E-Business and E-Commerce Chapter 9 E-Business and E-Commerce

Chapter Outline 9.1 Overview of E-Business and E-Commerce 9.2 Business-to-Consumer (B2C) Electronic Commerce 9.3 Business-to-Business (B2B) Electronic Commerce 9.4 Ethical and Legal Issues in E-Business

Learning Objectives Describe the six common types of electronic commerce. Describe the various online services of business-to-consumer (B2C) commerce providing specific examples of each. Describe the three business models for business-to-business electronic commerce. Identify the ethical and legal issues related to electronic commerce, providing examples.

Introduction Opening Case: Gemvara Do you remember your first purchase over the Internet? What did you buy? When? What do you think are the impacts of e-commerce on sellers and buyers? © Antagin/iStockphoto E-commerce increases an organization’s reach -- the number of potential customers to whom the company can market its products Electronic commerce has been to remove many of the barriers that previously impeded entrepreneurs seeking to start their own businesses.

9.1 Overview of E-Business and E-Commerce Organizations use Web sites to: Sell goods and services Induce people to visit a physical location Reduce operational and transaction costs Enhance reputation It is difficult to accomplish all of them at the same time. Why? © Toh Kheng Guan/Age Fotostock America, Inc.

Definitions and Concepts Electronic commerce (e-commerce, EC) Buying, selling, transferring, or exchanging of products, services, or information via computer networks, including the Internet Electronic business (E-business) A broader definition of EC Buying and selling goods and services Servicing customers Collaborating with partners Conducting e-learning Conducting electronic transactions within an organization

Degree of Digitization Extent to which the commerce has been transformed from physical to digital Bricks-and-mortar Purely physical organizations Example: Purchasing books from a physical bookstore Partial EC Mix of digital/physical dimensions in terms of product, payment, process, delivery Clicks-and-mortar (clicks-and-bricks) Conduct e-commerce activities Conduct primary business in physical world Example: Purchasing a book from an online store Pure-play (virtual organizations) All dimensions are digital Example: Purchasing e-books from an online store This book uses e-commerce to cover both partial and pure-play.

Types of E-Commerce Business-to-consumer (B2C) The sellers are organizations and the buyers are individuals Business-to-business (B2B) Both the sellers and buyers are business organizations Larger volume than B2C Consumer-to-consumer (C2C) An individual sells products or services to other individuals Business-to-employee (B2E) An organization uses e-commerce internally to provide information and services to its employees Examples: Manage benefits, conduct training, buy discounted insurance and tickets E-government Government-to-citizen (G2C) and government-to-business (G2B) Use of Internet technology and e-commerce to deliver information about public services to citizens, business partners, and suppliers Mobile commerce (m-commerce) E-commerce conducted in a wireless environment

E-Commerce Business Models

E-Commerce Business Models

E-Commerce Mechanisms Mechanism through which businesses and customers can buy and sell on the Internet Electronic catalogs Backbone of most e-commerce sites Include product database, directory, search and presentation capabilities © Andy Dean/Age Fotostock America, Inc.

E-Commerce Mechanisms Electronic auctions Auctions can be conducted from the seller’s site, the buyer’s site, or a third party’s site Forward auctions Sellers place items at sites for auction and buyers bid continuously for them Reverse auctions Buyers post a request for quotation (RFQ) with information on the desired purchase Suppliers study the RFQ and submit bids electronically © ZOONAR GMBH LBRF/Age Fotostock America, Inc.

E-Commerce Mechanisms Electronic storefronts A Web site that represents a single store Electronic mall (cybermall, e-mall) Collection of individual shops under one Internet address Associated with B2C e-commerce Electronic marketplace A central, virtual market space on the Web where many buyers and many sellers can conduct e-commerce and e-business activities Associated with B2B e-commerce

Electronic Payment Systems Enable buyers to pay for goods and services electronically Electronics checks (e-checks) Used mostly in B2B www.authorize.net, www.eccho.org Frederic Lucano/Stone/Getty Images, Inc.

