1. History and development of Ecommerce
I. What is ecommerce?
II. Where did it come from?
III. What is happening now?
IV. Where is it going?

2. Goals:
Take a strategic look at the development of ecommerce,
Identify key characteristics of the social and technological infrastructure that is required to support it.

3. What is ecommerce?
It is:
sharing business information,
maintaining business relationships,
conducting business transactions,
by means of telecommunications networks
Zwass, 1996

4. Ecommerce ... covers a wide range of
commercial activities performed by means of
an electronic web that can connect trading
partners. It includes:
EDI,
Support for interpersonal communication,
3. The transfer of money,
The sharing of databases in the conduct of business.
Milosevic and Bond 1996,

5. Ecommerce refers to any commercial activity which is conducted in a paperless manner
It is enabled by a number of technologies including:
EDI,
Electronic mail,
Provision of electronic catalogues,
Electronic Funds Transfer (EFT), etc.

6. It also refers to the procedures, policies and strategies required to support the incorporation of electronic interaction into the business environment.
Information Policy Council (1997)
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7. Ecommerce is any form of business transaction in which the parties interact electronically rather than by physical exchanges or direct physical contact.
It is one of those rare cases where changing needs and new technologies come together to revolutionize the way in which business is conducted.
European Commission (1997)

8. A working definition of ecommerce focuses on
The marketing and planning strategies,
Business and consumer behavior, and
Legal and regulatory policy issues related to the commercial development of the Internet.

9. It includes at least the following:
The exchange of goods and services across an
interactive digital network,
2. A computer-mediated and virtual market with new relationships among businesses and consumers,
3. A digital means of exchange (digital money, ecash, secure credit card transactions),
4. The increasing importance of digital information as a commodity.

10. And:
5. New business processes and technologies to
support digital transactions,
New business strategies and models to gain a
competitive edge in the digital marketplace,
7. Technologies to ensure privacy and protect intellectual property
8. A legislative and regulatory environment that supports ecommerce (domestic and international)

11. Ecommerce involves online activity supporting the “virtual value chain”
Inbound logistics
Production Processes
Outbound logistics
Marketing
Sales
Customer support
Internal
External

12. Ecommerce:
1. Directly connects buyers and sellers,
2. Supports fully digital information exchange
between producers, suppliers, sellers, buyers,
3. Allows global activity ,
Allows interactivity and adaptation to customer
behaviors,
5. Encourages real time updating.

13. Using a buyer-seller perspective, and a life-cycle
model, ecommerce is present in all the phases of a
commerce transaction:

14. It enables companies to:
1. Be more efficient and flexible in their internal
operations
2. Work more closely with their suppliers,
Be more responsive to the needs and expectations
of their customers,
4. Select the best suppliers regardless of their geographical location and
5. Sell to a global market.

15. Ecommerce can be divided into four distinct categories:
Business
Consumer
Administration
Business

16. Business 2 business:
Using a network for ordering from suppliers, receiving invoices and making payments (EDI).
Business 2 consumer:
Electronic retailing, mostly on the web.
Business 2 administration:
Transactions such as the details of upcoming government procurements.
Consumer 2 administration:
Epayment of taxes, receiving govt. services.

17. Retail
Corporate
ISP/VAN
Credit Card
Companies
Dist
Consumers
Banks
Manufacturing
Internet Service
Providers
Government
Suppliers

18. Ecommerce creates a marketplace for digital products, including:
Software, text and image-based digitized objects,
Services that depend on information and data (electricity consumption etc),
These can be produced and delivered over the net
This changes traditional manufacturing and
distribution processes.

19. Areas of Electronic Commerce
From Choi et al. (1997) The Economics of Electronic Commerce. p. 18

20. Traditional commerce:
Physical product: a tangible, material object,
Physical process: interactions between buyers, sellers, producers,
Physical agent: People in a storefront.
Ecommerce:
Digital product: a digital object,
Digital process: interactions between buyers, sellers, producers online,
Digital agent: web storefront

21. Supplier opportunity Customer benefit
Global presence Global choice
Improved competitiveness Quality of service
Mass customizing and Personalized products
targeting and services
Shorten or eradicate Rapid response to
supply chains needs
Substantial cost savings Substantial price reductions
New business opportunities New products and services

22. History and development of Ecommerce
I What is ecommerce?
II. Where did it come from?
III. What is happening now?
IV. Where is it going?

23. II. Where did it come from?
There were several precipitating conditions
1. Business to business use of EDI,
2. The continued decrease in the costs of computer
hardware and software,
3. The disappearance of the NSF prohibiting
commercial activities on the net,
4. The rapid growth of the web (the third wave),
5. The rise of the profitable ISP.

