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An Introduction to Electronic Commerce

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Title: An Introduction to Electronic Commerce


1
An Introduction to Electronic Commerce
http//www.srdc.metu.edu.tr/ibrahim/courses/cse53
7/
2
What is Commerce?
  • Middle French, from Latin commercium, from com-
    (together) merc-(merchandise) (1537) The
    exchange or buying and selling of commodities on
    a large scale involving transportation from place
    to place.

3
eCommerce
  • Electronic Commerce (EC) is ... the sharing of
    business information, maintaining business
    relationships, and conducting business
    transactions by means of telecommunications
    networks
  • The infrastructure for eCommerce is a networked
    computing environment in business, home, and
    government.
  • eBusiness describes the broadest definition of
    eCommerce. It includes customer service and
    intrabusiness tasks, and it is frequently used
    interchangeably with eCommerce.

4
Consumer Buying Model
  • Identification of a Need This stage
    characterizes the buyer becoming aware of some
    unmet need.
  • Product Brokering determining what to buy.
    Search of products or services that satisfy the
    specific need, comparison of alternatives and
    product evaluation.
  • Merchant Brokering Determining who to buy from.
    This includes the evaluation of merchant
    alternatives based on buyer-provided criteria
    (e.g., price, warranty, availability, delivery
    time, reputation, etc.).

5
Consumer Buying Model Contd
  • Negotiation Determining the terms of the
    transaction. May include inspection, testing, and
    acceptance.
  • Payment and Delivery In some cases, the
    available payment (e.g., cash only) or delivery
    options can influence product and merchant
    brokering.
  • Product Service and Evaluation After sale
    services include product service, customer
    service, regular maintenance, warranty claims,
    and evaluation of the satisfaction of the overall
    buying experience.

6
Selling Model
  • Market research identify customer needs.
  • Product design and production create products
    and services that will satisfy the customer
    needs.
  • Marketing advertising and promoting products and
    services, identifying market segments.
  • Negotiation.
  • Delivery, logistics.
  • Payment processing and billing.
  • After-sale support maintenance, warranty, claims
    processing.

7
Types of eCommerce
  • B2B Business to Business
  • B2C Business to Consumer
  • B2G Business to Government
  • C2B Consumer to Business (priceline,letsbuyit)
  • C2C Consumer to Consumer (eBay,napster)
  • C2G Consumer to Government (citizens to
    government,
  • such as income tax filling)

8
Benefits of EC to Organizations
  • Expands the marketplace to national and
    international markets
  • Allows for customization and personalization of
    products and services to provide competitive
    advantage
  • Reduced inventory by delivery on demand (or
    pull type) supply chain management
  • Ubiquitous information density, richness and
    interactivity
  • Lowers telecommunications cost the internet is
    much cheaper than value added networks (VANs)
  • Improved customer service

9
Benefits to Customers
  • Enables shopping on 24x7x365 basis
  • Reduced search cost for customers with more
    choices, information is retrieved in seconds, not
    in days or weeks
  • Cost and price transparency, because eCommerce
    facilitates competition that results in
    substantial discounts
  • Provides customers with less expensive products
    and services by allowing comparison shopping
  • Allows quick delivery of products and services
    (especially for digitized products)
  • Allows customers to interact with other
    communities, to exchange ideas and experiences

10
Technical Limitations of eCommerce
  • Problems with systems security, scalability, and
    reliability.
  • Interoperability. The software development tools
    are evolving and changing very rapidly.
  • Difficulties in integrating legacy and back-end
    systems with electronic commerce software.

11
Non-Technical Limitations
  • Lack of trust.
  • Lack of touch and feel.
  • Lack of support services.
  • Many unresolved legal issues.
  • Insufficiently large enough number of sellers and
    buyers.

12
Development of eCommerce
Static Brochure (1994-1996)
Transactions (1996-1999)
Automated Business Processes (1999-)
  • Product catalogs
  • Online ordering
  • Online payments
  • Order tracking
  • Personalized content
  • Interactivity
  • Real-time integrated
  • data (warehouses)
  • Business intelligence
  • (OLAP)
  • Product information
  • Financial statements
  • Contact information

Goal Integrate EB with existing business.
Focus Efficiency, optimization
Metric Economic value
  • Goal attract VC money
  • Focus Speed, IPO
  • Metric Revenue growth, not profit

SOURCE A. BHATTACHERJEE
13
Top 10 Countries in eCommerce (2000)
Source Forester Research and INFOWORLD, May
15,2000 p.20.
14
The TIME Magazine presents Person of the Year
2000
1999
1998
15
History of Amazon.com
  • Conceived by Jeff Bezos in 1994
  • Established in July 1995
  • Several reasons to shop
  • Selection
  • Convenience
  • Price
  • Service
  • Easy transportation
  • Favorable market structure

16
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17
Success of Amazon.com
  • Amazon.com still operative, and is the most
    famous book seller on the net.
  • Can you guess
  • How much revenue it generates?
  • How much profit it makes?

