1. CHAPTER 6 Electronic Commerce
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2. Learning Objectives
Describe electronic commerce, its dimensions, benefits, limitations, and process.
Describe the major applications of electronic commerce, both business-to-customer and business-to-business.
Discuss the importance and activities of market research and customer service.
Describe the electronic commerce infrastructure and EDI.
Compare the various payment systems and describe the role of smart cards.
Describe the relationship between EC, supply chain management, ERP, and EDI.
Discuss legal and ethical issues related to e-commerce.

3. Intel Corporation Embracing the Web
The Problem
slow, expensive, and frequently not up to date distribution and communication process
The Solution
established an e-business program using an extranet
The Results
enhances competitive advantage by giving Intel’s customers better tools for managing transactions
brings substantial tangible savings

4. Toshiba’s Extranet Keeps Dealers on Time
The Problem
dealers needed parts quickly
The Solution
created a Web-based ordering entry system using an extranet
The Results
reduces the cost per order
reduces the networking cost of the Electronic Imaging Division (EID)
increases customer satisfaction

5. Foundations of Electronic Commerce (EC)
In EC, business transactions take place via telecommunications networks, primarily the Internet
Marketspace is an electronic market place
E-business (or e-biz) refers to a broader definition of EC, not just buying and selling, but also servicing customers, collaborating with business partners, and conducting electronic transactions within an organization

6. A Framework for EC Management Infrastructure People: Buyers, Sellers,
Electronic Commerce Applications
• Direct Marketing • Stocks, Jobs • On-line banking
• Procurement and purchasing • Malls • Procurement • Auctions • Travel
• On-line publishing • Customer Services • Intrabusiness Transactions
People:
Buyers, Sellers,
Intermediaries,
Services, IS People
and Management
Public Policy :
Taxes, Legal, Privacy Issues, Regulations, and
Technical Standards
Marketing and
Advertisement:
Market Research,
Promotions, and
Web content
Supply Chain:
Logistics and
Business Partners
Infrastructure
(1)
Common business
services infrastructure
(security, smart
cards/authentication
electronic payments,
directories/catalogs
(2)
Messaging and
information distribution
infrastructure
(EDI, , Hyper Text
Transfer Protocol, Chat
Rooms)
(3)
Multimedia content
and network
publishing infrastructure
(HTML, JAVA, World
Wide Web, VRML)
(4)
Network infrastructure
(Telecom, cable TV
wireless, Internet)
(VAN, WAN, LAN,
Intranet, Extranet)
Access (cell phones)
(5)
Interfacing
(The databases,
logistics,
customers, and
applications)
Management

7. Electronic Markets
The business center is not a physical building but a network-based location where business interactions occur
The principal participants - transaction handlers, buyers, brokers, and sellers - not only are at different locations but seldom even know one another

8. Interorganizational Information System (IOS)
Drivers of Interorganizational Systems
Reducing costs
Improving the quality of information
Compressing cycle time
Eliminating paper
Making the trading process easy for users
Types of Interorganizational Systems
Electronic data interchange (EDI)
Electronic funds transfer (EFT)
Extranets
Integrated messaging
Shared databases

9. Benefits of EC to Organizations
Decreasing information costs
Reduced inventories
Reduced cycle time
Supports BPR
Lowers telecommunication costs

10. Benefits of EC to Consumers
More choice
Less expensive products
Quick delivery
24-hour availability
Quick access to information
Customized product at competitive prices
Virtual auctions
Interact with other EC customers

11. Benefits of EC to Society
Lower air pollution
Increase standard of living
Enjoy products and services in third-world
Facilitate delivery of public services

12. Limitations of EC Technical
Lack of security
Insufficient telecommunication bandwidth
Software tools still evolving
Integration of internet and EC software
Special Web servers
Interoperability of software and hardware

13. Limitations of EC Nontechnical
Accessibility
Legal issues
Government regulations
Difficult to measure benefits
EC still evolving
Customers resist change

14. Limitations Nontechnical
Insufficient support services
Perception that EC is expensive and insecure
EC has not obtained a critical mass of sellers and customers
EC - breakdown of human relationships

