UNIT NAME: ECOMMERCE

UNIT CODE: DMS 104

Introduction to Ecommerce
Course Overview
• Overview to e commerce concepts
• Types of Business and revenue models
• E Commerce Enabling Technology
• Electronic Market Structure
• Internet Marketing And Advertising
• Electronic payment Methods
• Security Issues in Financial and Sensitive Data Transfer in E-
commerce
• Legal Issues In E Commerce
Assessment
The students will be assessed using
• Course work (50)
• Assignments (3) 20
• CATS(2) 30
• Main exam (50)
Overview of Commerce
Definition
• Commerce refers to the negotiated exchange of valuable objects or services
between at least two parties and includes all activities that each of the parties
undertakes to complete the transaction. In commerce one member of society
creating something of value that another member of society desires.
Views of Commerce
At least two different perspectives exist:
(a) The buyer’s viewpoint
(b) The seller’s viewpoint

• Both perspectives illustrate that commerce involves a number of distinct activities,

called business processes.
(a) Buyer’s Perspectives

This perspective holds that commerce involves the following

activities:
i) Identify a specific need
ii) Search for product or services that will satisfy that need
iii) Select a vendor
iv) Negotiate a purchase transaction including delivery logistics,
inspection, testing and acceptance
v) Make payment
vi) Perform/obtain maintenance if necessary
(b) Seller’s Perspective

This perspective holds that commerce involves the following activities:

i) Conduct market research to identify customer needs
ii) Create a product or service to meet those needs
iii) Advertise and promote the product or service
iv) Negotiate a sales transaction including delivery logistics,
inspection, testing and acceptance
v) Ship goods and invoice the customer
vi) Receive and process customer payments
vii) Provide after sales support and maintenance
Definition of Electronic Commerce (e-commerce)

E-commerce is the process of buying and selling of goods and/or

services where part, if not all, of the commercial transactions occur
over an electronic medium such as the Internet. OR

This is the sharing of business information, maintaining business

relationships and conducting business transactions by means of
telecommunications networks. OR

This is the use of electronic data transmission to implement or enhance

any business activity e.g. buyer sending an electronic purchase order to
the seller, who sends back an electronic invoice.
Definition of Electronic Commerce (e-commerce)

E-Commerce in its purest form is simply any business transaction that takes
place via digital processes over a network.
• E-Commerce is:-
• an enabling technology that allows businesses to increase the accuracy and
efficiency of business transaction processing and a way for organizations to
exchange information with customers and vendors to the benefit of
everyone involved.
What does e-Commerce transform?
•o the way products, services, and even information are brought, sold,
and exchanged
•o the way organizations interact with customers and business partners.
Ecommerce setup
Brick and mortar businesses are companies that have a physical presence
— a physical store — and offer face-to-face consumer experiences.
Pure play is an organization that originated and does business purely
through the Internet; they have no physical store (brick and mortar) where
customers can shop. Examples of large pure play companies include
Amazon.com.
Click And Mortar - A type of business model that includes both online and
offline operations, which typically include a website and a physical store. A
click-and-mortar company can offer customers the benefits of fast, online
transactions or traditional, face to face service.
Evolution/History of e-commerce
 E-commerce applications were first developed in the early 1970s with innovations such as
Electronic funds Transfer (EFT), whereby funds could be routed electronically from one
organization to another. However, the use of these applications was limited to financial
institutions and a few other businesses.
 Then came electronic data interchange (EDI), a technology used to electronically transfer routine
documents, which expanded electronic transfers from financial transactions to other types of
transaction processing. EDI enlarged the pool of participating companies from financial
institutions to manufacturers, retailers, services, and many types of businesses. Such systems
were called interorganizational system (IOS) applications and their strategic value to businesses
has been widely recognized. More new E-commerce applications followed, ranging from travel
reservation systems to stock trading.
 The Internet began life as an experiment by the US. government in 1969 and its initial users were
a largely technical audience of government agencies and academic researchers and scientists.
 Since 1995, Internet users have witnessed the development of many innovative applications,
ranging from online direct sales to e-learning experiences.
Evolution/History of e-commerce
With the advent of the Internet, the term e-commerce began to
include:
• Electronic trading of physical goods and of intangibles such as
information.
• All the steps involved in trade, such as on-line marketing, ordering
payment and support for delivery.
• The electronic provision of services such as after sales support or on-
line legal advice.
• Electronic support for collaboration between companies such as
collaborative on-line design and engineering or virtual business
consultancy teams.
 Differences between Electronic Commerce and Traditional Commerce

Items E-Commerce Traditional Commerce

Sales Channel Enterprise  Internet  Manufacturer  Wholesaler  Retailer  Consumer
Consumer

