1. MIS E-COMMERCE Working 24//7 Net Flix ADWORDS ECOMM ADS E-bake
CHAPTER 8
E-COMMERCE
This chapter provides an overview of e- commerce and value chain analysis, then compares e- commerce with traditional commerce. It explains e- commerce business models and the major categories of e- commerce. Along the way, it shows what the major activities are in the business- to- consumer e- commerce cycle and the major models of business- to-business e- commerce as well as mobile- and voice- based e- commerce. Finally, it provides an overview of electronic payment systems and Web marketing, two supporting technologies for e- commerce operations.
LO1 Define e-commerce and describe its advantages, disadvantages, and business models.
LO2 Explain the major categories of e-commerce.
LO3 Describe the business-to-consumer e-commerce cycle.
LO4 Summarize the major models of business-to- business e-commerce.
LO5 Describe mobile- and voice-based e-commerce.
LO6 Explain two supporting technologies for e- commerce.
Net Flix
ADWORDS
Working 24//7
Hossein BIDGOLI
E-bake
ECOMM ADS
Google – m-commerce

2. Defining E-Commerce E-business E-commerce
Business applications that use the Internet:
Buying and selling products and services
Collaborating & Communicating with other companies & partners
Gathering business intelligence on customers and competitors
Providing customer service
Making software updates and patches available
Offering vendor support
Publishing and disseminating information
E-business
Activities a company performs for selling and buying products and services, using computers and communication technologies
E-commerce
Buying and selling goods and services over the Internet
Builds on traditional commerce by adding the flexibility that networks offer and the availability of the Internet
E- business encompasses all the activities a company performs in selling and buying products and services using computers and communication technologies.
E- commerce is buying and selling goods and services over the Internet.

3. Value Chain Analysis
Is a process of analyzing an organization’s activities to determine where value is added to products and/or services and what costs are incurred in doing so.
Primary activities are … .
For businesses that you interact with, what are some examples of each of the primary activities?
Support Activities – are value chain activities that an organization conducts to support the creation of business value.
An organization’s value chain is the sum of its primary and support activities working together to create business value.
The value chain is another way to view the organization as a system (inputs  processes  outputs).
The value chain is also a useful tool for defining an organization’s core competencies and the activities it can pursue to gain a sustained competitive advantage.
Value chain
Michael Porter 1985
Series of activities designed to meet business needs by adding value (or cost) in each phase of the process

4. Net Flix
Net Flix
Describe Net Flix’s competitive advantage and what are the sources of that competitive advantage ?
Discuss where you feel Net Flix uses of information systems helps them add value in the Value chain.
Primary activities:
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Service
The Internet
Increases the speed and accuracy of communication between suppliers, distributors, and customers
Low cost means companies of any size can participate in value chain integration

5. E-bake
Revenue Paradigms
Sales
- Cost of goods sold
Gross margin
- Expenses
Net income
How do we make a buck?
Margin * Volume
(SP – cost) * Volume
A value chain is a series of activities designed to meet business needs by adding value ( or cost) in each phase of the e- commerce process.

6. Dell Computer: E-Commerce in Action
Sells computers, hardware, and software directly to customers
Lower manufacturing costs, faster delivery, and more customized products and services
Just-in-time (JIT) inventory system
Keep inventory around for no more than 8 to 11 days

7. Advantages of E-commerce
Better relationships with suppliers, customers, business partners
Price transparency
Round the clock and global operations
More information on potential customers
Increasing customer involvement
Improving customer service
Increasing flexibility and ease of shopping
Sales
- Cost of goods sold
Gross margin
- Expenses
Net income

8. Advantages of E-Commerce
Increasing the number of customers
Increasing opportunities for collaboration with business partners
Increasing return on investment because inventory needs are reduced
Offering personalized services and product customization
Reducing administrative and transaction costs
Sales
- Cost of goods sold
Gross margin
- Expenses
Net income

9. Disadvantages of E-Commerce
Bandwidth capacity problems
Security issues
Accessibility
Acceptance
E- commerce also has the following disadvantages, although many of these should be eliminated or reduced in the near future:
• Bandwidth capacity problems ( in certain parts of the world)
• Security issues • Accessibility ( not everybody is connected to the Web yet)
• Acceptance ( not everybody accepts this technology)

10. E-bake
Revenue Paradigms
Sales
- Cost of goods sold
Gross margin
- Expenses
Net income
How do we make a buck?
Margin * Volume
(SP – cost) * Volume
A value chain is a series of activities designed to meet business needs by adding value ( or cost) in each phase of the e- commerce process.

11. E-Commerce Business Models
ECOMM ADS
Why did so many dot.com companies go out of business in 2000 and 2001?
E-commerce companies focus their operations in different parts of the value chain
Types
Merchant
Brokerage
Advertising
Mixed
Informediary
Subscription
ADWORDS
The merchant model transfers the old retail model to the e- commerce world by using the medium of the Internet.
Using the brokerage model brings sellers and buyers together on the Web and collects commissions on transactions between these parties.
The advertising model is an extension of traditional advertising media, such as radio and television. Directories such as Yahoo! provide content ( similar to radio and TV) to users for free. By creating more traffic with this free content, they can charge companies for placing banner ads or leasing spots on their sites.
The mixed model refers to generating revenue from more than one source.