15. The network organization:
Non-Company Manufacturers
Customers
Sales peoples and other mobile employees
Distributors
Market
Non-Company Retailers
Suppliers (Purchasing)
Liquidateors
contractors
Toy Industry Extranet
Other Extranets
Banks and other
business partners
Professional Associations, large suppliers, competitors
Corporate
Extranet
Head Quarter
Retail Stores
Employees
Manufacturing
Toys Inc
Corporate Intranet
Public
Travel agency
Small customers
Small retailers
Small vendors
Government
EDI, VAN
Internet
The network organization:
How a company uses the Internet, and internet and extranet

16. Interactive One-to-One Marketing
“Treat Different Customers Differently”
A firm must be able to change how its products are configured or its services is delivered, based on the needs of individual customers

17. The New Marketing Model
Relationship
Building
Customer receives marketing
exposure
Customer decides on marketing medium for response
Customer
makes
purchase
decision
Detailed transaction/ behavior data collection
New media chosen to best serve/reach customer
“Four P’S”
updated
uniquely to customer
Customer profiled based on behavior; custom segmentation developed
Database
Update

18. Electronic Retailing
Electronic retailing is the direct sale (B2C) through electronic storefronts or in electronic malls, usually designed around an electronic catalog format
Electronic storefronts maintain their own Internet name and a Web site and may or may not be associated with electronic malls.

19. Electronic Malls (Cybermalls)
Electronic mall is a collection of individual shops under one Internet address.
Electronic mall provide a one-stop shopping place that offers many products and services.
Representative cybermalls
Downtown Anywhere (
America’s Choice Mall (
Shopping 2000 (

20. Advertising Online • Why Internet advertisement?
Ads can be updated any time with a minimal cost, so they can always be timely
Ads can reach very large numbers of potential buyers all over the world
Online ads are frequently cheaper
Web ads can efficiently use text, audio, graphics, and animation
The audience for Internet advertisement is growing
Web ads can be interactive and targeted to specific interest groups and/or individuals
Customers can move easily and quickly from viewing an ad to getting details and to ordering

21. Banner Advertisement Keyword banners Random banners
appear when a predetermined word is queried target
Random banners
appear randomly

22. Benefits ( ) and Shortcoming() of Internet Advertisement
24 hours a day, days a year
Large market segmentation opportunity
One-to-one direct marketing
More attractive and compelling ads
Low distribution costs
Always up-to-day
Ease of logical navigation
No clear standard or language
Immature measurement tools and metrics
Apples-to-apples comparisons difficult for media buyers
Difficult to measure size of market
Small audience

23. Advertisement
advertisement send advertisement material to potential buyers
advertisement offers cost-effective implementation and a better and quicker response rate than other advertisement channels
Marketers develop or purchase a list of addresses, place them in a database, and then send ads to them via

24. URL Advertisement URL - universal resource locator It is free
Any company can submit its URL to a search engine and be listed
The targeted audience can be locked and uninterested viewers can be filtered
The chance to be placed at the top of the list is low

25. Online Advertisement Issues
Customizing Ads
Filtering the irrelevant information by providing customized ads can be beneficial to customers and advertisers alike
Push technology - When a user establishes his/her system, the user selects the type of desired information. The user then gets the information he or she wants, but at the same time also gets banner ads.

26. Online Advertisement Issues
Difficulties in measuring the effectiveness of advertisements
difficult to relate sales to the number of hits
it is inadequate to use the gross number of visits as a possible measure of effectiveness
no guarantee that a purchase will be made
offline purchasing may be the results of online advertisement

27. Online Advertisement Issues
Attracting visitors to a site
Online events and promotions
Contests
Quizzes
Coupons
Give-away samples

28. Intelligent Agents in EC and Retailing
To help users to conduct routine tasks
To help users to search and retrieve information
To help users to support decision marking
To help users to act as consulting experts

29. Intelligent Agents for Information Search and Filtering
Product broker use collaborative filtering process
use like-minded people to make recommendations
alerts users to new product releases or recommends products based on past selections or requirements specified by the buyer

