1. © 2007 by Prentice Hall Management Information Systems, 10/e Raymond McLeod and George Schell 1 Management Information Systems, 10/e Raymond McLeod Jr. and George P. Schell

2. © 2007 by Prentice Hall Management Information Systems, 10/e Raymond McLeod and George Schell 2 Chapter 3 Using Information Technology to Engage in Electronic Commerce

3. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 3 Learning Objectives ► Recognize the importance and advantages of electronic commerce. ► Understand how electronic commerce is being blended into everyday business processes. ► Understand the difference between business-to- business electronic commerce and business-to- commerce electronic commerce. ► Be familiar with examples of good business-to- business electronic commerce and business-to- consumer electronic commerce.

4. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 4 Learning Objectives (Cont’d) ► Know the role that interorganizational systems, the Internet, and the world Wide Web play in electronic commerce. ► Know what factors influence the adoption of Interorganizational systems. ► Recognize the movement from electronic data interchange to various Web-standard data exchange practices. ► Understand why many firms choose to have both a virtual store and a physical store.

5. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 5 Electronic Commerce ► Electronic Commerce (E-commerce) refers to a business transaction that uses network access, computer-based systems, and a Web browser interface. ► Business-to-consumer (B2C) refers to transactions between a business and the final consumer of the product.

6. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 6 E-commerce (Cont’d) ► Business-to-business (B2B) refers to transactions between businesses in which neither one is the final consumer. ► Electronic Government (E-gov) refers to transactions between a government agency and typically a citizen.

7. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 7 E-commerce (Cont’d) ► Main benefits to firms:  Improved customer service before, during, and after the sale  Improved relationships with suppliers and the financial community  Increased economic return on stockholder and owner investments

8. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 8 E-commerce (Cont’d) ► Main constraints to firms:  High costs  Security concerns  Immature or unavailable software ► Scope of E-commerce  WWW.CENSUS.GOV WWW.CENSUS.GOV  Link to the E-stats Web page to find the most current e-commerce figures.

9. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 9 Table 3.1 E-commerce Sales

10. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 10 Business Intelligence ► Business Intelligence (BI) is the activity of gathering information about the elements in the environment that interacts with the firm. ► External databases are commercial databases that, usually for a fee, provide information and analyses on virtually any subject. WWW.LEISNEXIS.COM, WWW.DIALOG.COM, WWW.GXS.COM, WWW.THOMASNET.COM WWW.LEISNEXIS.COMWWW.DIALOG.COM WWW.GXS.COMWWW.THOMASNET.COM WWW.LEISNEXIS.COMWWW.DIALOG.COM WWW.GXS.COMWWW.THOMASNET.COM

11. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 11 Business Intelligence (Cont’d) ► Firms use these databases to gather BI because it is faster and less expensive than trying to research a wide array of information sources. ► Government databases offer a wide range of topics for researchers in many fields. WWW.LOC.GOV, WWW.CENSUS.GOV, WWW.BLS.GOV WWW.LOC.GOV WWW.CENSUS.GOVWWW.BLS.GOVWWW.LOC.GOV WWW.CENSUS.GOVWWW.BLS.GOV

12. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 12 Business Intelligence (Cont’d) ► Firms are more inclined to initiate their own external searches for market intelligence. ► Search engines are the most popular means for people to obtain information available from the Web.

13. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 13 Business Intelligence (Cont’d) ► Search engine is a special computer program that asks a user for a word or group of words to be found. WWW.GOOGLE.COM, WWW.YAHOO.COM, WWW.MSN.COM, WWW.ASKJEEVES.COM WWW.GOOGLE.COM WWW.YAHOO.COMWWW.MSN.COM WWW.ASKJEEVES.COMWWW.GOOGLE.COM WWW.YAHOO.COMWWW.MSN.COM WWW.ASKJEEVES.COM  Searches the content of web sites on the Internet to see if the word or words are on any Web sites.  Makes it possible to scan large volumes of information quickly, easily, and thoroughly.

14. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 14 Figure 3.1 Search Engines Explore the Internet to find Sites Containing Information You Seek

15. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 15 E-commerce Strategy and Interorganizational Systems ► Interorganizational system (IOS) is the strategy in which a firm is linked with transmissions of electronic data with other firms so that all of the firms work together as a coordinated unit, achieving benefits that each could not achieve alone.  Participating firms are called trading partners, business partners, or a business alliance.

16. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 16 E-commerce Strategy and Interorganizational Systems ► E-commerce is fundamental to IOSs. ► Electronic data interchange (EDI) is a means for achieving an IOS; a subset. ► Extranets are another alternative.

17. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 17 IOS Benefits ► Comparative Efficiency is obtained by the IOS because the trading partners can produce their goods and services with greater efficiency and provide their goods and services at lower costs to their customers. (price advantage over competitors)

18. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 18 IOS Benefits (Cont’d) Comparative Efficiency Improvements ► Internal efficiency within the firm’s own operations.  Gather and analyze data quickly.  Make decisions faster. ► Interorganizational efficiency gained by working with other firms.  Offer more products and services.  Serve more customers.  Shift certain work to suppliers or customers.  Gather environmental data more easily.

19. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 19 IOS Benefits (Cont’d) ► Bargaining Power is the ability of a firm to resolve disagreements with its suppliers and customers to its own advantage.

20. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 20 Bargaining Power Improvements ► Unique product features enable firms to offer better service to their customers in the form of easier ordering, quicker shipments, and faster response times to requests for information.  This better service becomes a feature of the firm’s products, making them more appealing than similar products offered by competitors.

21. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 21 Bargaining Power Improvements (Cont’d) ► Reduced search-related costs can reduce the firm’s “shopping” cost that its customers incur in searching for a supplier, identifying alternative products, and getting the lowest price.  The firm is a customer of its suppliers, the firm can realize the same shopping-cost reductions when ordering from its suppliers.

22. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 22 Bargaining Power Improvements (Cont’d) ► Increased switching costs is when a firm makes it more expensive, in cost and/or convenience, for customers to switch to a competitor.  Providing customers with such information resources as hardware, software, and data communications channels that would have to be replaced if products were purchased from another firm.

23. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 23 IOS Expansion ► Vendor stock replenishment is a special type of IOS in that the customer trusts the supplier enough to allow the supplier to access its computer-based inventory system.  The supplier initiates the replenishment process by electronically monitoring the firm’s inventory levels.  Wal-Mart uses the IOS strategy extensively.

24. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 24 EDI ► EDI consists of direct computer-to-computer transmissions of data in a machine- readable, structured format. ► Older technology, but majority of B2B commerce use ► Enables data to be transmitted and received without rekeying

25. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 25 EDI (Cont’d) ► Equipment (communications lines, hardware, etc.) and support services provided by telephone companies (AT&T, MCI, et al.) ► Value-added network (VAN) is when the services that operate and manage the communications line (circuit) are provided in addition to the line itself.

26. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 26 EDI (Cont’d) ► EDI is the dominant implementation of an IOS.  More that two-thirds of e-commerce is conducted using EDI compared to other alternatives.  More costly: $5,000-$30,000 per year with a single vendor or customer  More bulky than newer IOS systems

27. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 27 Extranet ► Extranets enable the sharing of sensitive computer-based information with other firms using information technology over the internet.  Used in collaboration with trusted suppliers and large customers  Security and privacy are serious concerns, so extranets are generally secured behind a firewall and use encryption such as Pretty Good Privacy (PGP).

28. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 28 Extranet (Cont’d) ► Firewall permits only authorized users to access the firm’s information. ► Extranets allow for the same type of data exchange as EDI. ► Extranets incorporate the common protocols and communication networks of the Internet, which results in a great cost savings (EDI is costly to use).

29. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 29 IOS Adoption Influences ► Proactive and reactive business partners ► Adoption influences  Competitive pressures (HIGH, firm is reactive in adopting IOS, usually EDI)  Exercised power (powerful firm is proactive in adopting/demanding IOS)  Internal need (firms see participation as a way to improve)  Top management support (ALWAYS influences the decision)

30. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 30 Figure 3.2 Internal and Environmental Influences on IOS Adoption

31. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 31 IOS Benefits ► Direct benefits  Reduced data entry errors  Lower costs  Increased operational efficiency ► Indirect benefits  Increased ability to compete  Improved relationships with trading partners  Better customer service

32. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 32 Figure 3.3 IOS Direct and Indirect Benefits

33. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 33 B2C Strategies for E-commerce ► Important to understand B2C Strategies  More products and services are becoming available for digital delivery.  More consumers are overcoming their reluctance to purchase using the Web.  Higher communication speeds in homes has made delivery of digital products practical.  Fear of information theft has been replaced with acceptance.

34. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 34 Digital Products ► Entertainment–songs, albums, movies, etc. WWW.SONY.COM WWW.SONY.COM ► Computer programs and updates–virus protection software, tax software, etc. ► Services–WWW.LENDINGTREE.COM WWW.LENDINGTREE.COM ► Can be consumed as soon as they are downloaded ► Purchasers incur a substantial cost of the transaction in terms of computer cost, online connection fees, storage media, and so on.

35. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 35 Physical Products ► Items must be transported to the consumer. ► Shipment has to be arranged. ► Traditional delivery methods are slow. ► Faster delivery time options are costly. ► Mail/shipping companies offer services such as online tracking that allows more information and control over delivery.

36. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 36 Virtual vs. Hybrid Sales ► Virtual sales are those made by a firm that does not operate a physical storefront.  Customer can’t enter and purchase the product. ► Hybrid sales occur when firms have both a physical storefront and a Web site where customers can purchase products.  Brick-and-click operations

37. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 37 Virtual Sales Challenges ► Provide necessary product information without overwhelming the customer. ► Communicating image files from the Web site to the customer’s computer can take time. ► Payment over the Internet has suffered bad press–credit card fraud.

38. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 38 Hybrid Sales ► Most firms had storefronts before sales over the Internet were possible. ► Both a physical storefront and the Internet are necessary to their business plans. ► Stores act as showcases for products. ► Customers enjoy convenience of shopping over the Web. ► B2C sales means less inventory at its store; more sales floor space.

39. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 39 Virtual Sales ► Limit images displayed response time, WWW.OFFICEDEPOT.COM. WWW.OFFICEDEPOT.COM ► Secure data transfer of credit card information.  VeriSign  PayPal

40. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 40 The Next Step for E-commerce ► Mobile commerce (m-commerce) is the use of cell phones and personal digital assistants (PDAs) to engage in wireless e-commerce. ► Third generation (3G) telecommunications is data-capable wireless technologies.  Europe purchased 3G licenses in 2000; United States in 2004.  $40 billion per year global industry by 2009.

41. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 41 M-commerce ► Early applications included news services, financial information alert/transactions, and banking. ► Movie ticket purchases, parking payments, etc. gaining acceptance. ► Japan is 1 st country to have a 3G carrier (almost all Japanese have a cell phone). ► United States-only about 40% have a cell phone.

42. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 42 The Next Step … (Cont’d) ► Wireless Internet Hot spots are created using a wired connection (for high communications speed) and then broadcast via a wireless access point to an area approx. 100 meters; Starbucks. ► Business-class wireless computing would provide fast wireless communication everywhere over the same communications carrier as cell phones; Verizon.

43. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 43 Using the Internet ► The origin of the Internet can be traced to 1969, when the U.S. government established a network called ARPANET. ► ARPANET demonstrated that it was possible for a person to request and receive data over a complex network that included many computers and network connections.

44. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 44 World Wide Web ► World Wide Web (WWW) efforts began in 1989 when Tim Berners-Lee came up with a idea for physicists to communicate. ► Hypertext-electronic documents that are linked together. ► Physicists would be able to click on words or phrases displayed on their computer screens and retrieve the hypertext.

45. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 45 World Wide Web (Cont’d) ► Hypertext became a reality in 1992. ► Hypermedia is the transmission of multimedia consisting of text, graphics, audio, and video over the WWW. ► WWW (Web) is information accessible via the Internet whereby hypermedia documents (computer files) are stored and then retrieved by means of a unique addressing scheme.

46. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 46 World Wide Web Terms ► Web site–collection of Web pages ► Hypertext link–pointer (text or a graphic) used to access hypertext stored at a Website ► Web page–hypermedia file stored at a unique Web site address ► Home page–first page of a Web site ► Browser–software designed to find and read files on the Internet written in hypertext markup language (HTTP).

47. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 47 World Wide Web Terms (Cont’d) ► Uniform resource locator (URL)–unique address of a Web page ► Protocol–set of standards that govern communication of data (HTTP, FTP, URL) ► Domain name–address of the website where a Web page is stored ► Path–certain directory/subdirectory and file at the Web site ► File Transfer Protocol (FTP) users can copy files onto their computers from any Web site.

48. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 48 Figure 3.5 World Wide Web Terminology

49. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 49 Understanding the Difference ► The Internet is a global communications network that connects millions of computers.  Provides the network architecture ► The Web is a collection of computers acting as content servers that host documents formatted to enable viewing of text, graphics, and audio as well as allowing linkages to other documents on the Web.  Provides the method for storing and retrieving its documents

50. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 50 Cyberspace and the Information Superhighway ► Cyberspace 1 : a society that had become a slave to technology. ► Information Superhighway describes a positive force that gives everyone access to the wealth of information that exists in modern society. 1 Term coined in 1984, author William Gibson Neuromancer

51. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 51 Internet Standards ► Internet Society (1992) promotes commercial Internet use. ► Internet Engineering Task Force (IETF) responsible for Internet standards. ► World Wide Web Consortium (W3C) responsible for Web standards.

52. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 52 E-commerce and Hospital Supply Chain Management ► Hospitals conduct most of their purchases online.  Only 5 % benefit compared to manual purchasing. ► Hospitals can use a standard protocol such as the Internet to replace EDI.  Global Healthcare Exchange (WWW.GHX.COM) help hospitals implement clinical commercial exchange  Hospitals have hundreds, sometimes thousands, of vendors; the savings is substantial. ► Speed and ease of connection to a new vendor for e- commerce is a strong incentive for change.  Analyze purchase requests.  Find less expensive substitute or less costly vendor.

53. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 53 Business Applications of the Internet ► Retailing Operations  Most of the large retail chains have established a Web presence.  Retailers make their home pages directly accessible through the Web. ► Virtual mall combine with other stores in a collection sites. ► Retailing organizations changing the face of Web information.  WWW.AUTOBYTEL.COM WWW.AUTOBYTEL.COM  WWW.AMAZON.COM WWW.AMAZON.COM ► Over 70% of Internet users make a yearly online purchase.

54. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 54 Suggestions for Successful Internet Use ► Make sure your Web site is robust. ► Make sure your browser and database structure are both flexible and intuitive. ► Emphasize content. ► Update often. ► Look beyond customers. ► Target content to specific users’ needs. ► Make the interface intuitive. ► Be in the right Web location. ► Create a sense of community. ► Get help if you need it.

55. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 55 Future Impact of the Internet on Business ► E-commerce is growing in the United States and worldwide (15% annually past 5 years). ► 3G cellular technology will enable users to make purchases using their phones as a debit or credit card; 4G service will soon be available. ► By 2008 phones will be used routinely for purchases.

56. © 2007 by Prentice HallManagement Information Systems, 10/e Raymond McLeod and George Schell 56 Discussion ► How will the increased speed and reduced costs of Internet communications affect e- commerce? ► How secure are online credit card transactions compared to other credit card transactions, such as purchasing a meal at a restaurant?