Electronic Payment Systems Electronic credit cards Customers charge online payments to their credit card account Used mostly in B2C Virtual credit cards A single-use credit card Purchasing cards Electronic credit cards for B2B Electronic cash Stored-value money card Store a fixed amount of prepaid money and then spend it as necessary Smart cards Contain a chip that can store a considerable amount of information and are multipurpose Can be used as a debit card, credit card, or a stored-value money card

Figure 9.1 How E-Credit Cards Work Step 1: When you buy a book from Amazon, for example, your credit card information and purchase amount are encrypted in your browser. This way the information is safe while it is “traveling” on the Internet to Amazon. • Step 2: When your information arrives at Amazon, it is not opened. Rather, it is transferred automatically (in encrypted form) to a clearinghouse, where it is decrypted for verification and authorization. • Step 3: The clearinghouse asks the bank that issued you your credit card (the card issuer bank) to verify your credit card information. • Step 4: Your card issuer bank verifies your credit card information and reports this to the clearinghouse. • Step 5: The clearinghouse reports the result of the verification of your credit card to Amazon. • Step 6: Amazon reports a successful purchase and amount to you. • Step 7: Your card issuer bank sends funds in the amount of the purchase to Amazon’s bank. • Step 8: Your card issuer bank notifies you (either electronically or in your monthly statement) of the debit on your credit card. • Step 9: Amazon’s bank notifies Amazon of the funds credited to its account.

Electronic Payment Systems Person-to-person payments Enables two individuals or an individual and a business to transfer funds without using a credit card Example: PayPal

Benefits of E-Commerce To organizations Makes national and international markets more accessible Lowers costs of processing, distributing, and retrieving information To customers Provides access to a vast number of products and services around the clock (24/7/365) To society Offers ability to easily and conveniently deliver information, services, and products to people in cities, rural areas, and developing countries

Limitations of E-Commerce Technological limitations Lack of universally accepted security standards Insufficient telecommunications bandwidth Expensive accessibility Nontechnological limitations Perception that e-commerce is unsecure Unresolved legal issues Lacks a critical mass of sellers and buyers

9.2 Business-to-Consumer (B2C) Electronic Commerce Involves a large number of buyers making millions of diverse transactions per day with a relatively small number of sellers Basic mechanisms Purchasing products Electronic storefronts Electronic malls Accessing online services Source: Don Farrall/Photodisc/Getty Images, Inc.

Electronic Storefronts and Malls E-tailing Direct sale of products and services Utilizes electronic storefronts or electronic malls Designed around an electronic catalog and/or auctions Electronic storefront A Web site that represents a single store Electronic mall (cybermall, e-mall) Collection of individual shops under one Internet address Regular e-mall: Customer can make a purchase Example: Shopping.google.com Referral e-mall: Customer cannot buy anything but will be transferred to a participating storefront Example: www.hawaii.com

Online Service Industries Customers accessing services via the Web Cyberbanking Conducting banking activities not at a physical location Virtual banks dedicated solely to Internet transactions Example: First Internet Bank of Indiana Online securities trading Use computers to trade stocks, bonds, and other financial instruments Examples: E*Trade, Ameritrade, and Charles Schwab Online job market www.monster.com Organizations advertise available positions, accept resumes, and applications via the Internet Job seekers reply online to employment ads and place resumes on various sites Travel services Comprehensive online travel services: Expedia.com Set your own prices: Priceline.com

Online Service Industries Online advertising Banner ad: Electronic billboards Pop-up ad: Appears in front of the current browser window Pop-under ad: Appears underneath the active window. Users see it when they close the active window. E-mail: Sent to e-mail address on a customer database Spamming: Indiscriminate distribution of electronic ads without the permission of the receiver Permission marketing Asks consumers to give their permission to voluntarily accept online advertising and e-mail Viral marketing Online word-of-mouth marketing People forward messages to friends, family members, and other acquaintances suggesting they “check this out.” Advertising is an attempt to disseminate information in order to influence a buyer-seller transaction. Banners are simply electronic billboards. Pop-up ad appears in front of the current browser window. Pop-under ad appears underneath the active window. Permission marketing asks consumers to give their permission to voluntarily accept online advertising and e-mail. Viral marketing refers to online “word-of-mouth” marketing.

