Chapter 10 (11th Ed.

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 E-commerce concerns the processes for buying and selling
goods and services electronically

 E-business is the use of the Internet and IT to execute all of the

business processes for the firm. E-business includes e-
commerce, all internal processes, and coordination with
business partners such as customers and suppliers

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 Some statistics
 2007 consumer sales about $180 billion

 In the US over 160 million people are online (over 50

percent); worldwide 1 billion are connected

 On an average day 70 million go online, 140 million send

email, 5 million write on their blogs, 4 billion share music

 About 1 in every 3 Americans has purchased something

online.
 B2B commerce is more than $2 trillion

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 Business transformation
 First wave and second wave

 Breadth of e-commerce

 Online demographics

 Small business involvement

 Technology changes
 Wireless

 Podcasting

 Expansion of broadband connections

 RSS as form of information distribution

 Falling prices of computing and networking components

 New business models

 User-generated content in the form of blogs and social networks

 Newspapers and other media adopt, online, interactive models

 Half the Internet population joins a social group on the Internet

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 Ubiquity (unbundling of product and product info)
 Global reach
 Universal standards
 Reduction in entry costs and search costs
 Richness
 Interactivity
 Information density (information asymmetry)
 Price and cost transparency
 Price discrimination
 Personalization/customization
 Social Technology: User content generation and Social
Networking
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 Information asymmetry in digital markets versus traditional
markets
 Costs of changing prices (menu costs) in digital markets
versus traditional markets
 Dynamic pricing (or differential pricing) in digital markets
versus traditional markets
 Disintermediation
 Pure-play business versus clicks-and-mortar

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 Information asymmetry  Favors DM
 Search costs  Favors DM
 Transaction costs  Favors DM
 Delayed gratification  Favors TM (except for digital
 Menu costs prod)
 Dynamic pricing  Favors DM
 Price discrimination  Favors DM
 Market segmentation  Favors DM
 Switching costs  Favors DM
 Network effects  About equal
 Disintermediation  Favors DM
 Favors DM

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 Digital products can be delivered over a digital network.
Examples include music, video, software, newspapers,
magazines, books, photographs, and video.
 Major advantages of digital products
 Zero marginal cost/unit

 Zero copying costs

 Low delivery costs

 Low inventory costs

 Easy to provide variable pricing (e.g., bundling)

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 Virtual storefront: Sells goods or services online (
Amazon.com) and RedEnvelope.com)

 Information broker: Provides information on products or

services (Edmunds.com)

 Transaction broker: Provides online transaction facility (

eTrade.com, Expedia.com)

 Online marketplace: Provides a trading platform for

individuals and firms (eBay.com, alibaba.com, priceline.com

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 Content provider: Creates revenue by providing content (
WSJ.com, TheStreet.com, itunes.com)

 Online service provider: Provides online services, including

search service. (Google.com, Xdrive.com)

 Social network: Provides an online community to focused

groups (Linkedin.com, MySpace.com)

 Portal: Provides initial point of entry to Web, specialized

content, services (Yahoo.com, MSN.com)

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 Examples of communication
 E-bays use of email

 iVillage is an online community of women who share

common interests
 Corporations target these communities with ads.

 Revenue from ads support the sponsors of the online

community

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 Types of online communities (social networking)
 Common interests (iVillage.com)

 Extending friendships

 MySpace.com or Facebook.com

 Job networking

 LinkedIn.com

 Sharing videos

 MomSong

 USN PumpIt

 Business uses of MySpace.com

 See Proctor and Gamble example in textbook
 Social shopping (Kaboodle.com)
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 Digital versions of print publications
 Online games
 Radio channels
 Full length films
 Television shows
 Podcasting
 Syndicators
 A business that aggregates content from multiple sources and sells it to
other parties
 Application service providers (ASP)
 Remote storage (Google, Amazon)

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 Business-to-customer (B2C): Retailing of products and
services directly to individual customers
(Amazon.com, Wal-Mart.com)

 Business-to-business (B2B): Sales of goods and services to

other businesses (Grainger.com, Ariba.com)

 Consumer-to-consumer (C2C): Individuals using the Web for

private sales or exchange (eBay.com

 Government-to-consumer (G2C), government-to-business

(G2B) and government-to-government (G2G)

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 Direct sales via the Web (a new channel)
 Eliminate intermediaries (disintermediation)
 New roles for intermediaries (reintermediation);
information brokers (edmunds.com)
 Interactive marketing and personalization
 Richness of information at the Web site
 Ability to capture customers’ Web behavior at low cost
(clickstream tracking)
 Ability to customize/personalize for each customer
(Land’s End shirts/pants or VistaPrint (stationary
products)
 Collaborative filtering (Amazon.com recommendations)
 Corporate blogs to reach customers
 Customer survey and focus groups
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 Customer self-service
 Find information

 Ask questions

 Review transactions

 Track shipments

 Push to talk links

 Online chats with tech support

 Requesting phone call from a firm’s Web site

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 VAN EDI
 80 % of buying and selling in B2B is supported by proprietary networks using

traditional EDI (available since 70’s as VAN EDI)

 EDI is the computer-to-computer exchange of standard business documents

such as invoices, bills of lading, shipment schedules, or purchase orders.