Sales Hour /Region Entire world Restricted area

24x7 Restricted sales hour

Sales place/method Market place (Network) Sale based on information Market space (store) Sale based on display

Customer information acquisition Any time acquisition through internet Market survey and salesman
Digital Data without re- entry Require information re- entry

Marketing activity Marketing via bi- directional communication One way marketing to consumer

Customer support Real time support for customer Dissatisfaction Real Delayed support for customer Dissatisfaction Time
time acquisition of customer needs different for catching customer needs

Capital Small Large

Unique features of electronic commerce
1. Ubiquity
Internet/Web technology available everywhere: work, home, etc., anytime.
Effect: Marketplace removed from being in physical geographic locations to become
“marketspace” to Enhanced customer convenience and reduced shopping cost
2. Global reach
The technology reaches across national boundaries, around Earth
Effect: Commerce enabled across cultural and national boundaries seamlessly and without
modification
Marketspace includes, potentially, billions of consumers and millions of businesses worldwide
3. Universal standards
One set of technology standards: Internet standards
Effect: Different computer systems easily communicate with each other
4. Richness
Supports video, audio, and text messages
Effect: Possible to deliver rich messages with text, audio, and video simultaneously to large
numbers of people
Video, audio, and text marketing messages can be integrated into single marketing message and
Unique Features
5. Interactivity
The technology works through interaction with the user
Effect: Consumers can engage in dialog that dynamically adjusts experience to the individual

6. Information density
Large increases in information density - the total amount and quality of information available
to all market participants
7. Personalization/Customization
Technology permits modification of messages, goods
Effect: Personalized messages can be sent to individuals as well as groups
Products and services can be customized to individual preferences
8. Social technology
The technology promotes user content generation and social networking
Effect: New Internet social and business models enable user content creation and distribution,
and support social networks.
Advantages of e-commerce to Business/seller
• International marketplace. What used to be a single physical marketplace
located in a geographical area has now become a borderless marketplace
including national and international markets. By becoming e-commerce
enabled, businesses now have access to people all around the world.
• Operational cost savings. The cost of creating, processing, distributing,
storing and retrieving paper-based information has decreased
• Mass customisation. E-commerce has revolutionised the way consumers
buy good and services. The pull-type processing allows for products and
services to be customised to the customer’s requirements.
• Enables reduced inventories and overheads by facilitating ‘pull’-type
supply chain management – this is based on collecting the customer
order and then delivering through JIT (just-in-time) manufacturing. This is
particularly beneficial for companies in the high technology sector, where
stocks of components held could quickly become obsolete within months.
Advantages of e-commerce to
business/seller
• Lower telecommunications cost. The Internet is much cheaper than value added networks
(VANs) which were based on leasing telephone lines for the sole use of the organisation
and its authorised partners. It is also cheaper to send a fax or e-mail via the Internet than
direct dialling.
• Digitisation of products and processes. Particularly in the case of software and music/video
products, which can be downloaded or e-mailed directly to customers via the Internet in
digital or electronic format.
• No more 24-hour-time constraints. Businesses can be contacted by or contact customers or
suppliers at any time.
• Cost of acquiring serving and retaining customers: It is relatively cheaper to acquire new
customers over the net. Thanks to 24 X 7 operation and its goal reach. Through innovative
tools of push technology to retain customers, loyalty with minimal investments.
• Improved productivity: Using e-commerce, the time required creating, transferring and
process a business transaction between trading partners is significantly reduced.
Furthermore human errors like duplication of records are largely eliminated with the
reduction of data entry and re-entry in the process. This improvement in speed and accuracy
plus the access to document and information will result in increase in productivity.
Advantages of e-commerce to consumer/buyer
• 24/7 access. Enables customers to shop or conduct other transactions 24
hours a day, all year round from almost any location. For example, checking
balances, making payments, obtaining travel and other information.
• More choices. Customers not only have a whole range of products that they
can choose from and customise, but also an international selection of
suppliers.
• Price comparisons. Customers can ‘shop’ around the world and conduct
comparisons either directly by visiting different sites, or by visiting a single
site where prices are aggregated from a number of providers and compared
• Improved delivery processes. This can range from the immediate delivery
of digitised or electronic goods such as software or audio-visual files by
downloading via the Internet, to the on-line tracking of the progress of
packages being delivered by mail or courier.
Advantages of e-Commerce to Society
• Enables more flexible working practices, which enhances the quality of life for a
whole host of people in society, enabling them to work from home. Not only is
this more convenient and provides happier and less stressful working
environments, it also potentially reduces environmental pollution as fewer
people have to travel to work regularly.
• Connects people. Enables people in developing countries and rural areas to enjoy
and access products, services, information and other people which otherwise
would not be so easily available to them.
• Facilitates delivery of public services. For example, health services available over
the Internet (on-line consultation with doctors or nurses), filing taxes over the
Internet through the Inland Revenue website.
Disadvantages/Limitation of e-commerce to business
• Lack of sufficient system security, reliability, standards and communication
protocols. There are numerous reports of websites and databases being hacked
into, and security holes in software.
• Rapidly evolving and changing technology, so there is always a feeling of trying to
‘catch up’ and not be left behind.
• Pressure to innovate and develop business models to exploit the new
opportunities which sometimes leads to strategies detrimental to the organisation.
The ease with which business models can be copied and emulated over the
Internet increase that pressure and curtail longer-term competitive advantage.
• Facing increased competition from both national and international competitors
often leads to price wars and subsequent unsustainable losses for the organisation.
• Problems with compatibility of older and ‘newer’ technology. There are problems
where older business systems cannot communicate with webbased and Internet
infrastructures
Disadvantages/Limitation of e-commerce to consumer
• Computing equipment is needed for individuals to participate in the new ‘digital’
economy, which means an initial capital cost to customers.
• A basic technical knowledge is required of both computing equipment and navigation
of the Internet and the World Wide Web.
• Cost of access to the Internet, whether dial-up or broadband tariffs.
• Cost of computing equipment. Not just the initial cost of buying equipment but
making sure that the technology is updated regularly to be compatible with the
changing requirement of the Internet, websites and applications.
• Lack of security and privacy of personal data. There is no real control of data that is
collected over the Web or Internet. Data protection laws are not universal and so
websites hosted in different countries may or may not have laws which protect privacy
of personal data.
• Physical contact and relationships are replaced by electronic processes. Customers
are unable to touch and feel goods being sold on-line or gauge voices and reactions of
human beings.
• A lack of trust because they are interacting with faceless computers.
Disadvantages/Limitation of e-commerce to society
• Breakdown in human interaction. As people become more used to interacting
electronically there could be an erosion of personal and social skills which might
eventually be detrimental to the world we live in where people are more comfortable
interacting with a screen than face to face.
• Social division. There is a potential danger that there will be an increase in the social
divide between technical haves and have-nots – so people who do not have technical
skills become unable to secure better-paid jobs and could form an underclass with
potentially dangerous implications for social stability.
• Reliance on telecommunications infrastructure, power and IT skills, which in
developing countries nullifies the benefits when power, advanced telecommunications
infrastructures and IT skills are unavailable or scarce or underdeveloped.
• Wasted resources. As new technology dates quickly how do you dispose of all the old
computers, keyboards, monitors, speakers and other hardware or software?
• Facilitates Just-In-Time manufacturing. This could potentially cripple an economy in
times of crisis as stocks are kept to a minimum and delivery patterns are based on pre-
set levels of stock
Barriers to e-commerce development/implementation
Barriers to e-commerce development/implementation