18
Fiscal history of Amazon.com
Year Revenues Net Earnings
1996 15.6 Million (6.24 Million)
1997 148 Million (31 Million)
1998 610 Million (125 Million)
1999 1.6 Billion (720 Million)
2000 2.7 Billion (1.4 Billion)
2001/Q4 3.1 Billion
(412Million)/5M 2002 3.9 Billion (149 Milli
on) 2003 5.2 Billion 35 Million 200
4 6.9 Billion 588 Million
19
The Internet Bubble
NASDAQ 19-YR CHART
20
eCommerce-I period 1995-2000
  • Vindication of a set of information technologies
    developed over 40 years
  • The vision of universal communications
  • Almost infinite set of suppliers compete against
    each other
  • Customers have access to all relevant market
    information worldwide
  • Disintermediation
  • Merchants have equal direct access to hundreds of
    millions of customers
  • First mover
  • Network effect

21
DotComs Failure
  • Some reasons by PriceWaterhouseCoopers
  • Run-up in technology stocks due to enormous IT
    capital expenditure to withstand Y2K problem
  • Telecommunications industry had built excess
    capacity in high-speed fiber optic networks
  • DotComs ignored customers, did not pay attention
    to customer orders, customer service, and web
    site design
  • On the other hand, they over-emphasized the role
    of marketing.

22
DotComs Failure Contd
  • They sacrificed long-term success at the expense
    of short-term gain, they were too opportunistic.
  • Focused on leadership and strategic partnership.
  • Lacked traditional business skills.
  • Traditional companies indeed are best positioned
    to succeed in the new economy, since they have
    all the necessary financial and market power, as
    well as the required expertise.

23
Break Time?
24
eCommerce-II period 2000-?
  • Some corrections over period-1
  • Price discrimination
  • New market intermediaries
  • First movers turned out to be long-run losers

New Vision Every business process in the world
is being considered for re-engineering
Can it be made electronic?
25
The Growth of B2C eCommerce
Source E-Commerce, by K. Lauden and C. Traver
26
The Growth of B2B eCommerce
27
B2B Growth Estimation
15.6
5.4
SOURCE PWC
28
Historic eCommerce Examples
29
A Success Story eBay
  • In 1995 Pierre Omidyar decided to use Web pages
    that came as a part of his 30-a-month Internet
    service
  • The idea was to improve upon the online
    classifieds for selling personal items
  • With a little coding, he developed a simple
    auction mechanism that would spare the seller
    from having to choose among multiple interested
    buyers
  • The code did the work, the space on the Web
    server came with his account so the whole thing
    cost him nothing and the service is offered for
    free
  • In 1995, he sent an announcement of his free
    service to the then-center of the Webdom, the
    National Center for Supercomputing Applications
    What's New Web page

30
A Success Story eBay
  • At the end of 1995, his Web page was getting a
    couple of thousand hits a day
  • His Internet Service Provider was not happy about
    this (his page was using a lot of CPU cycles)
    and raised Omidyar's monthly fee from USD30 to
    USD250
  • Omidyar in return asked sellers to pay a small
    fee for items sold relying upon the honesty of
    the seller
  • The checks came in volume !
  • In the first month he covered the 250 bill for
    his ISP
  • Afterwards the increase in revenues were
    exponential
  • In month two USD1000,
  • In month three USD2000,
  • in month four USD5000, and so on...