30. Electronic Catalogs
Advertise and promote products and services, whereas customers use them as a source of information on products and services
Consists of product database, directory, search capability, and a presentation function
Dynamic, customized, and integrated with selling and buying procedures such as order taking and payment

31. Benefits() and Shortcoming () of Online Catalog
Easy to update
Able to integrate with the purchasing process
Good search and comparison capabilities
Able to provide up-to-date information
Provision for global range of information
Possibility of adding voice and motion pictures
Cost savings
Easy to customize
More comparative shopping
Ease of connecting order processing, inventory processing, and payment processing to the system
Large fixed cost
Need for customer skill to deal with computers and browsers

32. Customized Catalogs
Assembled specifically for a company, usually a customer of the catalog owner
Tailored to individuals consumers in certain cases
Two approaches
to let the customers identify the interesting items out of the total catalogs
to let the system automatically identify the characteristics of customers, based on their transaction records, and build a catalog accordingly

33. Disintermediation and Reintermediation
by using the Internet, manufacturers can sell directly to customers and provide customer support online
the traditional intermediaries are eliminated
Reintermediation
traditional intermediaries like retailers and department stores have initiated online stores
new electronic intermediaries - and product selection agents - are emerging

34. Impact of EC on Manufacturers’ Distribution Strategy
Manufacturer’s monopolistic Internet-based distribution
Coexistence with the dealers
Regionally mixed strategy
Restraint of competition by powerful distributors

35. Cyberbanking
Includes all major banking activities, from paying bills to securing a loan, conducted from home, a business, or on the road instead of at a physical bank location
Saves time and is convenient for customers

36. The Future of Banking Customer’s agents Product manufacturers
offers customers the widest possible choice of banking products from multiple outside sources
provide customers with information-integrated services
Product manufacturers
a branded or unbranded wholesaler of product and processing services to other banks
Integrated players

37. Personal Finance Bill paying and electronic check writing
Tracking bank accounts, expenditures, and credit cards
Budget organization
Record keeping of cash flow and profit and loss computations
Portfolio management, including reports and capital gains (losses) computations
Investment tracking and monitoring of securities
Quotes and tradelines, historical and current prices
Tax computations
Retirement goals, planning, and budgeting

38. Paying Bills Online Automatic payment of mortgages
Automatic transfer of funds to pay monthly utility bills
Paying bills from online banking account
Merchant-to-customer direct billing
Using an intermediary

39. Online Investment Trading
Includes stocks and bonds, financial derivatives, commodities, mutual funds, and more
Less expensive
No waiting on busy telephone lines, and the chance of making mistakes
Anywhere, anytime
Considerable amount of information

40. Investment Information
Municipal bond pricing
Overall market information and many links
Free gurus’ advice
Stock screening and evaluation
Articles from the journal of the American Association of Individual Investors
Chart lovers have many options
Mutual fund evaluation and other interesting investment information
Earning estimates
Current news

41. The Job Market Online The participants in the job market
Job seekers : reply to employment ads posted online; take the initiative and place resumes on their own resumes
Job offerers : advertise openings on their Web sites
Recruiting firms : post available job descriptions and advertise their services in electronic mail and in others’ Web sites
Newsgroups : able to post job; conduct discussions; and send resumes

42. Advantages For Job Seekers
Ability to find information on a large number of jobs and employing companies worldwide
Ability to quickly communicate with potential employers
Ability to write and post resumes for large-volume distribution
Ability to customize resumes quickly and at no cost
Ability to search for jobs quickly from any place at any time
Several support services available at no cost
Ability to learn how to use your voice in interview

43. Advantages For Employers
Ability to advertise to a large number of job seekers
Ability to save on advertisement costs
Ability to post job openings quickly
Lower cost of processing applications
Ability to provide greater “equal opportunity” for job seekers
Ability to find highly skilled employees

44. Limitations of the Electronic Job Market
Many people do not use the Internet
Security and privacy
Creating high and expensive turnover
Information overload

45. Travel and Tourism
Potential savings through special sales, auctions, and the elimination of travel agents
Online services by all major airline vacation services, large conventional travel agencies, car rental agencies, hotels, and tour companies

