Foundations of Electronic Commerce

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Foundations of Electronic Commerce
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Topics

• EC and describe its various categories
• A framework of EC
• Types of EC transactions
• EC business models
• Benefits of EC to organizations, consumers, and
  society
• Role of the digital revolution in EC and the
  economic impact of EC

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What is Electronic Commerce?

• The process of buying, selling, or exchanging
  products, services, and information via computer
  networks
• EC defined from these perspectives
• Communications
• Business process
• Service
• Online
• Collaborations
• Community

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What is E-Business?

• A broader definition of EC that includes not just
  the buying and selling of goods and services, but
  also
• Servicing customers
• Collaborating with business partners
• Conducting electronic transactions within an
  organization

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Typology of Electronic Commerce

• Three dimensions
• the product (service) sold physical / digital
• the process physical / digital
• the delivery agent (or intermediary) physical /
  digital
• Traditional commerce
• all dimensions are physical
• Pure EC
• all dimensions are digital
• Partial EC
• all other possibilities include a mix of digital
  and physical dimensions

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Dimensions of EC
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Internet vs. Non-Internet EC

• VANsvalue-added networks
• LANslocal area networks
• Single computerized machines
• Using a smart card in a vending machine
• Using a cell phone to make an online purchase

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Electronic Markets vs. Interorganizational
Systems

• E-markets
• Buyers and sellers meet to exchange
• Goods
• Services
• Money
• Information

• Interorganizational Information Systems (IOS)
• Between two or more organizations
• Routine transaction processing
• Information flow

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The EC Framework

• An EC Framework
• EC applications supported by infrastructure and 5
  support areas
• People
• Public policy
• Technical standards and protocols
• Business partners
• Support services

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A Framework for EC
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Types of EC by the Nature of the Transaction

• Business-to-business (B2B)
• Business-to-consumer (B2C)
• Business-to-business-to-consumer (B2B2C)
• Consumer-to-business(C2B)
• Consumer-to-consumer (C2C)
• Collaborative commerce (c-commerce)

• Mobile commerce (m-commerce)
• Location-commerce(l-commerce)
• Intrabusiness (organizational) EC
• Business-to-employee (B2E)
• E-government

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Types of EC by the Nature of the Transaction

• Exchange (electronic) a public e-market with
  many buyers and sellers
• Exchange-to-exchange (E2E) EC model in which
  electronic exchanges formally connect to one
  another for the purpose of exchanging information

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Business Models

• A method of doing business by which a company can
  generate revenue to sustain itself
• Spells out where the company is positioned in the
  value chain
• Business models are a component of a business
  plan or a business case

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Business Plans Business Cases

• Business plan
• A written document that identifies the business
  goals and outlines the plan of how to achieve them

• Business case
• A written document that is used by managers to
  garner funding for specific applications or
  projects its major emphasis is the justification
  for a specific investment

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The Content of a Business Plan

• Mission statement and company description
• The management team
• The market and the customers
• The industry and competition
• The specifics of the products and/or services

• Marketing and sales plan
• Operations plan
• Financial projections and plans
• Risk analysis
• Technology analysis

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Structure of Business Models

• All business models must specify their revenue
  model (the description of how the company or an
  EC project will earn revenue)
• Revenue sources are

• Transaction fees
• Subscription fees
• Advertisement fees

• Affiliate fees
• Sales
• Other models

• Value proposition is the description of the
  benefits a company can derive from using EC

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Typical Business Models in EC

• Online, direct marketing
• Electronic tendering systems
• Reverse auction is a tendering system sellers are
  invited to bid on the fulfillment of an order to
  produce a product or provide a service the
  lowest bid wins
• Name your own price
• Find the best price

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Typical Business Models in EC (cont.)

• Affiliate marketing arrangement whereby a
  marketing partner (business, organization or
  individual) refers consumers to the selling
  companys Web site
• Viral marketing word-or-mouth marketing in which
  customers promote a product or service to friends
  or other people by using the Internet

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Typical Business Models in EC (cont.)

• Group purchasing is getting many small buyers
  together to by in large quantities
• Online auctions
• Product and service customization
• Customization is the creation of a product or
  service according to the buyers specifications
• Electronic marketplaces and exchanges
• Vertical marketplace is a marketplace that
  concentrates on one industry also called
  vertical portals or vortals
• Supply chain improvers

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The Business Model of 7dream.com
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The Benefits of EC

• Benefits to Organizations
• Expands the marketplace to national and
  international markets
• Decreases the cost of creating, processing,
  distributing, storing and retrieving paper-based
  information
• Allows reduced inventories and overhead by
  facilitating pull-type supply chain management

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Benefits of EC (cont.)