 Transactions are automatically sent from one system to another through a

proprietary network.
 Major industries in the US and other parts of the world have defined the

structure and standards for these documents

 X.12 in North America, EDIFACT for Europe

 Web-enabled EDI
 More flexible and much cheaper than VAN EDI

 In addition to buying and selling procurement (includes buying, sourcing,

negotiating with suppliers, paying for goods, and delivery)

 Expands the number of partners way beyond those in EDI networks

 An EDI tutorial for a Web based EDI product

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 An exchange is a public/private electronic market with buyers
and sellers; there may or may not be bidding.
 Auction – an electronic market mechanism where a seller
places an offer to sell a product and buyers make bids
sequentially and competitively until a final price is reached
(dynamic pricing)
 A reverse auction is when sellers invite prospective buyers to
bid on product or service (e.g., Priceline is a B2C reverse
auction). The seller has the option of accepting or declining
the bid.

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 A private exchange (private industrial networks) usually involve a large firm
that sets up an extranet with suppliers, distributors, and other partners to
share product design, marketing, production scheduling, inventory
management, etc (e.g., VWGroupSupply.com)
 Net marketplaces (e-hubs) are designed for many buyers and sellers usually
owned by an industry or run by a third party. Revenue is generated by the
owner taking a percentage of the transaction or providing services to
network participants
 Exostar

 MLS

 Orbitz.com

 ChemConnect.com

 Exchanges are independent third party electronic marketplaces that

connect thousands of suppliers and buyers for spot purchasing
 FoodTrader.com or Alibaba.com
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 Services for buyers
 Automate buying, contract management, purchase orders,

requisitions, business rules enforcement, and payment

 Services for sellers
 Catalog creation and content management, order

management, invoicing, and settlement

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 Intranets
 Extranets
 Electronic data interchange
 Proprietary

 Web-enabled

 Electronic payment systems

 Electronic funds transfer

 New methods of electronic payment

 Digital signatures and digital certificates

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 Customer databases
 Corporate policies and procedures (Winthrop)
 Corporate phone directories
 Human resource forms (Winthrop)
 Training programs
 Product catalogs and manuals (Winthrop)
 Data warehouse and decision support access
 Internal purchase orders (Winthrop)
 Travel reservations

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Functional Applications
of the Intranet Idea

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 An extranet is created when authorized users from outside the
firm have access to the firm’s intranet
 Extranets enable the external entities to coordinate their
business processes with the internal processes of a given firm
 The extranet may or may not be involved with direct sales.

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 AMP is an electronic-connectors distribution company;
customers use AMP Connect to access an electronic catalog
with product descriptions, 3-D models, and comparative
charts for all products; customers can place orders
 Receives 100,000 hits daily from 15,000 business customers

worldwide
 CSX (railroad) developed an extranet that allows CSX
customers to trace shipments, initiate work orders, and view
pricing data over the Internet

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EXTRANET ARCHITECTURE INTRANET ARCHITECTURE

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 A digital signature is a digital code attached to an
electronically transmitted message (e.g., an EDI document)
that is used to verify the origin and contents of the message. It
provides a way to associate a message with a sender similar to
a written signature.
 Digital certificates verify (off line) that the holder of a digital
signature is who he/she claims to be. Third parties called
certificate authorities issue digital certificates. One company
that does this is VeriSign.

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 M-commerce refers to the use of hand-held devices to purchase
goods and services from any location (includes both B2C and B2B
can take place using m-commerce technology)
 Types of services
 Access wireless Web sites to check train schedules, obtain movie

listings, trade stocks, or purchase airline tickets, obtain driving

instructions, weather forecasts etc.
 Banking and financial service offer alerts about changes in

account information. Users can also use devices to check

account balances, transfer funds, and pay bills.
 Web sites for mobile phones feature ads

 Location based services

 Web sites are specifically designed for hand-held devices

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Electronic Commerce Payment
Systems

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 How does EDI work?
 Supplier’s proposal sent electronically to buyer
organization.
 Electronic contract approved over network.
 Supplier manufactures and packages goods, attaching
shipping data recorded on a bar code.
 Quantities shipped and prices entered in system and flow to
invoicing program; shipping data and invoices are
transmitted electronically to buyer organization.
 Web-enabled EDI tutorial (see Web based EDI product)

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 Supplier ships the order.
 Buyer organization receives packages, scans bar code,
and compares data to invoices actual items received.
 Payment approval transferred electronically from the
buyer’s accounts payable dept. to buyer’s bank .
 Bank transfers funds from buyer to supplier’s
account using electronic fund transfer (EFT).

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Figure 11.5
How EDI works

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 Winthrop University processes
 Online applications
 Online course registration
 Online payments
 Online grade reporting
 Online transcript access
 Impact of process changes at Winthrop University
 Role of traditional print media and web site
 Need for managing consistency
 Increased security for online grading

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