Chapter 1

Overview of Electronic Commerce

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 Learning Objectives

1. Define electronic commerce (EC) and

describe its various categories.
2. Describe and discuss the content and
framework of EC.
3. Describe the major types of EC
transactions.
4. Describe some EC business models.
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 Learning Objectives (cont.)

5. Describe the benefits of EC to

organizations, consumers, and society.
6. Describe the limitations of EC.
7. Describe the role of the digital revolution
in EC.
8. Describe the contribution of EC to
organizations responding to environmental
pressures.

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 Marks & Spencer—A New
Way to Compete
The Problem
UK-based, upscale, global retailer of
high-quality, high-priced merchandise
faces stiff competition, since economic
slowdown that started in 1999
Critical success factors
Customer service
Appropriate store inventory system
Efficient supply chain activities
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 Marks & Spencer (cont.)

The Solution
M&S realized that digital era survival
depends on the use of information
technology in general and electronic
commerce in particular
Electronic commerce (EC, e-commerce)—
a process of buying, selling, transferring,
or exchanging products, services, and/or
information via electronic networks and
computers
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 Marks & Spencer (cont.)

M & S initiated several EC initiatives,

including:
Security
Warehouse management
Merchandise receiving
Inventory control
Speeding up the supply of fashion
garments
Collaborative commerce
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 Marks & Spencer (cont.)

The Results
As of summer 2002, a turnaround is
underway
M & S has become a leader and example
setter in retailing, resulting in increased
profitability and growth

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 Marks & Spencer (cont.)

What can we learn…

Traditional brick-and-mortar companies face
increasing pressures in a competitive marketing
environment
A possible response is to introduce a variety of e-
commerce initiatives that can improve
supply chain operation
information
money from raw materials through factories
increase customer service
open up markets to more customers
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 Electronic Commerce:
Definitions and Concepts
The Internet has emerged as a major, perhaps
eventually the major, worldwide distribution channel
for goods, services, managerial and professional jobs
This is profoundly changing economics, markets and
industry structure, products and services and their
flow, consumer segmentation, consumer values,
consumer behavior, jobs, and labor markets
The impact may be even greater on societies and
politics, and on the way we see the world and
ourselves in it

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 Electronic Commerce:
Definitions and Concepts (cont.)

E-commerce defined from the

following perspectives:
Communications: delivery of goods, services,
information, or payments over computer
networks or any other electronic means
Commercial (trading): provides capability of
buying and selling products, services, and
information on the Internet and via other online
services

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 Electronic Commerce:
Definitions and Concepts (cont.)

Business process: doing business electronically by

completing business processes over electronic
networks, thereby substituting information for
physical business processes
Service: a tool that addresses the desire of
governments, firms, consumers, and management
to cut service costs while improving the quality of
customer service and increasing the speed of
service delivery

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 Electronic Commerce:
Definitions and Concepts (cont.)

Learning: an enabler of online training and

education in schools, universities, and other
organizations, including businesses
Collaborative: the framework for inter- and
intraorganizational collaboration
Community: provides a gathering place for
community members to learn, transact, and
collaborate

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 Electronic Commerce:
Definitions and Concepts (cont.)

e-business: a broader definition of EC,

which includes:
buying and selling of goods and services
servicing customers
collaborating with business partners
conducting electronic transactions within
an organization

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 Electronic Commerce:
Definitions and Concepts (cont.)
Pure vs. Partial EC Brick-and-Mortar
depends upon the organizations are
degree of digitization old-economy
(the transformation organizations
from physical to (corporations) that
digital) of: perform most of their
1. the product (service) business off-line,
sold; selling physical
2. the process; and for products by means of
3. the delivery agent (or physical agents
digital intermediary)

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 Electronic Commerce:
Definitions and Concepts (cont.)
Virtual (pure-play) Electronic market
organizations (e-marketplace)
conduct their business online marketplace
activities solely online where buyers and
Click-and-mortar sellers meet to
organizations exchange goods,
conduct some EC services, money, or
activities, but do their information
primary business in the
physical world

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 Electronic Commerce:
Definitions and Concepts (cont.)
Interorganizational Intraorganizational
information information
systems (IOSs) systems enable EC
allow routine activities to go on
transaction processing within individual
and information flow organizations
between two or more
organizations

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 Exhibit 1.1: The Dimensions
of Electronic Commerce

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 The EC Framework,
Classification, and Content
Two major types of e-commerce:
business-to-consumer (B2C) : online
transactions are made between
businesses and individual consumers
business-to-business (B2B):
businesses make online transactions with
other businesses
intrabusiness EC: EC conducted inside an
organization (e.g., business-to-
employees B2E)
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 The EC Framework,
Classification, and Content (cont.)
Computer environments
Internet: global networked environment
Intranet: a corporate or government
network that uses Internet tools, such as
Web browsers, and Internet protocols
Extranet: a network that uses the
Internet to link multiple intranets

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 EC Framework

EC applications are supported by

infrastructure and by five support
areas:
People
Public policy
Marketing and advertising
Support services
Business partnerships

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 Exhibit 1.2: A Framework for
Electronic Commerce

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 Classification of EC by
Transactions or Interactions
business-to-consumer (B2C) : online
transactions are made between
businesses and individual consumers
business-to-business (B2B):
businesses make online transactions
with other businesses
e-tailing: online retailing, usually B2C