• The pull-type processing allows for customization
  of products and services which provides
  competitive advantage to its implementers
• Reduces the time between the outlay of capital
  and the receipt of products and services
• Supports business processes reengineering (BPR)
  efforts
• Lowers telecommunications cost - the Internet is
  much cheaper than value added networks (VANs)

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Benefits of EC (cont.)

• Benefits to consumers
• Enables consumers to shop or do other
  transactions 24 hours a day, all year round from
  almost any location
• Provides consumers with more choices
• Provides consumers with less expensive products
  and services by allowing them to shop in many
  places and conduct quick comparisons

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Benefits of EC (cont.)

• Allows quick delivery of products and services
  (in some cases) especially with digitized
  products
• Consumers can receive relevant and detailed
  information in seconds, rather than in days or
  weeks
• Makes it possible to participate in virtual
  auctions
• Allows consumers to interact with other consumers
  in electronic communities and exchange ideas as
  well as compare experiences
• Facilitates competition, which results in
  substantial discounts

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Benefits of EC (cont.)

• Benefits to society
• Enables more individuals to work at home, and to
  do less traveling for shopping, resulting in less
  traffic on the roads, and lower air pollution
• Allows some merchandise to be sold at lower
  prices, benefiting less affluent people
• Enables people in Third World countries and rural
  areas to enjoy products and services which
  otherwise are not available to them
• Facilitates delivery of public services at a
  reduced cost, increases effectiveness, and/or
  improves quality

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The Limitations of EC

• Technical limitations
• There is a lack of universally accepted standards
  for quality, security, and reliability
• The telecommunications bandwidth is insufficient
• Software development tools are still evolving
• There are difficulties in integrating the
  Internet and EC software with some existing
  (especially legacy) applications and databases.
• Special Web servers in addition to the network
  servers are needed (added cost).
• Internet accessibility is still expensive and/or
  inconvenient

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The Economic Effects of EC
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The Economic Effects of EC
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Economics of Digital Systems (cont.)

• Reach vs. richness
• Another economic impact of EC is the trade-off
  between the number of customers a company can
  reach (called reach) and the amount of
  interactions and information services they can
  provide to customers (called richness)

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Reach vs. Richness
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Business Pressures

• Social, economic, legal, technological, and
  political actions that affect business activities
• Market (economic)
• Societal
• Technological

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Organizational Responses

• Strategic systems
• Provide organizations with strategic advantages,
  enabling them to
• Increase their market share
• Better negotiate with their suppliers
• Prevent competitors from entering into their
  territory

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Organizational Responses (cont.)

• Continuous improvement efforts
• Many companies continuously conduct programs to
  improve
• Productivity
• Quality
• Customer service
• Business process reengineering (BPR)
• Strong business pressures may require a radical
  change
• Such an effort is referred to as business process
  reengineering (BPR)

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Organizational Responses (cont.)

• Business alliances
• Alliances with other companies, even competitors,
  can be beneficial
• Virtual corporationelectronically supported
  temporary joint venture
• Special organization for a specific
• Time-limited mission
• Electronic markets
• Optimize trading efficiency
• Enable their members to compete globally
• Require the collaboration of the different
  companies and competitors

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Organizational Responses (cont.)

• Reduction in cycle time and time to market
• Cycle time reductionshortening the time it takes
  for a business to complete a productive activity
  from its beginning to end
• Extremely important for increasing productivity
  and competitiveness
• Extranet-based applications expedite steps in the
  process of product or service development,
  testing, and implementation

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Organizational Responses (cont.)

• Empowerment of employees and collaborative work
• Employees given the authority to act and make
  decisions on their own improves
• Productivity
• Customer relationship management (CRM)
• Empowered sales people and customer service
  employees
• Make customers happy quickly
• Help increase customer loyalty

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Organizational Responses (cont.)

• Supply chain improvements
• Help reduce supply chain delays, inventories and
  eliminate other inefficiencies
• Mass customizationproduction of large quantities
  of customized items
• Business problem is how to efficiently provide
  customization
• EC is an ideal facilitator of mass customization
  by enabling electronic ordering to reach the
  production facility in minutes

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Organizational Challenge

• The task facing each organization is how to put
  together the components that will enable the
  organization to gain competitive advantage by
  using EC

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Organizational Challenge

• The first step is to put in the right connective
  networks
• The vast majority of EC is done on computers
  connected to
• Internet
• Intranet--An internal 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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Organizational Challenge

• Major concern of todays companieshow to
  transform themselves to take part in digital
  economy

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Networked Organizations
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Managerial Issues

• Is it real?
• How to evaluate the magnitude of the business
  pressures.
• Why is the B2B area so attractive?
• There are so many EC failureshow can one avoid
  them?
• What should be my companys strategy toward EC?
• How do we transform our organization into a
  digital one?