Transcript Electronic Commerce Contents  Part I     Part II     What is e-commerce? 1st and 2nd waves of e-commerce e-commerce categories Economic Forces Value chains International issues Part III  B2C e-commerce example.

Electronic Commerce
Contents
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Part I
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Part II
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What is e-commerce?
1st and 2nd waves of e-commerce
e-commerce categories
Economic Forces
Value chains
International issues
Part III
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B2C e-commerce example
Part I
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What is e-commerce?
1st and 2nd waves of ecommerce
e-commerce categories
What is Commerce?
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Traditional commerce may be defined as:
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From Webster's Revised Unabridged
Dictionary
Commerce : \Com"merce\, noun.
The exchange or buying and selling of commodities;
esp. the exchange of merchandise, on a large scale,
between different places or communities; extended
trade or traffic.
What is Electronic Commerce?
Electronic commerce (e-commerce) is a general
term for any type of business, or commercial
transaction that involves the transfer of
information across the Internet. This covers a
range of different types of businesses from
consumer-based retail sites, like Amazon.com,
through auction and music sites like eBay or
MP3.com, to business exchanges trading goods
or services between corporations. [WHYTE]
What is Electronic Commerce?
Electronic commerce is the use of
electronic communication to do business.
E-commerce is not about technology. It is
not a new business. E-commerce is a
method for companies to create and
operate their business in new and efficient
ways. [NSW]
What is Electronic Commerce?
Most fundamentally, e-commerce
represents the realization of digital, as
opposed to paper-based, commercial
transactions between businesses, between
a business and its consumers, or between a
government and its citizens or constituent
business. [FORDW]
What is Electronic Commerce?
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In summary, e-commerce is the
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use of electronic communication to do business
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Specifically, the transfer of information (transactions),
over the Internet
Some people use the term e-business to refer
to all the categories of e-commerce
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E.g. IBM defines e-business as:
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The transformation of key business processes through
the use of internet technologies
From Traditional to E-commerce
Sailing ships
Printing press
Steam engine
Telephone
Opened avenues for
trade between buyers
and sellers. Ancient
times (thousands of
years ago)
From Traditional to E-commerce
Electronic Funds Transfer (EFTs)
Electronic Data Interchange (EDI)
Internet
Wire transfers - used
by banks
Businesses transfer
electronic data
- data not re-keyed
- high implementation
cost, thus excluded
small businesses
On-line shopping
Business Processes Well-suited to
Particular Type of Commerce
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E-commerce
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Sale/purchase of books & CDs, travel
services, investments and insurance services
Online delivery of software
Online shipment tracking
Business Processes Well-suited to
Particular Type of Commerce
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E-commerce + Traditional
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Sale/purchase of automobiles and residential
real estate (e.g. do research online then buy
from a dealer or real estate agent)
Online banking
Roommate matching service
Business Processes Well-suited to
Particular Type of Commerce
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Traditional
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Sale/purchase of impulse items for immediate
use, high fashion jewelry and antiques
(personal inspection required; prefer to touch,
smell or examine closely)
Small denomination purchases and sales
(since there is not yet a standard for
transferring small amounts of money)
What Are the Advantages of Ecommerce?
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Increases sales, decreases cost
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Allows small businesses to have global customer
base
Reduced cost through electronic sales enquires, price
quotes and order taking
Provides purchasing opportunities for buyers
(businesses can identify new suppliers and
partners)
Increase speed and accuracy for exchanged
information, thus reducing cost
What Are the Advantages of Ecommerce?
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Business can be transacted 24hrs a day
The level of detail of purchase information is
selected by user
Digital products can be delivered instantly
Tax refunds, public retirement and welfare
support costs less when distributed over the
Internet
Allows products and services to be available in
remote areas, e.g. remote learning
What Are the Disadvantages of
E-commerce?
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Inability to sell some products (e.g. high cost
jewelry and perishable foods, although
supermarkets like www.Tesco.com delivers to
your home)
The newness and evolution of the current
technology
Many products require a large number of people
to purchase to be viable
High capital investment
What Are the Disadvantages of
E-commerce?