• Internet infrastructure deals with issues such as availability and quality of the Internet
in terms of speed and reliability. This barrier is of particular concern to SMEs and B-to-C
organisations, since their business relies more on general consumers, and so the ease
with which the general public can connect to the Internet has a direct impact on their
Web-based business.
• Technology infrastructure deals with issues of standardisation of systems and
applications, which is a particular concern for larger organisations who want to
implement solutions such as value chain integration and e-supply chain management.
• Security in its broadest term is one of the most significant barriers to e-commerce both
within the organisation and external to it. Identified as Security and Encryption; Trust
and Risk; User Authentication and Lack of Public Key Infrastructure; Fraud and Risk of
Loss it relates to the development of a broader security infrastructure and it also
relates to the kinds of measures organisations can take to improve security. Security is
a dominant concern for companies in the B-to-C e-commerce retail sector, since it
reflects the concerns and perceptions of users and potential customers that are
conducting financial transactions on-line.
Barriers to e-commerce development/implementation

• The commercial infrastructure relates to issues such as international trade

agreements, taxation laws and other legal agreements that facilitate all kinds of
on-line trading and so is a barrier relevant to all types of organisations.
• Organisational structure and culture. These are most significant for large
organisations that have to deal with change management issues. There is needs
to design the right organisational structure and corporate culture that will
promote and be able to maximise the benefits of widespread e-commerce
applications.
• lack of qualified personnel to implement in-house and third-party e-commerce
systems. For SMEs, this is a particularly strong concern because internally they
do not have sufficient resources to attract and maintain their own support staff
to develop a sophisticated technology infrastructure.
• Interoperability of systems This refers specifically to implementation and
compatibility problems of integrating new e-commerce applications with existing
legacy systems and resources within organisations
Discussion
• The use of the Internet has been applauded as enabling businesses of
different sizes to operate globally in a seemingly even platform.
However, there are various factors that may require a firm to only
operate at a small geographical area. Discuss these factors making use
of suitable examples.