46. Real Estate
Consumers can view many properties on the screen, saving time for themselves and the brokers
Consumers can sort and organize properties according to their criteria and preview the exterior and interior designs of the properties, shortening the search process
Consumers can find detailed information about the properties and frequently get even more details than brokers usually provide
Homebuilders can use virtual reality technology on their Web sites to demonstrate three-dimensional floor plans to potential home buyers

47. Auctions, Bidding,and Bartering
specialized auction sites; auction cars; art auctions; airline tickets
Bidding
special type of auction (Reverse auction)
Bartering
the exchange of goods and/or services

48. B2B Business Models Seller-Oriented Marketspace (e-selling)
the buyer is an organization that may be a regular customer of the seller
EC is used in the seller-oriented model to increase sales, reduce selling and advertisement expenditures, increase delivery speed, and reduce administrative cost

49. B2B Business Models
Buyer-Oriented Marketspace (e-procurement and bidding)
involves placing a request for quotation (RFQ) on the buyer’s Web site, or in a bidding marketspace
Intermediaries in Electronic Commerce (exchange)
make markets
make money, improve service for customers, reduce search time of its own staff

50. B2B Business Models Buyer’s Internal Marketplace (aggregation)
company buys large number of supply items from many vendors
items purchased are listed in the company’s catalog
purchasers at various company offices around the world now view the catalog, select, electronically place orders, and pay with a company procurement card

51. B2B Business Models Business-to-Business Auctions
to use the organization’s own Web site or use an auction site of an intermediary
benefits of auctions
generating revenue
increasing page views
acquiring and retaining members

52. B2B Business Models Type of B2B Auctions Independent auctions
use a third-party auctioneer to create the site and sell the goods
Commodity auctions
many buyers and sellers come together to a third-party Web site
Private auctions by invitation only
several companies bypass the intermediaries and auction their products by themselves
Auction at the company web site
company build an auction capability on their web site

53. Intrabusiness Commerce on Intranets
Intrabusiness EC is electronic commerce within companies
Intranet uses Internet-based technology, including browsers and search engines, to provide access to a variety of information within a firm

54. The Extranets and Whole Industry Vertical Markets
Extranet is a network that links business partners to one another over the Internet by tying together their corporate intranets
Goal is to foster collaboration between organizations
Vertical market-in one industry only

55. Consumers and Their Behaviors
Mostly 15- to 35-years-old
Males and females
Married and highly educated
Working in educational institutions, computer industry, professions, and organizations
High household incomes

56. Models of Market Research
IT for Management
Prof. Efraim Turban
Models of Market Research
Decision Making Process
Personal Characteristics
Age, Gender, Ethnicity, Education, Lifestyle, Psychological, Knowledge, Values, Personality
Environmental Characteristics
Social, Family, Communities
Vendors’ Controlled Systems
Logistic Support
Payments, Delivery
Technical Support
Web Design, Intelligent Agents
Customer Service
FAQs, , Call Centers,
One-to-One
Buyers’ Decisions
Buy or Not
What to Buy
Where (Vendor)
When
How Much to Spend
Repeat Purchases
Stimuli
Marketing
Price
Promotion
Product
Quality
Others
Economical
Technology
Political
Cultural

57. How to Find out What Customers Want?
Asking customers what they want
ask potential customers to fill in electronic questionnaires
Tracking customers’ activities on the Web
based on cookies or other approaches
data such as where customers come from or how many customer have gone straight from the home page to ordering

58. Process of Conducting the Research
Define the target market
Identify newsgroups to study
Identify topics for discussion
Subscribe to the pertinent groups
Search discussion group topic and content lists to find target market
Search discussion group lists
Subscribe to filtering services that monitor groups
Read FAQs and other instructions

59. Intelligent Agents for Product and Vendor Findings
Helps consumers decide where to buy by comparing merchants’ offers
Jango originates the requests for the price form the customer’s site instead of Jango’s site
In Kasbah, users who want to sell or buy a product assign the task to an agent that is then sent out to proactively seek buyers or sellers