31
A Success Story eBay
  • When his ISP told him that the traffic his page
    was attracting was too much for its servers, he
    installed his own server on ISP's premises
  • In mid 1996, Omidyar left his day time job and
    founded the eBay company
  • In the fall of 1996, eBay's revenues were USD
    400,000 per month where its expenses were USD
    200,000
  • In 1997, the venture capital firm Benchmark
    invested 6.7Millon in eBay when its valuation
    was put at 20M
  • In September 1998, after the first day of public
    trading (IPO), eBay's capitalization was 2
    Billion dollars

32
A Success Story eBay
  • Three months later the stock has gained more than
    1300 percent value
  • In June 1999, the company has valued at more than
    USD 21 Billion
  • eBay, one of the most successful examples of
    e-commerce, has been flourishing ever since
  • During December 2001 quarter, revenue jumped 64
    to USD 219.4 million and net income to 8
  • Furthermore, eBay appears to be in a better shape
    operationally and it is expected to grow by 52 a
    year over the next five years

33
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34
Ecommerce Hype
  • Electronic commerce has been the subject of a lot
    of hype and attention in the second half of the
    90s
  • Although the most important part of electronic
    commerce is the trading among companies termed as
    Business-to-Business (B2B) e-commerce
    Business-to-Consumer (B2C) e-Commerce received
    the most public attention
  • First with its success stories then with failures
    of online companies, B2C can simply be defined as
    online shopping on the Web
  • Some of the B2C companies went bankrupt after the
    fall in the stock market prices in April 2000
  • However the so called dot.com collapse should
    not be interpreted as the collapse of B2C (nor
    B2B) eCommerce

35
Dot.coms
  • B2C e-commerce companies with strong technology
    are still alive such as eBay, amazon.com and
    expedia.com
  • These are the rather well-known ones but there
    are many other companies doing well in this
    business
  • Examples include a fish market place, FishRound
    which generates transactions of millions of
    Dollars per month
  • Still others are reinventing themselves to
    survive
  • For example, Germany's No.1 comparison shopping
    site Guenstiger.de had 30,000 daily hits but was
    doing badly
  • They began tracking what people buy, later
    selling this information to retailers,
    wholesalers and manufacturers
  • Those offline companies use this information to
    help fine tune their inventories

36
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37
Expedia.com
  • Expedia.com is an online travel marketplace that
    helps travelers search, plan and purchase travel
    services
  • Expedia site provides multiple tools for finding
    the lowest airfares.
  • For example
  • Fare Calendar matches the airlines' lowest
    published fares with dates and availability, and
    shows users the going rates
  • Flight Price Matcher lets customers name their
    own fare and see if an airline will accept it
  • Expedia appears to be the top player in the
    online travel industry

38
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39
Some Innovative Ecommerce Examples (that can only
exist on the internet)
40
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41
Priceline
  • Priceline is one of the most inventive business
    model for e-commerce
  • It has pioneered a unique new type of e-commerce
    known as a demand collection system that
    enables consumers to use the Internet to save
    money on a wide range of products and services
    such as airline tickets and hotel reservations
    while enabling sellers to generate incremental
    revenue
  • Using a simple consumer proposition Name Your
    Own Price, it collects consumer demand (in the
    form of individual customer offers guaranteed by
    a credit card) for a particular product or
    service at a price set by the consumer, and

42
Priceline
  • communicate that demand directly to participating
    sellers or to their private databases
  • Consumers agree to hold their offers open for a
    specified period of time to enable priceline.com
    to fulfill their offers from inventory provided
    by participating sellers
  • Once fulfilled, offers cannot be canceled
  • By requiring consumers to be flexible with
    respect to brands, sellers and/or product
    features, it enables sellers to generate
    incremental revenue without disrupting their
    existing distribution channels or retail pricing
    structures
  • Unfortunately, Priceline is struggling to survive
    the dot.com market collapse !!!

43
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44
Akamai
  • Akamai's sofware constantly monitors the entire
    Internet, locating potential congestions and
    devising faster routes for information to travel
  • Frequently used portions of a client's Web site,
    or large files that would be difficult to send to
    users quickly, are stored on Akamai's 8000
    servers in over 50 countries around the globe
  • In 2000, its revenue was nearly 90 million
  • In 2002 during the second quarter revenue has
    risen to 36.3 million however Akamai is not
    making profits yet (2002)
  • Who could have thought there is business in
    watching the Internet traffic !

45
Google
  • Google is the most successful search engine of
    the Web
  • Some search engines simply count how many times a
    search term appears on a given Web page to
    determine where to rank a particular page
  • Google's engine on the other hand, uses outside
    criteria to validate that a search result is
    likely to be relevant
  • As a relevancy criterion, outside links to the
    page as well as other factors like link
    structure, heading and text of nearby pages are
    considered
  • Although Google's revenues are only from
    advertisement and licensing, its growth rate is
    faster than that of Microsoft.