24. Early forms of ecommerce involved electronic data interchange (EDI).
EDI allows business-to-business exchange of
digital transaction information,
b. It is computer-to-computer communication of
business information in standardized form,
c. Trading partners establish computer-to-computer links for rapid information exchange.

25. EDI reduces the time and distance involved in doing business (purchase orders, invoices, global procurement, outsourcing, etc)
It reduces transaction costs by improving speed and efficiency (as much as 5x faster),
It developed in the 1960s as a way to move documents quickly but didn’t come into wide use until the 1980s,
This was because of technology and the culture of business.

26. EDI is a form of structured document exchange.
It allows the exchange of a range of data types and document content between software applications running on remote computers,
b. It only specifies a formats for data/business information developed in a standards setting process,
c. The transmission of the data is handled by another means, such as or point to point connections.

27. Definitions of EDI
The transmission of unambiguous business information in standard syntax between computers of independent organizations
The interchange of standard formatted data between computer application systems of trading partners with minimal manual intervention

28. And:
The electronic transfer, from computer to computer, of commercial and administrative data using an agreed standard to structure an EDI message,
The electronic transfer from one computer to another of computer processable data using an agreed standard to structure the data.

29. An example of an EDI transaction for purchase, shipping, and payment taking place between computer systems:
1. Buyer --> Purchase order --> Seller
2. Seller --> Purchase order confirmation -->
Buyer
3. Seller --> Booking request --> Transport company
4. Transport company --> Booking confirmation - -> Seller

30. And:
5. Seller --> Advance ship notice --> Buyer
6. Transport company --> Status --> Seller
7. Buyer --> Receipt advice --> Seller
8. Seller --> Invoice --> Buyer
9. Buyer --> Payment --> Seller

31. Examples of uses of EDI:
Improving business processes through increases in speed of data flow and efficiency,
2. Changing marketing, transportation, and distribution practices,
3. Improving international or cross border transactions,
4. Reducing the error rate in data entry and costs of doing business,
5. Electronic funds transfer, claims processing.

32. Financial EDI:
1. Primarily business to business payments,
2. The electronic transfer of payments and
remittance information between payer, payee, and
their banks,
3. Reduces the time for processing payments
(especially checks) while improving reliability,
4. Corporate accounts can be easily credited and
debited on schedule,
It involves interbank electronic funds transfer
(rapid, same day payments).

33. Manufacturing and retail procurement with EDI
With “just-in-time” and EDI, companies can reduce on-hand inventory,
Needs can be calculated daily based on production schedules and incoming orders,
Retailers use “quick response” systems to improve service and increase their product mix (at the “point-of-sale”),
Automatic ordering can take place when inventory drops below a predetermined level.

34. Benefits of EDI:
Reduces errors in data entry and cost of processing orders (including postage),
2. Produces acknowledgment of receipt,
3. Rapid electronic payment,
4. Reduced paper systems,
5. Improved problem resolution and customer service,
6. New relationships among business partners.

35. Costs:
Large initial investment in proprietary hardware and software,
Changes in routine business practices,
Only machine-to-machine communication,
Investing in training and education,
Costs of maintenance and upgrading,
Adjusting to changing standards.
Actual use has fallen far short of expectations

36. However, the use of EDI has been important in preparing businesses for ecommerce.
They understand:
The exchange of digital information over a
computer network,
2. The exchange of goods and services among businesses and
3. Electronic funds transfer for payments.

37. Businesses also see that ecommerce can enhance some of the processes they are trying to redesign by:
Reducing costs,
Shortening product cycle times,
Providing more rapid customer response,
Improving customer support and service,
Focusing marketing efforts.

38. History and development of Ecommerce
I. What is ecommerce?
II. Where did it come from?
III. What’s happening now?
IV. Where is it going?

39. III. What is happening now?
Technical: The infrastructure necessary to support ecommerce is almost in place,
The hardware and software is becoming more powerful and is dropping in price,
Economic: We are beginning to understand the economics of networking and ecommerce,
There are many experiments underway, particularly in business-to-consumer ecommerce.

40. Social: The net is redefining the marketplace
Social: The net is redefining the marketplace. It is becoming interactive and information can flow both ways.
The conventional distinction between buyer and seller is blurring on the web,
People are not passive and see themselves as content providers (PHPs).
Legal: The legal and regulatory environment is in
flux.

41. Technical infrastructure
WAN
LAN
Intranet
VAN
INTERNET
Extranet
VPN
Technical infrastructure

42. Technical infrastructure
The net allows a new level of connectivity
LANs --> VANs --> WANs --> The net
LANs: internal proprietary network (intranets)
VANs: private value-added networks
WANs: interconnected LANs (phone cable and satellite)(extranets)
The net uses open standards (TCP/IP).

