of materials
 Reduced marketing and distribution costs
 Reduced sales cost
 More efficient supply chain management
 Improved internal functions
Market Benefits
 Greater reach
 More brand awareness
 Improved customer service
 Increase market awareness
Other Competitive Benefits
 Increased efficiency
 Continuous trading
 Specialization
Risks of E-commerce
 E-commerce will bring extra costs as well as cost
saving!
 E-commerce may divert attention away from more
important ‘offline’ activities!
 An e-commerce venture may well fail completely!
 However, there are also risks of ignoring e-
commerce!
 E-commerce Ladder
Web Integration
Business
Transformation

Web Transacting
E-commerce
Transacting Online

Web Interacting
E-business
Business Benefits

Bulletin Boards
Placing Orders Solutions
Receiving Orders

Web Publishing
Company Information
Brochure
Getting Online
E-mail Accessing
Information

Starting Out
Simple messaging Organizational Impact
Mobile Communication

Simple Package
 E-commerce: A Brief History

 1995-2000: Innovation
 Key concepts developed
 Dot-coms; heavy venture capital investment

 2001-2006: Consolidation
 Emphasis on business-driven approach

 2006-Present: Reinvention
 Extension of technologies
 New models based on user-generated content, social
networks, services

Slide 1-28 Copyright © 2011 Pearson

Education, Inc.