46
Break Time?
47
B2B eCommerce
48
B2B Ecommerce
  • Despite the economic slowdown and the market
    shakeout, B2B e-commerce still continues to
    thrive
  • According to a report from eMarketer, worldwide
    B2B revenues will reach 820 billion in 2002, a
    74 increase over the previous year's total
    revenues
  • Other analysts seem to be even more optimistic
  • Research firm IDC for example, projects B2B
    revenues of USD 917 billion in 2002
  • The Gartner Group predicts B2B potential of the
    year 2002 at USD 1.929 trillion, whereas
    Forrester predicts that B2B will reach 2.061
    trillion by the end of 2002
  • HW1 Gather the ecommerce figures realized in
    2000-2004 and estimations made for the coming
    5-10 years.

49
Covisint
  • Covisint is an industry sponsored e-marketplace
    with members such as DaimlerChrysler, Ford,
    General Motors, Nissan, Renault, Peugeot and
    Siemens Automotive
  • It started in 2000, and by the end of July 2001

  • it had managed more than 129 billion in
    transactions
  • It had qualified 1700 supplier companies at the
    site, and generated more than 37.6 billion in
    auction revenues
  • In the November 26, 2001 issue of InfoWorld,
    Covisint is ranked number 5 in the list of top
    100 companies that are recognized for their
    creative use of enterprise technologies to make
    their businesses more efficient and develop new
    streams of revenue
  • Covisint was a success story in B2B commerce,
    however, it is sold out in 2004, after Ford and
    GM have dropped out.

50
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51
GE Global eXchange Services
  • GE Global eXchange Services is the world's
    largest internet supply chain network that links
    more than 100,000 trading partners in 58
    countries around the world
  • In 2002, the network's 1 billion annual
    transactions accounted for 1 trillion in goods
    and services
  • GXS customers include Eastman Kodak,
    DaimlerChrysler, Target, J. C. Penney, Inc., Sara
    Lee and 3M
  • GXS provides three portfolios of e-commerce
    products and services
  • GE Integration Solutions (EAI) - provides
    software that permits any business application to
    send and receive business information to other
    business applications in a secure and reliable
    manner
  • GE Interchange Solutions (EDI and XML) -
    automates paper, fax, telephone and email
    transactions to improve quality and efficiency in
    a supply chain
  • GE Marketplace Solutions (exchanges) - provides
    the business applications and technology
    infrastructure to enable the development,
    integration and service of B2B electronic
    marketplaces

52
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53
World Wide Retail Exchange
  • In March 2000, seventeen international retailers
    founded the World Wide Retail Exchange to enable
    participating retailers and suppliers to
    simplify, rationalize, and automate supply chain
    processes
  • WWRE runs auctions for individual members as well
    as indirect-collaborative auctions in which
    members combine their orders for economies of
    scale
  • The exchange is expected to link members with
    more than 100,000 consumer-goods suppliers,
    partners and distributors making it one of the
    largest e-marketplaces on the Web
  • In 2002, with a membership consisting of 62
    retail industry leaders from around the world,
    WWRE has a revenue of over 845 billion

54
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55
RubberNetwork.com
  • The leading tire manufacturers launched their own
    exchange in April 2000, called RubberNetwork.com

  • The initiative was participated by many tire
    manufacturers including Goodyear, Sumitomo,
    Bridgestone, Firestone, Pirelli, Michelin, Cooper
    and Continental, which together account for
    approximately 80 of the worlds tire output
  • RubberNetwork.com provides procurement and supply
    chain services as well as trading services
    including auctions and reverse auctions where
    suppliers bid prices lower
  • In 2002, the RubberNetwork included nine of the
    largest companies in the tire and rubber industry

  • These companies represent more than 63 of total
    sales within the tire and rubber industry, which,
    including raw materials, equipment, machinery,
    goods and services, are estimated to be in excess
    of 50 billion a year

56
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57
CPGmarket.com
  • CPGmarket.com is the leading marketplace for the
    European consumer packaged goods industry
  • Created by Nestle, Danone, Henkel and SAPmarkets
    in March 2000, CPGmarket.com delivers value-added
    services to both buyers and suppliers
  • by facilitating and accelerating the purchasing
    transactions between the manufacturers and
    suppliers of the CPG industry,
  • reducing the procurement and administrative
    costs,
  • optimizing production and inventory cycles
    through state-of-the-art supply chain processes

58
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59
Tradezone
  • A version of e-market model is Third-party
    marketplaces where founding member, usually a
    financial institution, acts as an aggregator by
    offering supply-chain and procurement services to
    smaller enterprises that can not afford to start
    their own e-marketplaces
  • Example Tradezone

60
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61
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