43. Value-added networks (VANs)
These are large public data networks providing long distance digital communications to business,
Instead of delivering EDI messages directly to each other, partners use VANs as “post offices” for holding and forwarding messages,
VANs typically do not run on TCP/IP protocols and use proprietary hardware and software.
Example:

44. VANs provides such services as:
Storing and forwarding messages,
Exchange of standard data formats,
Detecting and correcting errors,
Message encryption and decryption.
They offer tight security, reliability
They are expensive to own or lease

45. Virtual Private Network (VPN)
This is a section of the net reserved for the data traffic of a specified business and its partners
The data travels on the public network, but integrated security features make it invisible and inaccessible to other net users
Its major advantage is allowing the safe movement of data traffic from expensive private communication lines to the net

46. VPNs offer the benefits of a private network within a shared network environment
They are reliable and secure environments in which corporations manage and exchange valuable data over public networks,
They deliver value-added services and provide users with predictable network costs,
One technique for doing this is to use an IP envelope wrapped around non-IP data at the gateway linking the VPN owner’s network to the net.

47. Software for collaborative work Multimedia data creation and delivery
Technological drivers of ecommerce
Intelligent devices
using
Software for collaborative work
supporting
Multimedia data creation and delivery
over
An open network

48. Getting the infrastructure into place: the last mile is a “pot of gold”:
Telcos and ISPs are competing to bring the net into the home.
The pipes that carry data across the net are high pressure fire hoses.
The line that goes into your home is a straw.
Who will connect to the home and how will they do it?
Copper wire Fiber optics TV cable
Wireless Satellite Wall plug

49. Telecoms want to use their infrastructure to provide net to the home
Much net traffic is carried over their pipes anyway.
They want to become content and service providers, not merely conduits.
They want to support a variety of applications
(and have put in 95,000 miles of fiber in the last decade).
They correctly see competition from cable
companies who want to offer a range of services
(banking, bill paying, eshopping).

50. Telcos are developing network architecture
They are building Network Access Points (NAPs) in Chicago, NYC, Washington DC, and San Francisco and providing switching equipment.
They want to maintain their position as players in development of net infrastructure.

51. They are looking to get into the provision of network access for those who want to get to the backbone (ISPs, local phone co.)
Also, they want to provide net access services to individuals and organizations,
This places them in direct competition with ISPs.
They are waiting to be allowed to provide content and services
This places them in direct competition with ISPs like AOL,

52. ISPs are maintaining their foothold in the home
Estimates vary, but ~15 million people have accounts with ISPs (out of ~21.6 million who own modems)
ISPs can be gateways or full service
Gateways are physical entry points to the net
PSI and Kiva are gateway ISPs
Full service ISPs want to control content and
services to business, schools, libraries and the
home
AOL, Compuserve, Prodigy are full service.

53. ISPs can be local, regional, or international
Kiva is local, Panix is regional
PSI, UUNET (owned in part by Microsoft) and ANS (owned by AOL) are international
These are large public data networks which are not part of the telco infrastructure
They compete on speed, reliability and access and points of presence (PoPs)
They connect to the Internet through one of the (NAPs) or through a CIX router.

54. ISPs are searching for ways to add value
PSI has CLARINET
UUNET has USENET archives
AOL offers chat rooms and shopping malls
Others offer video conferencing
Most offer access to the net, primarily through a web browser

55. Economic: business drivers of ecommerce
Product promotion and customization through the direct connection to consumers
Developing and exploiting new sales channels (products, information, advertising, transactions)
Reduced costs of business transactions through a public shared infrastructure
Reducing time to market for certain types of products.

56. And:
Improving customer relationships with intelligent systems for service and support
Improving marketing and targeted advertising through the collection of detailed customer information
New corporate branding and image creation
Using the net for R&D and product development
Developing of new business models based on characteristics of the new marketplace

57. Ecommerce business activities:
Internal messaging
Online publishing of corporate documents
Online searching for documents, projects, information
Internal corporate information dissemination through an intranet

58. And:
Managing corporate finance and personnel systems
Manufacturing logistics management
Supply chain management for inventory, warehousing, distribution
Ordering processing management to suppliers and customers
Order tracking

59. Current commercial uses of the net
Commercial sites
Storefronts, virtual communities, multiple user gaming
Advertising: $ million in 1996
Banner ads, targetted (ads and product/service updates), customized web ads, spam

60. And:
Commercial services
Payment, product delivery, information collection, evaluation, and delivery
Non-digital product transactions
Books, cars, and other tangible goods
Digital product transactions
Publications, freeware, shareware, demo software, reservations, financial services

61. History and development of Ecommerce
I. What is ecommerce?
II. Where did it come from?
III. What is happening now?
IV. Where is it going?