12. Major Categories of E-Commerce
Exhibit 8.3
Major E-Commerce Categories
Major Categories of E-Commerce
Under the informediary model, e- commerce sites collect information on consumers and businesses and then sell this information to other companies for marketing purposes.
Under the subscription model, e- commerce sites sell digital products or services to customers. Business- to- consumer ( B2C) companies sell directly to consumers.

13. B2B E-Commerce B2Bs use these additional technologies extensively:
Intranets
Extranets
Virtual private networks
Electronic data interchange (EDI)
Electronic funds transfer (EFT)
Lowers production costs and improves accuracy
By eliminating many labor-intensive tasks
• Fulfillment— Delivering products or services to customers is multifaceted, depending on whether physical products ( books, videos, CDs) or digital products ( software, music, electronic documents) are being delivered. For example, delivery of physical products can take place via air, sea, or ground at varying costs and with different options. Delivering digital products is more straightforward, usually involving just downloading, although products are typically verifi ed with digital certifi cates. Fulfillment also varies depending on whether the company handles its own fulfi llment operations or outsources them to third parties. Fulfi llment often includes delivery address verifi ca-tion and digital warehousing, which maintains digital products on storage media until they’re delivered. Several third- party companies are available to handle fulfi llment functions for e- commerce sites.
• Service and support— Service and support are even more important in e- commerce than in traditional commerce, given that e- commerce companies don’t

14. Major Models of B2B E-Commerce
Three major types of B2B e-commerce models, based on who controls the marketplace:
Seller
Buyer
Intermediary (third-party)
SELLER Most popular B2B model
Sellers who cater to specialized markets come together to create a common marketplace for buyers
E-procurement
Enables employees in an organization to order and receive supplies and services directly from suppliers
Can also automate some buying and selling activities
BUYER
Buyer, or a group of buyers, opens an electronic marketplace
Invites sellers to bid on announced products or requests for quotation (RFQs)
Buyers can:
Manage the procurement process more efficiently Lower administrative costs
Implement uniform pricing
Large corporations, such as General Electric or Boeing
Intermediary (third-party) Controlled by a third party
Marketplace generates revenue from the fees charged for matching buyers and sellers
Usually active in vertical or horizontal market
Offers suppliers a direct channel of communication to buyers through online storefronts

15. Seller-Side Marketplace
Most popular B2B model
Sellers who cater to specialized markets come together to create a common marketplace for buyers
E-procurement
Enables employees in an organization to order and receive supplies and services directly from suppliers
Can also automate some buying and selling activities
Major vendors of e-commerce and B2B solutions include I2 Technologies, IBM, Oracle, and SAP
The seller- side marketplace model is the most popular B2B model. In this model, sellers who cater to specialized markets, such as chemicals, electronics, and auto components, come together to create a common marketplace for buyers— sort of a one- stop shopping model.
E- procurement enables employees in an organization to order and receive supplies and services directly from suppliers.

16. Buyer-Side Marketplace
Buyer, or a group of buyers, opens an electronic marketplace
Invites sellers to bid on announced products or requests for quotation (RFQs)
Buyers can:
Manage the procurement process more efficiently
Lower administrative costs
Implement uniform pricing
Large corporations, such as General Electric or Boeing
In a buyer- side marketplace model, a buyer, or a group of buyers, opens an electronic marketplace and invites sellers to bid on announced products or requests for quotation ( RFQs). Using this model, buyers can manage the procurement process more efficiently, lower administrative costs, and implement uniform pricing.

17. Third-Party Exchange Marketplace
Controlled by a third party
Marketplace generates revenue from the fees charged for matching buyers and sellers
Usually active in vertical or horizontal market
Offers suppliers a direct channel of communication to buyers through online storefronts
The third- party exchange marketplace model isn’t con-trolled by sellers or buyers. Instead, it’s controlled by a third party, and the marketplace generates revenue from the fees charged for matching buyers and sellers. These marketplaces are usually active in vertical or horizontal markets.
A vertical market concentrates on a specific industry or market. Utility companies, the beef and dairy industries, and medical prod-ucts are a few examples of vertical markets.

18. E-bake
Revenue Paradigms
Sales
- Cost of goods sold
Gross margin
- Expenses
Net income
How do we make a buck?
Margin * Volume
(SP – cost) * Volume
A value chain is a series of activities designed to meet business needs by adding value ( or cost) in each phase of the e- commerce process.

