lec1 introduction to electronic commerce
DESCRIPTION
lecture 1 on E-CommerceTRANSCRIPT
Electronic Commerce IT 316
Lesson 1: An Introduction to Electronic Commerce
Session Objectives To provide an introduction to electronic
commerce (e-commerce) by answering the following questions: What is e-commerce? What are the advantages and disadvantages of
e-commerce What were the 1st and 2nd waves of e-
commerce characterised by? What are the categories of e-commerce?
Session Objectives Cont’d To discuss concepts such as:
Markets Value chains Transaction cost
To evaluate international electronic commerce issues
What is Commerce? Traditional commerce may be defined as:
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 E-Commerce? 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.
What is E-Commerce Cont’d? 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.
What is E-Commerce Cont’d? 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.
What is E-Commerce Cont’d? In summary, e-commerce is the
use of electronic communication to do business 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 E.g. IBM defines e-business as:
The transformation of key business processes through the use of Internet technologies
From Traditional Commerce 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 Commerce to E-commerce Cont’d
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 Suited to Certain Type of Commerce
E-commerce Sale/purchase of books & CDs, travel
services, investments and insurance services Online delivery of software Online shipment tracking
Business Processes Suited to Certain Type of Commerce Cont’d
E-commerce & Traditional 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 Suited to Certain Type of Commerce Cont’d
Traditional 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 E-commerce? Increases sales, decreases cost
Allows small businesses to have global customer base
Reduced cost through electronic sales inquiries, 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 (Telecommuting)
Virtual Community
What Are the Advantages of E-commerce Cont’d? 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? Inability to sell some products (e.g. high cost
jewelry and perishable foods, although supermarkets like www.philgrocer.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 There are a myriad of privacy issues
What Are the Disadvantages of E-commerce Cont’d? Difficulty in integrating current databases and
transaction processing systems into e-commerce solutions
Cultural and legal obstacles Transmission of credit card details Some consumers resistant to change Laws are unclear
Shipping profile: Products with a low value-to-weight ratio that can not be efficiently packed and shipped are unsuitable (use traditional commerce)
The 1st Wave of E-commerce 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 1st 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 Beginning in 2003 e-
commerce 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 2nd 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 2nd Wave Cont’d 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 Language conversions Currency conversions
International Nature of e-Commerce: Trust. Shoppers may not perceive foreign
businesses as trustworthy as businesses from their homelands
Language. 50% of Internet users do not read English and 75% of users are outside the United States.
Culture. An example would be Asian cultures not valuing private property in the same way as Europeans and North American cultures.
International Nature of e-Commerce Cont’d:
Government. Some country’s governments are much more restrictive in what is allowed on the Internet than others
Infrastructure. Infrastructure includes the computer and software connected to the Internet. The level of infrastructure varies in different parts of the world
E-commerce Categories There are five general e-commerce categories:
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
Definitions of Procurement: Dealing with the legal problems that arise from large contracts for the supply of goods or services,
especially for businesses or government organisations.
B2C e-commerce Description
Businesses sell products or services to individual customers (consumers)
Example Walmart.com sells merchandise to consumers
through its Web site Web site
www.walmart.com www.sm.com
B2B E-commerce Description
Businesses sell products or services to other businesses
Example Grainger.com sells industrial supplies to large
and small businesses through its Web site Web site
www.grainger.com
Business Processes that Support Buy/Sell Activities Description
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 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 Description
Participants in an online marketplace can buy and sell goods with each other
Example Consumers and businesses trade with each other on eBay.com
Web site www.ebay.com www.ebili.com
B2G e-commerce Description
Business sell goods or services to governments and government agencies
Example Cal-Buy portal for businesses that want to
sell online to the State of California Web site
www.pd.dgs.ca.gov/calbuy/default.htm
E-commerce Categories Example You are a computer manufacturing company who
performs the following activities on the Internet: 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)
Business processes
Relative Sizes of E-commerce Categories
B2C
B2B
Relative Sizes of E-commerce Categories Cont’d
Year B2C Sales ($ Billions)
B2B Sales ($ Billions)
2005 150 4100
2004 130 2800
2003 100 1600
2000 50 60
Economic Forces Economics is the
study of how people allocate scarce resources
Resources are allocated through: Commerce
(markets) Government actions
(e.g. taxes)
Markets 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 hierarchical organisations (companies) however, due to high transaction cost, choose to replace supplier markets with its own hierarchical structure for creating the product. This is called vertical integration E.g. Thomson Financial, a financial software
provider, purchased the data supplier Datastream
Hierarchical Organisations (Firms)
Firms participate in markets to purchase rawmaterials and sell finish products.
W o rke rA
M a n ag e rA
W o rke rB
M a n ag e rB
E xecu tive1
W o rke rE
M a n ag e rE
W o rke rF
M a n ag e rF
E xecu tive2
W o rke rJ
M a n ag e rJ
W o rke rK
M a n ag e rK
E xecu tive3
C h ie f O p e ra tin g O ffice r
Transaction Costs 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 Transaction costs incurred by a sweater
dealer when purchasing from independent sweater knitters: Cost of identifying independent knitters Cost of site visit to negotiate purchase price,
arrange delivery and inspection of sweaters Costs incurred by knitters:
Knitting tools and yarn purchase
Network Economic Structures 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 Teams complete a project or activity then dissolve New teams are creating as required
Value Chains 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: Business unit value chains Industry value chains
Strategic Business Unit Value Chains
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: Primary activities (the activities that the strategic
business unit undertakes Support activities (such as human resource
management and purchasing)
Manufacturer Value Chain
Finance& admin HR Technology
development
Support activities
Design
Identify customers
Manufacture product or create
service
deliverAfter sales
service & support
Market & sellPurchase materials
and supplies
Primary activities
International Issues Trust issues Language issues Culture issues Infrastructure issues
Trust Issues 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: 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) Global impact requires local language Web sites
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
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 Culture is 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 Cont’d Choice of icons on Web pages becomes
problematic on international Web sites: 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 Limited telecommunication infra-structure
may lead to unreliable Internet access Internet connection cost might be high
Reduces time businesses might spend surfing for new suppliers or products
Flat-rate access to the Internet required
Definitions 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 Cont’d 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-to-weight ratio)
Definitions Cont’d The definition of a market satisfies two
conditions: Potential seller of a good (product) comes
into contact with buyers A medium of exchange is available (e.g.
currency or barter (to exchange goods or services directly without the useof money))
Definitions Cont’d Transaction costs are the total costs that a
buyer and seller incur as they gather information and negotiate a purchase/sale transaction. This includes: Brokerage fees and sales commissions Cost of information search and acquisition Seller’s investment in equipment or hire of
skilled employees
Definitions Cont’d Procurement:Dealing with the legal
problems that arise from large contracts for the supply of goods or services, especially for businesses or government organisations.
Hierarchical business organizations are firms that include multiple levels with varying responsibilities starting with a president at the top and moving downward to vice presidents, middle managers, and eventually low-level employees such as clerks.
Definitions Cont’d Vertical Integration:Style of management
control