60. Negotiation Agents
Intelligent agents negotiate the price and other terms of the transactions for consumers
Intelligent agents can take away some of the real-world problems associated with negotiation such as the frustration some customers experience in the process, and the technical limitations of being physically in different locations

61. Customer Services The process of customer service
Phase 1 : Requirements
assisting the customer to determine needs
Phase 2 : Acquisition
helping customer to acquire a product or service
Phase 3 : Ownership
supporting customer on an ongoing basis
Phase 4 : Retirement
helping client to dispose of a service or product

62. Business to Consumer (B2C) Applications
Advertising, online publishing and push technology
Cyber banking, personal finance and stock trading
Job market, auctions, bids and bartering
Travel and real estate
Electronic retailing and malls

63. Facilitating Customer Service
Personalized Web pages
A chat room
FAQs
Tracking capabilities
Web-based call centers

64. Electronic Commerce Infrastructure
IT for Management
Prof. Efraim Turban
Electronic Commerce Infrastructure
COMPONENT
DESCRIPTION AND ISSUES
Networks
A shift from VANs to the Internet. Increased use of VPNs (virtual private networks) to enhance security and capabilities over the Internet.
Web severs
Special Web servers are usually superior to dual-purpose servers. Available for rent. The interface to legacy systems may be a problem
Web server support and software
1. Web site activity tracking. 2. Database connectivity. 3. Software for creating electronic forms. 4. Software for creating chat rooms and discussion groups.
Electronic catalogs
Product description, multimedia use, customized catalogs, inclusion in Web site design and construction, templates for construction.
Web page design and construction software
Web programming languages (HTML, JAVA, VRML, XML)
Transactional software
1. Search engines for finding and comparing, products. 2. Negotiating software. 3. Encryption and payment. 4. Ordering (front office) inventory and back office software.
Internet access components
TCP/IP package, Web browsers, remote access server, client dial-in software, Internet connection device, leased line connection, connection to leased line, Internet kiosks
Others
Firewalls, , HTTP (transfer protocols), smart cards

65. Electronic Data Interchange
Business transactions messages
electronically transfer repetitive business transactions
Data formatting standards
use some formatting (coding) standards
EDI translators
does the conversion of data into standard format
Private lines versus the Internet
problem of compatibility of EDI
Internet-based EDI

66. Benefits of EDI
Send and receive large amounts of routine transaction information quickly around the globe
Very few errors
Information flow among several trading partners consistently and freely
Access partner’s databases to retrieve and store standard transactions
Fosters true partnership relationships
Creates a complete paperless TPS environment
Shorten payment collection cycle
Enter data offline
Use data immediately
Deliver Sales information in real time
Save a considerable amount of money

67. Reasons to Create EDI Ability over the Internet
Few geographical constraints
Reach the widest possible number of trading partners of any viable alternative currently available
Seedbed for growth of a vast range of business applications
Cut EDI communication coasts
Complement or replace current EDI application
Very user-friendly

68. Limitations of Traditional Payment Instruments in EC
Cash cannot be used since there is no face-to-face contact
It takes time to be received by mail
It takes time to process the credit card number provided by phone or fax
Some buyers do not have credit cards or checking accounts

69. Security Requirements
Authentification : be assured of the identity of the party with whom they are dealing
Privacy : want identity to be secured
Integrity : data and information transmitted are not accidentally or maliciously altered or destroyed
Non-repudiation : protection against unjustifiable denial of placing an order or payments made
Safety : ensure it is safe to provide a credit card number on the Internet

70. Encryption Single-key (Symmetric) encryption Public/Private key system
The sender of the message encrypts the information with a key and the receiver used an identical key to decrypt the information to a readable form
Public/Private key system
Several authorized people may know the public key, while only its owner knows the private key
encryption and decryption can be done with either key
Sophisticated systems use both keys

71. Electronic Certificates
Issued by a trusted third party - certificate authority (CA)
Verify that a specific public key belongs to specific individual
A higher certificate authority that guarantees certifiers is the Post Office in many countries