19. Mobile and Voice- Based E-Commerce
Mobile commerce (m-commerce)
Based on Wireless Application Protocol (WAP)
Using handheld devices, such as smart phones or PDAs, to conduct business transactions
Supporting technologies:
Wireless wide-area networks and 3G networks
Short-range wireless communication technologies
Examples:
iPhone apps
Internet Explorer Mobile
Google mobile
A horizontal market concentrates on a specifi c function or busi-ness process and automates this function or process for diff erent industries.
Trading partner agreements automate negotiating pro-cesses and enforce contracts between participating businesses.
Mobile commerce ( m- commerce) is using handheld devices, such as smartphones or PDAs, to conduct business transactions.
Google – m-commerce

20. Mobile Commerce Issues confronting m-commerce
Working 24//7
Mobile Commerce
Issues confronting m-commerce
User-friendliness of the wireless device
Network speed
Security
Quality of life
Mobile Commerce
Mobile commerce, or m-commerce, relies on the use of wireless devices, such as personal digital assistants, cell phones, and smart phones, to place orders and conduct business.
The wireless application protocol (WAP) is a standard set of specifications for Internet applications that run on handheld, wireless devices. WAP is a key technology underlying m-commerce.
Global E-Commerce and M-Commerce
The use of the Internet is growing rapidly in markets throughout Europe, Asia, and Latin America. As a result, many e-commerce sites are broadening their focus from primarily North American consumers to global consumers.
The market for m-commerce in North America is expected to mature much later than in Western Europe and Japan, due to a number of reasons. In North America, responsibility for network infrastructure is fragmented among many providers; consumer payments are usually done by credit card; and most Americans are unfamiliar with mobile data services. In most Western European countries, communicating via wireless devices is common, and consumers are much more willing to use m-commerce. Japanese consumers are generally enthusiastic about new technology and are much more likely to use mobile technologies for making purchases.

21. E-Commerce Supporting Technologies
Electronic payment systems
Web marketing
Search engine optimization
Voice- based e- commerce relies on voice recognition and text- to- speech technologies.
Electronic payment refers to money or scrip that is exchanged electronically. It usually involves use of the Internet, other computer networks, and digitally stored value systems. It includes credit cards, debit cards, charge cards, and smart cards.
A smart card is about the size of a credit card and contains an embedded microprocessor chip for storing important fi nancial and personal information. The chip can be loaded with informa-tion and updated periodically.

22. Electronic Payment Systems
Money or scrip that is exchanged only electronically
Payment cards:
Credit, debit, charge, and smart cards
Smart cards
Credit card sized
Contains an embedded microprocessor chip storing important financial and personal information
Other types of payments:
E-cash
E-check
E-wallets
PayPal
Micropayments

24. Web Marketing
Uses the Web and its supporting technologies to promote goods and services
Terms:
Ad impression
Banner ads
Click
Cost per thousand (CPM)
Hit
Cost per click (CPC)
Click-through rate (CTR)
Cookie
Meta tag
Page view (PV)
Pop-up ads
Pop-under ads
Splash screen
Spot leasing
• Ad impression— One user viewing one ad.
• Banner ads— Usually placed on frequently visited Web sites, these ads are around 468 x 60 pixels and have simple animation. Clicking a banner ad displays a short marketing message or transfers the user to another Web site.
• Click— The opportunity for a user to click a URL or a banner ad and be transferred to another Web
• Cost per thousand ( CPM)— Most Web and e- mail advertising is priced based on the cost per thousand ( M stands for mille, which means thousand) ad impressions.
• Cost per click ( CPC)— The cost of every click on an ad. For example, $ 1.25 CPC means that for every click an advertiser gets, the advertiser pays $ 1.25 to the sponsoring Web site.
• Click- through rate ( CTR)— This rate is computed by dividing the number of clicks an ad gets by the total impressions bought.
• Cookie— Information a Web site stores on the user’s hard drive so that it can be remembered for a later visit, such as greeting a visitor by name. This infor-mation is also used to record user preferences and browsing habits.
• Hit— Every element of a Web page ( including text, graphics, and interactive items) is counted as a hit to a server. Hits aren’t the preferred unit of measure-ment for site traffi c, because the number of hits per page can vary widely, depending on the number of graphics, type of browser uses, and page size.
• Meta tag— This HTML tag doesn’t affect how a Web page is displayed; it simply provides information about a Web page, such as keywords that represent the page content, the Web designer, and frequency of page updates. Search engines use this information, particularly keywords, to create indexes.

25. Search Engine Optimization
Method for improving the volume or quality of traffic to a Web site
Some companies offer SEO service
Editing a site’s contents and HTML code to increase its relevance to specific keywords
Recommendations for optimizing a Web site:
Keywords
Page title
Inbound links
Search engine optimization ( SEO) is a method for improving the volume or quality of traffi c to a Web site. A higher ranking in search results should generate more revenue for a Web site.

26. Summary
Michael Porter’s value chain, compared e- commerce with traditional commerce
Major e-commerce business models
Main categories of e-commerce
B2C e-commerce business cycle
B2B e-commerce business models
Mobile and voice e-commerce
Supporting technologies
In this chapter, you’ve learned about the role of e- commerce in Michael Porter’s value chain, you’ve compared e- commerce with traditional commerce, and you’ve seen the advantages and disadvantages of e- commerce. You’ve also learned about the major e- commerce business models as well as the main categories of e- commerce. In addition, you’ve reviewed important activities in the B2C e- commerce cycle, various B2B e- commerce business models, and applications of m- commerce and voice- based e- commerce. Finally, you’ve learned about electronic payment systems and Web marketing as sup-porting technologies for e- commerce operations.
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