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Difficulty in integrating current databases and
transaction processing systems into e-commerce
solutions
Cultural and legal obstacles
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Transmission of credit card details
Some consumers resistant to change
Laws are unclear
Shipping profile: Products with a low value-toweight ratio that can not be efficiently packed and
shipped are unsuitable (use traditional commerce)
The 1st Wave of E-commerce
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The 1st wave was from
the mid 1990s to 2003
Dot-com boom (over
$100 billion in
investment): Rapid
growth from mid-1990s
to 2000
Dot-com bust: in 2000
Gloom years: 2000 –
2003 (over $200 billion
in investment)
Characteristics of the
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st
1
Wave
It was primarily a U.S. phenomenon
Web pages were in English
Internet technologies were slow and inexpensive
(e.g. dial-up lines)
Bar codes and scanners used to track parts (B2B
and Business processes)
Email, tool for unstructured communication
On-line advertising main revenue source
The 2nd Wave of E-commerce
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Beginning in 2003 ecommerce has shown
signs of new life
Companies like
Amazon.com (books),
and eBay.com (auctions)
who survived the
downturn were beginning
to show profits
Continuous growth of
B2C sales: 20-30% each
year since 2000
Characteristics of the
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nd
2
Wave
International scope where sellers do business in
many countries and languages
Faster, cheaper connections (x20 faster),
broadband at home (although more expensive)
Radio frequency ID devices and smart cards
Fingerprint readers and retina scanners (biometric
technologies) used for tracking
Email, integral part of marketing
Characteristics of the
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nd
2
Wave
E-commerce integral part of marketing and
customer contact strategy
Some categories of on-line advertising, e.g.
employment services (job want ads) have
replaced traditional advertising outlets
Problems
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Language conversions
Currency conversions
E-commerce Categories
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There are five general e-commerce categories:
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Business to Consumer (or B2C) e-commerce
Business to Business (or B2B) e-commerce
(sometimes called e-procurement)
Business processes that support buying and selling
activities
Consumer-to-consumer (or C2C) e-commerce
Business-to-government (or B2G) e-commerce
B2C e-commerce
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Description
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Example
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Businesses sell products or services to
individual customers (consumers)
Walmart.com sells merchandise to
consumers through its Web site
Web site
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www.walmart.com
B2B E-commerce
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Description
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Example
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Businesses sell products or services to other
businesses
Grainger.com sells industrial supplies to large
and small businesses through its Web site
Web site
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www.grainger.com
Business Processes
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Description
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Businesses and other organisations maintain
and use information to identify and evaluate
customers, suppliers and employees (and to
support buying, selling hiring, planning and
other activities). More and more this
information is being shared
Example
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Dell Computer uses secure internet
connections to share current sales and
forecasts with suppliers who use it to plan
their production, therefore they deliver the
right quantities of components at the right
time
C2C e-commerce
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Description
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Example
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Participants in an online marketplace can buy
and sell goods with each other
Consumers and businesses trade with each other
on eBay.com
Web site
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www.ebay.com
B2G e-commerce
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Description
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Example
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Business sell goods or services to
governments and government agencies
Cal-Buy portal for businesses that want
to sell online to the State of California
Web site
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www.pd.dgs.ca.gov/calbuy/default.htm
E-commerce Categories Example
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You are a computer manufacturing company who
performs the following activities on the Internet:
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Sells computers to individuals (B2C)
Purchases parts (e.g. hard drives, power supplies etc.)
from a supplier (B2B)
Hires staff, manage customer accounts, advertise, etc.