62. From $6.1 billion (1998) to $20 billion in sales by 2000 in the US
IV. Where is it going?:
From $6.1 billion (1998) to $20 billion in sales by in the US
Gartner Goup, 1998
6.8 million households and 16 million people trade online (1998) million households and 33 million people by 2000
This is ~1% of the economy ($8.5 trillion)
Business to business ecommerce: from $15.6 billion (1998) to $175 billion in 2000

63. Total ecommerce is estimated at $26 billion for 1997
According to OECD:
Total ecommerce is estimated at $26 billion for 1997
This the equivalent of 37% of US mail order shopping, 3% of US credit/debit cards purchases, and 0.5% of the retail sales of the seven OECD economies
It is predicted to reach $330 billion in
(near term) and $1 trillion in (future)
If this forecast realised, OECD-wide ecommerce will be the equivalent of 15% of the total retail sales of seven OECD countries.

64. Levels of ecommerce

65. Ecommerce in US households: 1996-2002
Jupiter Communications. (1998)

66. A potential reordering of the global economy
Competitive advantage to companies that are successful early adopters of ecommerce
This will be true in nations with government economic and regulatory support for ecommerce
Nations with highly trained labor forces will benefit from distributed value chain

67. Businesses have to place ecommerce in a larger context than traditional commerce
How can they exploit the digital product marketplace?
Dell claims that the efficiencies of web based
marketing give them a 6% profit advantage
Redesign business processes to take advantage of the rapid and real time information and data exchange on the net
Develop a secure and widely acceptable framework for digital business contracts

68. Consumers will develop new behaviors and will:
Routinely check prices globally
Engage in real-time negotiation with multiple sellers creating a more dynamic and fast moving marketplace for certain products
Make more considered purchasing decisions based on more information
Publicly share experiences with others about products, customer support, and companies

69. There will be a shift towards an economy of attention
Basic assumption: attention is an intrinsically scarce resource
Information <--> Attention (a two way flow)
There is competition for attention
Capturing attention can lead to action
The problem is how to capture and keep it
Obtaining attention is a source of wealth
Portal advertising costs bear this out

70. The components of a virtual economy
Virtual players
Virtual processes
The net
Virtual products

71. Virtual players
People, organizations, or automated agents with an online presence
Virtual products
Digitized objects/services: currency, text, multimedia, tickets, reservations, electric usage, pay- for-view, smart houses
Virtual processes
Participants interact digitally, interactively,
and in real time (online ordering/payment; JIT inventory control;
customized advertising)

72. Virtual intermediaries
Provide essential services: certification, authentication, quality assurance, copyright clearance, distribution
Education brokers: bringing instructors and students together online
Market organizers: establish meeting places for buyers and sellers (auctions...)
Personalized service providers: shoppers, information filtering, travel agent, financial services

73. The evolution of the virtual firm
Assumes that they exist in an environment where transaction costs are low
They do not have to be based in a single geographic location
Business processes can be distributed globally and take place on the net
The value chain is digital

74. Also:
Products can be delivered through a digital web of business relationships with producers, financiers, distributors, consumers
Producers, suppliers, warehouses, managers, administrator, subcontractors are all linked through an extranet
Many functions can be easily outsourced (accounting, personnel management, training, public relations)

75. Convergence in ecommerce
Products, processes, and infrastructure all converge in the global digital marketplace
Product: audio, video, still images, text are all in the same digital format
Process: multiple uses from a virtual process make other processes redundant
Consumer feedback is used for product change, marketing, sales, pricing, and service.

76. Infrastructure: during the next few years, digital interactive services of all types are expected to converge
Telephone, cable, microwave, satellite are all moving into the same arena and losing their monopolies
Television, computers, radio, pagers, and cellular telephones are expected to share functionality and attributes
You can watch WebTV and TV on your computer or your TV

77. Things to do
Overcome the limitations and asymmetries of the infrastructure
Implement hardware and software to fully exploit bandwidth, especially to the last mile
Provide universal access at reasonable cost
Provide secure frameworks for business- to- business and -to-consumer transactions
Integrate electronic payment into the buying process

78. And:
Develop a secure and reliable system for electronic banking: emoney exchange and transfer
Develop a system for microtransactions
Build a consumer marketplace
Convert browsers into buyers
Develop new approaches to web site design that encourage purchasing
Develop new business models for this CME