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 Classification of EC by
Transactions or Interactions (cont.)
business-to-business-to-consumer (B2B2C):
e-commerce model in which a business
provides some product or service to a client
business that maintains its own customers
consumer-to-business (C2B):
e-commerce model in which individuals use
the Internet to sell products or services to
organizations or individuals seek sellers to
bid on products or services they need
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 Classification of EC by
Transactions or Interactions (cont.)
consumer-to-consumer (C2C):
e-commerce model in which consumers sell
directly to other consumers
peer-to-peer (P2P): technology that enables
networked peer computers to share data
and processing with each other directly; can
be used in C2C, B2B, and B2C e-commerce

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 Classification of EC by
Transactions or Interactions (cont.)
mobile commerce ((m-commerce):
e-commerce transactions and activities
conducted in a wireless environment
location-based commerce (l-commerce):
m-commerce transactions targeted to
individuals in specific locations, at
specific times

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 Classification of EC by
Transactions or Interactions (cont.)
intrabusiness EC: e-commerce category that
includes all internal organizational activities
that involve the exchange of goods,
services, or information among various units
and individuals in an organization
business-to-employees (B2E): e-commerce
model in which an organization delivers
services, information, or products to its
individual employees
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 The Interdisciplinary
Nature of EC
Major EC disciplines
Computer science
Marketing
Consumer behavior
Finance
Economics
Management information systems

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 A Brief History of EC (cont.)

1969 U.S. government experiment—the

Internet came into being initially used by
technical audience of government agencies,
academic researchers, and scientists
1990s the Internet commercialized and
users flocked to participate in the form of
dot-coms, or Internet start-ups
Innovative applications ranging from online
direct sales to e-learning experiences
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 A Brief History of EC (cont.)
Most medium- and large-sized organizations have a
Web site
Most large U.S. corporations have comprehensive
portals
1999 the emphasis of EC shifted from B2C to B2B
2001 the emphasis shifted from B2B to B2E,
c-commerce, e-government, e-learning, and
m-commerce
EC will undoubtedly continue to shift and change

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 A Brief History of EC (cont.)
EC successes EC failures
Virtual EC companies 1999, a large number of EC-
dedicated companies began
eBay to fail
VeriSign EC’s days are not
AOL numbered!
Checkpoint dot-com failure rate is
declining sharply
Click-and-mortar
EC field is experiencing
Cisco consolidation
General Electric most pure EC companies,
IBM are expanding operations
and generating increasing
Intel sales (Amazon.com)
Schwab
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 Benefits of EC

Benefits to organizations
Global reach Rapid time-to-market
Cost reduction Lower communication
costs
Supply chain
improvements Efficient procurement
Extended hours: Improved customer
24/7/365 relations
Customization Up-to-date company
material
New business models
No city business permits
Vendors’ specialization
and fees
Other benefits
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 Benefits of EC (cont.)

Benefits to consumers
Ubiquity Participation in
More products and auctions
services Electronic
Cheaper products communities
and services “Get it your way”
Instant delivery No sales tax
Information
availability

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 Benefits of EC (cont.)

Benefits to society
Telecommuting
Higher standard of
living
Hope for the poor
Availability of
public services

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 Limitations of EC

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 Barriers of EC

Security User authentication

Trust and risk and lack of public
Lack of qualified key infrastructure
personnel Organization
Lack of business Fraud
models Slow navigation on
Culture the Internet
Legal issues
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 The Digital Revolution

Digital economy: An economy that is

based on digital technologies,
including digital communication
networks, computers, software, and
other related information technologies;
also called the Internet economy, the
new economy, or the Web economy

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 The Digital Revolution (cont.)

A global platform over which people and

organizations interact, communicate,
collaborate, and search for information
Includes the following characteristics:
A vast array of digitizable products
Consumers and firms conducting financial
transactions digitally
Microprocessors and networking capabilities
embedded in physical goods
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 New Business Environment

Customers are becoming more

powerful
Created due to advances in science
occurring at an accelerated rate
Results in more and more technology
Rapid growth in technology results in a
large variety of more complex systems

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 New Business
Environment (cont.)
Characteristics in the business environment
A more turbulent environment with more
business problems and opportunities
Stronger competition
Need for organizations to make decisions more
frequently
A larger scope for decisions because more factors
More information and/or knowledge needed for
making decisions

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 Environment-Response-
Support Model
Critical response activities
traditional actions such as lowering cost
and closing unprofitable facilities
introduce innovative actions such as
customizing or creating new products or
providing superb customer service

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 Exhibit 1.6: Major Business
Pressures and the Role of EC

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 Major Business Pressures
 Strong competition
 Global economy
 Regional trade
agreements (e.g.
Market and NAFTA)
economic  Extremely low labor
cost in some
pressures countries
 Frequent and
significant changes
in markets
 Increased power of
consumers
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 Major
Business Pressures (cont.)
 Changing nature of
workforce
 Government
deregulation of banking
Societal and and other services
environmental  Shrinking government
subsidies
pressures  Increased importance of
ethical and legal issues
 Increased social
responsibility of
organizations
 Rapid political changes

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 Major
Business Pressures (cont.)
 Rapid technological
obsolescence
 Increase
Technological innovations and
new technologies
pressures  Information
overload
 Rapid decline in
technology cost vs.
performance ratio
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