(Business processes)
Sells computers to the Government to be used in
schools (B2G)
On eBay.com individuals buy and sell this brand of
computers (C2C)
Relative Sizes of E-commerce
Categories
Business processes
B2C
B2B
Relative Sizes of E-commerce
Categories
Year
2005
B2C Sales
($ Billions)
150
B2B Sales
($ Billions)
4100
2004
130
2800
2003
100
1600
2000
50
60
Part II
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Economic Forces
Value chains
International issues
Economic Forces
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Economics is the
study of how people
allocate scare
resources
Resources are
allocated through:
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Commerce
(markets)
Government actions
(e.g. taxes)
Markets
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A market is a place where sellers can come into
contact with buyers and a medium of exchange
(e.g. currency) is available (e.g.the stock market)
Some hierarchal organisations (companies)
however, due to high transaction cost, choose to
replace supplier markets with its own hierarchal
structure for creating the product. This is called
vertical integration
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E.g. Thomson Financial, a financial software
provider, purchased the data supplier Datastream
Hierarchical Organisations
(Firms)
Firms participate in markets to purchase raw
materials and sell finish products.
Chief Operating Officer
Executive1
Executive2
Executive3
ManagerA
ManagerB
ManagerE
ManagerF
ManagerJ
ManagerK
WorkerA
WorkerB
WorkerE
WorkerF
WorkerJ
WorkerK
Transaction Costs
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Transaction costs are the total costs that a
buyer and seller incur as they gather
information and negotiate a purchase/sale
transaction
Transaction costs are the main reason for
vertical integration (Ronald Coase)
Businesses can use e-commerce to reduce
transaction costs (e.g. telecommuting rather
than physical commuting to allow global
employment opportunities)
Transaction Costs Example
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Transaction costs incurred by a sweater
dealer when purchasing from
independent sweater knitters:
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Cost of identifying independent knitters
Cost of site visit to negotiate purchase
price, arrange delivery and inspection of
sweaters
Costs incurred by knitters:
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Knitting tools and yarn purchase
Network Economic Structures
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Many businesses operate in an economic
structure that is neither market or
hierarchical
These businesses form, long-term, strategic
alliances with other companies who share
common goals and strategies
These alliances may occur over the Internet
– which are called virtual companies
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Teams complete a project or activity then
dissolve
New teams are creating as required
Value Chains
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A value chain is a way to organise the
activities that a business undertakes to
design, produce, promote, market, deliver
and support the products or services it sells
There are several types of value chains
including:
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Business unit value chains
Industry value chains
Strategic Business Unit
Value Chains
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A strategic business unit is a particular
combination of product, distribution
channel and customer type (large firms
often break down their business into
these units)
The value chain for a strategic business
unit include:
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Primary activities (the activities that the
strategic business unit undertakes
Support activities (such as human resource
management and purchasing)
Manufacturer Value Chain
Primary activities
Design
Identify
customers
Finance
& admin
Manufacture
product or create
service
deliver
Market & sell
HR
Technology
development
After sales
service & support
Purchase materials
and supplies
Support activities
Primary Activities
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Identify new customers, and sell new services to
existing customers (research & surveys)
Design – from concept to manufacturing
Purchase materials and supplies – includes
contracts, vendor selection, monitoring quality
and delivery timeliness
Manufacture product or create service –transform
materials and labour into finished products
Primary Activities
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Market and sell – advertising, promoting,
managing sales staff, pricing and monitoring
sales
Deliver – store, deliver distribute and ship
final product – warehousing, consolidating
freight, selecting shippers and monitoring
delivery timeliness
Provide after-sale service and support –
promote relationship with customer, e.g.
