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

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.

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

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

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.

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

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

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

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)

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.

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.

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.

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

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

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.

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.

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.

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.

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

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.

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.

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

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.

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.

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. Groupon