Issues in E-Tailing Channel conflict Occurs when manufacturers sell directly to customers online, alienating the distributors Multichanneling A company integrates its offline and online channels Order fulfillment effectiveness Involves finding the product to be shipped; packaging the product; arranging for delivery to the customer; and handling returns Very difficult to accomplish these activities both effectively and efficiently. Why? It is very difficult to accomplish these activities both effectively and efficiently in B2C, because a company has to ship small packages to many customers and do it quickly. For this reason, companies involved in B2C activities oft en experience difficulties in their supply chains.

9.3 Business-to-Business (B2B) Electronic Commerce Buyers and sellers are organizations Sell-side marketplace Buy-side marketplace Exchanges © Richard Thomas/Age Fotostock America, Inc.

Business-to-Business (B2B) Electronic Commerce Sell-side marketplace Organizations sell their products or services to other organizations electronically either from their own or from a third-party Web site Mechanisms: E-catalogs and forward auctions Examples: Ariba, Dell Auction, bigboXX.com Buy-side marketplace E-procurement and group purchasing Key mechanism: Reverse auctions Example: United Sourcing Alliance Exchanges: Connect many buyers and many sellers Vertical exchanges: In a given industry Go2Paper Horizontal exchanges: Across many industries mainly for MRO materials TraderCity Functional exchanges: Needed services such as temporary help or extra office space are traded on an “as-needed” basis Employease

9.4 Ethical and Legal Issues in E-Business Ethical Issues Privacy Protecting buyers’ identities and tracking Clickstream tracking Job loss How should the company handle layoffs? Should companies be required to retrain employees for new positions? How should the company compensate or assist displaced workers?

Legal Issues Specific to E-Commerce Fraud on the Internet Stocks, investments, business opportunities, auctions Domain name conflicts Delta.com belongs to Delta Faucet before Delta Airlines purchased it Cybersquatting Registering domain names solely for the purpose of selling them later at a higher price Domain tasting: Registrants using the five-day "grace period" at the beginning of a domain registration to profit from pay-per-click advertising Taxes and other fees Whether, when, and where electronic sellers and/or buyer should pay business license taxes, franchise fees, gross-receipts taxes, excise taxes, value-added tax, etc. Copyright Enforcing copyright laws is extremely difficult

What’s in IT for ME? Accounting Involves billing, payments, and electronic documents Finance Many financial activities are conducted online Marketing Marketing channels are transformed Production/Operations Management EC changes manufacturing system from product-push mass production to order-pull mass customization Human Resources Management Need to understand the new labor markets and the impacts of EC on old labor markets as well as be familiar with legal issues related to EC and employment MIS Provide the information technology infrastructure necessary for electronic commerce to function

Closing Case 1: The Flash Crash The Problem A Stopgap Solution The Results Questions Do you think information technology has made it easier to do business? Or has IT only raised the bar on what is required to be able to do business in the 21st century? Support your answer with specific examples. With the rise of electronic commerce, what do you think will happen to those without computer skills, Internet access, computers, smart phones, and so on? Will they be able to survive and advance by hard work?

Closing Case 2: Kickbucks to Shop! The Problem The IT Solution The Results Questions If you were the CEO of Shopkick, in what direction would you expand your service next? Provide specific examples to support your answer. Do you see any potential disadvantages of Shopkick for the consumer? For the retailer? Provide examples to support your answer. As Shopkick’s app improves, what effects will tailored offers from retailers have on shopper habits and on the stores making the offers?