installing, maintaining, testing, repairing, and
warranties
Primary Activities

If a strategic business unit provides a
service then the value chain will
include a “Provide service” activity
instead of “Manufacture activity”
Support Activities
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Each business unit must also undertake
support activities that provide the
infrastructure for the primary activities:
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Finance and administration – accounting, paying
bills, borrowing, compliance with laws
Human resources – recruiting, hiring, training,
compensation and benefits
Technology development – improves the product
or service, including basic and applied research
and development, process improvement and field
tests of maintenance procedures
Industry Value Chains
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Industry value chains describes the larger
stream of activities into which a particular
business unit’s value chain is embedded
When a business unit delivers a product to a
customer the customer might use the
product as purchased materials in its value
chain
By examining how other business units in
the industry value chain conduct their
business cost reduction and product
improvement may result
Industry Value Chain Example
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A value chain for a wooden chair
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Logger cuts down tree
Sawmill converts logs to lumber
Lumberyard provides selection of lumber
Chair manufacture assembles chair
Furniture retailer markets and sells chair
Consumer purchases and uses chair
Landfill or recycler disposes of chair
International Issues
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Trust issues
Language issues
Culture issues
Infrastructure issues
Trust Issues
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Anyone can create a site on the Web
These individuals or businesses can easily
remain anonymous
Without an established brand consumers
find it difficult to trusts on-line businesses:
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especially with personal information and
credit card numbers
The key is developing methods which
allow legitimate businesses to establish
trusts relationships quickly with
consumers
Language Issues (localisation)
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Global impact requires local language Web
sites
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customers prefer to buy from sites in native
language
60% of web content today is in English; but
more than 50% of the current users do not
read English
Multiple translations may be required for
different dialects, e.g. Spanish- Mexico and
Spain
Translating entire Web sites is expensive
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25-90 cents per word for human translators
(400-600 words per hour)
Automated software translation (machine
translation) is cheaper (400,000 word per hour) less accurate
Culture Issues
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Culture – the combination of language and
customs
Culture varies across national boundaries and
in many cases regions within nations
Example:

General Motors Chevrolet Nova automobile
amused people in Latin America since no va
means “it will not go”
Culture Issues
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Choice of icons on Web pages becomes
problematic on international Web sites:
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In the US a shopping cart is useful, in the UK
a shopping basket is more appropriate,
Australians call shopping carts, shopping
trolleys
In many places other than Brazil the thumbs
up gesture means okay, in Brazil it is an
obscene gesture
Infrastructure Issues
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Limited telecommunication infra-structure
may lead to unreliable Internet access
Internet connection cost might be high
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Reduces time businesses might spend surfing
for new suppliers or products
Flat-rate access to the Internet required
Part III
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B2C e-commerce example
B2C E-commerce Example
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The task
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Purchase “Design Patterns”, “Software
Engineering” and “Cryptography Decrypted”
from a bookstore
Options
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Go to a bookstore in person and purchase
books
Use an online bookstore, e.g. Amazon.co.uk
and have the books delivered to your door
Step 1: Log on to Amazon.Co.uk
Step 2: Click the Books tab
Step 3: Type “Software
Engineering” Then Click Go
Definitions
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A commodity item is a product or service that is hard
to distinguish from the same products or services
provided by other sellers (e.g. gasoline, office
suppliers, soap and computers)
A transaction is an exchange of value, such as a
purchase or sale, or the conversion of raw materials
into finished products (a transaction has one or more
associated activity)
A business process is the set of logically related and
sequential activities and transactions in which
businesses engage
Definitions
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
Merchandising is a combination of store
design, layout and product display
knowledge
A shipping profile is the collection of
attributes that affect how easily that
product can be packaged and delivered
(e.g. airline tickets have a high value-toweight ratio)
Definitions

The definition of a market satisfies two
conditions:
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Potential seller of a good (product0 comes
into contact with buyers
A medium of exchange is available (e.g.
currency or barter (to exchange goods or
services directly without the use
of money))
Definitions

Transaction costs are the total costs that a
buyer and seller incur as they gather
information and negotiate a purchase/sale
transaction. This includes:
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Brokerage fees and sales commissions
Cost of information search and acquistion
Seller’s investment in equipment or hire of
skilled employees
References
[NSW] NSW Department of State and Regional
Development, “Brief on Electronic Commerce”,
http://www.smallbiz.nsw.gov.au/textonly/issues/techn
ology/brief/index.html
[FordW] Ford, Warwick, “Secure Electronic Commerce:
Building the Infrastructure for Digital Signatures and
Encryption (2nd Edition), pp. 1, 2000
[Sch2004] Schneider, Gary, P., “Electronic Commerce:
The second wave”, Thomson Course Technology,
Fifth Annual Edition, 2004