72. Protocols
A protocols is a set of rules and procedures that govern the transfer of information on the Internet
Secure Socket Layer (SSL)
encrypt messages
Secure Electronic Transaction Protocol (SET)
incorporate digital signatures, certification, encryption, and an agreed-upon payment gateway

73. Electronic Credit Cards
Payments using unencrypted credit card
the buyer his or her credit card number to the seller on the Internet
Encrypted payments
Using SSL encryption, credit card details are encrypted for security
High level of security and privacy
Using the SET protocol or a third-party intermediation, very high level of security, integrity and privacy will be given

74. Electronic Checks
STEP 1 : the customer establishes a checking account with a bank
STEP 2 : the customer contacts sellers, buys a product or service, and s an encrypted electronic check signed with a digital signature and two certificates, one for the bank, one for the buyer
STEP 3 : the merchant deposits the check in his or her account; money is debited in the buyer’s account and credited to the seller’s account

75. Electronic Cash
STEP 1 : the customer opens an account with a bank and receives special software for his or her PC
STEP 2 : the customer buys “electronic money” from the bank by using the software
STEP 3 : the bank sends an electronic money note to this customer, endorsing it with a digital signature
STEP 4 : the money is stored on the buyer’s PC and can be spent in any electronic store that accepts e-cash
STEP 5 : the software is also used to transfer the e-cash from the buyer’s computer to the seller’s computer
STEP 6 : the seller can deposit the e-cash in a bank, crediting his or her regular or electronic account, or use the e-cash to make a purchases elsewhere

76. Electronic Payment Cards (Smart Cards) with E-cash
Using smart cards
combine several credit cards, debit cards, and stored electronic cash
Electronic payment from cellular phones
enable people to make payments form their cell phone
Electronic funds transfer
transfer money electronically to and from financial institutions using telecommunication networks

77. Fraud on the Internet Internet stocks fraud Other financial fraud
In fall 1998, the SEC brought charges against 44 companies and individuals who illegally promoted stocks on computer bulletin boards, online newspapers, and investment Web sites
Other financial fraud
Other areas include selling bogus investments and phantom business

78. Buyer Protection Tips for safe electronic shopping include:
Look for reliable brand names at sites like Wal-Mart Online, Disney Online, and Amazon.com. Enter it directly (Not from a link)
Search any unfamiliar selling site for company’s address and phone and fax number
Check out the seller with the local Chamber of Commerce and/or Better Business Bureau
Investigate how secure the seller’s site is and how well it is organized
Examine the money-back guarantees, warranties, and service agreements
Compare prices to those in regular stores (too low-a suspect)
Ask friends what they know
Find out what your rights are in case of a dispute
Consult the National Fraud Information Center
Check for a listing of useful resources
Be aware that you have shopper’s rights

79. Seller Protection Sellers are protected against:
consumers who refuse to pay, or pay with bad checks
use of sellers’ name by others
buyers’ claims that the merchandise did not arrive
use of sellers’ unique words and phrases, names, slogans, and Web address
customers downloading copyrighted software and/or knowledge and selling it to others

80. Legal Issues Specific to E-commerce
Domain Name
several companies that have similar or same names (in different countries) compete over a domain name that is not registered trademark
Taxes and Other Fees
particularly complex for interstate and international commerce
Copyright
intellectual property is protected by copyright laws and cannot be used freely

81. Ethical Issues Privacy The Human Element Web Tracking
most electronic payment systems know who the buyers are; therefore, it may be necessary to protect the buyers’ identity
The Human Element
technology is new to many IS directors and employees; so many require new sets of skills
Web Tracking
by using sophisticated software it is possible to track individual movements on the internet
Disintermediation
use of EC may result in the elimination of some of a company’s employees as well as brokers and agents

82. IT for Management
Prof. Efraim Turban
Copyright  2001 John Wiley & Sons, Incorporated. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner in unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Son, Inc. Adopters of the textbook are granted permission to make back-up copies for his/her own use only, to make copies for distribution to student of the course the textbook is used in, and to modify this material to best suit their instructional needs. Under no circumstances can copies be made for resale. The publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
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